**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**Form
        10-Q**







x
            
            QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(D) OF THESECURITIES
                EXCHANGE ACT OF 1934For
                the quarterly period ended**September 30, 2006**o
            
            TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(D) OF THESECURITIES
                EXCHANGE ACT OF 1934





Commission
      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





**(716)
                961-1900**(Issuer’s
                telephone number, including area
                code)





Indicate
                by check mark whether the registrant (1) has filed all reports required
                to
                be filed by Section 13 or 15(d) of the SecuritiesExchange
                Act of 1934 during the preceding 12 months (or for such shorter period
                that the registrant was required to file such reports),and
                (2) has been subject to such filing requirements for the past 90
                days.YesxNoo




Indicate
                by check mark whether the Registrant is a large accelerated filer,
                an
                accelerated filer, or a non-accelerated filer.See
                definition of “accelerated filer and large accelerated filer” in
                Rule 12b-2 of the Exchange Act. (Check one):Large
                accelerated filero
            Accelerated
                filer x
            Non-accelerated
                filer o





Indicate
                by check mark whether the registrant is a shell company (as defined
                in
                Rule 12b-2 of the Exchange Act).Yes oNo
                x





Indicate
                the number of shares outstanding of each of the issuer’s classes of common
                stock, as of the last practicable date:Common
                Stock, $.01 par value -- 10,921,796 shares as of November 8,
                2006











**GREAT
      LAKES BANCORP, INC. AND SUBSIDIARIES**


**Form
      10-Q**


**For
      the Quarterly Period Ended September 30, 2006**





**TABLE
                OF CONTENTS****PAGE****PART
                I.**
            
            **FINANCIAL
                INFORMATION**ITEM
                1.
            
            FINANCIAL
                STATEMENTSConsolidated
                Balance Sheets (Unaudited) -at
                September 30, 2006 and December 31, 2005
            3Consolidated
                Statements of Operations (Unaudited) -Three
                and nine months ended September 30, 2006 and 2005
            4Consolidated
                Statements of Shareholders’ Equity (Unaudited) -Nine
                months ended September 30, 2006 and 2005
            5Consolidated
                Statements of Cash Flows (Unaudited) -Nine
                months ended September 30, 2006 and 2005
            6Notes
                to Consolidated Financial Statements (Unaudited)
            7ITEM
                2.
            
            MANAGEMENT’S
                DISCUSSION AND ANALYSISOF
                FINANCIAL CONDITION ANDRESULTS
                OF OPERATIONS
            22ITEM
                3.
            
            QUANTITATIVE
                AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
            33ITEM
                4.
            
            CONTROLS
                AND PROCEDURES
            33**PART
                II.**
            
            **OTHER
                INFORMATION**ITEM
                1.
            
            LEGAL
                PROCEEDINGS
            34ITEM
                1A.
            
            RISK
                FACTORS
            34ITEM
                2.
            
            UNREGISTERED
                SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
            38ITEM
                3.
            
            DEFAULTS
                UPON SENIOR SECURITIES
            38ITEM
                4.
            
            SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY HOLDERS
            38ITEM
                5.
            
            OTHER
                INFORMATION
            38ITEM
                6.
            
            EXHIBITS
            38SIGNATURES
            39








2


**PART
      I.    FINANCIAL INFORMATION** **ITEM
              1.**
            **FINANCIAL STATEMENTS**









**GREAT
      LAKES BANCORP, INC. AND SUBSIDIARIES**


**Consolidated
      Balance Sheets (Unaudited)**


**(In
      thousands, except share and per share data)**




**September
                30,**
            
            **December
                31,****2006**
            
            **2005****ASSETS**Cash
                and cash equivalents:Cash
                and due from banks
            
            $
            13,305
            
            $
            13,070Interest-earning
                deposits in other financial institutions
            
            
            -
            
            
            82,430Total
                cash and cash equivalents
            
            
            13,305
            
            
            95,500Restricted
                cash
            
            
            3,900
            
            
            -Securities
                available for sale, at fair value
            
            
            242,360
            
            
            212,025Securities
                held to maturity, at amortized cost (fair value of $15,721 and $15,620,
                respectively)
            
            
            16,004
            
            
            16,024Federal
                Home Loan Bank stock, at cost
            
            
            1,436
            
            
            3,454Loans,
                net of allowance for loan losses of $3,375 and $2,910,
                respectively
            
            
            495,021
            
            
            409,336Premises
                and equipment, net
            
            
            23,741
            
            
            19,180Accrued
                interest receivable
            
            
            3,615
            
            
            2,887Bank-owned
                life insurance
            
            
            12,885
            
            
            12,537Deferred
                tax asset, net
            
            
            42,109
            
            
            1,731Goodwill
            
            
            12,271
            
            
            -Other
                assets
            
            
            2,643
            
            
            2,427TOTAL
                ASSETS
            
            $
            869,290
            
            $
            775,101**LIABILITIES
                AND SHAREHOLDERS’ EQUITY**Deposits:Noninterest-bearing
            
            $
            29,022
            
            $
            23,846Interest-bearing
            
            
            627,498
            
            
            597,238Total
                deposits
            
            
            656,520
            
            
            621,084Short-term
                borrowings
            
            
            9,539
            
            
            20,900Securities
                sold under agreements to repurchase
            
            
            44,000
            
            
            82,000Subordinated
                debentures
            
            
            12,372
            
            
            12,372Accrued
                expenses and other liabilities
            
            
            10,571
            
            
            3,152TOTAL
                LIABILITIES
            
            
            733,002
            
            
            739,508Commitments
                and contingencies (Note 2)Shareholders’
                equity:Common
                stock - 80,000,000 authorized shares of $0.01 par value; 10,916,691
                shares
                issuedand
                10,915,274 outstanding at September 30, 2006; and 4,300,436 shares
                issued
                andoutstanding
                at December 31, 2005
            
            
            109
            
            
            43Additional
                paid-in capital
            
            
            136,078
            
            
            35,383Retained
                earnings
            
            
            2,767
            
            
            2,910Treasury
                stock, at cost; 1,417 shares
            
            
            (234
            )
            
            -Accumulated
                other comprehensive loss
            
            
            (2,432
            )
            
            (2,743
            )TOTAL
                SHAREHOLDERS’ EQUITY
            
            
            136,288
            
            
            35,593TOTAL
                LIABILITIES AND SHAREHOLDERS’ EQUITY
            
            $
            869,290
            
            $
            775,101





See
      accompanying notes to the consolidated financial statements.





3


**GREAT
      LAKES BANCORP, INC. AND SUBSIDIARIES**


**Consolidated
      Statements of Operations (Unaudited)**


**(In
      thousands, except share and per share data)**


**Three
                    months ended**
                
                **Nine
                    months ended****September
                    30,**
                
                **September
                    30,****2006**
                
                **2005**
                
                **2006**
                
                **2005**INTEREST
                    AND DIVIDEND INCOME:Interest
                    and fees on loans
                
                $
                7,393
                
                $
                5,331
                
                $
                20,147
                
                $
                13,729Interest
                    on investment securities:Taxable
                
                
                3,137
                
                
                3,285
                
                
                9,367
                
                
                10,774Tax-exempt
                
                
                130
                
                
                130
                
                
                390
                
                
                329Total
                    interest on securities
                
                
                3,267
                
                
                3,415
                
                
                9,757
                
                
                11,103Dividends
                    on FHLB stock
                
                
                62
                
                
                49
                
                
                156
                
                
                140Interest
                    income on short-term investments
                
                
                415
                
                
                19
                
                
                1,829
                
                
                186TOTAL
                    INTEREST AND DIVIDEND INCOME
                
                
                11,137
                
                
                8,814
                
                
                31,889
                
                
                25,158INTEREST
                    EXPENSE:Deposits
                
                
                6,013
                
                
                4,099
                
                
                16,594
                
                
                11,087Short-term
                    borrowings
                
                
                85
                
                
                255
                
                
                517
                
                
                436Securities
                    sold under agreements to repurchase
                
                
                786
                
                
                812
                
                
                2,709
                
                
                2,251Subordinated
                    debentures
                
                
                257
                
                
                197
                
                
                725
                
                
                544TOTAL
                    INTEREST EXPENSE
                
                
                7,141
                
                
                5,363
                
                
                20,545
                
                
                14,318NET
                    INTEREST INCOME
                
                
                3,996
                
                
                3,451
                
                
                11,344
                
                
                10,840PROVISION
                    FOR LOAN LOSSES
                
                
                29
                
                
                216
                
                
                587
                
                
                722NET
                    INTEREST INCOME AFTER PROVISIONFOR
                    LOAN LOSSES
                
                
                3,967
                
                
                3,235
                
                
                10,757
                
                
                10,118NONINTEREST
                    INCOME:Service
                    charges on deposit accounts
                
                
                184
                
                
                114
                
                
                480
                
                
                304Other
                    fees and service charges
                
                
                137
                
                
                79
                
                
                379
                
                
                223Earnings
                    on bank-owned life insurance
                
                
                117
                
                
                116
                
                
                348
                
                
                355Loan
                    fee income
                
                
                88
                
                
                22
                
                
                247
                
                
                58Gain
                    on sale of securities, net
                
                
                -
                
                
                -
                
                
                -
                
                
                120Other
                    operating income
                
                
                58
                
                
                16
                
                
                132
                
                
                39TOTAL
                    NONINTEREST INCOME
                
                
                584
                
                
                347
                
                
                1,586
                
                
                1,099NONINTEREST
                    EXPENSE:Salaries
                    and employee benefits
                
                
                2,716
                
                
                1,873
                
                
                7,620
                
                
                5,358Occupancy,
                    equipment and furnishings
                
                
                630
                
                
                492
                
                
                1,782
                
                
                1,544Data
                    processing and operations
                
                
                240
                
                
                237
                
                
                690
                
                
                589Advertising
                
                
                202
                
                
                122
                
                
                592
                
                
                488Professional
                    services
                
                
                167
                
                
                73
                
                
                457
                
                
                267Printing,
                    postage and supplies
                
                
                123
                
                
                97
                
                
                332
                
                
                339Other
                    operating expenses
                
                
                544
                
                
                385
                
                
                1,485
                
                
                1,171TOTAL
                    NONINTEREST EXPENSE
                
                
                4,622
                
                
                3,279
                
                
                12,958
                
                
                9,756INCOME
                    (LOSS) BEFORE INCOME TAXES
                
                
                (71
                )
                
                303
                
                
                (615
                )
                
                1,461INCOME
                    TAX PROVISION (BENEFIT)
                
                
                (62
                )
                
                22
                
                
                (472
                )
                
                294NET
                    INCOME (LOSS)
                
                $
                (9
                )
                $
                281
                
                $
                (143
                )
                $
                1,167Basic
                    and diluted earnings (loss) per share
                
                $
                -
                
                $
                0.07
                
                $
                (0.02
                )
                $
                0.27Weighted
                    average basic and diluted shares outstanding
                
                
                10,914,896
                
                
                4,300,436
                
                
                8,007,137
                
                
                4,300,436





See
      accompanying notes to the consolidated financial statements.




