Edgar Filing: ATLANTIC COAST FEDERAL CORP

Unassociated Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

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

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2007

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 (State or other jurisdiction of incorporation or organization)		59-3764686 (I.R.S. Employer Identification Number)

505 Haines Avenue Waycross, Georgia (Address of principal Executive Offices)		31501 (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, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer o Accelerated Filer o Non-Accelerated Filer 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 May 8, 2007
Common Stock, $0.01 Par Value	13,676,071 shares

ATLANTIC COAST FEDERAL CORPORATION

Form 10-Q/A Quarterly Report

Table of Contents

		Page Number
PART I. FINANCIAL INFORMATION

EXPLANATORY NOTE		2
Item 1.	Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operation	14
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	17

PART II. OTHER INFORMATION

Form 10-Q	Signature Page	18

Ex-31.1	Section 302 Certification of CEO	19
Ex-31.2	Section 302 Certification of CFO	20
Ex-32	Section 906 Certification of CEO and CFO	21

EXPLANATORY NOTE

Atlantic Coast Federal Corporation (the “Company”) is filing this amendment to Form 10-Q for the period ended March 31, 2007 to amend and restate financial statements and certain other financial information filed with the Securities and Exchange Commission (“SEC”). These amendments restate the Consolidated Financial Statements and the other financial information for the quarters ended March 31, 2007 and March 31, 2006, previously reported on Form 10-Q. These amendments are being filed to change the Company’s accounting for certain interest rate swap derivatives designated and accounted for as cash flow hedges under Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”).

During 2004, the Company entered into two interest rate swap agreements with notional amounts totaling $15 million, of which $10 million remained outstanding as of March 31, 2007, to hedge the variability in expected future cash flows on certain floating-rate Federal Home Loan Bank ("FHLB") advances. At inception, the critical terms of these swaps were viewed as matching the critical terms of the hedged FHLB advances and, as a result, it was determined that changes in cash flows were expected to completely offset at inception and on an ongoing basis as provided under SFAS 133. Therefore, the interest rate swap agreements were deemed to be effective cash flow hedges during the first quarter of 2007 and 2006, consistent with SFAS 133.

The Company has now determined that although these swaps were economically effective, the initial assessment of matching critical terms for the interest rate swaps and the corresponding hedged FHLB advances was incorrect. In each circumstance, the interest rate swap contained an embedded written option that allowed the counterparty to terminate the interest rate swap under certain conditions. Since the interest rate swaps and the FHLB advances did not have absolute parity and the critical terms of the instruments did not completely match, the Company has concluded, and its Audit Committee has concurred, that the swap transactions did not qualify as cash flow hedges and, therefore, any fluctuations in the market value of the interest rate swaps, including any accrued interest, should have been included in other non-interest income resulting in quarterly and annual mark-to-market adjustments. As originally recorded, fluctuations in the fair value of the interest rate swaps were recorded in other comprehensive income, with accrued interest recorded as a reduction of interest expense on FHLB advances. There is no effect on cash flows or total stockholders’ equity from these revisions.

EXPLANATORY NOTE (continued)

The effect this restatement had on earnings for the respective comparative periods is as follows:

	For the Quarter Ended
	March 31,		March 31,
	2007		2006
	(Dollars in Thousands)
Total interest expense	$	48	$	42
Noninterest income		65		321
Income tax expense		6		95
Net income	$	11	$	184
Earnings per common share:
Basic	$	-	$	0.01
Diluted	$	-	$	0.01

In addition, the following Items have changed: Item 1, Item 2 and Item 3. The Company has only amended certain sections of the March 31, 2007 Form 10-Q that were affected by the restatement. For additional information on the restatement see Note 1, Restatement, in the Notes to Consolidated Financial Statements of this Form 10-Q/A.

For comparative purposes all financial information has been presented in thousands of dollars unless otherwise indicated. As such, immaterial differences of + or - 1 may have occurred in order to conform to the current presentation.

