**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-Q**





**x
      QUARTERLY REPORT
      PURSUANT TO SECTION 13 OR 15(d)**


**OF
      THE SECURITIES EXCHANGE ACT OF 1934**





**For
      the quarterly period ended June 30, 2008**





**OR**





**o
      TRANSITION REPORT
      PURSUANT TO SECTION 13 OR 15(d)**


**OF
      THE SECURITIES EXCHANGE ACT OF 1934**





**Commission
      File Number 000-50962**





**ATLANTIC
                COAST FEDERAL CORPORATION**(Exact
                name of registrant as specified in its
                charter)




**FEDERAL**
            
            **59-3764686**(State
                or other jurisdiction of incorporation ororganization)
            
            (I.R.S.
                Employer Identification Number)**505
                Haines Avenue**
              **Waycross,
                Georgia**
            
            **31501**(Address
                of principal Executive Offices)
            
            (Zip
                Code)





Registrant's
      telephone number, including area code (800) 342-2824





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days. YES x NO o





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer, or a smaller reporting company.
      See
      the definition of “large accelerated filer,” “accelerated filer,” and “smaller
      reporting company” in Rule 12b-2 of the Exchange Act. (Check one):





Large
      Accelerated Filer o  Accelerated Filer o Non-Accelerated
      Filer o Smaller
      Reporting Company x





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).


YES
o
      NO x





Indicate
      the number of shares outstanding of each of the issuer's classes of common
      stock, as of the latest practicable date.


Class
                
                Outstanding
                    at August 8, 2008Common
                    Stock, $0.01 Par Value
                
                13,136,393
                    shares









**ATLANTIC
      COAST FEDERAL CORPORATION**





**Form
      10-Q Quarterly Report**





**Table
      of Contents**




Page Number**PART
                I. FINANCIAL INFORMATION**Item
                1.
            Financial
                Statements
            
            2Item
                2.
            Management’s
                Discussion and Analysis ofFinancial
                Condition and Results of Operations
            
            13Item
                3.
            Quantitative
                and Qualitative Disclosures about Market Risk
            
            27Item
                4.
            Controls
                and Procedures
            
            28**PART
                II. OTHER INFORMATION**Item
                1.
            Legal
                Proceedings
            
            29Item
                1A.
            Risk
                Factors
            
            29Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            
            29Item
                3.
            Defaults
                upon Senior Securities
            
            29Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            
            29Item
                5.
            Other
                Information
            
            30Item
                6.
            Exhibits
            
            30Form
                10-Q
            Signature
                Page
            
            31Ex-31.1
            Section
                302 Certification of CEO
            
            32Ex-31.2
            Section
                302 Certification of CFO
            
            33Ex-32
            Section
                906 Certification of CEO and CFO
            
            34









**Item
      I. Financial Statements**


**ATLANTIC
      COAST FEDERAL CORPORATION**


**CONSOLIDATED
      BALANCE SHEETS**


**June
      30, 2008 (unaudited) and December 31, 2007**


**(Dollars
      in Thousands, Except Share Information)**


June 30,
              
              December 31,2008
              
              2007ASSETSCash
                  and due from financial institutions
              
              $
              6,874
              
              $
              4,726Short-term
                  interest earning deposits
              
              
              13,806
              
              
              24,584Total
                  cash and cash equivalents
              
              
              20,680
              
              
              29,310Securities
                  available for sale
              
              
              143,957
              
              
              134,216Real
                  estate mortgages held for sale
              
              
              122
              
              
              640Loans,
                  net of allowance of $8,179 at June 30, 2008 and $6,482 at December
                  31,
                  2007
              
              
              725,795
              
              
              703,513Federal
                  Home Loan Bank stock
              
              
              10,345
              
              
              9,293Accrued
                  interest receivable
              
              
              4,203
              
              
              4,080Land,
                  premises and equipment
              
              
              17,506
              
              
              16,973Bank
                  owned life insurance
              
              
              21,740
              
              
              22,227Other
                  real estate owned
              
              
              2,227
              
              
              1,726Goodwill
              
              
              2,811
              
              
              2,661Other
                  assets
              
              
              14,541
              
              
              6,387Total
                  assets
              
              $
              963,927
              
              $
              931,026LIABILITIES
                  AND STOCKHOLDERS' EQUITYDepositsNon-interest-bearing
                  demand
              
              $
              40,164
              
              $
              35,284Interest-bearing
                  demand
              
              
              58,520
              
              
              45,893Savings
                  and money market
              
              
              164,413
              
              
              184,899Time
              
              
              320,646
              
              
              316,654Total
                  deposits
              
              
              583,743
              
              
              582,730Securities
                  sold under agreements to repurchase
              
              
              92,800
              
              
              78,500Federal
                  Home Loan Bank advances
              
              
              192,553
              
              
              173,000Accrued
                  expenses and other liabilities
              
              
              7,961
              
              
              6,990Total
                  liabilities
              
              
              877,057
              
              
              841,220Commitments
                  and contingencies
              
              
              -
              
              
              -Preferred
                  stock: $0.01 par value; 2,000,000 shares authorized none
                  issued
              
              
              -
              
              
              -Common
                  stock: $0.01 par value; 18,000,000 shares authorized, shares issued
                  of
                  14,813,469 at June 30, 2008 and December 31, 2007
              
              
              148
              
              
              148Additional
                  paid in capital
              
              
              59,777
              
              
              59,082Unearned
                  employee stock ownership plan (ESOP) shares of 256,036 at June
                  30, 2008
                  and 279,312 at December 31, 2007
              
              
              (2,560
              )
              
              (2,793
              )Retained
                  earnings
              
              
              50,678
              
              
              51,182Accumulated
                  other comprehensive income (loss)
              
              
              (2,079
              )
              
              104Treasury
                  stock, at cost, 1,255,007 shares at June 30, 2008 and 1,131,867
                  at
                  December 31, 2007
              
              
              (19,094
              )
              
              (17,917
              )Total
                  stockholders' equity
              
              
              86,870
              
              
              89,806Total
                  liabilities and stockholders' equity
              
              $
              963,927
              
              $
              931,026




The
      accompanying notes are an integral part of these unaudited consolidated
      financial statements.




2





**ATLANTIC
      COAST FEDERAL CORPORATION**


**CONSOLIDATED
      STATEMENTS OF INCOME**


**(Dollars
      in Thousands, Except Share Information)**


**(unaudited)**


Three months ended June 30,
              
              Six months ended June 30,2008
              
              2007
              
              2008
              
              2007Interest
                  and dividend incomeLoans,
                  including fees
              
              $
              11,497
              
              $
              11,481
              
              $
              23,131
              
              $
              22,533Securities
                  and interest-earning deposits in other financial
                  institutions
              
              
              2,279
              
              
              2,285
              
              
              4,673
              
              
              4,489Total
                  interest and dividend income
              
              
              13,776
              
              
              13,766
              
              
              27,804
              
              
              27,022Interest
                  expenseDeposits
              
              
              4,910
              
              
              5,994
              
              
              10,462
              
              
              11,814Federal
                  Home Loan Bank advances
              
              
              1,818
              
              
              1,601
              
              
              3,613
              
              
              3,209Securities
                  sold under agreements to repurchase
              
              
              937
              
              
              633
              
              
              1,799
              
              
              1,108Total
                  interest expense
              
              
              7,665
              
              
              8,228
              
              
              15,874
              
              
              16,131Net
                  interest income
              
              
              6,111
              
              
              5,538
              
              
              11,930
              
              
              10,891Provision
                  for loan losses
              
              
              3,930
              
              
              509
              
              
              5,491
              
              
              805Net
                  interest income after provision for loan losses
              
              
              2,181
              
              
              5,029
              
              
              6,439
              
              
              10,086Noninterest
                  incomeService
                  charges and fees
              
              
              1,175
              
              
              1,313
              
              
              2,350
              
              
              2,540Gain
                  on sale of real estate mortgages held for sale
              
              
              36
              
              
              5
              
              
              36
              
              
              15Gain
                  (loss) on sale of securities available for sale
              
              
              18
              
              
              (38
              )
              
              83
              
              
              (46
              )Gain
                  (loss) on sale of foreclosed assets
              
              
              (157
              )
              
              (5
              )
              
              (176
              )
              
              2Gain
                  on redemption of Visa class B common stock
              
              
              -
              
              
              -
              
              
              79
              
              
              -Commission
                  income
              
              
              63
              
              
              63
              
              
              144
              
              
              137Interchange
                  fees
              
              
              230
              
              
              233
              
              
              451
              
              
              443Bank
                  owned life insurance earnings
              
              
              278
              
              
              217
              
              
              487
              
              
              428Life
                  insurance proceeds on deceased executive officer
              
              
              2,634
              
              
              -
              
              
              2,634
              
              
              -Other
              
              
              78
              
              
              271
              
              
              100
              
              
              3694,355
              
              
              2,059
              
              
              6,188
              
              
              3,888Noninterest
                  expenseCompensation
                  and benefits
              
              
              3,121
              
              
              3,154
              
              
              6,401
              
              
              6,170Final
                  plan benefits for deceased executive officer under certain compensation
                  plans
              
              
              1,032
              
              
              -
              
              
              1,032
              
              
              -Occupancy
                  and equipment
              
              
              689
              
              
              603
              
              
              1,332
              
              
              1,191Data
                  processing
              
              
              205
              
              
              270
              
              
              483
              
              
              604Advertising
              
              
              90
              
              
              150
              
              
              244
              
              
              296Outside
                  professional services
              
              
              504
              
              
              741
              
              
              1,055
              
              
              1,372Interchange
                  charges
              
              
              40
              
              
              93
              
              
              120
              
              
              193Collection
                  expense and repossessed asset losses
              
              
              91
              
              
              87
              
              
              233
              
              
              133Telephone
              
              
              141
              
              
              113
              
              
              303
              
              
              227Other
              
              
              1,015
              
              
              973
              
              
              1,879
              
              
              1,7336,928
              
              
              6,184
              
              
              13,082
              
              
              11,919(Loss)
                  income before income tax expense
              
              
              (392
              )
              
              904
              
              
              (455
              )
              
              2,055Income
                  tax (benefit) expense
              
              
              (1,102
              )
              
              269
              
              
              (1,189
              )
              
              635Net
                  income
              
              $
              710
              
              $
              635
              
              $
              734
              
              $
              1,420Earnings
                  per common share:Basic
              
              $
              0.05
              
              $
              0.05
              
              $
              0.06
              
              $
              0.11Diluted
              
              $
              0.05
              
              $
              0.05
              
              $
              0.06
              
              $
              0.11Dividends
                  declared per common share
              
              $
              0.12
              
              $
              0.14
              
              $
              0.27
              
              $
              0.27




The
      accompanying notes are an integral part of these unaudited consolidated
      financial statements.




