<PAGE> 1


                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

                [ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                  FOR THE QUARTERLY PERIOD ENDED June 30, 2004

                                       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                  703-391-1300
         RESTON, VIRGINIA 20191                (Registrant's Telephone Number,
         ----------------------                --------------------------------
  (Address of Principal Executive Offices)          Including Area Code)
  ----------------------------------------          --------------------
              (Zip 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 an accelerated filer (as
defined in Rule 12B-2 of the Exchange Act):   Yes   ___    No   X


                      APPLICABLE ONLY TO CORPORATE ISSUERS:

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

      At August 12, 2004, there were 3,012,434 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 JUNE 30, 2004

                                TABLE OF CONTENTS


PART I.  FINANCIAL INFORMATION                                          PAGE NO.
------------------------------                                          --------

Item 1. Financial Statements

      Consolidated Statements of Financial Condition
      June 30, 2004 (unaudited) and September 30, 2003 (audited)...............3

      Consolidated Statements of Operations (unaudited) Three and nine months
      ended June 30, 2004 and June 30, 2003....................................4

      Consolidated Statements of Comprehensive Income (Loss) (unaudited) Nine
      months ended June 30, 2004 and June 30, 2003.............................5

      Consolidated Statements of Changes in Stockholders' Equity (unaudited)
      Nine months ended June 30, 2004 and June 30, 2003........................5

      Consolidated Statements of Cash Flows (unaudited) Nine months ended June
      30, 2004 and June 30, 2003...............................................6

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

Item 2.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations............................................14
Item 3.  Quantitative and Qualitative Disclosures about Market Risk...........26
Item 4.  Controls and Procedures..............................................27

PART II.  OTHER INFORMATION
---------------------------

Item 1.  Legal Proceedings....................................................27
Item 2.  Changes in Securities, Use of Proceeds and Issuer Purchase of
         Equity Securities....................................................27
Item 3.  Defaults Upon Senior Securities......................................27
Item 4.  Submission of Matters to a Vote of Security Holders..................28
Item 5.  Other Information....................................................28
Item 6.  Exhibits and Reports on Form 8-K.....................................28

SIGNATURES....................................................................29

CERTIFICATIONS................................................................31




                                       2
<PAGE> 3
<TABLE>
<CAPTION>


                                         GREATER ATLANTIC FINANCIAL CORP.
                                  CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

                                                                             June 30,           September 30,
                                                                               2004                  2003
                                                                          ---------------       ---------------
                                                                             (Unaudited)
                                                                                 (dollars in thousands)
<S>                                                                          <C>                   <C>
 Assets
 Cash and cash equivalents                                                   $  2,436              $  2,029
 Interest bearing deposits                                                      8,421                 4,114
 Investment securities
    Available-for-sale                                                        193,197               211,408
    Held-to-maturity                                                           11,086                13,376
    Trading                                                                         -                     -
 Loans held for sale                                                            7,831                 6,554
 Loans receivable, net                                                        260,314               242,253
 Accrued interest and dividends receivable                                      2,220                 2,299
 Deferred income taxes                                                          1,520                 1,520
 Federal Home Loan Bank stock, at cost                                          5,335                 4,340
 Premises and equipment, net                                                    8,392                 7,948
 Goodwill                                                                       1,284                 1,284
 Prepaid expenses and other assets                                              2,402                 2,229
                                                                          ----------------      ---------------
                   Total assets                                              $504,438              $499,354
                                                                          ===============       ===============
Liabilities and stockholders' equity
Liabilities
Deposits                                                                     $298,820              $297,876
Advance payments from borrowers for taxes and insurance                           306                   225
Accrued expenses and other liabilities                                          3,415                 5,919
Advances from the FHLB and other borrowings                                   173,308               164,635
Guaranteed convertible preferred securities of subsidiary trust                 9,366                 9,359
                                                                          ---------------       ---------------
Total liabilities                                                             485,215               478,014
                                                                          ---------------       ---------------
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; 3,012,434 shares outstanding                             30                    30
   Additional paid-in capital                                                  25,152                25,152
   Accumulated deficit                                                         (4,549)               (3,771)
   Accumulated other comprehensive loss                                        (1,410)                  (71)
                                                                          ---------------       ---------------
Total stockholders' equity                                                     19,223                21,340
                                                                          ---------------       ---------------
Total liabilities and stockholders' equity                                   $504,438              $499,354
                                                                          ===============       ===============
</TABLE>


                                                     3

<PAGE> 4
<TABLE>
<CAPTION>


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

                                                           Three Months Ended              Nine Months Ended
                                                                June 30,                       June 30,
                                                      ------------------------------  ----------------------------
                                                          2004             2003           2004           2003
                                                      -------------    -------------  -------------   ------------
<S>                                                    <C>              <C>            <C>           <C>
Interest income
  Loans                                                   $3,564          $ 3,500        $10,081       $ 10,900
  Investments                                              1,247            1,571          4,256          5,117
                                                      -------------    -------------  -------------   ------------
Total interest income                                      4,811            5,071         14,337         16,017
                                                      -------------    -------------  -------------   ------------
Interest expense
  Deposits                                                 1,426            1,557          4,271          5,140
  Borrowed money                                           1,657            1,612          5,036          4,753
                                                      -------------    -------------  -------------   ------------
Total interest expense                                     3,083            3,169          9,307          9,893
                                                      -------------    -------------  -------------   ------------
Net interest income                                        1,728            1,902          5,030          6,124
Provision for loan losses                                     52               66            132            779
                                                      -------------    -------------  -------------   ------------
Net interest income after provision for loan losses        1,676            1,836          4,898          5,345
                                                      -------------    -------------  -------------   ------------
Noninterest income
  Fees and service charges                                   260              333            740          1,118
  Gain on sale of loans                                    3,597            4,067          7,861         11,327
  Gain on sale of investment securities                        1               51            157             35
  Gain (loss) on derivatives                               1,104              142            663          (210)
  Loss on sale of real estate owned                            -              (9)              -            (9)
  Other operating income                                       5              (1)             14             13
                                                      -------------    -------------  -------------   ------------
Total noninterest income                                   4,967            4,583          9,435         12,274
                                                      -------------    -------------  -------------   ------------
Noninterest expense
  Compensation and employee benefits                       2,670            3,264          6,844         9,405
  Occupancy                                                  647              494          1,658         1,467
  Professional services                                      153              370            699           846
  Advertising                                                717              405          1,662           786
  Deposit insurance premium                                   11               12             33            35
  Furniture, fixtures and equipment                          306              282            820           819
  Data processing                                            400              342          1,102           967
  Other real estate owned expenses                             -                2              -             5
  Other operating expenses                                   867              808          2,204         2,285
                                                      -------------    -------------  -------------  ------------
Total noninterest expense                                  5,771            5,979         15,022        16,615
                                                      -------------    -------------  -------------  ------------
(Loss) income before income tax provision                    872              440          (689)         1,004
                                                      -------------    -------------  -------------  ------------
Income tax provision                                          89                -             89             -
                                                      -------------    -------------  -------------  ------------
Net (loss) income                                         $  783          $   440        $ (778)       $ 1,004
                                                      =============    =============  =============  ============

(Loss) earnings per common share
  Basic                                                   $ 0.26          $  0.15        $(0.26)       $  0.33
  Diluted                                                 $ 0.20          $  0.12        $(0.26)       $  0.30
Weighted average common shares outstanding
  Basic                                                3,012,434        3,012,434      3,012,434     3,012,434
  Diluted                                              4,413,874        4,413,922      3,012,434     4,412,702

