<PAGE>


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

                                    FORM 10-Q

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

                For the quarterly period ended December 31, 2005

                                       OR

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

              For the transition period from ________ to _________.

                         Commission file number: 0-26467


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

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

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

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

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

Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act):
Yes   [__]   No  [ X ]

Indicate by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act):
Yes   [__]   No  [ X ]

  At February 10, 2006, there were 3,020,934 shares of the registrant's Common
                  Stock, par value $0.01 per share outstanding



<PAGE>
<TABLE>
<CAPTION>


                                        Greater Atlantic Financial Corp.
                                          Quarterly Report on Form 10-Q
                                     For the Quarter Ended December 31, 2005

                                                Table of Contents


<S>                                                                                                             <C>
PART I.  FINANCIAL INFORMATION                                                                                  PAGE NO.
------------------------------                                                                                  --------

Item 1. Condensed Financial Statements (Unaudited)

      Consolidated Statements of Financial Condition at December 31, 2005 and September 30, 2005.......................3

      Consolidated Statements of Operations
      for the three months ended December 31, 2005 and December 31, 2004...............................................4

      Consolidated Statements of Comprehensive Income (Loss) for the three
      months ended December 31, 2005 and December 31, 2004.............................................................5

      Consolidated Statements of Changes in Stockholders' Equity for the three
      months ended December 31, 2005 and December 31, 2004.............................................................5

      Consolidated Statements of Cash Flows
      for the three months ended December 31, 2005 and December 31, 2004...............................................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...................................................22
Item 4.  Controls and Procedures......................................................................................23

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

Item 1.    Legal Proceedings..........................................................................................23
Item 1A.   Risk Factors...............................................................................................23
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds................................................23
Item 3.    Defaults Upon Senior Securities............................................................................24
Item 4.    Submission of Matters to a Vote of Security Holders........................................................24
Item 5.    Other Information..........................................................................................24
Item 6.    Exhibits...................................................................................................24

SIGNATURES............................................................................................................25

CERTIFICATIONS........................................................................................................26

</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                                GREATER ATLANTIC FINANCIAL CORP.
                         CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

                                                                             December 31,      September 30,
                                                                            ----------------------------------
                                                                                 2005               2005
  ------------------------------------------------------------------------------------------------------------
                                                                             (Unaudited)
  (Dollars in Thousands)
  <S>                                                                       <C>                <C>
  Assets
  Cash and cash equivalents                                                 $      2,259       $     2,291
  Interest bearing deposits                                                       10,697             4,411
  Investment securities
     Available-for-sale                                                          102,666           107,829
     Held-to-maturity                                                              7,281             7,969
  Loans held for sale                                                              5,196             9,517
  Loans receivable, net                                                          196,579           194,920
  Accrued interest and dividends receivable                                        1,982             1,746
  Deferred income taxes                                                            2,129             1,974
  Federal Home Loan Bank stock, at cost                                            2,998             2,503
  Other real estate owned                                                              -               232
  Premises and equipment, net                                                      3,197             4,198
  Goodwill                                                                           956               956
  Prepaid expenses and other assets                                                1,536             2,263
  ------------------------------------------------------------------------------------------------------------
  Total assets                                                              $    337,476       $   340,809
  ============================================================================================================
  Liabilities and stockholders' equity
  Liabilities
  Deposits                                                                  $    231,588       $   237,794
  Advance payments from borrowers for taxes and insurance                            239               268
  Accrued expenses and other liabilities                                           1,187             1,248
  Advances from the FHLB and other borrowings                                     81,742            76,479
  Junior subordinated debt securities                                              9,380             9,378
  ------------------------------------------------------------------------------------------------------------
  Total liabilities                                                              324,136           325,167
  ------------------------------------------------------------------------------------------------------------
  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; 3,020,934 shares outstanding                              30                30
     Additional paid-in capital                                                   25,228            25,228
     Accumulated deficit                                                         (10,651)           (8,521)
     Accumulated other comprehensive loss                                         (1,267)           (1,095)
  ------------------------------------------------------------------------------------------------------------
  Total stockholders' equity                                                      13,340            15,642
  ------------------------------------------------------------------------------------------------------------
  Total liabilities and stockholders' equity                                $    337,476       $   340,809
  ============================================================================================================

</TABLE>


                                                3


<PAGE>
<TABLE>
<CAPTION>


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

                                                                                       Three Months Ended
                                                                                          December 31,
                                                                                   ---------------------------
                                                                                       2005          2004
  ------------------------------------------------------------------------------------------------------------
  (Dollars in Thousands, Except Per Share Data)
  <S>                                                                              <C>           <C>
  Interest income
    Loans                                                                          $    3,540    $   3,303
    Investments                                                                         1,199        1,102
  ------------------------------------------------------------------------------------------------------------
  Total interest income                                                                 4,739        4,405
  ------------------------------------------------------------------------------------------------------------

  Interest expense
    Deposits                                                                            1,765        1,514
    Borrowed money                                                                      1,098        1,303
  ------------------------------------------------------------------------------------------------------------
  Total interest expense                                                                2,863        2,817
  ------------------------------------------------------------------------------------------------------------
  Net interest income                                                                   1,876        1,588
  Provision for loan losses                                                                71            2
  ------------------------------------------------------------------------------------------------------------
  Net interest income after provision for loan losses                                   1,805        1,586
  ------------------------------------------------------------------------------------------------------------