ATLANTIC COAST FEDERAL CORPORATION

CONSOLIDATED BALANCE SHEET

March 31, 2007 (unaudited) and December 31, 2006

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

	2007			2006
ASSETS
Cash and due from financial institutions	$	10,192		$	10,571
Short-term interest earning deposits		37,122			30,486
Total cash and cash equivalents		47,314			41,057
Other interest earning deposits in other financial institutions		700			1,200
Securities available for sale		129,402			99,231
Real estate mortgages held for sale		8,392			4,365
Loans, net of allowance for loan losses of $4,853 at March 31, 2007 and $4,705 at December 31, 2006		642,068			639,517
Federal Home Loan Bank stock		7,988			7,948
Accrued interest receivable		3,619			3,499
Land, premises and equipment		17,365			17,610
Bank owned life insurance		21,578			21,366
Other real estate owned		932			286
Goodwill		2,661			2,661
Other assets		4,197			4,339
Total assets	$	886,216		$	843,079
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Non-interest-bearing demand	$	43,002		$	38,301
Interest-bearing demand		53,883			52,895
Savings and money market		189,406			158,229
Time		307,910			323,627
Total deposits		594,201			573,052
Securities sold under agreements to repurchase		53,500			29,000
Federal Home Loan Bank advances		142,000			144,000
Accrued expenses and other liabilities		6,564			5,940
Total liabilities		796,265			751,992
Commitments 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 March 31, 2007 and December 31, 2006; shares outstanding of 13,672,724 at March 31, 2007 and 13,784,330 at December 31, 2006		148			148
Additional paid in capital		58,161			57,708
Unearned employee stock ownership plan (ESOP) shares of 314,226 at March 31, 2007 and 325,864 at December 31, 2006		(3,142	)		(3,259	)
Retained earnings		52,895			52,711
Accumulated other comprehensive income (loss)		(64	)		(204	)
Treasury stock, at cost, 1,140,745 shares at March 31, 2007 and 1,029,139 at December 31, 2006		(18,047	)		(16,017	)
Total stockholders' equity		89,951			91,087
Total liabilities and stockholders' equity	$	886,216		$	843,079

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

ATLANTIC COAST FEDERAL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

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

(unaudited)

	Three months ended March 31,
	2007			2006
Interest and dividend income
Loans, including fees	$	11,052		$	9,407
Securities and interest-earning deposits in other financial institutions		2,204			1,108
Total interest and dividend income		13,256			10,515
Interest expense
Deposits		5,820			3,852
Federal Home Loan Bank advances		1,608			1,369
Securities sold under agreements to repurchase		475			57
Total interest expense		7,903			5,278
Net interest income		5,353			5,237
Provision for loan losses		296			76
Net interest income after provision for loan losses		5,057			5,161
Noninterest income
Service charges and fees		1,228			1,342
Gain on sale of real estate mortgages held for sale		10			3
Gain on sale of foreclosed assets		7			3
Loss on sale of securities available for sale		(8	)		(177	)
Commission income		74			81
Interchange fees		210			195
Bank owned life insurance earnings		211			204
Other		98			308
		1,830			1,959
Noninterest expense
Compensation and benefits		3,016			2,627
Occupancy and equipment		588			508
Data processing		335			365
Advertising		146			216
Outside professional services		631			493
Interchange charges		100			166
Collection expense and repossessed asset losses		47			83
Telephone		113			123
Other		759			653
		5,735			5,234
Income before income tax expense		1,152			1,886
Income tax expense		367			595
Net income	$	785		$	1,291
Earnings per common share:
Basic	$	0.06		$	0.10
Diluted	$	0.06		$	0.10
Dividends declared per common share	$	0.13		$	0.09

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

ATLANTIC COAST FEDERAL CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

For the Three Months Ended March 31, 2007 and March 31, 2006

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

(unaudited)

