Atlantic Coast Federal Corp.'s credit quality is on the mend as the Waycross, Ga., company approaches its second-step conversion.

The $900 million-asset Atlantic Federal, which announced the conversion plan in June, said Tuesday that it had nonperforming assets of $29 million at the end of the second quarter, down 25% from the start of the quarter. The nonperformers made up 3.22% of total assets.

The company's provision for loan losses rose 20% from a year earlier, to $7.5 million. The provision drove Atlantic Federal to a loss of $4 million for the quarter, down 13% from a year earlier. It announced the conversion plan in June.

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