4


**GREAT
      LAKES BANCORP, INC. AND SUBSIDIARIES**


**Consolidated
      Statements of Shareholders’ Equity (Unaudited)**


**Nine
      months ended September 30, 2006 and 2005**


**(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, 2004, as previously reported**
            
            $
            4
            
            **$**
            **35,422**
            
            **$**
            **3,378**
            
            **$**
            **-**
            
            **$**
            **(2,216**
            **)**
            **$**
            **36,588**Retroactive
                  restatement to reflect 4,300,436 shares received in the Bay View
                  merger
                  and change in par value from $0.001 to $0.01 per
                  share
            
            
            39
            
            
            (39
            )
            
            -
            
            
            -
            
            
            -
            
            
            -Comprehensive
                income:Net
                income
            
            
            -
            
            
            -
            
            
            1,167
            
            
            -
            
            
            -
            
            
            1,167Change
                  in net unrealized loss on securities available for sale, net of
                  tax and
                  reclassification adjustment
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,290
            )
            
            (1,290
            )Total
                comprehensive loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (123
            )**Balance
                at September 30, 2005**
            
            $
            43
            
            **$**
            **35,383**
            
            **$**
            **4,545**
            
            **$**
            **-**
            
            **$**
            **(3,506**
            **)**
            **$**
            **36,465****Balance
                at December 31, 2005, as previously reported**
            
            $
            4
            
            **$**
            **35,422**
            
            **$**
            **2,910**
            
            **$**
            **-**
            
            **$**
            **(2,743**
            **)**
            **$**
            **35,593**Retroactive
                  restatement to reflect 4,300,436 shares received in the Bay View
                  merger
                  and change in par value from $0.001 to $0.01 per
                  share
            
            
            39
            
            
            (39
            )
            
            -
            
            
            -
            
            
            -
            
            
            -Comprehensive
                income:Net
                loss
            
            
            -
            
            
            -
            
            
            (143
            )
            
            -
            
            
            -
            
            
            (143
            )Change
                  in net unrealized loss on securities available for sale, net of
                  tax and
                  reclassification adjustment
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            311
            
            
            311Total
                comprehensive income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            168Outstanding
                  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 for stock option exercises - 1,739 shares
            
            
            **-**
            
            
            16
            
            
            -
            
            
            -
            
            
            -
            
            
            16**Balance
                at September 30, 2006**
            
            $
            109
            
            **$**
            **136,078**
            
            **$**
            **2,767**
            
            **$**
            **(234**
            **)**
            **$**
            **(2,432**
            **)**
            **$**
            **136,288**





See
      accompanying notes to the consolidated financial statements.




5




**GREAT
      LAKES BANCORP, INC. AND SUBSIDIARIES**


**Consolidated
      Statements of Cash Flows (Unaudited)**


**(In
      thousands)**




**Nine
                months ended September 30,****2006**
            
            **2005**CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                income (loss)
            
            $
            (143
            )
            $
            1,167Adjustments
                to reconcile net income (loss) to net cash provided (used) by operating
                activities:Depreciation
                and amortization of premises and equipment
            
            
            1,006
            
            
            748Net
                amortization of premiums on investment securities
            
            
            491
            
            
            1,613Net
                amortization of deferred loan costs
            
            
            1,234
            
            
            831Compensation
                expense on stock options
            
            
            19
            
            
            -Deferred
                income tax benefit
            
            
            (297
            )
            
            (416
            )Net
                realized gain on sales of securities
            
            
            -
            
            
            (120
            )Provision
                for loan losses
            
            
            587
            
            
            722Increase
                in accrued interest receivable
            
            
            (728
            )
            
            (403
            )Increase
                in bank-owned life insurance
            
            
            (348
            )
            
            (355
            )Decrease
                (increase) in other assets
            
            
            3,052
            
            
            (362
            )Decrease
                in accrued expenses and other liabilities
            
            
            (28,303
            )
            
            (585
            )Net
                cash provided (used) by operating activities
            
            
            (23,430
            )
            
            2,840CASH
                FLOWS FROM INVESTING ACTIVITIES:Net
                decrease in restricted deposits
            
            
            14,218
            
            
            -Purchases
                of securities available for sale
            
            
            (55,104
            )
            
            (63,838
            )Purchases
                of securities held to maturity
            
            
            -
            
            
            (8,939
            )Proceeds
                from sales of securities available for sale
            
            
            -
            
            
            42,036Proceeds
                from principal payments, maturities and calls on securities available
                for
                sale
            
            
            24,808
            
            
            60,220Redemption
                of Federal Home Loan Bank stock
            
            
            2,018
            
            
            100Purchases
                of loans
            
            
            (15,352
            )
            
            (29,827
            )Net
                increase in loans receivable
            
            
            (72,154
            )
            
            (74,353
            )Purchase
                of premises and equipment
            
            
            (5,567
            )
            
            (3,748
            )Cash
                received in Bay View merger
            
            
            63,435
            
            
            -Bay
                View merger costs
            
            
            (1,158
            )
            
            -Net
                cash used in investing activities
            
            
            (44,856
            )
            
            (78,349
            )CASH
                FLOWS FROM FINANCING ACTIVITIES:Net
                increase in deposits
            
            
            35,436
            
            
            61,954Net
                increase (decrease) in short-term borrowings
            
            
            (11,361
            )
            
            19,370Proceeds
                from securities sold under agreements to repurchase
            
            
            186,000
            
            
            193,000Repayment
                of securities sold under agreements to repurchase
            
            
            (224,000
            )
            
            (204,000
            )Proceeds
                from issuance of common stock
            
            
            16
            
            
            -Net
                cash provided (used) by financing activities
            
            $
            (13,909
            )
            $
            70,324NET
                DECREASE IN CASH AND CASH EQUIVALENTS
            
            $
            (82,195
            )
            $
            (5,185
            )CASH
                AND CASH EQUIVALENTS, BEGINNING OF PERIOD
            
            
            95,500
            
            
            29,981CASH
                AND CASH EQUIVALENTS, END OF PERIOD
            
            $
            13,305
            
            $
            24,796Supplemental
                disclosure of cash flow information:Cash
                paid for interest
            
            $
            20,201
            
            $
            13,871Cash
                paid (refunded) for income taxes
            
            
            (355
            )
            
            966Acquisition
                of Bay View Capital Corporation:Assets
                acquired (excluding cash and cash equivalents acquired)
            
            
            73,937
            
            
            -Liabilities
                assumed
            
            
            35,722
            
            
            -





See
      accompanying notes to the consolidated financial statements.





6


**GREAT
        LAKES BANCORP, INC. AND SUBSIDIARIES**
 **Notes
        to Consolidated Financial Statements (Unaudited)**





**(1.)**
            **SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES**





***Basis
      of Presentation and Use of Estimates***




These
      consolidated statements have been prepared in accordance with U.S. generally
      accepted accounting principles for interim consolidated financial information
      and with the instructions for Form 10-Q. Accordingly, they do not include all
      of
      the information and footnotes required by U.S. generally accepted accounting
      principles for complete consolidated financial statements.




The
      preparation of financial statements in conformity with U.S. generally accepted
      accounting principles requires management to make estimates and assumptions
      that
      affect the reported amounts of assets and liabilities and disclosure of
      contingent assets and liabilities at the date of the financial statements and
      the reported amounts of revenues and expenses during the reporting period.
      In
      the opinion of management, all adjustments, consisting of normal recurring
      adjustments, considered necessary for a fair presentation have been included.
      Operating results for the three and nine-month periods ended September 30,
      2006
      (unaudited) are not necessarily indicative of the results that may be expected
      for the year ended December 31, 2006.




Material
      estimates particularly susceptible to possible changes in the near term relate
      to the determination of the allowance for loan losses and the valuation of
      deferred tax assets.





***Principles
      of Consolidation***




The
      consolidated financial statements presented herein include the accounts of
      Old
      Great Lakes before the merger, New Great Lakes (formerly Bay View Capital
      Corporation) after the merger and Greater Buffalo Savings Bank before and after
      the merger. See the “Overview” section of Note 2 for a description of the merger
      and these entities. All significant inter-company 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.





***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.





***Restricted
      Cash***




The
      Company classifies cash that is restricted as to use until certain contractual
      terms and conditions are met as restricted cash. These balances are included
      in
      restricted cash on the Company's balance sheets and excluded from cash and
      cash
      equivalents in the statements of cash flows.





***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.





***Loans***


Loans
      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
      placed on nonaccrual status and previously accrued interest charged against
      earnings when principal or interest reaches 90 days delinquent, unless
      management determines that the loan status clearly warrants other treatment.
      The
      Company generally 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 has reached
      90
      days delinquent. Impaired loans are classified as either nonaccrual or as loans
      renegotiated at below market rates. Loans less than 90 days delinquent are
      generally deemed to have an insignificant delay in payment and are not
      considered impaired.




7
 
 **GREAT
          LAKES BANCORP, INC. AND SUBSIDIARIES**
 **Notes
          to Consolidated Financial Statements (Unaudited)**


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 impaired loans placed on nonaccrual status
      is
      applied to principal or is recognized as interest income depending on the loan
      status. 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.





**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.





***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.





***Bank-Owned
      Life Insurance***




The
      Bank
      has purchased life insurance policies on certain key 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.





***Goodwill***




Goodwill
      represents the excess purchase price over the fair value of the net tangible
      and
      other intangible assets acquired. Goodwill is not amortized, but rather reviewed
      for impairment on an annual basis or more frequently if impairment indicators
      exist. The Company’s goodwill is not tax-deductible.





***Securities
      Repurchase Agreements***




The
      Company is a party to securities repurchase agreements with broker-dealers
      and
      the Federal Home Loan Bank of New York. These agreements provide for the
      transfer of securities under an agreement to repurchase the identical securities
      at a fixed price 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.





**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 amount
      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 on deferred tax assets and liabilities of a change in tax
      rates is recognized in income in the period that includes the enactment date.
      A
      valuation allowance must be 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.





**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 measure and recognize as compensation expense the grant
      date fair value of all share-based awards. 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, utilizing the
      straight-line attribution method. SFAS 123R requires companies to estimate
      the
      fair value of stock-based payment awards on the date of grant using an
      option-pricing model.




Prior
      to
      the merger with Bay View, Old Great Lakes’ stock was not actively traded and the
      estimated fair values were based upon the most recent trade preceding the option
      grants. As of the merger, there was no unrecognized compensation expense related
      to share-based compensation arrangements granted.




8
 
 **GREAT
          LAKES BANCORP, INC. AND SUBSIDIARIES**
 **Notes
          to Consolidated Financial Statements (Unaudited)**


We
      adopted SFAS 123R using the modified prospective transition method. In
      accordance with this method, the Company’s consolidated financial statements for
      prior periods have not been restated to reflect the impact of SFAS 123R.
      Stock-based compensation expense recognized under SFAS 123R for the nine months
      ended September 30, 2006, resulting from stock options that were granted during
      previous periods and vested prior to the current quarter, totaled $19 thousand.
      There was no stock based compensation expense recognized during the quarter
      ended September 30, 2006.




Prior
      to
      2006, no accounting recognition was given to stock options granted with an
      exercise price equal to fair value.




The
      following table presents the pro forma effect on 2005 net income and earnings
      per share had the Company recognized compensation expense for the fair value
      of
      stock options granted:




**Three
                months ended**
            
            **Nine
                months ended****September
                30, 2005**
            
            **September
                30, 2005*****(Dollars
                in thousands, except per share amounts)*****Net
                income:**
            
            $
            281
            
            $
            1,167As
                reportedTotal
                stock-based employee compensation expense determined underthe
                fair value method for all awards, net of related tax
                effects
            
            
            -
            
            
            (41
            )Proforma
                net income
            
            $
            281
            
            $
            1,126**Basic
                earnings per share:**As
                reported
            
            $
            0.07
            
            $
            0.27Proforma
            
            $
            0.07
            
            $
            0.26**Diluted
                earnings per share:**As
                reported
            
            $
            0.07
            
            $
            0.27Proforma
            
            $
            0.07
            
            $
            0.26





**Earnings
      Per Share**




Basic
      earnings (loss) per share is calculated by dividing net earnings (loss) for
      the
      period by the weighted average common shares outstanding for the period; there
      is no adjustment to the number of outstanding shares for potential dilutive
      instruments, such as stock options and warrants. Diluted earnings (loss) per
      share takes into account the potential dilutive impact of such instruments
      and
      uses the average share price for the period in determining the number of
      incremental shares to add to the weighted average number of shares outstanding.
      The Company calculated the earnings (loss) per share for the 2005 periods
      presented by increasing the weighted average common shares outstanding to give
      effect to the Bay View merger exchange ratio. For the three and nine month
      periods ended September 30, 2006, 241,325 and 225,468 weighted average shares,
      respectively, issuable upon the exercise of options were excluded from the
      diluted earnings per share calculation, as they were anti-dilutive. For the
      three and nine month periods ended September 30, 2005, potential common shares
      issuable upon the exercise of options of 200,896 were not included in the
      computation of diluted earnings per share because they were anti-dilutive.