</TABLE>


                                                       4

<PAGE> 5
<TABLE>
<CAPTION>



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

        ---------------------------------------------------------------------------------------------
        Nine months ended June 30,                                        2004              2003
        ---------------------------------------------------------------------------------------------
                                                                      (in thousands)
        <S>                                                              <C>               <C>
        Net (loss) earnings                                              $   (778)         $ 1,004
        ---------------------------------------------------------------------------------------------
        Other comprehensive (loss) income, net of tax
           Unrealized loss on securities                                   (1,339)             (33)
        ---------------------------------------------------------------------------------------------
        Other comprehensive loss                                           (1,339)             (33)
        ---------------------------------------------------------------------------------------------
        Comprehensive (loss) income                                      $ (2,117)         $   971
        =============================================================================================
</TABLE>


<TABLE>
<CAPTION>

                                         GREATER ATLANTIC FINANCIAL CORP.
                      CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)

------------------------------------------------------------------------------------------------------------------------------
                                                                                              Accumulated
                                                                Additional   Accumulated         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, 2002                $-         $ 30    $ 25,152       $ (6,032)          $   (87)        $ 19,063

Other comprehensive loss                      -            -           -              -               (33)             (33)

Net earnings for the period                   -            -           -          1,004                 -            1,004
------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2003                     $-         $ 30    $ 25,152       $ (5,028)          $  (120)        $ 20,034
==============================================================================================================================
Balance at September 30, 2003                $-         $ 30    $ 25,152       $ (3,771)          $   (71)        $ 21,340

Other comprehensive loss                      -            -           -              -            (1,339)          (1,339)

Net loss for the period                       -            -           -           (778)                -             (778)
------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2004                     $-         $ 30    $ 25,152       $ (4,549)          $(1,410)        $ 19,223
==============================================================================================================================
</TABLE>





                                                       5
<PAGE> 6
<TABLE>
<CAPTION>


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



--------------------------------------------------------------------------------------------------------------
Nine months ended June 30,                                                          2004            2003
--------------------------------------------------------------------------------------------------------------
                                                                                       (in thousands)
<S>                                                                                <C>            <C>
Cash flow from operating activities

Net (loss) income                                                                    $ (778)       $ 1,004
Adjustments to reconcile net (loss) income to net cash
provided by operating activities
  Provision for loan loss                                                               132            779
  Amortization of deposit acquisition adjustment                                          -             23
  Amortization of loan acquisition adjustment                                           (20)           (16)
  Depreciation and amortization                                                         708            666
  Proceeds from sale of trading securities                                              (41)             -
  Net loss on trading securities                                                         41              -
  Realized gain on sale of investments                                                 (198)           (35)
  Proceeds from sale of mortgage backed securities                                      663              -
  (Gain) loss on derivatives                                                           (663)           210
  Loss on sale of real estate owned                                                       -              9
  Gain on disposal of fixed assets                                                        -            (11)
  Amortization of investment security premiums                                        1,146          1,475
  Amortization of mortgage-backed securities premiums                                 1,163            430
  Amortization of deferred fees                                                        (344)          (292)
  Amortization of convertible preferred stock costs                                       7              -
  Discount accretion net of premium amortization                                       (304)           468
  Gain on sale of loans held for sale                                                (7,861)       (11,327)
(Increase) decrease in assets
  Disbursements for origination of loans                                           (344,726)      (502,846)
  Proceeds from sales of loans                                                      351,310        506,510
  Accrued interest and dividend receivable                                               79            372
  Prepaid expenses and other assets                                                    (173)          (718)
  Deferred loan fees collected, net of deferred costs incurred                          451             43
Increase (decrease) in liabilities
  Accrued expenses and other liabilities                                             (2,504)           681
  Income taxes payable                                                                    -              -
--------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by operating activities                                  (1,912)       (2,575)
--------------------------------------------------------------------------------------------------------------

</TABLE>



                                                  6

<PAGE> 7
<TABLE>
<CAPTION>


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

--------------------------------------------------------------------------------------------------------------
Nine months ended June 30,                                                         2004             2003
--------------------------------------------------------------------------------------------------------------
                                                                                      (in thousands)
<S>                                                                             <C>               <C>
Cash flow from investing activities
  Net increase in loans                                                         $ (17,976)        $ (4,384)
  Purchases of premises and equipment                                              (1,151)            (732)
  Purchases of investment securities                                              (24,748)         (27,113)
  Proceeds from sale of investment securities                                      35,716            1,035
  Proceeds from repayments of investment securities                                25,638           29,556
  Purchases of mortgage-backed securities                                         (63,056)         (38,954)
  Proceeds from repayments of mortgage-backed securities                           43,500           18,331
  Proceeds from the sale of foreclosed assets                                           -               65
  Purchases of FHLB stock                                                         (14,075)          (9,523)
  Proceeds from sale of FHLB stock                                                 13,080            8,805
--------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities                                (3,072)         (22,914)
--------------------------------------------------------------------------------------------------------------
Cash flow from financing activities
  Net (decrease) increase in deposits                                                 944            2,072
  Net advances from FHLB                                                            9,400           27,650
  Net borrowings on reverse repurchase agreements                                    (727)          (6,614)
  (Decrease) increase in advance payments by borrowers for taxes and insurance         81               83
  Issuance of convertible preferred securities                                          -               (1)
--------------------------------------------------------------------------------------------------------------
Net cash provided (used in) by financing activities                                 9,698           23,190
--------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents                                    4,714           (2,299)
--------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, at beginning of period                                   6,143            9,358
--------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, at end of period                                     $  10,857        $   7,059
==============================================================================================================
</TABLE>





                                                     7

<PAGE> 8


                        GREATER ATLANTIC FINANCIAL CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 INFORMATION AS OF JUNE 30, 2004 AND FOR THE NINE MONTHS THEN ENDED IS 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") and its wholly owned
subsidiary, Greater Atlantic Mortgage Corp. ("GAMC"), have been prepared in
accordance with the instructions for Form 10-Q and do not include all of the
disclosures required by generally accepted accounting principles. All
adjustments which, in the opinion of management, are necessary to a fair
presentation of the results for the interim periods presented (consisting of
normal recurring adjustments) have been made. The results of operations for the
nine months ended June 30, 2004 are not necessarily indicative of the results of
operations that may be expected for the year ending September 30, 2004 or any
future periods.

(2) 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. The company at or during the nine months ended June 30, 2004 and 2003
identified impaired loans. An analysis of the change in the allowance for loan
losses follows:
<TABLE>
<CAPTION>

        ------------------------------------------------------------------------------------------
        At or for the Nine Months Ended June 30,                      2004             2003
        ------------------------------------------------------------------------------------------
                                                                       (dollars in thousands)
        <S>                                                         <C>               <C>
        Balance at beginning of period                              $1,550            $1,699
        Provisions                                                     132               779
        Total charge-offs                                             (191)             (745)
        Total recoveries                                                24                16
        ------------------------------------------------------------------------------------------
        Net charge-offs                                               (167)             (729)
        ------------------------------------------------------------------------------------------
        Balance at end of period                                    $1,515            $1,749
        ==========================================================================================
        Ratio of net charge-offs during the period
           to average loans outstanding during the period             0.06%             0.26%
        ==========================================================================================
        Allowance for loan losses to total non-performing
           loans at end of period                                   124.18%            98.15%
        ==========================================================================================
        Allowance for loan losses to total loans                      0.56%             0.62%
        ==========================================================================================
</TABLE>

(3) REGULATORY MATTERS

      The capital distribution regulation of the OTS requires that the
institution provide the applicable OTS District 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 $659,000 during the year ended
September 30, 2003 and $491,000 the period ended June 30, 2004.






