**UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**Form
                10-K**





x
            
            ANNUAL
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934For
                the fiscal year ended****
            **December
                31, 2006**ORo
            
            TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934For
                the transition period from
            
            toCommission
                file number**001-14879**





**GREAT
                LAKES BANCORP, INC.**(Exact
                name of registrant as specified in its charter)





**DELAWARE**
            
            **94-3078031**(State
                or other jurisdiction of incorporation or organization)
            
            (I.R.S.
                Employer Identification No.)**2421
                MAIN STREET, BUFFALO, NEW YORK**
            
            **14214**(Address
                of principal executive offices)
            
            (ZIP
                Code)Registrant’s
                telephone number, including area code:
            **(716)
                961-1900**





Securities
                registered under Section 12(b) of the Exchange Act:****Title
                of each class
            
            Name
                of exchange on which registered**Common
                stock, par value $.01 per share**
            
            **New
                York Stock Exchange**Securities
                registered under Section 12(g) of the Exchange Act:
            **NONE**





Indicate
                by check mark if the regsitrant is a well-known seasoned issuer,
                as
                defined in Rule 405 of the Securities Act.YesoNoþIndicate
                by check mark if the registrant is not required to file reports pursuant
                to Section 13 or Section 15(d) of the Act.YesoNoþIndicate
                by check mark whether the registrant (1) has filed all reports required
                to
                be filed by Section 13 or 15(d) of the SecuritiesExchange
                Act of 1934 during the past 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.YesþNooIndicate
                by check mark if disclosure of delinquent filers pursuant to Item
                405 of
                Regulation S-K (§ 229.405 of this chapter) is notcontained
                herein, and will not be contained, to the best of the registrant’s
                knowledge, in definitive proxy or information
                statementsincorporated
                by reference in Part III of this form 10-K or any amendment to this
                Form
                10-K.
            oIndicate
                by check mark whether the regsitrant is a large accelerated filer,
                an
                accelerated filer, or a non-accelerated filer. See
                definitionof
                “accelerated file and large accelerated filer” in Rule 12b-2 of the
                Exchange Act. (Check one):Large
                accelerated filero
            Accelerated
                filerþ
            Non-accelerated
                fileroIndicate
                by check mark whether the registrant is a shell company (as defined
                in
                Rule 12b-2 of the Exchange Act).YesoNoþAs
                of February 28, 2007, there were 10,921,796 shares outstanding of
                the
                Registrant's Common Stock.   The aggregate market value ofthe
                voting stock help by non-affiliates (as defined in Rule 405 under
                the
                Securities Act of 1933) of the Registrant, based upon the priceat
                which the common stock was last sold on the New York Stock Exchange
                on
                June 30, 2006, was approximately $164.6 million.**DOCUMENTS
                INCORPORATED BY REFERENCE**Portions
                of the Proxy Statement for the 2007 Annual Meeting of Shareholders
                are
                incorporated by reference in Parts II and III.











**TABLE
      OF CONTENTS**




**PART
                I**
            **PAGE**Item
                1.
            
            Business
            2Item
                1A.
            
            Risk
                Factors
            14Item
                1B.
            
            Unresolved
                Staff Comments
            15Item
                2.
            
            Properties
            16Item
                3.
            
            Legal
                Proceedings
            17Item
                4.
            
            Submission
                of Matters to a Vote of Security Holders
            17**Part
                II**Item
                5.
            
            Market
                for Registrant’s Common Equity, Related Shareholder Matters and Issuer
                Purchases of Equity Securities
            18Item
                6.
            
            Selected
                Financial Data
            19Item
                7.
            
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            22Item
                7A.
            
            Quantitative
                and Qualitative Disclosures About Market Risk
            37Item
                8.
            
            Financial
                Statements and Supplementary Data
            39Item
                9.
            
            Changes
                in and Disagreements with Accountants on Accounting and Financial
                Disclosure
            39Item
                9A.
            
            Controls
                and Procedures
            39Item
                9B.
            
            Other
                Information
            39**Part
                III**Item
                10.
            
            Directors,
                Executive Officers and Corporate Governance
            40Item
                11.
            
            Executive
                Compensation
            40Item
                12.
            
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Shareholder Matters
            40Item
                13.
            
            Certain
                Relationships and Related Transactions, and Director
                Independence
            40Item
                14.
            
            Principal
                Accountant Fees and Services
            40**Part
                IV**Item
                15.
            
            Exhibits
                and Financial Statement Schedules
            41Signatures
            43














**PART** **I**





**ITEM
      1. BUSINESS**







**GENERAL**




Great
      Lakes Bancorp, Inc. (“GLB”) is a registered banking holding company and Delaware
      corporation that holds all of the capital stock of Greater Buffalo Savings
      Bank
      (“GBSB” or the “Bank”). GBSB is a New York State-chartered stock savings bank.
      GLB’s executive offices and GBSB’s main banking branch, lending operations and
      administrative center are located at 2421 Main Street in Buffalo, New York.
      GBSB
      provides a full range of loan and deposit products and services to its consumer
      and commercial customers located principally in Western New York.




GBSB
      began operations in 1999 and its parent, Great Lakes Bancorp, Inc. (“Old Great
      Lakes”), the predecessor of the current bank holding company, was formed in
      2003. On May 1, 2006, Old Great Lakes merged into Bay View Capital Corporation
      and the surviving corporation was renamed Great Lakes Bancorp, Inc. (“New Great
      Lakes”). In anticipation of the merger, Bay View Capital Corporation became a
      registered bank holding company in January 2006. At the time of the merger
      it
      had no ongoing operations.




The
      merger is described in the notes to the accompanying consolidated financial
      statements. These financial statements reflect the consolidated results of
      operations of Old Great Lakes and GBSB before the merger, and New Great Lakes
      and GBSB after the merger. These bank holding companies before and after the
      merger as applicable, and Greater Buffalo Savings Bank, are hereinafter
      collectively referred to as the “Company.”




As
      of
      December 31, 2006, the Company had 14 full-service banking branches operating
      in
      Western New York, $884.4 million of assets, $634.7 million of deposits, and
      $135.5 million of shareholders’ equity. GLB neither owns nor leases any
      property, but uses the premises and equipment of GBSB. GLB does not have any
      employees other than certain officers of GBSB who also serve as officers of
      GLB.




**OTHER
      INFORMATION**




The
      Company maintains a website at www.greatlakesbancorp.com .
      The
      Company makes available through its website, free of charge, its annual reports
      on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K,
      and any amendments to those reports, as soon as reasonably practicable after
      these reports are electronically filed with or furnished to the Securities
      and
      Exchange Commission. These reports can be accessed at the Company’s website by
      clicking on “SEC Filings.” Copies of these reports can also be obtained, free of
      charge, by written request to the Company’s Investor Relations Department, 2421
      Main Street, Buffalo, New York 14214.




The
      Company has a Code of Ethical Conduct that contains standards of ethical conduct
      for its directors, officers and employees. This Code of Ethical Conduct is
      also
      available at the Company’s website.




**FORWARD
      LOOKING STATEMENTS**




This
      Annual Report on Form 10-K contains certain forward-looking statements within
      the meaning of Section 27A of the Securities Act of 1933, as amended (the
“Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as
      amended (the “Exchange Act”) that involve substantial risks and uncertainties.
      The forward-looking statements can be identified by the use of such words as
      estimate, project, believe, intend, anticipate, plan, seek, expect and other
      similar expressions. These forward-looking statements include: statements of
      the
      Company’s goals, intentions and expectations; statements regarding the Company’s
      business plans, prospects, growth and operating strategies; statements regarding
      the asset quality of the Company’s loan and investment portfolios; and estimates
      of the Company’s risks and future costs and benefits.




These
      forward-looking statements are subject to significant risks, assumptions and
      uncertainties, including, among other things, the following important factors
      that could affect the actual outcome of future events: general economic
      conditions, either nationally or in the Company’s market areas, that are worse
      than expected; significantly increased competition among depository and other
      financial institutions; inflation and changes in the interest rate environment
      that reduce the Company’s net interest margins or fair value of financial
      instruments; changes in laws or government regulations affecting financial
      institutions, including changes in regulatory fees and capital requirements;
      the
      Company’s ability to enter new markets successfully and capitalize on growth
      opportunities; the Company’s ability to successfully integrate acquired
      entities; changes in consumer spending, borrowing and savings habits; changes
      in
      accounting policies and practices, as may be adopted by the bank regulatory
      agencies, taxing authorities, the Financial Accounting Standards Board, and
      the
      Pubic Company Accounting Oversight Board; and changes in the Company’s
      organization, compensation and benefit plans.




Because
      of these and other uncertainties, the Company’s actual future results may be
      materially different for the results indicated by these forward-looking
      statements.













**MARKET
      AREAS AND COMPETITION**




The
      Company’s principal lending and deposit gathering activities are concentrated in
      Western New York where its branch network is located. The Company presently
      has
      14 bank branches operating in three counties in Western New York. The Company
      has 11 bank branches in Erie County where the city of Buffalo is located, two
      bank branches in Chautauqua County, and one bank branch in Niagara County.
      The
      Company plans to open four bank branches in 2007 including two in Erie County
      in
      suburbs of Buffalo, one in Niagara County and one in Chautauqua County. The
      new
      branch in Chautauqua County will replace an existing branch. The Company
      presently has no plans to build or open additional bank branches after 2007.




In
      early
      2007, the Company received regulatory approval to open two mortgage loan
      production offices in Long Island, New York as part of a new mortgage banking
      initiative established in 2006. This initiative is designed to significantly
      increase noninterest income. It involves the origination and sale of residential
      mortgage loans with related mortgage servicing rights released to the
      purchasers. The Company anticipates opening these two mortgage loan production
      offices for business in the second quarter of 2007. The Company’s principal
      mortgage banking activities are conducted in Buffalo, New York.




The
      Company faces significant competition in making loans and gathering deposits
      in
      its market areas. Many of the Company’s competitors are significantly larger and
      have greater financial resources. The Company’s competition for loans comes
      principally from commercial banks, savings banks, savings and loan associations,
      mortgage banking companies, credit unions, insurance companies and other
      financial institutions. Its most direct competition for deposits has
      historically come from commercial banks, savings banks, savings and loan
      associations and credit unions. The Company faces additional competition for
      deposits from non-depository institutions in the mutual fund, securities and
      brokerage, and insurance industries.




**LENDING
      ACTIVITIES**




**Brief
      History**




From
      the
      Bank’s inception in 1999 through 2004, lending activities were comprised
      principally of originating residential mortgage loans. The Company generally
      held these mortgage loans after origination for investment purposes. These
      ‘prime’ mortgage loans are generally secured by first liens on one-to-four
      family owner-occupied residences. In late 2003, the Company also entered the
      indirect automobile lending business by establishing a single relationship
      with
      a major automobile dealership group located in Western New York.




In
      2005,
      the Company implemented a strategy to accelerate loan growth, diversify its
      lending activities, and reduce the concentration of residential mortgage loans
      held in portfolio. This strategy focused principally on growing the commercial
      real estate and commercial and industrial loan businesses. The strategy involved
      attracting experienced commercial lending officers and staff to the
      organization, building back-office loan servicing and support technologies
      and
      infrastructure, and increasing market awareness of the Company’s commercial
      lending interests and capabilities.




The
      Company’s strategy for diversifying its lending activities included a broad
      objective of rebalancing the loan portfolio over time into four equal components
      of commercial real estate loans, commercial and industrial loans, residential
      mortgage loans, and other consumer loans including automobile and home equity
      loans. More important to the strategy than achieving this specific loan
      diversification metric, however, was the Company’s singular focus on generating
      shorter-term, higher yielding variable rate loans across all product lines
      to
      improve the Company’s profitability and interest rate risk profile.




In
      mid-2006, the Company hired an experienced mortgage banking executive and
      embarked on a new mortgage banking initiative that complemented its strategy
      of
      reducing the concentration of mortgage loans held in portfolio. Under this
      new
      initiative designed to enhance noninterest income and reduce interest rate
      risk,
      the Company originates mortgage loans for its customers and generally sells
      the
      loans shortly after origination with related mortgage servicing rights released
      to the purchasers. Commitments made by the Company to extend credit to home
      buyers are aligned with commitments received from the purchasers to buy specific
      loans. The Company maintains formal relationships with the purchasers and
      originates the loans using the purchaser’s underwriting standards pursuant to
      delegated underwriting authorities. In many cases, the Company uses automated
      loan underwriting models provided by the purchasers to qualify the loans.




As
      part
      of the 2006 mortgage banking initiative, the Company also dismantled its network
      of independent mortgage brokers previously responsible for generating a
      significant portion of the Company’s mortgage loan volumes, reorganized its
      internal loan origination and servicing functions to improve operating
      efficiency, and increased its internal staff of commission-based mortgage
      originators.




Also
      in
      2006, the Company expanded its indirect automobile lending business beyond
      the
      single dealership group relationship established in 2003 by enrolling 22
      additional franchised automobile dealerships in Western New York. More
      information on each of the Company’s four lending businesses
      follows.







-
            3
            -





**Commercial
      Real Estate Lending**




The
      Company originates commercial real estate and multi-family loans secured
      principally by first liens on industrial and warehouse properties, office
      buildings, retail shopping centers, apartment buildings, condominium projects,
      and similar commercial properties.




Commercial
      and multi-family real estate loans originated for the Company’s portfolio are
      generally limited to one, three or five-year adjustable rate products priced
      at
      prevailing market rates. The initial interest rates are reset at the end of
      the
      initial fixed rate periods to market rates that generally range from 150 to
      275
      basis points over the prevailing one, three or five-year U.S. Treasury Constant
      Maturity Index or Federal Home Loan Bank advance rates, subject to interest
      rate
      floors. The maximum term for these loans is generally not more than 10 years,
      with payments based on not more than a 25-year **** amortization
      schedule for multi-family loans and a 20-year **** amortization
      schedule for commercial real estate loans.




The
      Company also offers commercial real estate and multi-family construction loans.
      Some of these construction loans are made as combination construction loans
      and
      permanent loans. The combination loans provide for disbursement of loan funds
      during the construction period and conversion of outstanding balances to
      permanent financing upon completion of construction and the attainment of either
      tenant lease-up provisions or prescribed debt service coverage ratios. The
      construction loans are typically made on a relatively short-term basis, usually
      not exceeding two years, with variable rate interest charges generally indexed
      to the prime rate or LIBOR. The loan application process and underwriting
      standards for the construction loans are generally the same as those required
      for permanent commercial mortgage loans. Construction loans generally involve
      higher risk than other types of loans because loan funds are advanced against
      the security of the project which is of less certain value during the
      construction period than when the project is completed.




The
      Company continues to promote the growth of its commercial real estate loans
      as a
      means of diversifying its loan portfolio and increasing yield. The adjustable
      interest rate nature of these loans generally reduces the Company’s exposure to
      interest rate risk and prepayment risk. The commercial real estate loans often
      involve higher risk than residential mortgage loans as they typically involve
      larger loan balances concentrated with a single borrower or groups of related
      borrowers. The payment experience on loans secured by income producing
      properties is typically dependent on the successful operation of the properties
      and, thus, these loans can be impacted to a greater extent by adverse conditions
      in the real estate market or the general economy than other types of loans.




At
      December 31, 2006, the Company’s outstanding commercial real estate loans
      totaled $78.7 million and comprised 15.4% of the total loan portfolio.
      Commercial real estate loans grew by approximately 88% in 2006 and 67% in 2005
      as measured by average daily balances of outstanding loans during those years.
      While the Company anticipates that future growth of its commercial real estate
      loans will be concentrated in New York State, particularly within Western New
      York, the Company may pursue opportunities outside of its home geography on
      a
      highly-selective basis. These opportunities may involve participation with
      local
      real estate developers with proven track records of success in operating outside
      of Western New York or participation in loan syndications with other banks
      with
      which the Company has strong relationships.




**Commercial
      and Industrial Lending**




The
      Company offers term loans and revolving lines of credit to commercial customers
      of various sizes that operate principally in Western New York. Both secured
      and
      unsecured commercial loans and lines of credit are made to finance purchases
      of
      equipment and inventories, business expansion, and working capital needs and
      for
      other general business purposes. Loan terms generally range from one to seven
      years. Interest rates on fixed rate loans are generally established at a spread
      to the prevailing five-year U.S. Treasury rate. Variable rate loans are
      generally indexed to the prime rate. Lines of credit are generally established
      for one-year terms and carry interest at variable rates indexed to the prime
      rate or LIBOR.




The
      Company also offers commercial business and real estate loans that involve
      principal repayment guarantees provided by the Federal government’s Small
      Business Administration. This product allows the Company to meet the needs
      of
      its small business customers while protecting the Company from excess credit
      risk. The Company participates in the SBA’s ‘7A’ and ‘Express’ programs with
      guarantees generally ranging from 50% to 85% of loan amounts. At December 31,
      2006, the Company’s outstanding loans with SBA guarantees totaled $25.6 million.
      This amount included $20.8 million of loans in which the Company purchased
      only
      the SBA guaranteed portion of loan balances from third parties thus principal
      repayment is fully guaranteed.




The
      Company continues to promote the growth of its commercial and industrial loans
      as a means of diversifying its loan portfolio and increasing yield. The variable
      rate nature of the lines of credit and some of the loans in this product
      category generally reduces the Company’s exposure to interest rate risk and
      prepayment risk. In addition, growth of the commercial and industrial loans
      provides significant opportunity for the Company to deepen customer
      relationships through the sale of additional products and services including
      business checking accounts, cash management services, wire transfer services,
      letters of credit, and internet banking services. The Company’s
      noninterest-bearing business checking accounts grew by approximately 42% in
      2006
      and 45% in 2005 as measured by average daily balances of outstanding deposits
      during those years. The Company’s success in growing its commercial and
      industrial loans has contributed to the growth of its business checking
      accounts.




Commercial
      and industrial lending is generally considered to involve a higher level of
      risk
      than commercial lending secured by real estate. The repayment of unsecured
      commercial loans is generally dependent upon the success of the borrower's
      business and thus, may be impacted to a greater extent by adverse economic
      developments than other types of loans. Secured commercial loans are dependent
      upon the value, safeguarding and marketability of the underlying collateral.







-
            4
            -





At
      December 31, 2006, the Company’s outstanding commercial and industrial loans
      totaled $55.1 million and comprised 10.8% of the total loan portfolio.
      Commercial and industrial loans grew by approximately 107% in 2006 and 68%
      in
      2005 as measured by average daily balances of outstanding loans during those
      years.




The
      Company believes that future growth of its commercial and industrial loans
      will
      continue to be concentrated in Western New York. The Company anticipates hiring
      additional loan officers in 2007 to achieve its commercial loan growth
      objectives. In addition, the Company anticipates earmarking a larger portion
      of
      its marketing expenditures in 2007 to increasing market awareness of its
      commercial lending capabilities and interests. The Company’s merger with Bay
      View Capital Corporation in May 2006 provided a significant increase in capital
      which, in turn, creates new lending opportunities with larger commercial
      companies resulting from an increase in the Company’s legal lending limits to
      individual borrowers.




The
      Company monitors credit concentrations pursuant to its credit policy for
      potentially adverse financial or economic developments, focusing on
      concentrations by size, location, industry and business, and borrower and
      guarantor. Regulatory authorities define concentrations as 25% of a bank’s total
      capital. For certain types of loans such as commercial real estate loans,
      concentrations are also reviewed for current and projected rental space
      availability vis-à-vis market demand, new construction activity, market lease
      terms and other conditions. These reviews may result in reduction in
      concentration thresholds below those levels otherwise established by regulatory
      guidelines.




**Consumer
      Lending**




The
      Company offers a variety of loan products to its consumer customers located
      in
      Western New York including home equity loans and lines of credit, automobile
      loans, secured installment loans and various other types of secured and
      unsecured personal loans. At December 31, 2006, outstanding consumer loan
      balances were concentrated in home equity products and automobile loans.




The
      Company offers fixed rate, fixed-term, monthly home equity loans and prime-based
      home equity lines of credit (“HELOCs”). Both fixed rate and floating rate home
      equity products are offered in amounts generally up to 95% **** of
      the
      appraised value of the property, not to exceed 100% (including the first
      mortgage loan) with a maximum loan amount generally limited to $250 thousand.
      Interest rates on the home equity products vary depending on loan to value
      ratios. The fixed rate home equity loans are offered with repayment terms up
      to
      15 years and the HELOCs are offered with terms up to 30 years. The Company
      offers HELOCs and home equity loans with minimum amounts starting at $5
      thousand.




During
      2006, the Company expanded its indirect automobile lending business beyond
      the
      single dealership group relationship established in 2003 by enrolling 22
      additional franchised automobile dealerships in Western New York. In March
      2006,
      the Company launched a new loan origination system to accept loan applications
      from the dealerships electronically. The Company offers automobile loans with
      terms that range from 12 to 72 months and loan amounts that generally range
      from
      $2,500 to $50,000. Interest rates on the loans generally follow industry
      standards of tiered or risk-based pricing determined by the borrower’s credit
      score.




By
      September **** 2006,
      the
      Company had also installed a consumer loan origination system in all of its
      bank
      branches to promote growth in home equity products, direct automobile loans
      and
      other types of consumer loans. Prior to the installation of the system, all
      consumer lending was conducted by a central group located at the Company’s main
      office. The automated loan origination system is designed to speed the credit
      application and decision-making processes. Installation of the system in the
      branches was coupled with advertising campaigns designed to promote the
      Company’s new lending capabilities and increase branch traffic.




The
      Company continues to promote the growth of its consumer loans as a means of
      diversifying its loan portfolio and increasing yield. Consumer loans generally
      involve greater risk of loss than residential mortgage loans, particularly
      in
      the case of loans that are unsecured or secured by assets that may depreciate
      in
      value, such as automobiles. In problem situations, repossessed collateral
      securing a consumer loan may not provide an adequate source of repayment and
      the
      shortfall may not warrant costly collection efforts against the borrower. In
      addition, consumer loan collections are dependent on the borrower's financial
      stability, which can be adversely affected by personal developments including
      job loss, divorce, illness or bankruptcy.




At
      December 31, 2006, the Company’s outstanding consumer loans totaled $98.1
      million and comprised 19.2% of the total loan portfolio. Total consumer loans
      grew by approximately 31% in 2006 and 111% in 2005 as measured by average daily
      balances of outstanding loans during those years. Home equity loans grew by
      approximately 27% in 2006 and 77% in 2005 and automobile loans grew by
      approximately 36% in 2006 and 187% in 2005 as measured by average daily
      balances. The Company expects that future consumer loan growth will occur
      primarily in the home equity and automobile loan product categories. The Company
      also expects to continue expanding its network of franchised dealerships that
      provide indirect automobile loans in 2007. The Company believes that its new
      residential mortgage banking initiative described above will contribute to
      future growth of home equity loans through cross-sale opportunities when first
      mortgage loans are closed. The Company generally expects to hold these home
      equity loans in portfolio.







-
            5
            -





**Residential
      Mortgage Lending**




The
      Company offers mortgage loan products to finance primary homes, as well as
      seasonal and vacation homes, and investment properties.




The
      Company’s residential mortgage product offerings increased significantly in 2006
      with the new initiative to originate mortgage loans for sale. As part of that
      initiative, the Company established formal relationships with several of the
      largest purchasers of mortgage loans in the U.S., providing the Company with
      outlets for virtually every type of mortgage loan product originated in the
      market today. In addition to originating loans for subsequent sale to investors,
      the Company also functions to a much lesser extent as a broker, originating
      loans on behalf of other lenders in return for fee income. As a broker, the
      Company does not fund or take title to the loans. The Company may from time
      to
      time originate ‘sub-prime’ and ‘Alt A’ mortgage loans as a broker, but does not
      originate these types of loans in its own name.




The
      Company also offers two varieties of combination residential construction loans
      and permanent mortgage loans. One product provides prime-indexed variable rate
      construction loans for seven-, nine- or twelve-month construction periods
      followed by conventional long-term mortgage financing when construction is
      completed. The other product is a single-close fixed rate mortgage loan that
      covers both the construction period and the permanent financing period.




Because
      of the 2006 initiative to increase noninterest income by selling residential
      mortgage loans upon origination, the Company does not expect its mortgage loan
      portfolio to grow significantly in 2007. The Company intends to be highly
      selective in placing new mortgage loans in its portfolio that can otherwise
      be
      sold to third-party investors. Depending on market conditions, the Company’s
      interest rate risk profile and other factors, the Company may place adjustable
      rate mortgage (“ARM”) products with shorter-term rate resets and mortgage loans
      originated for high-wealth customers in its loan portfolio.




The
      remaining description in this section provides historical perspective of the
      Company’s mortgage banking activities and information relating to mortgage loans
      held in portfolio at December 31, 2006. Prior to the 2006 mortgage banking
      initiative, the Company offered conforming and non-conforming jumbo, fixed
      rate
      and adjustable rate, monthly and bi-weekly, residential mortgage loans generally
      with terms up to 30 years.




The
      Company offered both fixed and adjustable rate conventional mortgage loans
      with
      terms of 10 to 30 years that are fully amortizing with monthly or bi-weekly
      loan
      payments. Residential loans were generally underwritten according to the Federal
      National Mortgage Association (“FNMA”) and Federal Home Loan Mortgage
      Corporation (“FHLMC”) uniform guidelines. The Company generally originated both
      fixed rate and adjustable rate loans in amounts up to the maximum conforming
      loan limits established by FNMA and FHLMC secondary market standards. Private
      mortgage insurance and mortgage escrow accounts, from which disbursements are
      made for real estate taxes and insurance, were generally required for loans
      with
      loan-to-value ratios in excess of 80%.




The
      Company also offered ARM products secured by residential properties. The
      residential ARMs were offered with terms generally up to 30 years, with rates
      that adjusted every three, five, or seven years. After origination, the interest
      rate on the ARMs reset based upon a contractual spread to a specified index
      (e.g. U.S. Treasury Constant Maturity Index) that corresponds to the period
      of
      the initial rate reset of the loan. The ARMs originated are generally subject
      to
      limitations on interest rate increases of up to 2% per reset with a maximum
      adjustment of 6% over the life of the loan. The ARMs require that any payment
      adjustment resulting from a change in the interest rate be sufficient to result
      in full amortization of the loan by the end of the loan term, and thus, do
      not
      permit any of the increased payment to be added to the principal amount of
      the
      loan (so-called negative amortization). Certain of the Company’s conforming ARMs
      can be converted at a later date to fixed rate mortgage loans with interest
      rates based on the prevailing market rates plus a specific margin established
      at
      the inception of the loans.




Retention
      of ARMs in the loan portfolio generally reduces interest rate risk due to the
      variable rate nature of the products. The credit risk associated with ARMs
      is
      generally different than the credit risk associated with fixed rate loans
      because rising interest rates can result in a rate reset that increases the
      debt
      service payments of the loan, thereby increasing the potential for default.
      Historically, the Company has not experienced significant credit issues
      associated with its ARMs and generally believes that credit risk associated
      with
      ARMs is less significant than the interest rate risk associated with holding
      long-term fixed rate mortgages in portfolio.




Fixed
      rate residential mortgage loans are generally viewed as involving less credit
      risk than other products in the Company’s loan portfolio. Residential mortgage
      loan collections are dependent on the borrower's continued financial stability,
      which can be adversely affected by personal developments including job loss,
      divorce, illness or bankruptcy. However, the loans require excess collateral
      coverage and the value of the collateral typically appreciates or remains
      constant over time. At the time of origination, inspections and independent
      appraisals are made to substantiate the market value of the collateral. While
      housing values in many areas of the United States have suffered recent declines,
      the Company believes that the housing market in Western New York has remained
      relatively stable.




At
      December 31, 2006, the Company’s outstanding residential mortgage loans totaled
      $253.7 million and comprised 49.6% of the total loan portfolio. Adjustable
      rate
      mortgages totaled approximately $46.2 million or 18% of total mortgage loans
      at
      the end of 2006 with so-called 7/23 ARMs **** representing
      $40.9 million or approximately 89% of the ARM balances. 7/23 ARMs are loans
      in
      which the interest rate is reset once at the end of seven years and then remains
      fixed at that new rate for the remaining 23-year term of the loan. The rest
      of
      the Company’s ARMs are so-called 3/1 and 5/1 ARMs where interest rates on the
      loans reset at the end of the first three years or five years and then annually
      thereafter for the remaining terms of the loans.







-
            6
            -





At
      December 31, 2006, the Company’s bi-weekly fixed rate mortgage loans totaled
      approximately $106.1 million or 42% **** of
      the
      mortgage portfolio with the 20-year biweekly mortgage loan representing the
      most
      popular product in this category. Monthly fixed rate mortgages totaled
      approximately $100.2 million at December 31, 2006, with the two most popular
      products being 30-year term loans totaling approximately $41.3 million and
      15-year term loans totaling approximately $34.3 million.




**Loan
      Classifications and Allowance for Loan Losses**




Consistent
      with regulatory guidelines, the Company classifies loans it considers to be
      of
      lesser quality as “substandard,” “doubtful,” or “loss” assets. A loan is
      considered to be substandard if it is inadequately protected by the current
      net
      worth and paying capacity of the borrower or the value of the collateral
      pledged, if any. Substandard loans include those characterized by the distinct
      possibility that the Company could sustain some loss if the noted deficiencies
      are not corrected. Loans classified as doubtful have all of the weaknesses
      inherent in those classified substandard with the added characteristic that
      the
      weaknesses present make collection or liquidation in full, on the basis of
      currently existing facts, conditions, and values, highly questionable and
      improbable. Loans classified as loss are those considered uncollectible and
      of
      such little value that their continuance as assets without the establishment
      of
      a specific loss reserve is not warranted. Loans that do not expose the Company
      to risk sufficient to warrant classification in one of the aforementioned
      categories, but which possess some weaknesses, are designated as “watch” or
“special mention” loans.




When
      the
      Company classifies problem loans as either substandard or doubtful, it
      establishes a specific valuation allowance in an amount deemed prudent by
      management to cover estimated loss. General or formula-based allowances
      represent loss allowances that have been established to recognize the risk
      associated with groups of outstanding loans, but which, unlike specific
      allowances, have not been allocated to particular problem loans in the loan
      portfolio. When the Company classifies problem loans as losses, it either
      establishes a specific allowance for losses equal to 100% of the loans so
      classified, or charges off such amount against the allowance for loan losses.
      The Company’s determination of the classification of its loans and the amount of
      its loan loss allowance are subject to ongoing review by its regulatory
      agencies, which can direct the Company from time to time to recognize additional
      general or specific loan loss allowances. The Company regularly reviews its
      loan
      portfolio to determine whether any loans require classification in accordance
      with Company’s policy or applicable regulations.




The
      allowance for loan losses is established through a charge to earnings based
      on
      management’s evaluation of losses in the loan portfolio at each balance sheet
      date. This evaluation, which includes a review of all loans for which full
      collectibility may not be reasonably assured, considers among other things,
      the
      estimated net realizable value or the fair value of the underlying collateral,
      current economic conditions, historical loan loss experience and other factors
      that warrant consideration. The Company monitors and modifies as appropriate
      the
      level of the allowance for loan losses each reporting period to reflect losses
      it judges to be in the portfolio that are probable and reasonably
      estimable.




**INVESTMENT
      ACTIVITIES**




The
      Company’s investment policy provides that investment decisions will be made
      based on the ability of an investment to generate earnings consistent with
      factors of quality, maturity, marketability and risk
      diversification.




The
      Company limits its investments to U.S. Government and agency securities,
      municipal bonds, corporate debt obligations and corporate equity securities.
      In
      addition, the Company’s policy permits investments in mortgage-backed
      securities, including collateralized mortgage obligations ("CMOs") issued and
      guaranteed by FNMA, FHLMC, Government National Mortgage Association ("GNMA")
      or
      privately-issued and backed by "whole loans." Also permitted are investments
      in
      asset-backed securities ("ABS") supported by a variety of types of consumer
      loans. The Company’s investment strategy generally utilizes a risk management
      approach of diversified investing to maximize investment yields while managing
      overall interest rate risk. To accomplish these objectives, the Company focuses
      on investments in mortgage-related securities, including CMOs, while utilizing
      U.S. Government and agency and other non-amortizing securities for call
      protection and liquidity purposes. The Company attempts to maintain a high
      degree of liquidity in its investment securities and generally does not invest
      in debt securities with expected average lives in excess of five
      years.




**SOURCES
      OF FUNDS**




The
      Company’s primary sources of funds are deposits, borrowed funds and repurchase
      agreements, scheduled amortization and prepayments of principal from loans
      and
      mortgage-backed securities, maturities and calls of investment securities and
      funds provided by operations.




The
      Company offers a broad array of deposit products including demand checking,
      NOW,
      money market and savings accounts, as well as certificates of deposit. The
      Company gathers deposits in its market areas by paying competitive interest
      rates, offering high quality customer service and using technology to deliver
      deposit services effectively. The Company's broad product menu is designed
      to
      attract and retain customers, with the primary focus on building and expanding
      long-term relationships. The Company may become more or less competitive in
      its
      interest rate structure as its liquidity and capital position
      change.




Deposits
      totaled $634.7 million at December 31, 2006 and had a weighted average interest
      rate of 3.63%. Certificates of deposit totaled $337.9 million or 53.2% of total
      deposits. The weighted average interest rate paid on these time deposits was
      4.65% at December 31, 2006. Based on historical experience and the Company’s
      current pricing strategy, the Company believes it will retain a large portion
      of
      these accounts as they mature.







-
            7
            -





As
      of
      December 31, 2006, core deposits totaled $296.7 million, or 46.8% of the
      Company's total deposit base and had a weighted average interest rate of 2.47%.
      These core deposits included $37.1 million of noninterest-bearing deposits
      and
      $121.8 million in money market accounts with a weighted average interest rate
      of
      3.90%.




**SUPERVISION
      AND REGULATION**




**General**




GLB
      and
      GBSB are subject to extensive federal and state laws and regulations that impose
      restrictions on, and provide for regulatory oversight of, GLB's and GBSB's
      operations. These laws and regulations are generally intended to protect
      depositors and not shareholders. Any change in any applicable statute or
      regulation could have a material effect on GLB's and GBSB's
      business.




Regulatory
      authorities have broad flexibility to initiate proceedings designed to prohibit
      banks from engaging in unlawful activities and in unsafe and unsound banking
      practices.




GBSB
      is
      also affected by various governmental requirements and regulations, general
      economic conditions, and the fiscal and monetary policies of the federal
      government and the Federal Reserve Board. The monetary policies of the Federal
      Reserve Board influence to a significant extent the overall growth of loans,
      investments, deposits, interest rates charged on loans, and interest rates
      paid
      on deposits. The nature and impact of future changes in monetary policies are
      often not predictable.




Various
      federal and state statutory provisions limit the amount of dividends GBSB can
      pay to its holding company without regulatory approval. Under New York law
      GBSB
      may not, without prior regulatory approval, declare or pay dividends in excess
      of the sum of its current year's earnings and its retained earnings from the
      two
      prior years. At December 31, 2006, approximately $591 thousand of the total
      shareholders' equity of GBSB was available for payment of dividends to GLB
      without approval by the New York State Banking Department
      (“NYSBD”).