The
      following table sets forth the calculation of basic and diluted loss per share
      for the periods indicated:




**Three
                months ended**
              **September
                30,**
            
            **Nine
                months ended**
              **September
                30,****2006**
            
            **2005**
            
            **2006**
            
            **2005*****(Dollars
                in thousands, except share and per share
                data)***Net
                (loss) income:
            
            $
            (9
            )
            $
            281
            
            $
            (143
            )
            $
            1,167Weighted
                average basic shares outstanding
            
            
            10,914,896
            
            
            4,300,436
            
            
            8,007,137
            
            
            4,300,436Add:
                Dilutive potential common shares
            
            
            -
            
            
            -
            
            
            -
            
            
            -Weighted
                average diluted shares outstanding
            
            
            10,914,896
            
            
            4,300,436
            
            
            8,007,137
            
            
            4,300,436Basic
                (loss) earnings per share
            
            $
            0.00
            
            $
            0.07
            
            $
            (0.02
            )
            $
            0.27Diluted
                (loss) earnings per share
            
            $
            0.00
            
            $
            0.07
            
            $
            (0.02
            )
            $
            0.27





9
 
 **GREAT
          LAKES BANCORP, INC. AND SUBSIDIARIES**
 **Notes
          to Consolidated Financial Statements (Unaudited)**


**Comprehensive
      Income (Loss)**




Comprehensive
      income consists of net income or loss and other comprehensive income or loss.
      Other comprehensive income or loss includes unrealized gains and losses on
      securities available for sale, net of tax effect.





***Reclassifications***




Certain
      amounts in the consolidated financial statements for the 2005 periods have
      been
      reclassified to conform to the consolidated financial statement presentation
      for
      the 2006 periods. These reclassifications had no effect on reported earnings.





***Recent
      Accounting Pronouncements***




In
      September 2006, the Securities and Exchange Commission (“SEC”) issued Staff
      Accounting Bulleting No. 108 (“SAB 108”). SAB 108 provides interpretive
      guidance on how the effects of the carryover or reversal of prior year
      misstatements should be considered in quantifying a potential current year
      misstatement. Prior to the adoption of SAB 108, companies can evaluate the
      materiality of financial-statement misstatements using either the income
      statement or balance sheet approach. The income statement approach focuses
      on
      the materiality of new misstatements added in the current year and the balance
      sheet approach focuses on the materiality of the cumulative amount of
      misstatement present in a company’s balance sheet. Misstatements that would be
      material under one approach could be viewed as immaterial under the other
      approach and therefore not be corrected. SAB 108 now requires that companies
      view financial statement misstatements as material if they are material under
      either the income statement or balance sheet approach. This pronouncement is
      effective for fiscal years ending after November 15, 2006. The Company is
      currently analyzing the effects of SAB 108.




In
      September 2006, the Financial Accounting Standards Board (the “FASB”) issued
      FASB Statement No. 157, *Fair
      Value Measurements,* (“FAS
      157”). FAS 157 provides enhanced guidance for using fair value to measure assets
      and liabilities. The standard also responds to investors’ request 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 financial statements issued for fiscal years
      beginning after November 15, 2007 and interim periods within those years.
      Early adoption is permitted. Management believes this Statement will not have
      a
      material effect on the Company’s consolidated financial statements.




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 impact of a tax position,
      if that position is more likely than not of being sustained on audit, based
      on
      the technical merits of the position. The provisions of FIN 48 are effective
      as
      of the beginning of our 2007 fiscal year, with the cumulative effect of the
      change in accounting principle recorded as an adjustment to opening retained
      earnings. The Company is currently evaluating the impact of adopting FIN 48
      on
      its financial statements.




In
      March
      2006, the FASB issued Statement of Financial Accounting Standards No. 156, *Accounting
      for Servicing of Financial Assets: an amendment of FASB Statement No. 140* (“FAS
      140” and “FAS 156”). FAS 156 establishes, among other things, 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, but does not require, 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. Upon adoption, the Company will apply the requirements for recognition
      and
      initial measurement of servicing assets and servicing liabilities prospectively
      to all transactions. The Company has not determined if it will adopt FAS 156
      using the fair value election.




In
      February 2006, the FASB issued FASB Statement 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* (“FAS
      133”), and No. 140, *Accounting
      for Transfers and Servicing of Financial Assets and Extinguishments of
      Liabilities* (“FAS
      140”). This Statement allows financial instruments that have embedded
      derivatives to be accounted for as a whole (eliminating the need to bifurcate
      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 the beginning of an entity’s first fiscal year beginning after
      September 15, 2006. Management believes this Statement will not have a material
      effect on the Company’s consolidated financial statements.





10
 
 **GREAT
          LAKES BANCORP, INC. AND SUBSIDIARIES**
 **Notes
          to Consolidated Financial Statements
          (Unaudited)**





**(2.)**
            **MERGER
                WITH BAY VIEW CAPITAL CORPORATION**





***Overview***




On
      May 1,
      2006, we merged our bank holding company called Great Lakes Bancorp, Inc. (“Old
      Great Lakes”) into Bay View Capital Corporation (“Bay View”) and changed the
      name of the surviving legal entity 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
      we moved ahead with the full wind down of Bay View’s corporate offices and staff
      located in San Mateo, California. 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, our operating subsidiary, 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, put 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.




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 merger’ 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 put 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 merger represented 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 merger-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 is being treated for accounting purposes as a purchase of Bay
      View by Old Great Lakes, we are 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. Historical financial statements of Old Great
      Lakes and Bay View can be found together at the electronic reporting website
      of
      the Securities and Exchange Commission.




Bay
      View
      had several dormant subsidiaries that have no post-merger financial activity.
      In
      addition, Bay View held limited partnership interests in several asset
      securitizations that were historically treated as sales transactions by Bay
      View. 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 our financial statements. Thus, the Bay View partnership
      interests have had no impact on our post-merger results.





11
 
 **GREAT
          LAKES BANCORP, INC. AND SUBSIDIARIES**
 **Notes
          to Consolidated Financial Statements (Unaudited)**


***Purchase
      Price Allocation***




We
      are
      required under accounting guidelines to allocate the $101.7 million purchase
      price to the assets acquired and liabilities assumed of Bay View as of May
      1,
      2006.




The
      purchase price allocation summarized in the table below is considered
      preliminary in nature because additional work is required to: (1) further
      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 our income projections of the newly
      combined entity, and (4) accumulate the final Bay View wind down
      costs.




Under
      the
      accounting guidelines, we are granted time after the merger to gather the
      information required to finalize our purchase price allocation. This time period
      generally is not to exceed one year. Our present expectation is to finalize
      the
      purchase price allocation by the end of the calendar 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. For example, an increase in the deferred tax
      assets recognized in the merger would result in a corresponding reduction in
      goodwill recognized. Adjustments to the values assigned to the assets acquired
      and liabilities assumed in the transaction as reported in the prior quarter
      were
      made in the current quarter. These adjustments resulted in an increase in
      goodwill of $550 thousand and are reflected in the table that
      follows.




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
            
            
            40,280Goodwill
            
            
            12,271Other
                assets, including FSA recovery of $2,000
            
            
            3,268Total
                assets acquired
            
            
            137,372Accounts
                payable
            
            
            2,837FSA
                settlement liability
            
            
            20,000Employee-related
                liabilities
            
            
            3,623Accrued
                insurance and professional fees
            
            
            2,734Leased
                facility obligation
            
            
            5,045Other
                liabilities
            
            
            1,483Total
                liabilities assumed
            
            
            35,722Net
                assets acquired
            
            $
            101,650





***Cash***




Cash
      and
      cash equivalents of $63.4 million at May 1, 2006 consist principally of the
      unrestricted 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 Federal Home Loan Bank (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, we
      obtained a full release of the FHLB cash by pledging available for sale
      securities of New Great Lakes. By removing the restriction, we were able to
      deploy the cash resources for a better return and the letter of credit provides
      us with fee income through June 2009.





12
 
 **GREAT
          LAKES BANCORP, INC. AND SUBSIDIARIES**
 **Notes
          to Consolidated Financial Statements (Unaudited)**


***Bay
      View Income Tax Benefits and Tax Contingencies***




Bay
      View
      has 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, we are 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 we won’t realize some or all
      of the benefits in the future.




With
      respect to the May 1, 2006 purchase price allocation, we have recognized a
      full
      reserve of $3.2 million 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, we have fully reserved the deferred tax asset of $4.1 million
      associated with the capital loss arising from the sale of BVAC. While we sold
      BVAC 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. We have no assurance of generating
      capital gains in the future so we reserved the asset.




With
      respect to the remainder of the deferred tax assets coming from the Bay View
      merger, we have made a preliminary conclusion that these assets should be
      recognized without reserve. This conclusion is based on our preliminary
      projections of future taxable income of the combined entity, using what we
      believe to be conservative asset growth and asset return assumptions. Our income
      projections, if met, would enable us 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 we are 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, ongoing review and evaluation of potential
      tax
      exposures will be conducted. 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, we 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, we agreed to pay FSA $20.0
      million and we 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, we have 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. We received initial payments
      of
      $881 thousand on July 31, 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.





13
 
 **GREAT
          LAKES BANCORP, INC. AND SUBSIDIARIES**
 **Notes
          to Consolidated Financial Statements (Unaudited)**


***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, we are
      now
      in the process of completing leasehold improvements that will result in our
      existing sub-tenants taking on more space and increase the marketability of
      the
      small amount of excess space that remains in the California
      facility.




We
      have
      recognized a purchase liability of $5.0 million as of May 1, 2006 relating
      to
      the Bay View lease commitment. This liability represents our estimate of total
      payments through 2012 under the lease, reduced by the related estimated sublease
      income. Our primary lease and the subleases require the payment of operating
      expenses associated with the facility and thus our 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 we have included estimates of market
      renewal rates in our 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 our lease commitment through sublease
      transactions.





***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 us 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 us upon final
      determination of the April 30, 2006 book value.




We
      are
      currently in dispute with AmeriCredit regarding the final April 30, 2006 book
      value and we have agreed to engage an arbitrator in accordance with the terms
      of
      the agreement to settle our differences. In addition, there is disagreement
      with
      AmeriCredit on the terms of the agreement relating to the satisfaction of
      certain income tax liabilities associated with BVAC and we 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 we owe them approximately $400 thousand from the
      funds
      held in escrow as adjustment of the final purchase price to the April 30, 2006
      book value, we do not believe that this claim has validity and we have
      recognized no liability for this matter. We believe that there is potential
      for
      recovery from AmeriCredit on the final settlement of the book value and the
      legal claim that we submitted against AmeriCredit in July. However, it is too
      early to predict the ultimate outcome of this matter and due to the uncertainty
      we have not recognized amounts associated with the AmeriCredit disputes in
      our
      preliminary purchase price allocation.





***Pro
      Forma Information***




We
      are
      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 the three and nine-month periods ended September 30, 2005
      and
      2006.