                                       8
<PAGE> 9


                        GREATER ATLANTIC FINANCIAL CORP.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
 INFORMATION AS OF JUNE 30, 2004 AND FOR THE NINE MONTHS THEN ENDED IS UNAUDITED

         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%. At June 30, 2004, the bank was classified as a
well-capitalized financial institution. The following presents the bank's
capital position:
<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------------------------------
                                                Required    Required       Actual      Actual
              At June 30, 2004                  Balance      Percent      Balance      Percent     Surplus
---------------------------------------------------------------------------------------------------------------
                                                                   (dollars in thousands)
<S>                                              <C>          <C>         <C>           <C>          <C>
Leverage                                         $25,204       5.00%      $28,220        5.60%       $ 3,016
Tier 1 Risk-based                                $15,696       6.00%      $28,220       10.79%       $12,524
Total Risk-based                                 $26,160      10.00%      $29,652       11.33%       $ 3,492
===============================================================================================================
</TABLE>

(4) 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 from 76,667 to 225,000 shares to employees and amended again effective
March 15, 2002, to increase the number of options available for grant from
225,000 to 350,000 shares to employees 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 June 30, 2004, 94,685
warrants were issued.

         The following summary represents the activity under the Plan:
<TABLE>
<CAPTION>

  --------------------------------------------------------------------------------------------------------------------
                                                                           Number       Exercise        Expiration
                                                                         of Shares        Price            Date
  --------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>            <C>           <C>
  Balance outstanding at September 30, 2001                                139,000
  Options granted                                                           10,000         $ 5.31        12-14-2010
  Options granted                                                           26,000         $ 7.00          1-1-2012
  Options granted                                                           20,000         $ 9.00          1-1-2012
  Options exercised                                                         (5,000)        $ 4.00
  --------------------------------------------------------------------------------------------------------------------
  Balance outstanding and exercisable at September 30, 2002                190,000
  Options granted                                                                -
  --------------------------------------------------------------------------------------------------------------------
  Balance outstanding and exercisable at September 30, 2003                190,000
  --------------------------------------------------------------------------------------------------------------------
  Options granted                                                           36,000         $ 8.50        10-20-2013
  --------------------------------------------------------------------------------------------------------------------
  Balance outstanding and exercisable at June 30, 2004                     226,000
  --------------------------------------------------------------------------------------------------------------------

  ====================================================================================================================
</TABLE>

         The Company has adopted the disclosure only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), but it continues to measure compensation cost for
the stock options using the intrinsic value method prescribed by APB Opinion No.
25. As allowable under SFAS 123, the Company used the Black-Scholes method to
measure the compensation cost of stock options granted in the first quarter of
fiscal 2004 with the following assumptions: risk free interest rate of 2.37%, a
dividend payout rate of zero, and an expected option life of seven years. The
volatility is 45%. Using those assumptions, the average weighted fair value of
the stock options granted during fiscal 2004 was $3.59.




                                       9

<PAGE> 10


                        GREATER ATLANTIC FINANCIAL CORP.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
 INFORMATION AS OF JUNE 30, 2004 AND FOR THE NINE MONTHS THEN ENDED IS UNAUDITED

         Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.

         If the Company had elected to recognize compensation cost based on the
value at the grant dates with the method prescribed by SFAS 123, net income
(loss) would have been changed to the pro forma amounts indicated below:
<TABLE>
<CAPTION>

-------------------------------------------------------------------------------------------------------
Nine months ended June 30,                                                    2004            2003
-------------------------------------------------------------------------------------------------------
                                                                            (in thousands except per
                                                                                  share data)
<S>                                                                           <C>            <C>
Net earnings (loss)                                                           $  (778)       $ 1,004
   Deduct: Total stock-based employee compensation expense                       (129)             -
-------------------------------------------------------------------------------------------------------
Pro forma net earnings (loss) attributable to common stockholders             $  (907)       $ 1,004
=======================================================================================================
Earnings (loss) per common share
   Basic                                                                      $ (0.26)       $  0.33
   Diluted                                                                    $ (0.26)       $  0.30
Earnings (loss) per common share, pro forma
   Basic                                                                      $ (0.30)       $  0.33
   Diluted                                                                    $ (0.30)       $  0.30

</TABLE>

(5) 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 reflects the potential dilution of
securities that could share in the earnings of an entity. The following table
presents a reconciliation between the weighted average shares outstanding for
basic and diluted earnings per share for the nine months ended June 30, 2003.
The effect of the conversion of preferred securities and the impact of stock
options were antidilutive for the period ended June 30, 2004.

<TABLE>
<CAPTION>
                                                                              For the Nine Months
                                                                                Ended June 30,
                                                                            ------------------------
              (dollars in thousands except per share amounts)                         2003
              -----------------------------------------------               ------------------------
<S>                                                                                      <C>
Net earnings                                                                                $1,004
Effect of conversion of preferred securities                                                   300
Diluted earnings per share                                                                   1,304
Weighted average common shares outstanding                                               3,012,434
Effect of conversion of preferred securities                                             1,371,429
Common stock equivalents due to dilutive effect of stock options                            28,839
Total weighted average common shares and common share equivalents                        4,412,702
outstanding
Basic earnings per common share                                                             $ 0.33
Diluted earnings per common share                                                           $ 0.30

</TABLE>



                                       10
<PAGE> 11


                        GREATER ATLANTIC FINANCIAL CORP.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
 INFORMATION AS OF JUNE 30, 2004 AND FOR THE NINE MONTHS THEN ENDED IS UNAUDITED

(6) SEGMENT REPORTING

         The company has two reportable segments, banking and mortgage banking.
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, 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 residential
real estate loans purchased from GAMC and others, and also invests in
mortgage-backed and other securities. The mortgage banking segment activities,
which are conducted principally through GAMC, include the origination of
residential real estate loans either for the bank's portfolio or for sale into
the secondary market with servicing released.

    The company evaluates performance based on net interest income, noninterest
income, and noninterest expense. The total of these three items is the
reportable segment's net contribution. The company's reportable segments are
strategic business units that offer different services in different geographic
areas. They are managed separately because each segment appeals to different
markets and, accordingly, requires different technology and marketing
strategies.

         Since the company derives a significant portion of its banking revenue
from interest income as offset by interest expense, the segments are reported
below using net interest income. Because the company also evaluates performance
based on noninterest income and noninterest expense, these measures of segment
profit and loss are also presented.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
                                                                             Total                       Total
                                                             Mortgage     Reportable    Intersegment   Operating
For the Nine Months Ended June 30,              Banking       Banking      Segments     Eliminations    Earnings
--------------------------------------------------------------------------------------------------------------------
<S>                                            <C>           <C>           <C>           <C>           <C>
Net interest income: (1)
2004                                           $  4,474      $   424       $  4,898      $      -      $  4,898
2003                                              4,863          482          5,345             -         5,345
Noninterest income:
2004                                           $  1,419      $ 8,036       $  9,455      $    (20)     $  9,435
2003                                                439       11,863         12,302           (28)       12,274
Noninterest expense:
2004                                           $  7,808      $ 7,234       $ 15,042      $    (20)     $ 15,022
2003                                              7,466        9,177         16,643           (28)       16,615
Net income (loss):
2004                                           $ (1,915)     $ 1,137       $   (778)     $      -      $   (778)
2003                                             (2,163)       3,167          1,004             -         1,004
Segment assets:
2004                                           $498,044      $10,112       $508,156      $ (3,718)     $504,438
2003                                            520,768       24,033        544,801       (17,002)      527,799
(1) Segment net interest income reflects income after provisions for loan losses.
</TABLE>




                                       11
<PAGE> 12


                        GREATER ATLANTIC FINANCIAL CORP.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
 INFORMATION AS OF JUNE 30, 2004 AND FOR THE NINE MONTHS THEN ENDED IS UNAUDITED

(7) RECENT ACCOUNTING STANDARDS

    In January 2003, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 46, CONSOLIDATION OF VARIABLE INTEREST ENTITIES, which was
replaced by FASB Interpretation No. 46R ("FIN 46R") in December 2003. FIN 46R
became effective in the first quarter of 2004 and defined a variable interest
entity ("VIE") as a corporation, partnership, trust, or any other legal
structure used for the business purpose that either does not have equity
investors with voting rights or has equity investors that do not provide
sufficient financial resources for the entity to support its activities. This
interpretation requires a VIE to be consolidated or deconsolidated by a company
generally based on the risk of loss or return. Most of the original provisions
of Interpretation No. 46 were delayed until March 31, 2004 through the issuance
of FIN 46R. The Company has a VIE in the form of a trust set up to issue trust
preferred securities and accordingly, the implementation of FIN 46R required the
deconsolidation of the Trust. The Company's adoption of FIN 46R did not have a
material impact on the Company's financial position and results of operations.
The restatement of prior years financial statements was not required by FIN 46R
and the Company did not restate the prior year's financial statements.