3




**ATLANTIC
      COAST FEDERAL CORPORATION**


**CONSOLIDATED
      STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY**


**For
      the Six Months Ended June 30, 2008 and June 30, 2007**


**(Dollars
      in Thousands, Except Share Information)**


**(unaudited)**





**ACCUMULATED****ADDITIONAL**
            
            **UNEARNED**
            
            
            
            **OTHER****COMMON**
            
            **PAID IN**
            
            **ESOP**
            
            **RETAINED**
            
            **COMPREHENSIVE**
            
            **TREASURY**
            
            **TOTAL****STOCK**
            
            **CAPITAL**
            
            **STOCK**
            
            **EARNINGS**
            
            **INCOME**
            
            **STOCK**
            
            **EQUITY**For
                the six months ended June 30, 2008Balance
                at January 1, 2008
            
            $
            148
            
            $
            59,082
            
            $
            (2,793
            )
            $
            51,182
            
            $
            104
            
            $
            (17,917
            )
            $
            89,806ESOP
                shares earned, 23,276 shares
            
            
            -
            
            
            (13
            )
            
            233
            
            
            -
            
            
            -
            
            
            -
            
            
            220Management
                restricted stock expense
            
            
            -
            
            
            449
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            449Stock
                options expense
            
            
            -
            
            
            240
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            240Dividends
                declared ( $0.27 per share)
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,238
            )
            
            -
            
            
            -
            
            
            (1,238
            )Director's
                deferred compensation
            
            
            -
            
            
            12
            
            
            -
            
            
            -
            
            
            -
            
            
            (12
            )
            
            -Shares
                relinquished
            
            
            -
            
            
            7
            
            
            -
            
            
            -
            
            
            -
            
            
            (32
            )
            
            (25
            )Treasury
                stock purchased at cost, 120,146 shares
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,133
            )
            
            (1,133
            )Comprehensive
                income:Net
                income
            
            
            -
            
            
            -
            
            
            -
            
            
            734
            
            
            -
            
            
            -
            
            
            734Other
                comprehensive income
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (2,183
            )
            
            -
            
            
            (2,183
            )Total
                comprehensive income
            
            
            -
            
            
            -
            
            
            -
            
            
            734
            
            
            (2,183
            )
            
            -
            
            
            (1,449
            )Balance
                at June 30, 2008
            
            $
            148
            
            $
            59,777
            
            $
            (2,560
            )
            $
            50,678
            
            $
            (2,079
            )
            $
            (19,094
            )
            $
            86,870For
                the six months ended June 30, 2007Balance
                at January 1, 2007
            
            $
            148
            
            $
            57,708
            
            $
            (3,259
            )
            $
            52,711
            
            $
            (204
            )
            $
            (16,017
            )
            $
            91,087ESOP
                shares earned, 23,276 shares
            
            
            -
            
            
            196
            
            
            233
            
            
            -
            
            
            -
            
            
            -
            
            
            429Stock
                options exercised
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            52
            
            
            52Management
                restricted stock expense
            
            
            -
            
            
            221
            
            
            -
            
            
            -
            
            
            -
            
            
            116
            
            
            337Stock
                options expense
            
            
            -
            
            
            303
            
            
            -
            
            
            -
            
            
            -
            
            
            (139
            )
            
            164Dividend
                declared ($0.27 per share)
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,249
            )
            
            -
            
            
            -
            
            
            (1,249
            )Treasury
                stock purchased at cost, 105,838 shares
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,967
            )
            
            (1,967
            )Comprehensive
                income:Net
                income
            
            
            -
            
            
            -
            
            
            -
            
            
            1,420
            
            
            -
            
            
            -
            
            
            1,420Other
                comprehensive income
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,176
            )
            
            -
            
            
            (1,176
            )Total
                comprehensive income
            
            
            -
            
            
            -
            
            
            -
            
            
            1,420
            
            
            (1,176
            )
            
            -
            
            
            244Balance
                at June 30, 2007
            
            $
            148
            
            $
            58,428
            
            $
            (3,026
            )
            $
            52,882
            
            $
            (1,380
            )
            $
            (17,955
            )
            $
            89,097





The
      accompanying notes are an integral part of these unaudited consolidated
      financial statements.





4




**ATLANTIC
      COAST FEDERAL CORPORATION**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**(Dollars
      in Thousands)** **(unaudited)**





Six months ended June 30,2008
              
              2007Cash
                  flows from operating activitiesNet
                  income
              
              
              734
              
              
              1,420Adjustments
                  to reconcile net income to to net cash from operating
                  activities:Provision
                  for loan losses
              
              
              5,491
              
              
              805Gain
                  on sale of real estate mortgages held for sale
              
              
              (36
              )
              
              (15
              )Loans
                  originated for sale
              
              
              (4,104
              )
              
              (48,830
              )Proceeds
                  from loan sales
              
              
              4,658
              
              
              50,876Loss
                  (gain) on sale of other real estate owned
              
              
              176
              
              
              (2
              )(Gain)
                  loss on sale of securities available for sale
              
              
              (83
              )
              
              46Loss
                  on disposal of equipment
              
              
              -
              
              
              117ESOP
                  compensation expense
              
              
              220
              
              
              429Share-based
                  compensation expense
              
              
              689
              
              
              501Net
                  depreciation and amortization
              
              
              1,023
              
              
              925Net
                  change in accrued interest receivable
              
              
              (122
              )
              
              (207
              )Increase
                  in cash surrender value of bank owned life insurance
              
              
              487
              
              
              (428
              )Net
                  change in other assets
              
              
              (7,145
              )
              
              (187
              )Net
                  change in accrued expenses and other liabilities
              
              
              971
              
              
              (291
              )Net
                  cash from operating activites
              
              
              2,959
              
              
              5,159Cash
                  flows from investing activitiesProceeds
                  from maturities and payments of securites available for
                  sale
              
              
              18,836
              
              
              9,026Proceeds
                  from the sales of securities available for sale
              
              
              32,190
              
              
              14,619Purchase
                  of securities available for sale
              
              
              (63,816
              )
              
              (53,197
              )Loans
                  purchased
              
              
              -
              
              
              (13,041
              )Net
                  change in loans
              
              
              (29,188
              )
              
              (19,017
              )Expenditures
                  on premises and equipment
              
              
              (1,123
              )
              
              (449
              )Proceeds
                  from the sale of other real estate owned
              
              
              243
              
              
              263Purchase
                  of residential mortgage brokerage operations
              
              
              (150
              )
              
              -Purchase
                  of FHLB stock
              
              
              (1,052
              )
              
              (40
              )Net
                  change in other investments
              
              
              -
              
              
              1,200Net
                  cash from investing activities
              
              
              (44,060
              )
              
              (60,636
              )
  (Continued)
  5





**ATLANTIC
      COAST FEDERAL CORPORATION**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**(Dollars
      in Thousands)**


**(unaudited)**





Six months ended June 30,2008
              
              2007Cash
                  flows from financing activitiesNet
                  increase in deposits
              
              $
              1,014
              
              $
              25,039FHLB
                  advances
              
              
              43,000
              
              
              20,000Proceeds
                  from sale of securities under agreements to repurchase
              
              
              14,300
              
              
              34,500Repayment
                  of FHLB advances
              
              
              (23,447
              )
              
              (22,000
              )Proceeds
                  from exercise of stock options, including tax benefit
              
              
              -
              
              
              52Shares
                  relinquished
              
              
              (25
              )
              
              -Treasury
                  stock repurchased
              
              
              (1,133
              )
              
              (1,967
              )Dividends
                  paid
              
              
              (1,238
              )
              
              (1,168
              )Net
                  cash from financing activities
              
              
              32,471
              
              
              54,456Net
                  change in cash and cash equivalents
              
              
              (8,630
              )
              
              (1,021
              )Cash
                  and equivalents beginning of period
              
              
              29,310
              
              
              41,057Cash
                  and equivalents at end of period
              
              $
              20,680
              
              $
              40,036Supplemental
                  information:Interest
                  paid
              
              $
              16,027
              
              $
              15,951Income
                  tax paid
              
              
              1,586
              
              
              1,520Supplemental
                  noncash disclosures:Loans
                  transferred to other real estate
              
              $
              919
              
              $
              1,730





The
      accompanying notes are an integral part of these unaudited consolidated
      financial statements.




6


**ATLANTIC
      COAST FEDERAL CORPORATION**


**CONDENSED
      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**


**June
      30, 2008**


**(Unaudited)**





**NOTE
      1. BASIS OF PRESENTATION**





The
      accompanying unaudited consolidated financial statements include Atlantic Coast
      Federal Corporation (or the “Company”) and its wholly owned subsidiary, Atlantic
      Coast Bank (the “Bank”). Also included in the unaudited consolidated financial
      statements is Atlantic Coast Holdings, Inc. (“Holdings”) a wholly owned
      subsidiary of the Bank, which manages and invests in certain securities, and
      owns 100% of the common stock and 85% of the Preferred Stock of Coastal
      Properties, Inc., a real estate investment trust (the “REIT”). All significant
      inter-company balances and transactions have been eliminated in consolidation.
      The principal activity of the Company is the ownership of the Bank’s common
      stock, as such, the terms “Company” and “Bank” may be used interchangeably
      throughout this Form 10-Q.





The
      unaudited consolidated financial statements have been prepared in accordance
      with accounting principles generally accepted in the United States of America
      for interim financial information and with the instructions for Form 10-Q.
      Accordingly, they do not include all of the information and footnotes required
      by accounting principles generally accepted in the United States of America
      for
      complete financial statements. In the opinion of management, all adjustments
      (all of which are normal and recurring in nature) considered necessary for
      (i) a
      fair presentation and (ii) to make such statements not misleading, have been
      included. Operating results for the three and six month periods ended June
      30,
      2008 are not necessarily indicative of the results that may be expected for
      the
      year ending December 31, 2008. The 2007 Atlantic Coast Federal Corporation
      consolidated financial statements, as presented in the Company’s Annual Report
      on Form 10-K, should be read in conjunction with these statements.





Certain
      items in the June 30, 2007 Form 10-Q may have been reclassified to conform
      to
      the current presentation.





**NOTE
      2. USE OF ESTIMATES**





The
      preparation of consolidated financial statements in conformity with accounting
      principles generally accepted in the United States of America requires
      management to make estimates and assumptions that affect the reported amounts
      of
      assets, liabilities, and disclosure of contingent assets and liabilities at
      the
      date of the financial statements and the reported amounts of revenue and expense
      during the reported periods, as well as the disclosures provided. Actual results
      could differ from those estimates. Estimates associated with the allowance
      for
      loan losses, realization of deferred tax assets, valuation of intangible assets
      including goodwill and the fair values of securities and other financial
      instruments are particularly susceptible to material change in the near term.





**NOTE
      3. IMPACT OF CERTAIN ACCOUNTING PRONOUNCEMENTS**





In
      September 2006, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standards No. 157 (SFAS No. 157), *Fair
      Value Measurements* .
      This
      Statement defines fair value, establishes a framework for measuring fair value
      and expands disclosures about fair value measurements. This Statement
      establishes a fair value hierarchy about the assumptions used to measure fair
      value and clarifies assumptions about risk and the effect of a restriction
      on
      the sale or use of an asset. The standard is effective for fiscal years
      beginning after November 15, 2007. In February 2008, the FASB issued Staff
      Position (“FSP”) 157-2, *Effective
      Date of FASB Statement No. 157* .
      This
      FSP delays the effective date of SFAS 157 for all nonfinancial assets and
      nonfinancial liabilities, except those that are recognized or disclosed at
      fair
      value on a recurring basis (at least annually) for fiscal years beginning after
      November 15, 2008, and interim periods within those fiscal years. The impact
      of
      adoption was not material to the Company’s consolidated balance sheet or results
      of operations.




7




**NOTE
      3. IMPACT OF CERTAIN ACCOUNTING PRONOUNCEMENTS** (Continued)





In
      February 2007, FASB issued Statement of Financial Accounting Standards No.
      159
      (SFAS No. 159), *The
      Fair Value Option for Financial Assets and Financial
      Liabilities* ,
      including an amendment of Statement No. 115. The standard provides companies
      with an option to report selected financial assets and liabilities at fair
      value
      and establishes presentation and disclosure requirements designed to facilitate
      comparisons between companies that choose different measurement attributes
      for
      similar types of assets and liabilities. The Company did not elect the fair
      value option for any financial assets or financial liabilities as of January
      1,
      2008, the effective date of the standard.





On
      September 5, 2007 the SEC issued Staff Accounting Bulletin No. 109 “Written Loan
      Commitments Recorded at Fair Value through Earnings” (“SAB 109”). Previously,
      SAB 105, “Application of Accounting Principles to Loan Commitments,” stated that
      in measuring the fair value of a derivative loan commitment, a company should
      not incorporate the expected net future cash flows related to the associated
      servicing of the loan. SAB 109 supersedes SAB 105 and indicates that the
      expected net future cash flows related to the associated servicing of the loan
      should be included in measuring fair value for all written loan commitments
      that
      are accounted for at fair value through earnings. SAB 105 also indicated that
      internally-developed intangible assets should not be recorded as part of the
      fair value of a derivative loan commitment, and SAB 109 retains the view. SAB
      109 is effective for derivative loan commitments issued or modified in fiscal
      quarters beginning after December 15, 2007. The impact of the adoption on
      January 1, 2008 was not material to the Company’s consolidated balance sheet or
      results of operations.





In
      March
      2008, FASB issued Statement of Financial Accounting Standards No. 161 (SFAS
      No.
      161), “Disclosures about Derivative Instruments and Hedging Activities.” SFAS
      No. 161 establishes, among other things, the disclosure requirements for
      derivative instruments and for hedging activities. This Statement amends and
      expands the disclosure requirements of Statement No. 133 with the intent to
      provide users of financial statements with an enhanced understanding of: how
      and
      why an entity uses derivative instruments; how derivative instruments and
      related hedged items are accounted for under Statement No. 133 and its related
      interpretations; how derivative instruments and related hedged items affect
      an
      entity’s financial position, financial performance, and cash flows. This
      Statement requires qualitative disclosures about objectives and strategies
      for
      using derivatives, qualitative disclosures about fair value amounts of and
      gains
      and losses on derivative instruments, and disclosures about credit-risk-related
      contingent features in derivative agreements. SFAS No. 161 is effective for
      financial statements issued for fiscal years and interim periods beginning
      after
      November 15, 2008. The Company will adopt SFAS No. 161 on January 1, 2009,
      and
      does not expect the adoption to have a material impact on the financial
      statements.