In
      preparing the pro forma information, we treated Bay View’s sale of BVAC, which
      occurred on the May 1, 2006 merger date, as having occurred at the beginning
      of
      the periods 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 rates used for the three and nine-month periods
      of 2005 were 3.46% and 2.96%, respectively. 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 we 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 we have 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 periods presented are the earnings on the
      invested cash balances.





14


**GREAT
        LAKES BANCORP, INC. AND SUBSIDIARIES**
 **Notes
        to Consolidated Financial Statements (Unaudited)**





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****Three
                months****ended****September
                30,**
            
            **Nine
                months ended September 30,****2005**
            
            **2006**
            
            **2005*****(Dollars
                in thousands, except share and per share
                data)***Net
                interest income
            
            $
            4,156
            
            $
            12,578
            
            $
            12,650Net
                income (loss)
            
            
            712
            
            
            610
            
            
            2,272Basic
                and diluted earnings per common share
            
            $
            0.07
            
            $
            0.06
            
            $
            0.21Weighted
                average basic shares outstanding
            
            
            10,913,535
            
            
            10,913,987
            
            
            10,913,535Weighted
                average diluted shares outstanding
            
            
            10,917,197
            
            
            11,013,038
            
            
            10,917,730








**(3.)**
            **INVESTMENT
                SECURITIES**




The
      amortized cost and estimated fair value of investment securities are summarized
      below.




**September
                30, 2006****Amortized**
            
            **Unrealized**
            
            **Unrealized**
            
            **Fair****Cost**
            
            **Gains**
            
            **Losses**
            
            **Value*****(Dollars
                in
                thousands)*****Securities
                available for sale:**U.S.
                Government agency obligations
            
            $
            19,997
            
            $
            -
            
            $
            (287
            )
            $
            19,710Mortgage-backed
                securities:Government
                agency issued or guaranteed
            
            
            44,690
            
            
            10
            
            
            (598
            )
            
            44,102Privately
                issued
            
            
            178,489
            
            
            -
            
            
            (3,066
            )
            
            175,423State
                and municipal obligations
            
            
            2,157
            
            
            -
            
            
            (20
            )
            
            2,137Corporate
                and other debt obligations
            
            
            1,010
            
            
            -
            
            
            (22
            )
            
            988Total
                available for sale securities
            
            $
            246,343
            
            $
            10
            
            $
            (3,993
            )
            $
            242,360**Securities
                held to maturity:**State
                and municipal obligations
            
            $
            12,994
            
            $
            -
            
            $
            (284
            )
            $
            12,710Corporate
                and other debt obligations
            
            
            3,010
            
            
            16
            
            
            (15
            )
            
            3,011Total
                held to maturity securities
            
            $
            16,004
            
            $
            16
            
            $
            (299
            )
            $
            15,721





15


**GREAT
      LAKES BANCORP, INC. AND SUBSIDIARIES**


**Notes
      to Consolidated Financial Statements (Unaudited)**


**December
                    31, 2005****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
      September 30, 2006 and December 31, 2005, securities with a carrying value
      of
      $101.8 million and $127.5 million, respectively, were pledged to secure public
      deposits and for other purposes required or permitted by law. At September
      30,
      2006 and December 31, 2005, the carrying amount of securities pledged to secure
      repurchase agreements was $50.0 million and $97.1 million, respectively.
      Included in mortgage-backed securities are collateralized mortgage obligations
      with an amortized cost and fair value of $208.7 million and $205.3 million
      at
      September 30, 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 during the nine months ended September 30, 2006.
      For
      the nine months ended September 30, 2005, proceeds from sales of securities
      available for sale totaled $42.0 million. Gross realized gains amounted to
      $150
      thousand, while gross realized losses amounted to $30 thousand for the nine
      months ended September 30, 2005 .




At
      September 30, 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
            
            $
            1,546
            
            $
            1,516Due
                after five years through ten years
            
            
            13,621
            
            
            13,442Due
                after ten years
            
            
            7,997
            
            
            7,87723,164
            
            
            22,835Mortgage-backed
                securities
            
            
            223,179
            
            
            219,525$
            246,343
            
            $
            242,360**Debt
                securities held to maturity:**Due
                from one to five years
            
            $
            871
            
            $
            852Due
                after five years through ten years
            
            
            11,142
            
            
            10,900Due
                after ten years
            
            
            3,991
            
            
            3,969$
            16,004
            
            $
            15,721




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.


16


**GREAT
      LAKES BANCORP, INC. AND SUBSIDIARIES**


**Notes
      to Consolidated Financial Statements (Unaudited)**


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 September 30, 2006 and
      December 31, 2005.


**September
                  30, 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
              
              $
              -
              
              $
              -
              
              $
              19,710
              
              $
              (287
              )
              $
              19,710
              
              $
              (287
              )Mortgage-backed
                  securities:Government
                  agency issued or guaranteed
              
              
              24,880
              
              
              (108
              )
              
              14,368
              
              
              (490
              )
              
              39,248
              
              
              (598
              )Privately
                  issued
              
              
              38,221
              
              
              (61
              )
              
              137,203
              
              
              (3,005
              )
              
              175,424
              
              
              (3,066
              )State
                  and municipal obligations
              
              
              -
              
              
              -
              
              
              2,137
              
              
              (20
              )
              
              2,137
              
              
              (20
              )Corporate
                  and other debt obligations
              
              
              -
              
              
              -
              
              
              988
              
              
              (22
              )
              
              988
              
              
              (22
              )Total
                  available for sale securities
              
              $
              63,101
              
              $
              (169
              )
              $
              174,406
              
              $
              (3,824
              )
              $
              237,507
              
              $
              (3,993
              )**Securities
                  held to maturity:**State
                  and municipal obligations
              
              $
              -
              
              $
              -
              
              $
              12,710
              
              $
              (284
              )
              $
              12,710
              
              $
              (284
              )Corporate
                  and other debt obligations
              
              
              -
              
              
              -
              
              
              995
              
              
              (15
              )
              
              995
              
              
              (15
              )Total
                  held to maturity securities
              
              $
              -
              
              $
              -
              
              $
              13,705
              
              $
              (299
              )
              $
              13,705
              
              $
              (299
              )**Total
                  temporarily impaired securities**
              
              $
              63,101
              
              $
              (169
              )
              $
              188,111
              
              $
              (4,123
              )
              $
              251,212
              
              $
              (4,292
              )


**December
                31, 2005****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 reviewed the investment securities that were in an unrealized
      loss position at September 30, 2006 and December 31, 2005 and has concluded
      that
      the declines in fair value were 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.





17
 
 **GREAT
          LAKES BANCORP, INC. AND SUBSIDIARIES**
 **Notes
          to Consolidated Financial Statements (Unaudited)**


(4.)
            **LOANS**




Loans
      receivable at September 30, 2006 and December 31, 2005 are summarized as
      follows:




**September
                30,**
            
            **December
                31,****2006**
            
            **2005*****(Dollars
                in thousands)***Real
                estate loans:Residential
            
            $
            247,135
            
            $
            223,917Home
                equity
            
            
            53,235
            
            
            49,874Commercial
            
            
            69,878
            
            
            51,758Construction
            
            
            23,543
            
            
            5,319Commercial
                and industrial loans
            
            
            53,791
            
            
            36,940Automobile
                loans
            
            
            43,284
            
            
            37,626Other
                consumer loans
            
            
            769
            
            
            491Total
                loans
            
            
            491,635
            
            
            405,925Allowance
                for loan losses
            
            
            (3,375
            )
            
            (2,910
            )Deferred
                loan costs, net
            
            
            6,761
            
            
            6,321Total
                loans, net
            
            $
            495,021
            
            $
            409,336





The
      table
      below sets forth the amounts and categories of the Bank’s non-performing assets
      at the dates indicated. At each date presented, there were no troubled debt
      restructurings (which involve forgiving a portion of interest or principal
      or
      making loans at rates significantly less than current market rates).
      Additionally, as of the dates indicated, there were no loans categorized as
      impaired.




**September
                30,**
            
            **December
                31,****2006**
            
            **2005*****(Dollars
                in thousands)***Nonaccrual
                loans
            
            $
            1,186
            
            $
            625Accruing
                loans contractually past due 90 days or more
            
            
            -
            
            
            662Total
                non-performing loans
            
            
            1,186
            
            
            1,287Foreclosed
                assets
            
            
            82
            
            
            126Total
                non-performing assets
            
            $
            1,268
            
            $
            1,413Ratios:Non-performing
                loans to total loans
            
            
            0.24
            %
            
            0.31
            %Non-performing
                assets to total assets
            
            
            0.15
            %
            
            0.18
            %





An
      analysis of the allowance for loan losses for the periods ended September 30,
      2006 and 2005 is presented below:




**For
                the Nine Months Ended****September
                30,****2006**
            
            **2005*****(Dollars
                in thousands)***Balance,
                beginning of period
            
            $
            2,910
            
            $
            2,097Provision
                for loan losses
            
            
            587
            
            
            722Net
                charge-offs:Charge-offs
            
            
            (124
            )
            
            (55
            )Recoveries
            
            
            2
            
            
            8Net
                charge-offs
            
            
            (122
            )
            
            (47
            )Balance,
                end of period
            
            $
            3,375
            
            $
            2,772





18
 
 **GREAT
          LAKES BANCORP, INC. AND SUBSIDIARIES**
 **Notes
          to Consolidated Financial Statements
          (Unaudited)**





**(5.)**
            **DEPOSITS**




A
      summary
      of deposits at September 30, 2006 and December 31, 2005 are as follows:




**September
                30, 2006**
            
            
            **December
                31, 2005****Amount**
            
            **Weighted
                Average Rate**
            
            
            **Amount**
            
            **Weighted
                Average Rate*****(Dollars
                in thousands)***Noninterest-bearing
                checking
            
            $
            29,022
            
            
            -
            %
            
            $
            23,846
            
            
            -
            %Interest-bearing
                checking
            
            
            43,443
            
            
            1.18
            
            
            
            43,579
            
            
            1.56Savings
            
            
            230,037
            
            
            3.22
            
            
            
            260,561
            
            
            2.77Total
                demand and savings deposits
            
            
            302,502
            
            
            2.62
            
            
            
            327,986
            
            
            2.41Certificates
                of deposit, due:Within
                one year
            
            
            296,427
            
            
            4.57
            
            
            
            177,231
            
            
            3.68One
                to two years
            
            
            40,541
            
            
            3.99
            
            
            
            80,943
            
            
            4.32Two
                to three years
            
            
            15,770
            
            
            3.94
            
            
            
            26,820
            
            
            3.98Three
                to five years
            
            
            1,280
            
            
            3.92
            
            
            
            8,064
            
            
            3.18Thereafter
            
            
            -
            
            
            -
            
            
            
            40
            
            
            3.20Total
                certificates of deposits
            
            
            354,018
            
            
            4.47
            
            
            
            293,098
            
            
            3.87Total
                deposits
            
            $
            656,520
            
            
            3.62
            %
            
            $
            621,084
            
            
            3.10
            %





The
      aggregate amount of certificates of deposit in denominations of $100,000 or
      more
      at September 30, 2006 and December 31, 2005 was $139.8 million and $112.1
      million, respectively.





**(6.)**
            **SECURITIES
                SOLD UNDER AGREEMENTS TO
                REPURCHASE**




From
      time
      to time, the Company sells, under agreements to repurchase, securities of the
      U.S. government and its agencies and other approved securities to commercial
      brokers and the Federal Home Loan Bank of New York (repurchase
      agreements).