(8) GUARANTEED CONVERTIBLE PREFERRED SECURITIES OF SUBSIDIARY TRUST

    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, with an
option to call 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
company purchased all the shares of the common stock. 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. All intercompany interest and equity were eliminated in consolidation.

    The Trust was formed for the sole purpose of investing the proceeds from the
sale of the convertible preferred securities in the corresponding convertible
debentures. 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 $9.2 million after deducting offering expenses.
The company currently retains approximately $1.5 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 Greater
Atlantic Bank to increase its capital position. Initially, these funds were
invested in investment securities. Subsequently, such proceeds were used to fund
new loans.



                                       12

<PAGE> 13


                        GREATER ATLANTIC FINANCIAL CORP.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
 INFORMATION AS OF JUNE 30, 2004 AND FOR THE NINE MONTHS THEN ENDED IS UNAUDITED

(9) INTEREST RATE EXCHANGE AGREEMENTS

    In fiscal 2002, the bank began to utilize derivative financial instruments
to hedge its interest rate risk. The bank does not hold or issue derivative
financial instruments for trading purposes. Beginning in 2002, the bank adopted
statement of Financial Accounting Standard No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133") which requires that an entity
recognize all derivatives as either assets or liabilities and measure those
instruments at fair value. The bank bases the estimated fair values of these
agreements on the cost of interest-rate exchange agreements with similar terms
at available market prices, excluding accrued interest receivable and payable.
However, active markets do not exist for many types of financial instruments.
Consequently, fair values for these instruments must be estimated using
techniques such as discounted cash flow analysis and comparisons to similar
instruments. Estimates developed using these methods are highly subjective and
require judgments regarding significant matters such as the amount and timing of
future cash flows and the selection of discount rates that appropriately reflect
market and credit risks. Changes in these judgments often have a material effect
on the fair value estimates. Since those estimates are made as of a specific
time, they are susceptible to material near term changes.

    The bank entered into various interest-rate swaps that total $72 million in
notional principal. The swaps pay a fixed rate with the bank receiving payments
based upon one-to three-month floating rate LIBOR. The capped range is between
1.31% - 4.53%, and expires between 2 and 7 years. The bank also entered into
various interest rate caps that total $30 million in notional principal with
terms between four and ten years that limit the float between a floor of 2.00%,
and capped between 5.00% - 8.00%. The bank accounts for these derivatives, under
the guidelines of SFAS 133.

    Realized and unrealized gains and losses on these 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 nine months ended June 30, 2004 and 2003 the instruments
did not meet hedge accounting requirements. The statement of operations includes
net gains of $663,000 and net losses of $210,000 for the nine months ended June
30, 2004 and 2003, respectively.




                                       13

<PAGE> 14



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.

MORTGAGE BANKING ACTIVITIES

      The company adopted new accounting requirements relating to SFAS No. 149
which requires that mortgage loan commitments related to loans originated for
sale be accounted for as derivative instruments. In addition forward loan sale
agreements also meet the definition of a derivative instrument under SFAS No.
133.

      Our mortgage banking activities include loans in our pipeline (from
application through sale). Loans in our pipeline are considered commitments once
the customers accept a rate lock. In a rate lock commitment, clients while in
the process of obtaining approval for residential loans can, at their own
determination, fix or "lock in" the rate on the loan. Those commitments are
generally for periods of 30 to 90 days and are at market rates. We generally
enter into forward sales contracts on rate lock commitments on either a best
efforts or mandatory basis.

      Mortgage loans originated and intended for sale are carried at the lower
of aggregate cost or market value. To deliver closed loans and to control
interest rate risk prior to sale, the company enters into agreements to sell the
loans while the loans are still in the pipeline. Loan commitments related to the
origination of mortgage loans held for sale and the corresponding sales
contracts are, to the extent they are effective, considered derivative
instruments. At June 30, 2004, the bank had $33.2 million of loans held for sale
and commitments outstanding related to loans being originated for sale to
investors. The effective portion of these instruments as derivatives was
recorded as a net loss of $20,000 at June 30, 2004.

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, and its
wholly owned subsidiary, Greater Atlantic Mortgage Corp. Greater Atlantic 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 nine Greater Atlantic Bank branches located throughout the
greater Washington, D.C./Baltimore metropolitan area. We also originate mortgage
loans for sale in the secondary market through Greater Atlantic Mortgage Corp.



                                       14
<PAGE> 15


    The profitability of the company, and more specifically, the profitability
of its primary subsidiary Greater Atlantic Bank, 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
consists mainly of interest paid on deposits and borrowings. Non-interest income
consists primarily of gain on sales of loans and available-for-sale investments,
service charge fees and commissions earned by non-bank subsidiaries.

      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 June 30, 2004 the company's total assets were $504.4 million, compared
to the $499.4 million held at September 30, 2003, representing an increase of
1.00%. Both the bank's overall asset size and customer base increased during the
period and that growth is reflected in the consolidated statements of financial
condition and statements of operations. Net loans receivable at June 30, 2004
were $260.3 million, an increase of $18.0 million or 7.43% from the $242.3
million held at September 30, 2003. The increase in loans consisted primarily of
commercial real estate loans, construction real estate, commercial business
loans and consumer lines of credit secured by mortgages on residential real
estate. At June 30, 2004, investment securities were $204.3 million, a decrease
of $20.5 million or 9.12% from the $224.8 million held at September 30, 2003.
Deposits at June 30, 2004 were $298.8 million, a decrease of $944,000, which
resulted primarily from a decrease in certificates of deposit of $10.6 million,
offset by increases in savings and transaction accounts of $9.7 million. With
the current interest rate environment and marketing efforts by the bank, we
anticipate this trend will continue.

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 these 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 valuation of the loan portfolio.

      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.



                                       15

<PAGE> 16



         COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
                         JUNE 30, 2004 AND JUNE 30, 2003

         NET INCOME. For the three months ended June 30, 2004, the company had
net earnings of $783,000 or $0.20 per diluted share compared to earnings of
$440,000 or $0.12 per diluted share for the three months ended June 30, 2003.
The improvement in earnings of $343,000 over the comparable period one-year ago
were positively impacted by a $1.1 million gain on the bank's free standing
derivative positions which increased $962,000 when compared to the 2003 period
resulting in an increase of $383,000 in non-interest income and was coupled with
a decrease in non-interest expense and provision for loan losses totaling
$223,000. Those improvements were offset by decreases in net interest income and
an increase in the provision for income taxes totaling $263,000. The decreased
provision was due primarily to a decrease in the required provision related to
an impaired commercial business loan.

         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.