**NOTE
      4.** **AVAILABLE FOR SALE SECURITIES**





The
      Company evaluates securities for other-than-temporary impairment, at least
      on a
      quarterly basis, and more frequently when economic or market concerns warrant
      such evaluation. Consideration is given to the length of time and the extent
      to
      which the fair value has been less than cost, the financial condition and
      near-term prospects of the issuer, the credit risk of the underlying assets,
      and
      the intent and ability of the Company to retain its investment in the issuer
      for
      a period of time sufficient to allow for any anticipated recovery in fair value.
      In analyzing an issuer's financial condition, the Company may consider whether
      the securities are issued by the federal government or one of its agencies,
      whether downgrades by bond rating agencies have occurred, and the results of
      reviews of the issuer's financial condition.





**NOTE
      5. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE**





Securities
      sold under agreements to repurchase were $92.8 million and are secured by
      mortgage-backed securities with a carrying amount of $95.5 million at June
      30,
      2008. The Company had $78.5 million of such agreements as of December 31,
      2007.




8




**NOTE
      5. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE** (continued)





Securities
      sold under agreements to repurchase are financing arrangements that mature
      within ten years. At maturity, the securities underlying the agreements are
      returned to the Company. Information concerning securities sold under agreements
      to repurchase is summarized as follows:





(Dollars in Thousands)Average
                daily balance during the period
            
            $
            86,193Average
                interest rate during the period
            
            
            4.17
            %Maximum
                month-end balance
            
            $
            92,800Weighted
                average interest rate at period end
            
            
            4.05
            %





**NOTE
      6. DIVIDENDS**





During
      the second quarter of 2008, the Company’s board of directors declared a regular
      quarterly cash dividend at a rate of $0.12 per share. The dividend was payable
      on July 28, 2008 for stockholders of record on July 11, 2008. Atlantic Coast
      Federal, MHC (“MHC”) which holds 8,728,500 shares, or approximately 64.4% of the
      Company’s total outstanding common stock at June 30, 2008 has informed the
      Company it has waived receipt of the second quarter dividend on its owned
      shares, as was done in the first quarter of 2008 and throughout 2007.




Total
      dividends charged to retained earnings for the six months ended June 30, 2008
      were $1,238,000.





**NOTE
      7. EARNINGS PER COMMON SHARE**





Basic
      earnings per common share is computed by dividing net income by the
      weighted-average number of common shares outstanding for the period, reduced
      for
      average unallocated ESOP shares and average unearned restricted stock awards.
      Diluted earnings per common share is computed by dividing net income by the
      average number of common shares outstanding for the period increased for the
      dilutive effect of unvested stock options and stock awards. The dilutive effect
      of the unvested stock options and stock
      awards is calculated under the treasury stock method utilizing the average
      market value of the Company’s stock for the period. A reconciliation of the
      numerator and denominator of the basic and diluted earnings per common share
      computation for the three and six months ended June 30, 2008 and 2007 is as
      follows:




9


**NOTE
        7. EARNINGS PER COMMON SHARE** (continued)
  For the three months
              
              For the six monthsended June 30,
              
              ended June 30,2008
              
              2007
              
              2008
              
              2007BasicNet
                  income
              
              $
              710
              
              $
              635
              
              $
              734
              
              $
              1,420Weighted
                  average common shares outstanding
              
              
              13,588,410
              
              
              13,673,768
              
              
              13,623,448
              
              
              13,714,047Less:
                  Average unallocated ESOP shares
              
              
              (279,312
              )
              
              (325,864
              )
              
              (279,312
              )
              
              (325,864
              )Average
                  unvested restricted stock awards
              
              
              (166,484
              )
              
              (225,695
              )
              
              (172,099
              )
              
              (226,524
              )Average
                  Shares
              
              
              13,142,614
              
              
              13,122,209
              
              
              13,172,037
              
              
              13,161,659Basic
                  earnings per common share
              
              $
              0.05
              
              $
              0.05
              
              $
              0.06
              
              $
              0.11DilutedNet
                  Income
              
              $
              710
              
              $
              635
              
              $
              734
              
              $
              1,420Weighted
                  average common shares outstanding per common share
              
              
              13,142,614
              
              
              13,122,209
              
              
              13,172,037
              
              
              13,161,659Add:Dilutive
                  effects of assumed exercise of stock options
              
              
              -
              
              
              87,210
              
              
              -
              
              
              51,445Dilutive
                  effects of full vesting of stock awards
              
              
              70,835
              
              
              112,911
              
              
              68,382
              
              
              70,396Average
                  shares and dilutive potential common shares
              
              
              13,213,449
              
              
              13,322,330
              
              
              13,240,419
              
              
              13,283,500Diluted
                  earnings per common share
              
              $
              0.05
              
              $
              0.05
              
              $
              0.06
              
              $
              0.11




Stock
      options for 428,591 and 6,133 shares of common stock were not considered in
      computing diluted earnings per common share for the three and six months ended
      June 30, 2008 and 2007, respectively, because they were anti-dilutive.





**NOTE
      8. OTHER COMPREHENSIVE INCOME**





Comprehensive
      income components and related taxes for the six months ended June 30, 2008
      and
      2007 were as follows:




10


**NOTE
        8. OTHER COMPREHENSIVE INCOME** (Continued)
  (Dollars in Thousands)Three months ended June 30,
              
              Six months ended June 30,2008
              
              2007
              
              2008
              
              2007Unrealized
                  holding losses on securities available for sale
              
              $
              (4,190
              )
              $
              (2,061
              )
              $
              (3,277
              )
              $
              (1,829
              )Less
                  reclassification adjustments for (gains) losses recognized in
                  income
              
              
              (18
              )
              
              38
              
              
              (83
              )
              
              46Net
                  unrealized losses
              
              
              (4,172
              )
              
              (2,099
              )
              
              (3,194
              )
              
              (1,875
              )Tax
                  effect
              
              
              1,560
              
              
              783
              
              
              1,203
              
              
              699Net-of-tax
                  amount
              
              
              (2,612
              )
              
              (1,316
              )
              
              (1,991
              )
              
              (1,176
              )Change
                  in fair value of derivatives used for cash flow hedges
              
              
              (309
              )
              
              -
              
              
              (309
              )
              
              -Less
                  reclassification adjustments for (gains) losses recognized in
                  income
              
              
              -
              
              
              -
              
              
              -
              
              
              -Net
                  unrealized gains and (losses)
              
              
              (309
              )
              
              -
              
              
              (309
              )
              
              -Tax
                  effect
              
              
              117
              
              
              -
              
              
              117
              
              
              -Net-of-tax
                  amount
              
              
              (192
              )
              
              -
              
              
              (192
              )
              
              -Other
                  comprehensive loss
              
              $
              (2,804
              )
              $
              (1,316
              )
              $
              (2,183
              )
              $
              (1,176
              )




**NOTE
      9. FAIR VALUE**





Statement
      157 establishes a fair value hierarchy which requires an entity to maximize
      the
      use of observable inputs and minimize the use of unobservable inputs when
      measuring fair value. The standard describes three levels of inputs that may
      be
      used to measure fair value:





Level
      1:
      Quoted prices (unadjusted) or identical assets or liabilities in active markets
      that the entity has the ability to access as of the measurement
      date.




Level
      2:
      Significant other observable inputs other than Level 1 prices such as quoted
      prices for similar assets or liabilities; quoted prices in markets that are
      not
      active; or other inputs that are observable or can be corroborated by observable
      market data.





Level
      3:
      Significant unobservable inputs that reflect a reporting entity’s own
      assumptions about the assumptions that market participants would use in pricing
      an asset or liability.





The
      fair
      value of securities available for sale is determined by obtaining quoted prices
      on nationally recognized securities exchanges or matrix pricing, which is a
      mathematical technique used widely in the industry to value debt securities
      without relying exclusively on quoted prices for the specific securities but
      rather by relying on the securities’ relationship to other benchmark quoted
      securities.





11





**NOTE
      9. FAIR VALUE** (continued)





Assets
      and Liabilities Measured on a Recurring Basis





Assets
      and liabilities measured at fair value on a recurring basis are summarized
      below:


Fair Value Measurements at June 30, 2008 UsingJune 30,2008
              
              QuotedPrices inActiveMarkets for
                  IdenticalAssets
                (Level 1)
              
              
              
              SignificantOtherObservable
                  Inputs(Level 2)
              
              Significant
                  Unobservable Inputs
                (Level
                  3)(Dollars in
                  Thousands)Assets:Available
                  for sale securities
              
              $
              143,957
              
              $
              9,810
              
              
              
              
              $
              134,147
              
              $
              -Liabilities:Swap
              
              $
              309
              
              $
              -
              
              
              
              
              $
              309
              
              $
              -




**NOTE
      10. SUBSEQUENT EVENT**





On
      August
      1, 2008, the Company announced it has expanded and extended its current stock
      repurchase program, authorizing the repurchase of up to 220,000 additional
      shares or approximately 5% of its currently outstanding publicly held (not
      including shares held by the MHC) shares of common stock, increasing to 277,000
      the total shares subject to repurchase, and extending the program to July 31,
      2009, unless completed sooner or otherwise extended.


12





**ATLANTIC
      COAST FEDERAL CORPORATION**





**ITEM
      2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
      OF
      OPERATIONS**





**Forward-Looking
      Statements**




*This
      Form 10-Q contains forward-looking statements that are statements that are
      not
      historical or current facts. When used in this filing and in future filings
      by
      Atlantic Coast Federal Corporation with the Securities and Exchange Commission,
      in Atlantic Coast Federal Corporation’s press releases or other public or
      shareholder communications, or in oral statements made with the approval of
      an
      authorized executive officer, the words or phrases, “anticipate,” “would be,”
“will allow,” “intends to,” “will likely result,” “are expected to,” will
      continue,” “is anticipated,” “estimated,” “projected,” or similar expressions
      are intended to identify, “forward looking statements.” Such statements are
      subject to risks and uncertainties, including but not limited to changes in
      economic conditions in Atlantic Coast Federal Corporation’s market area, changes
      in policies by regulatory agencies, fluctuations in interest rates, demand
      for
      loans in Atlantic Coast Federal Corporation’s market area, changes in the
      position of banking regulators on the adequacy of our allowance for loan losses,
      and competition, all or some of which could cause actual results to differ
      materially from historical earnings and those presently anticipated or
      projected.*




*Atlantic
      Coast Federal Corporation wishes to caution readers not to place undue reliance
      on any such forward-looking statements, which speak only as of the date made,
      and advise readers that various factors, including regional and national
      economic conditions, substantial changes in levels of market interest rates,
      credit and other risks of lending and investing activities, and competitive
      and
      regulatory factors, could affect Atlantic Coast Federal Corporation’s financial
      performance and could cause Atlantic Coast Federal Corporation’s actual results
      for future periods to differ materially from those anticipated or
      projected.*




*Atlantic
      Coast Federal Corporation does not undertake, and specifically disclaims any
      obligation, to update any forward-looking statements to reflect occurrences
      or
      unanticipated events or circumstances after the date of such
      statements.*




**Critical
      Accounting Policies**





Certain
      accounting policies are important to the portrayal of the Company’s financial
      condition, since they require management to make difficult, complex or
      subjective judgments, some of which may relate to matters that are inherently
      uncertain. Estimates associated with these policies are susceptible to material
      changes as a result of changes in facts and circumstances, including, but
      without limitation, changes in interest rates, performance of the economy,
      financial condition of borrowers and laws and regulations. Management believes
      that its critical accounting policies include determining the allowance for
      loan
      losses, determining the fair value of securities, accounting for deferred income
      taxes, and the valuation of goodwill. Atlantic Coast Federal Corporation’s
      accounting policies are discussed in detail in Note 1 of the Notes to
      Consolidated Financial Statements included in Item 8 of our Annual Report on
      Form 10-K for the year ended December 31, 2007 filed with the Securities and
      Exchange Commission.