In
      March
      2006, the Company entered into a $25.0 million repurchase agreement with a
      five-year term. The interest rate for the first six months was three-month
      LIBOR
      minus 75 basis points and became fixed in September 2006 for the remainder
      of
      the term at 4.68%. The counterparty has the right to call the obligation on
      a
      quarterly basis for the remainder of the term. The repurchase agreement is
      secured by U.S. government agency and AAA-rated private label mortgage-backed
      securities.




In
      September 2006, the Company entered into two other repurchase agreements
      totaling $19.0 million. The terms for these repurchase agreements are three
      and
      three and a half years and the interest rates are fixed at 4.97% and 5.14%.
      The
      collateral for the repurchase agreements consists of U.S. government sponsored
      enterprise securities and AAA-rated private label mortgage-backed
      securities.




At
      December 31, 2005, the Company’s outstanding repurchase agreements totaled $82.0
      million with a weighted average rate of 3.86%. The terms for these five
      repurchase agreements ranged from six months to three years with interest rates
      ranging from 2.93% to 4.61%. All of these obligations were repaid during
      2006.




Securities
      sold under agreements to repurchase are recorded at the amount of cash received
      in connection with the transaction. The Company may be required to provide
      additional collateral based on the fair value of the underlying
      securities. ****** Securities
      sold under agreements to repurchase are secured by investment securities. The
      carrying value of these securities at September 30, 2006 and December 31, 2005
      was $50.0 million and $97.1 million, respectively. Interest expense from
      repurchase agreements totaled $786 thousand and $812 thousand for the three
      months ended September 30, 2006 and 2005, respectively. Interest expense from
      repurchase agreements totaled $2.7 million and $2.3 million for the nine months
      ended September 30, 2006 and 2005, respectively.





**(7.)**
            **INCOME
                TAXES**




The
      Company recorded an income tax benefit of $62 thousand in the third quarter
      of
      2006, compared to income tax expense of $22 thousand in the third quarter of
      2005. For the nine-month period ended September 30, 2006, the income tax benefit
      totaled $472 thousand compared to $294 thousand of expense in the same period
      of
      2005. The changes were due in part to pre-tax losses of $71 thousand and $615
      thousand for the three and nine month periods ended September 30, 2006,
      respectively; compared to pre-tax income of $303 thousand and $1.5 million
      for
      the corresponding periods in 2005, combined with changes in the Company’s
      effective tax rate.




19
 
 **GREAT
            LAKES BANCORP, INC. AND SUBSIDIARIES**
 **Notes
            to Consolidated Financial Statements
            (Unaudited)**


The
      effective tax rates were 87.4% and 7.2% in the third quarters of 2006 and 2005,
      respectively, and 76.7% and 20.1% for the nine months ended September 30, 2006
      and 2005, respectively. Effective tax rates are impacted by items of income
      and
      expense that are not subject to federal or state taxation. The Company’s income
      tax provision reflects the impact of these items, which include interest income
      from tax-exempt securities, earnings on bank owned life insurance and the effect
      on taxable income of certain state tax credits. The increase in effective tax
      rates over the prior year periods is due to an increase in the relative size
      of
      these tax-exempt items relative to total pre-tax earnings and
      losses.




The
      tax
      effects of temporary differences that give rise to the deferred tax assets
      and
      deferred tax liabilities at September 30, 2006 and December 31, 2005 are as
      follows:




**September
                30,**
            
            **December
                31,****2006**
            
            **2005*****(Dollars
                in thousands)***Deferred
                tax assets:Tax
                loss carryforwards
            
            $
            30,454
            
            $
            283Tax
                credit carryovers
            
            
            5,781
            
            
            663Capital
                loss carryforward
            
            
            4,097
            
            
            -Other
                accrued expenses not currently deductible for tax purposes
            
            
            3,477
            
            
            94Securitizations
            
            
            3,100
            
            
            -Net
                unrealized loss on securities available for sale
            
            
            1,551
            
            
            1,750Hedge
                losses
            
            
            1,401
            
            
            -Allowance
                for loan losses
            
            
            1,254
            
            
            1,060Other
            
            
            358
            
            
            49Gross
                deferred tax assets
            
            
            51,473
            
            
            3,899Valuation
                allowance
            
            
            (7,273
            )
            
            -Deferred
                tax assets, net of valuation allowance
            
            
            44,200
            
            
            3,899Deferred
                tax liabilities:Deferred
                loan origination costs
            
            
            (1,014
            )
            
            (1,127
            )Depreciation
                and amortization
            
            
            (993
            )
            
            (955
            )Rehabilitation
                credit basis reduction
            
            
            (84
            )
            
            (86
            )Total
                deferred tax liabilities
            
            
            (2,091
            )
            
            (2,168
            )Net
                deferred tax asset
            
            $
            42,109
            
            $
            1,731





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 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.





**(8.)**
            **STOCK-BASED
                COMPENSATION**




Options
      are available for issuance under the Company’s 2000 and 2002 Stock Option Plans
      which survived the merger with Bay View. Under these plans, the Company may
      grant non-qualified stock options to directors and founders at an exercise
      price
      equal to 100% of market price as determined by the Board of Directors, and
      incentive stock options to officers and other key employees at an exercise
      price
      not less than 100% of market price as determined by the Board of Directors.
      Generally, the options granted to founders and directors of the Company vest
      immediately and the options granted to employees vest over five years. All
      options expire ten years from the date of grant. The 2000 and 2002 Stock Option
      Plans authorize the grant of total options of 195,714 and 217,460 shares of
      the
      Company’s common stock, respectively.




As
      of May
      1, 2006, 184,810 common stock options issued under the Great Lakes Plans were
      outstanding, including 179,300 options that were exercisable. Under the terms
      of
      the Bay View merger, all of the outstanding options became vested at the merger
      date and turned into the right to acquire shares of Bay View. Also under the
      terms of the merger, the 1.0873 exchange ratio was used to change the 184,810
      options to 200,896 options and the exercise price of each option was likewise
      changed from $10.00 to $9.20.




Bay
      View
      has five employee stock option plans and three non-employee director stock
      option plans that also survived the merger. As of May 1, 2006, there were 48,591
      options available for grant under the five employee plans and 22,200 options
      available for grant under the three director plans.





20


**GREAT
        LAKES BANCORP, INC. AND SUBSIDIARIES**
 **Notes
        to Consolidated Financial Statements (Unaudited)**




As
      of May
      1, 2006, 47,332 options under these Bay View plans were outstanding and all
      were
      vested. Of these options, 33,332 have an exercise price of $14.62 and expire
      in
      September 2009 **.** Of
      the
      remaining options, 10,450 expired before September 30, 2006.




The
      remaining 11,950 outstanding Bay View options, which have exercise prices
      ranging from $68.40 per share to $326.88 per share, expire between 30 and 90
      days after termination of employment. All employees of Bay View were terminated
      on July 31, 2006 or earlier.




The
      following table summarizes the stock option activity during the first nine
      months of 2006:




**Weighted****average****Weighted**
            
            **remaining**
            
            **Aggregate****Number
                of**
            
            **average**
            
            **contractual**
            
            **intrinsic****shares**
            
            **exercise
                price**
            
            **term**
            
            **value****(1)**Options
                outstanding at December 31, 2005
            
            
            200,896
            
            $
            9.20Options
                granted
            
            
            -
            
            
            -Options
                resulting from Bay View merger
            
            
            47,332
            
            
            62.69Options
                exercised
            
            
            (1,739
            )
            
            9.20Options
                expired
            
            
            (10,450
            )
            
            181.21Options
                outstanding and exercisable at September 30, 2006
            
            
            236,039
            
            $
            12.31
            
            
            4.04
                years
            
            $
            887,304





(1)
            Intrinsic
                value is defined as the difference between the market value of our
                stock
                at September 30, 2006 and the weighted average exercise price of
                the stock
                awards.




21




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





The
      following discussion highlights the Company’s consolidated financial condition
      as of September 30, 2006 and the consolidated results of operations for the
      three and nine months ended September 30, 2006 compared to the same periods
      in
      2005. The discussion should be read in conjunction with the consolidated
      financial statements and related notes appearing elsewhere within this
      report.





**Forward-Looking
      Statements**




When
      used
      or incorporated by reference, the words “anticipate”, “estimate”, “expect”,
“believes”, “project”, “target”, “goal”, and other similar expressions are
      intended to identify forward-looking statements within the meaning of Section
      27A of the Securities Act of 1933. Such forward-looking statements are subject
      to certain risks, uncertainties and assumptions. Should one or more of these
      risks or uncertainties materialize, or should underlying assumptions prove
      incorrect, actual results may vary materially from those anticipated, estimated,
      expected or projected. Readers are cautioned not to place undue reliance on
      these forward-looking statements, as they reflect management's analysis only
      as
      of the date of this report. The Company expressly disclaims any obligation
      or
      undertaking to publicly release any updates or revisions to any forward-looking
      statement contained herein to reflect any change in the Company’s expectation
      with regard thereto or any change in events, conditions or circumstances on
      which any such statement is based.




Many
      of
      the comparisons of financial data from period to period presented in the
      following discussion have been rounded from actual values reported in the
      financial statements. The percentage changes presented herein are based on
      a
      comparison of the actual values recorded in the financial statements, not the
      rounded values.





**Who
      We Are After the Merger**




Great
      Lakes Bancorp, Inc. is a bank holding company with one operating subsidiary
      called Greater Buffalo Savings Bank. Greater Buffalo Savings Bank is a New
      York
      State chartered savings bank serving customers located principally in Western
      New York.




On
      May 1,
      2006, our Buffalo-based organization merged with a California-based company
      called Bay View Capital Corporation. The merger is described in detail in Note
      2
      to the accompanying financial statements.




While
      the
      form of the merger was somewhat complicated, its purpose was not. The merger
      provided our Buffalo-based bank with: (1) significant additional capital and
      cash, (2) significant tax benefits to shield future taxable income, (3) a New
      York Stock Exchange listing for shares exchanged in the transaction and, (4)
      three new directors with significant community banking experience. The merger
      provided the Bay View shareholders with an investment in a valuable community
      banking franchise and preserved valuable tax benefits that might otherwise
      expire unused.




The
      Bay
      View merger did not expand the scope of our operations. In fact, by the end
      of
      July 2006, the wind down of Bay View’s operations in California was
      substantially complete and there were no Bay View employees remaining. The
      Bay
      View merger did not change our business strategy, but rather provided us with
      $100 million of additional capital to help realize our objectives more
      quickly.




Our
      shareholder base was significantly broadened with the merger and since this
      is
      our first full quarter of post-merger financial results, we want to start by
      summarizing our brief history, our business strategy and some of our recent
      accomplishments.





**Our
      Brief History**




Greater
      Buffalo Savings Bank started business in late 1999 as a full-service community
      bank with seven employees, one office, and approximately $11 million of capital
      contributed by local investors and members of our Board of Directors. With
      $24
      million of additional capital raised in 2001 and 2003 with the same group of
      investors, our Bank grew rapidly over our first five years of operation under
      the direction of a management group and Board of Directors that held
      approximately 46% of our stock.




By
      the
      end of 2004, we had seven full-service branches operating in Western New York,
      $700 million in assets and 131 full-time equivalent employees. By September
      30,
      2006, we had 14 full-service offices in operation. We currently have three
      branches under construction with one branch that will open by the end of the
      year. Our assets totaled $869.3 million at September 30, 2006 and we had 234
      full-time equivalent employees.




Competition
      in our market was stiff during our first six years of operation and we grew
      by
      taking market share from competitors, while our local economy remained flat.
      During this period, we concentrated on building our branch network and creating
      retail customer loyalty with competitive deposit pricing and superior service.
      Our lending efforts were focused principally on originating residential mortgage
      loans, as we ramped up our commercial lending capabilities and gained market
      acceptance in a local economy where commercial loan demand was not strong.