         The following table presents a comparison of the components of interest
income and expense and net interest income.
<TABLE>
<CAPTION>
                                                                                               Difference
---------------------------------------------------------------------------------------------------------------------
Three Months Ended June 30,                             2004              2003           Amount            %
---------------------------------------------------------------------------------------------------------------------
                                                                         (dollars in thousands)
<S>                                                    <C>               <C>             <C>               <C>
Interest income:
   Loans                                               $ 3,564           $ 3,500         $   64            1.83%
   Investments                                           1,247             1,571           (324)         (20.62)
---------------------------------------------------------------------------------------------------------------------
Total                                                    4,811             5,071           (260)          (5.13)
---------------------------------------------------------------------------------------------------------------------

Interest expense:
   Deposits                                              1,426             1,557           (131)          (8.41)
   Borrowings                                            1,657             1,612             45            2.79
---------------------------------------------------------------------------------------------------------------------
Total                                                    3,083             3,169            (86)          (2.71)
---------------------------------------------------------------------------------------------------------------------
Net interest income                                    $ 1,728           $ 1,902         $ (174)          (9.15)%
=====================================================================================================================
</TABLE>

         The decline in net interest income during the quarter ended June 30,
2004, resulted primarily from a 24 basis point decrease in net interest margin
(net interest income divided by average interest-earning assets) from 1.57% for
the quarter ended June 30, 2003 to 1.33% for the quarter ended June 30, 2004,
offset in part by a $35.9 million increase in the bank's interest-earning
assets. Contributing to the decline in the net interest margin was a $515,000
charge resulting from payments made on certain interest rate swap and cap
agreements compared to a charge of $497,000 in the comparable period one year
ago. That decrease in net interest margin also resulted from the average yield
on interest-earning assets declining 23 basis points more than the decline in
the average cost on interest-bearing liabilities and was partially offset by an
increase in the bank's average interest earning assets exceeding the increase in
average interest-bearing liabilities by $1.0 million. The majority of the
increase in interest-earning assets was funded by interest-bearing sources, as
average interest-bearing liabilities for the quarter increased $34.9 million
over 2003.

         INTEREST INCOME. Interest income for the three months ended June 30,
2004 decreased $260,000 compared to the three months ended June 30, 2003,
primarily as a result of a decrease of 49 basis points in the average yield
earned on interest earning assets. That decrease was partially offset by an
increase in the average outstanding balances of loans and investment securities.




                                       16

<PAGE> 17


         INTEREST EXPENSE. The $86,000 decrease in interest expense for the
three months ended June 30, 2004 compared to the 2003 period was principally the
result of a 26 basis point decrease in the cost of funds on average deposits and
borrowed funds. The decrease in the cost of those funds was partially offset by
a $34.9 million increase in average deposits and borrowed funds. The decrease in
interest expense on deposits was primarily due to a 27 basis point decrease in
rates paid on certificates of deposit, savings and NOW and money market
accounts. That decrease was partially offset by an increase of $9.4 million, in
certificates, savings and NOW and money market accounts from $270.0 million for
the three months ended June 30, 2003 to $279.4 million for the three months
ended June 30, 2004. The decrease in rates was primarily due to lower rates paid
on interest-bearing demand deposits and savings accounts and lower pricing on
new and renewed time deposits.

         The increase in interest expense on borrowings for the three months
ended June 30, 2004 compared to the 2003 period was principally the result of a
$25.5 million increase in average borrowed funds and was partially offset by a
31 basis point decrease in the cost of borrowed funds. Components accountable
for the increase of $45,000 in interest expense on borrowings were a $265,000
increase relating to average volume, offset by a $220,000 decrease relating to
average cost.





                                       17

<PAGE> 18



         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 JUNE 30,
                                     ------------------------------------------------------------------------------
                                                      2004                                    2003
                                     ------------------------------------------------------------------------------
                                                     INTEREST     AVERAGE                     INTEREST     AVERAGE
                                        AVERAGE      INCOME/      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                  $ 164,109     $ 2,289         5.58%    $ 180,648       $ 2,447        5.42%
   Consumer loans                        68,890         593         3.44        64,779           647        4.00
   Commercial business loans             52,339         682         5.21        32,121           406        5.06
                                     ------------  -----------  ----------   -------------  -----------   ---------
      Total loans                       285,338       3,564         5.00       277,548         3,500        5.04
Investment securities                   118,395         777         2.63       165,472         1,209        2.92
Mortgage-backed securities              116,567         470         1.61        41,377           362        3.50
                                     ------------  -----------  ----------   -------------  -----------   ---------
      Total interest-earning assets     520,300       4,811         3.70       484,397         5,071        4.19
                                                   -----------  ----------                  -----------   ---------
Non-earning assets                       20,038                                 16,990
                                     ------------                            -------------
  Total assets                        $ 540,338                              $ 501,387
                                     ============                            =============

LIABILITIES AND STOCKHOLDERS'
   EQUITY:
Interest-bearing liabilities:
   Savings accounts                   $  12,477          29         0.93     $  10,252            32        1.25
   Now and money market accounts         79,261         211         1.06        79,911           253        1.27
   Certificates of deposit              187,681       1,186         2.53       179,882         1,272        2.83
                                     ------------  -----------  ----------   -------------  -----------   ---------
      Total deposits                    279,419       1,426         2.04       270,045         1,557        2.31

   FHLB advances                        122,980         696         2.26       116,576           705        2.42
   Other borrowings                      95,712         961         4.02        76,610           907        4.74
                                     ------------  -----------  ----------   -------------  -----------   ---------
  Total interest-bearing liabilities    498,111       3,083         2.48       463,231         3,169        2.74
                                                   -----------  ----------                  -----------   ---------

Noninterest-bearing liabilities:
Noninterest-bearing demand deposits      17,241                                 13,079
Other liabilities                         3,948                                  5,594
                                     ------------                            -------------
  Total liabilities                     519,300                                481,904
Stockholders' equity                     21,038                                 19,483
                                     ------------                            -------------
  Total liabilities and
    stockholders' Equity              $ 540,338                              $ 501,387
                                     ============                            =============

Net interest income                                 $ 1,728                                  $ 1,902
                                                   ===========                              ===========
Interest rate spread                                                1.22%                                   1.45%
                                                                ==========                                =========
Net interest margin                                                 1.33%                                   1.57%
                                                                ==========                                =========

</TABLE>



                                                       18
<PAGE> 19



         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
                                                    JUNE 30, 2004 COMPARED TO
                                                          JUNE 30, 2003
                                          -----------------------------------------------
                                                      CHANGE ATTRIBUTABLE TO
                                          -----------------------------------------------
                                              VOLUME            RATE           TOTAL
                                          -----------------------------------------------
                                                          (IN THOUSANDS)

<S>                                            <C>             <C>            <C>
Real estate loans                              $ (224)         $   66         $ (158)
Consumer loans                                     41             (95)           (54)
Commercial business loans                         256              20            276
                                          ----------------  -------------- --------------
      Total loans                                  73              (9)            64
Investments                                      (344)            (88)          (432)
Mortgage-backed securities                        658            (550)           108
                                          ----------------  -------------- --------------
Total interest-earning assets                  $  387          $ (647)        $ (260)
                                          ================  ============== ==============

Savings accounts                               $    7          $  (10)        $   (3)
Now and money market accounts                      (2)            (40)           (42)
Certificates of deposit                            55            (141)           (86)
                                          ----------------  -------------- --------------
  Total deposits                                   60            (191)          (131)
FHLB advances                                      39             (48)            (9)
Other borrowings                                  226            (172)            54
                                          ----------------  -------------- --------------
Total interest-bearing liabilities                325            (411)           (86)
                                          ================  ============== ==============
Change in net interest income                  $   62          $ (236)        $ (174)
                                          ================  ============== ==============
</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.
Management then looks at its classified assets, which are loans 30 days or more
delinquent, and classifies those loans as special mention, substandard or
doubtful, based on the performance of the loans. Those classified loans are then
individually evaluated for impairment. Those loans are then segmented by type
and assigned a reserve percentage that reflects the industry loss experience.
The loans individually evaluated for impairment are measured by either the
present value of expected future cash flows, the loans observable market price,
or the fair value of the collateral. 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.