An
      allowance for loan losses is maintained to reflect probable incurred losses
      in
      the loan portfolio. The allowance is based on ongoing assessments of the
      estimated losses incurred in the loan portfolio. Management’s methodology for
      assessing the appropriateness of the allowance consists of several key elements,
      which include a SFAS No. 5, *Accounting
      for Contingencies* (“SFAS
      5”) component by type of loan and specific allowances for identified problem
      loans. The allowance incorporates the results of measuring impaired loans as
      provided in SFAS 114 and SFAS No. 118, *Accounting
      by Creditors for Impairment of a Loan – Income Recognition and
      Disclosures* .
      These
      accounting standards prescribe the measurement methods, income recognition
      and
      disclosures related to impaired loans.




13




The
      SFAS
      5 component is calculated by applying loss factors to outstanding loans based
      on
      the internal risk evaluation of the loans or pools of loans. Changes in risk
      evaluations of both performing and non-performing loans affect the amount of
      the
      SFAS 5 component. Loss factors are based on the Bank’s historical loss
      experience, current market conditions that may impact real estate values within
      the Bank’s primary lending areas, and on other significant factors that, in
      management’s judgment, may affect the ability to collect loans in the portfolio
      as of the evaluation date. Other significant factors that exist as of the
      balance sheet date that may be considered in determining the adequacy of the
      allowance include credit quality trends (including trends in non-performing
      loans expected to result from existing conditions), collateral values,
      geographic foreclosure rates, new and existing home inventories, loan volumes
      and concentrations, specific industry conditions within portfolio segments
      and
      recent loss experience in particular segments of the portfolio. These factors
      weighed more prominently in the allowance calculation for 2007 and the first
      quarter of 2008, and management believes this trend will continue in
      2008.





The
      appropriateness of the allowance is reviewed and established by management,
      within the context of applicable accounting and regulatory guidelines, based
      upon its evaluation of then-existing economic and business conditions affecting
      the Bank’s key lending areas. Senior credit officers monitor the conditions
      discussed above continuously and reviews are conducted quarterly with the Bank’s
      senior management and Board of Directors.





Management
      also evaluates the allowance for loan losses based on a review of individual
      loans. This evaluation is inherently subjective as it requires material
      estimates including the amounts and timing of future cash flows management
      expects to receive on impaired loans that may be susceptible to significant
      change. For all specifically reviewed loans where it is probable that the Bank
      will be unable to collect all amounts due according to the terms of the loan
      agreement, impairment is determined by computing a fair value based on either
      discounted cash flows using the loan’s initial interest rate or the fair value
      of the collateral if the loan is collateral dependent. Large groups of smaller
      balance homogenous loans are collectively evaluated for impairment and are
      excluded from specific impairment evaluation. For these loans, the allowance
      for
      loan losses is calculated in accordance with the allowance for loan losses
      policy described above.





The
      allowance for loan losses was $8.2 million at June 30, 2008, and $5.1 million
      at
      June 30, 2007. The allowance for loan losses as a percentage of total loans
      was
      1.11% at June 30, 2008, and 0.75% as of June 30, 2007. The provision for loan
      losses was $5.5 million for the six months ended June 30, 2008, and $805,000
      for
      the same period in 2007. The increase in the provision for loan losses in the
      first six months of 2008 was due primarily to higher net charge-offs as well
      as
      applying greater loss factors to the outstanding loans, resulting from declining
      credit quality in light of the ongoing deterioration in the local economy and
      declining real estate values over the past year.





Securities
      available for sale are carried at fair value, with unrealized holding gains
      and
      losses reported separately in accumulated other comprehensive income, net of
      tax. On a monthly basis, the Company adjusts the carrying value of the
      securities to fair value based on third-party market quotes. Other comprehensive
      loss resulting from changes in the fair market value of Atlantic Coast Federal
      Corporation’s available for sale securities portfolio totaled $2.0 million and
      $1.2 million for the six months ended June 30, 2008 and 2007, respectively.
      Additionally, securities available for sale are required to be written down
      to
      fair value when a decline in fair value is not temporary; therefore, future
      changes in the fair value of securities could have a significant impact on
      Atlantic Coast Federal Corporation’s operating results. In determining whether a
      market value decline is other than temporary, management considers the reason
      for the decline, including the credit risk of the underlying assets, the extent
      of the decline and the duration of the decline.





The
      Bank
      assesses the carrying value of goodwill at least annually in order to determine
      if it is impaired. In reviewing the carrying value of goodwill, management
      assesses the recoverability of such assets by evaluating the fair value of
      the
      Company’s community banking segment, which is the Bank’s only business segment.
      Any impairment would be required to be recorded during the period identified.
      The Bank’s goodwill totaled $2.8 million as of June 30, 2008; therefore, if
      goodwill was determined to be impaired, the financial results of the Company
      could be materially impacted.





14




After
      converting to a federally chartered savings association, Atlantic Coast Bank
      became a taxable organization. Income tax expense is the total of the current
      year income tax due or refundable and the change in deferred tax assets and
      liabilities. Deferred tax assets and liabilities are the expected future tax
      amounts for the temporary difference between carrying amounts and tax basis
      of
      assets and liabilities, computed using enacted tax rates. A valuation allowance,
      if needed, reduces deferred tax assets to the amount expected to be realized.
      The Internal Revenue Code and applicable regulations are subject to
      interpretation with respect to the determination of the tax basis of assets
      and
      liabilities for credit unions that convert charters and become a taxable
      organization. Since Atlantic Coast Bank’s transition to a federally chartered
      thrift, Atlantic Coast Federal Corporation has recorded income tax expense
      based
      upon management’s interpretation of the applicable tax regulations. Positions
      taken by the Company in preparing our federal and state tax returns are subject
      to the review of taxing authorities, and the review by taxing authorities of
      the
      positions taken by management could result in a material adjustment to the
      financial statements.





**Comparison
      of Financial Condition at June 30, 2008 and December 31,
      2007**





**General.** Annualized
      asset growth at June 30, 2008 as compared to December 31, 2007 was
      approximately 7%. Loan growth outpaced deposit growth, resulting in the Bank
      leveraging this growth through additional borrowings. Loan growth during the
      first six months of 2008 was representative of the Bank’s renewed focus on
      internal loan production and the gradual expansion of its commercial lending
      business.





Following
      is a summarized comparative balance sheet as of June 30, 2008 and December
      31,
      2007:


June 30,
              
              December 31,
              
              Increase (decrease)2008
              
              2007
              
              Dollars
              
              Percentage(Dollars in Thousands)AssetsCash
                  and cash equivalents
              
              $
              20,680
              
              $
              29,310
              
              $
              (8,630
              )
              
              -29.4
              %Securitites
                  available for sale
              
              
              143,957
              
              
              134,216
              
              
              9,741
              
              
              7.3
              %Loans
              
              
              733,974
              
              
              709,995
              
              
              23,979
              
              
              3.4
              %Allowance
                  for loan losses
              
              
              (8,179
              )
              
              (6,482
              )
              
              (1,697
              )
              
              26.2
              %Loans,
                  net
              
              
              725,795
              
              
              703,513
              
              
              22,282
              
              
              3.2
              %Real
                  estate mortgages held for sale
              
              
              122
              
              
              640
              
              
              (518
              )
              
              -80.9
              %Other
                  assets
              
              
              73,373
              
              
              63,347
              
              
              10,026
              
              
              15.8
              %Total
                  assets
              
              $
              963,927
              
              $
              931,026
              
              $
              32,901
              
              
              3.5
              %Liabilities
                  and Stockholders' equityDepositsNon-interest
                  bearing demand
              
              $
              40,164
              
              $
              35,284
              
              $
              4,880
              
              
              13.8
              %Interest
                  bearing demand
              
              
              58,520
              
              
              45,893
              
              
              12,627
              
              
              27.5
              %Savings
                  and money market
              
              
              164,413
              
              
              184,899
              
              
              (20,486
              )
              
              -11.1
              %Time
              
              
              320,646
              
              
              316,654
              
              
              3,992
              
              
              1.3
              %Total
                  deposits
              
              
              583,743
              
              
              582,730
              
              
              1,013
              
              
              0.2
              %Federal
                  Home Loan Bank advances
              
              
              192,553
              
              
              173,000
              
              
              19,553
              
              
              11.3
              %Securities
                  sold under agreements to repurchase
              
              
              92,800
              
              
              78,500
              
              
              14,300
              
              
              18.2
              %Accrued
                  expenses and other liabilities
              
              
              7,961
              
              
              6,990
              
              
              971
              
              
              13.9
              %Total
                  liabilities
              
              
              877,057
              
              
              841,220
              
              
              35,837
              
              
              4.3
              %Stockholders'
                  equity
              
              
              86,870
              
              
              89,806
              
              
              (2,936
              )
              
              -3.3
              %Total
                  liabilities and stockholders' equity
              
              $
              963,927
              
              $
              931,026
              
              $
              32,901
              
              
              3.5
              %




**Cash
      and cash equivalents** .
      Cash
      and cash equivalents are comprised of cash-on-hand and interest earning and
      non-interest earning balances held in other depository institutions. Management
      expects the balances in cash and cash equivalents will fluctuate as other
      interest earning assets mature, as management identifies opportunities for
      longer-term investments that fit the Company’s growth strategy, and as daily
      operating liquidity increases or decreases.





15




**Securities
      available for sale** .
      Securities available for sale is composed principally of debt securities of
      U.S.
      Government-sponsored organizations, or mortgage-backed securities. During the
      six months ended June 30, 2008, the Company restructured its securities
      portfolio in order to improve overall liquidity. As such, the Company purchased
      $63.9 million of government sponsored mortgage-backed securities and sold $25.8
      million of primarily municipal bonds and private issue mortgage-backed
      securities. The investment portfolio increased by approximately $9.7 million
      to
      $144.0 million at June 30, 2008, net of purchases, sales and maturities.





**Loans** .
      Following is a comparative composition of net loans as of June 30, 2008 and
      December 31, 2007:


June 30, 2008
              
              % of totalloans
              
              December 31,2007
              
              % of totalloans(Dollars
                  In Thousands)Real
                  estate loans:One-to-four
                  family
              
              $
              376,198
              
              
              51.6
              %
              $
              377,956
              
              
              53.5
              %Commercial
              
              
              76,829
              
              
              10.5
              %
              
              74,748
              
              
              10.6
              %Other
                  ( land & multifamily)
              
              
              41,509
              
              
              5.7
              %
              
              40,698
              
              
              5.8
              %Total
                  real estate loans
              
              
              494,536
              
              
              67.8
              %
              
              493,402
              
              
              69.9
              %Real
                  estate construction loans:One-to-four
                  family
              
              
              12,140
              
              
              1.7
              %
              
              13,448
              
              
              1.9
              %Commercial
              
              
              11,192
              
              
              1.5
              %
              
              11,129
              
              
              1.6
              %Acquisition
                  & development
              
              
              10,656
              
              
              1.5
              %
              
              5,329
              
              
              0.7
              %Total
                  real estate construction loans
              
              
              33,988
              
              
              4.7
              %
              
              29,906
              
              
              4.2
              %Other
                  loans:Home
                  equity
              
              
              104,470
              
              
              14.3
              %
              
              98,410
              
              
              13.9
              %Consumer
              
              
              70,423
              
              
              9.7
              %
              
              64,673
              
              
              9.2
              %Commercial
              
              
              25,500
              
              
              3.5
              %
              
              20,009
              
              
              2.8
              %Total
                  other loans
              
              
              200,393
              
              
              27.5
              %
              
              183,092
              
              
              25.9
              %Total
                  loans
              
              
              728,917
              
              
              100
              %
              
              706,400
              
              
              100
              %Allowance
                  for loan losses
              
              
              (8,179
              )
              
              
              
              
              (6,482
              )Net
                  deferred loan costs
              
              
              4,824
              
              
              
              
              
              3,256Premiums
                  on purchased loans
              
              
              233
              
              
              
              
              
              339Loans,
                  net
              
              $
              725,795
              
              
              
              
              $
              703,513




The
      composition of our net loan portfolio is heavily weighted in loans secured
      by
      first mortgages, home equity loans, or second mortgages, all secured by one-
      to
      four-family residences, with approximately 66% of our loans invested in those
      types of loans at June 30, 2008, and 67% at December 31, 2007. As of June
      30, 2008 our one- to four-family residential mortgages, as a percentage of
      total
      loans, was virtually unchanged as compared to the year-end 2007 balance, with
      new loan production nearly offset by payments on existing loans. Loan growth
      in
      1-4 family mortgages has been negatively impacted by a slowing in residential
      real estate sales activity in the Bank’s markets. Recent reports by state and
      national real estate organizations have reported substantial declines in
      residential real estate activity in the Northeast Florida markets, as well
      as in
      Florida in general. As a result of these factors, management believes that
      growth in one- to four-family residential mortgages may be limited in the near
      term.