Despite
      a
      stable but slower growth economy that remains flat and an interest rate
      environment that has put pressure on our earnings, we continue to grow and
      remain steadfast in our objective of investing for the future. That means
      completing our branch network, building our customer base, and assembling a
      management team and staff of highly qualified associates that can capitalize
      on
      the exciting growth opportunities that lie ahead.




22


Today,
      we
      are a full-service community bank offering a broad range of products and
      services to our consumer and commercial customers. On the consumer side, we
      provide a variety of residential and consumer loan products and deposit
      services, branch banking and electronic and telephone banking services. On
      the
      commercial side, we provide a variety of loan products in the real estate and
      commercial/industrial arenas to large and small companies located principally
      in
      Western New York. We also provide many of the commercial depository and cash
      management products and services offered by our larger competitors.





**Our
      Strategy**




We
      try to
      differentiate our savings bank by providing customers with friendly,
      old-fashioned service - the hallmark of bygone savings banks that dominated
      Western New York until the early 1990s. We support this old-fashioned service
      with what we think are state-of-the-art products and technology. We seek
      opportunities for small innovations in service delivery that can create
      competitive advantage - like extended evening and weekend banking hours and
      putting coin counting machines in all of our branches.




We
      expect
      to complete our branch network during the first half of 2008. Today, our market
      area is dominated by a few large and successful commercial banks operating
      with
      mature branch networks many times the size of ours. With an expanded network
      of
      branch offices, we think we can reach our targeted customers in Western New
      York
      and serve them well. We also think we can compete for market share with these
      large commercial banks, who with their national or international scope of
      operations cannot devote their entire attention to Western New York. We have
      no
      current plans to extend our retail branch network beyond our home
      geography.




Currently,
      our profitability is primarily dependent on the difference between the interest
      we pay on deposits and borrowings, and the interest we receive on loans and
      investment securities. We currently generate minimal amounts of noninterest
      income from banking or other financial services. Like most community banks,
      our
      business proposition is a simple one of lending on long interest rates, funded
      by short rates. Thus, the significant increase in short-term interest rates
      relative to long rates during the past year has impacted our earnings
      considerably. In addition, investment of the deposits we gathered as we built
      our branch network in mortgage loans and fixed income securities has increased
      our sensitivity to upward movements in market interest rates, pushing the cost
      of our funding up faster than the income we generate from our
      assets.




Our
      strategy for improving our net interest margin and reducing our sensitivity
      to
      changes in interest rates is underway, but we will not see the results
      overnight. Our strategy involves: (1) diversifying our loan portfolio away
      from
      our concentration in mortgage loans, with particular emphasis on originating
      higher yielding variable rate commercial loans with shorter durations, (2)
      increasing our focus on originating variable rate loans in our consumer and
      retail product lines, and (3) managing our fixed income investment security
      portfolios to shorter maturities.




With
      the
      focus on building our branch network during the past six years, we have not
      pursued opportunities to generate sources of noninterest income that provide
      many of our competitors with a steady stream of earnings not affected by
      interest rates. Many of our competitors provide insurance brokerage services
      and
      wealth management services - such as financial planning, trust and investment
      services, third-party sales of investment products, etc. We are actively
      evaluating opportunities to generate noninterest income, and with significant
      growth in customer accounts of various types, we believe the potential to deepen
      our customer relationships is significant. But we also want to be cautious,
      ensure that we leverage our new capital wisely for the best long-term results,
      and guard against overreacting to the challenges of the current interest rate
      environment.





**Highlights
      of Our Recent Accomplishments**




Since
      March 2006, we made significant changes to our senior management team, hiring
      a
      new Chief Financial Officer, Chief Information Officer, Treasurer, Director
      of
      Internal Audit and mortgage banking executive. In addition, we added 51 new
      associates during the nine months ended September 30, 2006 to support our branch
      expansion and other activities.




For
      the
      nine months ended September 30, 2006, our average loan portfolios, exclusive
      of
      loan loss allowance and deferred loan costs, increased by almost $117 million
      when compared to average balances for the same period last year. By loan
      category, this increase can be further broken down as follows:




·
            Average
                balances of residential mortgage loans increased by $28.5 million
                or 13.6%
                to $238.6 million for the first nine months of 2006 compared to the
                2005
                period. Growth of this portfolio was slower than other portfolios
                with
                average balances of mortgage loans comprising 52.8% of total loans
                in the
                2006 period and 62.7% in the 2005
                period.


·
            Average
                commercial real estate loans increased by $35.9 million or 95.2%
                to $73.6
                million for the first nine months of 2006 compared to 2005, with
                average
                balances of this portfolio representing 16.3% of total loans in the
                2006
                period and 11.2% in the 2005
                period.


·
            Average
                commercial and industrial loans increased by $26.9 million or 135.9%
                to
                $46.7 million for the first nine months of 2006 compared to 2005,
                with
                average balances of this portfolio representing 10.3% of total loans
                in
                the 2006 period and 5.9% in the 2005
                period.


·
            Average
                consumer loans increased by $25.6 million or 37.9% to $93.2 million
                for
                the first nine months of 2006 compared to 2005, with average balances
                of
                this portfolio representing 20.6% of total loans in the 2006 period
                and
                20.2% in the 2005 period.





23


We
      increased our average noninterest-bearing checking accounts for the nine months
      ended September 30, 2006 to $27.1 million, representing a 37.9% increase in
      average balances from the comparable period of the prior year.





**Critical
      Accounting Policies**




Management
      is required to evaluate and disclose those accounting policies that are judged
      to be critical, which are those most important to the portrayal of financial
      condition and results of operations, and that require management’s most
      subjective and complex judgments. Management considers the accounting policies
      relating to the provision for loan losses and related allowance for loan losses
      and the determination of the deferred tax asset to be critical accounting
      policies. These accounting policies are described in Note 1 to the accompanying
      financial statements.





**Overview
      of Operations**




Total
      assets increased $94.2 million or 12.2%, to $869.3 million at September 30,
      2006
      from $775.1 million at December 31, 2005. Total assets increased by $137.4
      million at May 1, 2006 with the Bay View merger. Cash received in the merger
      was
      initially invested in short-term instruments and used during the third quarter
      to repay borrowings under repurchase agreements.




The
      Company incurred a net loss of $9 thousand for the quarter ended September
      30,
      2006, compared to $281 thousand of net income for the quarter ended September
      30, 2005. Earnings (loss) per share for the 2006 and 2005 third quarters was
      $0.00 and $0.07, respectively.




The
      Company’s net loss was $143 thousand for the nine months ended September 30,
      2006, compared to $1.2 million of net income for the same period last year.
      Earnings (loss) per share for the 2006 and 2005 nine month periods was $(0.02)
      and $0.27, respectively.





**Discussion
      of Financial Condition Changes from December 31, 2005 to September 30,
      2006**





***Cash
      and Cash Equivalents***




Cash
      and
      cash equivalents decreased from $95.5 million at December 31, 2005 to $13.3
      million at September 30, 2006. Daily cash levels may show significant
      fluctuations due to a variety of operating factors. Most significantly, the
      timing of deposit inflows, normal inflows and outflows in transaction accounts,
      short-term borrowings, loan closings and securities purchases may cause
      short-term swings in cash balances; however management attempts to invest all
      excess cash in longer lived assets as quickly as possible.




***Investment
      Securities***




Securities
      classified as available for sale are investments that may be sold in response
      to
      changing market and interest rate conditions or for other business purposes.
      Activity in this portfolio is undertaken primarily to manage liquidity and
      interest rate risk and to take advantage of market conditions that create
      economically more attractive returns. The securities available for sale
      portfolio increased $30.4 million or 14.3% from $212.0 million at December
      31,
      2005 to $242.4  million
      at September 30, 2006. Purchases and principal paydowns of available for sale
      securities totaled $55.1 million and $24.8 million, respectively, during the
      first nine months of 2006. There were no sales of securities during the first
      nine months of 2006. The available for sale portfolio had net unrealized losses
      of $4.0 million and $4.5 million at September 30, 2006 and December 31, 2005,
      respectively.




Securities
      classified as held to maturity are carried at amortized cost when the Company
      has the positive intent and ability to hold such securities to maturity. The
      held to maturity portfolio totaled $16.0 million at September 30, 2006 and
      December 31, 2005. There
      were no purchases or sales during the current quarter . The held
      to
      maturity portfolio had
      net
      unrealized losses of $283 thousand and $ 404
      thousand a t
      September 30, 2006 and December 31, 2005, respectively.





***Loans***




During
      the first nine months of 2006, net loans receivable increased $85.7 million
      or
      20.9%, from $409.3 million at
      December 31, 2005 to
      $495.0
      million at September 30, 2006.





***Allowance
      for Loan Losses***




The
      allowance for loan losses at September 30, 2006 of $3.4 million equaled 0.68%
      of
      total loans outstanding and 284.6% of non-performing loans. The allowance for
      loan losses at December 31, 2005 of $2.9 million equaled 0.71% of total loans
      outstanding and 226.0% of non-performing loans. Loans totaling $1.2 million
      were
      in nonaccrual at September 30, 2006 compared to $625 thousand at December 31,
      2005.





24





***Deposits***




Deposits
      at September 30, 2006 totaled $656.5 million, a 5.7% increase over the December
      31, 2005 balance of $621.1 million. The
      following table sets forth the distribution of the Company’s deposits by type at
      the
      dates indicated:




**September
                30, 2006**
            
            
            **December
                31, 2005****Amount**
            
            **Percent**
            
            
            **Amount**
            
            **Percent*****(Dollars
                in thousands)***Interest-bearing
                checking
            
            $
            43,443
            
            
            6.6
            %
            
            $
            43,579
            
            
            7.0
            %Noninterest-bearing
                checking
            
            
            29,022
            
            
            4.4
            
            
            
            23,846
            
            
            3.8Money
                market
            
            
            137,638
            
            
            21.0
            
            
            
            100,473
            
            
            16.2Savings
            
            
            92,399
            
            
            14.1
            
            
            
            160,088
            
            
            25.8Certificates
                of deposit < $100,000
            
            
            214,222
            
            
            32.6
            
            
            
            180,985
            
            
            29.1Certificates
                of deposit of $100,000 or more
            
            
            139,796
            
            
            21.3
            
            
            
            112,113
            
            
            18.1$
            656,520
            
            
            100.0
            %
            
            $
            621,084
            
            
            100.0
            %





Time
      deposits totaled $354.0 million, a
      20.8%
      increase over the December 31, 2005 balance of $293.1 million. The Bank
      attracted additional time deposits through competitive pricing and aggressive
      marketing.





**Discussion
      of Results of Operations for the Three and Six Months Ended September 30, 2006
      and 2005**





***Net
      Interest Income***




Net
      interest income is the difference between income earned on interest-earning
      assets and the interest expense incurred on interest-bearing liabilities. Net
      interest income is one of the major determining factors in the Company’s
      performance as it is the principal source of revenue and earnings. The interest
      income on certain investment securities is not subject to Federal income tax
      and
      has been adjusted to a “fully taxable equivalent” or FTE basis. The FTE
      adjustment was calculated using the Company’s statutory Federal income tax rate
      of 34%. Adjusted interest income is as follows:




**For
                the Three Months**
            
            **For
                the Nine Months****Ended
                September 30,**
            
            **Ended
                September 30,****2006**
            
            **2005**
            
            **2006**
            
            **2005*****(Dollars
                in
                thousands)***Interest
                income
            
            $
            11,137
            
            $
            8,814
            
            $
            31,889
            
            $
            25,158FTE
                adjustment
            
            
            67
            
            
            67
            
            
            201
            
            
            169Interest
                income on FTE basis
            
            
            11,204
            
            
            8,881
            
            
            32,090
            
            
            25,327Interest
                expense
            
            
            7,141
            
            
            5,363
            
            
            20,545
            
            
            14,318Net
                interest income on FTE basis
            
            $
            4,063
            
            $
            3,518
            
            $
            11,545
            
            $
            11,009





25


***Average
      Balance Sheets with Resultant Interest and Rates***




The
      following table sets forth information regarding the consolidated average
      balance sheets, along with the total dollar amounts of interest income and
      interest expense and the weighted average interest rates for the periods
      presented. Average balances are calculated on a daily basis. Non-performing
      loans are included in the average balances for the periods presented. The
      allowance for loan losses is excluded from the average loan
      balances.




