<PAGE> 1

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

              [v] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended March 31, 2007

                                       OR

             [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

              For the transition period from ________ to _________.

                         Commission file number: 0-26467


                        GREATER ATLANTIC FINANCIAL CORP.
             (Exact Name of Registrant as Specified in its Charter)

          Delaware                                          54-1873112
(State or other jurisdiction of                         (I.R.S. Employer
incorporation or organization)                          Identification No.)

10700 Parkridge Boulevard, Suite P50, Reston, Virginia          20191
    (Address of Principal Executive Offices)                  (Zip Code)

                                 (703) 391-1300
              (Registrant's telephone number, including area code)

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 [ ]

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 [__] Accelerated filer [__] 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 [__] No [X]

     At May 11, 2007, there were 3,024,220 shares of the registrant's Common
                  Stock, par value $0.01 per share outstanding


<PAGE> 2
                        GREATER ATLANTIC FINANCIAL CORP.
                          QUARTERLY REPORT ON FORM 10-Q
                      FOR THE QUARTER ENDED MARCH 31, 2007

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>

PART I.  FINANCIAL INFORMATION                                                                                  PAGE NO.
------------------------------                                                                                  --------
<S>                                                                                                                    <C>
Item 1. Condensed Financial Statements (Unaudited)

      Consolidated Statements of Financial Condition at March 31, 2007 and September 30, 2006...........................3

      Consolidated Statements of Operations
      for the three and six months ended March 31, 2007 and March 31, 2006 (restated)...................................4

      Consolidated Statements of Comprehensive Income (Loss)
      for the three and six months ended March 31, 2007 and March 31, 2006 (restated)...................................5

      Consolidated Statements of Changes in Stockholders' Equity
      for the six months ended March 31, 2007 and March 31, 2006 (restated).............................................5

      Consolidated Statements of Cash Flows
      for the six months ended March 31, 2007 and March 31, 2006 (restated).............................................6

      Notes to Consolidated Financial Statements........................................................................8

Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations.........................15
Item 3.  Quantitative and Qualitative Disclosures about Market Risk....................................................27
Item 4.  Controls and Procedures.......................................................................................28

PART II.  OTHER INFORMATION

Item 1.    Legal Proceedings...........................................................................................29
Item 1A.  Risk Factors.................................................................................................29
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds.................................................31
Item 3.    Defaults Upon Senior Securities.............................................................................31
Item 4.    Submission of Matters to a Vote of Security Holders.........................................................31
Item 5.    Other Information...........................................................................................31
Item 6.    Exhibits....................................................................................................31

SIGNATURES.............................................................................................................32

CERTIFICATIONS.........................................................................................................33
</TABLE>
                                       2
<PAGE> 3
<TABLE>
<CAPTION>

                        GREATER ATLANTIC FINANCIAL CORP.
           CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)

                                                                              March 31,              September 30,
                                                                           ----------------------------------------
                                                                                 2007                   2006 (a)
  -----------------------------------------------------------------------------------------------------------------
  (Dollars in Thousands)
  <S>                                                                          <C>                      <C>
  Assets
  Cash and cash equivalents                                                    $  2,637                 $  2,516
  Interest bearing deposits at banks                                             22,153                   17,288
  Investment securities
     Available-for-sale                                                          61,694                   75,461
     Held-to-maturity                                                             3,720                    4,696
  Loans receivable, net                                                         182,941                  193,307
  Accrued interest and dividends receivable                                       1,822                    2,073
  Deferred income taxes                                                           1,894                    1,928
  Federal Home Loan Bank stock, at cost                                           2,204                    2,388
  Premises and equipment, net                                                     2,560                    2,764
  Goodwill                                                                          956                      956
  Prepaid expenses and other assets                                               1,422                    1,842
  -----------------------------------------------------------------------------------------------------------------
  Total assets                                                                 $284,003                 $305,219
  =================================================================================================================
  Liabilities and stockholders' equity
  Liabilities
  Deposits                                                                     $226,627                 $230,174
  Advance payments from borrowers for taxes and insurance                           390                      270
  Accrued expenses and other liabilities                                          1,428                    1,963
  Advances from the FHLB and other borrowings                                    38,954                   54,574
  Junior subordinated debt securities                                             9,392                    9,388
  -----------------------------------------------------------------------------------------------------------------
  Total liabilities                                                             276,791                  296,369
  -----------------------------------------------------------------------------------------------------------------
  Commitments and contingencies
  -----------------------------------------------------------------------------------------------------------------
  Stockholders' Equity
     Preferred stock $.01 par value - 2,500,000 shares authorized,
         none outstanding                                                             -                        -
     Common stock, $.01 par value - 10,000,000
         shares authorized; 3,024,220 shares outstanding                             30                       30
     Additional paid-in capital                                                  25,250                   25,228
     Accumulated deficit                                                        (17,075)                 (15,359)
     Accumulated other comprehensive loss                                          (993)                  (1,049)
  -----------------------------------------------------------------------------------------------------------------
  Total stockholders' equity                                                      7,212                    8,850
  -----------------------------------------------------------------------------------------------------------------
  Total liabilities and stockholders' equity                                   $284,003                 $305,219
  =================================================================================================================
</TABLE>
(a) Consolidated Statement of Financial Condition as of September 30, 2006 has
been derived from audited consolidated financial statements. See accompanying
notes to consolidated financial statements

                                       3
<PAGE> 4
<TABLE>
<CAPTION>

                        GREATER ATLANTIC FINANCIAL CORP.
                CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

                                                        Three Months Ended                        Six Months Ended
                                                             March 31,                                March 31,
---------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands, Except Per Share Data)          2007                2006                2007                2006
---------------------------------------------------------------------------------------------------------------------------
                                                                         (Restated)                              (Restated)
<S>                                                   <C>                 <C>                 <C>                 <C>
Interest income
  Loans                                               $ 3,651             $ 3,399             $ 7,322             $ 6,790
  Investments                                             943               1,201               2,077               2,400
---------------------------------------------------------------------------------------------------------------------------
Total interest income                                   4,594               4,600               9,399               9,190
---------------------------------------------------------------------------------------------------------------------------
Interest expense
  Deposits                                              2,187               1,890               4,426               3,654
  Borrowed money                                          712                 949               1,474               1,966
---------------------------------------------------------------------------------------------------------------------------
Total interest expense                                  2,899               2,839               5,900               5,620
---------------------------------------------------------------------------------------------------------------------------
Net interest income                                     1,695               1,761               3,499               3,570
Provision for loan losses                                 145                   3                 293                  74
---------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses     1,550               1,758               3,206               3,496
---------------------------------------------------------------------------------------------------------------------------
Noninterest income
  Fees and service charges                                155                 146                 307                 297
  Gain (loss) on derivatives                              (13)                179                 (33)                291
  Gain on sale of foreclosed real estate                    -                   -                   -                  65
  Other operating income                                    6                   5                  11                  20
---------------------------------------------------------------------------------------------------------------------------
Total noninterest income                                  148                 330                 285                 673
---------------------------------------------------------------------------------------------------------------------------
Noninterest expense
  Compensation and employee benefits                    1,175               1,194               2,441               2,286
  Occupancy                                               344                 334                 687                 651
  Professional services                                   323                 261                 722                 519
  Advertising                                              45                 190                  69                 364
  Deposit insurance premium                                 7                  25                  30                  52
  Furniture, fixtures and equipment                       137                 143                 267                 280

  Data processing                                         233                 225                 452                 468
  Other operating expenses                                258                 254                 539                 528
---------------------------------------------------------------------------------------------------------------------------
Total noninterest expense                               2,522               2,626               5,207               5,148
---------------------------------------------------------------------------------------------------------------------------
Loss from continuing operations before income taxes      (824)               (538)             (1,716)               (979)
Provision for income taxes                                  -                   -                   -                   -
---------------------------------------------------------------------------------------------------------------------------
    Loss from continuing operations                      (824)               (538)             (1,716)               (979)
Discontinued operations:
  Loss from operations                                      -                (698)                  -              (2,480)
---------------------------------------------------------------------------------------------------------------------------
Net loss                                              $  (824)           $ (1,236)           $ (1,716)           $ (3,459)
===========================================================================================================================
Earnings (loss) per common share BASIC AND DILUTED:
  Continuing operations                               $ (0.27)             $(0.18)             $(0.57)             $(0.32)
  Discontinued operations                                   -               (0.23)                  -               (0.82)
---------------------------------------------------------------------------------------------------------------------------
    Net income (loss)                                 $ (0.27)             $(0.41)             $(0.57)             $(1.14)
===========================================================================================================================
Weighted average common shares outstanding
Basic and diluted                                   3,023,911           3,020,934           3,022,590           3,020,934
</TABLE>
See accompanying notes to consolidated financial statements

                                       4
<PAGE> 5
<TABLE>
<CAPTION>

                        GREATER ATLANTIC FINANCIAL CORP.
       CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

                                                     Three months ended                        Six months ended
                                                -------------------------------------------------------------------------
                                                         March 31,                               March 31,
-------------------------------------------------------------------------------------------------------------------------
(In Thousands)                                     2007                 2006                2007                2006
                                                                    (Restated)                              (Restated)
-------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>                 <C>                <C>                  <C>
Net (loss) earnings                             $ (824)             $ (1,236)          $ (1,716)            $ (3,459)
-------------------------------------------------------------------------------------------------------------------------
Other comprehensive (loss) income, net of tax
   Unrealized (loss) gain on securities            (60)                   19                 56                 (153)
-------------------------------------------------------------------------------------------------------------------------
Other comprehensive (loss) income                  (60)                   19                 56                 (153)
-------------------------------------------------------------------------------------------------------------------------
Comprehensive (loss) income                     $ (884)             $ (1,217)          $ (1,660)            $ (3,612)
=========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>

                        GREATER ATLANTIC FINANCIAL CORP.
     CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
           FOR THE SIX MONTHS ENDED MARCH 31, 2007 AND 2006 (RESTATED)

------------------------------------------------------------------------------------------------------------------------------------
                                                                                                Accumulated
                                                                               Additional         Other                 Total
                                          Preferred   Common      Paid-in       Earnings       Comprehensive        Stockholders'
                                           Stock      Stock       Capital      (Deficit)       Income (Loss            Equity
------------------------------------------------------------------------------------------------------------------------------------
(In Thousands)
<S>                                          <C>      <C>         <C>          <C>                <C>                 <C>
Balance at September 30, 2005 (as restated)  $-       $ 30        $ 25,228     $  (9,788)         $ (1,095)           $ 14,375

Other comprehensive loss                      -          -               -             -              (153)               (153)

Net loss for the period (as restated)         -          -               -        (3,459)                -              (3,459)
------------------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 2006 (as restated)      $-       $ 30        $ 25,228     $ (13,247)         $ (1,248)           $ 10,763
====================================================================================================================================
Balance at September 30, 2006                $-       $ 30        $ 25,228     $ (15,359)         $ (1,049)           $  8,850

Stock Option Expense                          -          -              22             -                 -                  22

Other comprehensive income                    -          -               -             -                56                  56

Net loss for the period                       -          -               -        (1,716)                -              (1,716)
------------------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 2007                    $-       $ 30        $ 25,250     $ (17,075)         $   (993)           $  7,212
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements

                                       5
<PAGE> 6
<TABLE>
<CAPTION>

                        GREATER ATLANTIC FINANCIAL CORP.
                CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

                                                                         Six months ended March 31,
                                                                    ---------------------------------
                                                                        2007                 2006
                                                                                          (Restated)
-----------------------------------------------------------------------------------------------------
(In Thousands)
<S>                                                                   <C>                  <C>
Cash flow from operating activities
Net loss                                                              $ (1,716)            $(3,459)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities
  Provision for loan loss                                                  293                  74
  Amortization of loan acquisition adjustment                              (25)                (26)
  Depreciation and amortization                                            228                 419
  Loss (gain) on derivatives                                                33                (291)
  Amortization of investment security premiums                             363                 442
  Amortization of mortgage-backed securities premiums                      214                 371
  Amortization of deferred fees                                           (178)               (286)
  Discount accretion net of premium amortization                          (145)               (135)
  Amortization of convertible preferred stock costs                          4                   5
  Gain on sale of loans held for sale                                        -              (1,465)
  Gain on sale of foreclosed real estate                                     -                 (65)
  Gain on sale of fixed assets                                               -                 (26)
(Increase) decrease in assets
  Disbursements for origination of loans held for sale                       -             (91,477)
  Proceeds from sales of loans                                               -              98,987
  Accrued interest and dividend receivable                                 251                (218)
  Prepaid expenses and other assets                                        351                 804
  Deferred loan fees collected, net of deferred costs incurred             260                 163
Increase (decrease) in liabilities
  Accrued expenses and other liabilities                                  (477)               (314)
-----------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities                       (544)              3,503
-----------------------------------------------------------------------------------------------------
</TABLE>
Continued
                                       6
<PAGE> 7
<TABLE>
<CAPTION>