In
      addition, federal bank regulatory authorities have authority to prohibit GBSB
      from engaging in an unsafe or unsound practice in conducting its business.
      Depending upon the financial condition of GBSB, the payment of dividends could
      be deemed to constitute an unsafe or unsound practice. The ability of GBSB
      to
      pay dividends in the future is currently influenced, and could be further
      influenced, by regulatory policies and capital guidelines governing
      banks.




**Regulation
      of GLB**




***Federal
      Regulation.*** GLB is a
      bank holding company subject to the provisions of the Bank Holding Company
      Act.
      Accordingly, its activities are limited to the business of banking, managing
      or
      controlling banks and other subsidiaries authorized by the Federal Reserve
      Board, and engaging in activities determined by the Federal Reserve Board to
      be
      so closely related to banking or managing and controlling banks as to be
      incidental thereto. In addition, GLB is subject to Federal Reserve Board
      regulations, examinations, supervision and reporting requirements.




GLB
      is
      required to obtain the prior approval of the Federal Reserve Board to acquire
      all, or substantially all, of the assets of any bank or bank holding company
      or
      merge with another bank holding company. Prior Federal Reserve Board approval
      is
      also required for GLB to acquire direct or indirect ownership or control of
      any
      voting securities of any bank or bank holding company if, after giving effect
      to
      such acquisition, GLB would, directly or indirectly, own or control more than
      5%
      of the outstanding shares of any class of voting shares of such bank or bank
      holding company. In evaluating such transactions, the Federal Reserve Board
      considers such matters as the financial and managerial resources and future
      prospects of the companies involved, competitive factors and the convenience
      and
      needs of the communities to be served. Bank holding companies may acquire
      additional banks in any state, subject to certain restrictions such as deposit
      concentration limits. In addition to the approval of the Federal Reserve Board,
      before any bank acquisition can be completed, prior approval may also be
      required to be obtained from other agencies having supervisory jurisdiction
      over
      the bank to be acquired.




A
      bank
      holding company is generally prohibited from engaging in, or acquiring direct
      or
      indirect control of more than 5% of the outstanding voting securities of any
      company engaged in non-banking activities. One of the principal exceptions
      to
      this prohibition is for activities found by the Federal Reserve Board to be
      so
      closely related to banking or managing or controlling banks as to be a proper
      incident thereto. Some of the principal activities that the Federal Reserve
      Board has determined by regulation to be closely related to banking are: (i)
      making or servicing loans; (ii) performing certain data processing services;
      (iii) providing securities brokerage services; (iv) acting as fiduciary,
      investment or financial advisor; (v) financing or leasing personal or real
      property; (vi) making investments in corporations or projects designed primarily
      to promote community welfare; and (vii) acquiring a savings association,
      provided that the savings association only engages in activities permitted
      by
      bank holding companies.




Various
      governmental requirements, including Sections 23A and 23B of the Federal Reserve
      Act, limit borrowings by GLB and also limit various other transactions between
      GBSB and GLB. For example, Section 23A of the Federal Reserve Act limits to
      no
      more than 10% of its total capital the aggregate outstanding amount of any
      insured bank's loans to and other "covered transactions" with any particular
      non-bank affiliate and limits to no more than 20% of its total capital the
      aggregate outstanding amount of any insured bank's covered transactions with
      all
      of its non-bank affiliates. Section 23A of the Federal Reserve Act also
      generally requires that an insured bank's loans to its non-bank affiliates
      be
      secured, and Section 23B of the Federal Reserve Act generally requires that
      an
      insured bank's transactions with its non-bank affiliates be on arm's-length
      terms.







-
            8
            -





Bank
      holding companies are subject to risk-based capital requirements and guidelines
      imposed by the Federal Reserve Board, which are substantially similar to the
      capital requirements and guidelines imposed by the FDIC on state-chartered
      banks
      which are not members of the Federal Reserve System. For this purpose, a bank's
      or bank holding company's assets and certain specified off-balance sheet
      commitments are assigned to four risk categories, each weighted differently
      based on the level of credit risk that is ascribed to those assets or
      commitments. In addition, risk-weighted assets are adjusted for low-level
      recourse and market-risk equivalent assets. A bank's or bank holding company's
      capital, in turn, includes the following tiers:




**(1)**
            core
                ("Tier 1") capital, which includes common equity, non-cumulative
                perpetual
                preferred stock, a limited amount of cumulative perpetual preferred
                stock,
                and minority interests in equity accounts of consolidated subsidiaries,
                less goodwill, certain identifiable intangible assets, and certain
                other
                assets; and




**(2)**
            supplementary
                ("Tier 2") capital, which includes, among other items, perpetual
                preferred
                stock not meeting the Tier 1 definition, mandatory convertible securities,
                subordinated debt and allowances for loan and lease losses, subject
                to
                certain limitations, less certain required
                deductions.




Bank
      holding companies are required to maintain Tier 1 and "Total Capital" (the
      sum
      of Tier 1 and Tier 2 capital, less certain deductions) equal to at least 4%
      and
      8% of their total risk-weighted assets (including certain off-balance-sheet
      items, such as unused lending commitments and standby letters of credit),
      respectively. At December 31, 2006, GLB met both requirements, with Tier 1
      and
      total capital equal to 19.97% and 20.76% of total risk-weighted assets,
      respectively.




The
      Federal Reserve Board and the FDIC have adopted rules to incorporate market
      and
      interest rate risk components into their risk-based capital
      standards.




The
      Federal Reserve Board also requires bank holding companies to maintain a minimum
      "Leverage Ratio" (Tier 1 capital to adjusted total assets) of 3% if the bank
      holding company has the highest regulatory rating and meets certain other
      requirements, or of 3% plus an additional cushion of at least 1 to 2 percentage
      points if the bank holding company does not meet these requirements. At December
      31, 2006, GLB's leverage ratio was 11.65%.




The
      Federal Reserve Board may set capital requirements higher than the minimums
      noted above for holding companies whose circumstances warrant it. For example,
      bank holding companies experiencing or anticipating significant growth may
      be
      expected to maintain strong capital positions substantially above the minimum
      supervisory levels without significant reliance on intangible assets.
      Furthermore, the Federal Reserve Board has indicated that it will consider
      a
      "Tangible Tier 1 Leverage Ratio" (deducting all intangibles) and other indicia
      of capital strength in evaluating proposals for expansion or new activities
      or
      when a bank holding company faces unusual or abnormal risks. The Federal Reserve
      Board has not advised GLB of any specific minimum leverage ratio applicable
      to
      it.




A
      bank
      holding company is generally required to give the Federal Reserve Board prior
      written notice of any purchase or redemption of its outstanding equity
      securities if the gross consideration for the purchase or redemption, when
      combined with the net consideration paid for all such purchases or redemptions
      during the preceding 12 months, is equal to 10% or more of such company's
      consolidated net worth. The Federal Reserve Board may disapprove such a purchase
      or redemption if it determines that the proposal would constitute an unsafe
      and
      unsound practice, or would violate any statute, regulation, Federal Reserve
      Board order or directive, or any condition imposed by, or written agreement
      with, the Federal Reserve Board. However, well-capitalized bank holding
      companies meeting certain other criteria are not subject to the prior approval
      requirement.




The
      Federal Reserve Board has issued a policy statement regarding the payment of
      dividends by bank holding companies. In general, the Federal Reserve Board's
      policies provide that dividends should be paid only if the bank holding
      company's net income available to common shareholders over the preceding year
      was sufficient to fully fund the dividends and only if the prospective rate
      of
      earnings retention by the bank holding company appears consistent with the
      organization's capital needs, asset quality and overall financial condition.
      The
      Federal Reserve Board's policies also require that a bank holding company serve
      as a source of managerial and financial strength to its subsidiary banks by
      standing ready to use available resources to provide adequate capital funds
      to
      those banks during periods of financial stress or adversity and by maintaining
      the financial flexibility and capital-raising capacity to obtain additional
      resources for assisting its subsidiary banks where necessary. These regulatory
      policies could affect GLB's ability to pay dividends or otherwise engage in
      capital distributions.




If
      a
      default occurred with respect to a bank, any capital loans to the bank from
      its
      parent holding company would be subordinate in right of payment to those of
      the
      bank's depositors and certain of its other obligations.




Under
      federal law, if a subsidiary bank of a holding company becomes undercapitalized,
      the bank holding company is required to guarantee compliance with a capital
      restoration plan until such subsidiary bank has been adequately capitalized
      on
      average for four consecutive quarters and has provided appropriate assurances
      of
      performance.




GLB's
      status as a bank holding company under the Bank Holding Company Act does not
      exempt it from certain federal and state laws and regulations applicable to
      corporations generally, including, without limitation, certain provisions of
      the
      federal securities laws.







-
            9
            -





The
      Change in Bank Control Act prohibits a person or group of persons from acquiring
      "control" of a bank holding company unless the Federal Reserve Board has been
      notified and has not objected to the transaction. Under a rebuttable presumption
      established by the Federal Reserve Board, the acquisition of 10% or more of
      a
      class of voting stock of a bank holding company with a class of securities
      registered under Section 12 of the Exchange Act would, under the circumstances
      set forth in the presumption, constitute acquisition of control of the bank
      holding company.




In
      addition, a company is required to obtain the approval of the Federal Reserve
      Board under the Bank Holding Company Act of 1956, as amended, before acquiring
      25% (5% in the case of an acquirer that is a bank holding company) or more
      of
      any class of outstanding common stock of a bank or bank holding company, or
      otherwise obtaining control or a "controlling influence" over that bank or
      bank
      holding company.




***New
      York State Regulation*** **.** In
      addition to the Federal bank holding company regulations, a bank holding company
      organized or doing business in the State of New York also may be subject to
      regulation under the New York Banking Law ("NYBL"). The term "bank holding
      company," for the purposes of the NYBL, is defined generally to include any
      person, company or trust that directly or indirectly either controls the
      election of a majority of the directors or owns, controls, or holds with power
      to vote more than 10% of the voting stock of a bank holding company or, if
      the
      company is a banking institution, another banking institution, or 10% or more
      of
      the voting stock of each of two or more banking institutions. In general, a
      bank
      holding company controlling, directly or indirectly, only one banking
      institution will not be deemed to be a bank holding company for the purposes
      of
      the NYBL. Under the NYBL, the prior approval of the Banking Department is
      required before: (i) any action is taken that causes any company to become
      a
      bank holding company; (ii) any action is taken that causes any banking
      institution to become or to be merged or consolidated with a subsidiary of
      a
      bank holding company; (iii) any bank holding company acquires direct or indirect
      ownership or control of more than 5% of the voting stock of a banking
      institution; (iv) any bank holding company or subsidiary thereof acquires all
      or
      substantially all of the assets of a banking institution or (v) any action
      is
      taken that causes any bank holding company to merge or consolidate with another
      bank holding company. Additionally, certain restrictions apply to New York
      bank
      holding companies regarding the acquisition of banking institutions which have
      been chartered five years or less and are located in smaller communities.
      Officers, directors and employees of New York bank holding companies are subject
      to limitations regarding loans obtained from subsidiaries. As a single bank
      holding company, GLB is not currently subject to the bank holding company
      provisions of the NYBL. However, any future acquisition of ownership, control,
      or the power to vote 10% or more of the voting stock of another bank or bank
      holding company will result in our being subject to such
      provisions.




**Regulation
      of GBSB**




***Federal
      Regulation.*** As a
      state-chartered stock savings bank that is not a member of the Federal Reserve
      Board, GBSB is under the general supervision of the FDIC. GBSB is subject to
      periodic examinations by the FDIC to assure GBSB's safety and soundness and
      to
      review compliance with various regulatory requirements. In addition, GBSB must
      obtain the approval of the FDIC prior to opening new branches. The FDIC has
      substantial discretion in the exercise of its supervisory and enforcement
      activities and examination policies, including policies with respect to the
      classification of assets and the establishment of adequate loan loss reserves.
      GBSB must also file periodic reports with the FDIC concerning its activities
      and
      financial condition.




The
      FDIC
      has adopted risk-based capital adequacy guidelines for banks under its
      supervision. Generally, under the FDIC's regulations, a bank's core (Tier 1)
      capital (as defined in the FDIC's regulations) as a percentage of risk-weighted
      assets and certain off-balance sheet instruments must be at least 4%, and a
      bank's total capital as a percentage of risk-weighted assets and certain
      off-balance sheet instruments must be at least 8%.




The
      Federal Deposit Insurance Act requires the FDIC to implement a system of prompt
      corrective action for undercapitalized institutions which are under its general
      supervision. Under FDIC regulations, every institution under its supervision
      is
      ranked in one of five categories, ranging from "well capitalized" to "critically
      undercapitalized." An institution is generally considered to be "well
      capitalized" if it has a total risk-weighted capital ratio of at least 10%,
      a
      core (Tier 1) risk-weighted capital ratio of at least 6%, a leverage ratio
      of at
      least 5% and meets certain other requirements. An institution is generally
      considered to be "adequately capitalized" if it has a total risk-weighted
      capital ratio of at least 8%, a core (Tier 1) risk-weighted capital ratio of
      at
      least 4% and a leverage ratio of at least 3% if it receives the FDIC's highest
      examination rating or at least 4% otherwise. An institution is generally
      considered "undercapitalized" if it has a total risk-weighted capital ratio
      of
      less than 8%, a core (Tier 1) risk-weighted capital ratio of less than 4% or
      a
      leverage ratio of less than 3% if it receives the FDIC's highest examination
      rating or less than 4% otherwise. An institution is generally considered
      "significantly undercapitalized" if it has a total risk-weighted capital ratio
      of less than 6%, a core (Tier 1) risk-weighted capital ratio of less than 3%
      or
      a leverage ratio of less than 3%. An institution is generally considered
      "critically undercapitalized" if it has a tangible equity capital to assets
      ratio equal to or less than 2%.







-
            10
            -





An
      institution that is categorized as undercapitalized, significantly
      undercapitalized, or critically undercapitalized is required to submit an
      acceptable capital restoration plan to its appropriate federal banking agency.
      Under the FDICIA, a bank holding company must guarantee that a subsidiary
      depository institution meets its capital restoration plan, subject to
      limitations. The obligations of a controlling bank holding company under the
      FDICIA to fund a capital restoration plan is limited to the lesser of 5.0%
      of an
      undercapitalized subsidiary's assets or the amount required to meet regulatory
      capital requirements. An undercapitalized institution is also generally
      prohibited from increasing its average total assets, making acquisitions,
      establishing any branches or engaging in any new line of business, except in
      accordance with an accepted capital restoration plan or with the approval of
      the
      FDIC. In addition, the appropriate federal banking agency is given authority
      with respect to any undercapitalized depository institution to take any of
      the
      actions it is required to or may take with respect to a significantly
      undercapitalized institution as described below if it determines "that those
      actions are necessary to carry out the purpose" of the FDICIA.




For
      those
      institutions that are significantly undercapitalized or are undercapitalized
      and
      either fail to submit an acceptable capital restoration plan or fail to
      implement an approved capital restoration plan, the appropriate federal banking
      agency must require the institution to take one or more of the following
      actions:




•
            
            sell
                enough shares, including voting shares, to become adequately
                capitalized;•
            
            merge
                with, or be sold to, another insured depository institution or holding
                company, but only if grounds existfor
                appointing a conservator or receiver;•
            
            restrict
                transactions with banking affiliates as if the "sister bank" exception
                to
                the requirements of Section 23Aof
                the Federal Reserve Act did not exist;•
            
            otherwise
                restrict transactions with bank or non-bank affiliates;•
            
            restrict
                interest rates that the institution pays on deposits to "prevailing
                rates"
                in the institution's "region";•
            
            restrict
                asset growth or reduce total assets;•
            
            alter,
                reduce, or terminate activities determined by the appropriate federal
                banking agency to pose excessiverisk
                to the institution;•
            
            hold
                a new election of directors;•
            
            dismiss
                any director or senior executive officer who held office for more
                than 180
                days immediately before theinstitution
                became undercapitalized, provided that in requiring dismissal of
                a
                director or senior officer, the agencymust
                comply with prescribed procedural requirements, including the opportunity
                for an appeal in which thedirector
                or officer will have the burden of proving his or her value to the
                institution;•
            
            employ
                "qualified" senior executive officers;•
            
            cease
                accepting deposits from correspondent depository
                institutions;•
            
            divest
                non-depository affiliates determined by the appropriate federal banking
                agency to pose a significant riskto
                the institution; or•
            
            be
                divested by a parent holding company if the appropriate federal banking
                agency determines that divestiturewould
                improve the institution's financial condition and
                prospects.




In
      addition, without the prior approval of the appropriate federal banking agency,
      the institution may not pay any bonus to any senior executive officer or
      increase the rate of compensation for such an officer.




At
      December 31, 2006, GBSB was considered "well capitalized" under FDIC
      regulations. The following table sets forth the actual regulatory ratios of
      GBSB
      as of December 31, 2006 in comparison to minimum required regulatory capital
      ratios for an "adequately capitalized bank."




**Required****Regulatory
                Ratio**
            
            **Actual**
            
            **Minimum**Risk-Weighted
                Capital:Total
                Capital
            
            10.8%
            
            8%Core
                (Tier 1) Capital
            
            10.0%
            
            4%Leverage
                Ratio
            
            5.8%
            
            3%
                or 4%, depending on FDIC'sexamination
                rating




It
      should
      be noted, however, that a bank's capital category is determined solely for
      the
      purpose of applying prompt corrective action regulations of its primary federal
      banking regulator, and that the capital category may not constitute an accurate
      representation of the bank's overall financial condition or
      prospects.







-
            11
            -





***New
      York State Regulation.*** As a New
      York state-chartered stock savings bank, GBSB is subject to regulation by the
      Banking Department. Various state statutes, rules and regulations affect its
      operations, including a requirement to maintain reserves against deposits,
      restrictions on the nature and the amount of loans it makes and the interest
      charged thereon, regulations relating to investments, and restrictions on other
      activities. GBSB must file periodic reports with the Banking Department
      concerning its activities and financial condition. In addition, it must obtain
      the approval of the Banking Department prior to entering into certain
      transactions, such as the opening of new branch offices.




GBSB
      is
      subject to periodic examinations by the Banking Department to review compliance
      with various regulatory requirements. The Banking Department has substantial
      discretion in the exercise of its supervisory and enforcement activities and
      examination policies, including policies with respect to the classification
      of
      assets and the establishment of adequate loan loss reserves. Any change in
      such
      policies by the Banking Department could have a material adverse impact on
      GBSB
      and on its operations.




The
      NYBL
      prohibits GBSB from acquiring real estate as an investment, except under certain
      limited circumstances. For example, it may purchase real estate if all or part
      of any property is to be utilized as a banking office or to house employees
      engaged in bank operations. Moreover, the book value of real estate and
      leasehold improvements that GBSB may own to conduct its banking operations
      may
      not exceed 5% of its total assets, except that the New York State Superintendent
      of Banks may waive this restriction if, in his or her sole judgment, a waiver
      will not adversely impact GBSB's financial condition. GBSB may also acquire
      real
      estate through foreclosure of properties to satisfy mortgage debts where
      mortgagors have defaulted.




**Federal
      Deposit Insurance Reform Act of 2005**




The
      Federal Deposit Insurance Reform Act of 2005 (“Reform Act”) was signed into law
      on February 8, 2006 and amended current laws regarding the federal deposit
      insurance system. The legislation merged the Bank Insurance Fund and the Savings
      Association Insurance Fund to form the Deposit Insurance Fund (DIF), eliminated
      any disparities in bank and thrift risk-based premium assessments, reduced
      the
      administrative burden of maintaining and operating two separate funds and
      established certain new insurance coverage limits and a mechanism for possible
      periodic increases. The legislation also gave the FDIC greater discretion to
      identify the relative risks all institutions present to the DIF and to set
      risk-based premiums.


Major
      provisions in the legislation include:




·
            merging
                the Savings Association Insurance Fund and Bank Insurance Fund, which
                became effective March 31, 2006;




·
            maintaining
                basic deposit and municipal account insurance coverage at $100,000
                but
                providing for a new basic insurance coverage for retirement accounts
                of
                $250,000. Insurance coverage for basic deposit and retirement accounts
                could be increased for inflation every five years in $10,000 increments
                beginning in 2011;




·
            providing
                the FDIC with the ability to set the designated reserve ratio within
                a
                range of between 1.15% and 1.50%, rather than maintaining 1.25% at
                all
                times regardless of prevailing economic conditions;




·
            providing
                a one-time assessment credit of $4.7 billion to banks and savings
                associations in existence on December 31, 1996, which may be used
                to
                offset future premiums with certain limitations;




·
            requiring
                the payment of dividends of 100% of the amount that the insurance
                fund
                exceeds 1.5% of the estimated insured deposits and the payment of
                50% of
                the amount that the insurance fund exceeds 1.35% of the estimated
                insured
                deposits (when the reserve is greater than 1.35% but no more than
                1.5%);
                and




·
            providing
                for a new risk-based assessment system and allows the FDIC to establish
                separate risk-based assessment systems for large and small members
                of the
                DIF.




On
      November 2, 2006, the FDIC set the designated reserve ratio for the deposit
      insurance fund at 1.25% of estimated insured deposits, and adopted final
      regulations to implement the risk-based deposit insurance assessment system
      mandated by the Reform Act, which is intended to more closely tie each bank’s
      deposit insurance assessments to the risk it poses to the deposit insurance
      fund. Under the new risk-based assessment system, the FDIC will evaluate each
      institution’s risk based on three primary factors -- supervisory ratings for all
      insured institution, financial ratios for most institutions, and long-term
      debt
      issuer ratings for large institutions that have them. An institution’s
      assessment rate will depend upon the level of risk it poses to the deposit
      insurance system as measured by these factors. The new rates for most
      institutions will vary between 5 and 7 cents for every $100 of domestic
      insurable deposits.




The
      new
      assessment rates took effect at the beginning of 2007. However, the Reform
      Act
      provides credits to institutions that paid high premiums in the past to bolster
      the FDIC’s insurance reserves, as a result of which the FDIC has announced that
      a majority of banks will have assessment credits to initially offset a
      proportion of their premiums in 2007. The Bank will not be eligible for the
      one-time assessment credit because it did not commence operations until November
      1999.





-
            12
            -





**Impact
      of Inflation and Changing Prices**


The
      Company’s financial statements included herein have been prepared in accordance
      with accounting principles generally accepted in the United States (“GAAP”).
      GAAP requires the Company to measure financial position and operating results
      principally using historic dollars. Changes in the relative value of money
      due
      to inflation or recession are generally not considered. The primary effect
      of
      inflation on the operations of the Company is reflected in increased operating
      costs. In the Company’s view, changes in interest rates affect the financial
      condition of a financial institution to a far greater degree than changes in
      the
      inflation rate. While interest rates are generally influenced by changes in
      the
      inflation rate, they do not necessarily change at the same rate or in the same
      magnitude. Interest rates are sensitive to many factors that are beyond the
      control of the Company, including changes in the expected rate of inflation,
      general and local economic conditions and the monetary and fiscal policies
      of
      the United States government, its agencies and various other governmental
      regulatory authorities.


**Regulatory
      and Economic Policies**




The
      Company’s business and earnings are affected by general and local economic
      conditions and by the monetary and fiscal policies of the U.S. government,
      its
      agencies and various other governmental regulatory authorities. The Federal
      Reserve Board regulates the supply of money in order to influence general
      economic conditions. Among the instruments of monetary policy available to
      the
      Federal Reserve Board are (i) conducting open market operations in U.S.
      government obligations, (ii) changing the discount rate on financial institution
      borrowings, (iii) imposing or changing reserve requirements against financial
      institution deposits, and (iv) restricting certain borrowings and imposing
      or
      changing reserve requirements against certain borrowings by financial
      institutions and their affiliates. These methods are used in varying degrees
      and
      combinations to directly affect the availability of bank loans and deposits,
      as
      well as the interest rates charged on loans and paid on deposits. For that
      reason, the policies of the Federal Reserve Board could have a material effect
      on the earnings of the Company.


Governmental
      policies have had a significant effect on the operating results of banks in
      the
      past and are expected to continue to do so in the future; however, the Company
      cannot accurately predict the nature, timing or extent of any effect such
      policies may have on its future business and earnings.


**Recently
      Issued Accounting** **Pronouncements**




See
“Note
      1 — Summary of Significant Accounting Policies” in the accompanying notes to
      consolidated financial statements included herein for details of recently issued
      accounting pronouncements and their expected impact on the Company’s
      consolidated financial statements.


**Income
      Tax Considerations**




The
      Company reports its income on a consolidated basis using the accrual method
      of
      accounting and is subject to federal and state income taxes. In general, banks
      are subject to federal income tax in the same manner as other corporations.
      However, gains and losses from the sale of available for sale securities are
      treated as ordinary income rather than capital gains or losses. Additionally,
      the Company can exclude 100% of the dividend income it receives from GBSB as
      they are members of the same affiliated group. The taxation of other income
      is
      similar to federal taxable income subject to certain modifications.




**E** **MPLOY** **EES**




At
      December 31, 2006, the Company had 220 full-time and 38 part-time employees.





-
            13
            -








**ITEM
      1A.** **RISK
      FACTORS**





***Changes
      in interest rates could adversely affect the Company’s results of operations and
      financial condition.***




The
      Company’s results of operations and financial condition are significantly
      affected by changes in interest rates. The Company’s financial results depend
      substantially on net interest income, which is the difference between the
      interest income earned on interest-earning assets and the interest expense
      paid
      on interest-bearing liabilities. Because the Company’s interest-bearing
      liabilities generally re-price or mature more quickly than its interest-earning
      assets, an increase in interest rates generally would decrease the Company’s net
      interest income.




Changes
      in interest rates also affect the value of the Company’s interest-earning
      assets, most notably its available for sale investment securities. The value
      of
      these investment securities generally fluctuates inversely with changes in
      interest rates. At December 31, 2006, the Company’s available for sale
      investment securities totaled $233.9 million. Unrealized losses on the available
      for sale securities, net of tax, amounted to $2.4 million at December 31, 2006
      and are reported as a separate component of shareholders' equity. Decreases
      in
      the fair value of the available for sale securities would have an adverse effect
      on shareholders' equity of the Company.




Changes
      in interest rates may also affect the average life of the Company’s loans and
      mortgage-related securities. Decreases in interest rates can result in increased
      prepayments of loans and mortgage-related securities, as borrowers refinance
      to
      reduce borrowing costs. Under these circumstances, the Company could be subject
      to reinvestment risk to the extent that it was unable to reinvest the cash
      received from such prepayments at rates that are comparable to the rates on
      existing loans and securities. Additionally, increases in interest rates may
      decrease loan demand and make it more difficult for borrowers to repay
      adjustable rate loans.




***Concentration
      of the Company’s loans in Western New York may increase risk.***




The
      Company’s success may be adversely affected by deterioration in the general
      economic conditions of Western New York where the Company’s business is
      concentrated. Deterioration of economic conditions in Western New York could
      have a significant impact on the ability of the Company’s customers to repay
      loans and could adversely impact the value of collateral securing the Company’s
      loans. Deterioration in general economic conditions such as inflation,
      recession, unemployment or other factors beyond the Company’s control could
      negatively affect its financial results.




***Growth
      of the Company’s commercial real estate loans and commercial and industrial
      loans could increase the Company’s exposure to credit risks.***




The
      Company’s commercial real estate loans and commercial and industrial loans have
      grown significantly over the past few years. The Company plans to continue
      to
      emphasize the origination of these types of loans. These loans generally expose
      the Company to a greater risk of non-payment and loss than residential real
      estate loans because repayment of these loans often depends on the successful
      operations and income stream of the borrower’s business. Additionally, such
      loans typically involve larger loan balances to single borrower or group of
      related borrowers compared to residential real estate loans.




Some
      of
      the Company’s borrowers have more than one commercial loan outstanding with the
      Company. Consequently, an adverse development with respect to one loan or one
      credit relationship could expose the Company to a significantly greater risk
      of
      loss compared to an adverse development relating to a residential real estate
      loan.




***The
      Company’s allowances for loan losses may increase resulting in a decrease in
      earnings.***




The
      Company’s customers may not repay their loans according to contractual terms and
      the collateral securing the loans may be insufficient to satisfy shortfalls
      in
      loan payments. Hence, the Company may experience significant loan losses which
      would have a adverse effect on operating results. The Company makes various
      assumptions and judgments about the collectibility of its loans, including
      the
      creditworthiness of its borrowers and the value of the real estate and other
      assets serving as collateral. In determining the amount of the allowance for
      loan losses, the Company relies on loan quality reviews, past experience and
      an
      evaluation of economic conditions, among other factors. If the Company’s
      assumptions prove to be incorrect, its allowance for loan losses may not be
      sufficient to cover losses in its loan portfolio, resulting in additions to
      the
      allowance. Additions to the loan loss allowance would generally result in a
      decrease in earnings. The Company is currently emphasizing growth of commercial
      real estate and commercial and industrial loans. As these loans increase
      additional or increased provisions for loans losses may be necessary and would
      decrease earnings.




Bank
      regulators periodically review the Company’s allowance for loan losses and may
      require the Company to increase its provisions for loan losses or loan
      charge-offs. Increases in our allowance for loan losses or loan charge-offs
      as
      required by these regulatory authorities could have a material adverse effect
      on
      the Company’s results of operations and financial condition.







-
            14
            -





***Expansion
      of the Company’s branch network may adversely affect its financial results.***




During
      the past two years the Company has increased its retail branch network from
      seven branches to fourteen branches and the Company intends to open four new
      branches in 2007. The Company can not assure that its branch expansion strategy
      will be accretive to earnings or that it will be accretive to earnings within
      a
      reasonable period of time. Numerous factors contribute to the performance of
      a
      new branch, such as a suitable location, qualified personnel and an effective
      marketing strategy. Additionally, it takes time for a new branch to gather
      sufficient loans and deposits to generate income sufficient to cover its
      operating expenses.




***Strong
      competition may limit the Company’s growth and
      profitability.***




The
      Company faces significant competition in making loans and gathering deposits
      in
      its market areas. The Company competes with commercial banks, savings
      institutions, mortgage banking companies, credit unions, finance companies,
      mutual funds, insurance companies, and brokerage and investment banking firms
      operating locally and elsewhere. Many of these competitors have substantially
      greater resources and lending limits than the Company and may offer certain
      services that the Company does not or cannot provide. The Company’s
      profitability depends upon its ability to successfully compete in its market
      area.




***The
      Company operates in a highly regulated environment and may be adversely affected
      by changes in laws and regulations.***




The
      Company is subject to extensive regulation, supervision and examination by
      the
      Federal Reserve, the FDIC and the New York State Banking Department. These
      regulators govern the activities in which the Company may engage primarily
      for
      the protection of depositors. These regulatory authorities have extensive
      discretion in connection with their supervisory and enforcement activities,
      including the imposition of restrictions on the operation of a bank, the
      classification of assets by a bank and the adequacy of a bank's allowance for
      loan losses. Any change in such regulation and oversight, whether in the form
      of
      regulatory policy, regulations, or legislation, could have a material impact
      on
      the Company and its operations. The Company believes that it is in substantial
      compliance with applicable federal, state and local laws, rules and regulations.
      Because the Company’s business is highly regulated, the laws, rules and
      applicable regulations are subject to regular modification and change. Proposed
      laws, rules and regulations, or any other laws, rules, or regulations, may
      be
      adopted in the future, which could make compliance more difficult or more costly
      or otherwise adversely affect the Company’s business, financial condition or
      prospects.




***The
      value of the Company’s net operating loss carryforwards and other tax benefits
      may be subject to challenge by the IRS or may not ultimately be
      realized.***




The
      Company’s net operating loss carryforwards and other tax benefits may provide
      significant future tax savings to the Company. The Company’s use of these tax
      benefits may depend on a number of factors including the ability of the Company
      to generate significant taxable income; the absence of a future ownership change
      of the Company that could limit or eliminate the tax benefits; the acceptance
      by
      the taxing authorities of the positions taken on the Company’s tax returns as to
      the amount and timing of
      its
      income and expenses; and future changes in laws or regulations relating to
      the
      use of net operating loss carryforwards.




In
      addition, the Company may be required to recognize additional valuation
      allowances on its deferred tax assets if it cannot project sufficient taxable
      income within the expiration periods of the net operating loss
      carryforwards.







**ITEM
      1B.** **UNRESOLVED
      STAFF COMMENTS**







Not
      applicable.





-
            15
            -





**ITEM
      2.** **PROPERTIES**




GLB’s
      executive offices and GBSB’s main banking branch, lending operations and
      administrative center are located at 2421 Main Street, Buffalo, New York. The
      Company conducts banking operations at the following locations.




**Square**
            
            **Owned
                or****Location**
            
            **Date
                Opened**
            
            **Footage**
            
            **Leased**2421
                Main Street, Buffalo, New York
            
            November
                2002
            
            72,000
            
            Owned47
                Court Street, Buffalo, New York
            
            November
                1999
            
            6,700
            
            Leased320
                Orchard Park Road, West Seneca, New York
            
            September
                2000
            
            3,000
            
            Leased107
                Main Street, North Tonawanda, New York
            
            September
                2001
            
            3,800
            
            Leased4950
                Main Street, Amherst, New York
            
            June
                2003
            
            4,000
            
            Owned3438
                Delaware Avenue, Tonawanda, New York
            
            May
                2004
            
            4,000
            
            Owned690
                Kenmore Avenue, Kenmore, New York
            
            December
                2004
            
            4,000
            
            OwnedDunkirk-Fredonia
                Plaza, Fredonia, New York(1)
            
            August
                2005
            
            3,200
            
            Leased8550
                Transit Road, East Amherst, New York
            
            November
                2005
            
            4,000
            
            Owned2715
                Niagara Falls Boulevard, Amherst, New York
            
            April
                2006
            
            3,000
            
            Owned315
                Stahl Road, Getzville, New York
            
            April
                2006
            
            3,000
            
            Owned2070
                George Urban Boulevard, Depew, New York
            
            July
                2006
            
            4,000
            
            Owned870
                Fairmount Avenue, Lakewood, New York
            
            July
                2006
            
            2,700
            
            Owned364
                Connecticut Street, Buffalo, New York
            
            November
                2006
            
            2,500
            
            Owned135
                Main Street, Lockport, New York(2)
            
            March
                2007
            
            1,800
            
            Leased6520
                Webster Road, Orchard Park, New York(2)
            
            May
                2007
            
            3,000
            
            Owned1165
                Main Street Extension, Dunkirk, New York(1)
                (2)
            
            August
                2007
            
            3,000
            
            Owned2801
                Union Road, Cheektowaga, New York(2)
            
            October
                2007
            
            3,000
            
            Land
                Lease(1)The
                Dunkirk-Fredonia Plaza branch will be closed upon completion in 2007
                of
                the new branch in Dunkirk.(2)Location
                is currently under development - opening date is
                projected.




The
      Bank
      has made substantial investments in branch offices, leasehold improvements,
      furniture and fixtures, equipment, and vehicles. At December 31, 2006, the
      net
      carrying value of its premises and equipment was $24.8 million. The Company
      believes that its properties have been adequately maintained, are in good
      operating condition and are suitable for its business as presently
      conducted.