Total
      loan production of $94.3 million during the six months ended June 30, 2008
      was
      derived through the Bank’s retail and commercial businesses and represented a
      diversified array of loan products offered by the Bank.


16


**Allowance
      for loan losse** s.
      Our
      allowance for loan losses was 1.11% and 0.92% of total loans outstanding at
      June
      30, 2008 and December 31, 2007, respectively. Allowance for loan losses activity
      for the six months ended June 30, 2008 and 2007 was as follows:





At June 30,
            
            At June 30,2008
            
            2007(Dollars in Thousands)Beginning
                balance
            
            $
            6,482
            
            $
            4,705Loans
                charged-off
            
            
            (4,572
            )
            
            (950
            )Recoveries
            
            
            778
            
            
            511Net
                charge-offs
            
            
            (3,794
            )
            
            (439
            )Provision
                for loan losses
            
            
            5,491
            
            
            805Ending
                balance
            
            $
            8,179
            
            $
            5,071





The
      allowance for loan losses consists of general allowance allocations made for
      pools of homogeneous loans and specific allocations on individual loans for
      which management has significant concerns regarding the borrowers’ ability to
      repay the loans in accordance with the terms of the loans. The increase in
      the
      provision for loan losses in the first six months of 2008 was due primarily
      to
      higher net charge-offs as well as applying greater loss factors to the
      outstanding loans, resulting from declining credit quality in light of the
      ongoing deterioration in the local economy and declining real estate values
      over
      the past year. Non-performing loans totaled $18.3 million and $7.8 million
      at
      June 30, 2008, and December 31, 2007, respectively. The increase in
      non-performing loans was caused primarily by the addition of $6.1 million of
      commercial participation real estate and real estate development loans
      transferred to non-accrual status during the second quarter of 2008. Total
      impaired loans increased to $13.9 million at June 30, 2008 from $5.4 million
      at
      December 31, 2007. The total allowance allocated for impaired loans increased
      to
      $2.6 million at June 30, 2008 from $1.4 million at December 31, 2007. The
      increase in both non-performing and impaired loans was primarily the result
      of
      certain commercial loan participations in our general market area. The Company
      ceased involvement in any new loan participations in May 2007. As of
      June 30, 2008, and December 31, 2007, all non-performing loans were
      classified as non-accrual, and there were no restructured loans or loans 90
      days
      past due and accruing interest as of June 30, 2008, and December 31, 2007.
      Non-performing loans, excluding small balance homogeneous loans, increased
      to
      $11.3 million at June 30, 2008, from $4.4 million at December 31, 2007.





**Deposits** .
      Total
      deposit account balances were $583.7 million at June 30, 2008, an increase
      of
      $1.0 million from $582.7 million at December 31, 2007. Non-interest bearing
      demand accounts increased $4.9 million, interest bearing demand accounts
      increased $12.6 million, and time deposit accounts increased $4.0 million,
      offset by a $20.5 million decrease in savings and money market accounts.
      Management believes future deposit growth will be limited due to intense
      competition within our market areas.




**Securities
      sold under agreements to repurchase.** Historically, the Company has primarily utilized advances from the Federal
      Home
      Loan Bank of Atlanta (“FHLB”) or broker originated certificates of deposit as an
      alternative to organic deposits for funding its lending and investment
      activities. While management expects FHLB advances to continue to be a source
      of
      funds in the future, the Company also expects to continue to utilize the sale
      of
      securities under an agreement to repurchase as an alternative source of funds
      as
      well.




Securities
      sold under agreements to repurchase are secured by mortgage-backed securities
      with a carrying amount of $95.5 million at June 30, 2008. The agreements carry
      various periods of fixed interest rates that convert to callable floating rates
      in the future. Upon conversion, each agreement may be terminated in whole by
      the
      lender each following quarter. At maturity or termination, the securities
      underlying the agreements will be returned to the Company. As of June 30, 2008,
      the weighted average rate of the agreements was 4.05%. Depending on the
      availability of suitable securities and the prevailing interest rates and terms
      of alternative source of funds, the Company may continue to sell securities
      under agreements to repurchase in the future.





17




**Federal
      Home Loan Bank advances** .
      FHLB
      advances had a weighted-average maturity of 78 months and a weighted- average
      rate of 3.80% at June 30, 2008. The $19.6 million increase in FHLB borrowings
      at
      June 30, 2008 as compared to December 31, 2007 was due to additional borrowings
      of $43.0 million used to fund lending growth and replace advances that matured,
      offset by repayments of $23.4 million. The Company expects to continue to
      utilize FHLB advances to manage short and long- term liquidity needs to the
      extent it has borrowing capacity, needs funding and the interest expense of
      FHLB
      advances is attractive compared to deposits and other alternative source of
      funds.





**Stockholders’
      equity** .
      Stockholders’ equity decreased to approximately $86.9 million at June 30, 2008
      from $89.8 million at December 31, 2007 primarily due to the decline in other
      comprehensive income as well as the payment of cash dividends and share
      repurchases. In June 2008, the Company’s board of directors declared a regular
      quarterly cash dividend at a rate of $0.12 per share. The dividend was payable
      on July 28, 2008, for stockholders of record on July 11, 2008. Atlantic Coast
      Federal, MHC which holds 8,728,500 shares, or 64.4% of the Company’s total
      outstanding stock, informed the Company it waived receipt of the first quarter
      dividend on its owned shares. Total dividends for the six months ended June
      30,
      2008 charged to stockholders’ equity was approximately $1,238,000, and
      approximately $2.4 million of dividend payments were waived by the MHC.
      Management expects the MHC to waive receipt of payment on future dividends
      for
      its owned shares.




In
      September 2006 the Company’s Board of Directors approved a repurchase plan to
      permit the Company to purchase, over a 12-month period, up to 10%, or 478,000
      shares of its outstanding common stock. The plan was suspended in May 2007
      when
      the Company was considering a second-step conversion. This plan was reactivated
      during the first quarter of 2008. Under this stock repurchase plan, the Company
      has repurchased approximately 416,000 shares at an average price of $15.64
      per
      share, including approximately 120,000 shares repurchased at an average price
      of
      $9.43 during the six months ended June 30, 2008. As of June 30, 2008
      approximately 62,500 shares of common stock remained to be repurchased under
      this plan although no assurances can be made regarding the number of shares,
      if
      any, that will actually be purchased, or the price that will be paid for such
      shares. On August 1, 2008, the Company announced it has expanded and extended
      its current stock repurchase program, authorizing the repurchase of up to
      220,000 additional shares or approximately 5% of its currently outstanding
      publicly held (not including shares held by the MHC) shares of common stock,
      increasing to 277,000 the total shares subject to repurchase, and extending
      the
      program to July 31, 2009, unless completed sooner or otherwise
      extended




The
      equity to assets ratio decreased to 9.01% at June 30, 2008, from 9.65% at
      December 31, 2007. The decrease was primarily due to the change in other
      comprehensive income, common stock repurchased under the Company’s stock
      repurchase plan and the rate of asset growth through June 30, 2008. Despite
      this
      decrease, the Bank continued to be well in excess of all minimum regulatory
      capital requirements, and is considered “well capitalized” under those formulas.
      Total risk-based capital to risk-weighted assets was 11.6%, Tier 1 capital
      to risk-weighted assets was 10.7%, and Tier 1 capital to adjusted total assets
      was 7.5% at June 30, 2008. These ratios as of December 31, 2007 were 12.1%,
      11.2% and 7.7%, respectively.





**Comparison
      of Results of Operations for the Three Months Ended June 30, 2008 and
      2007** .





**General** . **** Our
      net
      income for the three months ended June 30, 2008, was $710,000, which was an
      increase of $75,000 from $635,000 for the same period in 2007. 2008 earnings
      have been significantly impacted by the receipt of life insurance benefits,
      net
      of certain final compensation expenses, related to the recent death of an
      executive officer, and by an increase in the provision for loan losses.





18




**Average
      Balances, Net Interest Income, Yields Earned and Rates Paid** .
      The
      following table sets forth certain information for the three months ended June
      30, 2008 and 2007. The average yields and costs are derived by dividing income
      or expense by the average balance of assets or liabilities, respectively, for
      the periods presented.


For the three months ended June 30,2008
              
              2007(Dollars in Thousands)AverageBalance
              
              Interest
              
              AverageYield/Cost
              
              AverageBalance
              
              Interest
              
              AverageYield/CostINTEREST-EARNING
                  ASSETSLoans
                  receivable(1)
              
              $
              723,163
              
              $
              11,497
              
              
              6.36
              %
              $
              658,023
              
              $
              11,481
              
              
              6.98
              %Securites(2)
              
              
              150,503
              
              
              2,018
              
              
              5.36
              %
              
              129,972
              
              
              1,745
              
              
              5.37
              %Other
                  interest-earning assets(3)
              
              
              32,692
              
              
              261
              
              
              3.19
              %
              
              39,357
              
              
              540
              
              
              5.49
              %Total
                  interest-earning assets
              
              
              906,358
              
              
              13,776
              
              
              6.08
              %
              
              827,352
              
              
              13,766
              
              
              6.65
              %Non-interest
                  earning assets
              
              
              55,753
              
              
              
              
              
              
              
              
              58,951Total
                  assets
              
              $
              962,111
              
              
              
              
              
              
              
              $
              886,303INTEREST-BEARING
                  LIABILITIESSavings
                  deposits
              
              $
              35,951
              
              $
              33
              
              
              0.37
              %
              $
              41,230
              
              $
              39
              
              
              0.38
              %Interest
                  bearing demand accounts
              
              
              56,133
              
              
              295
              
              
              2.10
              %
              
              52,250
              
              
              397
              
              
              3.04
              %Money
                  market accounts
              
              
              133,977
              
              
              865
              
              
              2.58
              %
              
              158,179
              
              
              1,828
              
              
              4.62
              %Time
                  deposits
              
              
              325,917
              
              
              3,717
              
              
              4.56
              %
              
              299,444
              
              
              3,730
              
              
              4.98
              %Federal
                  Home Loan Bank advances
              
              
              182,427
              
              
              1,818
              
              
              3.99
              %
              
              142,000
              
              
              1,601
              
              
              4.51
              %Securities
                  sold under agreements to repurchase
              
              
              91,025
              
              
              937
              
              
              4.12
              %
              
              55,698
              
              
              633
              
              
              4.55
              %Total
                  interest-bearing liabilities
              
              
              825,430
              
              
              7,665
              
              
              3.72
              %
              
              748,801
              
              
              8,228
              
              
              4.40
              %Non-interest
                  bearing liabilities
              
              
              46,918
              
              
              
              
              
              
              
              
              46,218Total
                  liabilities
              
              
              872,348
              
              
              
              
              
              
              
              
              795,019Stockholders'
                  equity
              
              
              89,763
              
              
              
              
              
              
              
              
              91,284Total
                  liabilities and stockholders' equity
              
              $
              962,111
              
              
              
              
              
              
              
              $
              886,303Net
                  interest income
              
              
              
              
              $
              6,111
              
              
              
              
              
              
              
              $
              5,538Net
                  interest spread
              
              
              
              
              
              
              
              
              2.36
              %
              
              
              
              
              
              
              
              2.25
              %Net
                  earning assets
              
              $
              80,928
              
              
              
              
              
              
              
              $
              78,551Net
                  interest margin(4)
              
              
              
              
              
              
              
              
              2.70
              %
              
              
              
              
              
              
              
              2.68
              %Average
                  interest-earning assets to average interest-bearing
                  liabilities
              
              
              
              
              
              109.80
              %
              
              
              
              
              
              
              
              110.49
              %
  (1)
        Calculated net of deferred loan fees and loss reserve. Nonaccrual loans included
        as loans carrying a zero yield.
 (2)
        Calculated based on carrying value. Not full tax equivalents, as the numbers
        would not change materially from those presented in the table.
 (3)
        Includes Federal Home Loan Bank stock at cost and term deposits with other
        financial institutions.
 (4)
        Net
        interest income divided by average interest-earning assets.
 
 19


**Rate/Volume
      Analysis** .
      The
      following table presents the dollar amount of changes in interest income and
      interest expense for major components of interest-earning assets and
      interest-bearing liabilities as of and for the three months ended June 30,
      2008
      as compared to the same period in 2007. For each category of interest-earning
      assets and interest-bearing liabilities, information is provided on changes
      attributable to (1) changes in volume multiplied by the old rate; and (2)
      changes in rate, which are changes in rate multiplied by the old volume; and
      (3)
      changes not solely attributable to rate or volume have been allocated
      proportionately to the change due to volume and the change due to rate.