                        GREATER ATLANTIC FINANCIAL CORP.
         CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - (CONTINUED)

                                                                       Six months ended March 31,
                                                                    ----------------------------------
                                                                          2007               2006
                                                                                          (Restated)
------------------------------------------------------------------------------------------------------
(In Thousands)
<S>                                                                     <C>                 <C>
Cash flow from investing activities
  Net  decrease in loans                                                $ 10,161            $ 1,492
  Disposal (purchase) of premises and equipment                              (24)               811
  Purchases of investment securities                                           -             (7,707)
  Proceeds from repayments of investment securities                        6,224              8,401
  Proceeds from repayments of mortgage-backed securities                   8,032             14,322
  Proceeds from the sale of foreclosed assets                                  -                297
  Purchases of FHLB stock                                                   (653)            (1,800)
  Proceeds from sale of FHLB stock                                           837              1,915
------------------------------------------------------------------------------------------------------
Net cash provided by investing activities                                 24,577             17,731
------------------------------------------------------------------------------------------------------
Cash flow from financing activities
  Net decrease in deposits                                                (3,547)            (6,603)
  Net decrease in advances from the FHLB and other borrowings            (15,620)           (12,148)
  Increase (decrease) in advance payments by borrowers
    for taxes and insurance                                                  120                 73
------------------------------------------------------------------------------------------------------
Net cash used in financing activities                                    (19,047)           (18,678)
------------------------------------------------------------------------------------------------------
Increase in cash and cash equivalents                                      4,986              2,556
------------------------------------------------------------------------------------------------------
Cash and cash equivalents, at beginning of period                         19,804              4,709
------------------------------------------------------------------------------------------------------
Cash and cash equivalents, at end of period                             $ 24,790            $ 7,265
======================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements

                                       7

<PAGE> 8

                        GREATER ATLANTIC FINANCIAL CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
      INFORMATION AS OF MARCH 31, 2007 AND THREE AND THE SIX MONTHS ENDED
                            MARCH 31, 2007 AND 2006
                                  (UNAUDITED)

(1) BASIS OF PRESENTATION

         The accompanying unaudited consolidated financial statements, which
include the accounts of Greater Atlantic Financial Corp. (the "company") and its
wholly owned subsidiary, Greater Atlantic Bank (the "bank") have been prepared
in accordance with the instructions for Form 10-Q. Certain information and note
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States of America
have been omitted pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC") with respect to interim financial reporting. It is
recommended that these consolidated financial statements be read in conjunction
with the company's Annual Report on Form 10-K for the year ended September 30,
2006. The results of operations for the three months or the six months ended
March 31, 2007 are not necessarily indicative of the results of operations that
may be expected for the year ending September 30, 2007 or any future periods. In
addition to reclassifications related to discontinued operations, other
reclassifications have been made to prior periods to place them on a basis
comparable with the current period presentation.

        As previously reported in a Form 8-K filed on April 16, 2007, on April
12, 2007, the company announced that it and Summit Financial Group, Inc.
("Summit") entered into a definitive agreement for the company to merge with and
into Summit and that the bank and Bay-Vanguard Federal Savings Bank
("Bay-Vanguard"), entered into a definitive agreement for Bay-Vanguard to
purchase the bank's branch office in Pasadena, Maryland.

(2) RESTATEMENT

         During 2006, the company restated its historical financial statements
to reflect the accounting treatment for non-cash losses discovered in an
unreconciled inter-company account in its subsidiary, Greater Atlantic Mortgage
Corporation ("GAMC"). The losses were discovered as the bank discontinued the
operations of the subsidiary. The loss in any given year did not reach a
material amount such as to require restatement. However, the bank determined to
provide the restatements because the cumulative amount of the losses aggregated
$1.4 million. The revisions had no impact on the cash flows of the bank. The
table below includes the effect of the restatement and the presentation of GAMC
as discontinued operations.
<TABLE>
<CAPTION>
                                        As originally                               Discontinued
                                          reported                Restatement        operations              As restated
                                        --------------            -----------       ------------             -----------
<S>                                        <C>                      <C>              <C>                      <C>
Three months ended March 31, 2006
Interest income                            $ 4,722                  $    -           $   122                  $ 4,600
Interest expense                             2,949                       -               110                    2,839
Net interest income                          1,773                       -                12                    1,761
Noninterest income                           1,405                     (50)            1,025                      330
Noninterest expense                          4,361                       -             1,735                    2,626
Discontinued operations                          -                       -              (698)                    (698)
Net income (loss)                           (1,186)                    (50)                -                   (1,236)
Earnings per share - continuing              (0.39)                  (0.02)             0.23                    (0.18)
Earnings per share - discontinued            (0.00)                   0.00             (0.23)                   (0.23)
Six months ended March 31, 2006
Interest income                            $ 9,461                  $    -           $   271                  $ 9,190
Interest expense                             5,852                       -               232                    5,620
Net interest income                          3,609                       -                39                    3,570
Noninterest income                           2,894                    (144)            2,077                      673
Noninterest expense                          9,744                       -             4,596                    5,148
Discontinued operations                          -                       -            (2,480)                  (2,480)
Net income (loss)                           (3,315)                   (144)                -                   (3,459)
Earnings per share - continuing              (1.10)                  (0.04)             0.82                    (0.32)
Earnings per share - discontinued            (0.00)                   0.00             (0.82)                   (0.82)
</TABLE>

         The $50,000 and $144,000 adjustments to noninterest income, shown in
the restatement column above, relate to gains on sale of loans. In addition, the
September 30, 2005 retained earnings balance was reduced by $1.3 million to
reflect the cumulative effect of the restatement of all periods prior to those
reflected in this form 10-Q.

                                       8
<PAGE> 9

                        GREATER ATLANTIC FINANCIAL CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
      INFORMATION AS OF MARCH 31, 2007 AND THREE AND THE SIX MONTHS ENDED
                            MARCH 31, 2007 AND 2006
                                  (UNAUDITED)

(3) DISCONTINUED OPERATIONS

         On March 29, 2006, we began the process of discontinuing the operations
of the bank's mortgage company subsidiary, GAMC. It was determined that this
business no longer fit our strategy.

         As a result of the above action, we applied discontinued operations
accounting in the third quarter of 2006, as we completed the closing of the GAMC
business. Accordingly, the income statements for all periods have been adjusted.
The reclassification of GAMC's results to discontinued operations primarily
resulted in a reduction to previously reported levels of net interest income, a
reduction in noninterest income and a reduction in noninterest expense. The
table below summarizes GAMC's results which were treated as discontinued
operations for the periods indicated
<TABLE>
<CAPTION>

                                             Three months ended      Six months ended March
                                                 March 31,                    31,
                                             -----------------------------------------------
                                                  2006                      2006
--------------------------------------------------------------------------------------------
(Dollars in Thousands, Except Per Share Data)
<S>                                              <C>                       <C>
Interest income                                  $   122                   $    271
Interest expense                                     110                        232
--------------------------------------------------------------------------------------------
Net interest income                                   12                         39
Noninterest income                                 1,025                      2,077
Noninterest expense                                1,735                      4,596
--------------------------------------------------------------------------------------------
Net income (loss)                                $  (698)                  $ (2,480)
============================================================================================
Earnings (loss) per share - basic                $ (0.23)                  $  (0.82)
Earnings (loss) per share - diluted                (0.23)                     (0.82)
</TABLE>

(4) LOAN IMPAIRMENT AND LOAN LOSSES

         In accordance with guidance in the Statements of Financial Accounting
Standards Nos. 114 and 118, the company prepares a quarterly review to determine
the adequacy of the allowance for loan losses and to identify and value impaired
loans. An analysis of the change in the allowance for loan losses follows (also
see page 22 for discussion of non-performing loans):
<TABLE>
<CAPTION>

                                                                At or for the six months ended
                                                                        March 31,
                                                          ----------------------------------------
                                                              2007                    2006
--------------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S>                                                        <C>                    <C>
Balance at beginning of period                             $ 1,330                $ 1,212
Provisions                                                     293                     74
Total charge-offs                                             (327)                   (56)
Total recoveries                                               626                     20
--------------------------------------------------------------------------------------------------
Net recoveries (charge-offs)                                   299                    (36)
--------------------------------------------------------------------------------------------------
Balance at end of period                                   $ 1,922                $ 1,250
==================================================================================================
Ratio of net charge-offs during the period
   to average loans outstanding during the period            (0.16)%                 0.02%
==================================================================================================
Allowance for loan losses to total non-performing
   loans at end of period                                   118.13%                 86.45%
==================================================================================================
Allowance for loan losses to total loans                      1.02%                  0.62%
==================================================================================================
</TABLE>

                                       9
<PAGE> 10
                        GREATER ATLANTIC FINANCIAL CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
      INFORMATION AS OF MARCH 31, 2007 AND THREE AND THE SIX MONTHS ENDED
                            MARCH 31, 2007 AND 2006
                                  (UNAUDITED)

         The Company considers a loan to be impaired if it is probable that they
will be unable to collect all amounts due (both principal and interest)
according to the contractual terms of the loan agreement. When a loan is deemed
impaired, the Company computes the present value of the loan's future cash
flows, discounted at the effective interest rate. As an expedient, creditors may
account for impaired loans at the fair value of the collateral or at the
observable market price of the loan if one exists. If the present value is less
than the carrying value of the loan, a valuation allowance is recorded. For
collateral dependent loans, the Company uses the fair value of the collateral,
less estimated costs to sell on a discounted basis, to measure impairment.

         Our total recorded investment in impaired collateral dependent loans at
March 31, 2007 was $1.3 million and the related allowance associated with
impaired loans was $500,000. There were no impaired loans in the comparable
period one year ago. At March 31, 2007, all impaired loans had a related
allowance and we have not recognized interest income on impaired loans after the
date that the loans were deemed to be impaired.

(5) REGULATORY MATTERS

         The capital distribution regulation of the OTS requires that the bank
provide the applicable OTS Regional Director with a 30-day advance written
notice of all proposed capital distributions whether or not advance approval is
required. The bank paid dividends of $655,000 to the company during the year
ended September 30, 2006.

         On December 19, 2006, the company issued a news release announcing that
the first quarter distribution on the Greater Atlantic Capital Trust I 6.50%
Cumulative Convertible Trust Preferred Securities scheduled for December 31,
2006, as well as future distributions on the Trust Preferred Securities, will be
deferred. The announcement by the company followed advice received by the bank
that the Office of Thrift Supervision would not approve the bank's application
to pay a cash dividend to the company. Accordingly, the company exercised its
right to defer the payment of interest on its 6.50% Convertible Junior
Subordinated Debentures Due 2031 related to the Trust Preferred Securities, for
an indefinite period (which can be no longer than 20 consecutive quarterly
periods).

         The Federal Deposit Insurance Corporation Improvement Act of 1991
(FDICIA) created five categories of financial institutions based on the adequacy
of their regulatory capital levels: well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized.

         Under FDICIA, a well capitalized financial institution is one with Tier
1 leverage capital of 5%, Tier 1 risk-based capital of 6% and total risk-based
capital of 10% and an adequately capitalized financial institution is one with
Tier 1 leverage capital of 4%, Tier 1 risk-based capital of 4% and total
risk-based capital of 8%. At March 31, 2007, the bank was classified as an
adequately capitalized financial institution.