  Noninterest income
    Fees and service charges                                                              489          235
    Gain on sale of loans                                                                 809        1,078
    Gain on sale of investment securities                                                   -          538
    Gain on derivatives                                                                    71          363
    Gain on sale of real estate owned                                                      65            -
    Other operating income                                                                 15          285
  ------------------------------------------------------------------------------------------------------------
  Total noninterest income                                                              1,449        2,499
  ------------------------------------------------------------------------------------------------------------
  Noninterest expense
    Compensation and employee benefits                                                  2,016        1,231
    Occupancy                                                                             418          461
    Professional services                                                                 362          221
    Advertising                                                                           535          559
    Deposit insurance premium                                                              27           11
    Furniture, fixtures and equipment                                                     251          300
    Data processing                                                                       257          324
    Impairment charge                                                                     996            -
    Other operating expenses                                                              522          517
  ------------------------------------------------------------------------------------------------------------
  Total noninterest expense                                                             5,384        3,624
  ------------------------------------------------------------------------------------------------------------
  Net income (loss) before income tax provision                                        (2,130)         461
  Income tax provision                                                                      -            -
  ------------------------------------------------------------------------------------------------------------
  Net income (loss)                                                                $   (2,130)   $      461
  ============================================================================================================
  Earnings (loss) per common share
  Basic                                                                            $    (0.71)   $     0.15
  Diluted                                                                          $    (0.71)   $     0.14
  Weighted average common shares outstanding
  Basic                                                                             3,020,934     3,012,434
  Diluted                                                                           3,020,934     4,408,362
</TABLE>
See accompanying notes to consolidated financial statements

                                                       4

<PAGE>
<TABLE>
<CAPTION>


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

                                                            Three months ended December 31,
                                                         -------------------------------------
                                                               2005               2004
   -------------------------------------------------------------------------------------------
   (In Thousands)
   -------------------------------------------------------------------------------------------
   <S>                                                          <C>                    <C>
   Net (loss) earnings                                          $ (2,130)              $ 461
   -------------------------------------------------------------------------------------------
   Other comprehensive (loss) income, net of tax
      Unrealized (loss) gain on securities                          (172)                 32
   -------------------------------------------------------------------------------------------
   Other comprehensive (loss) income                                (172)                 32
   -------------------------------------------------------------------------------------------
   Comprehensive (loss) income                                  $ (2,302)              $ 493
   ===========================================================================================
</TABLE>

<TABLE>
<CAPTION>

                                                  GREATER ATLANTIC FINANCIAL CORP.
                               CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
                                        FOR THE THREE MONTHS ENDED DECEMBER 31, 2005 AND 2004

------------------------------------------------------------------------------------------------------------------------------
                                                                                              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, 2004            $    -      $    30    $ 25,152      $  (6,963)         $  (1,079)      $   17,140

Option compensation                           -            -          23              -                  -               23

Other comprehensive gain                      -            -           -              -                 32               32

Net income for the period                     -            -           -            461                  -              461
------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2004             $    -      $    30    $ 25,175       $ (6,502)         $  (1,047)      $   17,656
==============================================================================================================================
Balance at September 30, 2005            $    -      $    30    $ 25,228       $ (8,521)         $  (1,095)      $   15,642

Other comprehensive loss                      -            -           -              -               (172)            (172)

Net loss for the period                       -            -           -         (2,130)                 -           (2,130)
------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2005             $    -      $    30    $ 25,228      $ (10,651)         $  (1,267)      $   13,340
==============================================================================================================================
</TABLE>


                                                                  5

<PAGE>
<TABLE>
<CAPTION>


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


                                                                              Three months ended December 31,
                                                                            ------------------------------------
                                                                                  2005              2004
----------------------------------------------------------------------------------------------------------------
(In Thousands)
<S>                                                                              <C>                <C>
Cash flow from operating activities
Net income (loss)                                                                $  (2,130)         $    461
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities
  Provision for loan loss                                                               71                 2
  Amortization of loan acquisition adjustment                                          (16)               (7)
  Depreciation and amortization                                                        211               267
  Option compensation                                                                    -                23
  Realized gain on sale of investment securities                                         -              (538)
  Gain on derivatives                                                                  (71)             (363)
  Amortization of investment security premiums                                         187               196
  Amortization of mortgage-backed securities premiums                                  209               224
  Amortization of deferred fees                                                       (158)             (219)
  Discount accretion net of premium amortization                                       (65)             (103)
  Amortization of convertible preferred stock costs                                      2                 2
  Gain on sale of loans held for sale                                                 (809)           (1,078)
  Gain on sale of foreclosed real estate                                               (65)                -
(Increase) decrease in assets
  Disbursements for origination of loans                                           (49,513)          (49,993)
  Proceeds from sales of loans                                                      54,634            53,185
  Accrued interest and dividend receivable                                            (236)              180
  Prepaid expenses and other assets                                                    679              (376)
  Deferred loan fees collected, net of deferred costs incurred                          51                12
  Impairment of premises and equipment                                                 868                 -
Increase (decrease) in liabilities
  Accrued expenses and other liabilities                                                10             1,384
----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                                            3,859             3,259
----------------------------------------------------------------------------------------------------------------
</TABLE>