												ACCUMULATED
			ADDITIONAL			UNEARNED						OTHER
	COMMON		PAID IN			ESOP			RETAINED			COMPREHENSIVE			TREASURY			TOTAL
	STOCK		CAPITAL			STOCK			EARNINGS			INCOME			STOCK			EQUITY
For the three months ended March 31, 2007
Balance at January 1, 2007	$	148	$	57,708		$	(3,259	)	$	52,711		$	(204	)	$	(16,017	)	$	91,087
ESOP shares earned, 11,638 shares				95			117												212
Stock options exercised				(6	)											52			46
Management restricted stock expense				167															167
Stock options expense				179												(97	)		82
Dividends declared ( $.13 per share)										(601	)								(601	)
Director's deferred compensation				18												(18	)		-
Treasury stock purchased at cost, 105,838 shares																(1,967	)		(1,967	)
Comprehensive income:
Net income										785									785
Other comprehensive income (loss)													140						140
Total comprehensive income																			925
Balance at March 31, 2007	$	148	$	58,161		$	(3,142	)	$	52,895		$	(64	)	$	(18,047	)	$	89,951
For the three months ended March 31, 2006
Balance at January 1, 2006	$	148	$	56,876		$	(3,724	)	$	49,629		$	(408	)		($9,603	)	$	92,918
ESOP shares earned, 11,638 shares				53			116												169
Management restricted stock expense				145															145
Stock options expense				76															76
Dividend declared ($.09 per share)										(458	)								(458	)
Comprehensive income:
Net income										1,291									1,291
Other comprehensive income (loss)													(91	)					(91	)
Total comprehensive income																			1,200
Balance at March 31, 2006	$	148	$	57,150		$	(3,608	)	$	50,462		$	(499	)	$	(9,603	)	$	94,050

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

ATLANTIC COAST FEDERAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Thousands, restated)

(unaudited)

	Three months ended March 31,
	2007			2006
Cash flows from operating activities
Net income	$	785		$	1,291
Adjustments to reconcile net income to to net cash from operating activities:
Provision for loan losses		296			76
Gain on sale of real estate mortgages held for sale		(10	)		(3	)
Loans originated for sale		(28,932	)		(235	)
Proceeds from loan sales		24,915			283
Gain on sale of other real estate owned		(7	)		(3	)
Loss on sale of securities available for sale		8			177
Loss on disposal of equipment		117			30
ESOP compensation expense		212			169
Share-based compensation expense		249			221
Net depreciation and amortization		401			487
Net change in accrued interest receivable		(120	)		(282	)
Increase in cash surrender value of bank owned life insurance		(211	)		(204	)
Net change in other assets		57			(435	)
Net change in accrued expenses and other liabilities		591			(191	)
Net cash from operating activites		(1,649	)		1,381
Cash flows from investing activities
Proceeds from maturities and payments of securites available for sale		4,321			4,606
Proceeds from the sales of securities available for sale		5,681			-
Purchase of securities available for sale		(39,964	)		(2,059	)
Loans purchased		(3,138	)		(7,782	)
Net change in loans		(483	)		(11,421	)
Expenditures on premises and equipment		(250	)		(526	)
Proceeds from the sale of other real estate owned		119			277
Purchase of FHLB stock		(40	)		(228	)
Net change in other investments		500			-
Net cash from investing activities		(33,254	)		(17,133	)

(Continued)

ATLANTIC COAST FEDERAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Thousands, restated)

(unaudited)

	Three months ended March 31,
	2007			2006
Cash flows from financing activities
Net increase in deposits	$	21,149		$	13,792
FHLB advances		10,000			-
Proceeds from sale of securities under agreements to repurchase		24,500			12,000
Repayment of FHLB advances		(12,000	)		-
Proceeds from exercise of stock options		46			-
Treasury stock repurchased		(1,967	)		-
Dividends paid		(568	)		(414	)
Net cash from financing activities		41,160			25,378

Net change in cash and cash equivalents		6,257			9,626

Cash and equivalents beginning of period		41,057			37,959
Cash and equivalents at end of period	$	47,314		$	47,585

Supplemental information:
Interest paid	$	7,784		$	5,161
Income taxes paid		50			765

Supplemental noncash disclosures:
Loans transferred to other real estate	$	758		$	96

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

ATLANTIC COAST FEDERAL CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2007

(Dollars in Thousands, restated)

(unaudited)

NOTE 1 - RESTATEMENT

Atlantic Coast Federal Corporation (the “Company”) is filing this amendment to Form 10-Q for the period ended March 31, 2007 to amend and restate financial statements and certain other financial information filed with the Securities and Exchange Commission (“SEC”). These amendments restate the Consolidated Financial Statements and the other financial information for the quarter ended March 31, 2007, previously reported on Form 10-Q. These amendments are being filed to change the Company’s accounting for certain interest rate swap derivatives designated and accounted for as cash flow hedges under Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”).