        There are currently no orders, agreements, recommendations or
understandings with our regulatory agency, which, if implemented, would affect
our liquidity, capital resources, or results of operations. As an adequately
capitalized institution, the Bank cannot issue brokered certificates of deposit
without OTS or FDIC permission. We do not believe that limitation will have a
material impact on the Bank's operations.
<TABLE>
<CAPTION>

         The following presents the bank's capital position at March 31, 2007:

------------------------------------------------------------------------------------------------------
                                               Required
                                             Percent to be
                            Required             Well          Actual         Actual       Surplus/
                            Balance          Capitalized       Balance        Percent     (Shortfall)
------------------------------------------------------------------------------------------------------
<S>                          <C>                <C>            <C>            <C>          <C>
(Dollars in Thousands)
Leverage                     $14,134             5.00%         $15,426        5.46%        $  1,292
Tier 1 Risk-based            $10,815             6.00%         $15,336        8.51%        $  4,521
Total Risk-based             $18,024            10.00%         $17,258        9.57%        $   (766)
======================================================================================================
</TABLE>
        Greater Atlantic Financial Corp., the holding company for Greater
Atlantic Bank, announced on February 20, 2007, it received a letter from The
Nasdaq Stock Market advising that the Nasdaq Listing Qualifications Panel

                                       10
<PAGE> 11
                       GREATER ATLANTIC FINANCIAL CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
      INFORMATION AS OF MARCH 31, 2007 AND THREE AND THE SIX MONTHS ENDED
                            MARCH 31, 2007 AND 2006
                                  (UNAUDITED)

had determined to delist the shares of the Company from the Nasdaq Global
Market, and will suspend trading of the Company's shares effective Thursday,
February 22, 2007.

        As previously reported, on February 6, 2007, the Company was notified
that the Company's failure to maintain the minimum of $10,000,000 stockholders'
equity requirement for continued listing on the Nasdaq Global Market, as set
forth in Marketplace Rule 4450 (a) (3), served as an additional basis for
delisting the Company's shares from the Nasdaq Global Market. In its SEC Form
10-K for the period ended September 30, 2006, filed on January 31, 2007, the
Company reported stockholders' equity of $8,850,000. Because of the $1,150,000
deficiency in stockholders' equity, the Company did not make a presentation to
the Panel to consider the Company's continued listing on the Nasdaq Global
Market or to transfer its listing to the Nasdaq Capital Market. The Company's
common stock is currently listed on the Pink Sheet under the symbol GAFC.PK.

(6) STOCK OPTIONS

         Effective November 14, 1998, the company established the 1997 Stock
Option and Warrant Plan (the "Plan"). The Plan reserves options for 76,667
shares to employees and warrants for 94,685 shares to stockholders. The Plan was
amended effective March 14, 2000, to increase the number of options available
for grant to employees from 76,667 to 225,000 shares and amended again effective
March 15, 2002, to increase the number of options available for grant to
employees from 225,000 to 350,000 shares and to limit its application to
officers and employees. The stock options and warrants vest immediately upon
issuance and carry a maximum term of 10 years. The exercise price for the stock
options and warrants is the fair market value at grant date. As of March 31,
2007, 94,685 warrants were issued.
<TABLE>
<CAPTION>


         The following summary represents the activity under the Plan:
  ---------------------------------------------------------------------------------------------------------------
                                                                     Number of        Exercise       Expiration
                                                                      Shares           Price           Date
  ---------------------------------------------------------------------------------------------------------------
  <S>                                                                <C>               <C>           <C>
  Balance outstanding and exercisable at September 30, 2004          226,000
  Options granted                                                    104,000           $ 6.75        10-6-2014
  Options exercised                                                   (8,500)          $ 4.00
  Options expired                                                    (55,500)          $ 6.52
  ---------------------------------------------------------------------------------------------------------------
  Balance outstanding and exercisable at September 30, 2005          266,000           $ 6.91
  Options granted                                                     12,000           $ 6.00         3-31-2016
  Options expired                                                    (25,000)          $ 8.37
  ---------------------------------------------------------------------------------------------------------------
  Balance outstanding and exercisable at September 30, 2006          253,000           $ 6.72
  Options granted                                                          -
  ---------------------------------------------------------------------------------------------------------------
  Balance outstanding and exercisable at March 31, 2007              253,000           $ 6.72
  ===============================================================================================================
</TABLE>

         The company has adopted the provisions of Statement of Financial
Accounting Standards No. 123R, "Accounting for Stock-Based Compensation" ("SFAS
123R"), to measure compensation cost for stock options effective after October
1, 2005. Prior to its adoption, the company accounted for its options under APB
25 "Accounting for Stock Issued to Employees" with pro forma disclosed. As
allowable under SFAS 123R, the company used the Black-Scholes method to measure
the compensation cost of stock options granted in 2006 with the following
assumptions: risk-free interest rate of 4.88%, a dividend payout rate of zero,
and an expected option life of nine years. The volatility is 32%. Using those
assumptions, the fair value of stock options granted during fiscal 2006 was
$2.92. The company estimates the fair value of each option on the date of grant
using the Black-Scholes option-pricing model. There were no options granted
during the six months ended March 31, 2007 and March 31, 2006, respectively.

                                       11
<PAGE> 12
                      GREATER ATLANTIC FINANCIAL CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
      INFORMATION AS OF MARCH 31, 2007 AND THREE AND THE SIX MONTHS ENDED
                            MARCH 31, 2007 AND 2006
                                  (UNAUDITED)

(7) EARNINGS PER SHARE

         Earnings per share is based on the weighted average number of shares of
common stock and dilutive common stock equivalents outstanding. Basic earnings
per share includes no dilution and is computed by dividing income available to
common shareholders by the weighted average number of common shares outstanding
for the period. Diluted earnings per share reflect the potential dilution of
securities that could share in the earnings of an entity. The weighted average
shares outstanding for basic and diluted earnings per share for the six months
ended March 31, 2007 and 2006 were the same as the effect of the conversion of
preferred securities and the impact of stock options were antidilutive for the
periods ended March 31, 2007 and 2006. The effect of the conversion of the
preferred securities would result in an increase of 1,373,469 in common shares
outstanding.

(8) SEGMENT REPORTING

          The company had two reportable segments, banking and mortgage banking
until the mortgage-banking activities conducted in GAMC, to which the
mortgage-banking segment applied, were discontinued effective March 29, 2006.
The bank operates retail deposit branches in the greater Washington,
D.C./Baltimore metropolitan area. The banking segment provides retail consumers
and small businesses with deposit products such as demand, transaction, and
savings accounts and certificates of deposit and lending products, such as
residential and commercial real estate, construction and development, consumer
and commercial business loans. Further, the banking segment invests in purchased
residential real estate loans , and also invests in mortgage-backed and other
securities.

         On March 29, 2006, we began the process of discontinuing the operations
of the bank's subsidiary, GAMC. Because it was unprofitable, it was determined
that this business no longer fit our strategy.

         In the third quarter of 2006, we applied discontinued operations
accounting for GAMC. Accordingly, the income statements for all periods have
been restated. The restatements primarily resulted in a reduction to previously
reported levels of net interest income, a reduction in noninterest income and a
reduction in noninterest expense.

(9) RECENT ACCOUNTING STANDARDS

         In May 2005, the FASB issued SFAS 154, "Accounting Changes and Error
Corrections - a replacement of APB Opinion No. 20 and FASB Statement No. 3."
SFAS 154 generally requires retrospective application to prior periods'
financial statements of all voluntary changes in accounting principle and
changes required when a new pronouncement does not include specific transition
provisions. This standard was effective for the company beginning October 1,
2006.

         In July 2006, the FASB issued Interpretation (FIN) No. 48, "Accounting
for Uncertainty in Income Taxes" - an Interpretation of SFAS No. 109,
"Accounting for Income Taxes." FIN 48 defines the threshold for recognizing the
benefits of tax return positions in the financial statements as
"more-likely-than-not" to be sustained by a taxing authority. The term
"more-likely-than-not" means a likelihood of more than 50 percent. FIN 48 is
effective for fiscal years beginning after December 15, 2006, with early
application permitted. Any impact from the adoption of FIN 48 will be recorded
directly to the beginning balance of retained earnings and reported as a change
in accounting principle. We are currently evaluating the impact of this
Interpretation, but do not expect it to be material.

         On October 1, 2006, we adopted SFAS 156, "Accounting for Servicing of
Financial Assets - an amendment of FASB Statement No.140." SFAS 156 was issued
in March 2006 and requires all newly recognized servicing rights and obligations
to be initially measured at fair value. For each class of separately recognized
servicing rights and obligations retained, we have elected to continue to
account for each under the amortization method which requires us to amortize
servicing assets or liabilities in proportion to and over the periods of
estimated net servicing income or net servicing loss.

                                       12
<PAGE> 13
                      GREATER ATLANTIC FINANCIAL CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
      INFORMATION AS OF MARCH 31, 2007 AND THREE AND THE SIX MONTHS ENDED
                            MARCH 31, 2007 AND 2006
                                  (UNAUDITED)

         In September 2006, the Financial Accounting Standards Board released
Statement No. 157, "Fair Value Measurements" which defines fair value,
establishes a framework for measuring fair value in GAAP, and enhances
disclosures about fair value measurements. This Statement applies when other
accounting pronouncements require fair value measurements; it does not require
new fair value measurements. This Statement is effective for financial
statements issued for fiscal years beginning after November 15, 2007, and
interim periods within those years. While we are currently evaluating the effect
of the guidance contained in this Statement, we do not expect the implementation
to have a material impact on our consolidated financial statements.

         In February, 2007, the FASB issued SFAS No. 159, "The Fair Value Option
for Financial Assets and Financial Liabilities," which permits companies to
report certain financial assets and financial liabilities at fair value. SFAS
159 is effective for fiscal years beginning after November 15, 2007. The Company
can elect to apply the standard prospectively and measure certain financial
instruments at fair value beginning January 1, 2008. The Company is currently
evaluating the guidance contained in SFAS 159, and has yet to determine which
assets or liabilities (if any) will be selected. At adoption, the difference
between the carrying amount and the fair value of existing eligible assets and
liabilities selected (if any) would be recognized via a cumulative adjustment to
beginning retained earnings on October 1, 2008.

(10) JUNIOR SUBORDINATED DEBT SECURITIES

         On March 20, 2002, Greater Atlantic Capital Trust I (the, "Trust"), a
Delaware statutory business trust and a wholly owned Trust subsidiary of the
company, issued $9.6 million aggregate liquidation amount (963,038 shares) of
6.50% cumulative preferred securities maturing on December 31, 2031, retaining
an option to call the securities on or after December 31, 2003. Conversion of
the preferred securities into the company's common stock may occur at any time
on or after 60 days after the closing of the offering. The company may redeem
the preferred securities, in whole or in part, at any time on or after December
31, 2003. Distributions on the preferred securities are payable quarterly on
March 31, June 30, September 30 and December 31 of each year beginning on June
30, 2002. The Trust also issued 29,762 common securities to the company for
$297,620. The proceeds from the sale of the preferred securities and the
proceeds from the sale of the trust's common securities were utilized to
purchase from the company junior subordinated debt securities of $9,928,000
bearing interest of 6.50% and maturing December 31, 2031. The Company has fully
and unconditionally guaranteed the preferred securities along with all
obligations of the trust related thereto. The sale of the preferred securities
yielded $9.3 million after deducting offering expenses.

         To comply with FIN46, the trust preferred subsidiary was deconsolidated
in 2004, and the related securities have been presented as obligations of the
Company and titled "Junior Subordinated Debt Securities" in the financial
statements.

         On December 19, 2006, the Company issued a news release announcing that
the first quarter distribution on the Greater Atlantic Capital Trust I 6.50%
Cumulative Convertible Trust Preferred Securities scheduled for December 31,
2006, as well as future distributions on the Trust Preferred Securities, will be
deferred. The announcement by the Company follows advice received by Greater
Atlantic Bank from the Office of Thrift Supervision that it would not approve
Greater Atlantic Bank's application to pay a cash dividend to the Company.

                                       13
<PAGE> 14
                      GREATER ATLANTIC FINANCIAL CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
      INFORMATION AS OF MARCH 31, 2007 AND THREE AND THE SIX MONTHS ENDED
                            MARCH 31, 2007 AND 2006
                                  (UNAUDITED)

         Accordingly, the Company exercised its right to defer the payment of
interest on its 6.50% Convertible Junior Subordinated Debentures Due 2031
related to the Trust Preferred Securities, for an indefinite period (which can
be no longer than 20 consecutive quarterly periods).

         The company retained approximately $1.3 million of the proceeds for
general corporate purposes, investing the retained funds in short-term
investments. The remaining $8.0 million of the proceeds was invested in the bank
to increase its capital position (also see Note 5 Regulatory Matters).