                                                       6

<PAGE>
<TABLE>
<CAPTION>


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

                                                                         Three months ended December 31,
                                                                        -----------------------------------
                                                                              2005             2004
-----------------------------------------------------------------------------------------------------------
(In Thousands)
<S>                                                                        <C>               <C>
Cash flow from investing activities
  Net decrease (increase) in loans                                         $   (1,542)       $   29,229
  Purchases of premises and equipment                                             (86)              148
  Purchases of investment securities                                           (7,707)           (6,834)
  Proceeds from sale of investment securities                                       -                 -
  Proceeds from repayments of investment securities                             4,939             5,604
  Purchases of mortgage-backed securities                                           -           (23,861)
  Proceeds from repayments of mortgage-backed securities                        7,961            10,848
  Proceeds from the sale of mortgage-backed securities                              -            21,920
  Proceeds from sale of foreclosed assets                                         297                 -
  Purchases of FHLB stock                                                      (1,350)           (2,064)
  Proceeds from sale of FHLB stock                                                855             3,245
-----------------------------------------------------------------------------------------------------------
Net cash provided by investing activities                                       3,367            38,235
-----------------------------------------------------------------------------------------------------------
Cash flow from financing activities
  Net decrease in deposits                                                     (6,206)          (14,832)
  Net advances (repayments) from FHLB                                          11,000           (10,200)
  Net repayments on reverse repurchase agreements                              (5,736)          (15,688)
  Increase (decrease) in advance payments by borrowers
  for taxes and insurance                                                         (30)              615
-----------------------------------------------------------------------------------------------------------
Net cash used in financing activities                                            (972)          (40,105)
-----------------------------------------------------------------------------------------------------------
Increase in cash and cash equivalents                                           6,254             1,389
-----------------------------------------------------------------------------------------------------------
Cash and cash equivalents, at beginning of period                               6,702            10,603
-----------------------------------------------------------------------------------------------------------
Cash and cash equivalents, at end of period                                $   12,956        $   11,992
===========================================================================================================
</TABLE>


                                                     7


<PAGE>

                        GREATER ATLANTIC FINANCIAL CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS OF DECEMBER 31, 2005 AND THE THREE 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. Certain information and note
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States of America
have been omitted pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC") with respect to interim financial reporting. 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. It is recommended that these
unaudited consolidated financial statements be read in conjunction with the
audited consolidated financial statements and notes thereto included in the
Corporation's Annual Report on Form 10-K for the year ended September 30, 2005.
The results of operations for the three months ended December 31, 2005 are not
necessarily indicative of the results of operations that may be expected for the
year ending September 30, 2006 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. An analysis of the change in the allowance for loan losses follows:

<TABLE>
<CAPTION>
                                                            At or for the three months
                                                                ended December 31,
                                                          ------------------------------------
                                                              2005              2004
  --------------------------------------------------------------------------------------------
  (Dollars in Thousands)
  <S>                                                       <C>               <C>
  Balance at beginning of period                            $     1,212       $    1,600
  Provisions                                                         71                2
  Total charge-offs                                                 (52)             (20)
  Total recoveries                                                   14                8
  --------------------------------------------------------------------------------------------
  Net charge-offs                                                   (38)             (12)
  --------------------------------------------------------------------------------------------
  Balance at end of period                                  $     1,245       $    1,590
  ============================================================================================
  Ratio of net charge-offs during the period
     to average loans outstanding during the period                0.02%            0.01%
  ============================================================================================
  Allowance for loan losses to total non-performing
     loans at end of period                                       63.68%          170.78%
  ============================================================================================
  Allowance for loan losses to total loans                         0.59%            0.68%
  ============================================================================================
</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 $655,000 to the company during the year
ended September 30, 2005 and $164,000 to the company during the quarter ended
December 31, 2005.

                                       8

<PAGE>

                        GREATER ATLANTIC FINANCIAL CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS OF DECEMBER 31, 2005 AND THE THREE 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 December 31, 2005, the bank was classified as a
well-capitalized financial institution.
<TABLE>
<CAPTION>
         The following presents the bank's capital position at December 31, 2005:

  ---------------------------------------------------------------------------------------------------------------
                                                 Required     Required       Actual       Actual
                                                 Balance       Percent      Balance      Percent       Surplus
  ---------------------------------------------------------------------------------------------------------------
  (Dollars in Thousands)
  <S>                                             <C>            <C>        <C>            <C>          <C>
  Leverage                                        $16,866         5.00%     $21,652         6.42%       $4,786
  Tier 1 Risk-based                               $13,411         6.00%     $21,652         9.69%       $8,241
  Total Risk-based                                $22,351        10.00%     $22,784        10.19%       $  433
  ===============================================================================================================
</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 to employees from 76,667 to 225,000 shares and amended again effective
March 15, 2002, to increase the number of options available for grant to
employees from 225,000 to 350,000 shares and to limit its application to
officers and employees. The stock options and warrants vest immediately upon
issuance and carry a maximum term of 10 years. The exercise price for the stock
options and warrants is the fair market value at grant date. As of December 31,
2005, 94,685 warrants were issued.

         The following summary represents the activity under the Plan:
<TABLE>
<CAPTION>
  ---------------------------------------------------------------------------------------------------------------
                                                                         Number of    Exercise      Expiration
                                                                           Shares       Price          Date
  ---------------------------------------------------------------------------------------------------------------
  <S>                                                                      <C>           <C>        <C>
  Balance outstanding and exercisable at September 30, 2003                190,000
  Options granted                                                           36,000       $ 8.50     10-20-2013
  ---------------------------------------------------------------------------------------------------------------
  Balance outstanding and exercisable at September 30, 2004                226,000
  Options granted                                                          104,000       $ 6.75      10-6-2014
  Options exercised                                                          8,500       $ 4.00
  Options expired                                                           55,500       $ 6.52
  ---------------------------------------------------------------------------------------------------------------
  Balance outstanding and exercisable at September 30, 2005                266,000
  Options granted                                                                -
  ---------------------------------------------------------------------------------------------------------------
  Balance outstanding and exercisable at December 31, 2005                 266,000
  ===============================================================================================================
</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 2005 with the
following assumptions: risk free interest rate of 4.23%, a dividend payout rate
of zero, and an expected option life of nine years. The volatility is 47%. Using
those assumptions, the average weighted fair value of the stock options granted
during fiscal 2005 was $3.70.