-
            16
            -








**ITEM
      3. LEGAL PROCEEDINGS**







In
      the
      ordinary course of business GLB and GBSB are parties to routine legal
      proceedings from time to time. None of the routine proceedings that existed
      at
      December 31, 2006, would, if adversely determined, have a material effect on
      the
      Company’s financial condition or results of operations. The Company is also a
      party to litigation relating to the sale of Bay View Capital Corporation’s
      operating subsidiary on May 1, 2006. This matter is described in Note 2 to
      the
      accompanying financial statements under the caption “BVAC
      Contingency.”







**ITEM
      4.** **SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS**







The
      Annual Meeting of Shareholders was held on October 17, 2006. Of 10,916,673
      shares entitled to vote at the meeting, 7,357,328 shares were voted. The
      following matters were voted on at the meeting:




Proposal
                1:
            To
                elect four Class C Directors for a term of three years. Votes for
                each
                nominee were as follows:





**Nominee**
            
            **Votes
                For**
            
            **Votes
                Withheld**Charles
                G. Cooper
            
            7,350,470
            
            6,858Andrew
                W. Dorn, Jr.
            
            7,350,563
            
            6,765Carolyn
                B. Frank
            
            7,308,482
            
            48,846Barry
                M. Snyder
            
            7,301,372
            
            55,956




Our
      other
      directors, William A. Evans, Robert B. Goldstein, Acea M. Mosey-Pawlowski,
      Dennis M. Penman, Louis J. Thomas, Frederick A. Wolf, Gerard T. Mazurkiewicz,
      John W. Rose, James A. Smith and David L. Ulrich terms had not expired at the
      time of the Annual Meeting and they continued in office.





-
            17
            -





**PART** **II**







**ITEM
              5.**
            **MARKET
                FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER
                PURCHASES OF EQUITY
                SECURITIES**







The
      Company’s common stock is traded on the New York Stock Exchange (NYSE) under the
      ticker symbol “GLK.” Prior to the Bay View merger on May 1, 2006, the stock was
      traded on the NYSE under the ticker symbol “BVC”. At December 31, 2006,
      10,921,796 shares of the Company’s stock were outstanding. There were 1,785
      registered shareholders as of December 31, 2006. During 2006, the high intra-day
      sales price of our common stock was $21.14 and the low intra-day sales price
      was
      $13.16. The
      closing price per share of common stock on December 29, 2006, the last trading
      day of the Company’s fiscal year, was $14.04. There
      were no dividends paid during the year ended December 31, 2006. See additional
      information regarding the market price filed herewith in Part II, Item 6,
“Selected Financial Data.”




The
      payment of dividends by the Company is subject to continued compliance with
      minimum regulatory capital requirements. See the section captioned “Supervision
      and Regulation” included in Part
      I, Item 1,
“Business”, the section captioned “Liquidity and Capital Resources” included in Part
      II, Item 7,
“Management’s Discussion and Analysis of Financial Condition and Results of
      Operations” and Note 13 - Regulatory Matters in the accompanying financial
      statements included in Part
      II ,
      Item 8,
“Financial Statements and Supplementary Data”, all of which are included
      elsewhere in this report.


**Equity
      Compensation Plan Information**




The
      following table sets forth, as of December 31, 2006, information about our
      equity compensation plans that have been approved by our shareholders, including
      the number of shares of our common stock exercisable under all outstanding
      options, warrants and rights, the weighted average exercise price of all
      outstanding options, warrants and rights and the number of shares available
      for
      future issuance under our equity compensation plans. We have no equity
      compensation plans that have not been approved by our shareholders.




Number
                of securitiesWeighted
                average
            
            remaining
                for futureNumber
                of securities to
            
            exercise
                price
            
            issuance
                under equitybe
                issued upon exercise
            
            of
                outstanding
            
            compensation
                plansof
                outstanding options,
            
            options,
                warrants
            
            (excluding
                securitiesPlan
                Category
            
            warrants
                and rights
            
            and
                rights
            
            reflected
                in column (a))Equity
                compensation plans approved by shareholders
            
            
            227,767
            
            $
            11.01
            
            
            284,069Equity
                compensation plans not approved by shareholders
            
            
            -
            
            $
            -
            
            
            -







-
            18
            -







**ITEM
      6.** **SELECTED
      FINANCIAL DATA**







**At
                or for the year ended December 31,*****(Dollars
                in thousands, except per share data)***
            **2006**
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2002****BALANCE
                SHEET DATA**Total
                assets
            $
            884,412
            
            
            $
            775,101
            
            
            $
            701,467
            
            
            $
            386,143
            
            
            $
            224,584Interest-earning
                assets
            
            778,617
            
            
            
            730,672
            
            
            
            667,891
            
            
            
            373,486
            
            
            
            214,054Investment
                securities
            
            249,850
            
            
            
            228,049
            
            
            
            344,650
            
            
            
            139,233
            
            
            
            56,726Loans,
                net
            
            513,928
            
            
            
            409,336
            
            
            
            292,644
            
            
            
            225,952
            
            
            
            142,258Deposits
            
            634,656
            
            
            
            621,084
            
            
            
            530,100
            
            
            
            360,640
            
            
            
            197,029Borrowings
            
            104,272
            
            
            
            115,272
            
            
            
            131,402
            
            
            
            6,359
            
            
            
            9,140Shareholders’
                equity
            
            135,510
            
            
            
            35,593
            
            
            
            36,588
            
            
            
            18,063
            
            
            
            17,603**OPERATIONS
                DATA**Net
                interest income
            $
            15,135
            
            
            $
            14,056
            
            
            $
            12,913
            
            
            $
            7,627
            
            
            $
            4,368Provision
                for loan losses
            
            1,030
            
            
            
            934
            
            
            
            301
            
            
            
            440
            
            
            
            471Noninterest
                income
            
            2,186
            
            
            
            (1,882)
            
            
            
            1,772
            
            
            
            1,163
            
            
            
            1,146Noninterest
                expense
            
            18,115
            
            
            
            13,020
            
            
            
            9,099
            
            
            
            6,003
            
            
            
            4,114Net
                income (loss)
            
            (896)
            
            
            
            (468)
            
            
            
            3,539
            
            
            
            1,326
            
            
            
            867**PER
                SHARE DATA**Earnings
                (loss) per share - basic and diluted
            $
            (0.10)
            
            
            $
            (0.11)
            
            
            $
            0.92
            
            
            $
            0.55
            
            
            $
            0.36Shareholders’
                equity per share
            
            12.41
            
            
            
            8.28
            
            
            
            8.51
            
            
            
            7.83
            
            
            
            7.63Tangible
                shareholders’ equity per share(1)
            
            11.23
            
            
            
            8.28
            
            
            
            8.51
            
            
            
            7.83
            
            
            
            7.63**PERFORMANCE
                RATIOS**Return
                on average assets
            
            (0.10)
            %
            
            
            (0.06)
            %
            
            
            0.68
            %
            
            
            0.45
            %
            
            
            0.52
            %Return
                on average equity
            
            (0.88)
            
            
            
            (1.26)
            
            
            
            11.21
            
            
            
            7.40
            
            
            
            5.35Net
                interest margin
            
            1.98
            
            
            
            2.01
            
            
            
            2.55
            
            
            
            2.70
            
            
            
            2.77Efficiency
                ratio
            
            102.99
            
            
            
            84.34
            
            
            
            66.68
            
            
            
            73.32
            
            
            
            89.37**CAPITAL
                RATIOS**Total
                risk-based capital
            
            20.76
            %
            
            
            12.32
            %
            
            
            15.96
            %
            
            
            10.43
            %
            
            
            N/A
            %Tier
                1 risk-based capital
            
            19.97
            
            
            
            11.64
            
            
            
            15.33
            
            
            
            9.49
            
            
            
            N/ATier
                1 (core) capital
            
            11.65
            
            
            
            6.52
            
            
            
            7.45
            
            
            
            5.05
            
            
            
            N/ARatio
                of shareholders’ equity to total assets
            
            15.32
            
            
            
            4.59
            
            
            
            5.22
            
            
            
            4.68
            
            
            
            7.84**ASSET
                QUALITY RATIOS**Total
                non-performing assets to total assets
            
            0.41
            %
            
            
            0.18
            %
            
            
            0.10
            %
            
            
            0.14
            %
            
            
            0.55
            %Total
                non-performing loans to total loans
            
            0.69
            
            
            
            0.31
            
            
            
            0.22
            
            
            
            0.15
            
            
            
            0.82Net
                charge-offs to average loans
            
            0.03
            
            
            
            0.02
            
            
            
            0.01
            
            
            
            0.01
            
            
            
            0.02Allowance
                for loan losses to total loans
            
            0.73
            
            
            
            0.71
            
            
            
            0.71
            
            
            
            0.79
            
            
            
            0.96Allowance
                for loan losses to non-performing loans
            
            106.58
            
            
            
            226.04
            
            
            
            323.72
            
            
            
            539.02
            
            
            
            116.69**OTHER
                DATA**Number
                of branches
            
            14
            
            
            
            10
            
            
            
            7
            
            
            
            6
            
            
            
            5Full-time
                equivalent employees
            
            239
            
            
            
            185
            
            
            
            131
            
            
            
            99
            
            
            
            60


(1) Excludes
      goodwill recognized in connection with the Bay View merger.







-
            19
            -





**SELECTED** **QUARTERLY
      DATA**




**2006*****(Dollars
                in thousands, except per share data)***
            **Fourth**
            
            **Third**
            
            **Second**
            
            **First****Quarter**
            
            **Quarter**
            
            **Quarter**
            
            **Quarter**Interest
                and dividend income
            $
            10,840
            
            $
            11,137
            
            $
            10,957
            
            $
            9,795Interest
                expense
            
            7,049
            
            
            7,141
            
            
            7,060
            
            
            6,344Net
                interest income
            
            3,791
            
            
            3,996
            
            
            3,897
            
            
            3,451Provision
                for loan losses
            
            443
            
            
            29
            
            
            318
            
            
            240Net
                interest income, after provision for loan losses
            
            3,348
            
            
            3,967
            
            
            3,579
            
            
            3,211Noninterest
                income
            
            600
            
            
            584
            
            
            587
            
            
            415Noninterest
                expense
            
            5,157
            
            
            4,622
            
            
            4,410
            
            
            3,926Loss
                before income taxes
            
            (1,209)
            
            
            (71)
            
            
            (244)
            
            
            (300)Income
                tax benefit
            
            (456)
            
            
            (62)
            
            
            (191)
            
            
            (219)Net
                loss
            $
            (753)
            
            $
            (9)
            
            $
            (53)
            
            $
            (81)Loss
                per common share - basic and diluted(1)
                (2)
            $
            (0.07)
            
            $
            0.00
            
            $
            (0.01)
            
            $
            (0.02)Market
                price (NYSE: GLK):High
            $
            16.63
            
            $
            17.45
            
            $
            20.98
            
            $
            17.86Low
            
            13.82
            
            
            14.05
            
            
            16.89
            
            
            16.74Close
            
            14.04
            
            
            16.07
            
            
            17.48
            
            
            17.45







**2005*****(Dollars
                in thousands, except per share data)***
            **Fourth**
            
            **Third**
            
            **Second**
            
            **First****Quarter**
            
            **Quarter**
            
            **Quarter**
            
            **Quarter**Interest
                and dividend income
            $
            9,128
            
            $
            8,814
            
            $
            8,497
            
            $
            7,847Interest
                expense
            
            5,912
            
            
            5,363
            
            
            4,727
            
            
            4,228Net
                interest income
            
            3,216
            
            
            3,451
            
            
            3,770
            
            
            3,619Provision
                for loan losses
            
            212
            
            
            216
            
            
            202
            
            
            304Net
                interest income, after provision for loan losses
            
            3,004
            
            
            3,235
            
            
            3,568
            
            
            3,315Noninterest
                income
            
            (2,982)
            
            
            347
            
            
            319
            
            
            434Noninterest
                expense
            
            3,263
            
            
            3,279
            
            
            3,269
            
            
            3,209Income
                (loss) before income taxes
            
            (3,241)
            
            
            303
            
            
            618
            
            
            540Income
                tax provision (benefit)
            
            (1,606)
            
            
            22
            
            
            153
            
            
            119Net
                income (loss)
            $
            (1,635)
            
            $
            281
            
            $
            465
            
            $
            421Earnings
                (loss) per common share - basic and diluted(1)
                (2)
            $
            (0.38)
            
            $
            0.07
            
            $
            0.11
            
            $
            0.10Market
                price (NYSE: GLK)(3):High
            $
            18.00
            
            $
            15.95
            
            $
            16.24
            
            $
            17.38Low
            
            15.30
            
            
            15.32
            
            
            15.27
            
            
            15.58Close
            
            17.80
            
            
            15.32
            
            
            15.47
            
            
            16.01


(1)
            Earnings
                (loss) per share data is computed independently for each of the quarters
                presented. Therefore, the sum of the quarterly earnings or loss per
                common
                share amounts may not equal the total for the
                year.


(2)
            All
                per share data presented have been adjusted to give effect to the
                1.0873
                stock exchange ratio established in the Bay View merger that occurred
                on
                May 1, 2006.


(3)
            Stock
                price data prior to May 1, 2006 is that of Bay View Capital
                Corporation..








-
            20
            -





**SHAREHOLDER
      RETURN PERFORMANCE PRESENTATION**




The
      line
      graph below compares the cumulative total shareholder return on the Company’s
      common stock to the cumulative total return of the Dow Jones U.S. Financial
      Services Index, Dow Jones U.S. Banks Index and the Dow Jones Composite Average
      for the period December 31, 2001 through December 31, 2006. The graph assumes
      that $100 was invested on December 31, 2000 and that all dividends were
      reinvested. The information presented below is based on the shareholder return
      of Bay View Capital Corporation from December 31, 2001 through the date of
      the
      merger on May 1, 2006.







**Cumulative
      Total Returns on $100 Investment Made on December 31, 2001**










-
            21
            -








**ITEM
      7. MANAGEMENT’S DISCUSSION AND ANALYSIS** **OF
      FINANCIAL CONDITION AND RESULTS OF OPERATIONS**







**GENERAL**




The
      following analysis of financial condition and results of operations should
      be
      read in conjunction with the consolidated financial statements and related
      notes
      filed herewith in Part II, Item 8, “Financial Statements and Supplementary Data”
and the description of the business filed herewith in Part I, Item 1,
“Business.”




**OVERVIEW**




Great
      Lakes Bancorp, Inc. (“GLB”) is a registered banking holding company and Delaware
      corporation that holds all of the capital stock of Greater Buffalo Savings
      Bank
      (“GBSB” or the “Bank”). GBSB is a stock savings bank chartered
      under and subject to the Banking Laws of New York State. GBSB
      began operations in 1999 and its parent, Great Lakes Bancorp, Inc. (“Old Great
      Lakes”), the predecessor of the current bank holding company, was formed in
      2003. GBSB provides a full range of loan and deposit products and services
      to
      its consumer and commercial customers located principally in Western New
      York.




On
      May 1,
      2006, Old Great Lakes merged into Bay View Capital Corporation and the surviving
      corporation was renamed Great Lakes Bancorp, Inc. (“New Great Lakes”). In
      anticipation of the merger, Bay View Capital Corporation became a registered
      bank holding company in January 2006. At the time of the merger Bay View Capital
      Corporation had no ongoing operations. From the historical perspective of Old
      Great Lakes, the merger with Bay View provided: (1) $101.7 million of new
      capital, including significant cash balances; (2) significant tax benefits
      to
      shield future taxable income; (3) a New York Stock Exchange listing for shares
      exchanged in the merger; and (4) three new directors from Bay View with
      significant community banking experience. Details of the merger are provided
      in
      the notes to the accompanying consolidated financial statements.




The
      following discussion and analysis of financial condition and results of
      operations pertains to Old Great Lakes and GBSB before the merger, and New
      Great
      Lakes and GBSB after the merger. These bank holding companies before and after
      the merger as applicable, and Greater Buffalo Savings Bank, are hereinafter
      collectively referred to as the “Company.”




As
      of
      December 31, 2006, the Company had 14 full-service banking branches in
      operation, $884.4 million of assets, $634.7 million of deposits, and $135.5
      million of shareholders’ equity. The Company’s 14 bank branches are located in
      three counties in Western New York. Eleven bank branches are located in Erie
      County where the city of Buffalo is located, two bank branches are in Chautauqua
      County, and one bank branch is in Niagara County. The Company plans to open
      four
      bank branches in 2007 including two in Erie County in suburbs of Buffalo, one
      in
      Niagara County and one in Chautauqua County. The new branch in Chautauqua County
      will replace an existing branch. The Company presently has no plans to build
      or
      open additional bank branches after 2007. The Company’s executive offices, main
      banking branch, lending operations and administrative center are located at
      2421
      Main Street in Buffalo, New York.




In
      early
      2007, the Company received regulatory approval to open two mortgage loan
      production offices in Long Island, New York as part of a new mortgage banking
      initiative established in 2006. This initiative is designed to significantly
      increase noninterest income. It involves the origination and sale of residential
      mortgage loans with related mortgage servicing rights released to the
      purchasers. The Company anticipates opening these two mortgage loan production
      offices for business in the second quarter of 2007. The Company’s principal
      mortgage banking activities are conducted in Buffalo, New York. A description
      of
      the Company’s new mortgage banking initiative is provided in Part I, Item 1,
“Business.”




**Financial
      Overview**




The
      Company’s total assets increased from $775.1 million at December 31, 2005 to
      $884.4 million at December 31, 2006 due principally to the Bay View merger.
      The
      Company acquired $138.3 million of assets and assumed $36.6 million of
      liabilities in the merger. The $138.3 million of assets acquired included $81.6
      million of unrestricted and restricted cash, $40.6 million of net deferred
      tax
      assets, other miscellaneous assets of $3.3 million and $12.8 million of
      goodwill. With the exception of a $5.3 million long-term leased facility
      obligation assumed in the merger, most of the other liabilities acquired were
      short-term in nature and were subsequently satisfied using cash balances
      acquired. A large portion of the Bay View cash balances that remained after
      the
      satisfaction of the assumed liabilities was used to pay down wholesale
      borrowings of the Bank.




While
      total assets remained static in 2006 excluding the impact of the merger, loan
      balances grew considerably, funded by cash investments and wholesale
      liabilities. Total loans increased from $409.3 million at December 31, 2005
      to
      $513.9 million at December 31, 2006. Using average daily balances to measure
      loan growth, the Company’s loan portfolio increased by approximately 31% in 2006
      impacted by significant activity in the commercial lending businesses. Average
      balances of commercial and industrial loans grew by approximately 107% in 2006
      and commercial real estate loans grew by approximately 88%. Residential mortgage
      loans grew by approximately 12% and other consumer loans, comprised principally
      of home equity loans and automobile loans, grew by approximately
      31%.







-
            22
            -





While
      the
      Company’s success in growing its lending businesses in 2006 provides bright
      prospects for the future, the challenging interest rate environment and
      competitive market conditions that persisted during the year prevented the
      Company from bringing immediate gains to the bottom line. Increases in interest
      income were offset in large part by rising funding costs as consumer preferences
      shifted towards higher-rate money market and certificate accounts. Net interest
      margins remained flat at 1.98% in 2006 compared to 2.01% in 2005. Provisions
      for
      loan losses were up slightly in 2006 to $1.0 million reflecting stable credit
      quality, and noninterest income, while not large enough to provide significant
      contribution to overall results, rose across all categories. Noninterest
      expenses of $18.1 million in 2006 were up approximately 39% as the Company
      stayed the course with expansion of its branch network, opening five new offices
      during the year. In addition, significant personnel additions were made to
      the
      Company’s lending businesses, support functions and senior management team. The
      net loss for 2006 was $896 thousand or $.10 per share compared to a net loss
      of
      $468 thousand or $.11 per share in 2005.




**CRITICAL
      ACCOUNTING ESTIMATES**




Management
      of the Company is required to evaluate and disclose those accounting estimates
      that it judges to be critical - those most important to the portrayal of the
      Company’s financial condition and results of operations and that require
      management’s most subjective and complex judgments. Management considers the
      accounting estimates relating to the adequacy of the allowance for loan losses,
      the carrying value of deferred tax assets, and the evaluation of goodwill for
      potential impairment to be critical estimates, as the judgments associated
      with
      these estimates could have a material effect on the Company’s results of
      operations.




**Adequacy
      of the Allowance for Loan Losses**




The
      allowance for loan losses represents the Company’s estimate of probable losses
      that are in the loan portfolio and are reasonably estimable. Additions to the
      allowance are made with charges to earnings. Significant judgment is involved
      in
      estimating losses that are probable of existing in the loan portfolio but may
      not be readily apparent at any given point in time.




The
      Bank
      performs periodic reviews of its loan portfolio to identify risks and to assess
      the collectibility of its loans. Loss percentages are applied to homogeneous
      groups of loans where specific losses may be difficult to quantify. These groups
      of loans generally consist of residential mortgage loans, consumer loans and
      commercial loans. In addition, specific reserves are applied to loans that
      have
      been classified as substandard, doubtful or loss assets. Loan loss estimates
      relating to individual loans and groups of homogeneous loans are compiled and
      the Company assesses the adequacy of the loan loss allowance relating to the
      loan portfolio taken as a whole. More information relating to the Company’s
      allowance for loan losses can be found in Part I, Item 1, “Business” and the
      notes to the accompanying consolidated financial statements.




**Carrying
      Value of Deferred Taxes**




The
      Company acquired significant net deferred income tax assets in the Bay View
      merger whose realization is dependent upon the Company’s generation of future
      taxable income before the tax benefits expire. Under the accounting guidelines,
      the Company is required to first recognize a deferred tax asset to the full
      extent of the tax benefits that can be used, and then to evaluate whether a
      valuation allowance should be recorded against the asset to the extent that
      it
      is judged more likely than not that some or all of the deferred tax assets
      will
      ultimately not be realized. Significant judgment is involved in assessing
      whether a valuation allowance should be recorded against the deferred tax assets
      and, if so, the appropriate amount of such valuation allowance. Details
      pertaining to the valuation allowance recorded against the Company’s net
      deferred tax assets are provided in Notes 2 and 10 of the notes to the
      accompanying consolidated financial statements.




**Valuation
      of Goodwill**




The
      Company recognized goodwill in connection with the Bay View merger. Although
      goodwill is not subject to amortization, the carrying value of the goodwill
      must
      be evaluated for potential impairment at least annually or more frequently
      if
      events or changes in circumstances indicate that the asset may be impaired.
      The
      starting point for assessing potential impairment of goodwill involves a
      determination of whether the fair value of a reporting unit is less than the
      carrying value of the unit including the subject goodwill. To the extent that
      the fair value of the reporting unit is less than the carrying value of the
      unit, further work is required to allocate the fair value to individual assets
      and liabilities of the reporting unit and to measure potential impairment of
      the
      goodwill. Determining the fair value of a reporting unit involves significant
      judgment. Since the Company operates with one reporting unit, the evaluation
      of
      potential goodwill impairment focuses on the fair value of the entire Company.
      Management has concluded that the Company’s goodwill is not impaired as of
      December 31, 2006.





-
            23
            -





**RESULTS
      OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2006 AND DECEMBER 31,
      2005**




**Net
      Interest Income**




The
      following table sets forth certain information relating to the consolidated
      balance sheets and reflects the average yields earned on interest-earning
      assets, as well as the average rates paid on interest-bearing liabilities for
      the years indicated. All average balances represent daily average
      balances.




**Years
                ended December 31,****2006**
            
            **2005**
            
            **2004*****(Dollars
                in thousands)***
            **Average**
            
            
            
            **Average**
            
            **Average**
            
            
            
            **Average**
            
            **Average**
            
            
            
            **Average****Balance**
            
            **Interest**
            
            **Rate**
            
            **Balance**
            
            **Interest**
            
            **Rate**
            
            **Balance**
            
            **Interest**
            
            **Rate**ASSETS:Taxable
                securities
            $
            250,579
            
            $
            12,414
            
            4.95
            %
            
            $
            327,458
            
            $
            13,979
            
            4.27
            %
            
            $
            219,913
            
            $
            9,292
            
            4.23
            %Tax-exempt
                securities(1)
            
            15,161
            
            
            788
            
            5.19
            
            
            
            13,448
            
            
            695
            
            5.17
            
            
            
            308
            
            
            14
            
            4.53Total
                investment securities(2)
            
            265,740
            
            
            13,202
            
            4.97
            
            
            
            340,906
            
            
            14,674
            
            4.30
            
            
            
            220,221
            
            
            9,306
            
            4.23Short-term
                investments(3)
            
            39,133
            
            
            1,847
            
            4.72
            
            
            
            9,557
            
            
            256
            
            2.68
            
            
            
            16,546
            
            
            268
            
            1.62FHLB
                stock
            
            3,108
            
            
            201
            
            6.46
            
            
            
            3,485
            
            
            140
            
            4.01
            
            
            
            2,640
            
            
            52
            
            1.98Loans
            
            470,597
            
            
            27,747
            
            5.90
            
            
            
            358,592
            
            
            19,452
            
            5.42
            
            
            
            266,702
            
            
            13,787
            
            5.17Total
                interest-earning assets
            
            778,578
            
            $
            42,997
            
            5.52
            %
            
            
            712,540
            
            $
            34,522
            
            4.84
            %
            
            
            506,109
            
            $
            23,413
            
            4.63
            %Allowance
                for loan losses
            
            (3,215)
            
            
            
            
            
            
            
            
            (2,537)
            
            
            
            
            
            
            
            
            (1,918)Noninterest-earning
                assets
            
            82,095
            
            
            
            
            
            
            
            
            38,192
            
            
            
            
            
            
            
            
            19,184Total
                assets
            $
            857,458
            
            
            
            
            
            
            
            $
            748,195
            
            
            
            
            
            
            
            $
            523,375LIABILITIES
                AND SHAREHOLDERS’ EQUITY:Deposits:Interest-bearing
                checking
            $
            42,207
            
            $
            582
            
            1.38
            %
            
            $
            48,425
            
            $
            911
            
            1.88
            %
            
            $
            20,803
            
            $
            245
            
            1.18
            %Savings
            
            110,356
            
            
            2,504
            
            2.27
            
            
            
            248,062
            
            
            6,009
            
            2.42
            
            
            
            254,146
            
            
            5,145
            
            2.02Money
                market
            
            134,001
            
            
            5,207
            
            3.89
            
            
            
            31,637
            
            
            880
            
            2.78
            
            
            
            10,353
            
            
            133
            
            1.29Certificates
                of deposit
            
            329,184
            
            
            14,291
            
            4.34
            
            
            
            229,364
            
            
            7,834
            
            3.42
            
            
            
            122,459
            
            
            3,169
            
            2.59Total
                interest-bearing deposits
            
            615,478
            
            
            22,584
            
            3.67
            
            
            
            557,488
            
            
            15,634
            
            2.80
            
            
            
            407,761
            
            
            8,692
            
            2.13Short-term
                borrowings
            
            13,277
            
            
            650
            
            4.90
            
            
            
            18,410
            
            
            680
            
            3.69
            
            
            
            860
            
            
            11
            
            1.34Repurchase
                agreements
            
            73,795
            
            
            3,378
            
            4.58
            
            
            
            99,318
            
            
            3,160
            
            3.18
            
            
            
            58,075
            
            
            1,386
            
            2.39Long-term
                borrowings
            
            -
            
            
            -
            
            -
            
            
            
            -
            
            
            -
            
            -
            
            
            
            2,350
            
            
            102
            
            4.33Subordinated
                debentures
            
            12,372
            
            
            982
            
            7.94
            
            
            
            12,372
            
            
            756
            
            6.11
            
            
            
            6,558
            
            
            304
            
            4.63Total
                interest-bearing liabilities
            
            715,192
            
            $
            27,594
            
            3.86
            %
            
            
            687,588
            
            $
            20,230
            
            2.94
            %
            
            
            475,604
            
            $
            10,495
            
            2.21
            %Noninterest-bearing
                deposits
            
            28,708
            
            
            
            
            
            
            
            
            20,213
            
            
            
            
            
            
            
            
            13,983Other
                liabilities
            
            11,346
            
            
            
            
            
            
            
            
            3,765
            
            
            
            
            
            
            
            
            2,212Realized
                shareholders’ equity
            
            105,604
            
            
            
            
            
            
            
            
            39,544
            
            
            
            
            
            
            
            
            32,540Other
                comprehensive loss
            
            (3,392)
            
            
            
            
            
            
            
            
            (2,915)
            
            
            
            
            
            
            
            
            (964)Total
                liabilities and shareholders’ equity
            $
            857,458
            
            
            
            
            
            
            
            $
            748,195
            
            
            
            
            
            
            
            $
            523,375Net
                interest income
            
            
            
            $
            15,403
            
            
            
            
            
            
            
            $
            14,292
            
            
            
            
            
            
            
            $
            12,918Interest
                rate spread
            
            
            
            
            
            
            1.66
            %
            
            
            
            
            
            
            
            1.90
            %
            
            
            
            
            
            
            
            2.42
            %Contribution
                of interest-free funds
            
            
            
            
            
            
            0.32
            
            
            
            
            
            
            
            
            0.11
            
            
            
            
            
            
            
            
            0.13Net
                interest margin
            
            
            
            
            
            
            1.98
            %
            
            
            
            
            
            
            
            2.01
            %
            
            
            
            
            
            
            
            2.55
            %Ratio
                of average interest-earning assetsto
                average interest-bearing liabilities
            
            
            
            
            
            
            108.9
            %
            
            
            
            
            
            
            
            103.6
            %
            
            
            
            
            
            
            
            106.4
            %





(1) The
      interest on tax-exempt securities is calculated on a tax equivalent basis
      assuming a Federal tax rate of 34%.


(2) The
      average balances of securities are based on amortized historical
      cost.


(3) Short-term
      investments include interest-earning deposits, restricted interest-earning
      cash
      and short-term investments.





-
            24
            -





Net
      interest income on a tax-equivalent basis increased from $14.3 million in 2005
      to $15.4 million in 2006 on overall improvement in the average volumes and
      interest rates of earning assets. Average interest-earning assets grew by $66.1
      million from $712.5 million in 2005 to $778.6 million in 2006 and the average
      rate earned on the assets improved from 4.84% to 5.52%. The improvement in
      interest income was offset in part by rising costs of funding. Interest rates
      on
      average interest-bearing liabilities increased from 2.94% in 2005 to 3.86%
      in
      2006 and the volume of interest-bearing deposits increased by $27.6
      million.




The
      Company’s net interest margin was 1.98% in 2006 compared to 2.01% in 2005.
      Interest-free funds provided 32 basis points to the margin in 2006, compared
      to
      11 basis points in 2005. Average noninterest-bearing demand deposits increased
      42.0% to $28.7 million in 2006 compared with $20.2 million in 2005. While the
      contribution of interest-free funds had a positive impact on the 2006 net
      interest margin, a 24 basis point decrease in the interest rate spread was
      more
      significant, leading to the overall decrease of three basis points in net
      interest margin.




Increases
      in the Company’s average loan balances provided the most significant
      contribution to the 68 basis point increase in the average rate earned on
      interest-earning assets from 4.84% in 2005 to 5.52% in 2006. Interest income
      on
      loans increased by $8.2 million to $27.7 million in 2006. This increase resulted
      from a $112.0 million increase in average loans outstanding to $470.6 million
      during 2006 from $358.6 million in 2005. The rate earned on average loans
      increased to 5.90% in 2006 from 5.42% in 2005.




During
      2006, the Company experienced significant migration of interest-bearing deposits
      from lower-rate checking and savings accounts into higher-rate money market
      and
      certificate accounts. The combined average balances of money market and
      certificate accounts increased $202.2 million, or 77.5% in 2006. A 92 basis
      point increase in the rates paid on interest bearing liabilities to 3.86%
      resulted in a $7.4 million increase in the Company’s funding costs in
      2006.


The
      following table quantifies the extent to which changes in interest rates and
      changes in the volume of interest-earning assets and interest-bearing
      liabilities have affected the Company’s net interest income. For each category
      of interest-earning assets and interest-bearing liabilities, information is
      provided on changes attributable to: (1) changes in interest rate (changes
      in
      interest rate multiplied by current volume); (2) changes in volume (changes
      in
      volume multiplied by prior interest rate); and (3) the net change.




**Rate
                / Volume Analysis****December
                31, 2006 vs. 2005**
            
            **December
                31, 2005 vs. 2004****Increase/(Decrease)**
            
            
            
            **Increase/(Decrease)****Due
                to Change in**
            
            **Total**
            
            **Due
                to Change in**
            
            **Total*****(Dollars
                in thousands)***
            **Average**
            
            **Average**
            
            **Increase**
            
            **Average**
            
            **Average**
            
            **Increase****Volume**
            
            **Rate**
            
            **(Decrease)**
            
            **Volume**
            
            **Rate**
            
            **(Decrease)**INTEREST
                INCOME:Taxable
                securities
            $
            (3,282)
            
            $
            1,717
            
            $
            (1,565)
            
            $
            4,590
            
            $
            97
            
            $
            4,687Tax-exempt
                securities
            
            89
            
            
            4
            
            
            93
            
            
            679
            
            
            2
            
            
            681Total
                investment securities
            
            (3,193)
            
            
            1,721
            
            
            (1,472)
            
            
            5,269
            
            
            99
            
            
            5,368Short-term
                investments
            
            792
            
            
            799
            
            
            1,591
            
            
            (142)
            
            
            130
            
            
            (12)FHLB
                stock
            
            (15)
            
            
            76
            
            
            61
            
            
            21
            
            
            67
            
            
            88Loans
            
            6,076
            
            
            2,219
            
            
            8,295
            
            
            4,956
            
            
            709
            
            
            5,665Total
                interest-earning assets
            $
            3,660
            
            $
            4,815
            
            $
            8,475
            
            $
            10,104
            
            $
            1,005
            
            $
            11,109INTEREST
                EXPENSE:Deposits:Interest-bearing
                checking
            $
            (117)
            
            $
            (212)
            
            $
            (329)
            
            $
            460
            
            $
            206
            
            $
            666Savings
            
            (3,336)
            
            
            (169)
            
            
            (3,505)
            
            
            (126)
            
            
            990
            
            
            864Money
                market
            
            2,847
            
            
            1,480
            
            
            4,327
            
            
            477
            
            
            270
            
            
            747Certificates
                of deposit
            
            3,409
            
            
            3,048
            
            
            6,457
            
            
            3,414
            
            
            1,251
            
            
            4,665Total
                interest-bearing deposits
            
            2,803
            
            
            4,147
            
            
            6,950
            
            
            4,225
            
            
            2,717
            
            
            6,942Short-term
                borrowings
            
            (190)
            
            
            160
            
            
            (30)
            
            
            612
            
            
            57
            
            
            669Repurchase
                agreements
            
            (812)
            
            
            1,030
            
            
            218
            
            
            1,207
            
            
            567
            
            
            1,774Long-term
                borrowings
            
            -
            
            
            -
            
            
            -
            
            
            (51)
            
            
            (51)
            
            
            (102)Subordinated
                debentures
            
            -
            
            
            226
            
            
            226
            
            
            332
            
            
            120
            
            
            452Total
                borrowings
            
            (1,002)
            
            
            1,416
            
            
            414
            
            
            2,100
            
            
            693
            
            
            2,793Total
                interest-bearing liabilities
            
            1,801
            
            
            5,563
            
            
            7,364
            
            
            6,325
            
            
            3,410
            
            
            9,735CHANGE
                IN NET INTEREST INCOME
            $
            1,859
            
            $
            (748)
            
            $
            1,111
            
            $
            3,779
            
            $
            (2,405)
            
            $
            1,374







-
            25
            -





**Provision
      for Loan Losses**




Provision
      for loan losses totaled $1.0 million in 2006 and $934 thousand in 2005
      reflecting a stable credit environment in 2006.