(11) DERIVATIVE FINANCIAL INSTRUMENTS

         During fiscal years 2003 and 2002, the bank entered into various
interest rate caps that total $25 million in notional principal with terms
between five and ten years that limit the float between a floor of 2.00%, and
are capped between 5.00% - 8.00%. The bank accounts for these derivatives, under
the guidelines of SFAS 133, as amended.

         Realized and unrealized gains and losses on those derivatives which
meet hedge accounting requirements are deferred and recognized when the hedge
transaction occurs. In the event hedge accounting requirements are not met gains
and losses on such instruments are included currently in the statement of
operations. During the six months ended March 31, 2007 and 2006 the instruments
did not meet hedge accounting requirements. The statements of operations include
net losses of $33,000 and gains of $291,000 for the six months ended March 31,
2007 and 2006, respectively.

(12) SUBSEQUENT EVENTS

        As previously reported in a Form 8-K filed on April 16, 2007, on April
12, 2007, the company announced that it and Summit Financial Group, Inc.
("Summit") entered into a definitive agreement for the company to merge with and
into Summit and that the bank and Bay-Vanguard Federal Savings Bank
("Bay-Vanguard"), entered into a definitive agreement for Bay-Vanguard to
purchase the bank's branch office in Pasadena, Maryland.

                                       14
<PAGE> 15

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

         The following discussion and analysis should be read in conjunction
with the Consolidated Financial Statements and Notes presented elsewhere in this
report.

         This report contains forward-looking statements. When used in this 10-Q
report and in future filings by the company with the Securities and Exchange
Commission (the "SEC"), in the company's press releases or other public or
shareholder communications, and in oral statements made with the approval of an
authorized executive officer, the words or phrases "will likely result," "are
expected to," "will continue," "is anticipated," "estimate," "project" or
similar expressions are intended to identify "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are subject to certain risks and uncertainties, including, among
other things, changes in economic conditions in the company's market area,
changes in policies by regulatory agencies, fluctuations in interest rates,
demand for loans in the company's market area and competition that could cause
actual results to differ materially from historical earnings and those presently
anticipated or projected. The company wishes to advise readers that the factors
listed above could affect the company's financial performance and could cause
the company's actual results for future periods to differ materially from any
opinions or statements expressed with respect to future periods in any current
statements.

         The company does not undertake and specifically declines any obligation
to publicly release the result of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.

         The matters discussed in management's discussion and analysis of
financial condition and results of operations reflects continuing operations, as
adjusted for the Restatement discussed in Note 2 of the financial statements,
unless otherwise noted.

MORTGAGE BANKING ACTIVITIES

         The bank's mortgage banking activities primarily consisted of
originating mortgage loans secured by single-family properties. Those activities
were conducted in GAMC and were discontinued effective March 29, 2006 as it was
determined that, because it was unprofitable, this business no longer fit our
strategy. Mortgage banking involves the origination and sale of mortgage loans
for the purpose of generating gains on sale of loans and fee income on the
origination of loans, in addition to loan interest income. In recent years, the
volume of GAMC's originations had been declining, resulting in losses from
mortgage banking operations.

         In the third quarter of 2006, we applied discontinued operations
accounting for GAMC as we completed closing those operations during the quarter,
and accordingly, the income statements for all periods have been adjusted. The
reclassifications primarily resulted in a reduction to previously reported
levels of net interest income, a reduction in noninterest income and a reduction
in noninterest expense.

GENERAL

         We are a savings and loan holding company, which was organized in June
1997. We conduct substantially all of our business through our wholly owned
subsidiary, Greater Atlantic Bank, a federally chartered savings bank. The bank
is a member of the Federal Home Loan Bank system and its deposits are insured up
to applicable limits by the Savings Association Insurance Fund of the Federal
Deposit Insurance Corporation. We offer traditional banking services to
customers through the six branches of the bank located throughout the greater
Washington, D.C./Baltimore metropolitan area.

                                       15
<PAGE> 16
         The profitability of the company depends primarily on its non-interest
income and net interest income. Net interest income is the difference between
the interest income it earns on its loans and investment portfolio, and the
interest it pays on interest-bearing liabilities, which consist mainly of
interest paid on deposits and borrowings. Non-interest income consists primarily
of gain on sales of loans, derivatives and available-for-sale investments and
service charge fees for deposits and loans.

         The level of its operating expenses also affects the company's
profitability. Operating expenses consist primarily of salaries and employee
benefits, occupancy-related expenses, equipment and technology-related expenses
and other general operating expenses.

         At March 31, 2007 the company's total assets were $284.0 million,
compared to the $305.2 million held at September 30, 2006, representing a
decrease of 6.95%. The decrease resulted primarily from a decrease in investment
securities and loans receivable and was offset in part by an increase in
interest bearing deposits in the bank. The decline in the bank's overall asset
size is reflected in the consolidated statements of financial condition and
statements of operations as we continued to manage its assets and liabilities to
maintain an adequately capitalized position.

         Net loans receivable at March 31, 2007 were $182.9 million, a decrease
of $10.4 million or 5.36% from the $193.3 million held at September 30, 2006.
The decrease in loans consisted primarily of a $5.7 million decline in the
Bank's single family loan portfolio, coupled with a decrease of $6.4 million in
the Bank's consumer loan portfolio. Because the Bank's single family and
consumer loan portfolios consist primarily of adjustable-rate loans, with the
current inverted yield curve, where short-term rates are higher than rates for
longer terms, customers are able to extend the terms of their mortgages at lower
rates. Customers are also refinancing away from adjustable-rate loans and into
longer term, fixed-rate loans or curtailing outstanding balances. Multifamily
loans outstanding increased by $3.2 million and commercial real estate loans
increased by $3.5 million during the period. Those increases were offset in part
by decreases of $2.0 million in construction and land loans and $2.2 million in
commercial business loans. The decrease in construction and land loans was
primarily in the single family residential sector of the market. The company
anticipates that lending in that area will continue to decline as a result of
the current slow sales pace occurring in the single family market.

         At March 31, 2007, investment securities were $65.4 million, a decrease
of $14.7 million or 18.39% from the $80.2 million held at September 30, 2006.
The decline in investment securities was used to reduced higher cost wholesale
funding including borrowings, brokered deposits and wholesale deposits.

         Deposits at March 31, 2007 were $226.6 million, a decrease of $3.5
million from the $230.2 million held at September 30, 2006. Our total deposits
continue to decline because the bank has reduced its reliance on brokered
deposits and wholesale deposits, which have a higher cost. Those types of
deposits have declined $33.6 million since March 31, 2006 while total retail
deposits have increased $31.1 million. The increase in retail deposits is
primarily in certificates of deposits and money fund accounts which have been
obtained through the Bank's marketing efforts and are at a lower cost than
brokered and wholesale deposits.

         On February 22, 2006, the company announced that it had engaged Sandler
O'Neill & Partners, L.P. to advise on the financial aspects of the company's
review of its strategic options and assist the company in evaluating the
financial aspects of all strategic alternatives available.

        As previously reported in a Form 8-K filed on April 16, 2007, on April
12, 2007, the company announced that it and Summit Financial Group, Inc.
("Summit") entered into a definitive agreement for the company to merge with and
into Summit and that the bank and Bay-Vanguard Federal Savings Bank
("Bay-Vanguard"), entered into a definitive agreement for Bay-Vanguard to
purchase the bank's branch office in Pasadena, Maryland.

        The merger is expected to be completed in the fourth calendar quarter of
2007, subject to regulatory and shareholder approvals. Immediately following the
merger, the bank intends to merge with and into Summit Community Bank.

                                       16
<PAGE> 17
        The bank will sell its leased branch office located at 8070 Ritchie
Highway, Pasadena, Maryland, to Bay-Vanguard. Under the agreement, Bay-Vanguard
will pay an 8.5% premium on the balance of deposits assumed at closing. At March
31, 2007, the deposits at the Pasadena branch office on which the deposit
premium would apply totaled approximately $50.9 million. Bay-Vanguard will also
purchase the branch office's fixed assets, but will not acquire any loans as
part of the transaction. The purchase is expected to be completed during the
third calendar quarter of 2007, subject to regulatory approval.

CRITICAL ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS

         The company's financial statements are prepared in accordance with
accounting principles generally accepted in the United States. The preparation
of those financial statements requires management to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenue and
expenses as well as the disclosure of contingent liabilities. Management
continually evaluates its estimates and judgments including those related to the
allowance for loan losses and income taxes. Management bases its estimates and
judgments on historical experience and other factors that are believed to be
reasonable under the circumstances. Actual results may differ from those
estimates under different assumptions or conditions. The company believes that,
of its significant accounting policies, the most critical accounting policies we
apply are those related to the evaluation of the adequacy of the allowance for
loan losses.

         A variety of factors impact the carrying value of the loan portfolio
including the calculation of the allowance for loan losses, valuation of
underlying collateral, the timing of loan charge-offs and the amount and
amortization of loan fees and deferred origination costs. The allowance for loan
losses is the most difficult and subjective judgment. The allowance is
established and maintained at a level that we believe is adequate to cover
losses resulting from the inability of borrowers to make required payments on
loans. Estimates for loan losses are arrived at by analyzing risks associated
with specific loans and the loan portfolio, current trends in delinquencies and
charge-offs, the views of our regulators, changes in the size and composition of
the loan portfolio and peer comparisons. The analysis also requires
consideration of the economic climate and direction, change in the interest rate
environment, which may impact a borrower's ability to pay, legislation impacting
the banking industry and economic conditions specific to our service area.
Because the calculation of the allowance for loan losses relies on estimates and
judgments relating to inherently uncertain events, results may differ from our
estimates.

         COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
                        MARCH 31, 2007 AND MARCH 31, 2006

         NET INCOME. For the three months ended March 31, 2007, the company had
a net loss of $824,000 or $0.27 per diluted share, compared to a net loss from
continuing operations of $538,000 or $0.18 per diluted share for the three
months ended March 31, 2006. The increase in the net loss of $286,000 over the
comparable period one-year ago was primarily the result of decreases in net
interest income, non-interest income and an increase in the provision for loan
losses and was offset by a decrease in non-interest expense. The ongoing net
losses from continuing operations remain a consistent problem for management
because the loan production needed to maintain the retail branch network has not
been attained. Due to the recent losses arising from the operations of Greater
Atlantic Mortgage Corporation, the Bank is currently managing its assets and
liabilities to maintain an adequately capitalized status. Because of the impact
on the risk-based capital requirements, the bank cannot aggressively expand its
commercial loan portfolio. In addition, the resulting reduction in the bank's
loans to one borrower limit makes it difficult to maintain a consistent level of
outstanding loans to larger customers. Those factors have caused earning assets
to decline; impacting earnings, as well as the margin pressure from the inverted
yield curve, and have presented a very challenging environment in which to
increase our net interest margin.

         Accordingly the Company has entered into agreements, to merge with and
into Summit Financial Group, Inc, and to sell its Pasadena, Maryland branch to
Bay-Vanguard Federal Savings Bank. Alternatively, in order for the Company to
achieve profitability it would have had to have sold a sufficient number of
branches to increase capital and reduce overall operating cost.

         NET INTEREST INCOME. An important source of our earnings is net
interest income, which is the difference between income earned on
interest-earning assets, such as loans, investment securities and
mortgage-backed securities, and interest paid on interest-bearing liabilities
such as deposits and borrowings. The level of net interest income is determined
primarily by the relative average balances of interest-earning assets and
interest-bearing

                                       17
<PAGE> 18
liabilities in combination with the yields earned and rates paid upon them. The
correlation between the re-pricing of interest rates on assets and on
liabilities also influences net interest income.