Increase / Decrease
                
                TotalDue to
                
                IncreaseVolume
                
                Rate
                
                (Decrease)(Dollars in Thousands)**INTEREST-EARNING
                    ASSETS**Loans
                    receivable
                
                $
                997
                
                $
                (981
                )
                $
                16Securities
                
                
                275
                
                
                (2
                )
                
                273Other
                    interest-earning assets
                
                
                (80
                )
                
                (199
                )
                
                (279
                )Total
                    interest-earning assets
                
                
                1,192
                
                
                (1,182
                )
                
                10**INTEREST-BEARING
                    LIABILITIES**Savings
                    deposits
                
                
                (5
                )
                
                (1
                )
                
                (6
                )Interest
                    bearing demand accounts
                
                
                28
                
                
                (130
                )
                
                (102
                )Money
                    market accounts
                
                
                (248
                )
                
                (715
                )
                
                (963
                )Time
                    deposits
                
                
                316
                
                
                (329
                )
                
                (13
                )Federal
                    Home Loan Bank advances
                
                
                418
                
                
                (200
                )
                
                218Securities
                    sold under agreements to repurchase
                
                
                368
                
                
                (65
                )
                
                303Total
                    interest-bearing liabilities
                
                
                877
                
                
                (1,440
                )
                
                (563
                )Net
                    interest income
                
                $
                315
                
                $
                258
                
                $
                573




**Interest
      income.** As
      shown
      in the table above interest income for the three months ended June 30, 2008,
      was
      virtually unchanged as compared to the same period in 2007, as growth in the
      average outstanding balance of interest-earning assets was offset by a decline
      in average interest rates. The prime rate has decreased 325 basis points from
      8.25% to 5.00% since June 30, 2007, 225 basis points from 7.25% to 5.00% during
      the first six months of 2008 and 25 basis points from 5.25% to 5.00% during
      the
      second quarter of 2008.





Interest
      income from loans was nearly unchanged, as the increase in average balances
      was
      nearly offset by the decrease in average interest rates. The growth in interest
      income from investment securities for the quarter ended June 30, 2008, as
      compared to the same quarter in 2007 was mainly due to higher average balances
      of $150.5 million for the three months ended June 30, 2008 as compared to $130.0
      million for the same three month period in the prior year. The decline in
      interest income from other interest-earning assets was due to a decline in
      average interest rates as well as lower average balances of $32.7 million for
      the three months ended June 30, 2008 as compared to $39.4 million for the same
      three month period in the prior year.





Our
      interest income could be adversely impacted by continued low interest rates
      on
      longer-term loans, such as one- to four-family residential loans and the
      availability of the type of interest-earning assets desired by the
      Company.





**Interest
      expense.** The
      decrease in interest expense for the three months ended June 30, 2008, as
      compared to the same period in 2007, was due to lower average rates on
      interest-bearing liabilities, offset by growth in average outstanding balances
      of both Federal Home Loan Bank advances and securities sold under agreements
      to
      repurchase. In order to fund loan growth during a period of stagnant deposit
      growth, the Company has continued to utilize FHLB advances. The rate of interest
      expense on our FHLB borrowings declined for the second quarter of 2008 as
      compared to the same quarter of 2007, as a result of restructuring a number
      of
      advances at slightly lower rates.




20




**Net
      interest income.** Net
      interest income increased during the three months ended June 30, 2008, as
      compared to the same period in 2007, as the growth in interest income outpaced
      the growth in interest expense. As discussed above, the growth in average
      outstanding balances in our loan portfolio has enabled the Company to increase
      the overall yield of the loan portfolio. Our net interest rate spread, which
      is
      the difference between the interest yield earned on interest-earning assets
      and
      the interest rate paid on interest-bearing liabilities, increased 11 basis
      points to 2.36% for the second quarter of 2008 as compared to the same quarter
      in 2007. For the same comparative periods, our net interest margin, which is
      net
      interest income expressed as a percentage of our average interest earning
      assets, increased 2 basis points to 2.70%.





**Provision
      for loan losses.** Management
      establishes provisions for loan losses, which are charged to operations, at
      a
      level required to reflect probable incurred credit losses in the loan portfolio.
      In evaluating the level of the allowance for loan losses, management considers
      historical loss experience, the types of loans and the amount of loans in the
      loan portfolio, the source of origination of those loans, adverse situations
      that may affect borrowers’ ability to repay, estimated value of any underlying
      collateral, and prevailing economic conditions. Large groups of smaller balance
      homogeneous loans, such as residential real estate, small commercial real
      estate, home equity and consumer loans, are evaluated in the aggregate using
      historical loss factors adjusted for current economic conditions, source of
      loan
      origination, and other relevant data. Larger non-homogeneous loans, such as
      commercial loans for which management has concerns about the borrowers’ ability
      to repay, are evaluated individually, and specific allowance allocations are
      provided for such loans when necessary.





Based
      on
      management’s evaluation of these factors, provisions of $3.9 million and
      $509,000 were made during the three months ended June 30, 2008 and 2007,
      respectively. The year-over-year increase was primarily due to declines in
      both
      credit quality and real estate values and an increase in net charge-offs. Net
      charge-offs for the quarter ended June 30, 2008, were $2.2 million. The single
      largest charge-off was $1.1 million on a commercial real estate construction
      participation loan in northeast Florida. By comparison, net charge-offs for
      the
      same three months in 2007 were $292,000.





The
      appropriateness of the allowance is reviewed and established by management
      based
      upon its evaluation of then-existing economic and business conditions affecting
      the Bank’s key lending areas. Senior credit officers monitor the conditions
      discussed above continuously and reviews are conducted quarterly with the Bank’s
      senior management and Board of Directors. While management uses available
      information to recognize losses on loans, future loan loss provisions may be
      necessary based on changes in economic conditions and changes in borrower
      situations. In addition, various regulatory agencies, as an integral part of
      their examination process, periodically review the allowance for loan losses
      and
      may require us to recognize additional provisions based on their judgment of
      information available to them at the time of their examination. The allowance
      for loan losses as of June 30, 2008, was maintained at a level that represents
      management’s best estimate of probable incurred losses in the loan
      portfolio.




**Non-interest
      income** .
      The
      components of non-interest income for the three months ended June 30, 2008
      and
      2007 were as follows:




21







Increase(decrease)2008
            
            2007
            
            Dollars
            
            Percentage(Dollars in Thousands)Service charges and fees
            
            $
            1,175
            
            $
            1,313
            
            $
            (138
            )
            
            -10.5
            %Gain on sale
                of real estate mortgages held for sale
            
            
            36
            
            
            5
            
            
            31
            
            
            620.0
            %Loss
                on sale of foreclosed assets
            
            
            (157
            )
            
            (5
            )
            
            (152
            )
            
            3040.0
            %Gain
                (loss) on available for sale securities
            
            
            18
            
            
            (38
            )
            
            56
            
            
            -147.4
            %Commission
                income
            
            
            63
            
            
            63
            
            
            -
            
            
            0.0
            %Interchange
                fees
            
            
            230
            
            
            233
            
            
            (3
            )
            
            -1.3
            %Bank
                owned life insurance earnings
            
            
            278
            
            
            217
            
            
            61
            
            
            28.1
            %Life
                insurance proceeds on deceased executive officer
            
            
            2,634
            
            
            -
            
            
            2,634
            
            
            n/aOther
            
            
            78
            
            
            271
            
            
            (193
            )
            
            -71.2
            %$
            4,355
            
            $
            2,059
            
            $
            2,296
            
            
            111.5
            %





Non-interest
      income for the three months ended June 30, 2008 increased $2.3 million to
      $4.4
      million as compared to $2.1 million for the same three months in 2007 primarily
      due to the receipt of the aforementioned insurance benefits which totaled $2.6
      million. Service
      charges and fees, which are transactional based charges accessed on deposit
      accounts, declined primarily due to a decrease in the number of returned items
      (i.e., non-sufficient funds or “NSF”) and the associated fees. The decrease in
      other income was primarily due to a decrease in fair market value of interest
      rate swaps for the three months ended June 30, 2008 compared to the same period
      in 2007.





**Non-interest
      expense** .
      The
      components of non-interest expense for the three months ended June 30, 2008
      and 2007 were as follows:





Increase(decrease)2008
            
            2007
            
            Dollars
            
            Percentage(Dollars in Thousands)Compensation and benefits
            
            $
            3,121
            
            $
            3,154
            
            $
            (33
            )
            
            -1.0
            %Final plan benefits for deceased
                executive under certain compensation plans
            
            
            1,032
            
            
            -
            
            
            1,032
            
            
            n/aOccupancy
                and equipment
            
            
            689
            
            
            603
            
            
            86
            
            
            14.3
            %Data
                processing
            
            
            205
            
            
            270
            
            
            (65
            )
            
            -24.1
            %Advertising
            
            
            90
            
            
            150
            
            
            (60
            )
            
            -40.0
            %Outside
                professional services
            
            
            504
            
            
            741
            
            
            (237
            )
            
            -32.0
            %Interchange
                charges
            
            
            40
            
            
            93
            
            
            (53
            )
            
            -57.0
            %Collection
                        expense and repossessed asset
                        losses
            
            
            91
            
            
            87
            
            
            4
            
            
            4.6
            %Telephone
            
            
            141
            
            
            113
            
            
            28
            
            
            24.8
            %Other
            
            
            1,015
            
            
            973
            
            
            42
            
            
            4.3
            %$
            6,928
            
            $
            6,184
            
            $
            744
            
            
            12.0
            %





Non-interest
      expense increased by $744,000 to $6.9 million for the three months ended June
      30, 2008 from $6.2 million for the three months ended June 30, 2007 primarily
      due to final plan benefits for a ceased executive. The decrease to compensation
      and benefit expense for the three months ended June 30, 2008, as compared
      to the same period in 2007, was due to lower
      stock based compensation awards and retirement benefits ;
      this
      was offset by increased salary expense primarily due to organizational changes,
      executive additions, and annual merit increases. Increased occupancy and
      equipment costs for the quarter ended June 30, 2008, as compared to the same
      quarter in 2007 was due to higher lease expense, higher real estate taxes and
      higher utilities, offset by lower depreciation expense. The decrease to data
      processing costs for the three months ended June 30, 2008, as compared to the
      same period in 2007, was due to lower maintenance and depreciation expense.
      Outside professional services expense decreased due to lower legal and
      consulting fees during the quarter ended June 30, 2008.




22




**Income
      tax (benefit) expense.** Income
      tax expense decreased $1.4 million to a tax benefit of $1.1 million for the
      three months ended June 30, 2008, from an expense of $269,000 for the same
      period in 2007. The tax
      benefit was primarily due to the receipt of $2.6 million of non-taxable life
      insurance benefits related to the recent death of an executive
      officer.





**Comparison
      of Results of Operations for the Six Months Ended June 30, 2008 and
      2007** .





**General** . **** Our
      net
      income for the six months ended June 30, 2008, was $734,000, which was a
      decrease of $686,000 from $1.4 million for the same period in 2007. 2008
      earnings have been significantly impacted by the receipt of life insurance
      benefits, net of certain final compensation expenses, related to the recent
      death of an executive officer, and by an increase in the provision for loan
      losses.





**Average
      Balances, Net Interest Income, Yields Earned and Rates Paid** .
      The
      following table sets forth certain information for the six months ended June
      30,
      2008 and 2007. The average yields and costs are derived by dividing income
      or
      expense by the average balance of assets or liabilities, respectively, for
      the
      periods presented.