         Non-performing assets were $1.2 million or 0.24% of total assets at
June 30, 2004, with $1.1 million classified as substandard, $75,000 classified
as doubtful and none classified as real estate owned compared to $1.8 million or
0.35% at June 30, 2003. Non-performing assets decreased $616,000 from the
comparable period one year ago, and the company decreased the provision for loan
losses by $647,000. The decrease in non-performing assets from the year ago
period was due to the reduction of the outstanding balance of one of the bank's
commercial business loans. The decrease in provision was due primarily to a
reduction in the required provision for that loan since the bank is in the
process of liquidating that loan from the cash flow of the collateral securing
the loan.


                                       19

<PAGE> 20


         NON-INTEREST INCOME. Non-interest income increased $384,000 during the
three months ended June 30, 2004, over the comparable period one year ago. That
increase was primarily the result of an increase of $962,000 in gain on
derivatives and was partially offset by decreases of $470,000, $64,000, $9,000
and $50,000 in gain on sale of loans, service fees on loans, deposits and loss
on sale of investments, respectively. The level of gain on sale of loans during
the three months ended June 30, 2004 resulted from lower than anticipated loan
origination and sales volumes at the bank's mortgage banking subsidiary and
lower margins than those obtained in the year-ago period. The following table
presents a comparison of the components of non-interest income.
<TABLE>
<CAPTION>

                                                                                          Difference
-------------------------------------------------------------------------------------------------------------------
Three Months Ended June 30,                        2004            2003            Amount               %
-------------------------------------------------------------------------------------------------------------------
                                                                    (dollars in thousands)
<S>                                                 <C>           <C>                <C>             <C>
Non-interest income:
   Gain on sale of loans                            $ 3,597       $ 4,067            $ (470)         (11.56)%
   Service fees on loans                                 73           137               (64)         (46.72)
   Service fees on deposits                             187           196                (9)          (4.59)
   Gain on sale of investment securities                  1            51               (50)         (98.04)
   Gain on derivatives                                1,104           142               962          677.46
   Loss on sale of real estate owned                      -            (9)                9          100.00
   Other operating income                                 5            (1)                6          600.00
-------------------------------------------------------------------------------------------------------------------
      Total non-interest income                     $ 4,967       $ 4,583            $  384            8.38%
===================================================================================================================
</TABLE>

         NON-INTEREST EXPENSE. Non-interest expense decreased $208,000 from $6.0
million for the three months ended June 30, 2003 to $5.8 million for the
comparable period in the current year. The decrease was primarily attributable
to a $365,000 decrease in the mortgage company's non-interest expense from the
comparable period one year ago. The decrease at the mortgage company level was
primarily in compensation, and professional services, and was offset by
increases in advertising, occupancy, data processing, furniture fixtures and
equipment and other operating expenses as a result of decreased loan origination
and sales. Mortgage related expenses should continue to decline because of the
lag in timing of such expenses compared to the decline in origination and sales
volumes. The increase in the bank's non-interest expense was $157,000
distributed over various non-interest expense categories. The following table
presents a comparison of the components of non-interest expense.
<TABLE>
<CAPTION>
                                                                                                    Difference
      --------------------------------------------------------------------------------------------------------------------
      Three Months Ended June 30,                                2004           2003         Amount             %
      --------------------------------------------------------------------------------------------------------------------
                                                                                (dollars in thousands)
      <S>                                                      <C>            <C>              <C>            <C>
      Non-interest expense:
         Compensation and employee benefits                    $ 2,670        $ 3,264          $ (594)         (18.20)%
         Occupancy                                                 647            494             153           30.97
         Professional services                                     153            370            (217)         (58.65)
         Advertising                                               717            405             312           77.04
         Deposit insurance premium                                  11             12              (1)          (8.33)
         Furniture, fixtures and equipment                         306            282              24            8.51
         Data processing                                           400            342              58           16.96
         Other real estate owned expense                             -              2              (2)        (100.00)
         Other operating expense                                   867            808              59            7.30
      --------------------------------------------------------------------------------------------------------------------
      Total non-interest expense                               $ 5,771        $ 5,979          $ (208)          (3.48)%
      ====================================================================================================================
</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. Based on recent tax legislation, the company expects to
offset all taxable income in fiscal 2004 with existing net operating losses
carried forward from prior years. The company believes that it will continue to
generate taxable income for the foreseeable future which will assure the use of
existing net operating losses.




                                       20
<PAGE> 21

<TABLE>
<CAPTION>

Contractual Commitments and Obligations

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

   <S>                                   <C>             <C>             <C>             <C>            <C>
   FHLB Advances (1)                     $  96,200       $  71,200       $     -         $     -        $ 25,000
   Reverse repurchase agreements            77,108          77,108             -               -               -
   Operating leases                          8,889           1,489         2,569           2,157           2,674
   -----------------------------------------------------------------------------------------------------------------
        Total obligations                $ 182,197       $ 149,797       $ 2,569         $ 2,157        $ 27,674
   =================================================================================================================
   (1) The company expects to refinance these short and medium-term obligations under substantially the same terms and conditions.
</TABLE>

<TABLE>
<CAPTION>

Other Commercial Commitments

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

   <S>                                   <C>             <C>             <C>            <C>                 <C>
   Certificate of deposit maturities(1)  $ 187,106       $ 116,647       $ 52,372       $ 17,994            $ 93
   Loan originations                        54,811          54,811              -              -               -
   Unfunded lines of credit                100,612         100,612              -              -               -
   Standby letters of credit                   328             328              -              -               -
   -----------------------------------------------------------------------------------------------------------------
        Total                            $ 342,857       $ 272,398       $ 52,372       $ 17,994            $ 93
   =================================================================================================================
   (1) The company expects to retain maturing deposits or replace amounts maturing with comparable certificates of
   deposits based on current market interest rates.
</TABLE>

             COMPARISON OF RESULTS OF OPERATIONS FOR THE NINE MONTHS
                      ENDED JUNE 30, 2004 AND JUNE 30, 2003

         NET INCOME. For the nine months ended June 30, 2004, the company had a
net loss of $778,000 or $0.26 per diluted share compared to earnings of $1.0
million or $0.30 per diluted share for the nine months ended June 30, 2003. The
$1.8 million decline in earnings over the comparable period one-year ago
resulted from a decrease of $2.8 million in non-interest income and was coupled
with a decrease of $1.1 million in net interest income. Those declines in income
were offset in part by decreases in non-interest expense and in a reduction in
the provision for loan losses totaling $2.2 million. The decreased provision was
due primarily to a decrease in the required provision relating to an impaired
commercial business loan.

         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.