                                       9

<PAGE>

                        GREATER ATLANTIC FINANCIAL CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS OF DECEMBER 31, 2005 AND THE THREE 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>
                                                                            Three months ended
                                                                               December 31,
                                                                         ---------------------------
                                                                             2005          2004
   -------------------------------------------------------------------------------------------------
   (In Thousands, except per share data)
   <S>                                                                     <C>             <C>
   Net earnings (loss)                                                     $(2,130)        $  461
      Deduct: Total stock-based employee compensation expense                    -              -
   -------------------------------------------------------------------------------------------------
   Pro forma net earnings (loss) attributable to common stockholders       $(2,130)        $  461
   =================================================================================================
   Earnings (loss) per common share
      Basic                                                                $ (0.71)        $ 0.15
      Diluted                                                              $ (0.71)        $ 0.14
   Earnings (loss) per common share, pro forma
      Basic                                                                $ (0.71)        $ 0.15
      Diluted                                                              $ (0.71)        $ 0.14
</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 three months ended December 31,
2005. The effect of the conversion of preferred securities and the impact of
stock options were antidilutive for the period ended December 31, 2005.
<TABLE>
<CAPTION>
                                                                                    Three months ended December 31,
                                                                                  -----------------------------------
                                                                                        2005              2004
          -----------------------------------------------------------------------------------------------------------
          (Dollars in Thousands, except per share data)
          <S>                                                                          <C>               <C>
          Net earnings                                                                 $    (2,130)      $      461
          Effect of conversion of preferred securities                                         164              164
          Diluted earnings per share                                                        (1,966)             625
          Weighted average common shares outstanding                                     3,020,934        3,012,434
          Effect of conversion of preferred securities                                   1,371,429        1,371,429
          Common stock equivalents due to dilutive effect of stock options                   8,945           24,499
          Total weighted average common shares and common
          share equivalents outstanding                                                  4,401,308        4,408,362
          Basic earnings per common share                                              $     (0.71)      $     0.15
          Diluted earnings per common share                                            $     (0.71)      $     0.14
</TABLE>

                                               10


<PAGE>

                        GREATER ATLANTIC FINANCIAL CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS OF DECEMBER 31, 2005 AND THE THREE 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, and
savings accounts and certificates of deposit and lending products, such as
residential and commercial real estate, construction and development, consumer
and commercial business loans. Further, the banking segment invests in
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 sale into the secondary
market with servicing released of for the Bank's portfolio.

         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 three months ended December 31,         Banking       Banking      Segments     Eliminations    Earnings
--------------------------------------------------------------------------------------------------------------------
(In Thousands)
<C>                                            <C>          <C>            <C>           <C>          <C>
Net interest income: (1)
2005                                           $  1,777     $     28       $  1,805      $      -     $   1,805
2004                                           $  1,537     $     49       $  1,586      $      -     $   1,586
Noninterest income:
2005                                           $    306     $  1,147       $  1,453      $     (4)    $   1,449
2004                                           $  1,451     $  1,059       $  2,510      $    (11)    $   2,499
Noninterest expense:
2005                                           $  2,525     $  2,863       $  5,388      $     (4)    $   5,384
2004                                           $  2,504     $  1,131       $  3,635      $    (11)    $   3,624
Net income (loss):
2005                                           $   (441)    $ (1,689)      $ (2,130)     $      -     $  (2,130)
2004                                           $    485     $    (24)      $    461      $      -     $     461
Segment assets:
2005                                           $326,831     $  5,316       $332,147      $ (5,329)    $ 337,476
2004                                           $393,875     $  5,509       $399,384      $ (3,216)    $ 396,168
</TABLE>
(1)  Segment net interest income reflects income after provisions for loan
     losses.


                                       11
<PAGE>


                        GREATER ATLANTIC FINANCIAL CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS OF DECEMBER 31, 2005 AND THE THREE MONTHS THEN ENDED IS UNAUDITED

         In 2004, the bank entered into a management agreement with the manager
of its mortgage-banking subsidiary. Under the management agreement the manager
was to reimburse operating expenses equal to approximately 100% of any operating
loss in return for an increase in his share of net earnings from 40% to 80%.
Reflected in the mortgage banking non-interest expense of $1.1 million for 2004
is a reduction of $571,000 provided by the manager of the mortgage company.

         Under the management agreement, if Greater Atlantic Mortgage sustained
losses in excess of the amount in the escrow, and the manager did not restore
those losses within 15 days of demand, Greater Atlantic Mortgage's recourse was
to terminate the agreement. At June 30, 2005, the $1,300,000 in the escrow had
been depleted, the manager contributed $108,000 to Greater Atlantic Mortgage to
make up the deficiency and the agreement was continued for three months.

         During the three months ended September 30, 2005, the losses at Greater
Atlantic Mortgage continued and reached approximately $993,000. Because the
escrow account was depleted and the manager had not posted sufficient collateral
to securitize the account receivable due from him, the Bank's earnings were
reduced by the $993,000 loss.

         The Company recognized an additional loss, due to the unprofitable
operations of Greater Atlantic Mortgage, of $693,000 for the three months ended
December 31, 2005. In addition to the loss from operations, a non-recurring
pre-tax impairment charge of $996,000 was recorded for the three months ended
December 31, 2005. That charge requires a write down of long-lived assets by
recording an impairment charge due to the anticipated discontinuance of
operations.

         Non-interest expense includes the impact of losses from operations and
impairment charges totaling $1.7 million for the quarter ended December 31,
2005, compared to a loss of $24,000 during the quarter ended December 31, 2004.

(7) RECENT ACCOUNTING STANDARDS

         In April 2003, the FASB issued Statement No. 149, Amendment of
Statement 133 on Derivative Instruments and Hedging Activities. This Statement
amends and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives) and for hedging activities
under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities. We adopted the use of this accounting statement in July 2003.