         The following table presents a comparison of the components of interest
income and expense and net interest income.
<TABLE>
<CAPTION>
Net interest income from continuing operations                                            Difference
                                                                                ----------------------------------
Three Months Ended March 31,         2007                   2006                 Amount                 %
------------------------------------------------------------------------------------------------------------------
<S>                                <C>                    <C>                    <C>                   <C>
(Dollars in Thousands)
Interest income:
   Loans                           $ 3,651                $ 3,399                $  252                  7.41%
   Investments                         943                  1,201                  (258)               (21.48)
------------------------------------------------------------------------------------------------------------------
Total                                4,594                  4,600                    (6)                (0.13)
------------------------------------------------------------------------------------------------------------------

Interest expense:
   Deposits                          2,187                  1,890                   297                 15.71
   Borrowings                          712                    949                  (237)               (24.97)
------------------------------------------------------------------------------------------------------------------
Total                                2,899                  2,839                    60                  2.11
------------------------------------------------------------------------------------------------------------------
Net interest income                $ 1,695                $ 1,761                $  (66)                (3.75)%
==================================================================================================================
</TABLE>
        The decrease in net interest income during the three months ended March
31, 2007, from the comparable period one year ago, resulted primarily from a
$37.2 million decrease in the bank's interest-earning assets coupled with
average interest-earning assets declining by $4.7 million more than the decline
in average interest-bearing liabilities. That decrease was offset in part by a
22 basis point increase in net interest margin (net interest income divided by
average interest-earning assets) from 2.29% for the three months ended March 31,
2006 to 2.51% for the three months ended March 31, 2007. The increase in net
interest margin resulted from increasing the average yield on interest-earning
assets by 24 basis points more than the increase in the average cost on
interest-bearing liabilities.

        The interest rate environment has been a difficult one for most
financial institutions. With short-term rates close to or at times even higher
than long-term rates, the prospects of expanding interest rate spread and net
interest margin has been difficult at best. We expect the interest rate
environment to remain challenging and we believe it will continue to have an
impact on our net interest margin and net interest rate spread. We also believe,
however, that our strategy of changing the balance sheet from one that was
wholesale oriented, as reflected in the Company's decline in relying on brokered
and internet deposits, to one which is more retail oriented will benefit us over
time. We believe that change will position us to realize a benefit when the
interest rate environment improves. If market interest rates were to rise, given
our asset sensitivity position, we would also expect our net interest margin to
improve. However, in a declining rate environment our interest rate spread and
our net interest income would decline. The Bank continues to monitor the markets
and its interest rate position to alleviate any material changes in net interest
margin.

         INTEREST INCOME. Interest income for the three months ended March 31,
2007 decreased $6,000 compared to the three months ended March 31, 2006,
primarily as a result of a decrease of $37.2 million in the average outstanding
balances of loans and investment securities and was partially offset by an
increase of 82 basis points in the average yield earned on interest earning
assets.

         INTEREST EXPENSE. The $60,000 increase in interest expense for the
three months ended March 31, 2007 compared to the 2006 period was principally
the result of a 58 basis point increase in the cost of funds on average deposits
and borrowings. That increase in the cost of funds was partially offset by a
$32.4 million decrease in average amount of deposits and borrowings. The
increase in interest expense on deposits was primarily due to a 71 basis point
increase in rates paid on deposits, primarily due to higher rates paid on
interest-bearing demand deposits and certificates and elevated pricing on new
and renewed time deposits. That increase was partially offset by a decrease of
$7.6 million in the average amount of deposits from $213.5 million for the three
months ended March 31, 2006 to $205.9 million for the three months ended March
31, 2007.

         The decrease in interest expense on borrowings for the three months
ended March 31, 2007, when compared to the 2006 period, was principally the
result of a $24.9 million decrease in average borrowed funds, partially offset
by a 48 basis point increase in the cost of borrowed funds. The components
accountable for the

                                       18
<PAGE> 19
decrease of $237,000 in interest expense on borrowings were a $313,000 decrease
relating to average volume, partially offset by a $76,000 increase relating to
average cost.

         COMPARATIVE AVERAGE BALANCES AND INTEREST INCOME ANALYSIS. The
following table presents the total dollar amount of interest income from average
interest-earning assets and the resultant yields, as well as the interest
expense on average interest-bearing liabilities, expressed both in dollars and
annualized rates. No tax-equivalent adjustments were made and all average
balances are average daily balances. Non-accruing loans have been included in
the tables as loans carrying a zero yield.
<TABLE>
<CAPTION>

                                                                FOR THE THREE MONTHS ENDED MARCH 31,
                                      ----------------------------------------------------------------------------------------------
                                                          2007                                         2006 (RESTATED)
                                      -------------------------------------------------   ------------------------------------------
                                                         INTEREST                                        INTEREST          AVERAGE
                                         AVERAGE         INCOME/        AVERAGE YIELD/    AVERAGE        INCOME/          YIELD/
                                         BALANCE         EXPENSE            RATE           BALANCE       EXPENSE           RATE
                                      -------------------------------------------------   ------------------------------------------
ASSETS:                                                                    (DOLLARS IN THOUSANDS)
<S>                                     <C>             <C>                   <C>        <C>                <C>                <C>
Interest-earning assets:
   Real estate loans                    $  93,062       $   1,696             7.29%      $  93,874          $ 1,674            7.13%
   Consumer loans                          56,230           1,074             7.64          66,793            1,153            6.90
   Commercial business loans               39,919             881             8.83          33,891              572            6.75
                                       ----------      ----------         -----------   ----------         --------          -------
      Total loans                         189,211           3,651             7.72         194,558            3,399            6.99

Investment securities                      54,579             662             4.85          66,487              809            4.87
Mortgage-backed securities                 25,979             281             4.33          45,913              392            3.42
                                       ----------      ----------         -----------   ----------         --------          -------
      Total interest-earning assets       269,769           4,594             6.81         306,958            4,600            5.99
                                                       ----------         -----------                      --------          -------
Non-earning assets                         11,119                                           13,008
                                       ----------                                       ----------
  Total assets                          $ 280,888                                        $ 319,966
                                       ==========                                       ==========

LIABILITIES AND STOCKHOLDERS'
   EQUITY:
Interest-bearing liabilities:
   Savings accounts                     $   3,233               7             0.87       $   5,365               12            0.89
   Now and money market accounts           75,438             657             3.48          73,306              600            3.27
   Certificates of deposit                127,228           1,523             4.79         134,784            1,278            3.79
                                       ----------      ----------         -----------   ----------         --------          -------
      Total deposits                      205,899           2,187             4.25         213,455            1,890            3.54

   FHLB advances                           38,378             505             5.26          39,125              454            4.64
   Other borrowings                        15,201             207             5.45          39,339              495            5.03
                                       ----------      ----------         -----------   ----------         --------          -------
  Total interest-bearing liabilities      259,478           2,899             4.47         291,919            2,839            3.89
                                                       ----------         -----------                      --------          -------

Noninterest-bearing liabilities:
Noninterest-bearing demand deposits        11,473                                           14,927
Other liabilities                           2,096                                              625
                                       ----------                                       ----------
  Total liabilities                       273,047                                          307,471
Stockholders' equity                        7,841                                           12,495
                                       ----------                                       ----------
  Total liabilities and stockholders'
   Equity                               $ 280,888                                        $ 319,966
                                       ==========                                       ==========

Net interest income                                     $   1,695                                           $ 1,761
                                                       ==========                                          =========
Interest rate spread                                                          2.34%                                            2.10%
                                                                          ===========                                        =======
Net interest margin                                                           2.51%                                            2.29%
                                                                          ===========                                        =======
</TABLE>
                                       19

<PAGE> 20
         RATE/VOLUME ANALYSIS. The following table presents certain information
regarding changes in interest income and interest expense attributable to
changes in interest rates and changes in volume of interest-earning assets and
interest-bearing liabilities for the periods indicated. The change in interest
attributable to both rate and volume has been allocated to the changes in rate
and volume on a pro rata basis.
<TABLE>
<CAPTION>

                                                                              THREE MONTHS ENDED
                                                                          MARCH 31, 2007 COMPARED TO
                                                                                MARCH 31, 2006
                                                        ---------------------------------------------------------------
                                                                            CHANGE ATTRIBUTABLE TO
                                                        ---------------------------------------------------------------
                                                              VOLUME                  RATE                TOTAL
                                                        ---------------------------------------------------------------
                                                                                (IN THOUSANDS)
<S>                                                             <C>                    <C>                 <C>
Real estate loans                                               $   (14)               $   36              $    22
Consumer loans                                                     (182)                  103                  (79)
Commercial business loans                                           102                   207                  309
                                                        --------------------    ------------------  -------------------
      Total loans                                                   (94)                  346                  252
Investments                                                        (145)                   (2)                (147)
Mortgage-backed securities                                         (170)                   59                 (111)
                                                        --------------------    ------------------  -------------------
Total interest-earning assets                                     $(409)               $  403              $    (6)
                                                        ====================    ==================  ===================

Savings accounts                                                $    (5)               $    -              $    (5)
Now and money market accounts                                        17                    40                   57
Certificates of deposit                                             (72)                  317                  245
                                                        --------------------    ------------------  -------------------
  Total deposits                                                    (60)                  357                  297
FHLB advances                                                        (9)                   60                   51
Other borrowings                                                   (304)                   16                 (288)
                                                        --------------------    ------------------  -------------------
Total interest-bearing liabilities                                 (373)                  433                   60
                                                        ====================    ==================  ===================
Change in net interest income                                   $  (36)                $  (30)             $   (66)
                                                        ====================    ==================  ===================
</TABLE>

          PROVISION FOR LOAN LOSSES. The allowance for loan losses, which is
established through provisions for losses charged to expense, is increased by
recoveries on loans previously charged off and is reduced by charge-offs on
loans. Determining the proper reserve level or allowance involves management's
judgment based upon a review of factors, including the company's internal review
process, which segments the loan portfolio into groups, based on loan type and
assigns to them a reserve percentage that reflects the industry standard.
Management then looks at its classified assets, which are loans 30 days or more
delinquent, and classifies those loans as special mention, substandard, doubtful
or loss based on the performance of the loans. Those classified loans are then
individually evaluated for impairment and measured by either the present value
of expected future cash flows, the loan's observable market price, or the fair
value of the collateral. They are then segmented by type and assigned a reserve
percentage that reflects the underlying quality of the loan. Although management
utilizes its best judgment in providing for probable losses, there can be no
assurance that the bank will not have to increase its provisions for loan losses
in the future. An increase in provision may result from an adverse market for
real estate and economic conditions generally in the company's primary market
area, future increases in non-performing assets or for other reasons which would
adversely affect the company's results of operations. On an annual basis, or
more often if deemed necessary, the bank has contracted with an independent
outside third party to have its loan portfolio reviewed. The focus of their
review is to identify the extent of potential and actual risk in the bank's
commercial loan portfolio, in addition to the underwriting and processing
practices. Observations made regarding the bank's portfolio risk are based upon
review evaluations, portfolio profiles and discussion with the operational
staff, including the line lenders and senior management.

                                       20
<PAGE> 21
         Non-performing assets were $1.6 million or 0.57% of total assets at
March 31, 2007, with $1.3 million classified as substandard, and $300,000
classified as doubtful or as loss. Non-performing assets increased $181,000 from
the $1.4 million or 0.46% of total assets classified as non-performing at March
31, 2006. The increase in non-performing loans does not reflect $484,000 of
loans classified as special mention. Credit quality remains strong, with a ratio
of non-performing assets to total assets of 0.57%, and with negligible
nonperforming and past-due loans. The $142,000 increase in the provision from
the year ago period resulted primarily from increases in the outstanding balance
of the bank's commercial real estate, and multi-family loans which are more at
risk than single family loans. Those increases were partially offset by
decreases in the outstanding balance of the bank's commercial business and
second trust loans and the provision required for those loans. (See Note 4 for
summary of the allowance for loan losses).

         NON-INTEREST INCOME. Non-interest income decreased $182,000 during the
quarter ended March 31, 2007, over the comparable period one year ago. That
decrease was primarily the result of a decrease of $192,000 in gains on
derivatives and was partially offset by an increase of $11,000 in deposit fees.

         The following table presents a comparison of the components of
non-interest income.
<TABLE>
<CAPTION>
Non-interest income from continuing operations                                             Difference
                                                                             -------------------------------------
Three Months Ended March 31,          2007                2006                Amount                      %
------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S>                                  <C>                <C>                    <C>                     <C>
Non-interest income:
   Service fees on loans             $  45              $  47                  $   (2)                   (4.26)%
   Service fees on deposits            110                 99                      11                    11.11
   Gain (loss) on derivatives          (13)               179                    (192)                 (107.26)
   Other operating income                6                  5                       1                    20.00
------------------------------------------------------------------------------------------------------------------
      Total non-interest income      $ 148              $ 330                  $ (182)                  (55.15)%
==================================================================================================================
</TABLE>
         NON-INTEREST EXPENSE. Non-interest expense decreased $104,000 from $2.6
million for the three months ended March 31, 2006 to $2.5 million for the three
months ended March 31 in the current year. The decrease was distributed over
various non-interest expense categories with the primary contributors being
compensation, advertising, deposit insurance premiums and furniture, fixtures
and equipment and was partially offset by increases totaling $84,000 in
occupancy, professional services, data processing and other operating expense.