**Noninterest
      Income**




The
      following table summarizes the Company’s noninterest income.




***(Dollars
                in thousands)***
            **Years
                Ended December 31,****2006**
            
            **2005**
            
            **2004**Service
                charges on deposit accounts
            $
            654
            
            $
            433
            
            $
            370Other
                fees and service charges
            
            535
            
            
            317
            
            
            209Earnings
                on bank-owned life insurance
            
            469
            
            
            471
            
            
            66Loan
                fee income
            
            338
            
            
            85
            
            
            61Gain
                (loss) on sale of securities, net
            
            -
            
            
            (3,027)
            
            
            997Gain
                (loss) on sale of loans
            
            16
            
            
            (226)
            
            
            54Other
                operating income
            
            174
            
            
            65
            
            
            15Total
                noninterest income (loss)
            $
            2,186
            
            $
            (1,882)
            
            $
            1,772




Excluding
      the effect of gains and losses on the sale of loans and securities, noninterest
      income increased by approximately 59% in 2006 and 90% in 2005. Services
      charges on deposit accounts relate primarily to overdraft charges and returned
      check fee income. Other fees and service charges relate primarily to ATM and
      debit card income. Increases in letter of credit and loan servicing fees
      contributed to the increase in loan fee income from 2005 to 2006. Other
      operating income includes early withdrawal penalties on deposit accounts and
      other miscellaneous income. The Company anticipates that noninterest income
      will
      increase in 2007 as its branch network grows and matures, the loan portfolios
      increase and the impact of its new mortgage banking initiative takes effect.




**Noninterest
      Expense**




The
      following table summarizes the Company’s noninterest expense.




***(Dollars
                in thousands)***
            **Years
                Ended December 31,****2006**
            
            **2005**
            
            **2004**Salaries
                and employee benefits
            $
            10,687
            
            $
            7,419
            
            $
            5,053Occupancy,
                equipment and furnishings
            
            2,472
            
            
            2,030
            
            
            1,243Data
                processing and operations
            
            962
            
            
            789
            
            
            683Professional
                services
            
            726
            
            
            363
            
            
            259Advertising
            
            705
            
            
            492
            
            
            473Printing,
                postage and supplies
            
            441
            
            
            376
            
            
            342Other
                operating expense
            
            2,122
            
            
            1,551
            
            
            1,046Total
                noninterest expense
            $
            18,115
            
            $
            13,020
            
            $
            9,099




Noninterest
      expense increased $5.1 million in 2006. Salaries and employee benefits increased
      $3.3 million relating to expansion of the branch network and significant
      additions to the lending businesses, support functions and senior management
      team. Increases in occupancy, equipment and furnishings expense relate to the
      Company’s branch expansion and development of its infrastructure. The increase
      in data processing and
      operations expense
      was impacted by overall growth of the Company and increases in number of
      customer accounts. Professional services expense increased mainly due to growth
      in size and complexity of the Company and the increasing cost of compliance
      with
      laws and regulations. Other operating expense includes insurance premiums,
      franchise taxes, communications expenses and other general operating
      expenses.




**Income
      Taxes**




Effective
      tax rates are affected by income and expense items that are not subject to
      Federal or state taxation. The Company’s income tax provision reflects the
      impact of such items, including tax-exempt interest income from municipal
      securities, tax-exempt earnings on bank-owned life insurance and the effect
      of
      certain state tax credits. The Company’s effective tax rates were (50.9)% in
      2006 and (73.7)% in 2005. The change in the Company’s effective tax rate from
      2005 to 2006 was due mainly to a reduction in state tax credits.







-
            26
            -





**RESULTS
      OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2005 AND DECMBER 31,
      2004**




**Net
      Interest Income**




Net
      interest income on a tax-equivalent basis increased from $12.9 million in 2004
      to $14.3 million in 2005 as a result of increases in the volume of
      interest-earning assets. The net interest margin was 2.01% for the year ended
      December 31, 2005 compared to 2.55% for the year ended December 31, 2004. The
      decrease in the net interest margin resulted from growth of our average
      interest-bearing liabilities and the corresponding rate paid on them outpacing
      that of our average interest-earning assets and the corresponding yield
      received.




Average
      interest-earning assets grew by $206.4 million from $506.1 million in 2004
      to
      $712.5 million in 2005, while the average rate on interest-earning assets
      improved from 4.63% to 4.84% over those same periods. However, an increase
      in
      the cost of average interest-bearing liabilities from 2.21% in 2004 to 2.94%
      in
      2005, and a $212.0 million increase in interest-bearing liabilities offset
      these
      improvements. These increases were driven by higher rates paid on savings
      accounts and time deposits, attributable in part to the rate environment, Bank
      initiatives to attract deposits and the expansion of the branch network. The
      Bank also considers the migration from core deposits to higher yielding time
      deposits a consequence of the rising rate environment.




Total
      interest and dividend income increased by $11.1 million or 47.4% to $34.5
      million for the year ended December 31, 2005 compared to $23.4 million for
      the
      year ended December 31, 2004. An increase in our average loan portfolio was
      the
      most significant contribution to the 21 basis point increase in the average
      rate
      on interest-earning assets. In addition, the Bank’s other interest-earning
      assets have begun to generate increased yields associated with the increasing
      rate environment.




Interest
      income on loans receivable increased by $5.7 million to $19.5 million during
      2005 compared to $13.8 million during 2004. This increase resulted from a $91.9
      million increase in average loans outstanding to $358.6 million during 2005
      from
      $266.7 million in 2004. The rate on average loans increased to 5.42% during
      2005
      from 5.17% in 2004. The Bank’s second quarter purchase of $28.4 million in
      higher-yielding consumer loans, combined with increased efforts to grow our
      commercial loan portfolio, significantly contributed to both the increase in
      average loans and rate.




Interest
      income on securities (tax equivalent) increased $5.4 million or 57.7% to $14.7
      million during 2005 from $9.3 million in 2004. This increase resulted from
      a
      $120.7 million increase in average securities to $340.9 million during 2005
      from
      $220.2 million during 2004. The tax equivalent yield on average investments
      increased to 4.30% during 2005 compared to 4.23% during 2004.




Other
      interest and dividend income, consisting primarily of interest from short-term
      investments, increased $76 thousand or 23.6% to $396 thousand in 2005 from
      $320
      thousand in 2004. Average short-term investments, including FHLB stock,
      decreased from $19.2 million in 2004 to $13.0 million in 2005.




Total
      interest expense increased by $9.7 million or 92.8% to $20.2 million in 2005
      compared to $10.5 million in 2004. This increase resulted primarily from a
      $212.0 million or 44.6% increase in average interest-bearing liabilities to
      $687.6 million for the year ended December 31, 2005, from $475.6 million for
      the
      year ended December 31, 2004.




Interest
      expense on deposits, the most significant portion of interest-bearing
      liabilities, increased by $6.9 million or 79.9% to $15.6 million in 2005 from
      $8.7 million in 2004. The average balance of deposits increased by $149.7
      million or 36.7% to $557.5 million during 2005 from $407.8 million during
      2004.  The
      average rate paid on these deposits increased to 2.80% in 2005 from 2.13% in
      2004.




Interest
      expense on borrowings, comprised of short-term and long-term borrowings,
      repurchase agreements and subordinated debentures, increased by $2.8 million
      from $1.8 million in 2004 to $4.6 million in 2005. The additional expense
      resulted from an increase of $62.3 million in average borrowings combined with
      an 87 basis point increase in the rate paid on average borrowings from 2.66%
      in
      2004 to 3.53% in 2005.




**Provision
      for Loan Losses**




The
      provision for loan losses was $934 thousand in 2005, an increase of $633 from
      2004. The increase in 2005 is due primarily to an increase in the growth of
      net
      loans receivable of $116.7 million.




**Noninterest
      Income**




Noninterest
      income was a negative $1.9 million in 2005, consisting primarily of losses
      from
      the sale of investment securities of $3.0 million and a loss on the sale of
      loans of $226 thousand, offset by $433 thousand in service charges on deposit
      accounts and an increase in the cash surrender value of bank-owned life
      insurance (“BOLI”) of $471 thousand. Noninterest income amounted to $1.8 million in 2004 and consisted primarily
      of
      $997 thousand of realized gains on the sale of investment securities;
      $370 thousand in service charges on deposit accounts and
      an
      increase in the cash surrender value of bank-owned life insurance (“BOLI”) of
      $66 thousand .




**Noninterest
      Expense**




Noninterest
      expense amounted to $13.0 million in 2005 compared to $9.1 million in 2004.
      This
      increase is primarily due to increased salaries and benefits and additional
      occupancy expense attributed to the development of the Bank’s infrastructure and
      branch locations.







-
            27
            -





Salaries
      and employee benefits increased from $5.1 million in 2004 to $7.4 million in
      2005. This increase was due to higher staffing levels as the number of full-time
      equivalent employees increased from 131 to 185 at December 31, 2004 and 2005,
      respectively. Annual merit increases also contributed to the
      increase.




Occupancy,
      equipment and furnishings expense increased 63.3% from $1.2 million in 2004
      to
      $2.0 million in 2005. This increase was primarily the result of equipment costs
      associated with the increased number of full-time equivalent employees and
      the
      occupancy of three additional branch offices during 2005. Data processing and
      operations expense
      increased from $683 thousand during 2004 to $789 thousand during 2005, resulting
      from increases in the number of customer accounts from 2004 and
      2005.




**Income
      Taxes**




The
      Company recorded an income tax benefit of $1.3 million for the year ended
      December 31, 2005 compared with income tax expense of $1.7 million during 2004.
      The change was due to a pre-tax loss of $1.8 million during 2005 compared to
      pre-tax income of $5.3 million for the year ended December 31, 2004, combined
      with changes in the Company’s effective tax rate. The Company’s effective tax
      rates were (73.7)% in 2005 and 33.0% in 2004. The change in the Company’s
      effective tax rate from 2005 to 2004 was due to increases in interest income
      from tax-exempt securities, earnings on bank-owned life insurance and the effect
      on taxable income of certain state tax credits from 2005 to 2004.







-
            28
            -





**FINANCIAL
      CONDITION**




**Lending
      Activities**




The
      following table summarizes the composition of the Company’s loan
      portfolio.




**Loan
                Portfolio Composition****At
                December 31,*****(Dollars
                in thousands*****)**
            **2006**
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2002****Amount**
            
            **Percent**
            
            **Amount**
            
            **Percent**
            
            **Amount**
            
            **Percent**
            
            **Amount**
            
            **Percent**
            
            **Amount**
            
            **Percent**Real
                estate loans:Residential
            $
            253,709
            
            49.6
            %
            
            $
            223,917
            
            55.2
            %
            
            $
            197,477
            
            68.0
            %
            
            $
            170,830
            
            76.1
            %
            
            $
            109,518
            
            77.2
            %Home
                equity
            
            53,676
            
            10.5
            
            
            
            49,874
            
            12.3
            
            
            
            27,678
            
            9.5
            
            
            
            19,924
            
            8.9
            
            
            
            11,997
            
            8.5Commercial
            
            78,666
            
            15.4
            
            
            
            51,758
            
            12.7
            
            
            
            27,637
            
            9.5
            
            
            
            19,594
            
            8.7
            
            
            
            13,004
            
            9.2Construction
            
            25,481
            
            5.0
            
            
            
            5,319
            
            1.3
            
            
            
            5,776
            
            2.0
            
            
            
            1,459
            
            0.7
            
            
            
            264
            
            0.2Total
                mortgage loans
            
            411,532
            
            80.5
            
            
            
            330,868
            
            81.5
            
            
            
            258,568
            
            89.0
            
            
            
            211,807
            
            94.4
            
            
            
            134,783
            
            95.1Commercial
                and industrial loans
            
            55,055
            
            10.8
            
            
            
            36,940
            
            9.1
            
            
            
            12,236
            
            4.2
            
            
            
            11,379
            
            5.1
            
            
            
            6,567
            
            4.6Automobile
                loans
            
            43,719
            
            8.6
            
            
            
            37,626
            
            9.3
            
            
            
            19,428
            
            6.7
            
            
            
            839
            
            0.4
            
            
            
            -
            
            -Other
                consumer loans
            
            659
            
            0.1
            
            
            
            491
            
            0.1
            
            
            
            249
            
            0.1
            
            
            
            361
            
            0.1
            
            
            
            434
            
            0.3Total
                loans
            
            510,965
            
            100.0
            %
            
            
            405,925
            
            100.0
            %
            
            
            290,481
            
            100.0
            %
            
            
            224,386
            
            100.0
            %
            
            
            141,784
            
            100.0
            %Allowance
                for loan losses
            
            (3,781)
            
            
            
            
            
            (2,910)
            
            
            
            
            
            (2,097)
            
            
            
            
            
            (1,807)
            
            
            
            
            
            (1,377)Deferred
                loan costs, net
            
            6,744
            
            
            
            
            
            6,321
            
            
            
            
            
            4,260
            
            
            
            
            
            3,373
            
            
            
            
            
            1,851Total
                loans, net
            $
            513,928
            
            
            
            
            $
            409,336
            
            
            
            
            $
            292,644
            
            
            
            
            $
            225,952
            
            
            
            
            $
            142,258




During
      2006, loans increased $104.6 million from $409.3 million to $513.9 million.
      At
      December 31, 2006, the portfolio consists of 80.5% mortgage loans secured by
      real estate, 10.8% commercial and industrial loans and 8.7% consumer loans.
      The
      loan portfolio had a weighted average interest yield of 6.46% at December 31,
      2006 and 6.05% at December 31, 2005.




The
      following table summarizes nonaccrual loans and non-performing
      assets.




**Delinquent
                and Non-performing Assets*****(Dollars
                in thousands)***
            **At
                December 31,****2006**
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2002**Nonaccrual
                loans
            $
            3,548
            
            
            $
            625
            
            
            $
            459
            
            
            $
            287
            
            
            $
            821Accruing
                loans contractually past due over 90 days
            
            -
            
            
            
            662
            
            
            
            189
            
            
            
            49
            
            
            
            359Foreclosed
                assets
            
            91
            
            
            
            126
            
            
            
            56
            
            
            
            202
            
            
            
            58Total
                non-performing assets
            $
            3,639
            
            
            $
            1,413
            
            
            $
            704
            
            
            $
            538
            
            
            $
            1,238Non-performing
                loans to total loans
            
            0.69
            %
            
            
            0.31
            %
            
            
            0.22
            %
            
            
            0.15
            %
            
            
            0.82
            %Non-performing
                assets to total assets
            
            0.41
            %
            
            
            0.18
            %
            
            
            0.10
            %
            
            
            0.14
            %
            
            
            0.55
            %




The
      increase in nonaccrual loans in 2006 relates principally to two real estate
      construction loans in Western New York. Both loans are secured by the projects
      and personal guarantees of the borrowers. One project has experienced
      construction delays and the other slow sales of lots.




Interest
      income that would have been recorded had nonaccrual loans been current in
      accordance with their original terms amounted to $167 thousand in 2006, $9
      thousand in 2005, $20 thousand in 2004, $7 thousand in 2003 and $39 thousand
      in
      2002.







-
            29
            -





**Allowance
      for Loan Losses**




The
      following table summarizes the activity in the allowance for loan
      losses.




**Loan
                Loss Analysis****Year
                Ended December 31,*****(Dollars
                in thousands)***
            **2006**
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2002**Allowance
                for loan losses, beginning of year
            $
            2,910
            
            
            $
            2,097
            
            
            $
            1,807
            
            
            $
            1,377
            
            
            $
            925Charge-offs:Residential
                mortgage
            
            (10)
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (15)Commercial
                loans
            
            -
            
            
            
            (6)
            
            
            
            -
            
            
            
            -
            
            
            
            (4)Consumer
                loans
            
            (151)
            
            
            
            (59)
            
            
            
            (13)
            
            
            
            (10)
            
            
            
            (1)Total
                charge-offs
            
            (161)
            
            
            
            (65)
            
            
            
            (13)
            
            
            
            (10)
            
            
            
            (20)Recoveries
                - consumer
                loans
            
            2
            
            
            
            9
            
            
            
            2
            
            
            
            -
            
            
            
            1Net
                charge-offs
            
            (159)
            
            
            
            (56)
            
            
            
            (11)
            
            
            
            (10)
            
            
            
            (19)Provision
                for loan losses
            
            1,030
            
            
            
            934
            
            
            
            301
            
            
            
            440
            
            
            
            471Allowance
                related to loans sold
            
            -
            
            
            
            (65)
            
            
            
            -
            
            
            
            -
            
            
            
            -Allowance
                for loan losses, end of year
            $
            3,781
            
            
            $
            2,910
            
            
            $
            2,097
            
            
            $
            1,807
            
            
            $
            1,377Net
                charge-offs to average loans
            
            0.03
            %
            
            
            0.02
            %
            
            
            0.01
            %
            
            
            0.01
            %
            
            
            0.02
            %Allowance
                to end of period loans
            
            0.73
            %
            
            
            0.71
            %
            
            
            0.71
            %
            
            
            0.79
            %
            
            
            0.96
            %Allowance
                to end of period non-performing loans
            
            106.58
            %
            
            
            226.04
            %
            
            
            323.72
            %
            
            
            539.02
            %
            
            
            116.69
            %




The
      following table summarizes the allocation of the allowance for loan losses
      among
      the various categories of loans.




**Allowance
                for Loan Losses****At
                December 31,****2006**
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2002****Percentage**
            
            
            
            **Percentage**
            
            
            
            **Percentage**
            
            
            
            **Percentage**
            
            
            
            **Percentage****Loan**
            
            **of
                loans by**
            
            **Loan**
            
            **of
                loans by**
            
            **Loan**
            
            **of
                loans by**
            
            **Loan**
            
            **of
                loans by**
            
            **Loan**
            
            **of
                loans by*****(Dollars
                in thousands*****)**
            **Loss**
            
            **category
                to**
            
            **Loss**
            
            **category
                to**
            
            **Loss**
            
            **category
                to**
            
            **Loss**
            
            **category
                to**
            
            **Loss**
            
            **category
                to****Allowance**
            
            **total
                loans**
            
            **Allowance**
            
            **total
                loans**
            
            **Allowance**
            
            **total
                loans**
            
            **Allowance**
            
            **total
                loans**
            
            **Allowance**
            
            **total
                loans**Real
                estate loans:Residential
            $
            1,217
            
            49.6
            %
            
            $
            1,009
            
            55.2
            %
            
            $
            1,036
            
            68.0
            %
            
            $
            1,039
            
            76.1
            %
            
            $
            775
            
            77.2
            %Home
                equity
            
            443
            
            10.5
            
            
            
            429
            
            12.3
            
            
            
            224
            
            9.5
            
            
            
            199
            
            8.9
            
            
            
            119
            
            8.5Commercial
            
            656
            
            15.4
            
            
            
            514
            
            12.7
            
            
            
            325
            
            9.5
            
            
            
            288
            
            8.7
            
            
            
            331
            
            9.2Construction
            
            443
            
            5.0
            
            
            
            75
            
            1.3
            
            
            
            71
            
            2.0
            
            
            
            10
            
            0.7
            
            
            
            1
            
            0.2Commercial
                andindustrial
                loans
            
            481
            
            10.8
            
            
            
            428
            
            9.1
            
            
            
            171
            
            4.2
            
            
            
            256
            
            5.1
            
            
            
            145
            
            4.6Automobile
                loans
            
            533
            
            8.6
            
            
            
            450
            
            9.3
            
            
            
            267
            
            6.7
            
            
            
            11
            
            0.4
            
            
            
            -
            
            -Other
                consumer loans
            
            8
            
            0.1
            
            
            
            5
            
            0.1
            
            
            
            3
            
            0.1
            
            
            
            4
            
            0.1
            
            
            
            6
            
            0.3Total
            $
            3,781
            
            100.0
            %
            
            $
            2,910
            
            100.0
            %
            
            $
            2,097
            
            100.0
            %
            
            $
            1,807
            
            100.0
            %
            
            $
            1,377
            
            100.0
            %




Management
      believes that the allowance for loan losses at December 31, 2006 is adequate
      to
      cover probable losses in the loan portfolio at that date. Factors beyond the
      Company's control, however, such as general national and local economic
      conditions, can adversely impact the adequacy of the allowance for loan losses.
      As a result, no assurance can be given that adverse economic conditions or
      other
      circumstances will not result in increased losses in the portfolio or that
      the
      allowance for loan losses will be sufficient to meet actual loan
      losses.







-
            30
            -





**Investment
      Activities**




The
      Company’s investment policy is designed to manage liquidity, interest rate risk,
      asset quality and yield. Performance of the Company’s investment portfolio is
      evaluated on a regular basis by management and the Asset/Liability Committee
      of
      the Board of Directors. The Company classifies its investment securities as
      either available for sale or held to maturity and these classifications are
      reviewed each reporting period




Available
      for sale investments may be sold in response to changing market and interest
      rate conditions or for other business purposes. Activity in this portfolio
      is
      undertaken to manage liquidity and interest rate risk and to take advantage
      of
      market opportunities. This portfolio increased $21.9 million in 2006 to $233.9
      million at December 31, 2006. Purchases of available for sale securities totaled
      $55.1 million during the year. There were no sales of available for sale
      securities in 2006. The average estimated life of available for sale securities
      in 2006, taking into account prepayment estimates on mortgage backed securities
      based on historical information, was 4.4 years. The investments had a weighted
      average yield of 5.08% at December 31, 2006. The portfolio had an estimated
      life
      of 4.3 years and a weighted average yield of 4.88% at December 31, 2005. The
      available for sale portfolio had net unrealized losses of $4.0 million and
      $4.5
      million at December 31, 2006 and 2005, respectively. The Company concluded
      that
      the unrealized losses at December 31, 2006 and 2005 were temporary in
      nature.




Securities
      classified as held to maturity are carried at amortized cost. The
      portfolio totaled $16.0 million at December 31, 2006 and 2005. There were no
      purchases of held
      to
      maturity securities
      during 2006. The average estimated life of held
      to
      maturity securities
      was 11.2 years at December 31, 2006 and the weighted average yield was 3.97%
      at
      December 31, 2006. This compared to 12.2 years and a weighted average yield
      of
      3.87% at December 31, 2005. The held
      to
      maturity portfolio had
      net
      unrealized losses of $239 thousand and $404 thousand at December 31, 2006 and
      2005, respectively.




The
      following table summarizes the composition of the available for sale and held
      to
      maturity security portfolios.




**At
                December 31,****2006**
            
            **2005**
            
            **2004*****(Dollars
                in thousands)***
            **Amortized**
            
            **Fair**
            
            **Amortized**
            
            **Fair**
            
            **Amortized**
            
            **Fair****Cost**
            
            **Value**
            
            **Cost**
            
            **Value**
            
            **Cost**
            
            **Value**Securities
                available for sale:U.S.
                Government agency obligations
            $
            19,997
            
            $
            19,674
            
            $
            19,996
            
            $
            19,681
            
            $
            36,979
            
            $
            36,465Mortgage-backed
                securities:Government
                agency issued or guaranteed
            
            42,546
            
            
            41,954
            
            
            35,508
            
            
            35,127
            
            
            75,404
            
            
            74,631Privately
                issued
            
            172,138
            
            
            169,078
            
            
            157,836
            
            
            154,170
            
            
            226,623
            
            
            224,275State
                and municipal obligations
            
            2,155
            
            
            2,139
            
            
            2,162
            
            
            2,131
            
            
            -
            
            
            -Corporate
                and other debt obligations
            
            1,008
            
            
            1,008
            
            
            1,016
            
            
            916
            
            
            2,163
            
            
            2,168Total
                available for sale securities
            
            237,844
            
            
            233,853
            
            
            216,518
            
            
            212,025
            
            
            341,169
            
            
            337,539Securities
                held to maturity:State
                and municipal obligations
            
            12,987
            
            
            12,744
            
            
            13,014
            
            
            12,624
            
            
            4,101
            
            
            4,070Corporate
                and other debt obligations
            
            3,010
            
            
            3,014
            
            
            3,010
            
            
            2,996
            
            
            3,010
            
            
            3,002Total
                held to maturity securities
            
            15,997
            
            
            15,758
            
            
            16,024
            
            
            15,620
            
            
            7,111
            
            
            7,072Total
                investment securities
            $
            253,841
            
            $
            249,611
            
            $
            232,542
            
            $
            227,645
            
            $
            348,280
            
            $
            344,611




The
      investment portfolio contains securities issued by the following entities
      (exclusive of obligations of the U.S. Government and Federal agencies) whose
      total amortized cost exceeds 10% of shareholders' equity at December 31,
      2006.




***(Dollars
                in thousands)***
            
            **Amortized**
            
            **Fair****Cost**
            
            **Value**Issuer:Bank
                of America Funding Corporation
            
            $
            26,732
            
            $
            26,487Bank
                of America Mortgage Securities
            
            
            14,931
            
            
            14,647Citicorp
                Mortgage Securities, Inc.
            
            
            14,534
            
            
            14,125Countrywide
                Alternative Loan Trust
            
            
            19,036
            
            
            18,986GMAC
                Mortgage Corporation Loan Trust
            
            
            16,515
            
            
            16,212GSR
                Mortgage Loan Trust
            
            
            16,220
            
            
            15,846Wells
                Fargo MBS Trust
            
            
            25,909
            
            
            25,398







-
            31
            -





**Funding
      Activities**




**Deposits**




Deposits
      comprised of noninterest-bearing demand deposits and interest-bearing savings
      and time deposits represent the Company’s primary source of funding. The Company
      gathers deposits in its market areas by paying competitive interest rates,
      offering high quality customer service, using technology to deliver services
      efficiently and effectively, and by aggressively marketing its products. The
      Company offers a variety of products designed to attract and retain customers,
      with the primary focus on building and expanding long-term relationships. At
      December 31, 2006, total deposits were $634.7 million, representing an increase
      of $13.6 million for the year. The weighted average interest rate on deposits
      was 3.63% at December 31, 2006, representing and increase of 53 basis points
      from year-end 2005. Certificates of deposit at December 31, 2006 and 2005 were
      53.2% and 47.2% of total deposits with weighted average rates of 4.65% and
      3.87%, respectively.




The
      following table summarizes the composition of the Company’s deposits.




**At
                December 31,*****(Dollars
                in thousands)***
            **2006**
            
            **2005**
            
            **2004****Amount**
            
            **Percent**
            
            **Amount**
            
            **Percent**
            
            **Amount**
            
            **Percent**Interest-bearing
                checking
            $
            45,139
            
            7.1
            %
            
            $
            43,579
            
            7.0
            %
            
            $
            40,749
            
            7.7
            %Noninterest-bearing
                checking
            
            37,145
            
            5.9
            
            
            
            23,846
            
            3.8
            
            
            
            19,761
            
            3.7Savings
            
            92,618
            
            14.6
            
            
            
            160,088
            
            25.8
            
            
            
            299,332
            
            56.5Money
                market
            
            121,836
            
            19.2
            
            
            
            100,473
            
            16.2
            
            
            
            8,833
            
            1.7Certificates
                of deposit < $100,000
            
            199,182
            
            31.4
            
            
            
            180,985
            
            29.1
            
            
            
            83,366
            
            15.7Certificates
                of deposit of $100,000 or more
            
            138,736
            
            21.8
            
            
            
            112,113
            
            18.1
            
            
            
            78,059
            
            14.7$
            634,656
            
            100.0
            %
            
            $
            621,084
            
            100.0
            %
            
            $
            530,100
            
            100.0
            %




**Short-term
      Borrowings and** **Securities
      Sold Under Agreements to Repurchase**




At
      December 31, 2006, short-term borrowings consisted of overnight borrowings
      with
      the Federal Home Loan Bank (“FHLB”) of $17.5 million and $400 thousand of
      Treasury Tax and Loan (“TT&L”) deposits obtained through the Bank’s Federal
      Reserve Bank account. At December 31, 2005, short-term borrowings consisted
      of a
      six-month advance due to the FHLB totaling $20.5 million and $400 thousand
      of
      TT&L deposits. The weighted average rate on short-term borrowings was 5.39%
      at December 31, 2006 and 4.67% at December 31, 2005.




Short-term
      borrowings from the FHLB are used to satisfy funding requirements resulting
      from
      daily fluctuations in deposit, loan and investment activities. FHLB borrowings
      are collateralized by certain investment securities, FHLB stock owned by the
      Company and certain qualifying loans. Treasury Tax and Loan deposits can
      fluctuate daily and are generally short-term in nature.




Total
      securities sold under agreements to repurchase were $74.0 million and $82.0
      million at December 31, 2006 and 2005, respectively. Total borrowings and
      repayments under agreements to repurchase during 2006 were $216.0 million and
      $224.0 million, respectively.







-
            32
            -





The
      following table summarizes information relating to the Company’s short-term
      borrowings and repurchase agreements.




**At
                or for the Year Ended December 31,*****(Dollars
                in thousands)***
            
            **2006**
            
            **2005**
            
            **2004**Year-end
                balance:Short-term
                borrowings
            
            $
            17,900
            
            
            $
            20,900
            
            
            $
            30Repurchase
                agreements
            
            
            74,000
            
            
            
            82,000
            
            
            
            119,000Year-end
                weighted average interest rate:Short-term
                borrowings
            
            
            5.39
            %
            
            
            4.66
            %
            
            
            2.00
            %Repurchase
                agreements
            
            
            4.89
            
            
            
            3.86
            
            
            
            2.43Maximum
                outstanding at any month-end:Short-term
                borrowings
            
            $
            30,184
            
            
            $
            33,139
            
            
            $
            6,310Repurchase
                agreements
            
            
            112,500
            
            
            
            109,000
            
            
            
            129,000Average
                balance during the year:Short-term
                borrowings
            
            $
            13,277
            
            
            $
            18,410
            
            
            $
            860Repurchase
                agreements
            
            
            73,795
            
            
            
            99,318
            
            
            
            58,075Average
                interest rate for the year:Short-term
                borrowings
            
            
            4.90
            %
            
            
            3.69
            %
            
            
            1.34
            %Repurchase
                agreements
            
            
            4.58
            
            
            
            3.18
            
            
            
            2.39




**Subordinated
      Debentures and Long-term Debt**




In
      June
      2004, GLB established Great Lakes Bancorp Statutory Trust I, which issued 12,000
      floating rate pooled trust preferred securities with a liquidation preference
      of
      $1,000 per security. The trust preferred securities represent an interest in
      the
      related subordinated debentures of the Company, which were purchased by the
      Trust and have substantially the same payment terms as these trust preferred
      securities. The subordinated debentures are the only assets of the Trust and
      interest payments from the debentures finance the distributions paid on the
      trust preferred securities. Distributions on the debentures are payable
      quarterly at a variable interest rate equal to 3-month LIBOR plus 2.70% (8.06%
      and 7.20% at December 31, 2006 and 2005, respectively). The interest rate resets
      quarterly.




There
      was
      no long-term debt outstanding at December 31, 2006 and 2005. In June 2004,
      the
      Company  utilized
      a portion of the proceeds from the issuance of subordinated debentures to retire
      a $5.0 million note payable to a bank. Interest expense on the note totaled
      $102
      thousand in 2004.




**Shareholders’
      Equity**




Shareholders’
      equity increased by $100.0 million in 2006 to $135.5 million at December 31,
      2006. The Bay View merger contributed $100.5 million to shareholders’ equity,
      net of merger costs. An increase in the fair value of available for sale
      securities increased equity by $306 thousand and the 2006 net loss reduced
      equity by $896 thousand.




The
      Bank
      is subject to various regulatory capital requirements administered by the
      Federal Deposit Insurance Corporation (FDIC) and the New York State Banking
      Department (NYSBD). At December 31, 2006, the Bank’s equity as a percentage of
      total assets exceeded all regulatory requirements. For detailed information
      on
      regulatory capital, see Note 13 of the notes to consolidated financial
      statements.




**LIQUIDITY
      AND CAPITAL RESOURCES**




The
      Company’s primary sources of funds are customer deposits, short-term borrowings
      and proceeds from principal and interest payments on loans, mortgage-backed
      securities and investment securities. While maturities and scheduled
      amortization of loans and mortgage-backed securities are a predictable source
      of
      funds, deposit flows and mortgage prepayments are influenced by the general
      level of interest rates, economic conditions, competition and changes in
      consumer preferences. In general, as interest rates rise, cash flows from
      mortgage prepayments and principal paydowns on our mortgage-backed securities
      decrease.




The
      overall asset/liability strategy of the Company takes into account the need
      to
      maintain adequate liquidity to fund asset growth and deposit runoff. The
      Company’s liquidity position is monitored daily in conjunction with the Federal
      Reserve position monitoring. The Company may borrow funds from the Federal
      Home
      Loan Bank on a short or longer-term basis. The Company may sell or pledge
      investment securities to create additional liquidity. The Company’s deposit base
      provides the most significant source of funds.




The
      Bank
      is required to maintain specific amounts of capital pursuant to FDIC
      regulations. As of December 31, 2006, the Bank was in compliance with all
      regulatory capital requirements. The Bank had a total risk-based capital to
      risk-weighted assets ratio of 10.8%, a Tier 1 risk-based capital to
      risk-weighted assets ratio of 10.0% and a leverage ratio of 5.8% at December
      31,
      2006 These ratios exceed the minimum capital ratios as required by Federal
      and
      state regulations.







-
            33
            -





**Contractual
      Obligations and Other Commitments**




The
      following table summarizes the maturities of various contractual obligations
      and
      other commitments.




**At
                December 31, 2006*****(Dollars
                in thousands)***
            **Less
                than 1**
            
            **Over
                1 to 3**
            
            **Over
                3 to 5**
            
            **Over
                5****year**
            
            **years**
            
            **years**
            
            **years**
            
            **Total**Certificates
                of deposit(1)
            $
            272,659
            
            $
            64,349
            
            $
            910
            
            $
            -
            
            $
            337,918Borrowings
            
            17,900
            
            
            29,000
            
            
            45,000
            
            
            -
            
            
            91,900Subordinated
                debentures
            
            -
            
            
            -
            
            
            -
            
            
            12,372
            
            
            12,372Commitments
                to extend credit(2)
            
            90,961
            
            
            -
            
            
            -
            
            
            -
            
            
            90,961Standby
                letters of credit
            
            7,082
            
            
            13,854
            
            
            -
            
            
            -
            
            
            20,936Operating
                leases
            
            198
            
            
            327
            
            
            50
            
            
            -
            
            
            575Total
                contractual obligations
            $
            388,800
            
            $
            107,530
            
            $
            45,960
            
            $
            12,372
            
            $
            554,662




(1)
            Includes
                the maturity of certificates of deposit amounting to $100 thousand
                or more
                as follows: $25.9 million in three months or less; $33.4 million
                between
                three months and six months; $56.9 million between six months and
                one
                year; and $22.4 million over one
                year.