For the six months ended June 30,2008
            
            2007(Dollars in Thousands)Average
              Balance
            
            Interest
            
            Average Yield
              /Cost
            
            Average
              Balance
            
            Interest
            
            Average Yield
              /CostINTEREST-EARNING ASSETSLoans
                receivable(1)
            
            $
            712,818
            
            $
            23,131
            
            
            6.49
            %
            $
            648,712
            
            $
            22,533
            
            
            6.95
            %Securites(2)
            
            
            148,483
            
            
            3,976
            
            
            5.36
            %
            
            121,172
            
            
            3,232
            
            
            5.33
            %Other
                interest-earning assets(3)
            
            
            39,259
            
            
            697
            
            
            3.55
            %
            
            46,711
            
            
            1,257
            
            
            5.38
            %Total
                interest-earning assets
            
            
            900,560
            
            
            27,804
            
            
            6.17
            %
            
            816,595
            
            
            27,022
            
            
            6.62
            %Non-interest
                earning assets
            
            
            55,754
            
            
            
            
            
            
            
            
            58,775Total
                assets
            
            $
            956,314
            
            
            
            
            
            
            
            $
            875,370INTEREST-BEARING
                LIABILITIESSavings
                deposits
            
            $
            35,765
            
            $
            66
            
            
            0.37
            %
            $
            41,531
            
            $
            83
            
            
            0.40
            %Interest
                bearing demand accounts
            
            
            52,182
            
            
            552
            
            
            2.12
            %
            
            51,649
            
            
            788
            
            
            3.05
            %Money
                market accounts
            
            
            139,108
            
            
            2,065
            
            
            2.97
            %
            
            144,651
            
            
            3,325
            
            
            4.60
            %Time
                deposits
            
            
            329,256
            
            
            7,779
            
            
            4.73
            %
            
            308,055
            
            
            7,618
            
            
            4.95
            %Federal
                Home Loan Bank advances
            
            
            177,703
            
            
            3,613
            
            
            4.07
            %
            
            142,822
            
            
            3,209
            
            
            4.49
            %Securities
                sold under agreements to repurchase
            
            
            86,194
            
            
            1,799
            
            
            4.17
            %
            
            48,963
            
            
            1,108
            
            
            4.53
            %Total
                interest-bearing liabilities
            
            
            820,208
            
            
            15,874
            
            
            3.87
            %
            
            737,671
            
            
            16,131
            
            
            4.37
            %Non-interest
                bearing liabilities
            
            
            46,011
            
            
            
            
            
            
            
            
            46,379Total
                liabilities
            
            
            866,219
            
            
            
            
            
            
            
            
            784,050Stockholders'
                equity
            
            
            90,095
            
            
            
            
            
            
            
            
            91,320Total
                liabilities and stockholders' equity
            
            $
            956,314
            
            
            
            
            
            
            
            $
            875,370Net
                interest income
            
            
            
            
            $
            11,930
            
            
            
            
            
            
            
            $
            10,891Net
                interest spread
            
            
            
            
            
            
            
            
            2.30
            %
            
            
            
            
            
            
            
            2.24
            %Net
                earning assets
            
            $
            80,352
            
            
            
            
            
            
            
            $
            78,924Net
                interest margin(4)
            
            
            
            
            
            
            
            
            2.65
            %
            
            
            
            
            
            
            
            2.67
            %Average
                interest-earning assets to average interest-bearing
                liabilities
            
            
            
            
            
            109.80
            %
            
            
            
            
            
            
            
            110.70
            %




(1)
      Calculated net of deferred loan fees and loss reserve. Nonaccrual loans included
      as loans carrying a zero yield.


(2)
      Calculated based on carrying value. Not full tax equivalents, as the numbers
      would not change materially from those presented in the table.


(3)
      Includes Federal Home Loan Bank stock at cost and term deposits with other
      financial institutions.


(4)
      Net
      interest income divided by average interest-earning assets.


23




**Rate/Volume
      Analysis** .
      The
      following table presents the dollar amount of changes in interest income and
      interest expense for major components of interest-earning assets and
      interest-bearing liabilities as of and for the six months ended June 30, 2008
      as
      compared to the same period in 2007. For each category of interest-earning
      assets and interest-bearing liabilities, information is provided on changes
      attributable to (1) changes in volume multiplied by the old rate; and (2)
      changes in rate, which are changes in rate multiplied by the old volume; and
      (3)
      changes not solely attributable to rate or volume have been allocated
      proportionately to the change due to volume and the change due to rate.





Increase/(Decrease)
            
            TotalDue to
            
            IncreaseVolume
            
            Rate
            
            (Decrease)**INTEREST-EARNING ASSETS**
            
            (Dollars in Thousands)Loans receivable
            
            $
            1,969
            
            $
            (1,371
            )
            $
            598Securities
            
            
            731
            
            
            13
            
            
            744Other
                interest-earning assets
            
            
            (179
            )
            
            (381
            )
            
            (560
            )Total
                interest-earning assets
            
            
            2,521
            
            
            (1,739
            )
            
            782**INTEREST-BEARING
                LIABILITIES**Savings
                deposits
            
            
            (11
            )
            
            (6
            )
            
            (17
            )Interest
                bearing demand accounts
            
            
            8
            
            
            (243
            )
            
            (235
            )Money
                market accounts
            
            
            (123
            )
            
            (1,138
            )
            
            (1,261
            )Time
                deposits
            
            
            510
            
            
            (349
            )
            
            161Federal
                Home Loan Bank advances
            
            
            730
            
            
            (326
            )
            
            404Securities
                sold under agreements to repurchase
            
            
            783
            
            
            (92
            )
            
            691Total
                interest-bearing liabilities
            
            
            1,897
            
            
            (2,154
            )
            
            (257
            )Net
                interest income
            
            $
            624
            
            $
            415
            
            $
            1,039





**Interest
      income.** As
      shown
      in the table above the majority of the increase in interest income for the
      six
      months ended June 30, 2008, as compared to the same period in 2007, was
      attributed to growth in the average outstanding balance of interest-earning
      assets. Loans accounted for approximately 76% of the interest income growth,
      or
      $598,000 for the six months ended June 30, 2008, as compared to the same period
      in 2007. The increased interest income from loans was due to an increase in
      average outstanding balances to $712.8 million for the six months ended June
      30,
      2008 from $648.7 million for the same period from the prior year, offset by
      a
      decline in average interest rates, as the prime rate has decreased 325 basis
      points from 8.25% to 5.00% since June 30, 2007, 225 basis points from 7.25%
      to
      5.00% during the first six months of 2008 and 25 basis points from 5.25% to
      5.00% during the second quarter of 2008.





The
      growth in interest income from investment securities for the six months ended
      June 30, 2008, as compared to the same period in 2007 was mainly due to higher
      average balances of $148.5 million for the six months ended June 30, 2008 as
      compared to $121.2 million for the same six month period in the prior year.
      The
      decline in interest income from other interest-earning assets was due to a
      decline in average interest rates as well as lower average balances of $39.3
      million for the six months ended June 30, 2008 as compared to $46.7 million
      for
      the same six month period in the prior year.





Our
      interest income could be adversely impacted by continued low interest rates
      on
      longer-term loans, such as one- to four-family residential loans and the
      availability of the type of interest-earning assets desired by the
      Company.





**Interest
      expense.** The
      increase in interest expense for the six months ended June 30, 2008, as compared
      to the same period in 2007 was due to growth in average outstanding balances
      of
      interest-bearing deposit accounts, offset by lower average rates paid on
      interest-bearing liabilities, largely as a result of the Federal Reserve
      lowering short-term interest rates by 225 basis points during the first six
      months of 2008. In order to fund loan growth and maintain deposit market share,
      the Company has continued to pay attractive interest rates on its money-market
      accounts, interest bearing demand accounts and time deposits. The rate of
      interest expense on our FHLB borrowings declined for the first six months of
      2008 as compared to the same quarter of 2007, primarily as a result of
      restructuring a number of advances at lower rates.


24





**Net
      interest income.** Net
      interest income increased during the six months ended June 30, 2008, as compared
      to the same period in 2007, as a result of the growth in interest income as
      well
      as the decrease in interest expense. As discussed above, the growth in average
      outstanding balances in our loan portfolio has enabled the Company to increase
      the overall yield of the loan portfolio. Our net interest rate spread, which
      is
      the difference between the interest yield earned on interest-earning assets
      and
      the interest rate paid on interest-bearing liabilities, increased 6 basis points
      to 2.30% for the first six months of 2008 as compared to the same period in
      2007. For the same comparative periods, our net interest margin, which is net
      interest income expressed as a percentage of our average interest earning
      assets, declined 2 basis points to 2.65%.





**Provision
      for loan losses.** The
      Bank
      establishes provisions for loan losses, which are charged to operations, at
      a
      level required to reflect probable incurred credit losses in the loan portfolio.
      In evaluating the level of the allowance for loan losses, management considers
      historical loss experience, the types of loans and the amount of loans in the
      loan portfolio, the source of origination of those loans, adverse situations
      that may affect borrowers’ ability to repay, estimated value of any underlying
      collateral, and prevailing economic conditions. Large groups of smaller balance
      homogeneous loans, such as residential real estate, small commercial real
      estate, home equity and consumer loans, are evaluated in the aggregate using
      historical loss factors adjusted for current economic conditions, source of
      loan
      origination, and other relevant data. Larger non-homogeneous loans, such as
      commercial loans for which management has concerns about the borrowers’ ability
      to repay, are evaluated individually, and specific allowance allocations are
      provided for such loans when necessary.





Based
      on
      management’s evaluation of these factors, provisions of $5.5 million and
      $805,000 were made during the six months ended June 30, 2008 and 2007,
      respectively. The year-over-year increase was primarily due to declines in
      both
      credit quality and real estate values and an increase in net charge-offs. Net
      charge-offs for the six months ended June 30, 2008, were $3.8 million. The
      single largest charge-off was $1.1 million on a commercial real estate
      construction participation loan in northeast Florida. By comparison, net
      charge-offs for the same six months in 2007 were $439,000.





The
      appropriateness of the allowance is reviewed and established by management
      based
      upon its evaluation of then-existing economic and business conditions affecting
      the Bank’s key lending areas. Senior credit officers monitor the conditions
      discussed above continuously and reviews are conducted quarterly with the Bank’s
      senior management and Board of Directors. While management uses available
      information to recognize losses on loans, future loan loss provisions may be
      necessary based on changes in economic conditions and changes in borrower
      situations. In addition, various regulatory agencies, as an integral part of
      their examination process, periodically review the allowance for loan losses
      and
      may require us to recognize additional provisions based on their judgment of
      information available to them at the time of their examination. The allowance
      for loan losses as of June 30, 2008, was maintained at a level that represents
      management’s best estimate of probable incurred losses in the loan
      portfolio.


25







**Non-interest
      income** .
      The
      components of non-interest income for the six months ended June 30, 2008 and
      2007 were as follows:





Increase(decrease)2008
            
            2007
            
            Dollars
            
            Percentage(Dollars in Thousands)Service charges and fees
            
            $
            2,350
            
            $
            2,540
            
            $
            (190
            )
            
            -7.5
            %Gain on sale of real
                estate mortgages held for sale
            
            
            36
            
            
            15
            
            
            21
            
            
            140.0
            %(Loss)
                gain on sale of foreclosed assets
            
            
            (176
            )
            
            2
            
            
            (178
            )
            
            -8900.0
            %Gain
                (loss) on available for sale securities
            
            
            83
            
            
            (46
            )
            
            129
            
            
            -280.4
            %Gain
                on redemption of Visa class B common stock
            
            
            79
            
            
            -
            
            
            79
            
            
            n/aCommission
                income
            
            
            144
            
            
            137
            
            
            7
            
            
            5.1
            %Interchange
                fees
            
            
            451
            
            
            443
            
            
            8
            
            
            1.8
            %Bank
                owned life insurance earnings
            
            
            487
            
            
            428
            
            
            59
            
            
            13.8
            %Life
                insurance proceeds on deceased executive officer
            
            
            2,634
            
            
            -
            
            
            2,634
            
            
            n/aOther
            
            
            100
            
            
            369
            
            
            (269
            )
            
            -72.9
            %$
            6,188
            
            $
            3,888
            
            $
            2,300
            
            
            59.2
            %





Non-interest
      income for the six months ended June 30, 2008 increased $2.3 million to $6.2
      million from $3.9 million for the same six months in 2007 primarily due to
      the
      receipt of $2.6 million of life insurance benefits related to the recent death
      of an executive officer. Service charges and fees, which are transactional
      based
      charges accessed on deposit accounts, declined primarily due to a decrease
      in
      the number of returned items (i.e., non-sufficient funds or “NSF”) and the
      associated fees. This decline was offset by a gain on available for sale
      securities as well as a gain on the redemption of Visa class B common stock
      relating to Visa’s initial public offering. The decrease in other income was
      primarily due to a decrease in fair market value of interest rate swaps for
      the
      six months ended June 30, 2008 compared to the same period in 2007.