ATLANTIC COAST FEDERAL CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2007

(Dollars in Thousands, restated)

(unaudited)

NOTE 1 - RESTATEMENT (continued)

The effect this restatement had on the Consolidated Balance Sheet, Statement of Income and Statement of Changes in Stockholders’ Equity for the respective periods is as follows:


	March 31, 2007					December 31, 2006
Restated Consolidated Balance	As Originally		As			As Originally		As
Sheet Data:	Reported		Restated			Reported		Restated
	(Dollars in Thousands)

Other assets	$	67,172	$	67,432		$	63,020	$	63,274
Total assets	$	885,956	$	886,216		$	842,825	$	843,079
Accrued expenses and other liabilities	$	6,304	$	6,564		$	5,686	$	5,940
Total liabilities	$	796,005	$	796,265		$	751,738	$	751,992
Retained earnings	$	52,470	$	52,895		$	52,297	$	52,711
Accumulated other comprehensive income	$	361	$	(64	)	$	210	$	(204	)
Total stockholders' equity	$	89,951	$	89,951		$	91,087	$	91,087

	For the Quarter Ended
	March 31, 2007				March 31, 2006
	As Originally		As		As Originally		As
Selected Consolidated Statement of Income Data:	Reported		Restated		Reported		Restated
	(Dollars in Thousands)
Total interest expense	$	7,855	$	7,903	$	5,236	$	5,278
Net interest income		5,401		5,353		5,279		5,237
Net interest income
after provision for loan losses		5,105		5,057		5,203		5,161
Noninterest income		1,765		1,830		1,638		1,959
Income before income taxes		1,135		1,152		1,607		1,886
Income tax expense		361		367		500		595
Net Income	$	774	$	785	$	1,107	$	1,291
Earnings per share:
Basic	$	0.06	$	0.06	$	0.08	$	0.10
Earnings per share:
Diluted	$	0.06	$	0.06	$	0.08	$	0.10

ATLANTIC COAST FEDERAL CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2007

(Dollars in Thousands, restated)

(unaudited)

NOTE 1 - RESTATEMENT (continued)

	March 31, 2007				March 31, 2006
Restated Statement of Changes in Stockholders' Equity	As Originally Reported		As Restated		As Originally Reported		As Restated
	(Dollars in Thousands)
Balance, beginning of period	$	91,087	$	91,087	$	92,917	$	92,918
Increase attributable to net income		774		785		1,107		1,291
Increase/(decrease) attributable to changes in accumulated other comprehensive income		151		140		83		(90	)
Balance, end of period	$	89,951	$	89,951	$	94,038	$	94,050

In addition, the following Notes to Consolidated Financial Statements have been restated: 2, 8 and 9.

NOTE 2. BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements include Atlantic Coast Federal Corporation (or the “Company”) and it’s wholly owned subsidiary, Atlantic Coast Bank (the “Bank”), which was formerly known as Atlantic Coast Federal. The Company changed the name of the Bank on July 17, 2006 to better reflect the nature of the Bank’s operations. 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, 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 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 a fair presentation have been included. Operating results for the three month period ended March 31, 2007 are not necessarily indicative of the results that may be expected for the year ending December 31, 2007. The 2006 Atlantic Coast Federal Corporation consolidated financial statements, as presented in the Company’s Form 10-K/A, and the information contained within the March 31, 2007 10-Q as originally filed, should be read in conjunction with these statements.