         In December 2003, the FASB issued FIN No. 46R, "Consolidation of
Variable Interest Entities," an interpretation of Accounting Research Bulletin
No. 51. FIN No. 46R requires that variable interest entities be consolidated by
a company if that company is subject to a majority of the risk of loss from the
variable interest entity's activities or is entitled to receive a majority of
the entity's residual returns or both. FIN 46R also requires disclosure about
variable interest entities that companies are not required to consolidate but in
which a company has a significant variable interest. The consolidation
requirements must be adopted no later than the beginning of the first fiscal
year or interim period beginning after March 15, 2004. The adoption of FIN No.
46R did not have a material impact on the Corporation's results of operations,
financial position or cash flows.

         The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standard ("SFAS") No. 123 (Revised 2004) ("SFAS No. 123R"),
"Share-Based Payment," in December 2004. SFAS No. 123R is a revision of FASB
Statement 123, "Accounting for Stock-Based Compensation" and supersedes APB
Opinion No. 25, "Accounting for Stock Issued to Employees," and its related
implementation guidance. The Statement focuses primarily on accounting for
transactions in which an entity obtains employee services in share-based payment
transactions. SFAS No. 123R requires a public entity to measure the cost of
employee services received in exchange for an award of equity instruments based
on the grant-date fair value of the award (with limited exceptions). That cost
will be recognized over the period during which an employee is required to
provide service in exchange for the award. This statement is effective as of the
beginning of the first annual reporting period that begins after June 15, 2005
and the Company will adopt the standard in the first quarter of fiscal 2006. The
adoption of this statement did not have a material impact on its consolidated
financial position or results of operations.

                                       12

<PAGE>

                        GREATER ATLANTIC FINANCIAL CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS OF DECEMBER 31, 2005 AND THE THREE MONTHS THEN ENDED IS UNAUDITED

(8) JUNIOR SUBORDINATED DEBT SECURITIES

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

(9) DERIVATIVE FINANCIAL INSTRUMENTS

         Beginning in fiscal 2002, the bank utilized derivative financial
instruments to hedge its interest rate risk. 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 $24
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 1 and 5 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 those derivatives which
meet hedge accounting requirements are deferred and recognized when the hedge
transaction occurs. In the event hedge accounting requirements are not met gains
and losses on such instruments are included currently in the statement of
operations. During the three months ended December 31, 2005 and 2004 the
instruments did not meet hedge accounting requirements. The statements of
operations include net gains of $71,000 and of $363,000 for the three months
ended December 31, 2005 and 2004, respectively.


                                       13

<PAGE>


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 considered derivative instruments. At December 31, 2005, the bank
had $20.0 million of loans held for sale and commitments outstanding related to
loans being originated for sale to investors. The value of the interest rate
locks and related forward commitments were immaterial to the financial
statements at December 31, 2005.

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 six 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>


         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
consist 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 December 31, 2005 the company's total assets were $337.5 million,
compared to the $340.8 million held at September 30, 2005, representing a
decrease of 0.98%. Both the bank's overall asset size and customer base
decreased during the period and that decline is reflected in the consolidated
statements of financial condition and statements of operations. Net loans
receivable at December 31, 2005 were $196.6 million, an increase of $1.7 million
or 0.85% from the $194.9 million held at September 30, 2005. The increase in
loans consisted primarily of single-family and construction loans. At December
31, 2005, investment securities were $109.9 million, a decrease of $5.9 million
or 5.05% from the $115.8 million held at September 30, 2005. Deposits at
December 31, 2005 were $231.6 million, a decrease of $6.2 million, which
resulted primarily from the sale of the bank's two branch offices located in
Winchester and Sterling, Virginia. Those sales of deposits amounted to $27.6
million and were offset by increases in our money fund and non-interest checking
accounts.

CRITICAL ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS

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


         COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
                     DECEMBER 31, 2005 AND DECEMBER 31, 2004

         NET INCOME. For the three months ended December 31, 2005, the company
had net loss of $2.1 million or $0.71 per diluted share compared to earnings of
$461,000 or $0.14 per diluted share for the three months ended December 31,
2004. The decline in earnings of $2.6 million over the comparable period
one-year ago was primarily the result of an increase in non-interest expense, a
decrease in non-interest income and an increase in the provision for loan
losses. Those declines were partially offset by an increase in net interest
income.

         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 December 31,                         2005              2004           Amount            %
---------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S>                                                    <C>               <C>               <C>             <C>
Interest income:
   Loans                                               $ 3,540           $ 3,303           $ 237           7.18%
   Investments                                           1,199             1,102              97           8.80
---------------------------------------------------------------------------------------------------------------------
Total                                                    4,739             4,405             334           7.58
---------------------------------------------------------------------------------------------------------------------

Interest expense:
   Deposits                                              1,765             1,514             251          16.58
   Borrowings                                            1,098             1,303            (205)        (15.73)
---------------------------------------------------------------------------------------------------------------------
Total                                                    2,863             2,817              46           1.63
---------------------------------------------------------------------------------------------------------------------
Net interest income                                    $ 1,876           $ 1,588           $ 288          18.14%
=====================================================================================================================
</TABLE>

         The increase in net interest income during the quarter ended December
31, 2005, resulted primarily from a 70 basis point increase in net interest
margin (net interest income divided by average interest-earning assets) from
1.59% for the quarter ended December 31, 2004 to 2.29% for the quarter ended
December 31, 2005, offset in part by a $71.5 million decrease in the bank's
interest-earning assets. Contributing to the increase in the net interest margin
was a $41,000 reduction in interest expense resulting from payments made on
certain interest rate swap and cap agreements compared to a charge of $305,000
in the comparable period one year ago. That increase in net interest margin also
resulted from the average yield on interest-earning assets increasing 63 basis
points more than the increase in the average cost on interest-bearing
liabilities and was partially offset by an increase in the bank's average
interest-bearing liabilities exceeding the increase in average interest earning
assets by $963,000.