         The following table presents a comparison of the components of
non-interest expense.
<TABLE>
<CAPTION>
Non-interest income from continuing operations                                             Difference
                                                                             -------------------------------------
Three Months Ended March 31,          2007                2006                Amount                      %
------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S>                                       <C>                <C>                     <C>                 <C>
Non-interest expense:
   Compensation and employee benefits     $ 1,175            $ 1,194                 $ (19)               (1.59)%
   Occupancy                                  344                334                    10                 2.99
   Professional services                      323                261                    62                23.75
   Advertising                                 45                190                  (145)              (76.32)
   Deposit insurance premium                    7                 25                   (18)              (72.00)
   Furniture, fixtures and equipment          137                143                    (6)               (4.20)
   Data processing                            233                225                     8                 3.56
   Other operating expense                    258                254                     4                 1.57
------------------------------------------------------------------------------------------------------------------
Total non-interest expense                $ 2,522            $ 2,626                $ (104)               (3.96)%
==================================================================================================================
</TABLE>

         INCOME TAXES. The company files a consolidated federal income tax
return with its subsidiaries and computes its income tax provision or benefit on
a consolidated basis. We did not record a provision for income taxes for the
three months ended March 31, 2007 and 2006 due to our operating losses. The
company believes that it will generate future taxable income through earnings
and branch sales, to assure utilization of a certain portion of the existing net
operating losses.

                                       21
<PAGE> 22
Contractual Obligations and Off-Balance Sheet Financing Arrangements

         The following table summarizes the bank's contractual obligations at
March 31, 2007 and the effect those obligations are expected to have on the
bank's liquidity and cash flows in future periods.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
                                                           Less Than          Two -               Four - Five           After Five
                                         Total              One Year       Three Years               Years                Years
----------------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S>                                   <C>                  <C>               <C>                 <C>                  <C>
FHLB Advances (1)                     $ 36,000             $  6,000          $ 25,000            $ 5,000              $      -
Reverse repurchase agreements            2,954                2,954                 -                  -                     -
Subordinated debt securities (2)        25,818                  655             1,310              1,310                22,543
Operating leases                         4,342                1,107             1,993                808                   434
-------------------------------------------------------------------------------------------------------------------------------
   Total obligations                  $ 69,114             $ 10,716          $ 28,303            $ 7,118              $ 22,977
==================================================================================================================================
(1) The company expects to refinance these short and medium-term obligations
    under substantially the same terms and conditions.
(2) Includes principal and interest due on our junior subordinated
    debt securities.

Other Commercial Commitments

----------------------------------------------------------------------------------------------------------------------------------
                                                        Less Than          Two -               Four - Five           After Five
                                      Total              One Year       Three Years               Years                Years
----------------------------------------------------------------------------------------------------------------------------------
(In thousands)

Certificate of deposit maturities (1) $ 133,483            $ 116,002         $ 14,534            $ 2,854              $     93
Loan originations                         6,767                6,767                -                  -                     -
Unfunded lines of credit (2)            115,549              115,549                -                  -                     -
Standby letters of credit                   155                  155                -                  -                     -
----------------------------------------------------------------------------------------------------------------------------------
     Total                            $ 255,954            $ 238,473         $ 14,534            $ 2,854              $     93
==================================================================================================================================
</TABLE>
(1) The company expects to retain maturing deposits or replace amounts maturing
    with comparable certificates of deposits based on current market interest
    rates.
(2) Revolving, open-end loans on one-four dwelling units and commercial lines
    that mostly remain unfunded.

          COMPARISON OF RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED
                        MARCH 31, 2007 AND MARCH 31, 2006

         NET INCOME. For the six months ended March 31, 2007, the company had a
net loss of $1.7 million or $0.57 per diluted share, compared to a net loss from
continuing operations of $979,000 or $0.32 per diluted share for the six months
ended March 31, 2006. The increase in the net loss of $737,000 over the
comparable period one-year ago was primarily the result of decreases in net
interest income, non-interest income and increases in the provision for loan
losses and non-interest expense.

         NET INTEREST INCOME. An important source of our earnings is net
interest income, which is the difference between income earned on
interest-earning assets, such as loans, investment securities and
mortgage-backed securities, and interest paid on interest-bearing liabilities
such as deposits and borrowings. The level of net interest income is determined
primarily by the relative average balances of interest-earning assets and
interest-bearing liabilities in combination with the yields earned and rates
paid upon them. The correlation between the re-pricing of interest rates on
assets and on liabilities also influences net interest income.

                                       22
<PAGE> 23
<TABLE>
<CAPTION>

         The following table presents a comparison of the components of interest
income and expense and net interest income.

Net interest income from continuing operations
                                                                                       Difference
                                                                            -------------------------------
Six Months Ended March 31,      2007                   2006                 Amount                 %
-----------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S>                           <C>                    <C>                    <C>                  <C>
Interest income:
   Loans                      $ 7,322                $ 6,790                $  532                 7.84%
   Investments                  2,077                  2,400                  (323)              (13.46)
-----------------------------------------------------------------------------------------------------------
Total                           9,399                  9,190                   209                 2.27
-----------------------------------------------------------------------------------------------------------

Interest expense:
   Deposits                     4,426                  3,654                   772                21.13
   Borrowings                   1,474                  1,966                  (492)              (25.03)
-----------------------------------------------------------------------------------------------------------
Total                           5,900                  5,620                   280                 4.98
-----------------------------------------------------------------------------------------------------------
Net interest income           $ 3,499                $ 3,570                $ (71)                (1.99)%
===========================================================================================================
</TABLE>

         The decrease in net interest income during the six months ended March
31, 2007, resulted primarily from a $38.5 million decrease in the bank's
interest-earning assets coupled with average interest-earning assets declining
by $4.7 million more than the decline in average interest-bearing liabilities.
That decrease was offset in part by a 27 basis point increase in net interest
margin (net interest income divided by average interest-earning assets) from
2.28% for the six months ended March 31, 2006 to 2.55% for the six months ended
March 31, 2007. The increase in net interest margin resulted from increasing the
average yield on interest-earning assets by 28 basis points more than the
increase in the average cost on interest-bearing liabilities.

         INTEREST INCOME. Interest income for the six months ended March 31,
2007 increased $209,000 compared to the six months ended March 31, 2006,
primarily as a result of an increase of 98 basis points in the average yield
earned on interest earning assets. That increase was partially offset by a
decrease of $38.5 million in the average outstanding balances of loans and
investment securities.

         INTEREST EXPENSE. The $280,000 increase in interest expense for the six
months ended March 31, 2007 compared to the 2006 period was principally the
result of a 70 basis point increase in the cost of funds on average deposits and
borrowings. That increase in the cost of funds was partially offset by a $33.9
million decrease in average amount of deposits and borrowings. The increase in
interest expense on deposits was primarily due to an 84 basis point increase in
rates paid on deposits, primarily due to higher rates paid on savings,
interest-bearing demand deposits and certificates and elevated pricing on new
and renewed time deposits. That increase was partially offset by a decrease of
$6.4 million in the average amount of deposits from $214.6 million for the six
months ended March 31, 2006 to $208.2 million for the six months ended March 31,
2007.

         The decrease in interest expense on borrowings for the six months ended
March 31, 2007, when compared to the 2006 period, was principally the result of
a $27.5 million decrease in average borrowed funds, partially offset by a 59
basis point increase in the cost of borrowed funds. The components accountable
for the decrease of $492,000 in interest expense on borrowings were a $664,000
decrease relating to average volume, partially offset by a $172,000 increase
relating to average cost.

                                       23
<PAGE> 24
         COMPARATIVE AVERAGE BALANCES AND INTEREST INCOME ANALYSIS. The
following table presents the total dollar amount of interest income from average
interest-earning assets and the resultant yields, as well as the interest
expense on average interest-bearing liabilities, expressed both in dollars and
annualized rates. No tax-equivalent adjustments were made and all average
balances are average daily balances. Non-accruing loans have been included in
the tables as loans carrying a zero yield.
<TABLE>
<CAPTION>

                                                                     FOR THE SIX MONTHS ENDED MARCH 31,
                                           -----------------------------------------------------------------------------------------
                                                                2007                                      2006 (RESTATED)
                                           -----------------------------------------------    --------------------------------------
                                                              INTEREST                                       INTEREST       AVERAGE
                                               AVERAGE         INCOME/      AVERAGE YIELD/     AVERAGE        INCOME/        YIELD/
                                               BALANCE         EXPENSE          RATE           BALANCE        EXPENSE         RATE
                                           -----------------------------------------------    --------------------------------------
ASSETS:                                                                        (DOLLARS IN THOUSANDS)
<S>                                         <C>                <C>              <C>          <C>              <C>             <C>
Interest-earning assets:
   Real estate loans                         $  93,096         $ 3,414          7.33%        $  94,128        $ 3,334         7.08%
   Consumer loans                               57,867           2,254          7.79            67,719          2,269         6.70
   Commercial business loans                    39,735           1,654          8.33            34,891          1,187         6.80
                                           -----------        ---------       -------       ----------       --------       --------
      Total loans                              190,698           7,322          7.68           196,738          6,790         6.90

Investment securities                           55,874           1,461          5.23            66,339          1,589         4.79
Mortgage-backed securities                      27,841             616          4.43            49,880            811         3.25
                                           -----------        ---------       -------       ----------       --------       --------
      Total interest-earning assets            274,413           9,399          6.85           312,957          9,190         5.87
                                                              ---------       -------                        --------       --------
Non-earning assets                              11,396                                          13,416
                                           -----------                                      ----------
  Total assets                               $ 285,809                                       $ 326,373
                                           ===========                                      ==========

LIABILITIES AND STOCKHOLDERS'
   EQUITY:
Interest-bearing liabilities:
   Savings accounts                          $   3,193              15          0.94         $   6,058             28         0.92
   Now and money market accounts                77,408           1,368          3.53            71,264          1,123         3.15
   Certificates of deposit                     127,613           3,043          4.77           137,253          2,503         3.65
                                           -----------        ---------       -------       ----------       --------       --------
      Total deposits                           208,214           4,426          4.25           214,575          3,654         3.41

   FHLB advances                                37,609           1,001          5.32            40,639            947         4.66
   Other borrowings                             17,610             473          5.37            42,100          1,019         4.84
                                           -----------        ---------       -------       ----------       --------       --------
  Total interest-bearing liabilities           263,433           5,900          4.48           297,314          5,620         3.78
                                                              ---------       -------                        --------       --------

Noninterest-bearing liabilities:
Noninterest-bearing demand deposits             11,901                                          15,297
Other liabilities                                2,167                                             983
                                           -----------                                     -----------
  Total liabilities                            277,501                                         313,594
Stockholders' equity                             8,308                                          12,779
                                           -----------                                     -----------
  Total liabilities and stockholders'
   Equity                                    $ 285,809                                       $ 326,373
                                           ===========                                      ==========

Net interest income                                            $ 3,499                                        $ 3,570
                                                              ========                                       =========
Interest rate spread                                                            2.37%                                         2.09%
                                                                              ========                                      ========
Net interest margin                                                             2.55%                                         2.28%
                                                                              ========                                      ========
</TABLE>
                                       24

<PAGE> 25
<TABLE>
<CAPTION>


         RATE/VOLUME ANALYSIS. The following table presents certain information
regarding changes in interest income and interest expense attributable to
changes in interest rates and changes in volume of interest-earning assets and
interest-bearing liabilities for the periods indicated. The change in interest
attributable to both rate and volume has been allocated to the changes in rate
and volume on a pro rata basis.