                                       21

<PAGE> 22


         The following table presents a comparison of the components of interest
income and expense and net interest income.
<TABLE>
<CAPTION>
                                                                                                  Difference
-----------------------------------------------------------------------------------------------------------------------
Nine Months Ended June 30,                                 2004             2003            Amount            %
-----------------------------------------------------------------------------------------------------------------------
                                                                           (dollars in thousands)
<S>                                                      <C>               <C>              <C>             <C>
Interest income:
   Loans                                                 $ 10,081          $10,900          $  (819)         (7.51)%
   Investments                                              4,256            5,117             (861)        (16.83)
-----------------------------------------------------------------------------------------------------------------------
Total                                                      14,337           16,017           (1,680)        (10.49)
-----------------------------------------------------------------------------------------------------------------------

Interest expense:
   Deposits                                                 4,271            5,140             (869)        (16.91)
   Borrowings                                               5,036            4,753              283           5.95
-----------------------------------------------------------------------------------------------------------------------
Total                                                       9,307            9,893             (586)         (5.92)
-----------------------------------------------------------------------------------------------------------------------
Net interest income                                      $  5,030          $ 6,124          $(1,094)        (17.86)%
=======================================================================================================================
</TABLE>

         The decline in net interest income during the nine months ended June
30, 2004, resulted primarily from a 36 basis point decrease in net interest
margin (net interest income divided by average interest-earning assets) from
1.67% for the nine months ended June 30, 2003 to 1.31% for the nine months ended
June 30, 2004, offset in part by a $24.6 million increase in the bank's
interest-earning assets. Contributing to the decline in the net interest margin
was a $1.6 million charge resulting from payments made on certain interest rate
swap and cap agreements compared to a $1.3 million charge in the comparable
period one year ago. The decrease in net interest margin also resulted from the
average yield on interest earning assets declining 32 basis points more than the
average cost on interest bearing liabilities and was coupled with the increase
in the bank's average interest bearing liabilities exceeding the increase in
average interest earning assets by $4.3 million.

         INTEREST INCOME. Interest income for the nine months ended June 30,
2004 decreased $1.7 million compared to the nine months ended June 30, 2003,
primarily as a result of a decrease of 64 basis points in the average yield
earned on interest earning assets. That decrease was partially offset by an
increase in the average outstanding balances of loans and investment securities.

         INTEREST EXPENSE. The $586,000 decrease in interest expense for the
nine months ended June 30, 2004 compared to the 2003 period was principally the
result of a 32 basis point decrease in the cost of funds on average deposits and
borrowed funds. The decrease in the cost of those funds was partially offset by
a $29.0 million increase in average deposits and borrowed funds. The decrease in
interest expense on deposits was primarily due to a 42 basis point decrease in
rates paid on certificates of deposit, savings and NOW and money market
accounts. That decrease was coupled with a decrease of $2.7 million, in
certificate accounts from $188.2 million for the nine months ended June 30, 2003
to $185.5 million for the nine months ended June 30, 2004.

         The increase in interest expense on borrowings for the nine months
ended June 30, 2004 compared to the 2003 period was principally the result of a
$29.0 million increase in average borrowed funds and was partially offset by a
27 basis point decrease in the cost of borrowed funds. Components accountable
for the increase of $283,000 in interest expense were a $654,000 increase
relating to average volume, offset by a $371,000 decrease relating to average
cost. The decrease in rates was primarily due to lower rates paid on
interest-bearing demand deposits and savings accounts and lower pricing on new
and renewed time deposits.


                                       22

<PAGE> 23
<TABLE>
<CAPTION>

         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.

                                                             FOR THE NINE MONTHS ENDED JUNE 30,
                                     ------------------------------------------------------------------------------
                                                      2004                                    2003
                                     ------------------------------------------------------------------------------
                                                     INTEREST     AVERAGE                     INTEREST     AVERAGE
                                        AVERAGE      INCOME/      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                     $157,918     $ 6,496        5.48%     $186,679       $ 7,787         5.56%
   Consumer loans                          66,964       1,846        3.68        62,979         1,924         4.07
   Commercial business loans               45,680       1,739        5.08        31,978         1,189         4.96
                                      ------------  -----------  ----------   -----------   -----------   ----------
      Total loans                         270,562      10,081        4.97       281,636        10,900         5.16

Investment securities                     128,455       2,465        2.56       162,769         3,793         3.11
Mortgage-backed securities                114,889       1,791        2.08        44,858         1,324         3.94
                                      ------------  -----------  ----------   -----------   -----------   ----------
      Total interest-earning assets       513,906      14,337        3.72       489,263        16,017         4.36
                                                     ------------ ------------              -----------   ----------
Non-earning assets                         18,512                                16,565
                                       --------------                         ------------
  Total assets                           $532,418                              $505,828
                                       ==============                         ============

LIABILITIES AND STOCKHOLDERS'
   EQUITY:
Interest-bearing liabilities:
   Savings accounts                      $ 11,436          80        0.93      $  9,193            96         1.39
   Now and money market accounts           78,219         630        1.07        77,710           847         1.45
   Certificates of deposit                185,546       3,561        2.56       188,271         4,197         2.97
                                      ------------  -----------  ----------   -----------   -----------   ----------
      Total deposits                      275,201       4,271        2.07       275,174         5,140         2.49

   FHLB advances                          125,680       2,127        2.26       103,907         2,023         2.60
   Other borrowings                        92,306       2,909        4.20        85,125         2,730         4.28
                                      ------------  -----------  ----------   -----------   -----------   ----------
  Total interest-bearing liabilities      493,187       9,307        2.52       464,206         9,893         2.84
                                                     ------------ ------------              -----------   ----------

Noninterest-bearing liabilities:
Noninterest-bearing demand deposits        14,499                                17,359
Other liabilities                           3,952                                 4,905
                                       --------------                         -----------
  Total liabilities                       511,638                               486,470
Stockholders' equity                       20,780                                19,358
                                       --------------                         -----------
  Total liabilities and
   stockholders' equity                  $532,418                              $505,828
                                       ==============                         ===========

Net interest income                                   $ 5,030                                 $ 6,124
                                                     ============                           ===========
Interest rate spread                                                 1.20%                                    1.52%
                                                                  ============                             =========
Net interest margin                                                  1.31%                                    1.67%
                                                                  ============                             =========

</TABLE>


                                               23

<PAGE> 24


         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>
                                                            NINE MONTHS ENDED
                                                        JUNE 30, 2004 COMPARED TO
                                                              JUNE 30, 2003
                                             -------------------------------------------------
                                                          CHANGE ATTRIBUTABLE TO
                                             -------------------------------------------------
                                                 VOLUME            RATE             TOTAL
                                             -------------------------------------------------
                                                              (IN THOUSANDS)
<S>                                            <C>              <C>              <C>
Real estate loans                              $ (1,200)        $    (91)        $ (1,291)
Consumer loans                                      122             (200)             (78)
Commercial business loans                           509               41              550
                                             ---------------   --------------   --------------
      Total loans                                  (569)            (250)            (819)
Investments                                        (800)            (528)          (1,328)
Mortgage-backed securities                        2,067           (1,600)             467
                                             ---------------   --------------   --------------
Total interest-earning assets                  $    698         $ (2,378)        $ (1,680)
                                             ===============   ==============   ==============

Savings accounts                               $     23         $    (39)        $    (16)
Now and money market accounts                         6             (223)            (217)
Certificates of deposit                             (61)            (575)            (636)
                                             ---------------   --------------   --------------
  Total deposits                                    (32)            (837)            (869)
FHLB advances                                       424             (320)             104
Other borrowings                                    230              (51)             179
                                             ---------------   --------------   --------------
Total interest-bearing liabilities                  622           (1,208)            (586)
                                             ===============   ==============   ==============
Change in net interest income                  $     76         $ (1,170)        $ (1,094)
                                             ===============   ==============   ==============
</TABLE>

         PROVISION FOR LOAN LOSSES. Non-performing assets were $1.2 million or
0.24% of total assets at June 30, 2004, compared to $1.8 million or 0.35% at
June 30, 2003, with $1.1 million classified as substandard, $75,000 classified
as doubtful and none classified as real estate owned. Non-performing assets
decreased $616,000 from the comparable period one year ago, and the company
decreased the provision for loan losses by $647,000. The decrease in
non-performing assets from the year ago period was due to the reduction of the
outstanding balance of one of the bank's commercial business loans. The decrease
in provision was due primarily to a reduction in the required provision for that
loan since the bank is in the process of liquidating that loan from the cash
flow of the collateral securing the loan.