         INTEREST INCOME. Interest income for the three months ended December
31, 2005 increased $334,000 compared to the three months ended December 31,
2004, primarily as a result of an increase of 137 basis points in the average
yield earned on interest earning assets. That increase was partially offset by a
decrease of $71.5 million in the average outstanding balances of loans and
investment securities.

                                       16

<PAGE>


         INTEREST EXPENSE. The $46,000 increase in interest expense for the
three months ended December 31, 2005 compared to the 2004 period was principally
the result of a 74 basis point increase in the cost of funds on average deposits
and borrowed funds. The increase in the cost of funds was partially offset by a
$72.5 million decrease in average deposits and borrowed funds. The increase in
interest expense on deposits was primarily due to a 102 basis point increase in
rates paid on certificates of deposit, savings and NOW and money market
accounts. That increase was partially offset by a decrease of $53.7 million in
average deposits from $269.4 million for the three months ended December 31,
2004 to $215.7 million for the three months ended December 31, 2005. The
increase in expense was primarily due to higher rates paid on interest-bearing
demand deposits, savings accounts and certificates and elevated pricing on new
and renewed time deposits.

         The decrease in interest expense on borrowings for the three months
ended December 31, 2005 compared to the 2004 period was principally the result
of a $18.8 million decrease in average borrowed funds and was partially offset
by a 3 basis point increase in the cost of borrowed funds. Components
accountable for the decrease of $205,000 in interest expense on borrowings were
a $231,000 decrease relating to average volume, offset by a $26,000 increase
relating to average cost


                                       17
<PAGE>



         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 DECEMBER 31,
                                     ------------------------------------------------------------------------------
                                                      2005                                    2004
                                     ------------------------------------------------------------------------------
                                                     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                 $  102,866    $  1,809         7.03%   $  114,610     $   1,847        6.45%
   Consumer loans                        68,646       1,116         6.50        73,211           833        4.55
   Commercial business loans             35,891         615         6.85        45,933           623        5.43
                                     -----------   ---------     --------   -----------    ----------     ---------
      Total loans                       207,403       3,540         6.83       233,754         3,303        5.65

Investment securities                    66,191         780         4.71        71,840           509        2.83
Mortgage-backed securities               53,847         419         3.11        93,357           593        2.54
                                     -----------   ---------     --------   -----------    ----------     ---------
      Total interest-earning assets     327,441       4,739         5.79       398,951         4,405        4.42
                                                   ---------     --------                  ----------     ---------
Non-earning assets                       16,668                                 21,766
                                     -----------                            -----------
  Total assets                       $  344,109                             $  420,717
                                     ============                           ===========

LIABILITIES AND STOCKHOLDERS' EQUITY:

Interest-bearing liabilities:
   Savings accounts                  $    6,749          15         0.89    $   13,139            32        0.97
   Now and money market accounts         69,223         524         3.03        72,798           230        1.26
   Certificates of deposit              139,723       1,226         3.51       183,419         1,252        2.73
                                     -----------   ---------     --------   -----------    ----------     ---------
      Total deposits                    215,695       1,765         3.27       269,356         1,514        2.25

   FHLB advances                         50,727         614         4.84        46,089           488        4.24
   Other borrowings                      44,860         484         4.32        68,310           815        4.77
                                     -----------   ---------     --------   -----------    ----------     ---------
  Total interest-bearing liabilities    311,282       2,863         3.68       383,755         2,817        2.94
                                                   ---------     --------                  ----------     ---------

Noninterest-bearing liabilities:
Noninterest-bearing demand deposits      15,668                                 15,499
Other liabilities                         1,421                                  1,988
                                     -----------                            -----------
  Total liabilities                     328,371                                401,242
Stockholders' equity                     15,738                                 19,475
                                     -----------                            -----------
  Total liabilities and
   stockholders' Equity              $  344,109                             $  420,717
                                     ===========                            ===========
Net interest income                                $  1,876                                $   1,588
                                                   =========                               ==========
Interest rate spread                                                2.11%                                   1.48%
                                                                 =========                                ========
Net interest margin                                                 2.29%                                   1.59%
                                                                 =========                                ========
</TABLE>


                                                       18
<PAGE>


         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
                                                  DECEMBER 31, 2005 COMPARED TO
                                                        DECEMBER 31, 2004
                                          -----------------------------------------------
                                                      CHANGE ATTRIBUTABLE TO
                                          -----------------------------------------------
                                              VOLUME            RATE           TOTAL
                                          -----------------------------------------------
                                                          (IN THOUSANDS)
<S>                                          <C>              <C>             <C>
Real estate loans                            $   (189)        $   151         $  (38)
Consumer loans                                    (52)            335            283
Commercial business loans                        (136)            128             (8)
                                          ----------------  -------------- --------------
      Total loans                                (377)            614            237
Investments                                       (40)            311            271
Mortgage-backed securities                       (251)             77           (174)
                                          ----------------  -------------- --------------
Total interest-earning assets                $   (668)        $ 1,002         $  334
                                          ================  ============== ==============

Savings accounts                             $    (16)        $    (1)        $  (17)
Now and money market accounts                     (11)            305            294
Certificates of deposit                          (298)            272            (26)
                                          ----------------  -------------- --------------
  Total deposits                                 (325)            576            251
FHLB advances                                      49              77            126
Other borrowings                                 (280)            (51)          (331)
                                          ----------------  -------------- --------------
Total interest-bearing liabilities               (556)            602             46
                                          ================  ============== ==============
Change in net interest income                $   (112)        $   400         $  288
                                          ================  ============== ==============
</TABLE>