                                                                               SIX MONTHS ENDED
                                                                          MARCH 31, 2007 COMPARED TO
                                                                                MARCH 31, 2006
                                                        ---------------------------------------------------------------
                                                                            CHANGE ATTRIBUTABLE TO
                                                        ---------------------------------------------------------------
                                                              VOLUME                  RATE                TOTAL
                                                        ---------------------------------------------------------------
                                                                                (IN THOUSANDS)
<S>                                                               <C>                <C>                      <C>
Real estate loans                                                 $ (37)             $    117                 $ 80
Consumer loans                                                     (330)                  315                  (15)
Commercial business loans                                           165                   302                  467
                                                        --------------------    ------------------  -------------------
      Total loans                                                  (202)                  734                  532
Investments                                                        (251)                  123                 (128)
Mortgage-backed securities                                         (358)                  163                 (195)
                                                        --------------------    ------------------  -------------------
Total interest-earning assets                                     $(811)             $  1,020                 $209
                                                        ====================    ==================  ===================

Savings accounts                                                  $ (13)             $      -                 $(13)
Now and money market accounts                                        97                   148                  245
Certificates of deposit                                            (176)                  716                  540
                                                        --------------------    ------------------  -------------------
  Total deposits                                                    (92)                  864                  772
FHLB advances                                                       (71)                  125                   54
Other borrowings                                                   (593)                   47                 (546)
                                                        --------------------    ------------------  -------------------
Total interest-bearing liabilities                                 (756)                1,036                  280
                                                        ====================    ==================  ===================
Change in net interest income                                     $ (55)             $    (16)                $(71)
                                                        ====================    ==================  ===================
</TABLE>

         Non-performing assets were $1.6 million or 0.57% of total assets at
March 31, 2007, with $1.3 million classified as substandard, and $300,000
classified as doubtful or as loss. Non-performing assets increased $181,000 from
the $1.4 million or 0.46% of total assets classified as non-performing at March
31, 2006. The increase in non-performing loans does not reflect $484,000 of
loans classified as special mention. The $219,000 increase in the provision for
loan losses from the year ago period resulted primarily from the provision
necessary for loan losses resulting from increases in the outstanding balance of
the bank's commercial real estate, and multi-family loans which are more at risk
the single-family loans, and the provision provided for the $300,000 of loans
receivable classified as doubtful. Those increases were partially offset by
decreases in the outstanding balance of the bank's commercial business and
second trust loans and the provision required for those loans. (See Note 4 for
summary of the allowance for loan losses).

         NON-INTEREST INCOME. Non-interest income decreased $388,000 during the
six months ended March 31, 2007, over the comparable period one year ago. That
decrease was primarily the result of a decrease of $324,000 in gains on
derivatives and $65,000 in gain on sale of foreclosed real estate and was
partially offset by an increase of $16,000 in deposit fees.

         The following table presents a comparison of the components of
non-interest income.
<TABLE>
<CAPTION>

Non-interest income from continuing operations                                               Difference
                                                                                ---------------------------------------
Six Months Ended March 31,                     2007                2006             Amount                    %
-----------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S>                                           <C>                <C>              <C>                     <C>
Non-interest income:
   Service fees on loans                      $  87              $  93            $   (6)                   (6.45)%
   Service fees on deposits                     220                204                16                     7.84
   Gain (loss) on derivatives                   (33)               291              (324)                 (111.34)
   Gain on sale of foreclosed real estate         -                 65               (65)                 (100.00)
   Other operating income                        11                 20                (9)                  (45.00)
-----------------------------------------------------------------------------------------------------------------------
      Total non-interest income               $ 285              $ 673            $ (388)                  (57.65)%
=======================================================================================================================
</TABLE>
                                       25
<PAGE> 26
         NON-INTEREST EXPENSE. Non-interest expense increased $59,000 from $5.1
million for the six months ended March 31, 2006 to $5.2 million for the six
months ended March 31 in the current year. The increase was distributed over
various non-interest expense categories with the primary contributors being
professional services, compensation, occupancy and other operating expense and
was partially offset by decreases totaling $346,000 in advertising, deposit
insurance premiums and furniture, fixtures and equipment and data processing.

         The following table presents a comparison of the components of
non-interest expense.
<TABLE>
<CAPTION>

Non-interest expense from continuing operations                                                  Difference
                                                                                      --------------------------------
Six Months Ended March 31,                    2007                2006                Amount                  %
----------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S>                                          <C>                <C>                     <C>                 <C>
Non-interest expense:
   Compensation and employee benefits        $ 2,441            $ 2,286                 $ 155                 6.78%
   Occupancy                                     687                651                    36                 5.53
   Professional services                         722                519                   203                39.11
   Advertising                                    69                364                  (295)              (81.04)
   Deposit insurance premium                      30                 52                   (22)              (42.31)
   Furniture, fixtures and equipment             267                280                   (13)               (4.64)
   Data processing                               452                468                   (16)               (3.42)
   Other operating expense                       539                528                    11                 2.08
----------------------------------------------------------------------------------------------------------------------
Total non-interest expense                   $ 5,207            $ 5,148                 $  59                 1.15%
======================================================================================================================
</TABLE>

         INCOME TAXES. The company files a consolidated federal income tax
return with its subsidiaries and computes its income tax provision or benefit on
a consolidated basis. We did not record a provision for income taxes for the six
months ended March 31, 2007 and 2006 due to our operating losses. The company
believes that it will generate future taxable income through earnings and branch
sales, to assure utilization of a certain portion of the existing net operating
losses.

         LIQUIDITY AND CAPITAL RESOURCES. The bank's primary sources of funds
are deposits, principal and interest payments on loans, mortgage-backed and
investment securities and borrowings. While maturities and scheduled
amortization of loans are predictable sources of funds, deposit flows and
mortgage prepayments are greatly influenced by general interest rates, economic
conditions and competition. The bank continues to maintain the levels of liquid
assets previously required by OTS regulations. The bank manages its liquidity
position and demands for funding primarily by investing excess funds in
short-term investments and utilizing FHLB advances and reverse repurchase
agreements in periods when the bank's demands for liquidity exceed funding from
deposit inflows.

         The bank's most liquid assets are cash and cash equivalents and
securities available-for-sale. The levels of those assets are dependent on the
bank's operating, financing, lending and investing activities during any given
period. At March 31, 2007, cash and cash equivalents, interest bearing deposits
and securities available-for-sale totaled $86.5 million or 30.45% of total
assets.

        The primary investing activities of the bank are the origination of
consumer loans, residential one- to four-family loans, commercial business
loans, commercial real estate loans, and real estate construction and
development loans and the purchase of United States Treasury and agency
securities, mortgage-backed and mortgage-related securities and other investment
securities. During the six months ended March 31, 2007, the bank's loan
purchases and originations totaled $35.4 million. The bank did not purchase any
United States Treasury or agency securities, mortgage-backed or mortgage related
securities or other investment securities during the six months ended March 31,
2007. All of our investment securities are classified as either available for
sale or held to maturity and for the period ended March 31, 2007 were considered
temporarily impaired. The market value of our investment portfolio is obtained
from various third party brokerage firms and we believe our filing fairly
quantifies the value of those securities. The investments are debt securities
that pay principal and interest monthly to maturity at such time as principal is
repaid. The fluctuation in value of our portfolio is due to changes in market
rates and not due to the credit quality of the issuer. The Company has the
ability and liquidity to hold those securities until such time as the value
recovers or the securities mature.

                                       26
<PAGE> 27
         The bank has other sources of liquidity if a need for additional funds
arises. At March 31, 2007, the bank had $36.0 million in advances outstanding
from the FHLB and had an additional overall borrowing capacity from the FHLB of
$12.8 million. Depending on market conditions, the pricing of deposit products
and the pricing of FHLB advances, the bank may continue to rely on FHLB
borrowings to fund asset growth.

         At March 31, 2007, the bank had commitments to fund loans of $5.1
million, unused outstanding lines of credit of $115.5 million, consisting
primarily of equity lines of credit, unused standby letters of credit of
$155,000 and undisbursed proceeds of construction mortgages of $1.7 million.
Unfunded lines of credit have remained relatively constant and actually
increased by $2.4 million during the three months ended March 31, 2007. The bank
anticipates that it will have sufficient funds available to meet its current
loan origination commitments. Certificate accounts, including IRA and Keogh
accounts, which are scheduled to mature in less than one year from March 31,
2007, totaled $116.0 million. Based upon experience, management believes the
majority of maturing deposits will remain with the bank. In addition, management
of the bank believes that it can adjust the rates offered on certificates of
deposit to retain deposits in changing interest rate environments. In the event
that a significant portion of those deposits are not retained by the bank, the
bank would be able to utilize FHLB advances and reverse repurchase agreements to
fund deposit withdrawals, which would result in an increase in interest expense
to the extent that the average rate paid on such borrowings exceeds the average
rate paid on deposits of similar duration.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Market risk is the risk of loss from adverse changes in market prices
and rates. The company's market risk arises primarily from interest rate risk
inherent in its lending and deposit taking activities. The company has little or
no risk related to trading accounts, commodities or foreign exchange. In
general, market risk reflects the sensitivity of income to variations in
interest rates and other relevant market rates or prices. The company's market
rate sensitive instruments include interest-earning assets and interest-bearing
liabilities. The company enters into market rate sensitive instruments in
connection with its various business operations. Loans originated, and the
related commitments to originate loans that will be sold, represent market risk
that is realized in a short period of time, generally two or three months.

         The company's primary source of market risk exposure arises from
changes in United States interest rates and the effects thereof on mortgage
prepayment and closing behavior, as well as depositors' choices ("interest rate
risk"). Changes in those interest rates will result in changes in the company's
earnings and the market value of its assets and liabilities. We expect to
continue to realize income from the differential or "spread" between the
interest earned on loans, securities and other interest-earning assets, and the
interest paid on deposits, borrowings and other interest-bearing liabilities.
That spread is affected by the difference between the maturities and re-pricing
characteristics of interest-earnings assets and interest-bearing liabilities.
Loan volume and yields are affected by market interest rates on loans, and
rising interest rates generally are associated with fewer loan originations.
Management expects that a substantial portion of our assets will continue to be
indexed to changes in market interest rates and we intend to attract a greater
proportion of short-term liabilities, which will help us address our interest
rate risk. The lag in implementation of re-pricing terms on our adjustable-rate
assets may result in a decline in net interest income in a rising interest rate
environment. There can be no assurance that our interest rate risk will be
minimized or eliminated. Further, an increase in the general level of interest
rates may adversely affect the ability of certain borrowers to pay the interest
on and principal of their obligations. Accordingly, changes in levels of market
interest rates, (primarily increases in market interest rates), could materially
adversely affect our interest rate spread, asset quality, loan origination
volume and overall financial condition and results of operations.

         To mitigate the impact of changes in market interest rates on our
interest-earning assets and interest-bearing liabilities, we actively manage the
amounts and maturities of these assets and liabilities. A key component of this
strategy is the origination and retention of short-term and adjustable-rate
assets. We retain short-term and adjustable-rate assets because they have
re-pricing characteristics that more closely match the re-pricing
characteristics of our liabilities.

         To further mitigate the risk of timing differences in the re-pricing of
assets and liabilities, our interest-earning assets are matched with
interest-bearing liabilities that have similar re-pricing characteristics. For
example, the interest rate risk of holding fixed-rate loans is managed with
long-term deposits and borrowings, and the risk of holding ARMs is managed with
short-term deposits and borrowings. Periodically, mismatches are identified and
managed by adjusting the re-pricing characteristics of our interest-bearing
liabilities with derivatives, such as interest rate caps and interest rate
swaps.
                                       27
<PAGE> 28
         Through the use of these derivative instruments, management attempts to
reduce or offset increases in interest expense related to deposits and
borrowings. We use interest rate caps and pay-fixed interest rate swaps to
protect against rising interest rates.

         The interest rate caps are designed to provide an additional layer of
protection, should interest rates on deposits and borrowings rise, by
effectively lengthening the re-pricing period. At March 31, 2007, we held an
aggregate notional value of $25 million of interest rate caps. One of the
interest rate caps had strike rates that were in effect at March 31, 2007, as
current LIBOR rates were above the strike rate.

         We are also striving to increase the proportion of transaction deposits
to total deposits to diminish our exposure to adverse changes in interest rates.
In particular, non-interest-bearing checking accounts and custodial accounts are
less sensitive to interest rate fluctuations and provide a growing source of
non-interest income through depositor and other retail banking fees.