(2)
            We
                do not expect all of our commitments to extend credit and standby
                letters
                of credit to be funded. Thus, the total commitment amounts do not
                necessarily represent our future cash
                requirements.




With
      the
      exception of the Company’s obligations in connection with its trust preferred
      securities and in connection with its irrevocable letters of credit and loan
      commitments, the Company had no other off-balance sheet arrangements that have
      or are reasonably likely to have a current or future effect on its financial
      condition, changes in financial condition, revenues or expenses, results of
      operations, liquidity, capital expenditures or capital resources that is
      material to investors. For additional information on off-balance sheet
      arrangements, see “Note 1 - Summary of Significant Accounting Policies,” “Note 2
      - Merger with Bay View Capital Corporation” and “Note 12 - Commitments and
      Contingencies” in the notes to the accompanying consolidated financial
      statements.





-
            34
            -





The
      contractual maturities of the available for sale and held to maturity portfolios
      are summarized in the following table. The table does not reflect the impact
      of
      prepayments or redemptions that could substantially reduce the lives of the
      securities from the stated contractual maturities.




**At
                December 31, 2006****Weighted*****(Dollars
                in thousands)***
            
            **Amortized**
            
            **Average****Cost**
            
            **Yield****(1)**Securities
                available for sale:U.S.
                Government agency obligations:Due
                from five to ten years
            
            $
            12,000
            
            
            4.96
            %Due
                after ten years
            
            
            7,997
            
            
            4.95Mortgage-backed
                securities:(2)Government
                agency issued or guaranteedDue
                from five to ten years
            
            
            1,366
            
            
            4.98Due
                after ten years
            
            
            41,180
            
            
            5.04Privately
                issuedDue
                after ten years
            
            
            172,138
            
            
            5.13State
                and municipal obligations:Due
                from one to five years
            
            
            535
            
            
            4.97Due
                from five to ten years
            
            
            1,620
            
            
            5.50Corporate
                and other debt obligations:Due
                from one to five years
            
            
            1,008
            
            
            5.33237,844
            
            
            5.10Securities
                held to maturity:State
                and municipal obligations:Due
                from one to five years
            
            
            868
            
            
            4.36Due
                from five to ten years
            
            
            11,916
            
            
            5.22Due
                after ten years
            
            
            203
            
            
            5.30Corporate
                and other debt obligations:Due
                after ten years
            
            
            3,010
            
            
            6.3915,997
            
            
            5.39Total
                investment securities
            
            $
            253,841
            
            
            5.12
            %




(1)
            The
                weighted average yields are stated on a federal tax equivalent basis
                using
                a tax rate of 34%.




(2)
            Does
                not reflect estimated prepayments of mortgage-backed securities;
                estimated
                lives are significantly shorter than contractual
                maturities.




The
      following table summarizes the contractual maturities of the Company’s loan
      portfolio at December 31, 2006. Loans with adjustable or renegotiable interest
      rates are shown as maturing in the period in which the contract is due. The
      table reflects the entire unpaid principal balance of a loan in the maturity
      period that includes the final payment date, and accordingly, does not reflect
      the effects of scheduled payments or possible prepayments.




**Contractual
                Loan Maturity****At
                December 31, 2006*****(Dollars
                in thousands*****)**
            **Less
                than**
            
            **One
                to**
            
            **More
                than****One
                Year**
            
            **Five
                Years**
            
            **Five
                Years**
            
            **Total**Real
                estate loans:Residential
            $
            1,195
            
            $
            743
            
            $
            251,771
            
            $
            253,709Home
                equity
            
            2
            
            
            2,251
            
            
            51,423
            
            
            53,676Commercial
            
            911
            
            
            28,893
            
            
            48,862
            
            
            78,666Construction
            
            21,823
            
            
            3,292
            
            
            366
            
            
            25,481Total
                mortgage loans
            
            23,931
            
            
            35,179
            
            
            352,422
            
            
            411,532Commercial
                and industrial loans
            
            23,016
            
            
            25,208
            
            
            6,831
            
            
            55,055Automobile
                loans
            
            154
            
            
            36,680
            
            
            6,885
            
            
            43,719Other
                consumer loans
            
            109
            
            
            308
            
            
            242
            
            
            659Total
                loans
            $
            47,210
            
            $
            97,375
            
            $
            366,380
            
            $
            510,965





-
            35
            -





The
      following table summarizes fixed rate and adjustable rate loans at December
      31,
      2006 that are contractually due after December 31, 2007.




**Interest
                Sensitivity****Loans
                Due After December 31, 2007****Floating
                or*****(Dollars
                in thousands)***
            
            **Fixed**
            
            **Adjustable****Rate**
            
            **Rates**
            
            **Total**Real
                estate loans:Residential
            
            $
            206,309
            
            $
            46,205
            
            $
            252,514Home
                equity
            
            
            21,536
            
            
            32,138
            
            
            53,674Commercial
            
            
            18,379
            
            
            59,376
            
            
            77,755Construction
            
            
            368
            
            
            3,290
            
            
            3,658Total
                mortgage loans
            
            
            246,592
            
            
            141,009
            
            
            387,601Commercial
                and industrial loans
            
            
            18,017
            
            
            14,022
            
            
            32,039Automobile
                loans
            
            
            43,565
            
            
            -
            
            
            43,565Other
                consumer loans
            
            
            550
            
            
            -
            
            
            550Total
                loans
            
            $
            308,724
            
            $
            155,031
            
            $
            463,755








-
            36
            -







**ITEM
      7A.**  **QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**







The
      Company’s Board of Directors has formulated an Interest Rate Risk Management
      (“IRR”) policy designed to promote long-term profitability while managing
      interest rate risk. An Asset/Liability Committee comprised of members of senior
      management and the Board of Directors is responsible for the management of
      interest rate risk. This Committee meets monthly and reports to the Board of
      Directors concerning asset/liability policies, strategies and the Company’s
      current interest rate risk position. The Committee’s first priority is to
      structure and price the Company’s assets and liabilities to maintain an
      acceptable interest rate spread while reducing the net effects of change in
      interest rates.




The
      primary objectives of the Company’s interest rate risk management strategy are
      to evaluate the interest rate risk inherent in certain balance sheet accounts;
      determine the appropriate level of interest rate risk given the Company’s
      business plan, the current business environment and its capital and liquidity
      requirements; and manage interest rate risk in a manner consistent with the
      approved guidelines and policies set by the Board of Directors.




Management
      seeks to coordinate asset and liability decisions so that, under changing
      interest rate scenarios, earnings will remain within an acceptable range. As
      part of this strategy, management
      targets the origination of a sufficient number of loans and purchases investment
      securities with interest rates subject to periodic repricing to market
      conditions. Additionally, management offers higher yields on deposits with
      extended maturities to assist in matching the rate sensitivity of its
      assets.




An
      asset
      or liability is interest rate sensitive within a specific time period if it
      will
      mature or reprice within that time period. If the Company’s assets mature or
      reprice more quickly or to a greater extent than its liabilities, the
      institution’s net portfolio value and net interest income would tend to increase
      during periods of rising interest rates but decrease during periods of declining
      interest rates. If the Company’s assets mature or reprice more slowly or to a
      lesser extent than its liabilities, the Company’s net portfolio value and net
      interest income would tend to decrease during periods of rising interest rates
      but increase during periods of falling interest rates.




The
      Company has contracted with an outside balance sheet consultant who utilizes
      financial data provided by management to review and analyze interest rate risk
      measurements on a quarterly basis. The last current position assessment,
      conducted as of December 31, 2006, concluded that the Company’s interest rate
      risk profile was liability sensitive. Assuming an immediate +200 basis point
      shock to the existing balance sheet, estimated net interest income would
      decrease approximately 5.1% during the first year. Assuming an immediate -200
      basis point shock to the existing balance sheet, estimated net interest income
      would increase approximately 3.8% during the first year.




At
      December 31, 2006, the Company’s one-year “gap” position, the difference between
      the amount of interest-earning assets maturing or repricing within one year
      and
      interest-bearing liabilities maturing or repricing within one year, was a
      negative $37.9 million.
      A gap is considered positive when the amount of interest rate sensitive assets
      exceeds the amount of interest rate sensitive liabilities. A gap is considered
      negative when the amount of interest rate sensitive liabilities exceeds the
      amount of interest rate sensitive assets. Accordingly, during a period of rising
      interest rates, an institution with a negative gap position is likely to
      experience a decline in net interest income as the cost of its interest-bearing
      liabilities increase at a rate faster than its yield on interest-earning assets.
      In comparison, an institution with a positive gap is likely to realize an
      increase in its net interest income in a rising interest rate
      environment.







-
            37
            -





The
      following table sets forth the estimated maturity or repricing and the resulting
      interest sensitivity gap, of the Company's interest-earning assets and
      interest-bearing liabilities and the cumulative interest sensitivity gap at
      December 31, 2006. The expected maturities are presented on a contractual basis
      or, if more relevant, based on projected call dates. Actual maturities may
      differ from contractual maturities because of prepayment assumptions and early
      withdrawal of deposits.




**At
                December 31, 2006****Over
                Three**
            
            **Over****Three**
            
            **Months**
            
            **One
                Year*****(Dollars
                in thousands)***
            **Months**
            
            **Through**
            
            **Through**
            
            **Over****or
                Less**
            
            **One
                Year**
            
            **Five
                Years**
            
            **Five
                Years**
            
            **Total**INTEREST-EARNING
                ASSETS:Interest-earning
                deposits in otherfinancial
                institutions
            $
            4,354
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            4,354Investment
                securities:Available
                for sale
            
            16,828
            
            
            38,416
            
            
            140,524
            
            
            38,085
            
            
            233,853Held
                to maturity
            
            3,021
            
            
            17
            
            
            1,131
            
            
            11,828
            
            
            15,997Federal
                Home Loan Bank stock
            
            2,712
            
            
            -
            
            
            -
            
            
            -
            
            
            2,712Loans
            
            130,672
            
            
            84,297
            
            
            232,381
            
            
            63,615
            
            
            510,965Total
                interest-earning assets
            $
            157,587
            
            $
            122,730
            
            $
            374,036
            
            $
            113,528
            
            
            767,881Cash
                and due from banks
            
            
            
            
            
            
            
            
            
            
            
            
            
            13,595Other
                assets(1)******
            
            
            
            
            
            
            
            
            
            
            
            
            
            102,936Total
                assets
            
            
            
            
            
            
            
            
            
            
            
            
            $
            884,412INTEREST-BEARING
                LIABILITIES:Interest-bearing
                deposits:Savings
                and interest-bearing checking
            $
            4,835
            
            $
            10,419
            
            $
            50,465
            
            $
            193,874
            
            $
            259,593Certificates
                of deposit
            
            92,223
            
            
            180,436
            
            
            65,259
            
            
            -
            
            
            337,918Borrowings
            
            17,900
            
            
            -
            
            
            64,000
            
            
            10,000
            
            
            91,900Subordinated
                debentures
            
            12,372
            
            
            -
            
            
            -
            
            
            -
            
            
            12,372Total
                interest-bearing liabilities
            $
            127,330
            
            $
            190,855
            
            $
            179,724
            
            $
            203,874
            
            
            701,783Noninterest-bearing
                deposits
            
            
            
            
            
            
            
            
            
            
            
            
            
            37,145Other
                liabilities
            
            
            
            
            
            
            
            
            
            
            
            
            
            9,974Total
                liabilities
            
            
            
            
            
            
            
            
            
            
            
            
            
            748,902Shareholders’
                equity
            
            
            
            
            
            
            
            
            
            
            
            
            
            135,510Total
                liabilities and shareholders’ equity
            
            
            
            
            
            
            
            
            
            
            
            
            $
            884,412Interest
                sensitivity gap per period
            $
            30,257
            
            $
            (68,125)
            
            $
            194,312
            
            $
            (90,346)
            
            $
            66,098Cumulative
                interest sensitivity gap
            $
            30,257
            
            $
            (37,868)
            
            $
            156,444
            
            $
            66,098
            
            $
            -Cumulative
                gap as a percentage ofcumulative
                interest-earning assets
            
            19.2%
            
            
            (13.5)%
            
            
            23.9%
            
            
            8.6%




(1)
            Includes
                allowance for loan losses and deferred loan origination
                costs.





-
            38
            -








**ITEM
      8.** **FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA**







The
      information called for by this Item 8 is set forth beginning at page F-1 of
      this
      Form 10-K.







**ITEM
      9.** **CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE** ****







On
      May
      16, 2006, the Company decided to engage KPMG LLP ("KPMG") as its principal
      accountants for the fiscal year ending December 31, 2006 and chose not to renew
      the engagement of Grant Thornton  LLP ("Grant Thornton"), which was then
      serving as the Bay View Capital Corporation's independent auditors.  The
      decision to change accountants was recommended by the Audit Committee and
      approved by the Board of Directors.




Effective
      May 1, 2006, Great Lakes Bancorp, Inc. ("Old Great Lakes") merged into Bay
      View
      Capital Corporation ("BVCC") and BVCC, as the surviving legal entity, changed
      its name to Great Lakes Bancorp, Inc. (“New Great Lakes”). KPMG was serving as
      the principal accountants of Old Great Lakes at the time of the
      merger.




In
      connection with the audits of the consolidated financial statements of BVCC
      and
      subsidiaries as of and for the years ended December 31, 2005 and 2004, and
      the
      subsequent review of the consolidated financial statements for the quarterly
      period ended March 31, 2006, there were no disagreements with Grant Thornton
      through the date of their dismissal, on any matter of accounting principles
      or
      practices, financial statement disclosure or auditing scope or procedures,
      which
      disagreement, if not resolved to Grant Thornton's satisfaction, would have
      caused Grant Thornton to make reference in connection with their opinion of
      the
      subject matter of the disagreement.




The
      audit
      report of Grant Thornton on the consolidated financial statements of BVCC and
      subsidiaries as of and for the year ended December 31, 2005 and on the
      effectiveness of BVCC and subsidiaries' internal control over financial
      reporting as of December 31, 2005 did not contain any adverse opinion or
      disclaimer of opinion, nor was it qualified or modified as to uncertainty,
      audit
      scope, or accounting principles.




The
      audit
      report of Grant Thornton on the consolidated financial statements of BVCC and
      subsidiaries as of and for the year ended December 31, 2004 and on the
      effectiveness of BVCC and subsidiaries' internal control over financial
      reporting as of December 31, 2004 did not contain any disclaimer of opinion,
      nor
      was it qualified or modified as to uncertainty, audit scope, or accounting
      principles, except that it contained an adverse opinion on the effective
      operation of internal control over financial reporting as of December 31, 2004.
       This adverse opinion related to BVCC management's identification of three
      material weaknesses in internal control at December 31, 2004 relating to: (1)
      maintaining effective control over the accounting for a derivative instrument,
      (2) insufficient resources and qualified accounting personnel to identify and
      resolve accounting issues and to provide sufficient supervision and review
      of
      the financial reporting process, and (3) maintaining effective control over
      the
      effectiveness of controls at two third-party service organizations.







**ITEM
      9A.**  **CONTROLS
      AND PROCEDURES**







With
      the
      participation of management, the Principal Executive Officer and Principal
      Financial Officer have evaluated the effectiveness of the design and operation
      of the Company's disclosure controls and procedures (as defined in Rule
      13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2006. Based
      upon that evaluation, the Principal Executive Officer and Principal Financial
      Officer concluded that, as of that date, the Company's disclosure controls
      and
      procedures are effective 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 Securities and Exchange Commission's rules and forms. There
      has
      been no change in the Company's internal control over financial reporting during
      the most recent fiscal quarter that has materially affected, or is reasonably
      likely to materially affect, the Company's internal control over financial
      reporting.







**ITEM
      9B.**  **OTHER
      INFORMATION**







Not
      applicable.





-
            39
            -





**PART** **III**







**ITEM
      10.** **DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE**







The
      information required by this Item is incorporated herein by reference to the
      Company’s Proxy Statement (Schedule 14A) for its 2007 Annual Meeting of
      Shareholders to be filed with the SEC within 120 days of the Company’s fiscal
      year-end.







**ITEM
      11.** **EXECUTIVE
      COMPENSATION**







The
      information required by this Item is incorporated herein by reference to the
      Company’s Proxy Statement (Schedule 14A) for its 2007 Annual Meeting of
      Shareholders to be filed with the SEC within 120 days of the Company’s fiscal
      year-end.







**ITEM
              12.**
            **SECURITY
                OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
                SHAREHOLDER MATTERS**







The
      information required by this Item is incorporated herein by reference to the
      Company’s Proxy Statement (Schedule 14A) for its 2007 Annual Meeting of
      Shareholders to be filed with the SEC within 120 days of the Company’s fiscal
      year-end.







**ITEM
      13.** **CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE**







The
      information required by this Item is incorporated herein by reference to the
      Company’s Proxy Statement (Schedule 14A) for its 2007 Annual Meeting of
      Shareholders to be filed with the SEC within 120 days of the Company’s fiscal
      year-end.







**ITEM
      14.** **PRINCIPAL
      ACCOUNTANT FEES AND SERVICES**







The
      information required by this Item is incorporated herein by reference to the
      Company’s Proxy Statement (Schedule 14A) for its 2007 Annual Meeting of
      Shareholders to be filed with the SEC within 120 days of the Company’s fiscal
      year-end.





-
            40
            -





**PART** **IV**







**ITEM
      15.** **EXHIBITS
      AND FINANCIAL STATEMENT SCHEDULES**





(a)
              **FINANCIAL
                  STATEMENTS**
  Reference
                  is made to the Index to Consolidated Financial Statements of Great
                  Lakes
                  Bancorp, Inc. and Subsidiary under Item 8 in Part II of this Form
                  10-K.
  (b)
              **EXHIBITS**
  The
                  following exhibits are filed as part of this
                  report:


**Exhibit****Number**
              
              **Exhibit**2.1
              
              
              Agreement
                  and Plan of Reorganization, dated as of February 10, 2003, between
                  the
                  Registrantand
                  Greater Buffalo Savings Bank (incorporated by reference to Annex
                  A to the
                  Registrant’sRegistration
                  Statement No. 333-103211 on Form S-4 dated February 14,
                  2003).2.2
              
              
              Agreement
                  and Plan of Merger, dated as of October 26, 2005, between the Registrantand
                  Bay View Capital Corporation (incorporated by reference to Exhibit
                  2.1 to
                  the Registrant’sCurrent
                  Report on Form 8-K dated October 28, 2005).3.1
              
              
              Certificate
                  of Incorporation of the Registrant (incorporated by reference to
                  Annex C
                  to theRegistrant’s
                  Registration Statement No. 333-103211 on Form S-4 dated February
                  14,
                  2003).3.2
              
              
              Bylaws
                  of the Registrant (incorporated by reference to Annex D to the
                  Registrant’s RegistrationStatement
                  No. 333-103211 on Form S-4 dated February 14, 2003).4.1
              
              
              Specimen
                  Common Share Certificate (incorporated by reference to Exhibit
                  4.1 to the
                  Registrant’sRegistration
                  Statement No. 333-103211 on Form S-4 dated February 14,
                  2003).4.2
              
              
              Form
                  of Voting Agreement, dated as of October 26, 2005, between various
                  Officers and Directorsof
                  the Registrant and Bay View Capital Corporation (incorporated by
                  reference
                  to Exhibit 10.1 tothe
                  Registrant’s Current Report on Form 8-K dated October 28,
                  2005).#10.1
              
              
              Employment
                  Agreement dated January 1, 2007 between the Registrant and Andrew
                  W. Dorn,
                  Jr.#10.2
              
              
              Employment
                  Agreement dated January 1, 2007 between the Registrant and Michael
                  J.
                  Rogers#10.3
              
              
              Employment
                  Agreement dated January 1, 2007 between the Registrant and Lawrence
                  Schiavi#10.4
              
              
              Employment
                  Agreement dated March 12, 2007 between the Registrant and Peter
                  B.
                  Babiarz#10.5
              
              
              Great
                  Lakes Bancorp, Inc. 2000 Stock Option Plan, as amended and
                  restated#10.6
              
              
              Great
                  Lakes Bancorp, Inc. 2002 Stock Option Plan, as amended and
                  restated10.7
              
              
              Back
                  Office Services Agreement dated May 11, 1999 between Affiliated
                  Computer
                  Services, Inc.New
                  York and Greater Buffalo Savings Bank (incorporated by reference
                  to
                  Exhibit 10.5 to theRegistrant’s
                  Registration Statement No. 333-103211 on Form S-4 dated February
                  14,
                  2003).10.8
              
              
              Services
                  Agreement between BISYS, Inc. and Greater Buffalo Savings Bank
                  (incorporated byreference
                  to Exhibit 10.6 to the Registrant’s Registration Statement No. 333-103211
                  on Form S-4dated
                  February 14, 2003).







-
          41
          -


**Exhibit****Number**
              
              **Exhibit**#10.9
              
              
              Great
                  Lakes Bancorp., Inc. Stock Purchase Plan (incorporated by reference
                  to
                  Exhibit 4.3 to theRegistrant’s
                  Registration Statement No. 333-116753 on Form S-8 dated June 22,
                  2004).10.10
              
              
              Services
                  Agreement between BISYS Information Solutions L.P. and Greater
                  Buffalo
                  Savings Bank(incorporated
                  by reference to Exhibit 10.1 to the Registrant’s Current Report on Form
                  8-K datedNovember
                  2, 2004).10.11
              
              
              Addendum
                  to Services Agreement No. 1922 dated as of July 1, 2004 between
                  BISYS
                  InformationSolutions
                  L.P. and Greater Buffalo Savings Bank (incorporated by reference
                  to
                  Exhibit 10.2 to theRegistrant’s
                  Current Report on Form 8-K dated November 2, 2004).*21.1
              
              
              Subsidiaries
                  of the Registrant.*31.1
              
              
              Certification
                  of the Chief Executive Officer Pursuant to Rule 13a-14(a) and Rule
                  15d-14(a) of theSecurities
                  Exchange Act of 1934, as amended.*31.2
              
              
              Certification
                  of the Chief Financial Officer Pursuant to Rule 13a-14(a) and Rule
                  15d-14(a) of theSecurities
                  Exchange Act of 1934, as amended.*32.1
              
              
              Certification
                  of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350,
                  asAdopted
                  Pursuant to Section 906 of the Sarbanes-Oxley Act of
                  2002*32.2
              
              
              Certification
                  of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350,
                  asAdopted
                  Pursuant to Section 906 of the Sarbanes-Oxley Act of
                  2002


__________


*  Filed
      herewith


#  Indicates
      management contract or compensatory plan, contract or arrangement





-
            42
            -





**SIGNATURES**




In
      accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
      this report to be signed on its behalf by the undersigned, thereunto duly
      authorized.




**GREAT** **LAKES
      BANCORP** **,
      INC.**






***/s/
                Andrew W. Dorn, Jr.***
            ,
                March 16, 2007Andrew
                W. Dorn, Jr.President
                & Chief Executive Officer(Principal
                Executive Officer)





In
                accordance with the Exchange Act, this report has been signed below
                by the
                following persons on behalfof
                the registrant and in the capacities and on the dates
                indicated.





***/s/
                Michael J. Rogers***
            ,
                March 16, 2007Michael
                J. RogersExecutive
                Vice President & Chief Financial Officer(Principal
                Financial Officer & Principal Accounting Officer)**A
                majority of the Board of Directors*****/s/
                Andrew W. Dorn, Jr.***
            ,
                March 16, 2007Andrew
                W. Dorn, Jr.***/s/
                Charles G. Cooper***
            ,
                March 16, 2007Charles
                G. Cooper***/s/
                William A. Evans***
            ,
                March 16, 2007William
                A. Evans, Esq.***/s/
                Carolyn B. Frank***
            ,
                March 16, 2007Carolyn
                B. Frank***/s/
                Robert B. Goldstein***
            ,
                March 16, 2007Robert
                B. Goldstein***/s/
                Gerard T. Mazurkiewicz***
            ,
                March 16, 2007Gerard
                T. Mazurkiewicz***/s/
                Acea M. Mosey-Pawlowski***
            ,
                March 16, 2007Acea
                M. Mosey-Pawlowski, Esq.***/s/
                Dennis M. Penman***
            ,
                March 16, 2007Dennis
                M. Penman




-
          43
          -




***/s/
                John W. Rose***
            ,
                March 16, 2007John
                W. Rose***/s/
                James A. Smith***
            ,
                March 16, 2007James
                A. Smith, M.D.***/s/
                Barry M. Snyder***
            ,
                March 16, 2007Barry
                M. Snyder***/s/
                Louis J. Thomas***
            ,
                March 16, 2007Louis
                J. Thomas***/s/
                David L. Ulrich***
            ,
                March 16, 2007David
                L. Ulrich***/s/
                Frederick A. Wolf***
            ,
                March 16, 2007Frederick
                A. Wolf, Esq.




-
          44
          -


**ITEM
        8.** **FINANCIAL
        STATEMENTS AND SUPPLEMENTARY DATA**
 
 
 
 **GREAT
                  LAKES BANCORP, INC. AND SUBSIDIARY****Index
                  to Consolidated Financial Statements**
 
 **Page**Management’s
                  Report on Internal Control over Financial Reporting
              
              F
                  -
                  2Reports
                  of Independent Registered Public Accounting Firm on the Consolidated
                  Financial Statements
              
              F
                  -
                  3Consolidated
                  Balance Sheets at December 31, 2006 and 2005
              
              F
                  -
                  5Consolidated
                  Statements of Operations for the years ended December 31, 2006,
                  2005 and
                  2004
              
              F
                  -
                  6Consolidated
                  Statements of Shareholders’ Equity for the years ended December 31, 2006,
                  2005 and 2004
              
              F
                  -
                  7Consolidated
                  Statements of Cash Flows for the years ended December 31, 2006,
                  2005 and
                  2004
              
              F
                  -
                  8Notes
                  to Consolidated Financial Statements
              
              F
                  -
                  9
   
  **Management’s
        Report on Internal Control over Financial Reporting**
  Management
        is responsible for establishing and maintaining adequate internal control
        over
        financial reporting for Great Lakes Bancorp, Inc. and its subsidiary (the
        "Company"), as such term is defined in Exchange Act Rules 13a-15(f). The
        Company’s system of internal control over financial reporting has been designed
        to provide reasonable assurance to the Company’s management and board of
        directors regarding the reliability of financial reporting and the preparation
        and fair presentation of financial statements for external purposes in
        accordance with accounting principles generally accepted in the United States
        of
        America.
  Any
        system of internal control over financial reporting, no matter how well
        designed, has inherent limitations, including the possibility that a control
        can
        be circumvented or overridden and misstatements due to error or fraud may
        occur
        and not be detected. Also, because of changes in conditions, internal control
        effectiveness may vary over time. Accordingly, even an effective system of
        internal control will provide only reasonable assurance with respect to
        financial statement preparation and presentation.
  The
        Company’s management has assessed the effectiveness of the Company’s internal
        control over financial reporting as of December 31, 2006. To make this
        assessment, we used the criteria for effective internal control over financial
        reporting described in *Internal
        Control - Integrated Framework* ,
        issued
        by the Committee of Sponsoring Organizations of the Treadway Commission.
        Based
        on our assessment and based on such criteria, we believe that, as of
        December 31, 2006, the Company’s internal control over financial reporting
        was effective.
  The
        Company’s independent registered public accounting firm that audited the
        Company’s consolidated financial statements has issued an attestation report on
        management’s assessment of internal control over financial reporting as of
        December 31, 2006. That report appears herein.
   
  ***/s/
                  Andrew W. Dorn, Jr.***
              
              ***/s/
                  Michael J. Rogers***Andrew
                  W. Dorn, Jr.
              
              Michael
                  J. RogersPresident
                  and Chief Executive Officer
              
              Executive
                  Vice President and Chief Financial OfficerMarch
                  15, 2007
              
              March
                  15, 2007
  F-2
  **Report
        of Independent Registered Public Accounting Firm**
  The
        Board
        of Directors and Stockholders
 Great
        Lakes Bancorp, Inc.:
 
 We
        have
        audited management's assessment, included in the accompanying Management's
        Report on Internal Control over Financial Reporting, that Great Lakes Bancorp,
        Inc. and subsidiary (the Company) maintained effective internal control over
        financial reporting as of December 31, 2006, based on criteria established
        in
        Internal Control *-* Integrated
        Framework issued by the Committee of Sponsoring Organizations of the Treadway
        Commission (COSO). The Company's management is responsible for maintaining
        effective internal control over financial reporting and for its assessment
        of
        the effectiveness of internal control over financial reporting. Our
        responsibility is to express an opinion on management's assessment and an
        opinion on the effectiveness of the Company's internal control over financial
        reporting based on our audit.
  We
        conducted our audit in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether effective
        internal control over financial reporting was maintained in all material
        respects. Our audit included obtaining an understanding of internal control
        over
        financial reporting, evaluating management's assessment, testing and evaluating
        the design and operating effectiveness of internal control, and performing
        such
        other procedures as we considered necessary in the circumstances. We believe
        that our audit provides a reasonable basis for our opinion.
  A
        company's internal control over financial reporting is a process designed
        to
        provide reasonable assurance regarding the reliability of financial reporting
        and the preparation of financial statements for external purposes in accordance
        with generally accepted accounting principles. A company's internal control
        over
        financial reporting includes those policies and procedures that (1) pertain
        to
        the maintenance of records that, in reasonable detail, accurately and fairly
        reflect the transactions and dispositions of the assets of the company; (2)
        provide reasonable assurance that transactions are recorded as necessary
        to
        permit preparation of financial statements in accordance with generally accepted
        accounting principles, and that receipts and expenditures of the company
        are
        being made only in accordance with authorizations of management and directors
        of
        the company; and (3) provide reasonable assurance regarding prevention or
        timely
        detection of unauthorized acquisition, use, or disposition of the company's
        assets that could have a material effect on the financial
        statements.
  Because
        of its inherent limitations, internal control over financial reporting may
        not
        prevent or detect misstatements. Also, projections of any evaluation of
        effectiveness to future periods are subject to the risk that controls may
        become
        inadequate because of changes in conditions, or that the degree of compliance
        with the policies or procedures may deteriorate.
  In
        our
        opinion, management's assessment that the Company maintained effective internal
        control over financial reporting as of December 31, 2006, is fairly stated,
        in
        all material respects, based on criteria established in Internal
        Control *-* Integrated
        Framework issued by the Committee of Sponsoring Organizations of the Treadway
        Commission (COSO). Also, in our opinion, the Company maintained, in all material
        respects, effective internal control over financial reporting as of December
        31,
        2006, based on criteria established in Internal Control - Integrated Framework
        issued by the Committee of Sponsoring Organizations of the Treadway Commission
        (COSO).
  We
        also
        have audited, in accordance with the standards of the Public Company Accounting
        Oversight Board (United States), the consolidated balance sheets of Great
        Lakes
        Bancorp, Inc. and subsidiary as of December 31, 2006 and 2005, and the related
        consolidated statements of operations, shareholders' equity, and cash flows
        for
        each of the years in the three-year period ended December 31, 2006, and our
        report dated March 15, 2007 expressed an unqualified opinion on those
        consolidated financial statements.
   ***/s/
        KPMG LLP***
  Buffalo,
        New York
 March
        15,
        2007
  F-3
  **Report
        of Independent Registered Public Accounting Firm**
   The
        Board
        of Directors and Shareholders
   Great
        Lakes Bancorp, Inc.:
  We
        have
        audited the accompanying consolidated balance sheets of Great Lakes Bancorp,
        Inc. and subsidiary (the Company) as of December 31, 2006 and 2005, and the
        related consolidated statements of operations, shareholders’ equity, and cash
        flows for each of the years in the three-year period ended December 31, 2006.
        These consolidated financial statements are the responsibility of the Company’s
        management. Our responsibility is to express an opinion on these consolidated
        financial statements based on our audits.
  We
        conducted our audits in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether the financial
        statements are free of material misstatement. An audit includes examining,
        on a
        test basis, evidence supporting the amounts and disclosures in the financial
        statements. An audit also includes assessing the accounting principles used
        and
        significant estimates made by management, as well as evaluating the overall
        financial statement presentation. We believe that our audits provide a
        reasonable basis for our opinion.
   In
        our
        opinion, the consolidated financial statements referred to above present
        fairly,
        in all material respects, the financial position of Great Lakes Bancorp,
        Inc.
        and subsidiary as of December 31, 2006 and 2005, and the results of their
        operations and their cash flows each of the years in the three-year period
        ended
        December 31, 2006 in conformity with U.S. generally accepted accounting
        principles.
  We
        also
        have audited, in accordance with the standards of the Public Company Accounting
        Oversight Board (United States), the effectiveness of the Company's internal
        control over financial reporting as of December 31, 2006, based on criteria
        established in Internal Control *-* Integrated
        Framework issued by the Committee of Sponsoring Organizations of the Treadway
        Commission (COSO), and our report dated March 15, 2007 expressed an unqualified
        opinion on management's assessment of, and the effective operation of, internal
        control over financial reporting.
  As
        disclosed in Note 1 to the consolidated financial statements, the Company
        adopted SEC Staff Accounting Bulletin No. 108, *Considering
        the Effects of Prior Year Misstatements when Quantifying Misstatements in
        Current Year Financial Statements* and FASB
        Statement No. 123 (revised 2004), *Share-Based Payment* in
        2006.
   ***/s/
        KPMG LLP***
  Buffalo,
        New York
 March
        15,
        2007
  F-4
  **GREAT
        LAKES BANCORP, INC. AND SUBSIDIARY**
 **Consolidated
        Balance Sheets**
 **(In
        thousands, except share and per share data)**
  **December
                  31,**
 **2006**
              
              **2005****ASSETS**Cash
                  and cash equivalents:Cash
                  and due from banks
              
              $
              13,582
              
              $
              13,070Interest-earning
                  deposits in other financial institutions
              
              
              444
              
              
              82,430Total
                  cash and cash equivalents
              
              
              14,026
              
              
              95,500Restricted
                  cash
              
              
              3,923
              
              
              -Securities
                  available for sale, at fair value
              
              
              233,853
              
              
              212,025Securities
                  held to maturity, at amortized cost (fair value of $15,758
                  and$15,620
                  at December 31, 2006 and 2005, respectively)
              
              
              15,997
              
              
              16,024Federal
                  Home Loan Bank stock, at cost
              
              
              2,712
              
              
              3,454Loans,
                  net of allowance for loan losses of $3,781
                  and $2,910, respectively
              
              
              513,928
              
              
              409,336Premises
                  and equipment, net
              
              
              24,765
              
              
              19,180Accrued
                  interest receivable
              
              
              3,694
              
              
              2,887Bank-owned
                  life insurance
              
              
              13,006
              
              
              12,537Deferred
                  tax asset, net
              
              
              43,106
              
              
              1,731Goodwill
              
              
              12,832
              
              
              -Other
                  assets
              
              
              2,570
              
              
              2,427TOTAL
                  ASSETS
              
              $
              884,412
              
              $
              775,101**LIABILITIES
                  AND SHAREHOLDERS’ EQUITY**Deposits:Noninterest-bearing
              