         PROVISION FOR LOAN LOSSES. The allowance for loan losses, which is
established through provisions for losses charged to expense, is increased by
recoveries on loans previously charged off and is reduced by charge-offs on
loans. Determining the proper reserve level or allowance involves management's
judgment based upon a review of factors, including the company's internal review
process, which segments the loan portfolio into groups, based on loan type and
assigns to them a reserve percentage that reflects the industry standard.
Management then looks at its classified assets, which are loans 30 days or more
delinquent, and classifies those loans as special mention, substandard, doubtful
or loss based on the performance of the loans. Those classified loans are then
individually evaluated for impairment and measured by either the present value
of expected future cash flows, the loans observable market price, or the fair
value of the collateral. They are then segmented by type and assigned a reserve
percentage that reflects the underlying quality of the loan. Although management
utilizes its best judgment in providing for probable losses, there can be no
assurance that the bank will not have to increase its provisions for loan losses
in the future. An increase in provision may result from an adverse market for
real estate and economic conditions generally in the company's primary market
area, future increases in non-performing assets or for other reasons which would
adversely affect the company's results of operations.

         Non-performing assets were $2.0 million or 0.58% of total assets at
December 31, 2005, with $1.6 million classified as substandard, $27,000
classified as doubtful and none classified as loss, compared to $931,000 or
0.24% classified as non-performing at December 31, 2004. Non-performing assets
increased $1.0 million from the comparable period one year ago, and the company
increased the provision for loan losses by $69,000. The increase in
non-performing assets from the year ago period was due to the increase of the
outstanding balance of one of the bank's commercial business loans. The increase
in provision was due primarily to the increase in the required provision for
that loan.

         NON-INTEREST INCOME. Non-interest income decreased $1.1 million during
the quarter ended December 31, 2005, over the comparable period one year ago.
That decrease was primarily the result of decreases totaling $1.4 million in
gains on sale of investment securities, gains on derivatives, gain on sale of
loans and a decline in other operating income. Those decreases in income were
partially offset by increases of $319,000 and $65,000 in service fees on
deposits and gain on sale of real estate owned, respectively. The reduced level
of gain on sale of loans during the quarter ended December 31, 2005 resulted
from lower than anticipated loan origination and sales volumes

                                       19

<PAGE>


at the bank's mortgage banking subsidiary and lower margins than those obtained
in the year-ago period. In addition, during the period one year ago, the bank
exchanged single-family loans for mortgage-backed securities, which were sold
during the quarter, recognizing $538,000 in gain on sale. The decrease in other
operating income reflects the gain recognized one year ago from the sale of the
bank's Washington, D.C. branch.

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

                                                                                          Difference
                                                                             --------------------------------------
Three Months Ended December 31,                    2005            2004           Amount                %
-------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S>                                                <C>            <C>              <C>                  <C>
Non-interest income:
   Gain on sale of loans                           $    809       $ 1,078          $   (269)            (24.95)%
   Service fees on loans                                385            66               319             483.33
   Service fees on deposits                             104           169               (65)            (38.46)
   Gain on sale of investment securities                  -           538              (538)               N/A
   Gain on derivatives                                   71           363              (292)            (80.44)
   Gain on sale of real estate owned                     65             -                65                N/A
   Other operating income                                15           285              (270)            (94.74)
-------------------------------------------------------------------------------------------------------------------
      Total non-interest income                    $  1,449       $ 2,499          $ (1,050)            (42.02)%
===================================================================================================================
</TABLE>

         NON-INTEREST EXPENSE. Non-interest expense increased $1.8 million from
$3.6 million for the quarter ended December 31, 2004 to $5.4 million for the
first quarter in the current fiscal year. The increase was primarily
attributable to a $1.7 million increase in the mortgage company's non-interest
expense from that incurred in the comparable period one year ago. The increase
in non-interest expense at the mortgage company level was primarily a
non-recurring pre-tax impairment charge of $996,000 recorded in other operating
expenses, $746,000 in compensation, of which $571,000 was an expense
reimbursement by the manager one year ago with no comparable reimbursement for
the current quarter, and was coupled with increases in professional services,
occupancy and furniture fixtures and equipment. The impairment charge requires a
write down of long-lived assets by recording a charge due to the anticipated
discontinuance of operations. The manager made no expense reimbursement for the
current quarter. Accordingly, at December 31, 2005, the Company set up a reserve
for loss and charged $693,000 against earnings to account for the funds that
were to have been contributed to the mortgage company by the manager. The
increases identified above were partially offset by decreases in advertising and
data processing. The increase of $20,000 in the bank's non-interest expense was
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 December 31,                            2005            2004         Amount             %
---------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S>                                                       <C>            <C>             <C>             <C>
Non-interest expense:
   Compensation and employee benefits                     $ 2,016        $ 1,231         $   785          63.77%
   Occupancy                                                  418            461             (43)         (9.33)
   Professional services                                      362            221             141          63.80
   Advertising                                                535            559             (24)         (4.29)
   Deposit insurance premium                                   27             11              16         145.45
   Furniture, fixtures and equipment                          251            300             (49)        (16.33)
   Data processing                                            257            324             (67)        (20.68)
   Other operating expense                                  1,518            517           1,001         193.62
---------------------------------------------------------------------------------------------------------------------
Total non-interest expense                                $ 5,384        $ 3,624         $ 1,760          48.57%
=====================================================================================================================
</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 2006 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>


Contractual Obligations and Off-Balance Sheet Financing Arrangements

         The following table summarizes the bank's contractual obligations at
December 31, 2005 and the effect these obligations are expected to have on the
bank's liquidity and cash flows in future periods.
<TABLE>
<CAPTION>
   -----------------------------------------------------------------------------------------------------------------
                                                       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)                      $ 49,000        $ 18,000       $ 6,000         $     -        $ 25,000
   Reverse repurchase agreements            32,742          32,742             -               -               -
   Operating leases                          5,460           1,039         2,111           1,746             564
   -----------------------------------------------------------------------------------------------------------------
        Total obligations                 $ 87,202        $ 51,781       $ 8,111         $ 1,746        $ 25,564
   =================================================================================================================
</TABLE>
   (1) The company expects to refinance these short and medium-term obligations
       under substantially the same terms and conditions.