         The following table, which is based on information that we provide to
the Office of Thrift Supervision, presents the change in our net portfolio value
at December 31, 2006 that would occur in the event of an immediate change in
interest rates based on Office of Thrift Supervision assumptions, with no effect
given to any steps that we might take to counteract that change.
<TABLE>
<CAPTION>

                                          Net Portfolio Value                                Net Portfolio Value as % of
                                          (Dollars in thousands)                                Portfolio Value of Assets
                          -----------------------------------------------------        ----------------------------------------

Basic Point ("bp")
Change in Rates            $Amount               $Change              % Change             NPV Ratio              Change (bp)
-------------------       ---------            -----------           ----------        ---------------          --------------
    <S>                     <C>                    <C>                   <C>                  <C>                    <C>

    +300                    22,388                 -1,526                -6%                  7.81%                  -36bp
    +200                    23,137                   -777                -3%                  8.01%                  -16bp
    +100                    23,571                   -343                -1%                  8.10%                   -7bp
    0                       23,914                                         -                  8.17%                    -
    -100                    23,558                   -356                -1%                  8.02%                  -15bp
    -200                    23,043                   -871                -4%                  7.81%                  -36bp
</TABLE>

         The Office of Thrift Supervision uses various assumptions in assessing
interest rate risk. Those assumptions relate to interest rates, loan prepayment
rates, deposit decay rates and the market values of certain assets under
differing interest rate scenarios, among others. As with any method of measuring
interest rate risk, certain shortcomings are inherent in the methods of analyses
presented in the foregoing tables. For example, although certain assets and
liabilities may have similar maturities or periods to repricing, 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 market rates. Additionally, certain assets, such as
adjustable-rate mortgage loans, 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 change in interest rates, expected rates of prepayments on loans and
early withdrawals from certificates could deviate significantly from those
assumed in calculating the table. Prepayment rates can have a significant impact
on interest income. Because of the large percentage of loans and mortgage-backed
securities we hold, rising or falling interest rates have a significant impact
on the prepayment speeds of our earning assets that in turn affect the rate
sensitivity position. When interest rates rise, prepayments tend to slow. When
interest rates fall, prepayments tend to rise. Our asset sensitivity would be
reduced if prepayments slow and vice versa. While we believe these assumptions
to be reasonable, there can be no assurance that assumed prepayment rates will
approximate actual future mortgage-backed security and loan repayment activity.

ITEM 4.  CONTROLS AND PROCEDURES.

         The company maintains disclosure controls and procedures that are
designed to ensure that information required to be disclosed by the company in
reports that it files or submits under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified
in Securities and Exchange Commission rules and regulations and that such
information is accumulated and communicated to the company's management,
including the company's Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow

                                       28
<PAGE> 29
timely decisions regarding required disclosure. Because of the inherent
limitations in all control systems, no evaluation of controls can provide
absolute assurance that the company's disclosure controls and procedures will
detect or uncover every situation involving the failure of persons within the
company or its subsidiary to disclose material information otherwise required to
be set forth in the company's periodic reports.

         In connection with this Form 10-Q, the company's management, with the
participation of its Chief Executive Officer and Chief Financial Officer,
evaluated the company's disclosure controls and procedures as currently in
effect, and such officers have concluded that, as of this date, the company's
disclosure controls and procedures are effective.

         Management of the company is also responsible for establishing and
maintaining adequate internal control over financial reporting and control of
the company's assets to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external
purposes in accordance with accounting principles generally accepted in the
United States of America. There were no changes in the company's internal
control over financial reporting during the company's quarter ended March 31,
2007 that have materially affected, or are reasonably likely to materially
affect, the company's internal control over financial reporting.

PART II.   OTHER INFORMATION

ITEM 1.    Legal Proceedings

         As previously reported in a Form 8-K filed on September 8, 2006, the
company announced that a Demand for Arbitration before the American Arbitration
Association was filed against the company, the bank, GAMC, and Carroll E. Amos,
President and Chief Executive Officer of the company and the bank. The Demand
for Arbitration was filed by Stamm Mortgage Management, Inc. ("Stamm Mortgage")
and T. Mark Stamm, President of Stamm Mortgage in connection with the Management
Agreement among Stamm Mortgage, the bank, and GAMC that governed the management
of GAMC by Stamm Mortgage before the bank terminated the operations of GAMC
earlier this year, and certain aspects of the company's public disclosures of
that event.

        As previously reported in a Form 8-K filed on February 9, 2007, the
parties entered into a mutual release resolving any and all related claims and
controversies between the parties and obviating the need for all further
arbitration and legal proceedings.

ITEM 1A.       Risk Factors

OUR INCREASED EMPHASIS ON COMMERCIAL AND CONSTRUCTION LENDING MAY EXPOSE US TO
INCREASED LENDING RISKS.

         At March 31, 2007, our loan portfolio consisted of $31.9 million, or
16.98% of commercial real estate loans, $21.4 million, or 11.41% of construction
and land development loans and $37.6 million, or 20.05% of commercial business
loans. We intend to increase our emphasis on those types of loans. Those types
of loans generally expose a lender to greater risk of non-payment and loss than
one-to-four-family residential mortgage loans because repayment of the loans
often depends on the successful operation of the property, the income stream of
the borrowers and, for construction loans, the accuracy of the estimate of the
property's value at completion of construction and the estimated cost of
construction. Such loans typically involve larger loan balances to single
borrowers or groups of related borrowers compared to one- to four-family
residential mortgage loans. Commercial business loans expose us to additional
risks since they typically are made on the basis of the borrower's ability to
make repayments from the cash flow of the borrower's business and are secured by
non-real estate collateral that may depreciate over time. In addition, since
such loans generally entail greater risk than one- to four-family residential
mortgage loans, we may need to increase our allowance for loan losses in the
future to account for the likely increase in probable incurred credit losses
associated with the growth of such loans. Also, many of our commercial and
construction borrowers have more than one loan outstanding with us.
Consequently, an adverse development with respect to one loan or one credit
relationship can expose us to a significantly greater risk of loss compared to
an adverse development with respect to a one- to four-family residential
mortgage loan.

STRONG COMPETITION WITHIN OUR MARKET AREA COULD HURT OUR ABILITY TO COMPETE AND
COULD SLOW OUR GROWTH.

         We face intense competition both in making loans and attracting
deposits. This competition has made it more difficult for us to make new loans
and has occasionally forced us to offer higher deposit rates. Price competition
for loans and deposits might result in us earning less on our loans and paying
more on our deposits,

                                       29
<PAGE> 30
which would reduce net interest income. Some of the institutions with which we
compete have substantially greater resources and lending limits than we have and
may offer services that we do not provide. We expect competition to increase in
the future as a result of legislative, regulatory and technological changes and
the continuing trend of consolidation in the financial services industry. Our
profitability depends upon our continued ability to compete successfully in our
market area.

AN INCREASE IN LOAN PREPAYMENTS AND ON PREPAYMENT OF LOANS UNDERLYING
MORTGAGE-BACKED SECURITIES AND SMALL BUSINESS ADMINISTRATION CERTIFICATES MAY
ADVERSELY AFFECT OUR PROFITABILITY.

         Prepayment rates are affected by consumer behavior, conditions in the
housing and financial markets, general economic conditions and the relative
interest rates on fixed-rate and adjustable-rate mortgage loans. Although
changes in prepayment rates are, therefore, difficult for us to predict,
prepayment rates tend to increase when market interest rates decline relative to
the rates on the prepaid instruments.

         We recognize our deferred loan origination costs and premiums paid on
originating these loans by adjusting our interest income over the contractual
life of the individual loans. As prepayments occur, the rate at which net
deferred loan origination costs and premiums are expensed accelerates. The
effect of the acceleration of deferred costs and premium amortization may be
mitigated by prepayment penalties paid by the borrower when the loan is paid in
full within a certain period of time, which varies between loans. If prepayment
occurs after the period of time when the loan is subject to a prepayment
penalty, the effect of the acceleration of premium and deferred cost
amortization is no longer mitigated.

         We recognize premiums we pay on mortgage-backed securities and Small
Business Administration Certificates as an adjustment to interest income over
the life of the security based on the rate of repayment of the securities.
Acceleration of prepayment on the loans underlying a mortgage-backed security or
Small Business Administration Certificate shortens the life of the security,
increases the rate at which premiums are expensed and further reduces interest
income.

         We may not be able to reinvest loan and security prepayments at rates
comparable to the prepaid instruments particularly in periods of declining
interest rates.

WE OPERATE IN A HIGHLY REGULATED ENVIRONMENT AND WE MAY BE ADVERSELY AFFECTED BY
CHANGES IN LAWS AND REGULATIONS.

         The bank is subject to extensive regulation, supervision and
examination by the Office of Thrift Supervision and by the Federal Deposit
Insurance Corporation, as insurer of its deposits. Such regulation and
supervision govern the activities in which the bank and the company may engage,
and are intended primarily for the protection of the insurance fund and for the
depositors and borrowers of the bank. The regulation and supervision by the
Office of Thrift Supervision and the Federal Deposit Insurance Corporation are
not intended to protect the interests of investors in the common stock of the
company. Regulatory authorities have extensive discretion in their supervisory
and enforcement activities, including the imposition of restrictions on our
operations, the classification of our assets and determination of the level of
our allowance for loan losses. Any change in such regulation and oversight,
whether in the form of regulatory policy, regulations, legislation or
supervisory action, may have a material impact on our operations.

A BREACH OF INFORMATION SECURITY COULD NEGATIVELY AFFECT OUR EARNINGS.

         Increasingly, we depend upon data processing, communication and
information exchange on a variety of computing platforms and networks and over
the Internet. We cannot be certain all our systems are entirely free from
vulnerability to attack, despite safeguards we have instituted. In addition, we
rely on the services of a variety of vendors to meet data processing and
communication needs. If information security is breached, information can be
lost or misappropriated, resulting in financial loss or costs to us or damages
to others. These costs or losses could materially exceed the amount of insurance
coverage, if any, which would adversely affect our earnings.

WE ARE SUBJECT TO HEIGHTENED REGULATORY SCRUTINY WITH RESPECT TO BANK SECRECY
AND ANTI-MONEY LAUNDERING STATUTES AND REGULATIONS.

         Recently, regulators have intensified their focus on the USA PATRIOT
Act's anti-money laundering and Bank Secrecy Act compliance requirements. There
is also increased scrutiny of our compliance with the rules enforced by the
Office of Foreign Assets Control. In order to comply with regulations,
guidelines and examination procedures in this area, we have been required to
adopt new policies and procedures and to install new systems. We

                                       30
<PAGE> 31
cannot be certain that the policies, procedures and systems we have in place are
flawless. Therefore, there is no assurance that in every instance we are in full
compliance with these requirements.

FAILURE TO PAY INTEREST ON OUR DEBT MAY ADVERSELY IMPACT US.

         Deferral of interest payments where allowed on our convertible
preferred securities may affect our ability to issue additional debt.

FAILURE TO REMAIN A WELL CAPITALIZED INSTITUTION.

          As a result of recording losses of $5.6 million during the year ended
September 30, 2006, the bank ceased to be considered a well capitalized
institution and is now considered to be an adequately capitalized institution.
As an adequately capitalized institution, the bank cannot issue brokered
certificates of deposit without OTS or FDIC permission, and the OTS can limit
the payment of dividends from the bank to the company. Without the payment of a
dividend from the bank, the company is unable to make a distribution on the
cumulative convertible trust preferred securities. On December 13, 2006, the
bank was advised by the OTS that the OTS would not approve the bank's
application to pay a cash dividend to the company, and the company exercised its
right to defer the next scheduled quarterly distribution on the cumulative
convertible trust preferred securities as well as future distributions.

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

Not applicable.

ITEM 3.    Defaults Upon Senior Securities

Not applicable.

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

Not applicable.

ITEM 5.    Other Information

Not applicable.

ITEM 6.  Exhibits

        (a) Exhibits
        31.1    Certification of Chief Executive Officer pursuant to Section 302
                of Sarbanes-Oxley Act of 2002
        31.2    Certification of Chief Financial Officer pursuant to Section 302
                of Sarbanes-Oxley Act of 2002
        32.1    Certification of Chief Executive Officer pursuant to Section 906
                of Sarbanes-Oxley Act of 2002
        32.2    Certification of Chief Financial Officer pursuant to Section 906
                of Sarbanes-Oxley Act of 2002

                                       31
<PAGE> 32
                        GREATER ATLANTIC FINANCIAL CORP.

                                   SIGNATURES

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


                           GREATER ATLANTIC FINANCIAL CORP.
                           --------------------------------
                                    (Registrant)


                           By: /s/ Carroll E. Amos
                               -------------------------------------------------
                               Carroll E. Amos
                               President and Chief Executive Officer



                           By: /s/ David E. Ritter
                               -------------------------------------------------
                               David E. Ritter
                               Senior Vice President and Chief Financial Officer


                               Date: May 15, 2007