              $
              37,145
              
              $
              23,846Interest-bearing
              
              
              597,511
              
              
              597,238Total
                  deposits
              
              
              634,656
              
              
              621,084Short-term
                  borrowings
              
              
              17,900
              
              
              20,900Securities
                  sold under agreements to repurchase
              
              
              74,000
              
              
              82,000Subordinated
                  debentures
              
              
              12,372
              
              
              12,372Accrued
                  expenses and other liabilities
              
              
              9,974
              
              
              3,152TOTAL
                  LIABILITIES
              
              
              748,902
              
              
              739,508Commitments
                  and contingencies (see
                  Note 12)Shareholders’
                  equity:Common
                  stock - 80,000,000 authorized shares of $0.01 par value;10,923,213
                  shares issued and 10,921,796 outstanding at December 31, 2006;and
                  4,300,436 shares issued and outstanding at December 31,
                  2005
              
              
              109
              
              
              43Additional
                  paid-in capital
              
              
              136,138
              
              
              35,383Retained
                  earnings
              
              
              1,934
              
              
              2,910Treasury
                  stock, at cost; 1,417 shares
              
              
              (234
              )
              
              -Accumulated
                  other comprehensive loss
              
              
              (2,437
              )
              
              (2,743
              )TOTAL
                  SHAREHOLDERS’ EQUITY
              
              
              135,510
              
              
              35,593TOTAL
                  LIABILITIES AND SHAREHOLDERS’ EQUITY
              
              $
              884,412
              
              $
              775,101
 
 
 
 See
        accompanying notes to the consolidated financial statements.
   F-5
  
  **GREAT
        LAKES BANCORP, INC. AND SUBSIDIARY**
 **Consolidated
        Statements of Operations**
 **(In
        thousands, except share and per share data)**
  
  **Years
                    ended December 31,****2006**
                
                
                **2005**
                
                
                **2004**INTERESTAND
                    DIVIDEND INCOME:Interest
                    and fees on loans
                
                $
                27,747
                
                $
                19,452
                
                $
                13,787Interest
                    on investment securities:Taxable
                
                
                12,414
                
                
                13,979
                
                
                9,292Tax-exempt
                
                
                520
                
                
                459
                
                
                9Total
                    interest on securities
                
                
                12,934
                
                
                14,438
                
                
                9,301Dividends
                    on FHLB stock
                
                
                201
                
                
                140
                
                
                52Other
                    interest income
                
                
                1,847
                
                
                256
                
                
                268TOTAL
                    INTERESTAND
                    DIVIDEND INCOME
                
                
                42,729
                
                
                34,286
                
                
                23,408INTEREST
                    EXPENSE:Deposits
                
                
                22,584
                
                
                15,634
                
                
                8,692Short-term
                    borrowings
                
                
                650
                
                
                680
                
                
                11Securities
                    sold under agreements to repurchase
                
                
                3,378
                
                
                3,160
                
                
                1,386Subordinated
                    debenturesand long-term debt
                
                
                982
                
                
                756
                
                
                406TOTAL
                    INTEREST EXPENSE
                
                
                27,594
                
                
                20,230
                
                
                10,495NET
                    INTEREST INCOME
                
                
                15,135
                
                
                14,056
                
                
                12,913PROVISION
                    FOR LOAN LOSSES
                
                
                1,030
                
                
                934
                
                
                301NET
                    INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
                
                
                14,105
                
                
                13,122
                
                
                12,612NONINTEREST
                    INCOME:Service
                    charges on deposit accounts
                
                
                654
                
                
                433
                
                
                370Other
                    fees and service charges
                
                
                535
                
                
                317
                
                
                209Earnings
                    on bank-owned life insurance
                
                
                469
                
                
                471
                
                
                66Loan
                    fee income
                
                
                338
                
                
                85
                
                
                61Gain
                    (loss) on sale of securities, net
                
                
                -
                
                
                (3,027
                )
                
                997Gain
                    (loss) on sale of loans
                
                
                16
                
                
                (226
                )
                
                54Other
                    operating income
                
                
                174
                
                
                65
                
                
                15TOTAL
                    NONINTEREST INCOME(LOSS)
                
                
                2,186
                
                
                (1,882
                )
                
                1,772NONINTEREST
                    EXPENSE:Salaries
                    and employee benefits
                
                
                10,687
                
                
                7,419
                
                
                5,053Occupancy,
                    equipment and furnishings
                
                
                2,472
                
                
                2,030
                
                
                1,243Data
                    processing and operations
                
                
                962
                
                
                789
                
                
                683Professional
                    services
                
                
                726
                
                
                363
                
                
                259Advertising
                
                
                705
                
                
                492
                
                
                473Printing,
                    postage and supplies
                
                
                441
                
                
                376
                
                
                342Other
                    operating expenses
                
                
                2,122
                
                
                1,551
                
                
                1,046TOTAL
                    NONINTEREST EXPENSE
                
                
                18,115
                
                
                13,020
                
                
                9,099INCOME
                    (LOSS)BEFORE INCOME TAXES
                
                
                (1,824
                )
                
                (1,780
                )
                
                5,285INCOME
                    TAX PROVISION(BENEFIT)
                
                
                (928
                )
                
                (1,312
                )
                
                1,746NET
                    INCOME(LOSS)
                
                $
                (896
                )
                $
                (468
                )
                $
                3,539EARNINGS
                    (LOSS)PER SHARE - BASIC AND DILUTED
                
                $
                (0.10
                )
                $
                (0.11
                )
                
                0.92Weighted
                    average number of common shares outstanding - basic and
                    diluted
                
                
                8,741,737
                
                
                4,300,436
                
                
                3,844,461
 
 
 See
        accompanying notes to the consolidated financial statements.
   F-6
  
  **GREAT
        LAKES BANCORP, INC. AND SUBSIDIARY**
 **Consolidated
        Statements of Shareholders’ Equity**
 **Years
        ended December 31, 2006, 2005 and 2004**
 **(In
        thousands, except share data)**
   **Accumulated****Additional**
              
              
              
              
              
              
              
              
              **Other**
              
              
              **Total****Common**
              
              
              **Paid-in**
              
              
              **Retained**
              
              
              **Treasury**
              
              
              **Comprehensive**
              
              
              **Shareholders’****Stock**
              
              
              **Capital**
              
              
              **Earnings**
              
              
              **Stock**
              
              
              **Loss**
              
              
              **Equity****Balance
                  at December 31, 2003, as previously reported**
              
              **$**
              **2**
              
              **$**
              **18,622**
              
              **$**
              **(161**
              **)**
              **$**
              -
              
              **$**
              **(400**
              **)**
              **$**
              **18,063**Retroactive
                  restatement to reflect 4,300,436 sharesreceived
                  in exchange in the Bay View merger andchange
                  in par value from $0.001 to $0.01 per share
              
              
              39
              
              
              (39
              )
              
              -
              
              
              -
              
              
              -
              
              
              -Issuance
                  of 1,878,195 shares of common stock
              
              
              2
              
              
              16,902
              
              
              -
              
              
              -
              
              
              -
              
              
              16,904Payment
                  of underwriting costs
              
              
              -
              
              
              (102
              )
              
              -
              
              
              -
              
              
              -
              
              
              (102
              )Comprehensive
                  income:Net
                  income
              
              
              -
              
              
              -
              
              
              3,539
              
              
              -
              
              
              -
              
              
              3,539Increase
                  in net unrealized loss on securities availablefor
                  sale, net of tax and reclassification adjustment
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (1,816
              )
              
              (1,816
              )Total
                  comprehensive income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,723**Balance
                  at December 31, 2004**
              
              **$**
              **43**
              
              **$**
              **35,383**
              
              **$**
              **3,378**
              
              **$**
              **-**
              
              **$**
              **(2,216**
              **)**
              **$**
              **36,588**Comprehensive
                  income:Net
                  loss
              
              
              -
              
              
              -
              
              
              (468
              )
              
              -
              
              
              -
              
              
              (468
              )Increase
                  in net unrealized loss on securities availablefor
                  sale, net of tax and reclassification adjustment
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (527
              )
              
              (527
              )Total
                  comprehensive loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (995
              )**Balance
                  at December 31, 2005**
              
              **$**
              **43**
              
              **$**
              **35,383**
              
              **$**
              **2,910**
              
              **$**
              **-**
              
              **$**
              **(2,743**
              **)**
              **$**
              **35,593**Adjustment
                  for adoption of SAB 108 in 2006 (see Note 1)
              
              
              -
              
              
              -
              
              
              (80
              )
              
              -
              
              
              -
              
              
              (80
              )**Balance
                  at January 1, 2006**
              
              **$**
              **43**
              
              **$**
              **35,383**
              
              **$**
              **2,830**
              
              **$**
              **-**
              
              **$**
              **(2,743**
              **)**
              **$**
              **35,513**Comprehensive
                  income:Net
                  loss
              
              
              -
              
              
              -
              
              
              (896
              )
              
              -
              
              
              -
              
              
              (896
              )Decrease
                  in net unrealized loss on securities availablefor
                  sale, net of tax
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              306
              
              
              306Total
                  comprehensive loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (590
              )Outstanding
                  Bay View shares at merger date-
                  6,613,099 shares
              
              
              66
              
              
              101,584
              
              
              -
              
              
              -
              
              
              -
              
              
              101,650Bay
                  View treasury stock at merger date-1,417 shares
              
              
              -
              
              
              234
              
              
              -
              
              
              (234
              )
              
              -
              
              
              -Bay
                  View merger costs
              
              
              -
              
              
              (1,158
              )
              
              -
              
              
              -
              
              
              
              
              
              (1,158
              )Stock-based
                  compensation plans:Compensation
                  expense on stock options
              
              
              -
              
              
              19
              
              
              -
              
              
              -
              
              
              -
              
              
              19Shares
                  issued from exercise of stock options-
                  8,261 shares
              
              
              -
              
              
              76
              
              
              -
              
              
              -
              
              
              -
              
              
              76**Balance
                  at December 31, 2006**
              
              **$**
              **109**
              
              **$**
              **136,138**
              
              **$**
              **1,934**
              
              **$**
              **(234**
              **)**
              **$**
              **(2,437**
              **)**
              **$**
              **135,510**
 
 
 See
        accompanying notes to the consolidated financial statements.
   F-7
  
  **GREAT
        LAKES BANCORP, INC. AND SUBSIDIARY**
 **Consolidated
        Statements of Cash Flows**
 **(In
        thousands)**
  **Years
                  ended December 31,****200****6**
              
              **2005**
              
              **2004**CASH
                  FLOWS FROM OPERATING ACTIVITIES:Netincome
                  (loss)
              
              $
              (896
              )
              $
              (468
              )
              $
              3,539Adjustments
                  to reconcile net income(loss) to net cash provided (used) byoperating
                  activities:Depreciationand amortization of premises and equipment
              
              
              1,395
              
              
              996
              
              
              584Net
                  amortization of premiums oninvestment
                  securities
              
              
              626
              
              
              1,978
              
              
              1,110Net
                  amortization of deferred loan costs
              
              
              1,679
              
              
              1,257
              
              
              857Compensation
                  expense on stock options
              
              
              19
              
              
              -
              
              
              -Deferred
                  income tax expense(benefit)
              
              
              (882
              )
              
              (1,157
              )
              
              1,440Netrealized
                  loss (gain) on sales of securities
              
              
              -
              
              
              3,027
              
              
              (997
              )Loss
                  (gain) on sale of loans
              
              
              (16
              )
              
              226
              
              
              (54
              )Provision
                  for loan losses
              
              
              1,030
              
              
              934
              
              
              301Increase
                  in accrued interest receivable
              
              
              (807
              )
              
              (298
              )
              
              (1,107
              )Increase
                  in bank-ownedlife insurance
              
              
              (469
              )
              
              (471
              )
              
              (66
              )Originations
                  of loans held for sale
              
              
              (2,512
              )
              
              -
              
              
              -Proceeds
                  from sales of loans held for sale
              
              
              1,301
              
              
              -
              
              
              -Decrease
                  (increase) in other assets
              
              
              2,664
              
              
              (1,363
              )
              
              (487
              )Increase(decrease)
                  in accrued expenses and other liabilities
              
              
              (29,942
              )
              
              (225
              )
              
              2,316Net
                  cash provided (used) by operating activities
              
              
              (26,810
              )
              
              4,436
              
              
              7,436CASH
                  FLOWS FROM INVESTING ACTIVITIES:Net
                  decrease in restricted cash
              
              
              14,195
              
              
              -
              
              
              -Purchases
                  of securities available for sale
              
              
              (55,104
              )
              
              (82,837
              )
              
              (371,154
              )Purchases
                  of securities held to maturity
              
              
              -
              
              
              (8,939
              )
              
              (5,114
              )Proceeds
                  from sales of securities available for sale
              
              
              -
              
              
              125,259
              
              
              117,332Proceeds
                  from principal payments, maturities and calls on securities available
                  for
                  sale
              
              
              33,179
              
              
              77,250
              
              
              50,431Purchase
                  (redemption) of Federal Home Loan Bank stock, net
              
              
              742
              
              
              496
              
              
              (2,369
              )Purchases
                  of loans
              
              
              (15,352
              )
              
              (32,803
              )
              
              (1,918
              )Proceeds
                  from sales of loans
              
              
              -
              
              
              15,893
              
              
              10,003Net
                  increase in loans receivable
              
              
              (90,306
              )
              
              (102,199
              )
              
              (75,961
              )Purchase
                  of bank-owned
                  life insurance
              
              
              -
              
              
              -
              
              
              (12,000
              )Purchase
                  of premises and equipment
              
              
              (6,943
              )
              
              (5,891
              )
              
              (7,103
              )Cash
                  received in Bay View merger, net of merger costs
              
              
              62,277
              
              
              -
              
              
              -Net
                  cash used in investing activities
              
              
              (57,312
              )
              
              (13,771
              )
              
              (297,853
              )CASH
                  FLOWS FROM FINANCING ACTIVITIES:Net
                  increase in deposits
              
              
              13,572
              
              
              90,984
              
              
              169,460Net
                  increase(decrease) in short-term borrowings
              
              
              (3,000
              )
              
              20,870
              
              
              (1,329
              )Proceeds
                  from securities sold under agreements
                  to repurchase
              
              
              216,000
              
              
              299,500
              
              
              139,000Repayment
                  of securities sold under agreements
                  to repurchase
              
              
              (224,000
              )
              
              (336,500
              )
              
              (20,000
              )Proceeds
                  from issuance of subordinated debentures, net of costs
              
              
              -
              
              
              -
              
              
              12,262Repayment
                  of long-term debt
              
              
              -
              
              
              -
              
              
              (5,000
              )Proceeds
                  fromissuance
                  of common stock
              
              
              76
              
              
              -
              
              
              16,904Payment
                  of stock offering costs
              
              
              -
              
              
              -
              
              
              (102
              )Net
                  cash provided by financing activities
              
              
              2,648
              
              
              74,854
              
              
              311,195NET
                  INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
              
              
              (81,474
              )
              
              65,519
              
              
              20,778CASH
                  AND CASH EQUIVALENTS, BEGINNING OF YEAR
              
              $
              95,500
              
              $
              29,981
              
              $
              9,203CASH
                  AND CASH EQUIVALENTS, END OF YEAR
              
              $
              14,026
              
              $
              95,500
              
              $
              29,981Supplemental
                  disclosure of cash flow information:Cash
                  paid for interest
              
              $
              27,778
              
              $
              19,739
              
              $
              9,724Cash
                  paid(refunded)
                  for income taxes
              
              
              (517
              )
              
              966
              
              
              14Acquisition
                  of Bay View Capital Corporation:Assets
                  acquired (excluding cash and cash equivalents acquired)
              
              
              74,848
              
              
              -
              
              
              -Liabilities
                  assumed
              
              
              36,633
              
              
              -
              
              
              -
 
 
 See
        accompanying notes to the consolidated financial statements.
   F-8
 **GREAT
              LAKES BANCORP, INC. AND SUBSIDIARY**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
              31, 2006, 2005 and 2004**
 
  **(1.)**
              **SUMMARY
                  OF SIGNIFICANT ACCOUNTING
                  POLICIES**
  Great
        Lakes Bancorp, Inc. was organized in February 2003 under the Delaware
        Corporation Law as a holding company for Greater Buffalo Savings Bank. Greater
        Buffalo Savings Bank was chartered as a New York State shareholder owned
        savings
        bank in October 1999. The Bank commenced operations in November 1999 and
        offers
        a broad range of loan and deposit products to consumer and commercial customers
        located principally in Western New York State. On May 1, 2006, Great Lakes
        Bancorp, Inc. (“Old Great Lakes”) merged into Bay View Capital Corporation and
        the surviving corporation was renamed Great Lakes Bancorp, Inc. (“New Great
        Lakes”). The merger is described in Note 2.
  The
        accounting and reporting policies conform to general practices within the
        banking industry and to U.S. generally accepted accounting principles. Certain
        reclassification adjustments were made to the 2005 and 2004 financial statements
        to conform to the 2006 presentation. The following is a description of the
        significant accounting policies.
   ***(a.)***
              ***Principles
                  of Consolidation***
  The
        consolidated financial statements include the accounts of Old Great Lakes
        before
        the merger described in Note 2, New Great Lakes (formerly Bay View Capital
        Corporation) after the merger and Greater Buffalo Savings Bank before and
        after
        the merger. All significant intercompany accounts and transactions have been
        eliminated in consolidation. References to “the Company” mean the consolidated
        reporting entities and references to “the Bank” mean Greater Buffalo Savings
        Bank.
  ***(b.)***
              ***Cash
                  and Cash Equivalents***
  Cash
        and
        cash equivalents include cash and balances due from banks, commercial paper,
        interest-earning deposits in other financial institutions and federal funds
        sold
        that have a term of less than three months at the time of purchase.
  The
        Company was required to have $4.8 million and $3.1 million of cash on hand
        or on
        deposit with the Federal Reserve Bank to meet regulatory reserve and clearing
        requirements at December 31, 2006 and 2005. Deposits with the Federal Reserve
        Bank do not earn interest.
  ***(c.)***
              ***Restricted
                  Cash***
  The
        Company separately classifies cash that is restricted for use under contractual
        terms or other circumstances.
  ***(d.)***  ***Investment
        Securities***
  Investment
        securities are classified as either available for sale or held to maturity.
        Debt
        securities that management has the positive intent and ability to hold to
        maturity are classified as held to maturity and are recorded at amortized
        cost.
        Other investment securities are classified as available for sale and recorded
        at
        fair value, with unrealized gains and losses excluded from earnings and reported
        as a component of shareholders’ equity.
  Purchase
        premiums and discounts are recognized in interest income using the interest
        method over the terms of the securities. Declines in the fair value of
        investment securities below their cost that are deemed to be other than
        temporary are reflected in earnings as realized losses resulting in a new
        cost
        basis for the securities. Gains and losses on the sale of securities are
        recorded on the trade date and are determined using the specific identification
        method.
  ***(e.)***
              ***Loans
                  Held for Sale***
  Loans
        held for sale consist of mortgage loans secured by 1-4 family residential
        real
        estate. The loans are generally sold with servicing rights released to the
        purchaser. The Company enters into commitments to sell the loans to hedge
        interest rate risk. The mortgage loans and related sales commitments are
        recorded at fair value.
  ***(f.)***
              ***Loans
                  Held for Investment***
  Loans
        held for investment are stated at their outstanding principal amounts, net
        of
        unamortized loan origination fees and costs. Loan origination fees and costs
        are
        generally amortized to income using a method that approximates the level-yield
        method.
  Loans
        are
        generally placed on nonaccrual status and previously accrued interest charged
        against earnings when principal or interest is 90 days delinquent, unless
        management determines that the loan status clearly warrants other treatment.
        The
        Company considers a loan to be impaired when, based on current information
        and
        events, it is probable that the Company will be unable to collect all amounts
        according to contractual terms or the loan is 90 days delinquent. Loans less
        than 90 days delinquent are generally deemed to have an insignificant delay
        in
        payment and are not considered impaired.
   F-9
 **GREAT
            LAKES BANCORP, INC. AND SUBSIDIARY**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
            31, 2006, 2005 and 2004**
  Impairment
        of a loan is measured based on the present value of expected cash flows
        discounted at the loan’s effective interest rate, the loan’s observable market
        price, or the estimated fair value of the collateral if the loan is collateral
        dependent. Interest received on loans placed on nonaccrual status is applied
        to
        principal. Loans are generally returned to accrual status when principal
        and
        interest payments are current and full collectibility of remaining principal
        and
        interest are reasonably assured. Loans are charged off against the allowance
        for
        loan losses when it becomes evident that such balances are not fully
        collectible.
  ***(g.)***
              ***Allowance
                  for Loan Losses***
  The
        allowance for loan losses represents the amount which, in management’s judgment,
        will be adequate to absorb credit losses inherent in the loan portfolio at
        the
        balance sheet date. The adequacy of the allowance is determined by management’s
        evaluation of the loan portfolio based on such factors as the differing economic
        risks associated with each loan category, the current financial condition
        of
        specific borrowers, the economic environment in which borrowers operate,
        the
        level of delinquent loans, the value of any collateral and, where applicable,
        the existence of any guarantees or indemnifications.
  ***(h.)***
              ***Premises
                  and Equipment***
  Premises
        and equipment are stated at cost less accumulated depreciation and amortization.
        Depreciation is calculated on a straight-line basis over the estimated useful
        lives of the assets. Leasehold improvements are amortized over the shorter
        of
        the estimated useful life of the asset or the lease period. Buildings are
        depreciated over a period of 39 years. Furniture, fixtures and equipment
        are
        generally depreciated over periods ranging from three to seven
        years.
  ***(i.)***
              ***Bank-owned
                  Life Insurance***
  The
        Bank
        holds life insurance policies on certain current and former employees. The
        Bank
        is the owner and beneficiary of the policies. These policies are recorded
        at
        their cash surrender value with increases in value recognized as noninterest
        income.
  ***(j.)***
              ***Goodwill***
  Goodwill
        represents the excess of the cost of an acquired entity over the fair value
        of
        the identifiable net assets acquired. Goodwill is not amortized but rather
        reviewed for impairment at least annually. The Company’s goodwill is not
        tax-deductible.
  ***(k.)***
              ***Securities
                  Repurchase Agreements***
  The
        Company is a party to securities repurchase agreements with the Federal Home
        Loan Bank (“FHLB”) of New York and a broker-dealer. These agreements provide for
        the transfer of securities under agreements to repurchase identical securities
        at fixed prices in the future. These agreements are accounted for as secured
        financings and are reflected as liabilities at amounts equal to the cash
        exchanged. The securities underlying the agreements are included in the
        Company's investment securities portfolio. These securities are generally
        delivered to third parties.
  ***(l.)***
              ***Income
                  Taxes***
  Income
        taxes are accounted for using the asset and liability method. Deferred tax
        assets and liabilities are recognized for the future tax consequences
        attributable to differences between the financial statement carrying amounts
        of
        existing assets and liabilities and their respective tax bases. Deferred
        tax
        assets and liabilities are measured using enacted tax rates in effect for
        the
        year in which those temporary differences are expected to be recovered or
        settled. The effect of a change in tax rates on deferred tax assets and
        liabilities is recognized in income in the period that includes the enactment
        date. A valuation allowance is recognized on deferred tax assets if, based
        upon
        the weight of available evidence, it is more likely than not that some or
        all of
        the assets may not be realized.
  ***(m.)***
              **Stock-Based
                  Compensation Plans**
  Effective
        January 1, 2006, the Company adopted Financial Accounting Standards Board
        Statement No. 123 (revised 2004), *Share-Based
        Payment* (“SFAS
        123R”). SFAS 123R requires companies to recognize compensation expense based on
        the fair value of the stock-based awards on the grant date. That portion
        of the
        grant date fair value that is ultimately expected to vest is recognized as
        expense over the requisite service period, typically the vesting period,
        on a
        straight-line basis. SFAS 123R requires companies to estimate the fair value
        of
        stock-based awards using an option-pricing model.
  The
        Company adopted SFAS 123R using the modified prospective transition method,
        whereby the Company’s financial results for prior periods were not restated to
        reflect the impact of the new guideline. Prior to 2006, the Company granted
        stock options with exercise prices equal to estimated fair value at the grant
        date and no compensation expense was recognized.
  SFAS
        No.
        123R requires pro forma disclosures of net income and earnings per share
        for
        prior periods presented using the new guideline. These pro forma disclosures
        are
        presented in Note 14.
  F-10
 **GREAT
            LAKES BANCORP, INC. AND SUBSIDIARY**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
            31, 2006, 2005 and 2004**
  ***(n.)***
              ***Earnings
                  Per Share***
  Basic
        earnings or loss per share represent net income or loss divided by the
        weighted-average number of common shares outstanding during the period. Diluted
        earnings per share take into consideration additional common shares that
        would
        have been outstanding if dilutive common stock equivalents are considered.
        As of
        December 31, 2006, 2005 and 2004, all outstanding stock options were considered
        anti-dilutive using the treasury stock method due to the exercise price of
        the
        stock options being equal to or greater than the estimated fair value of
        the
        Company’s stock. Options to purchase 227,767, 184,810 and 185,390 shares of
        common stock were outstanding at December 31, 2006, 2005 and 2004, respectively,
        but not included in the computation of diluted earnings per share.
  ***(o.)***
              ***Comprehensive
                  Income***
  Comprehensive
        income consists of net income or loss and unrealized gains and losses on
        securities available for sale, net of tax effect.
  **(p.)**
              **Use
                  of Estimates**
  In
        preparing the consolidated financial statements in conformity with U.S.
        generally accepted accounting principles, management is required to make
        estimates and assumptions that affect the reported amount of assets and
        liabilities as of the date of the balance sheet and reported amounts of revenue
        and expenses during the reporting period. Actual results may differ from
        those
        estimates. Material estimates relate to the determination of the allowance
        for
        loan losses, goodwill and the valuation of deferred tax assets.
  ***(q.)***
              ***Recent
                  Accounting
                  Pronouncements***
  In
        September 2006, the Securities and Exchange Commission issued Staff Accounting
        Bulleting No. 108, *Considering
        the Effects of Prior Year Misstatements when Quantifying Misstatements in
        Current Year Financial Statements* (“SAB
        108”). SAB 108 provides clarifying guidance on how companies should measure and
        evaluate the materiality of unrecorded accounting adjustments that impact
        the
        financial results of current and subsequent reporting periods. Historically,
        companies often chose not to record accounting adjustments deemed to be
        immaterial based on consistent use of one of two common methods of measuring
        materiality. SAB 108 requires companies to now measure the materiality of
        accounting adjustments using both of these common methods, thus reducing
        materiality thresholds.
  The
        Company historically measured the materiality of unrecorded accounting
        adjustments focusing on the net effect of current period and reversing prior
        period adjustments on the income statement. This income statement approach
        is
        the most commonly used method in practice. Under SAB 108, the Company must
        also
        evaluate the cumulative effect of unrecorded accounting adjustments on the
        balance sheet and determine whether recording such adjustments to correct
        the
        balance sheet would be material to the income statement in the period the
        corrections are made.
  The
        Company was required to apply the guidance of SAB 108 in 2006. The Company
        is
        permitted to adjust opening retained earnings at January 1, 2006 rather than
        adjust prior year results for unrecorded accounting adjustments that are
        deemed
        material to prior years under the new guidance.
  The
        Company had two unrecorded accounting adjustments that were considered in
        the
        SAB 108 analysis. The Company has certain operating leases with rent escalation
        clauses. The Company historically has recorded rent expense based on stated
        annual rents under the agreements rather than recognizing total rent expense
        in
        the agreements on a straight-line basis over the terms. In addition, the
        Company
        has consistently expensed the monthly charges of one service provider on
        a
        one-month lag. The Company has adjusted retained earnings downward by $80
        thousand at January 1, 2006 with corresponding increases to accrued liabilities
        of $131 thousand and deferred tax assets of $51 thousand to address these
        two
        items. The Company’s net loss in the fourth quarter of 2006 was increased by $6
        thousand for the impact of these two items on the prior quarters of 2006.
  In
        February 2007, the Financial Accounting Standards Board (the “FASB”) issued SFAS
        No. 159, *The
        Fair Value Option for Financial Assets and Financial
        Liabilities* (“FAS
        159”), which permits entities to choose to measure many financial instruments
        and certain other items at fair value. FAS 159 is effective for the first
        quarter of 2008. The Company is currently evaluating the impact of FAS 159.
  In
        September 2006, the FASB issued SFAS No. 157, *Fair
        Value Measurements,* (“FAS
        157”). FAS 157 provides guidance for using fair value to measure assets and
        liabilities. The standard also responds to investors’ requests for expanded
        information about the extent to which companies measure assets and liabilities
        at fair value, the information used to measure fair value, and the effect
        of
        fair value measurement on earnings and is applicable whenever other standards
        require or permit assets and liabilities to be measured at fair value. This
        Statement is effective for the first quarter of 2008. Management does not
        believe this Statement will have a material effect on the Company’s financial
        statements.
   F-11
 **GREAT
            LAKES BANCORP, INC. AND SUBSIDIARY**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
            31, 2006, 2005 and 2004**
  In
        July
        2006, the Financial Accounting Standards Board issued FASB Interpretation
        No.
        48, *Accounting
        for Uncertainty in Income Taxes—an interpretation of FASB Statement No.
        109* (“FIN
        48”), which clarifies the accounting for uncertainty in tax positions. This
        Interpretation requires that the Company recognize the positive financial
        impact
        of an uncertain income tax position if that position is more likely than
        not of
        being sustained on audit by taxing authorities based on the technical merits
        of
        the position. FIN 48 serves to differentiate the “more likely than not” and
“probable” criteria commonly used in evaluating uncertain tax positions. The
        Company is required to apply FIN 48 in the first quarter of 2007 and is
        currently reviewing historical tax matters of Bay View Capital Corporation
        to
        determine the impact of adopting this pronouncement. Recognition or adjustment
        of any assets or liabilities relating to tax matters of Bay View under FIN
        48
        would result in a corresponding adjustment to goodwill.
  In
        March
        2006, the FASB issued SFAS No. 156, *Accounting
        for Servicing of Financial Assets: an amendment of FASB Statement No. 140* (“FAS
        156”). FAS 156 establishes the accounting for all separately recognized
        servicing assets and servicing liabilities. This Statement amends FAS 140
        to
        require that all separately recognized servicing assets and servicing
        liabilities be initially measured at fair value, if practicable. This Statement
        permits the subsequent measurement of separately recognized servicing assets
        and
        servicing liabilities at fair value. Adoption of this Statement is required
        in
        the first quarter of 2007 and the Company intends to adopt the Statement
        prospectively. The Company does not believe that adoption will be material
        to
        its financial statements.
  In
        February 2006, the FASB issued SFAS No. 155, *Accounting
        for Hybrid Financial Instruments - an amendment of FASB Statements No. 133
        and
        140.* This
        Statement amends FASB Statements No. 133, *Accounting
        for Derivative Instruments and Hedging Activities* and No.
        140, *Accounting
        for Transfers and Servicing of Financial Assets and Extinguishments of
        Liabilities* .
        This
        Statement allows financial instruments that have embedded derivatives to
        be
        accounted for as a whole (eliminating the need to separate the derivative
        from
        its host) if the holder elects to account for the whole instrument on a fair
        value basis. It also clarifies which interest-only strips and principal-only
        strips are not subject to the requirements of FAS 133; establishes a requirement
        to evaluate interests in securitized financial assets to identify interest
        that
        are freestanding derivatives or that are hybrid financial instruments that
        contain an embedded derivative requiring bifurcation; clarifies that
        concentrations of credit risk in the form of subordination are not embedded
        derivatives; and, amends FAS 140 to eliminate the prohibition on a qualifying
        special-purpose entity from holding a derivative financial instrument that
        pertains to a beneficial interest other than another derivative financial
        instrument. This Statement is effective for all financial instruments acquired
        or issued after 2006. Management believes this Statement will not have a
        material effect on the Company’s financial statements.
  **(2.)**
              **MERGER
                  WITH BAY VIEW CAPITAL
                  CORPORATION**
  ***Overview***
  On
        May 1,
        2006, Great Lakes Bancorp, Inc. (“Old Great Lakes”) merged into Bay View Capital
        Corporation (“Bay View”) and the name of the surviving legal entity was changed
        back to Great Lakes Bancorp, Inc. (“New Great Lakes”). Bay View received
        approval from the Federal Reserve Bank to be registered as a bank holding
        company in January 2006.
  Also
        on
        May 1, 2006, Bay View sold its only remaining operating subsidiary called
        Bay
        View Acceptance Corporation (“BVAC”) for cash and with the sale of that entity
        the full wind down of Bay View’s corporate offices and staff located in San
        Mateo, California proceeded. By the end of July 2006, the wind down was
        substantially complete and there were no Bay View employees
        remaining.
  From
        the
        Old Great Lakes perspective, the merger provided: (1) significant additional
        capital in the form of ready cash, (2) significant tax benefits that can
        be used
        to shield future taxable income of the combined entity, (3) a New York Stock
        Exchange listing for their exchanged shares, and (4) three new directors
        with
        significant community banking experience.
  From
        the
        Bay View perspective, the merger provided the Bay View shareholders with
        an
        investment in a valuable Buffalo-based community banking franchise called
        Greater Buffalo Savings Bank and served as a means of preserving the value
        of
        significant tax benefits that might otherwise expire worthless.
  ***Accounting
        Treatment and Transaction Value***
  On
        May 1,
        2006, each issued and outstanding share of common stock of Old Great Lakes
        was
        cancelled and converted into the right to receive 1.0873 shares of common
        stock
        of Bay View. In addition, issued and unexercised common stock options of
        Old
        Great Lakes were converted into common stock options of Bay View at the same
        exchange ratio.
  The
        exchange ratio, which was established when the merger agreement between the
        parties was executed on October 26, 2005, established the fair value of Great
        Lakes at approximately $66.1 million, based on the average closing market
        price
        of the Bay View stock two days before and after the merger was announced.
        Great
        Lakes shareholders received 4,300,436 shares of Bay View stock in the
        exchange.
   F-12
 **GREAT
            LAKES BANCORP, INC. AND SUBSIDIARY**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
            31, 2006, 2005 and 2004**
  With
        the
        merger, the Old Great Lakes shareholders obtained approximately 39% ownership
        of
        the combined entity and control of its new Board of Directors. Given the
        change
        in control as defined by Board representation, the continuity of Old Great
        Lakes
        management and other factors, the merger was treated for accounting purposes
        as
        a purchase of Bay View by Old Great Lakes, even though the Bay View entity
        survived in legal form (‘reverse acquisition’ accounting).
  The
        purchase price of Bay View was mathematically derived from the $66.1 million
        fair value of Old Great Lakes at the time the merger was announced and the
        relative ownership interests of 39% (Old Great Lakes) and 61% (Bay View)
        in the
        combined entity. This calculation set the Bay View purchase price at $101.7
        million, which approximated Bay View’s market capitalization when the merger was
        announced. Thus, from the Old Great Lakes perspective, the acquisition resulted
        in a capital infusion of $101.7 million into an entity whose capital
        approximated $33.3 million at the merger date. Old Great Lakes also incurred
        acquisition-related costs of $1.2 million comprised principally of professional
        fees that reduced additional paid-in capital of the combined entity at the
        merger date.
  ***Financial
        Presentation***
  Given
        that the merger was treated for accounting purposes as a purchase of Bay
        View by
        Old Great Lakes, the Company was required to present the historical results
        of
        operations of Old Great Lakes for all prior year periods and for the current
        year up to the May 1, 2006 merger date. Results of operations after the merger
        are those of the combined entity.
  Bay
        View
        had several dormant subsidiaries that have had no post-merger financial
        activity. In addition, Bay View held limited partnership interests in several
        asset securitizations that were historically treated as sales transactions.
        While Bay View held residual interests in these securitizations through its
        partnership interests, these residual interests were deemed to be worthless
        by
        Bay View well before the merger and no value has been assigned to these residual
        interests in the Company’s financial statements. Thus, the Bay View partnership
        interests have had no impact on post-merger results.
  ***Purchase
        Price Allocation***
  Under
        accounting guidelines, the Company is required to allocate the $101.7 million
        purchase price to the assets acquired and liabilities assumed of Bay View
        as of
        May 1, 2006.
  The
        initial purchase price allocation was considered preliminary in nature because
        additional post-merger work was required to: (1) evaluate income tax and
        legal
        contingencies associated with Bay View, (2) finalize estimates of lease
        obligations relating to the corporate offices in San Mateo, (3) arrive at
        the
        final determination of the carrying value of the acquired deferred tax assets
        based on income projections of the newly combined entity, and (4) accumulate
        the
        final Bay View wind down costs.
  Under
        the
        accounting guidelines, the Company is granted time after the merger to gather
        the information required to finalize the purchase price allocation. This
        time
        period generally is not to exceed one year. Adjustments to the values assigned
        to the assets acquired and liabilities assumed in the transaction generally
        result in a corresponding increase or decrease in goodwill recognized in
        the
        transaction. Adjustments to the initial purchase price allocation reported
        in
        the second quarter of 2006 have resulted in an increase in goodwill of $1.1
        million with corresponding adjustments to the other assets acquired and
        liabilities assumed.
   F-13
 **GREAT
            LAKES BANCORP, INC. AND SUBSIDIARY**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
            31, 2006, 2005 and 2004**
   The
        following table summarizes the estimated fair values of the assets acquired
        and
        the liabilities assumed of Bay View at the May 1, 2006 acquisition date (amounts
        are in thousands). Further highlights on the assets acquired and liabilities
        assumed are summarized in the paragraphs that follow the table.
  **May
                  1,****2006**Cash
                  and cash equivalents
              