ATLANTIC COAST FEDERAL CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2007

(Dollars in Thousands, restated)

(unaudited)

NOTE 8. 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 weighted-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 months ended March 31, 2007 and 2006 were as follows:

	For the three months ended March 31,
	2007			2006
	(Dollars in Thousands, Except Share Information)
Basic
Net income	$	785		$	1,291
Weighted average common shares outstanding		13,754,774			14,141,350
Less: Average unallocated ESOP shares		(325,864	)		(372,416	)
Average unvested restricted stock awards		(227,362	)		(258,469	)
Average Shares		13,201,548			13,510,465
Basic earnings per common share	$	0.06		$	0.10
Diluted
Net Income	$	785		$	1,291
Weighted average common shares outstanding		13,201,548			13,510,465
Add:Dilutive effects of assumed exercise of stock options		67,125			-
Dilutive effects of full vesting of stock awards		98,278			20,563
Average shares and dilutive potential common shares		13,366,951			13,531,028
Diluted earnings per common share	$	0.06		$	0.10

Stock options for 8,263 and 534,400 shares of common stock were not considered in computing diluted earnings per common share for the three months ended March 31, 2007 and 2006, respectively, because they were anti-dilutive.

ATLANTIC COAST FEDERAL CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2007

(Dollars in Thousands, restated)

(unaudited)

NOTE 9. OTHER COMPREHENSIVE INCOME

Comprehensive income components and related taxes for the three months ended March 31, 2007 and 2006 were as follows:

	(Dollars in Thousands, restated)
	2007			2006
Unrealized holding gains and (losses) on securities available for sale	$	231		$	(318	)
Less reclassification adjustments for (gains) losses recognized in income		8			177
Net unrealized gains and (losses)		223			(141	)
Tax effect		(83	)		51
Other comprehensive income	$	140		$	(90	)

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/A 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.

Restatement

Atlantic Coast Federal Corporation (the “Company”) is filing this amendment to Form 10-Q for the period ended March 31, 2007, to amend and restate financial statements and certain other financial information filed with the Securities and Exchange Commission (“SEC”). These amendments restate the Consolidated Financial Statements and the other financial information for the quarter ended March 31, 2007, previously reported on 10-Q. These amendments are being filed to change the Company’s accounting for certain interest rate swap derivatives designated and accounted for as cash flow hedges under Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”).

The Company has now determined that although these swaps were economically effective, the initial assessment of matching critical terms for the interest rate swaps and the corresponding hedged FHLB advances was incorrect. In each circumstance, the interest rate swap contained an embedded written option that allowed the counterparty to terminate the interest rate swap under certain conditions, while the FHLB advance did not contain such matching terms. The Company did have the option to prepay the FHLB advances, however, it was not a contractual requirement. Since the interest rate swaps and the FHLB advances did not have absolute parity and the critical terms of the instruments did not completely match, the Company and its Audit Committee have concluded that the swap transactions did not qualify as cash flow hedges and, therefore, any fluctuations in the market value of the interest rate swaps, including any accrued interest, should have been included in other non-interest income resulting in quarterly and annual mark-to-market adjustments. As originally recorded, fluctuations in the fair value of the interest rate swaps were recorded in other comprehensive income, with accrued interest recorded as a reduction of interest expense on FHLB advances. There is no effect on cash flows or stockholders’ equity from these revisions.

For additional information on the restatement, see Note 1, Restatement in the Notes to Consolidated Financial Statements.

Comparison of Financial Condition at March 31, 2007 and December 31, 2006

General. Following is the restated summarized comparative balance sheet data as of March 31, 2007 and December 31, 2006:

	March 31,		December 31,		Increase (decrease)
	2007		2006		Dollars		Percentage
Assets	(Dollars in Thousands)
Other assets	$	58,340	$	57,709	$	631		1.1	%
Total assets	$	886,216	$	843,079	$	43,137		5.1	%

Liabilities and Stockholders' equity
Accrued expenses and other liabilities	$	6,564	$	5,940	$	624		10.5	%
Total liabilities	$	796,265	$	751,992	$	44,273		5.9	%
Total liabilities and stockholders' equity	$	886,216	$	843,079	$	43,137		5.1	%

Following is the restated summarized comparative balance sheet data as of March 31, 2007 and December 31, 2006:

Federal Home Loan Bank advances. FHLB advances had a weighted-average maturity of 69 months and a weighted- average rate of 4.48% at March 31, 2007.