**For
                  the Three Months Ended September 30,****2006**
              
              
              **2005****Average**
              
              
              
              **Average**
              
              
              **Average**
              
              
              
              **Average****Balance**
              
              **Interest**
              
              **Rate**
              
              
              **Balance**
              
              **Interest**
              
              **Rate*****(Dollars
                  in
                  thousands)*****Assets:**Taxable
                  securities
              
              $
              252,513
              
              $
              3,137
              
              
              4.97
              %
              
              $
              315,851
              
              $
              3,285
              
              
              4.16
              %Tax-exempt
                  securities(1)
              
              
              15,157
              
              
              197
              
              
              5.19
              
              
              
              15,190
              
              
              197
              
              
              5.19Total
                  investment securities(2)
              
              
              267,670
              
              
              3,334
              
              
              4.98
              
              
              
              331,041
              
              
              3,482
              
              
              4.21Short-term
                  investments(3)
              
              
              33,078
              
              
              415
              
              
              4.97
              
              
              
              1,953
              
              
              19
              
              
              3.90FHLB
                  Stock
              
              
              2,821
              
              
              62
              
              
              8.78
              
              
              
              3,505
              
              
              49
              
              
              5.60Loans(4)
              
              
              489,694
              
              
              7,393
              
              
              5.99
              
              
              
              385,660
              
              
              5,331
              
              
              5.48Total
                  interest-earning assets
              
              
              793,263
              
              $
              11,204
              
              
              5.60
              %
              
              
              722,159
              
              $
              8,881
              
              
              4.88
              %Allowance
                  for loan losses
              
              
              (3,319
              )
              
              
              
              
              
              
              
              
              (2,679
              )Noninterest-earning
                  assets
              
              
              102,581
              
              
              
              
              
              
              
              
              
              40,690Total
                  assets
              
              $
              892,525
              
              
              
              
              
              
              
              
              $
              760,170**Liabilities
                  and shareholders’ equity:**Deposits:Interest-bearing
                  checking
              
              $
              40,916
              
              $
              132
              
              
              1.28
              %
              
              $
              52,067
              
              $
              251
              
              
              1.91
              %Savings
              
              
              98,476
              
              
              556
              
              
              2.24
              
              
              
              243,463
              
              
              1,483
              
              
              2.42Money
                  market
              
              
              141,166
              
              
              1,396
              
              
              3.92
              
              
              
              16,954
              
              
              103
              
              
              2.40Certificates
                  of deposit
              
              
              349,826
              
              
              3,929
              
              
              4.46
              
              
              
              252,586
              
              
              2,262
              
              
              3.55Total
                  interest-bearing deposits
              
              
              630,384
              
              
              6,013
              
              
              3.78
              
              
              
              565,070
              
              
              4,099
              
              
              2.88Short-term
                  borrowings
              
              
              6,413
              
              
              85
              
              
              5.24
              
              
              
              28,216
              
              
              255
              
              
              3.58Repurchase
                  agreements
              
              
              61,437
              
              
              786
              
              
              5.00
              
              
              
              91,892
              
              
              812
              
              
              3.51Subordinated
                  debentures
              
              
              12,372
              
              
              257
              
              
              8.14
              
              
              
              12,372
              
              
              197
              
              
              6.34Total
                  interest-bearing liabilities
              
              
              710,606
              
              $
              7,141
              
              
              3.99
              %
              
              
              697,550
              
              $
              5,363
              
              
              3.05
              %Noninterest-bearing
                  deposits
              
              
              30,606
              
              
              
              
              
              
              
              
              
              21,272Other
                  liabilities
              
              
              16,247
              
              
              
              
              
              
              
              
              
              3,779Realized
                  shareholders’ equity
              
              
              138,859
              
              
              
              
              
              
              
              
              
              39,802Other
                  comprehensive loss
              
              
              (3,793
              )
              
              
              
              
              
              
              
              
              (2,233
              )Total
                  liabilities and shareholders’ equity
              
              $
              892,525
              
              
              
              
              
              
              
              
              $
              760,170Net
                  interest income (FTE)
              
              
              
              
              $
              4,063
              
              
              
              
              
              
              
              
              $
              3,518Interest
                  rate spread (FTE)
              
              
              
              
              
              
              
              
              1.61
              %
              
              
              
              
              
              
              
              
              1.83
              %Contribution
                  of interest-free funds
              
              
              
              
              
              
              
              
              0.42
              
              
              
              
              
              
              
              
              
              0.10Net
                  interest margin (FTE)
              
              
              
              
              
              
              
              
              2.03
              %
              
              
              
              
              
              
              
              
              1.93
              %Ratio
                  of average interest-earning assets toaverage
                  interest-bearing liabilities
              
              
              
              
              
              
              
              
              111.63
              %
              
              
              
              
              
              
              
              
              103.53
              %




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


(2)
            The
                average balance of the securities is based upon amortized historical
                cost.


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


(4)
            Fees
                in the amount of $49 and $30 thousand are included in interest and
                fees on
                loans for the three months ended September 30, 2006 and 2005,
                respectively.




26




**For
                the Nine Months Ended September 30,****2006**
            
            
            **2005****Average**
            
            
            
            **Average**
            
            
            **Average**
            
            
            
            **Average****Balance**
            
            **Interest**
            
            **Rate**
            
            
            **Balance**
            
            **Interest**
            
            **Rate*****(Dollars
                in
                thousands)*****Assets:**Taxable
                securities
            
            $
            252,842
            
            $
            9,367
            
            
            4.94
            %
            
            $
            339,438
            
            $
            10,774
            
            
            4.23
            %Tax-exempt
                securities(1)
            
            
            15,165
            
            
            591
            
            
            5.19
            
            
            
            12,863
            
            
            498
            
            
            5.16Total
                investment securities(2)
            
            
            268,007
            
            
            9,958
            
            
            4.95
            
            
            
            352,301
            
            
            11,272
            
            
            4.27Short-term
                investments(3)
            
            
            50,883
            
            
            1,829
            
            
            4.80
            
            
            
            10,246
            
            
            186
            
            
            2.43FHLB
                Stock
            
            
            3,601
            
            
            156
            
            
            5.80
            
            
            
            3,441
            
            
            140
            
            
            5.43Loans(4)
            
            
            458,707
            
            
            20,147
            
            
            5.87
            
            
            
            340,123
            
            
            13,729
            
            
            5.40Total
                interest-earning assets
            
            
            781,198
            
            $
            32,090
            
            
            5.49
            %
            
            
            706,111
            
            $
            25,327
            
            
            4.80
            %Allowance
                for loan losses
            
            
            (3,146
            )
            
            
            
            
            
            
            
            
            (2,436
            )Noninterest-earning
                assets
            
            
            74,194
            
            
            
            
            
            
            
            
            
            37,956Total
                assets
            
            $
            852,246
            
            
            
            
            
            
            
            
            $
            741,631**Liabilities
                and shareholders’ equity:**Deposits:Interest-bearing
                checking
            
            $
            42,241
            
            $
            456
            
            
            1.44
            %
            
            $
            49,554
            
            $
            720
            
            
            1.94
            %Savings
            
            
            116,567
            
            
            1,989
            
            
            2.28
            
            
            
            270,787
            
            
            4,928
            
            
            2.43Money
                market
            
            
            132,852
            
            
            3,851
            
            
            3.88
            
            
            
            15,554
            
            
            194
            
            
            1.67Certificates
                of deposit
            
            
            324,072
            
            
            10,298
            
            
            4.25
            
            
            
            214,916
            
            
            5,245
            
            
            3.26Total
                interest-bearing deposits
            
            
            615,732
            
            
            16,594
            
            
            3.60
            
            
            
            550,811
            
            
            11,087
            
            
            2.69Short-term
                borrowings
            
            
            14,337
            
            
            517
            
            
            4.82
            
            
            
            17,134
            
            
            436
            
            
            3.40Repurchase
                agreements
            
            
            80,393
            
            
            2,709
            
            
            4.44
            
            
            
            100,755
            
            
            2,251
            
            
            2.99Subordinated
                debentures
            
            
            12,372
            
            
            725
            
            
            7.73
            
            
            
            12,372
            
            
            544
            
            
            5.88Total
                interest-bearing liabilities
            
            
            722,834
            
            $
            20,545
            
            
            3.80
            %
            
            
            681,072
            
            $
            14,318
            
            
            2.81
            %Noninterest-bearing
                deposits
            
            
            27,100
            
            
            
            
            
            
            
            
            
            19,645Other
                liabilities
            
            
            11,522
            
            
            
            
            
            
            
            
            
            3,932Realized
                shareholders’ equity
            
            
            94,693
            
            
            
            
            
            
            
            
            
            39,377Other
                comprehensive loss
            
            
            (3,903
            )
            
            
            
            
            
            
            
            
            (2,395
            )Total
                liabilities and shareholders’ equity
            
            $
            852,246
            
            
            
            
            
            
            
            
            $
            741,631Net
                interest income (FTE)
            
            
            
            
            $
            11,545
            
            
            
            
            
            
            
            
            $
            11,009Interest
                rate spread (FTE)
            
            
            
            
            
            
            
            
            1.69
            %
            
            
            
            
            
            
            
            
            1.99
            %Contribution
                of interest-free funds
            
            
            
            
            
            
            
            
            0.29
            
            
            
            
            
            
            
            
            
            0.09Net
                interest margin (FTE)
            
            
            
            
            
            
            
            
            1.98
            %
            
            
            
            
            
            
            
            
            2.08
            %Ratio
                of average interest-earning assets toaverage
                interest-bearing liabilities
            
            
            
            
            
            
            
            
            108.07
            %
            
            
            
            
            
            
            
            
            103.68
            %




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


(2)
            The
                average balance of the securities is based upon amortized historical
                cost.


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


(4)
            Fees
                in the amount of $152 and $80 thousand are included in interest and
                fees
                on loans for the nine months ended September 30, 2006 and 2005,
                respectively.





27


***Rate
      / Volume Analysis***




The
      following analysis shows the changes in interest income (tax equivalent “FTE”)
      and interest expense attributable to volume and rate variances for the periods
      indicated. For each category of interest-earning asset and interest-bearing
      liability, information is provided on changes attributed to: (1) changes in
      rate
      (change in rate multiplied by current volume); (2) changes in volume (change
      in
      volume multiplied by old rate); (3) the total. The change in interest income
      (tax equivalent) due to both volume and rate have been allocated to volume
      and
      rate changes in proportion to the relationship of the absolute dollar amounts
      of
      the change in each.