Other Commercial Commitments
<TABLE>
<CAPTION>
   -----------------------------------------------------------------------------------------------------------------
                                                       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)  $ 135,308       $  98,324       $ 30,320        $ 6,571            $ 93
   Loan originations                        46,203          46,203              -              -               -
   Unfunded lines of credit                111,413         111,413              -              -               -
   Standby letters of credit                   101             101              -              -               -
   -----------------------------------------------------------------------------------------------------------------
        Total                            $ 293,025       $ 256,041       $ 30,320        $ 6,571            $ 93
   =================================================================================================================
</TABLE>
   (1) The company expects to retain maturing deposits or replace amounts
   maturing with comparable certificates of deposits based on current market
   interest rates.

         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
period. At December 31, 2005, cash and cash equivalents, interest bearing
deposits and securities available-for-sale totaled $115.6 million or 34.26% of
total assets.

The primary investing activities of the bank are the origination of consumer
loans, residential one- to four-family loans, commercial business loans,
commercial real estate loans, and real estate construction and development loans
and the purchase of United States Treasury and agency securities,
mortgage-backed and mortgage-related securities and other investment securities.
During the three months ended December 31, 2005, the bank's loan purchases and
originations totaled $27.4 million. Purchases of United States Treasury and
agency securities, mortgage-backed and mortgage related securities and other
investment securities totaled $7.7 million for the three months ended December
31, 2005.

         The bank has other sources of liquidity if a need for additional funds
arises. At December 31, 2005, the bank had $49.0 million in advances outstanding
from the FHLB and had an additional overall borrowing capacity from the FHLB of
$52.5 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.

                                       21

<PAGE>

         At December 31, 2005, 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 $157.7 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 December 31, 2005,
totaled $98.3 million. Based upon experience, management believes the majority
of maturing deposits will remain with the bank. In addition, management of the
bank believes that it can adjust the rates offered on certificates of deposit to
retain deposits in changing interest rate environments. In the event that a
significant portion of those deposits are not retained by the bank, the bank
would be able to utilize FHLB advances and reverse repurchase agreements to fund
deposit withdrawals, which would result in an increase in interest expense to
the extent that the average rate paid on such borrowings exceeds the average
rate paid on deposits of similar duration.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Market risk is the risk of loss from adverse changes in market prices
and rates. The company's market risk arises primarily from interest rate risk
inherent in its lending and deposit taking activities. The company has little or
no risk related to trading accounts, commodities or foreign exchange. In
general, market risk reflects the sensitivity of income to variations in
interest rates and other relevant market rates or prices. The company's market
rate sensitive instruments include interest-earning assets and interest-bearing
liabilities. The company enters into market rate sensitive instruments in
connection with its various business operations, 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-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 the 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 December 31, 2005, we held an aggregate notional value of $30 million of caps
and $24 million of swaps that pay-a fixed interest rate. None of the interest
rate caps had strike rates that were in effect at December 31, 2005, as current
LIBOR rates were below the strike rates.

                                       22

<PAGE>

         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. The Company
              ------------------------------------------------
maintains controls and procedures designed to ensure that information required
to be disclosed in the reports that the Company files or submits under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the rules and forms of the Securities and
Exchange Commission. Based upon their evaluation of those controls and
procedures performed within the period, the chief executive and chief financial
officers of the Company concluded that the Company's disclosure controls and
procedures were effective.

         (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 1A.   Risk Factors

         On February 6, 2006, the registrant's subsidiary, Greater Atlantic
Bank, and Greater Atlantic Mortgage Corporation, a subsidiary of Greater
Atlantic Bank, terminated the Management Agreement with Stamm Mortgage
Management, Inc., which had been entered into on December 31, 2004 and effective
October 1, 2004 (the "Management Agreement"). Greater Atlantic Mortgage
Corporation originated mortgage loans on a nationwide basis for sale in the
secondary market and participated in niche mortgage products, such as Federal
Housing Administration ("FHA") streamline refinancings. The termination of the
Management Agreement was disclosed in a filing with the Securities and Exchange
Commission on Form 8-K on February 10, 2006.

         Greater Atlantic Bank has begun the process of terminating the
operations of Greater Atlantic Mortgage Corporation, which will result in
further losses to Greater Atlantic Financial Corp. While the amount of the
actual results may vary from the estimated loss, it is currently estimated that
Greater Atlantic Financial Corp. will incur operating losses and closure cost of
approximately $1.0 million during the wind-down of Greater Atlantic Mortgage
Corporation. Greater Atlantic Bank expects to complete that wind-down during the
three months ended March 31, 2006.

         In addition, future earnings could be reduced if interest income earned
on the loans held for sale by Greater Atlantic Mortgage Corporation are not
replaced by assets earning a comparable return.

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

Not applicable.



                                       23
<PAGE>



ITEM 3.    Defaults Upon Senior Securities

Not applicable.

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

Not applicable

ITEM 5.    Other Information

Not applicable.

ITEM 6.    Exhibits

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




                                       24
<PAGE>


                        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: February 13, 2006



                                       25