Stockholders’ equity. The equity to assets ratio decreased to 10.15% at March 31, 2007, from 10.81% at December 31, 2006. The decrease was primarily due to common stock repurchased under the Company’s stock repurchase plan and the rate of asset growth through March 31, 2007. Despite this decrease, we continued to be well in excess of all minimum regulatory capital requirements, and are considered “well capitalized” under those formulas. Total risk-based capital to risk-weighted assets was 12.6%, Tier 1 capital to risk-weighted assets was 11.8%, and Tier 1 capital to total adjusted total assets was 8.2% at March 31, 2007. These ratios as of December 31, 2006 were 13.9%, 13.1% and 9.3%, respectively.

Comparison of Results of Operations for the Three Months Ended March 31, 2007 and 2006.

General. Our net income for the three months ended March 31, 2007, was $785,000, which was a decrease of $506,000 from $1.3 million for the same period in 2006 primarily due to an increase in the provision for loan losses together with higher non-interest expenses. Net interest income increased 2.2%, or $116,000 in the first quarter of 2007, compared to the same quarter in 2006, due primarily to the growth in interest-earning assets and to a lesser extent higher interest rates, which slightly outpaced the growth in interest-bearing liabilities and the associated cost of funds. Non-interest income for the three months ended March 31, 2007 decreased by 6.6%, or $129,000, to $1.8 million as compared to $2.0 million for the same three months in 2006, due primarily to lower income from the change in the fair market value of interest rate swap agreements offset by a lower net loss on available for sale securities.

Average Balances, Net Interest Income, Yields Earned and Rates Paid. The following table sets forth certain restated information for the three months ended March 31, 2007 and 2006. 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 March 31,
	2007							2006
	(Dollars in Thousands, restated)
	Average Balance		Interest		Average Yield /Cost			Average Balance		Interest		Average Yield /Cost
Federal Home Loan Bank advances		143,644		1,608		4.48	%		129,000		1,368		4.24	%
Net interest income			$	5,353						$	5,237
Net interest spread						2.22	%						2.63	%
Net interest margin (1)						2.66	%						3.02	%

(1) Net interest income divided by average interest-earnings assets.

Rate/Volume Analysis. The following table presents the restated dollar amount of changes in the FHLB advances and total interest-bearing liabilities as of and for the three months ended March 31, 2007 as compared to the same period in 2006.

	Increase/(Decrease)					Total
	Due to					Increase
	Volume		Rate			(Decrease)
Federal Home Loan Bank advances		161		79			240
Total interest-bearing liabilities		1,419		1,207			2,626
N et interest income	$	189	$	(74	)	$	115

Non-interest income. The restated components of non-interest income for the three months ended March 31, 2007 and 2006 were as follows:

					Increase(decrease)
	2007		2006		Dollars			Percentage
	(Dollars in Thousands)
Other		98		308		(210	)		-68.2	%
Non-interest income	$	1,830	$	1,959	$	(129	)		-6.6	%

The decrease in non-interest income was primarily a result of lower swap income of $235,000 and a decrease in service charges and fees, offset by lower net losses on available for sale securities. Services 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 which more than offset the continued growth in ATM and check card overdraft fees.

Income tax expense. Restated income tax expense decreased $228,000 to $367,000 for the three months ended March 31, 2007, from $595,000 for the same period in 2006. Management anticipates that income tax expense will continue to vary as income before income taxes varies.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of March 31, 2007, the Company held interest rate swaps agreements with a combined notional amount totaling $15.0 million. These interest rate swap agreements had an estimated fair market value of $667,000 at March 31, 2007. Since these interest rate swap agreements do not qualify for hedge accounting treatment, changes in the estimated fair market value and accrued interest is recorded through current period earnings in other non-interest income.

ATLANTIC COAST FEDERAL CORPORATION

FORM 10-Q/A

March 31, 2007

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: June 18, 2007		/s/ Robert J. Larison, Jr.
		Robert J. Larison, Jr., President and Chief Executive Officer



Date: June 18, 2007		/s/ Dawna R. Miller
		Dawna R. Miller, Senior Vice President and Chief Financial Officer