              $
              63,435Restricted
                  cash
              
              
              18,118Deferred
                  tax assets, net of valuation allowance of $7,273
              
              
              40,638Goodwill
              
              
              12,832Other
                  assets, including FSA recovery of $2,000
              
              
              3,260Total
                  assets acquired
              
              
              138,283Accounts
                  payable
              
              
              2,944FSA
                  settlement liability
              
              
              20,000Employee-related
                  liabilities
              
              
              3,623Accrued
                  insurance and professional fees
              
              
              3,299Leased
                  facility obligation
              
              
              5,345Other
                  liabilities
              
              
              1,422Total
                  liabilities assumed
              
              
              36,633Net
                  assets acquired
              
              $
              101,650
  ***Cash***
  Cash
        and
        cash equivalents of $63.4 million at May 1, 2006 consist principally of cash
        received in the May 1, 2006 sale of BVAC and Bay View’s operating cash
        accounts.
  Restricted
        cash of $18.1 million at May 1, 2006 is comprised of $14.1 million of cash
        invested at the FHLB in San Francisco, $2.0 million of cash held in escrow
        pending the final settlement of the BVAC sale and other restricted cash of
        $2.1
        million.
  The
        $14.1
        million of restricted cash at the FHLB secured a standby letter of credit
        that a
        Bay View entity issued as a credit support to a bond offering that financed
        an
        affordable housing project in San Jose, California. In early August 2006,
        a full
        release of the FHLB cash was obtained by pledging available for sale securities.
        By removing the restriction, the Company was able to deploy the cash resources
        for a better return and the letter of credit provides fee income through
        June
        2009.
  ***Bay
        View Income Tax Benefits and Tax Contingencies***
  Bay
        View
        had significant income tax benefits that may be used by the combined entity
        going forward. The benefits consist of net operating loss carryforwards,
        credit
        carryovers and other net deductible items that can be used to offset future
        taxable income generated for Federal purposes and in various states where
        Bay
        View operated.
  At
        May 1,
        2006, Bay View had approximately $51.9 million of Federal net operating loss
        carry forwards that expire in 2024 and $4.0 million of Federal net operating
        loss carry forwards that expire in 2027. At May 1, 2006, Bay View had: (1)
        net
        deductible temporary differences of $40.6 million that can be used to offset
        Federal taxable income, (2) alternative minimum tax credits of approximately
        $5.2 million that have no expiration, and (3) a capital loss carry forward
        of
        approximately $10.6 million arising from the sale of BVAC that expires in
        five
        years.
  Under
        the
        accounting guidelines, the Company is required to recognize deferred tax
        assets
        for these future tax benefits and then recognize a reserve against the assets
        to
        the extent that it is deemed more likely than not that the Company will not
        realize some or all of the benefits in the future.
  With
        respect to the May 1, 2006 purchase price allocation, a full reserve of $3.2
        million was recognized against the deferred tax assets relating to net operating
        loss carry forwards generated by Bay View in states where New Great Lakes
        does
        not currently operate. Approximately $1.5 million of this reserve relates
        to
        California and the remainder encompasses 13 other states.
  In
        addition, a full reserve was recognized against the deferred tax asset of
        $4.1
        million associated with the capital loss arising from the sale of BVAC. While
        BVAC was sold at book value, its underlying tax basis was higher, resulting
        in a
        loss on the transaction for tax purposes. This capital loss expires in five
        years and can only be used to offset capital gains. The Company has no assurance
        of generating capital gains in the future so the asset was fully reserved.
   F-14
 **GREAT
            LAKES BANCORP, INC. AND SUBSIDIARY**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
            31, 2006, 2005 and 2004**
  With
        respect to the remainder of the deferred tax assets from the Bay View merger,
        the Company has concluded that these assets should be recognized without
        reserve. This conclusion is based on projections of future taxable income
        of the
        combined entity. The Company’s income projections, if met, would enable the
        Company to fully utilize the deferred tax assets well before their expiration
        dates.
  Bay
        View
        and its subsidiaries were involved in a variety of complex businesses and
        transactions over the years that expose the Company to possible challenges
        in
        the future by various taxing jurisdictions in the technical interpretation
        and
        application of tax rules and principles. While the Company is not aware of
        any
        particular instances where Bay View’s technical application of tax rules and
        principles have created exposures that warrant the recognition of liabilities
        as
        of the May 1, 2006 merger date, review and evaluation of potential tax exposures
        will continue into the future. Under accounting guidelines, recognition of
        liabilities for tax contingencies stemming from purchase transactions are
        generally recognized with a corresponding increase in goodwill regardless
        of
        when such liabilities are established.
  ***FSA
        Settlement Liability***
  On
        July
        12, 2006, the Company reached settlement of a lawsuit brought by Financial
        Security Assurance Inc. (“FSA”) against Bay View and certain subsidiaries in
        2003. The suit alleged breaches of representations and warranties or indemnity
        obligations relating to loans collateralizing a securitization formed in
        1998 by
        an entity that was subsequently acquired by Bay View and a securitization
        formed
        in 2000 by a Bay View subsidiary. FSA guaranteed payments in connection with
        these two securitizations.
  In
        return
        for a full release of all claims in the matter, the Company agreed to pay
        FSA
        $20.0 million and the Company remitted this amount to FSA on July 31, 2006.
        The
        lawsuit was disclosed to Old Great Lakes when the terms of the merger with
        Bay
        View were established in October 2005.
  The
        lawsuit represents a pre-acquisition contingency associated with the purchase
        of
        Bay View. Accounting guidelines require pre-acquisition contingencies to
        be
        included in the allocation of purchase price at fair value, if fair value
        is
        determinable within the purchase allocation period. Thus, while the settlement
        was reached on July 12, 2006, the Company recognized the $20.0 million
        settlement amount as a purchase liability as of May 1, 2006.
  Also
        on
        July 12, 2006, a former Bay View subsidiary and its principals agreed to
        contribute $2.0 million to the FSA settlement. The Company received initial
        payments of $881 thousand in July 2006 and the remaining balance in September
        2006. This $2.0 million recovery is also included in the May 1, 2006 purchase
        accounting allocation, classified as other assets.
  ***Leased
        Facility Obligation***
  Bay
        View
        operated its corporate facilities in San Mateo, California under a long-term
        non-cancellable operating lease that expires in 2012. Over the past few years
        as
        Bay View sold or dismantled various components of its operations it reduced
        its
        corporate staff and office space requirements and entered into sublease
        agreements with a few third parties to manage the cost of its operating lease
        commitment.
  With
        elimination of the entire Bay View corporate staff by July 31, 2006, the
        Company
        made leasehold improvements that resulted in existing sub-tenants taking
        on more
        space and increased the marketability of the small amount of excess space
        that
        remains in the California facility.
  The
        Company recognized a purchase liability of $5.3 million as of May 1, 2006
        relating to the Bay View lease commitment. This liability represents the
        estimate of total payments through 2012 under the lease, reduced by the related
        estimated sublease income. The primary lease and the subleases require the
        payment of operating expenses associated with the facility and thus the purchase
        liability includes estimates of operating cost increases over the terms of
        the
        arrangements. In addition, the subleases terminate or are subject to renewal
        at
        market rates at various times leading up to 2012 and the Company has included
        estimates of market renewal rates in the calculations.
  This
        large purchase liability reflects the fact that Bay View entered into a
        long-term lease commitment when high market rates for office space in Silicon
        Valley were supported by a booming high-tech industry. While market rates
        for
        office space have recently improved, they are well below the levels needed
        to
        cover the cost of the Company’s lease commitment through sublease
        transactions.  F-15
 **GREAT
              LAKES BANCORP, INC. AND SUBSIDIARY**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
              31, 2006, 2005 and 2004**
  ***BVAC
        Contingency***
  On
        May 1,
        2006, Bay View sold its only remaining operating subsidiary called Bay View
        Acceptance Corporation (BVAC) to AmeriCredit Financial Services, Inc.
        (AmeriCredit) for cash. The purchase price was equal to the book value of
        BVAC
        as of April 30, 2006. On May 1, 2006, AmeriCredit made an initial cash payment
        to the Company of $63.6 million, based on the preliminary book value of BVAC
        at
        March 31, 2006. The payment of $63.6 million included $2.0 million of cash
        placed in escrow in accordance with the agreement, subject to release to
        the
        Company upon final determination of the April 30, 2006 book value.
  The
        Company is currently in dispute with AmeriCredit regarding the final April
        30,
        2006 book value and pursuant to the terms of the agreement an arbitrator
        will be
        engaged to settle the differences. In addition, disagreement arose with
        AmeriCredit on the terms of the agreement relating to the satisfaction of
        certain income tax liabilities associated with BVAC and the Company filed
        a
        lawsuit seeking recovery from AmeriCredit relating to this matter on July
        14,
        2006. AmeriCredit, in turn, filed a counterclaim against us on this dispute
        on
        July 28, 2006.
  While
        AmeriCredit contends that the Company owes them approximately $400 thousand
        from
        the funds held in escrow as adjustment of the final purchase price to the
        April
        30, 2006 book value, the Company does not believe that this claim has validity
        and no liability has been recognized for this matter. The Company believes
        that
        there is potential for recovery from AmeriCredit on the final settlement
        of the
        book value and the income tax issue. However, it is too early to predict
        the
        ultimate outcome of this matter and due to the uncertainty the Company has
        not
        recognized amounts associated with the AmeriCredit disputes in the purchase
        price allocation.
  ***Pro
        Forma Information***
  The
        Company is required to provide supplementary pro forma financial information
        of
        New Great Lakes that assumes the May 1, 2006 Bay View merger had theoretically
        occurred at the beginning of years 2005 and 2006.
  In
        preparing the pro forma information, the Company treated Bay View’s sale of
        BVAC, which occurred on the May 1, 2006 merger date, as having occurred at
        the
        beginning of the years presented and that Bay View’s restricted and unrestricted
        cash balances of $81.5 million at merger, including the proceeds from the
        BVAC
        sale, were invested in Fed Funds at the average rates applicable to the pro
        forma periods. The average Fed Funds rate used for 2005 was 3.22%. The average
        Fed Funds rate was 4.54% for the period January 1, 2006 up to the merger
        date.
  BVAC
        was
        Bay View’s only operating entity and with its sale the Company moved ahead with
        completing the full wind down of Bay View. Bay View’s post-merger wind down
        costs were accrued in the purchase transaction and therefore the Company
        has
        made the pro forma assumption that Bay View’s recorded historical expenses would
        have likewise represented purchase liabilities. Thus, Bay View’s pro forma
        contribution to earnings for the years presented are the earnings on the
        invested cash balances.
  Outstanding
        shares of the combined entity at May 1, 2006 were used to calculate basic
        EPS
        for the pro forma periods presented. Common stock equivalents comprised of
        stock
        options considered dilutive in the pro forma presentation had no impact on
        the
        earnings per share calculations presented below.
  **Pro
                  Forma****Results****Years
                  ended December****31,***(Dollars
                  in thousands, except share and per share data)*
              
              **2006**
              
              **2005**Net
                  interest income
              
              $
              16,370
              
              $
              16,682Net
                  income (loss)
              
              
              (142
              )
              
              1,136Basic
                  and diluted earnings per common share
              
              $
              (0.01
              )
              $
              0.10Weighted
                  average basic shares outstanding
              
              
              10,915,817
              
              
              10,913,445Weighted
                  average diluted shares outstanding
              
              
              10,915,817
              
              
              10,917,966  F-16
 **GREAT
              LAKES BANCORP, INC. AND SUBSIDIARY**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
              31, 2006, 2005 and 2004**
 (3.)
              INVESTMENT
                  SECURITIES
  The
        amortized cost and estimated fair value of investment securities are summarized
        below.
 **December
                    31, 2006****Amortized**
                
                **Unrealized**
                
                **Unrealized**
                
                **Fair****Cost**
                
                **Gains**
                
                **Losses**
                
                **Value*****(Dollars
                    in******thousands)*****Securities
                    available for sale:**U.S.
                    Government agency obligations
                
                $
                19,997
                
                $
                -
                
                $
                (323
                )
                $
                19,674Mortgage-backed
                    securities:Government
                    agency issued or guaranteed
                
                
                42,546
                
                
                9
                
                
                (601
                )
                
                41,954Privately
                    issued
                
                
                172,138
                
                
                -
                
                
                (3,060
                )
                
                169,078State
                    and municipal obligations
                
                
                2,155
                
                
                -
                
                
                (16
                )
                
                2,139Corporate
                    and other debt obligations
                
                
                1,008
                
                
                -
                
                
                -
                
                
                1,008Total
                    available for sale securities
                
                $
                237,844
                
                $
                9
                
                $
                (4,000
                )
                $
                233,853**Securities
                    held to maturity:**State
                    and municipal obligations
                
                $
                12,987
                
                $
                -
                
                $
                (243
                )
                $
                12,744Corporate
                    and other debt obligations
                
                
                3,010
                
                
                16
                
                
                (12
                )
                
                3,014Total
                    held to maturity securities
                
                $
                15,997
                
                $
                16
                
                $
                (255
                )
                $
                15,758
  
  **December
                    31, 200****5****Amortized**
                
                **Unrealized**
                
                **Unrealized**
                
                **Fair****Cost**
                
                **Gains**
                
                **Losses**
                
                **Value*****(Dollars
                    in******thousands)*****Securities
                    available for sale:**U.S.
                    Government agency obligations
                
                $
                19,996
                
                $
                -
                
                $
                (315
                )
                $
                19,681Mortgage-backed
                    securities:Government
                    agency issued or guaranteed
                
                
                35,508
                
                
                1
                
                
                (382
                )
                
                35,127Privately
                    issued
                
                
                157,836
                
                
                -
                
                
                (3,666
                )
                
                154,170State
                    and municipal obligations
                
                
                2,162
                
                
                -
                
                
                (31
                )
                
                2,131Corporate
                    and other debt obligations
                
                
                1,016
                
                
                -
                
                
                (100
                )
                
                916Total
                    available for sale securities
                
                $
                216,518
                
                $
                1
                
                $
                (4,494
                )
                $
                212,025**Securities
                    held to maturity:**State
                    and municipal obligations
                
                $
                13,014
                
                $
                -
                
                $
                (390
                )
                $
                12,624Corporate
                    and other debt obligations
                
                
                3,010
                
                
                11
                
                
                (25
                )
                
                2,996Total
                    held to maturity securities
                
                $
                16,024
                
                $
                11
                
                $
                (415
                )
                $
                15,620
  At
        December 31, 2006 and 2005, securities with a carrying value of $148.5 million
        and $127.5 million, respectively, were pledged to secure borrowings
        and letters of credit from the FHLB and Federal Reserve Bank, as well as
        repurchase agreements and certain deposits. Included
        in mortgage-backed securities are collateralized mortgage obligations with
        an
        amortized cost and fair value of $200.6 million and $197.3 million at December
        31, 2006, and an amortized cost and fair value of $183.4 million and $179.6
        million at December 31, 2005.
  There
        were no sales of securities available for sale during 2006. For the years
        ended
        December 31, 2005 and 2004, proceeds from sales of securities available for
        sale
        totaled $125.3 million and $117.3 million, respectively. Gross realized gains
        amounted to $149 thousand and $1.1 million, respectively. Gross realized
        losses
        amounted to $3.2 million and $55 thousand, respectively .
   F-17
 **GREAT
            LAKES BANCORP, INC. AND SUBSIDIARY**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
            31, 2006, 2005 and 2004**
  
  At
        December 31, 2006, the amortized cost and fair value of debt securities by
        contractual maturity were as follows:
 **Amortized**
                
                **Fair****Cost**
                
                **Value*****(Dollars
                    in thousands)*****Debt
                    securities available for sale:**Due
                    from one to five years
                
                $
                1,543
                
                $
                1,536Due
                    after five years through ten years
                
                
                13,620
                
                
                13,429Due
                    after ten years
                
                
                7,997
                
                
                7,85623,160
                
                
                22,821Mortgage-backed
                    securities
                
                
                214,684
                
                
                211,032$
                237,844
                
                $
                233,853**Debt
                    securities held to maturity:**Due
                    from one to five years
                
                $
                868
                
                $
                850Due
                    after five years through ten years
                
                
                11,916
                
                
                11,698Due
                    after ten years
                
                
                3,213
                
                
                3,210$
                15,997
                
                $
                15,758
   While
        the
        contractual maturities of mortgage-backed securities generally exceed ten
        years,
        the effective lives are expected to be significantly shorter due to prepayments
        of the underlying loans and the nature of the securities.
  The
        following tables show the investments’ gross unrealized losses and fair value,
        aggregated by investment category and length of time that individual securities
        have been in a continuous unrealized loss position at December 31, 2006 and
        2005.
  **December
                    31,
                    2006****Less
                    than 12 months**
                
                **12
                    months or longer**
                
                **Total****Fair**
                
                **Unrealized**
                
                **Fair**
                
                **Unrealized**
                
                **Fair**
                
                **Unrealized****Value**
                
                **Losses**
                
                **Value**
                
                **Losses**
                
                **Value**
                
                **Losses*****(Dollars
                    in
                    thousands)*****Securities
                    available for sale:**U.S.
                    Government agency obligations
                
                $
                -
                
                $
                -
                
                $
                19,674
                
                $
                (323
                )
                $
                19,674
                
                $
                (323
                )Mortgage-backed
                    securities:Government
                    agency issued or guaranteed
                
                
                23,356
                
                
                (136
                )
                
                14,056
                
                
                (465
                )
                
                37,412
                
                
                (601
                )Privately
                    issued
                
                
                37,382
                
                
                (134
                )
                
                131,696
                
                
                (2,926
                )
                
                169,078
                
                
                (3,060
                )State
                    and municipal obligations
                
                
                747
                
                
                (2
                )
                
                1,392
                
                
                (14
                )
                
                2,139
                
                
                (16
                )Total
                    available for sale securities
                
                $
                61,485
                
                $
                (272
                )
                $
                166,818
                
                $
                (3,728
                )
                $
                228,303
                
                $
                (4,000
                )**Securities
                    held to maturity:**State
                    and municipal obligations
                
                $
                -
                
                $
                -
                
                $
                12,744
                
                $
                (243
                )
                $
                12,744
                
                $
                (243
                )Corporate
                    and other debt obligations
                
                
                -
                
                
                -
                
                
                998
                
                
                (12
                )
                
                998
                
                
                (12
                )Total
                    held to maturity securities
                
                $
                -
                
                $
                -
                
                $
                13,742
                
                $
                (255
                )
                $
                13,742
                
                $
                (255
                )**Total
                    temporarily impaired securities**
                
                $
                61,485
                
                $
                (272
                )
                $
                180,560
                
                $
                (3,983
                )
                $
                242,045
                
                $
                (4,255
                )
   F-18
 **GREAT
            LAKES BANCORP, INC. AND SUBSIDIARY**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
            31, 2006, 2005 and 2004**
 
 **December
                    31,
                    2006****Less
                    than 12 months**
                
                **12
                    months or longer**
                
                **Total****Fair**
                
                **Unrealized**
                
                **Fair**
                
                **Unrealized**
                
                **Fair**
                
                **Unrealized****Value**
                
                **Losses**
                
                **Value**
                
                **Losses**
                
                **Value**
                
                **Losses*****(Dollars
                    in
                    thousands)*****Securities
                    available for sale:**U.S.
                    Government agency obligations
                
                $
                14,803
                
                $
                (197
                )
                $
                4,878
                
                $
                (118
                )
                $
                19,681
                
                $
                (315
                )Mortgage-backed
                    securities:Government
                    agency issued or guaranteed
                
                
                5,147
                
                
                (83
                )
                
                10,979
                
                
                (299
                )
                
                16,126
                
                
                (382
                )Privately
                    issued
                
                
                55,576
                
                
                (1,071
                )
                
                98,594
                
                
                (2,595
                )
                
                154,170
                
                
                (3,666
                )State
                    and municipal obligations
                
                
                2,131
                
                
                (31
                )
                
                -
                
                
                -
                
                
                2,131
                
                
                (31
                )Corporate
                    and other debt obligations
                
                
                916
                
                
                (100
                )
                
                -
                
                
                -
                
                
                916
                
                
                (100
                )Total
                    available for sale securities
                
                $
                78,573
                
                $
                (1,482
                )
                $
                114,451
                
                $
                (3,012
                )
                $
                193,024
                
                $
                (4,494
                )**Securities
                    held to maturity:**State
                    and municipal obligations
                
                $
                11,741
                
                $
                (366
                )
                $
                883
                
                $
                (24
                )
                $
                12,624
                
                $
                (390
                )Corporate
                    and other debt obligations
                
                
                -
                
                
                -
                
                
                985
                
                
                (25
                )
                
                985
                
                
                (25
                )Total
                    held to maturity securities
                
                $
                11,741
                
                $
                (366
                )
                $
                1,868
                
                $
                (49
                )
                $
                13,609
                
                $
                (415
                )**Total
                    temporarily impaired securities**
                
                $
                90,314
                
                $
                (1,848
                )
                $
                116,319
                
                $
                (3,061
                )
                $
                206,633
                
                $
                (4,909
                )
  Management
        of the Company has reviewed the investment securities that were in an unrealized
        loss position at December 31, 2006 and 2005 and has concluded that the declines
        in fair value are temporary.
  In
        making
        this conclusion, management considered the period of time the securities
        were in
        a loss position, the percentage decline in comparison to the securities’
amortized cost, the financial condition of the issuers, and the Company’s
        ability and intent to hold these securities until their fair values recover.
        Management also considered that some of the mortgage-backed securities have
        the
        backing of Federal agency guarantees.
  Management
        believes that the declines in fair value were caused by increases in interest
        rates and not the credit deterioration of the individual issuers. At December
        31, 2006, the Company owned 96 securities with aggregate unrealized losses
        of
        $4.3 million. Those investment securities consisted principally of
        mortgage-backed securities classified as available for sale. All but one
        of the
        Company’s securities in an unrealized loss position at December 31, 2006 were
        investment grade with credit ratings of “AAA.” The remaining security had an
        unrealized loss of approximately $12 thousand at December 31, 2006. Management
        believes the Company will collect all payments due according to the contractual
        terms of the securities.
  **(4.)**
              **LOANS**
  Loans
        receivable at December 31, 2006 and 2005 are summarized as follows:
  **2006**
              
              **2005**Real
                  estate loans:
              
              ***(Dollars
                  in thousands)***Residential
              
              $
              253,709
              
              $
              223,917Home
                  equity
              
              
              53,676
              
              
              49,874Commercial
              
              
              78,666
              
              
              51,758Construction
              
              
              25,481
              
              
              5,319Commercial
                  and industrial loans
              
              
              55,055
              
              
              36,940Automobile
                  loans
              
              
              43,719
              
              
              37,626Other
                  consumer loans
              
              
              659
              
              
              491Total
                  loans
              
              
              510,965
              
              
              405,925Allowance
                  for loan losses
              
              
              (3,781
              )
              
              (2,910
              )Deferred
                  loan costs, net
              
              
              6,744
              
              
              6,321Total
                  loans, net
              
              $
              513,928
              
              $
              409,336  F-19
 **GREAT
              LAKES BANCORP, INC. AND SUBSIDIARY**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
              31, 2006, 2005 and 2004**
  Loans
        are
        placed on nonaccrual status when, in management’s opinion, the borrower may be
        unable to meet payment obligations, which typically occurs when principal
        or
        interest payments are more than 90 days past due. Nonaccrual loans totaled
        $3.5
        million at December 31, 2006 and $625 thousand at December 31, 2005. Had
        nonaccrual loans performed in accordance with their original contract terms,
        the
        Company would have recognized additional interest income of approximately
        $167
        thousand, $9 thousand and $20 thousand for the years ended December 31, 2006,
        2005 and 2004, respectively. There were no accruing loans delinquent 90 days
        or
        more at December 31, 2006. At December 31, 2005, there was $662 thousand
        of such
        loans. The balance of impaired loans at December 31, 2006 and 2005 amounted
        to
        $3.9 million and $1.1 million, respectively. The allowance for loan losses
        included amounts relating to those loans of $478 thousand and $204 thousand,
        respectively. There were no restructured loans outstanding in 2006 or
        2005.
  At
        December 31, 2006, residential mortgage loans include loans held for sale
        of
        approximately $1.2 million. The Company sold loans for approximately $1.3
        million in 2006. There were no loans classified as held for sale at December
        31,
        2005.
  The
        majority of the Company’s lending activity occurs within Western New York. The
        ultimate collectibility of these loans is susceptible to changes in market
        conditions in this region.
  In
        the
        ordinary course of business, the Company grants loans to related parties
        including directors, executive officers and others. Such loans totaled $1.6
        million at December 31, 2006 and $2.1 million at December 31, 2005. These
        loans
        were made substantially on the same terms, including interest rates and required
        collateral coverage ratios, as those prevailing at the time for comparable
        transactions with other unrelated persons. These loans do not involve more
        than
        the normal risk of collectibility. During 2006, total principal additions
        on
        these related party loans were $613 thousand and total principal reductions
        were
        $1.1 million, including $638 thousand in principal repayments and $432 thousand
        due to changes in related party status.
   Activity
        in the allowance for loan losses was as follows:
 **2006**
                
                **2005**
                
                **2004*****(Dollars
                    in thousands)***Balance,
                    beginning of year
                
                $
                2,910
                
                $
                2,097
                
                $
                1,807Provision
                    for loan losses
                
                
                1,030
                
                
                934
                
                
                301Allowance
                    related to loans sold
                
                
                -
                
                
                (65
                )
                
                -Net
                    charge-offsCharge-offs
                
                
                (161
                )
                
                (65
                )
                
                (13
                )Recoveries
                
                
                2
                
                
                9
                
                
                2Net
                    charge-offs
                
                
                (159
                )
                
                (56
                )
                
                (11
                )Balance,
                    end of year
                
                $
                3,781
                
                $
                2,910
                
                $
                2,097
  **(5.)**
                **PREMISES
                    AND EQUIPMENT, NET**
  Major
          classes of premises and equipment at December 31, 2006 and 2005 are summarized
          as follows:
  **2006**
                
                **2005*****(Dollars
                    in thousands)***Land
                
                $
                4,419
                
                $
                2,910Buildings
                    and improvements
                
                
                16,270
                
                
                10,993Furniture,
                    fixtures and equipment
                
                
                6,768
                
                
                5,023Construction
                    in-process
                
                
                1,334
                
                
                2,90528,791
                
                
                21,831Less
                    accumulated depreciation and amortization
                
                
                4,026
                
                
                2,651$
                24,765
                
                $
                19,180
  Construction
        in-process at December 31, 2006 consists primarily of the construction of
        new
        full-service branches in Lockport, Fredonia and Orchard Park, New York. The
        new
        Fredonia branch will replace an existing branch whose operating lease will
        expire in the summer of 2007.
   F-20
 **GREAT
            LAKES BANCORP, INC. AND SUBSIDIARY**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
            31, 2006, 2005 and 2004**
  **(6.)**
              **DEPOSITS**
  A
        summary
        of deposits at December 31, 2006 and 2005 are as follows:
 **2006**
                
                **2005****Weighted**
                
                
                
                **Weighted****Average**
                
                
                
                **Average****Amount**
                
                **Rate**
                
                **Amount**
                
                **Rate*****(Dollars
                    in thousands)***Noninterest-bearing
                    checking
                
                $
                37,145
                
                
                -
                %
                $
                23,846
                
                
                -
                %Interest-bearing
                    checking
                
                
                45,139
                
                
                1.21
                
                
                43,579
                
                
                1.56Savings
                
                
                214,454
                
                
                3.17
                
                
                260,561
                
                
                2.77Total
                    core deposits
                
                
                296,738
                
                
                2.47
                
                
                327,986
                
                
                2.41Certificates
                    of deposit, due:Within
                    one year
                
                
                272,659
                
                
                4.70
                
                
                177,231
                
                
                3.68One
                    to two years
                
                
                55,126
                
                
                4.47
                
                
                80,943
                
                
                4.32Two
                    to three years
                
                
                9,223
                
                
                4.10
                
                
                26,820
                
                
                3.98Three
                    to five years
                
                
                910
                
                
                3.92
                
                
                8,064
                
                
                3.18Thereafter
                
                
                -
                
                
                -
                
                
                40
                
                
                3.20Total
                    certificates of deposits
                
                
                337,918
                
                
                4.65
                
                
                293,098
                
                
                3.87Total
                    deposits
                
                $
                634,656
                
                
                3.63
                %
                $
                621,084
                
                
                3.10
                %
  The
          aggregate amounts of certificates of deposit in denominations of $100,000
          or
          more at December 31, 2006 and 2005 were $138.7 million and $112.1 million,
          respectively.
   Interest
          expense by deposit type for the years ended December 31, 2006, 2005, and
          2004 is
          summarized as follows:
  **2006**
                
                **2005**
                
                **2004*****(Dollars
                    in thousands)***Interest-bearing
                    checking
                
                $
                582
                
                $
                911
                
                $
                245Savings
                
                
                7,711
                
                
                6,889
                
                
                5,278Certificates
                    of deposit
                
                
                14,291
                
                
                7,834
                
                
                3,169Total
                    interest expense on deposits
                
                $
                22,584
                
                $
                15,634
                
                $
                8,692
  **(7.)**
              **SHORT-TERM
                  BORROWINGS**
   At
        December 31, 2006, short-term borrowings consisted of an overnight borrowing
        with the FHLB of $17.5 million and $400 thousand of Treasury Tax and Loan
        (“TT&L”) deposits obtained through the Bank’s Federal Reserve Bank account.
        At December 31, 2005, short-term borrowings consisted of a six month advance
        due
        to the FHLB totaling $20.5 million and $400 thousand of TT&L deposits. The
        weighted average rate on short-term borrowings was 5.39% at December 31,
        2006
        and 4.66% at December 31, 2005. Interest expense on short-term borrowings
        amounted to $650 thousand, $680 thousand and $11 thousand for the years ended
        December 31, 2006, 2005 and 2004, respectively.
  FHLB
        advances are collateralized by FHLB stock owned by the Bank and certain
        qualifying loans. At December 31, 2006 the Company had additional borrowing
        capacity available of approximately $143.0 million at the FHLB.
  F-21
 **GREAT
              LAKES BANCORP, INC. AND SUBSIDIARY**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
              31, 2006, 2005 and 2004**
  **(8.)**
              **SECURITIES
                  SOLD UNDER AGREEMENTS TO
                  REPURCHASE**
  At
        December 31, 2006, the Company’s outstanding repurchase agreements totaled $74.0
        million and bear fixed interest rates ranging from 4.68% to 5.14% and had
        a
        weighted average rate of 4.89%. At December 31, 2005, the Company’s outstanding
        repurchase agreements totaled $82.0 million and had a weighted average rate
        of
        3.86%. Interest expense from repurchase agreements totaled $3.4 million,
        $3.2
        million and $1.4 million for the years ended December 31, 2006, 2005 and
        2004,
        respectively.
  The
        Company’s outstanding repurchase agreements at December 31, 2006 with the FHLB
        and a broker-dealer are secured by available for sale investment securities
        with
        a carrying value of $84.0 million. These are treated as financing transactions
        and the obligations to repurchase are reflected as a liability in the
        consolidated financial statements. The dollar amount of securities underlying
        the agreements is included in the consolidated balance sheets. The securities
        are delivered to the dealer with whom each transaction is executed. The dealers
        may sell, loan or otherwise dispose of such securities to other parties in
        the
        normal course of their business, but agree to resell to the Company the same
        securities at the maturity of the agreements. The Company also retains the
        right
        of substitution of collateral throughout the terms of the agreements. At
        December 31, 2006, there were no amounts at risk under reverse repurchase
        agreements with any individual counterparty or group of related counterparties
        that exceeded 10% of shareholders' equity. The amount at risk is equal to
        the
        excess of the carrying value, or market value if greater, of the securities
        sold
        under agreements to repurchase over the amount of the repurchase
        liability.
  **(9.)**
              **SUBORDINATED
                  DEBENTURES AND LONG-TERM
                  DEBT**
  In
        June
        2004, the Company formed Great Lakes Bancorp Statutory Trust I (the “Trust”) for
        the sole purpose of issuing trust preferred securities. The Company accounts
        for
        the Trust in accordance with FASB Interpretation No. 46R, “Consolidation of
        Variable Interest Entities, an Interpretation of ARB No. 51” and, as such, the
        Trust is not consolidated. The Company’s $372 thousand investment in the common
        equity of the Trust is classified in the consolidated balance sheets as other
        assets and $12.4 million of related debentures are classified as liabilities.
        Interest expense paid to the Trust relating to the debentures amounted to
        $982
        thousand, $756 thousand and $304 thousand for the years ended December 31,
        2006,
        2005 and 2004, respectively. In 2004, the Company incurred costs relating
        to the
        issuance of the debentures totaling $130 thousand. These costs, which are
        included in other assets on the balance sheet, were deferred and are being
        amortized to interest expense using the straight-line method over a twenty-five
        year period.
  On
        June
        17, 2004, the Company, through the Trust, issued 12,000 floating rate pooled
        trust preferred securities with a liquidation preference of $1,000 per security.
        The trust preferred securities represent an interest in the related subordinated
        debentures of the Company, which were purchased by the Trust and have
        substantially the same payment terms as these trust preferred securities.
        The
        subordinated debentures are the only assets of the Trust and interest payments
        from the debentures finance the distributions paid on the trust preferred
        securities. Distributions on the debentures are payable quarterly at a variable
        interest rate, reset quarterly, equal to 3-month LIBOR plus 2.70% (8.06%
        and
        7.20% at December 31, 2006 and 2005, respectively).
  The
        trust
        preferred securities are subject to mandatory redemption at the liquidation
        preference, in whole or in part, upon repayment of the subordinated debentures
        at maturity or their earlier redemption. The subordinated debentures are
        redeemable prior to the maturity date of June 17, 2034, at the option of
        the
        Company on or after June 17, 2009, in whole at any time thereafter or in
        part
        from time to time thereafter. The subordinated debentures are also redeemable
        at
        any time, in whole, but not in part, upon the occurrence of specific events
        defined within the trust indenture. The Company has the option to defer
        distributions on the subordinated debentures from time to time for a period
        not
        to exceed 20 consecutive quarters.
  There
        was
        no long-term debt outstanding at December 31, 2006 and 2005. In June 2004,
        the
        Company utilized a portion of the proceeds from the issuance of subordinated
        debentures to retire a $5.0 million note payable to a bank. Interest expense
        on
        the note totaled $102 thousand in 2004.
  F-22
 **GREAT
            LAKES BANCORP, INC. AND SUBSIDIARY**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
            31, 2006, 2005 and 2004**
  