**Non-interest
      expense** .
      The
      components of non-interest expense for the six months ended June 30, 2008
      and 2007 were as follows:





Increase(decrease)2008
            
            2007
            
            Dollars
            
            Percentage(Dollars in Thousands)Compensation
                and benefits
            
            $
            6,401
            
            $
            6,170
            
            $
            231
            
            
            3.7
            %Final
                plan benefits for executive officer under certain compensatin
                plans
            
            
            1,032
            
            
            -
            
            
            1,032
            
            
            n/aOccupancy
                and equipment
            
            
            1,332
            
            
            1,191
            
            
            141
            
            
            11.8
            %Data
                processing
            
            
            483
            
            
            604
            
            
            (121
            )
            
            -20.0
            %Advertising
            
            
            244
            
            
            296
            
            
            (52
            )
            
            -17.6
            %Outside
                professional services
            
            
            1,055
            
            
            1,372
            
            
            (317
            )
            
            -23.1
            %Interchange
                charges
            
            
            120
            
            
            193
            
            
            (73
            )
            
            -37.8
            %Collection
                expense and repossessed asset losses
            
            
            233
            
            
            133
            
            
            100
            
            
            75.2
            %Telephone
            
            
            303
            
            
            227
            
            
            76
            
            
            33.5
            %Other
            
            
            1,879
            
            
            1,733
            
            
            146
            
            
            8.4
            %$
            13,082
            
            $
            11,919
            
            $
            1,163
            
            
            9.8
            %




26





The
      majority of the increase to compensation and benefit expense for the six months
      ended June 30, 2008, as compared to the same period in 2007, was due to
      increased salaries, offset by lower stock based compensation awards and
      retirement benefits. The increase was primarily due to organizational changes,
      executive additions, and annual merit increases. Increased occupancy and
      equipment costs for the six months ended June 30, 2008, as compared to the
      same
      period in 2007 was due to higher lease expense, higher real estate taxes and
      higher utilities, offset by lower depreciation expense. The decrease to data
      processing costs for the six months ended June 30, 2008, as compared to the
      same
      period in 2007, was due to lower depreciation expense. Outside professional
      services cost decreased due to lower legal and consulting fees during the six
      months ended June 30, 2008. Collection expense increased due to higher legal
      expenses incurred as a result of declines in both credit quality and real estate
      values.





**Income
      tax (benefit) expense.** Income
      tax expense decreased $1.8 million, to a tax benefit of $1.2 million for the
      six
      months ended June 30, 2008, from an expense of $635,000 for the same period
      in
      2007. The tax benefit was primarily due to the receipt of $2.6 million of
      non-taxable life insurance benefits related to the recent death of an executive
      officer.





**ITEM
      3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK**





The
      Company is subject to interest rate risk to the extent that its interest-bearing
      liabilities, primarily deposits and FHLB advances, re-price more rapidly or
      at
      different rates than its interest-earning assets. In order to minimize the
      potential for adverse effects of material prolonged increases or decreases
      in
      interest rates on our results of operations, management has adopted an asset
      and
      liability management policy. The Board of Directors sets the asset and liability
      policy for the Company, which is implemented by the Asset/Liability Committee
      (“Committee”).





The
      purpose of this Committee is to communicate, coordinate and control
      asset/liability management consistent with our business plan and board approved
      policies. The Committee establishes and monitors the volume and mix of assets
      and funding sources taking into account relative costs and spreads, interest
      rate sensitivity and liquidity needs. The objectives are to manage assets and
      funding sources to produce results that are consistent with liquidity, capital
      adequacy, growth, risk, and profitability goals.





The
      Committee generally meets at least monthly to review, among other things,
      economic conditions and interest rate outlook, current and projected liquidity
      needs and capital position, anticipated changes in the volume and mix of assets
      and liabilities and interest rate exposure limits versus current projections
      pursuant to market value of portfolio equity analysis and income simulations.
      The Committee recommends appropriate strategy changes based on this review.
      The
      Committee is responsible for reviewing and reporting the effects of the policy
      implementations and strategies to the Board of Directors at least
      quarterly.





A
      key
      element of Atlantic Coast Federal Corporation’s asset/liability plan is to
      protect net earnings by managing the maturity or re-pricing mismatch between
      its
      interest-earning assets and rate-sensitive liabilities. Historically, the
      Company has sought to reduce exposure to its earnings through the use of
      adjustable rate loans and through the sale of certain fixed rate loans in the
      secondary market, and by extending funding maturities through the use of FHLB
      advances.





As
      part
      of its efforts to monitor and manage interest rate risk, the Company uses a
      financial modeling tool that estimates the impact of different interest rate
      scenarios on the value of the Company’s equity. This financial modeling tool is
      referred to as Economic Value of Equity (“EVE”). In essence, this tool measures
      the changes in equity due to the impact on net interest margin, over a five-year
      horizon, from instantaneous and sustained parallel shifts in the yield curve,
      in
      100 basis point increments, up and down 300 basis points. Management believes
      the use of EVE improves the visibility of the effect of current interest rate
      risk on future earnings under increasing or decreasing interest rate
      environments. Accordingly, the Company believes it is in a better position
      to be
      proactive in reducing future interest rate risk through management of the growth
      of interest-earning assets and interest-bearing liabilities within a meaningful
      time horizon. The EVE, considering the assumed changes in interest rates as
      of
      June 30, 2008, is as follows:


27





Economic Value of Equity and Duration of Assets and Liabilities at June 30, 2008Change in Interest RateDecrease
            
            Decrease
            
            Decrease
            
            Increase
            
            Increase
            
            Increase3%
            
            2%
            
            1%
            
            1%
            
            2%
            
            3%Duration
                of assets(1)
            
            
            2.73
            
            
            2.73
            
            
            2.74
            
            
            2.83
            
            
            2.74
            
            
            2.74Duration
                of liabilities(1)
            
            
            2.63
            
            
            2.63
            
            
            2.48
            
            
            2.22
            
            
            2.07
            
            
            2.07Differential
                in duration
            
            
            0.10
            
            
            0.10
            
            
            0.26
            
            
            0.61
            
            
            0.67
            
            
            0.67Amount
                of change in Economic Value of Equity(2)
            
            $
            2,787,791
            
            $
            1,858,527
            
            $
            2,576,038
            
            $
            (5,987,407
            )
            $
            (13,040,739
            )
            $
            (19,561,109
            )Percentage
                change in Economic Value of Equity(2)
            
            
            2.93
            %
            
            1.96
            %
            
            2.71
            %
            
            -6.30
            %
            
            -13.72
            %
            
            -20.58
            %





(1)
      Expressed as number of years before asset/liability reprices to achieve stated
      rate of interest rate increase.


(2)
      Represents the cumulative five year pre-tax impact on the Company’s equity due
      to increased or (decreased) net interest margin .





In
      managing its asset/liability mix the Company, depending on the relationship
      between long and short-term interest rates, market conditions and consumer
      preference, may place somewhat greater emphasis on maximizing its net interest
      margin than on strictly matching the interest rate sensitivity of its assets
      and
      liabilities. Management believes that the increased net income which may result
      from an acceptable mismatch in the actual maturity or re-pricing of its asset
      and liability portfolios can, during periods of declining or stable interest
      rates, provide sufficient returns to justify the increased exposure to sudden
      and unexpected increases in interest rates which may result from such a
      mismatch. Management believes that Atlantic Coast Federal Corporation’s level of
      interest rate risk is acceptable under this approach.





In
      evaluating Atlantic Coast Federal Corporation’s exposure to interest rate
      movements, certain shortcomings inherent in the EVE methodology must be
      considered. For example, although certain assets and liabilities may have
      similar maturities or re-pricing periods, they may react in different degrees
      to
      changes in market interest rates. Also, the interest rates on certain types
      of
      assets and liabilities may fluctuate in advance of changes in market interest
      rates, while interest rates on other types may lag behind changes in interest
      rates. Additionally, certain assets, such as adjustable-rate mortgages, have
      features that restrict changes in interest rates on a short-term basis and
      over
      the life of the asset. Further, in the event of a significant change in interest
      rates, prepayment and early withdrawal levels would likely deviate significantly
      from those assumed in our EVE methodology. Finally, the ability of many
      borrowers to service their debt may decrease in the event of an interest rate
      increase. Atlantic Coast Federal Corporation considers all of these factors
      in
      monitoring its exposure to interest rate risk.





**ITEM
      4. CONTROLS AND PROCEDURES**





(a) Evaluation
      of disclosure controls and procedures .
      As of
      the end of the period covered by this Quarterly Report on Form 10-Q, the
      Registrant’s principal executive officer and principal financial officer have
      concluded that the Registrant’s disclosure controls and procedures (as defined
      in Rules 13a-15(e) or 15d-15(e) under the Securities and Exchange Act of 1934
      (the “Exchange Act”)) are effective to ensure that information required to be
      disclosed by the Company in reports that it files or submits under the Exchange
      Act is recorded, processed, summarized and reported within the time periods
      specified in SEC rules and forms.





(b) Changes
      in internal controls .
      There
      were no changes in the Registrant’s internal control over financial reporting
      (as defined in Rule 13a-15(f)) that occurred during the quarter ended June
      30,
      2008, that have materially affected, or is reasonably likely to materially
      affect, our internal control over financial reporting.


28





**ATLANTIC
      COAST FEDERAL CORPORATION**





**FORM
      10-Q**





**June
      30, 2008**





**Part
      II - Other Information**


Item
      1.  Legal
      Proceedings


The
      Company is involved in various legal actions and claims arising in the normal
      course of business. In the opinion of management, these legal actions and claims
      are not expected to have a material adverse impact on the Company’s financial
      condition and results of operations.





Item
      1A.  Risk
      Factors


There
      have been no material changes to the risk factors previously disclosed in the
      Company’s Annual Report on Form 10-K for the year ended December 31,
      2007.





Item
      2.  Unregistered
      Sales of Equity Securities and Use of Proceeds





The
      table
      below sets forth information regarding the Company’s common stock repurchase
      plans. Purchases made during the quarter ended June 30, 2008 relate to the
      stock
      repurchase plan that was originally approved by the Company’s Board of Directors
      on September 1, 2006. Stock repurchased under this plan will be held as Treasury
      shares.





Period
            
            Total Number of
              Shares Purchased
            
            Average Price
              Paid per Share
            
            Total Number of
              Shares Purchased
              as Part of Publicly
              Announced Plans
              or Programs
            
            Maximum Number
              of Shares that May
              Yet Be Purchased
              Under the Plans or
              ProgramsApril
                1, 2008 through April 30, 2008
            
            
            16,300
            
            
            9.14
            
            
            16,300
            
            
            112,661May
                1, 2008 through May 31, 2008
            
            
            32,459
            
            
            8.89
            
            
            32,459
            
            
            80,202June
                1, 2008 through June 30, 2008
            
            
            17,702
            
            
            8.83
            
            
            17,702
            
            
            62,500Total
            
            
            50,161
            
            $
            8.94
            
            
            50,161
            
            
            62,500




Item
      3. Defaults
      Upon Senior Securities


None





Item
      4.  Submission
      of Matters to a Vote of Security Holders


At
      the
      Company’s annual Stockholders’ Meeting (the “Meeting”) held on May 16, 2008, all  nominees
      for director proposed by the Company were elected. The votes cast for each  nominee
      were as follows:





For
            
            WithheldRobert J. Larison, Jr.
            
            
            12,490,071
            
            
            167,018W.
                Eric Palmer
            
            
            12,381,296
            
            
            275,793





Also
      at
      the Meeting, the stockholders ratified the appointment of Crowe Chizek and
      Company LLC as the independent registered public accounting firm for Atlantic
      Coast Federal Corporation for the fiscal year ending December 31, 2008. The
      votes cast for and against and the number of abstentions was as
      follows:




29




BrokerFor
            
            Against
            
            Abstain
            
            Non-vote12,155,620
            
            
            469,482
            
            
            31,987
            
            
            0




Item 5.  Other Information


None





Item
      6.  Exhibits


a.  Exhibits


31.1
            Certification
                of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 2002


31.2
            Certification
                of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 2002


32.
            Certification
                of Chief Executive Officer and Chief Financial Officer of Atlantic
                Coast
                Federal Corporation pursuant to Section
                906


30





**ATLANTIC
      COAST FEDERAL CORPORATION**





**FORM
      10-Q**





**June
      30, 2008**





**Part
      II - Other Information**





**Signatures**





Pursuant
      to the requirements of the Securities Exchange Act of 1934, the registrant
      has
      duly caused this report to be signed on its behalf by the undersigned thereunto
      duly authorized.





ATLANTIC
                COAST FEDERAL CORPORATION(Registrant)Date:
                August 13, 2008
            
            /s/
                Robert J. Larison, Jr.Robert
                J. Larison, Jr., President and ChiefExecutive
                OfficerDate:
                August 13, 2008
            
            /s/
                Dawna R. MillerDawna
                R. Miller, Senior Vice-President andChief
                Financial Officer




31