         NON-INTEREST INCOME. Non-interest income decreased $2.8 million during
the nine months ended June 30, 2004, over the comparable period one year ago.
That decrease was primarily the result of a decrease in gain on sale of loans
and was coupled with decreases of $352,000 and $26,000 in service fees on loans
and service fees on deposits, respectively. Those decreases were offset in part
by an increase in gain on derivatives and gain on sale of investment securities.
The level of gain on sale of loans during the nine months ended June 30, 2004
resulted from lower than anticipated loan origination and sales volumes at the
bank's mortgage banking subsidiary and lower margins than those obtained in the
year-ago period. The following table presents a comparison of the components of
non-interest income.



                                       24

<PAGE> 25

<TABLE>
<CAPTION>


         The following table presents a comparison of the components of
non-interest income.
                                                                                           Difference
---------------------------------------------------------------------------------------------------------------------
Nine Months Ended June 30,                         2004           2003            Amount                 %
---------------------------------------------------------------------------------------------------------------------
                                                                     (dollars in thousands)
<S>                                                <C>          <C>                <C>                 <C>
Non-interest income:
   Gain on sale of loans                           $ 7,861      $ 11,327           $ (3,466)           (30.60)%
   Service fees on loans                               185           537               (352)           (65.55)
   Service fees on deposits                            555           581                (26)            (4.48)
   Gain on sale of investment securities               157            35                122            348.57
   Gain (loss) on derivatives                          663          (210)               873            415.71
   Loss on sale of real estate owned                     -            (9)                 9            100.00
   Other operating income                               14            13                  1              7.69
---------------------------------------------------------------------------------------------------------------------
      Total non-interest income                    $ 9,435      $ 12,274           $ (2,839)           (23.13)%
=====================================================================================================================
</TABLE>

         NON-INTEREST EXPENSE. Non-interest expense decreased $1.6 million from
$16.6 million for the nine months ended June 30, 2004 to $15.0 million for the
comparable period in the current year. The decrease was primarily attributable
to a $1.9 million decrease in the mortgage company's non-interest expense from
the comparable period one year ago The decrease at the mortgage company level
was primarily in compensation, and professional services, and was offset by
increases in advertising, occupancy, data processing and furniture fixtures and
equipment as a result of decreased loan origination and sales. Mortgage related
expenses should continue to decline because of the lag in timing of such
expenses compared to the decline in origination and sales volumes. The increase
in the bank's non-interest expense was $343,000 distributed over various
non-interest expense categories. The following table presents a comparison of
the components of non-interest expense.
<TABLE>
<CAPTION>
                                                                                                 Difference
-----------------------------------------------------------------------------------------------------------------------
Nine Months Ended June 30,                                    2004          2003          Amount             %
-----------------------------------------------------------------------------------------------------------------------
                                                                            (dollars in thousands)
<S>                                                        <C>            <C>            <C>              <C>
Noninterest expense:
   Compensation and employee benefits                      $  6,844       $  9,405       $ (2,561)         (27.23)%
   Occupancy                                                  1,658          1,467            191           13.02
   Professional services                                        699            846           (147)         (17.38)
   Advertising                                                1,662            786            876          111.45
   Deposit insurance premium                                     33             35             (2)          (5.71)
   Furniture, fixtures and equipment                            820            819              1            0.12
   Data processing                                            1,102            967            135           13.96
   Other real estate owned expenses                               -              5             (5)        (100.00)
   Other operating expense                                    2,204          2,285            (81)          (3.54)
-----------------------------------------------------------------------------------------------------------------------
Total noninterest expense                                  $ 15,022       $ 16,615       $ (1,593)          (9.59)%
=======================================================================================================================
</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. Based on recent tax legislation, the company expects to
offset all taxable income in fiscal 2004 with existing net operating losses
carried forward from prior years. The company believes that it will continue to
generate taxable income for the foreseeable future which will assure the use of
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 has continued to maintain the levels of
liquid assets as 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



                                       25

<PAGE> 26



period. At June 30, 2004, cash and cash equivalents, interest bearing deposits
and securities available-for-sale totaled $204.1 million or 40.5% of total
assets.

         The primary investing activities of the bank are the origination of
residential one- to four-family loans, commercial real estate loans, real estate
construction and development loans, commercial borrowing and consumer loans and
the purchase of United States Treasury and agency securities, mortgage-backed
and mortgage-related securities and other investment securities. During the nine
months ended June 30, 2004, the bank's loan purchases and originations totaled
$115.1 million. Purchases of United States Treasury and agency securities,
mortgage-backed and mortgage related securities and other investment securities
totaled $87.8 million for the nine months ended June 30, 2004.

         The bank has other sources of liquidity if a need for additional funds
arises. At June 30, 2004, the bank had $96.2 million in advances outstanding
from the FHLB and had an additional overall borrowing capacity from the FHLB of
$105.6 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 June 30, 2004, the bank had commitments to fund loans and unused
outstanding lines of credit, unused standby letters of credit and undisbursed
proceeds of construction mortgages totaling $155.8 million. 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 June 30, 2004, totaled
$48.0 million. Based upon experience, management believes the majority of
maturing certificates of deposit 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 these 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, particularly its mortgage
banking activities. 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 and the origination and sale of fixed-



                                       26


<PAGE> 27


rate loans. 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.

         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 and pay-fixed interest rate swaps 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 June
30, 2004, we held an aggregate notional value of $30 million of caps and $72
million of swaps that pay-a fixed interest rate. None of the interest rate caps
had strike rates that were in effect at June 30, 2004, as current LIBOR rates
were below the strike rates.

         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.

ITEM 4.  CONTROLS AND PROCEDURES

         (a). Evaluation of disclosure controls and procedures. As described in
              -------------------------------------------------
Note 24 to our annual consolidated financial statements, we have restated our
financial statements to reflect adjustments resulting from the revision of our
accounting treatment of certain derivative instruments. In light of that
restatement, we conducted a new evaluation of the effectiveness of our
disclosure controls and procedures performed within 90 days of the filing of
this report. Based on that evaluation, our principal executive officer and
principal financial officer concluded that the company's disclosure controls and
procedures were adequate.

         (b). Changes in internal control.  The company made no significant
              ----------------------------
changes in its internal controls or in other factors that could significantly
affect these controls subsequent to the date of the evaluation of those controls
by the Chief Executive and Chief Financial officers.

PART II.   OTHER INFORMATION
ITEM 1.    Legal Proceedings

Not applicable.

ITEM 2.    Changes in Securities and Use of Proceeds

Not applicable.

ITEM 3.    Defaults Upon Senior Securities

Not applicable.



                                       27


<PAGE> 28


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

Not applicable

ITEM 5.    Other Information

Not applicable.

ITEM 6.  Exhibits and Reports on Form 8-K

        (a) Exhibits
          11.0    Statement Regarding Computation of Per Share Earnings
          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

        (b) Reports on Form 8-K
        On May 28, 2004 the Company filed a Form 8-K to disclose that the
        Company issued a press release to announce the company's second quarter
        earnings.

        On May 19, 2004 the Company filed a Form 8-K to disclose that the
        Company issued a press release announcing the restatement of earnings
        for the years ended September 30, 2002 and 2003 and for the fiscal
        quarter ended December 31, 2003.






                                       28

<PAGE> 29


                        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: August 12, 2004