   **(10.)**
              **INCOME
                  TAXES**
   The
        income tax (benefit) provision for the years ended December 31, 2006, 2005
        and
        2004 consisted of the following:
  **2006**
              
              **2005**
              
              **2004*****(Dollars
                  in thousands)***Current
                  tax expense (benefit):Federal
              
              $
              (50
              )
              $
              (159
              )
              $
              218State
              
              
              4
              
              
              4
              
              
              88Total
                  current tax expense (benefit)
              
              
              (46
              )
              
              (155
              )
              
              306Deferred
                  tax expense (benefit):Federal
              
              
              (866
              )
              
              (629
              )
              
              1,332State
              
              
              (16
              )
              
              (528
              )
              
              108Net
                  deferred tax expense (benefit)
              
              
              (882
              )
              
              (1,157
              )
              
              1,440Total
                  income tax expense (benefit)
              
              $
              (928
              )
              $
              (1,312
              )
              $
              1,746
  Income
        tax expense (benefit) differed from the statutory federal income tax rate
        as
        follows:
  **2006**
              
              **2005**
              
              **2004**Statutory
                  federal tax rate
              
              
              (34.0
              )%
              
              (34.0
              )%
              
              34.0
              %Increase
                  (decrease) resulting from:State
                  taxes, net of federal tax benefit
              
              
              (0.4
              )
              
              (23.4
              )
              
              2.4Interest
                  on state and municipal obligations exempt from federal tax
              
              
              (7.7
              )
              
              (7.4
              )
              
              (0.2
              )Non-taxable
                  earnings on bank-owned
                  life insurance
              
              
              (8.7
              )
              
              (9.0
              )
              
              (0.4
              )Federal
                  rehabilitation investment credit
              
              
              -
              
              
              (0.4
              )
              
              (4.8
              )Other,
                  net
              
              
              (0.1
              )
              
              0.5
              
              
              2.0Effective
                  tax rate
              
              
              (50.9
              )%
              
              (73.7
              )%
              
              33.0
              %
  The
        significant state tax benefit in 2005 reflected in the table above is primarily
        attributable to state net operating loss carryforwards of approximately $116
        thousand and state tax credit carryovers of approximately $302
        thousand.
  The
        tax
        effects of temporary differences that give rise to the deferred tax assets
        and
        deferred tax liabilities at December 31, 2006 and 2005 are as follows:
  **2006**
              
              **2005*****(Dollars
                  in thousands)***Deferred
                  tax assets:Tax
                  loss carryforwards
              
              $
              30,822
              
              $
              283Tax
                  credit carryovers
              
              
              5,794
              
              
              663Capital
                  loss carryforward
              
              
              4,097
              
              
              -Other
                  accrued expenses not currently deductible for tax purposes
              
              
              3,552
              
              
              94Securitizations
              
              
              3,611
              
              
              -Net
                  unrealized loss on securities available for sale
              
              
              1,554
              
              
              1,750Hedge
                  losses
              
              
              1,236
              
              
              -Allowance
                  for loan losses
              
              
              1,417
              
              
              1,060Other
              
              
              419
              
              
              49Gross
                  deferred tax assets
              
              
              52,502
              
              
              3,899Valuation
                  allowance
              
              
              (7,273
              )
              
              -Deferred
                  tax assets, net of valuation allowance
              
              
              45,229
              
              
              3,899Deferred
                  tax liabilities:Depreciation
                  and amortization
              
              
              (1,046
              )
              
              (955
              )Deferred
                  loan origination costs
              
              
              (994
              )
              
              (1,127
              )Rehabilitation
                  credit basis reduction
              
              
              (83
              )
              
              (86
              )Total
                  deferred tax liabilities
              
              
              (2,123
              )
              
              (2,168
              )Net
                  deferred tax asset
              
              $
              43,106
              
              $
              1,731
  F-23
 **GREAT
            LAKES BANCORP, INC. AND SUBSIDIARY**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
            31, 2006, 2005 and 2004**
   Realization
        of deferred tax assets is dependent upon the generation of future taxable
        income. A valuation allowance is provided when it is more likely than not
        that
        some portion or all of the deferred tax assets will not be realized. In
        assessing the need for a valuation allowance, management considers projected
        future taxable income over the periods in which temporary differences comprising
        the deferred tax assets will be deductible. See Note 2 for further discussion
        of
        income tax benefits and tax contingencies related to the Bay View
        merger.
  At
        December 31, 2006, the Company has federal and state net operating loss
        carryforwards of approximately $77.9 million and $87.5 million, respectively.
        The federal and state net operating loss carryforwards begin to expire in
        2024
        and 2019, respectively. The Company also has federal rehabilitation investment
        credits of approximately $423 thousand that will begin to expire in 2023
        and
        state tax credits of approximately $192 thousand that have an unlimited
        carryforward period.
  **(11.)**
              **COMPREHENSIVE
                  (LOSS) INCOME**
  The
        following table displays the components of total comprehensive (loss) income
        for
        the last three years:
 **2006**
                
                **2005**
                
                **2004*****(Dollars
                    in thousands)***Net
                    income (loss) as reported
                
                $
                (896
                )
                $
                (468
                )
                $
                3,539Change
                    in net unrealized loss on securities available for sale:Unrealized
                    holding gains (losses) arising during the year, net of tax
                    benefit(provision)of
                    $(196), $1,515 and $771, respectively
                
                
                306
                
                
                (2,375
                )
                
                (1,207
                )Less:
                    Reclassification adjustment for realized losses (gains) on sales
                    ofsecurities,
                    net of taxes of $0, $(1,179) and $388, respectively
                
                
                -
                
                
                1,848
                
                
                (609
                )Change
                    in net unrealized loss on securities available for sale
                
                
                306
                
                
                (527
                )
                
                (1,816
                )Total
                    comprehensive (loss) income
                
                $
                (590
                )
                $
                (995
                )
                $
                1,723
  **(12.)**
              **COMMITMENTS
                  AND CONTINGENCIES**
  ***Lease
        Obligations***
  The
        Company occupies certain banking offices under noncancellable operating lease
        agreements expiring at various dates over the next four years. The Company
        has
        the option to renew the leases at market terms at the end of the lease terms.
        Future minimum payments under the noncancellable leases as of December 31,
        2006
        are summarized below.
  **Years
                    Ending December 31,**
                
                ***(In
                    thousands)***2007
                
                $
                1982008
                
                
                1822009
                
                
                1452010
                
                
                50$
                575
  Rent
        expense was $200 thousand, $192 thousand and $173 thousand in 2006, 2005
        and
        2004, respectively, relating to these operating leases. See Note 2 for a
        description of the leased facility obligation recognized as a purchase liability
        in connection with the Bay View merger.
  ***Financial
        Instruments with Off-Balance Sheet Risk***
  The
        Company has financial instruments with off-balance sheet risk established
        in the
        normal course of business to meet the financing needs of its customers. These
        financial instruments include commitments to extend credit and standby letters
        of credit. These instruments involve, to varying degrees, elements of credit
        and
        interest rate risk extending beyond amounts recognized in the financial
        statements.
  The
        Company’s exposure to credit loss in the event of nonperformance by the other
        party to the financial instrument for commitments to extend credit and standby
        letters of credit is essentially the same as that involved with extending
        loans
        to customers. The Company uses the same credit underwriting policies in making
        commitments and conditional obligations as for on-balance sheet instruments.
   F-24
 **GREAT
            LAKES BANCORP, INC. AND SUBSIDIARY**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
            31, 2006, 2005 and 2004**
  
 At
        December 31, 2006 and 2005, the following financial instruments were outstanding
        whose contract amounts represent credit risk:
 
 **Contract
                    Amount****2006**
                
                **2006*****(Dollars
                    in thousands)***Commitments
                    to extend credit:Home
                    equity lines of credit
                
                $
                25,716
                
                $
                25,154Commercial
                    real estate and construction loans
                
                
                14,968
                
                
                7,509Residential
                    real estate loans to be sold
                
                
                3,280
                
                
                -Other
                    residential real estate loans
                
                
                6,208
                
                
                10,142Commercial
                    lines of credit and other
                
                
                36,314
                
                
                18,430Standby
                    letters of credit
                
                
                20,936
                
                
                2,336Commitments
                    to sell residential mortgage loans
                
                
                4,475
                
                
                -
  Commitments
        to extend credit are agreements to lend to a customer as long as there is
        no
        violation of any condition established in the contract. Commitments generally
        have fixed expiration dates or other termination clauses and may require
        payment
        of a fee. Commitments may expire without being drawn upon; therefore the
        total
        commitment amounts do not necessarily represent future cash requirements.
        Each
        customer’s creditworthiness is evaluated on a case-by-case basis. The amount of
        collateral obtained, if any, is based on management’s credit evaluation of the
        borrower.
  Standby
        letters of credit are conditional lending commitments issued by the Company
        to
        guarantee the performance of a customer to a third party. These letters of
        credit are primarily issued to support private borrowing arrangements. The
        credit risk involved in issuing letters of credit is essentially the same
        as
        that involved in extending loan facilities to customers.
  ***Outstanding
        Letters of Credit***
  At
        December 31, 2006 and 2005, the Company had outstanding letters of credit
        with
        the FHLB totaling $21.0 million and $22.0 million, respectively. The letters
        are
        used to secure certain governmental deposits over and above FDIC limits.
        The
        letters have a term of one year, if not renewed, and are fully collateralized
        by
        certain qualifying loans of the Company.
  The
        Company also has a letter of credit outstanding with the FHLB in San Francisco
        in the amount of $13.9 million. The letter of credit was issued by Bay View
        as a
        credit support to a bond offering that financed an affordable housing project
        in
        San Jose, California. This letter is scheduled to expire during 2009 and
        is
        fully collateralized by certain investment securities.
  ***Contingent
        Liabilities***
  The
        Company is periodically a party to litigation arising in the ordinary course
        of
        business. Based on information currently available, although there are
        uncertainties inherent in litigation, management does not believe that the
        outcome of such litigation will have a materially adverse effect on the
        Company’s financial condition or results of operations. See Note 2 for more
        information on contingencies associated with the Bay View merger.
   F-25
 **GREAT
            LAKES BANCORP, INC. AND SUBSIDIARY**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
            31, 2006, 2005 and 2004**
   **(13.)**
              **REGULATORY
                  MATTERS**
  ***Capital***
  Banks
        and
        bank holding companies are subject to various regulatory capital requirements
        administered by state and federal banking agencies. Capital adequacy guidelines
        and, additionally for banks, prompt corrective action regulations, involve
        quantitative measures of assets, liabilities, and certain off balance-sheet
        items calculated under regulatory accounting practices. Capital amounts and
        classifications are also subject to qualitative judgments by regulators about
        components, risk weighting and other factors.
  Quantitative
        measures established by regulation to ensure capital adequacy require the
        Company and the Bank to maintain minimum amounts and ratios of Total and
        Tier 1
        capital to risk-weighted assets and of Tier 1 capital to average assets (all
        as
        defined in the regulations). These minimum amounts and ratios are included
        in
        the table below.
  The
        Company’s and the Bank’s Tier 1 capital consists of shareholders’ equity
        excluding unrealized gains and losses on securities available for sale, goodwill
        and other intangible assets and disallowed portions of deferred tax assets.
        Tier
        1 capital for the Company also includes $12 million of trust preferred
        securities issued by Great Lakes Bancorp Statutory Trust I (see Note 10 -
        Subordinated debentures and Long-Term Debt). The Company and the Bank’s total
        capital is comprised of Tier 1 capital for each entity plus a permissible
        portion of the allowance for loan losses.
  The
        Tier
        1 and total capital ratios are calculated by dividing the respective capital
        amounts by risk-weighted assets. Risk-weighted assets are calculated based
        on
        regulatory requirements and include total assets, excluding goodwill and
        other
        intangible assets and disallowed portions of deferred tax assets, allocated
        by
        risk weight category and certain off-balance-sheet items (primarily loan
        commitments). The leverage ratio is calculated by dividing Tier 1 capital
        by
        adjusted quarterly average total assets, which exclude goodwill and other
        intangible assets and disallowed portions of deferred tax assets.
  The
        Company’s and the Bank’s actual and required capital ratios as of December 31,
        2006 and 2005 were as follows:
 **Minimum
                    To Be Well****Capitalized
                    Under****For
                    Capital**
                
                **Prompt
                    Corrective****Actual**
                
                **Adequacy
                    Purposes**
                
                **Action
                    Provisions****Amount**
                
                **Ratio**
                
                **Amount**
                
                **Ratio**
                
                **Amount**
                
                **Ratio*****(Dollars
                    in thousands)*****December
                    31, 2006:**Total
                    risk-based capital (to risk-weighted assets):Great
                    Lakes Bancorp, Inc.
                
                $
                99,322
                
                
                20.8
                %
                $
                38,278
                
                
                8.0
                %
                $
                N/A
                
                
                N/A
                %Greater
                    Buffalo Savings Bank
                
                
                50,037
                
                
                10.8
                
                
                36,972
                
                
                8.0
                
                
                46,216
                
                
                10.0Tier
                    1 capital (to risk-weighted assets):Great
                    Lakes Bancorp, Inc.
                
                
                95,541
                
                
                20.0
                
                
                19,139
                
                
                4.0
                
                
                N/A
                
                
                N/AGreater
                    Buffalo Savings Bank
                
                
                46,256
                
                
                10.0
                
                
                18,486
                
                
                4.0
                
                
                27,729
                
                
                6.0Tier
                    1 leverage:Great
                    Lakes Bancorp, Inc.
                
                
                95,541
                
                
                11.6
                
                
                32,817
                
                
                4.0
                
                
                N/A
                
                
                N/AGreater
                    Buffalo Savings Bank
                
                
                46,256
                
                
                5.8
                
                
                31,776
                
                
                4.0
                
                
                39,720
                
                
                5.0
 
 **December
                    31, 2005:**Total
                    risk-based capital (to risk-weighted assets):Great
                    Lakes Bancorp, Inc.
                
                $
                53,223
                
                
                12.3
                %
                $
                34,574
                
                
                8.0
                %
                $
                N/A
                
                
                N/A
                %Greater
                    Buffalo Savings Bank
                
                
                51,884
                
                
                12.0
                
                
                34,481
                
                
                8.0
                
                
                43,102
                
                
                10.0Tier
                    1 capital (to risk-weighted assets):Great
                    Lakes Bancorp, Inc.
                
                
                50,313
                
                
                11.6
                
                
                17,287
                
                
                4.0
                
                
                N/A
                
                
                N/AGreater
                    Buffalo Savings Bank
                
                
                48,974
                
                
                11.4
                
                
                17,241
                
                
                4.0
                
                
                25,861
                
                
                6.0Tier
                    1 leverage:Great
                    Lakes Bancorp, Inc.
                
                
                50,313
                
                
                6.5
                
                
                30,884
                
                
                4.0
                
                
                N/A
                
                
                N/AGreater
                    Buffalo Savings Bank
                
                
                48,974
                
                
                6.4
                
                
                30,867
                
                
                4.0
                
                
                38,584
                
                
                5.0
 F-26
 **GREAT
                LAKES BANCORP, INC. AND SUBSIDIARY**
 **NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
                31, 2006, 2005 and 2004**
  Greater
        Buffalo Savings Bank has been notified by its regulator that, as of its most
        recent regulatory examination, it is regarded as well capitalized under the
        regulatory framework for prompt corrective action. Such determination has
        been
        made based on the Bank’s Tier 1, total capital, and leverage ratios. There have
        been no conditions or events since this notification that management believes
        would change the Bank’s categorization as well capitalized under the
        aforementioned ratios.
  ***Dividend
        Restrictions***
  In
        the
        ordinary course of business, the Company is dependent upon dividends from
        Greater Buffalo Savings Bank to provide funds for the payment of dividends
        to
        shareholders and to provide for other cash requirements. Banking regulations
        may
        limit the amount of dividends that may be paid. Approval by regulatory
        authorities is required if the effect of dividends declared would cause the
        regulatory capital of the Bank to fall below specified minimum levels. Approval
        is also required if dividends declared exceed the net profits for that year
        combined with the retained net profits for the preceding two years. At December
        31, 2006, the Bank could pay dividends of up to $591 thousand to the Company
        without prior regulatory approval and without adversely affecting its “well
        capitalized” status.
  **(14.)**
              **EMPLOYEE
                  BENEFIT PLANS**
  ***Savings
        Plan***
  The
        Company maintains a 401(k) defined contribution plan covering substantially
        all
        employees. The plan provides for a contribution by the Company of 3% of an
        employee’s total salary, and a 50% match of employee contributions to the plan
        up to an additional 6% of total salary. The amounts charged to expense related
        to the plan were $326 thousand, $222 thousand and $153 thousand during the
        years
        ended December 31, 2006, 2005 and 2004, respectively.
  ***Stock
        Compensation Plans***
  Greater
        Buffalo Savings Bank and Great Lakes Bancorp, Inc. established stock option
        plans in 2000 and 2002 providing for the issuance of non-qualified stock
        options
        to directors and founders and the issuance of incentive stock options to
        officers and other employees. Options granted under these plans have ten-year
        lives. The options granted to directors and founders generally vest immediately
        and options granted to employees vest in even annual amounts over five years.
        The plans require the issuance of options with exercise prices not less than
        market value of the stock at the time of grant. Prior to the merger with
        Bay
        View on May 1, 2006 (see Note 2), there was not a ready market for the stock
        of
        the Company and the options were issued with an exercise price of $10.00
        per
        share, representing estimated market value.
  Under
        the
        terms of the Bay View merger, these two stock option plans remained in place.
        All stock options outstanding at the merger date became fully vested and
        provided option holders with the right to receive shares of Bay View stock
        (New
        Great Lakes) upon exercise. Also under the terms of the merger, the number
        of
        stock options issued, outstanding and available for grant were increased
        by the
        1.0873 share exchange ratio of the merger and the exercise price of all issued
        and outstanding options was decreased from $10.00 per share to $9.20 per
        share.
  All
        options outstanding under these two plans were fully vested and exercisable
        at
        December 31, 2006 and had a weighted-average remaining term of 4.0 years.
        A
        summary of stock option activity relating to these two plans is summarized
        in
        the following table.
  **Options
                  Outstanding****Options**
              
              
              
              **Weighted****available**
              
              
              
              **average****for
                  future**
              
              **Number
                  of**
              
              **exercise****grant**
              
              **options**
              
              **price**Balances
                  at December 31, 2003
              
              
              193,760
              
              
              186,240
              
              $
              10.00Forfeited
              
              
              850
              
              
              (850
              )
              
              10.00Balances
                  at December 31, 2004
              
              
              194,610
              
              
              185,390
              
              
              10.00Forfeited
              
              
              580
              
              
              (580
              )
              
              10.00Balances
                  at December 31, 2005
              
              
              195,190
              
              
              184,810
              
              
              10.00Increase
                  in options for Bay View exchange ratio
              
              
              17,088
              
              
              16,086
              
              
              -Exercised
              
              
              -
              
              
              (8,261
              )
              
              9.20Balances
                  at December 31, 2006
              
              
              212,078
              
              
              192,635
              
              
              9.20
 
   F-27
 **GREAT
            LAKES BANCORP, INC. AND SUBSIDIARY**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
            31, 2006, 2005 and 2004**
  
  In
        addition to the two Great Lakes stock option plans, there are several historical
        Bay View stock options plans that survived the merger unchanged. As of December
        31, 2006, 48,591 stock options are available for issuance to employees under
        two
        Bay View plans and 23,200 stock options are available for issuance to
        non-employee directors under two other Bay View plans. Options issued under
        these plans generally have ten-year lives and are granted with exercise prices
        not less than market value of the stock at the grant date.
  All
        options outstanding under these Bay View plans were fully vested and exercisable
        at December 31, 2006 and had a weighted-average remaining term of 2.6 years.
        A
        summary of activity in these stock option plans since the merger date is
        presented in the following table.
  **Options
                  Outstanding****Options**
              
              
              
              **Weighted****available**
              
              
              
              **average****for
                  future**
              
              **Number
                  of**
              
              **exercise****grant**
              
              **options**
              
              **price**Balances
                  at May 1, 2006 merger date
              
              
              70,791
              
              
              47,332
              
              $
              62.69Forfeited
              
              
              1,000
              
              
              (1,000
              )
              
              68.40Expired
              
              
              -
              
              
              (11,200
              )
              
              193.18Balances
                  at December 31, 2006
              
              
              71,791
              
              
              35,132
              
              
              20.92
  The
        aggregate intrinsic value relating to all of the Company’s stock option plans,
        defined as the difference between the market value of the Company’s stock on the
        last day of the year and the weighted average exercise price of the stock
        awards, totaled $690 thousand at December 31, 2006. Proceeds from stock option
        exercises during 2006 totaled $76 thousand. The total intrinsic value of
        stock
        options exercised in 2006 was $55 thousand. Shares issued in 2006 in connection
        with stock option exercises were issued from available authorized shares.
        There
        were no options exercised during 2005 or 2004.
  As
        described in Note 1, the Company adopted the provisions of SFAS 123R on January
        1, 2006. SFAS 123R requires that stock-based compensation to employees be
        recognized in the income statement based on the fair values of such awards
        on
        the measurement date (grant date). That portion of the grant date fair value
        that is ultimately expected to vest is recognized as expense over the vesting
        period on a straight-line basis. Stock-based compensation expense recognized
        under SFAS 123R for the year ended December 31, 2006, resulting from stock
        options that were granted during previous years and vested during the current
        year, totaled $19 thousand. Prior to 2006, no compensation expense was recorded
        for stock options granted with exercise prices equal to fair value. There
        was no
        unrecognized compensation expense related to share-based compensation
        arrangements of Bay View as of December 31, 2006.
   The
        following pro forma information presents net income (loss) and earnings (loss)
        per share for 2005 and 2004 as if the fair value method of SFAS 123 had been
        used to measure and recognize compensation cost for stock-based compensation
        plans:
  **2005**
                
                **2004*****(Dollars
                    in thousands)*****Net
                    income****(loss):**As
                    reported
                
                $
                (468
                )
                $
                3,539Total
                    stock-based employee compensation expense determinedunder
                    the fair value methodfor all awards, net of tax effect
                
                
                (42
                )
                
                (56
                )Proforma
                
                $
                (510
                )
                $
                3,483**Basic
                    and diluted earnings****(loss) per share:**As
                    reported
                
                $
                (0.11
                )
                $
                0.92Proforma
                
                $
                (0.12
                )
                $
                0.91
 F-28
 **GREAT
              LAKES BANCORP, INC. AND SUBSIDIARY**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
              31, 2006, 2005 and 2004**
 
 **(15.)**
              **FAIR
                  VALUE OF FINANCIAL
                  INSTRUMENTS**
   The
        fair
        value of a financial instrument is the current amount that would be exchanged
        between willing parties, other than in a forced liquidation. Fair value is
        best
        determined based upon quoted market prices. However, in many instances, there
        are no quoted market prices for the Company’s various financial instruments. In
        cases where quoted market prices are not available, fair values are based
        on
        estimates using present value or other valuation techniques. Those techniques
        are significantly affected by the assumptions used, including the discount
        rate
        and estimates of future cash flows. Accordingly, the fair value estimates
        may
        not be realized in an immediate settlement of the instrument. The accounting
        guidelines exclude certain financial instruments and all non-financial
        instruments from its disclosure requirements. Accordingly, the aggregate
        fair
        value amounts presented at December 31, 2006 and 2005 may not necessarily
        represent the underlying fair value of the Company.
  The
        estimated fair value approximates carrying value for cash and cash equivalents,
        restricted cash, FHLB stock, bank-owned life insurance and accrued interest
        receivable. Fair value estimates for other financial instruments are discussed
        below.
  **Investment
        Securities.** ****** Fair
        values are based on quoted market prices, where available. If a quoted market
        price is not available, fair value is based on quoted prices of similar
        securities or broker estimates.
  **Loans.** ****** The
        fair
        value of fixed rate loans and variable rate loans that reprice infrequently
        are
        estimated by discounting the future cash flows using the current rates at
        which
        similar loans would be made to borrowers with similar credit ratings and
        for the
        same remaining maturities. For variable rate loans that reprice frequently,
        with
        no significant change in credit risk, fair values are considered equal to
        carrying values.
  **Deposits.** ****** The
        fair
        values for demand and NOW, money market and savings deposits are equal to
        their
        carrying amounts. Fair values for fixed rate certificates of deposit are
        estimated using a discounted cash flow calculation that applies interest
        rates
        currently being offered on certificates to a schedule of aggregated expected
        monthly maturities on time deposits. The estimated fair value of the Bank’s
        certificates of deposits approximated $336.3 million and $291.0 million at
        December 31, 2006 and 2005, respectively.
  **Short-term
        Borrowings and Accrued Interest Payable.** ****** The
        carrying amount of short-term borrowings maturing within 90 days approximates
        fair value. The carrying amount of accrued interest payable approximates
        its
        fair value.
  **Repurchase
        Agreements.** ****** The
        fair
        value of repurchase agreements is estimated by discounting the future cash
        flows
        using the current rate at which similar borrowings with similar remaining
        maturities could be made.
  **Subordinated
        Debentures.** The
        trust preferred securities issued in conjunction with the related subordinated
        debentures of the Company have substantially the same payment terms and
        characteristics as the subordinated debentures. Fair value for the subordinated
        debentures is estimated based upon quoted prices of similar trust preferred
        securities.
  **Commitments.** ****** The
        fair
        value of our commitments to extend credit, standby letters of credit and
        financial guarantees are not included in the above table as the carrying
        value
        generally approximates fair value. These instruments generate fees that
        approximate those currently charged to originate similar commitments. Additional
        information about these instruments is included in note 12.
  F-29
 **GREAT
            LAKES BANCORP, INC. AND SUBSIDIARY**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
            31, 2006, 2005 and 2004**
   The
        estimated fair values of financial instruments at December 31, 2006 and 2005
        are
        as follows:
  **2006**
              
              **2005****Carrying**
              
              **Fair**
              
              **Carrying**
              
              **Fair****Amount**
              
              **Value**
              
              **Amount**
              
              **Value*****(Dollars
                  in
                  thousands)*****Financial
                  assets:**Cash
                  and cash equivalents
              
              $
              14,026
              
              $
              14,026
              
              $
              95,500
              
              $
              95,500Restricted
                  cash
              
              
              3,923
              
              
              3,923
              
              
              -
              
              
              -Securities
                  available for sale
              
              
              233,853
              
              
              233,853
              
              
              212,025
              
              
              212,025Securities
                  held to maturity
              
              
              15,997
              
              
              15,758
              
              
              16,024
              
              
              15,620Federal
                  Home Loan Bank stock
              
              
              2,712
              
              
              2,712
              
              
              3,454
              
              
              3,454Loans
              
              
              513,928
              
              
              509,300
              
              
              409,336
              
              
              407,332Bank-owned
                  life insurance
              
              
              13,006
              
              
              13,006
              
              
              12,537
              
              
              12,537Accrued
                  interest receivable
              
              
              3,694
              
              
              3,694
              
              
              2,887
              
              
              2,887**Financial
                  liabilities:**Deposits
              
              
              634,656
              
              
              633,055
              
              
              621,084
              
              
              619,032Short-term
                  borrowings
              
              
              17,900
              
              
              17,900
              
              
              20,900
              
              
              20,900Securities
                  sold under agreements to repurchase
              
              
              74,000
              
              
              72,598
              
              
              82,000
              
              
              81,784Subordinated
                  debentures
              
              
              12,372
              
              
              12,625
              
              
              12,372
              
              
              12,730Accrued
                  interest payable
              
              
              1,123
              
              
              1,123
              
              
              1,307
              
              
              1,307
  **(16.)**
              **CONDENSED
                  FINANCIAL INFORMATION (PARENT COMPANY
                  ONLY)**
  Presented
        below is condensed financial information as to financial position, results
        of
        operations and cash flows of the Company:
   **CONDENSED
        BALANCE SHEET** **S**
  
 **December
                  31,****2006**
              
              **2005*****(Dollars
                  in thousands)*****ASSETS**Cash:In
                  subsidiary bank
              
              $
              29,898
              
              $
              215Other
              
              
              2
              
              
              -Restricted
                  cash
              
              
              3,923
              
              
              -Securities
                  available for sale, at fair value
              
              
              20,481
              
              
              -Deferred
                  tax asset
              
              
              40,422
              
              
              -Investment
                  in subsidiary
              
              
              45,202
              
              
              46,254Goodwill
                  and other
                  assets
              
              
              14,708
              
              
              1,531Total
                  assets
              
              $
              154,636
              
              $
              48,000**LIABILITIES
                  AND SHAREHOLDERS’ EQUITY**Subordinated
                  debentures
              
              $
              12,372
              
              $
              12,372Other
                  liabilities
              
              
              6,754
              
              
              35Total
                  liabilities
              
              
              19,126
              
              
              12,407Shareholders’
                  equity
              
              
              135,510
              
              
              35,593Total
                  liabilities and shareholders’ equity
              
              $
              154,636
              
              $
              48,000
  F-30
 **GREAT
            LAKES BANCORP, INC. AND SUBSIDIARY**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **December
            31, 2006, 2005 and 2004**
 
 **CONDENSED
          STATEMENTS OF OPERATIONS**
  **Years
                    ended December 31,****2006**
                
                **2005**
                
                **2004*****(Dollars
                    in thousands)*****INCOME:**Interest
                    income
                
                $
                1,838
                
                $
                -
                
                $
                -Dividends
                    from subsidiary
                
                
                -
                
                
                1,300
                
                
                500Other
                    income
                
                
                228
                
                
                22
                
                
                92,066
                
                
                1,322
                
                
                509**EXPENSES:**Interest
                    expense
                
                
                982
                
                
                756
                
                
                405Other
                    expenses
                
                
                700
                
                
                253
                
                
                1341,682
                
                
                1,009
                
                
                539Income
                    (loss) beforeincome
                    taxes and equity in undistributed (losses) earningsof
                    subsidiary
                
                
                384
                
                
                313
                
                
                (30
                )Applicable
                    income taxprovision
                    (benefit)
                
                
                141
                
                
                (556
                )
                
                (223
                )243
                
                
                869
                
                
                193Equity
                    in undistributedearnings (losses) of subsidiary
                
                
                (1,139
                )
                
                (1,337
                )
                
                3,346Net
                    (loss) income
                
                $
                (896
                )
                $
                (468
                )
                $
                3,539
  **CONDENSED
          STATEMENTS OF CASH FLOWS**
  **Years
                    ended December 31,****2006**
                
                **2005**
                
                **2004*****(Dollars
                    in thousands)*****CASH
                    FLOWS FROM OPERATING ACTIVITIES:**Net
                    (loss) income
                
                $
                (896
                )
                $
                (468
                )
                $
                3,539Adjustments
                    to reconcile net (loss) income to net cash provided
                    (used)by
                    operating activities:Deferred
                    income tax benefit
                
                
                127
                
                
                -
                
                
                -Equity
                    in undistributed losses (earnings) of subsidiary
                
                
                1,139
                
                
                1,337
                
                
                (3,346
                )Decrease(increase) in other assets
                
                
                2,913
                
                
                (675
                )
                
                (740
                )Increase
                    (decrease) in other liabilities
                
                
                (29,871
                )
                
                (55
                )
                
                24Net
                    cashprovided
                    (used)by
                    operating activities
                
                
                (26,588
                )
                
                139
                
                
                (523
                )**CASH
                    FLOWS FROM INVESTING ACTIVITIES:**Net
                    decrease in restricted cash
                
                
                14,195
                
                
                -
                
                
                -Purchases
                    of securities available for sale
                
                
                (21,793
                )
                
                -
                
                
                -Proceeds
                    from principal payments on securities available for sale
                
                
                1,518
                
                
                -
                
                
                -Cash
                    received in Bay View merger, net of merger costs
                
                
                62,277
                
                
                -
                
                
                -Investment
                    in subsidiary
                
                
                -
                
                
                -
                
                
                (23,578
                )Net
                    provided
                    (used) by investing activities
                
                
                56,197
                
                
                -
                
                
                (23,578
                )**CASH
                    FLOWS FROM FINANCING ACTIVITIES:**Issuance
                    of trust preferred securities
                
                
                -
                
                
                -
                
                
                12,372Repayment
                    of long-term debt
                
                
                -
                
                
                -
                
                
                (5,000
                )Net
                    proceeds fromissuance of common stock
                
                
                76
                
                
                -
                
                
                16,802Net
                    cash provided by financing activities
                
                
                76
                
                
                -
                
                
                24,174NET
                    INCREASE IN CASH
                
                
                29,685
                
                
                139
                
                
                73CASH,
                    BEGINNING OF YEAR
                
                
                215
                
                
                76
                
                
                3CASH,
                    END OF YEAR
                
                $
                29,900
                
                $
                215
                
                $
                76
 
 F-31