**For
                  the three months ended**
              
              **For
                  the nine months ended****September
                  30, 2006 vs. 2005**
              
              **September
                  30, 2006 vs. 2005****Increase/(Decrease)**
              
              
              
              **Increase/(Decrease)****Due
                  to Change in**
              
              **Total
                  Net**
              
              **Due
                  to Change in**
              
              **Total
                  Net****Average**
              
              **Average**
              
              **Increase**
              
              **Average**
              
              **Average**
              
              **Increase****Volume**
              
              **Rate**
              
              **(Decrease)**
              
              **Volume**
              
              **Rate**
              
              **(Decrease)**INTEREST
                  INCOME:Taxable
                  securities
              
              $
              (659
              )
              $
              511
              
              $
              (148
              )
              $
              (2,749
              )
              $
              1,342
              
              $
              (1,407
              )Tax-exempt
                  securities
              
              
              -
              
              
              -
              
              
              -
              
              
              89
              
              
              4
              
              
              93Total
                  investment securities
              
              
              (659
              )
              
              511
              
              
              (148
              )
              
              (2,660
              )
              
              1,346
              
              
              (1,314
              )Short-term
                  investments
              
              
              303
              
              
              93
              
              
              396
              
              
              738
              
              
              905
              
              
              1,643FHLB
                  Stock
              
              
              (10
              )
              
              23
              
              
              13
              
              
              7
              
              
              9
              
              
              16Loans
              
              
              1,438
              
              
              624
              
              
              2,062
              
              
              4,787
              
              
              1,631
              
              
              6,418Total
                  interest-earning assets
              
              $
              1,072
              
              $
              1,251
              
              $
              2,323
              
              $
              2,872
              
              $
              3,891
              
              $
              6,763INTEREST
                  EXPENSE:Deposits:Interest-bearing
                  checking
              
              $
              (54
              )
              $
              (65
              )
              $
              (119
              )
              $
              (106
              )
              $
              (158
              )
              $
              (264
              )Savings
              
              
              (883
              )
              
              (44
              )
              
              (927
              )
              
              (2,807
              )
              
              (132
              )
              
              (2,939
              )Money
                  market
              
              
              755
              
              
              538
              
              
              1,293
              
              
              1,463
              
              
              2,194
              
              
              3,657Certificates
                  of deposit
              
              
              871
              
              
              796
              
              
              1,667
              
              
              2,664
              
              
              2,389
              
              
              5,053Total
                  interest-bearing deposits
              
              
              689
              
              
              1,225
              
              
              1,914
              
              
              1,214
              
              
              4,293
              
              
              5,507Short-term
                  borrowings
              
              
              (197
              )
              
              27
              
              
              (170
              )
              
              (71
              )
              
              152
              
              
              81Repurchase
                  agreements
              
              
              (269
              )
              
              243
              
              
              (26
              )
              
              (455
              )
              
              913
              
              
              458Subordinated
                  debentures
              
              
              -
              
              
              60
              
              
              60
              
              
              -
              
              
              181
              
              
              181Total
                  borrowings
              
              
              (466
              )
              
              330
              
              
              (136
              )
              
              (526
              )
              
              1,246
              
              
              720Total
                  interest-bearing liabilities
              
              $
              223
              
              $
              1,555
              
              $
              1,778
              
              $
              688
              
              $
              5,539
              
              $
              6,227CHANGE
                  IN NET INTEREST INCOME
              
              $
              849
              
              $
              (304
              )
              $
              545
              
              $
              2,184
              
              $
              (1,648
              )
              $
              536
 
 28


Net
      interest income on a fully taxable equivalent (“FTE”) basis increased $545
      thousand or 15.5% in the third quarter of 2006 compared to the same period
      in
      2005. On a year-to-date basis, net interest income on an FTE basis increased
      4.9% or $536 thousand. Our net interest margin was 1.98% for the first nine
      months of 2006 compared to 2.08% for the first nine months of 2005. Average
      interest-earning assets grew by $75.1 million from $706.1 million in 2005 to
      $781.2 million in 2006 and the yield on average interest-earning assets improved
      from 4.80% to 5.49% over the same nine-month periods. However, a 99 basis point
      increase in the cost of average interest-bearing liabilities from 2.81% in
      2005
      to 3.80% in 2006, and a $41.7 million increase in interest-bearing liabilities
      offset these improvements.




Average
      noninterest-bearing demand deposits increased 43.9% to $30.6 million during
      the
      quarter ended September 30, 2006, compared with $21.3 million during the same
      quarter in 2005. Similarly, average noninterest-bearing demand deposits
      increased 37.9% to $27.1 million during the first nine months of 2006, compared
      with $19.6 million during the same period in 2005.




The
      yield
      on average interest-earning assets increased 72 basis points to 5.60% during
      the
      third quarter of 2006, compared to 4.88% for the third quarter of 2005. An
      increase in the average loan portfolio was the most significant contribution
      to
      the increase in average interest-earning assets and the corresponding increase
      in yields. In addition, the Bank’s yield on other interest-earning assets has
      improved with recent rate increases.




The
      rate
      paid on interest-bearing liabilities increased 94 and 99 basis points to 3.99%
      and 3.80% for the three and nine-month periods ended September 30, 2006 compared
      to the same periods of 2005, respectively. These increases were driven by higher
      rates paid on money market accounts and time deposits, attributable in part
      to
      increases in the Fed Funds rate, 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.




For
      the
      three months ended September 30, 2006, total interest and dividend income (tax
      equivalent) increased by $2.3 million or 26.2% to $11.2 million, compared to
      $8.9 million for the three months ended September 30, 2005. Similarly, for
      the
      nine months ended September 30, 2006, total interest and dividend income (tax
      equivalent) increased by $6.8 million or 26.7% to $32.1 million, compared to
      $25.3 million for the nine months ended September 30, 2005. These increases
      resulted primarily from $71.1 million and $75.1 million, respectively, of
      increases in average interest-earning assets during the three and nine-month
      periods ended September 30, 2006, compared to the same periods in
      2005.




Interest
      income on loans increased by $2.1 million to $7.4 million for the three months
      ended September 30, 2006, compared to $5.3 million during the same period in
      2005. This increase resulted primarily from a $104.0 million increase in average
      loans outstanding to $489.7 million for the three months ended September 30,
      2006 from $385.7 million for the same period in 2005. The rate on average loans
      increased to 5.99% during the three months ended September 30, 2006 from 5.48%
      for the comparable period last year.




Interest
      income on loans increased by $6.4 million to $20.1 million for the nine months
      ended September 30, 2006, compared to $13.7 million during the same period
      last
      year. This increase resulted primarily from a $118.6 million increase in average
      loans outstanding to $458.7 million for the nine months ended September 30,
      2006
      from $340.1 million for the same period last year. The rate on average loans
      increased to 5.87% during the nine months ended September 30, 2006 from 5.40%
      for the comparable period last year.




Interest
      income on securities (tax equivalent) decreased $148 thousand, or 4.3% to $3.3
      million for the three months ended September 30, 2006 from $3.5 million for
      the
      three months ended September 30, 2005. This decrease resulted primarily from
      a
      $63.3 million decrease in average securities to $267.7 million during the three
      months ended September 30, 2006 from $331.0 million for the same period last
      year. The tax-equivalent yield on average investments increased to 4.98% during
      the three months ended September 30, 2006 compared to 4.21% during the three
      months ended September 30, 2005.




Interest
      income on securities (tax equivalent) decreased $1.3 million, or 11.7% to $10.0
      million for the nine months ended September 30, 2006 from $11.3 million for
      the
      nine months ended September 30, 2005. This decrease resulted primarily from
      a
      $84.3 million decrease in average securities to $268.0 million during the nine
      months ended September 30, 2006 from $352.3 million for the same period last
      year. The tax-equivalent yield on average investments increased to 4.95% during
      the nine months ended September 30, 2006 compared to 4.27% during the nine
      months ended September 30, 2005.




Other
      interest and dividend income, consisting primarily of interest from short-term
      investments, increased $409 thousand and $1.7 million, respectively, when
      comparing the three and nine month periods ended September 30, 2006 and 2005.
      Average short-term investments increased by $30.4 million from $5.5 million
      for
      the three months ended September 30, 2005 to $35.9 million for the same period
      in 2006. Average short-term investments, including FHLB stock, increased by
      $40.8 million from $13.7 million for the nine months ended September 30, 2005
      to
      $54.5 million for the same period in 2006.




For
      the
      three months ended September 30, 2006, total interest expense increased by
      $1.7
      million or 33.2%, to $7.1 million compared to $5.4 million for the three months
      ended September 30, 2005. This increase resulted primarily from a 94 basis
      point
      increase in the rate paid on average interest-bearing liabilities to 3.99%
      for
      the three months ended September 30, 2006 from 3.05% for the same period last
      year. Average interest-bearing liabilities increased $13.0 million, or 1.9%
      to
      $710.6 million compared to $697.6 million for the three months ended September
      30, 2005.




29


Total
      interest expense increased by $6.2 million or 43.5% to $20.5 million compared
      to
      $14.3 million when comparing the nine month periods ended September 30, 2006
      and
      2005, respectively. This increase resulted primarily from a 99 basis point
      increase in the rate paid on average interest-bearing liabilities to 3.80%
      for
      the nine months ended September 30, 2006 from 2.81% for the same period last
      year. Average interest-bearing liabilities increased $41.7 million, or 6.1%
      to
      $722.8 million compared to $681.1 million for the nine months ended September
      30, 2005.




Interest
      expense on deposits, the largest portion of interest-bearing liabilities,
      increased by $1.9 million, or 46.7% to $6.0 million for the three months ended
      September 30, 2006 from $4.1 million for the comparable period last year. The
      average rate paid on these deposits increased to 3.78% for the three months
      ended September 30, 2006 from 2.88% for the three months ended September 30,
      2005.




For
      the
      nine months ended September 30, 2006, interest expense on deposits increased
      by
      $5.5 million, or 49.7% to $16.6 million from $11.1 million for the comparable
      period last year. The average rate paid on these deposits increased to 3.60%
      for
      the nine months ended September 30, 2006 from 2.69% for the same period last
      year. The increase in the average rate during both the three and nine month
      periods was primarily due to certificates of deposits repricing at higher market
      rates and an upward adjustment of the rates paid on money market
      accounts.




Interest
      expense on borrowings, comprised of short-term borrowings, repurchase agreements
      and subordinated debentures, decreased by $136 thousand from $1.3 million for
      the three months ended September 30, 2005 to $1.1 million for the same period
      in
      2006. The reduction in expense resulted from a $52.3 million decrease in average
      borrowings, offset by a 179 basis point increase in the rate paid on average
      borrowings from 3.79% for the three months ended September 30, 2005 to 5.58%
      for
      the same period in 2006.




For
      the
      nine months ended September 30, 2006, interest expense on borrowings increased
      by $720 thousand from $3.2 million for the nine months ended September 30,
      2005
      to $4.0 million for the same period in 2006. The additional expense resulted
      from a 161 basis point increase in the rate paid on average borrowings from
      3.32% for the nine months ended September 30, 2005 to 4.93% for the same period
      in 2006, offset by a $23.2 million decrease in average borrowings.





**Noninterest
      Income**




Noninterest
      income increased $237 thousand to $584 thousand for the three month period
      ended
      September 30, 2006 compared to $347 thousand for the same period last year.
      Similarly, noninterest income increased $487 thousand to $1.6 million for the
      nine months ended September 30, 2006 compared to $1.1 million for the same
      period last year. The nine month increase includes $120 thousand of realized
      gains on securities recognized in the 2005 period.





**Provision
      for Loan Losses**




The
      provision for loan losses was $29 thousand for the three months ended September
      30, 2006, compared to $216 thousand for the three months ended September 30,
      2005. The provision for loan losses was $587 thousand for the nine months ended
      September 30, 2006 compared to $722 thousand for the nine months ended September
      30, 2005. The decreases in the provision for the three and nine month periods
      were primarily due to a decision made during the current quarter to reduce
      formula-based reserve factors in certain commercial loan portfolios that
      continued to exhibit positive credit quality experience.





**Noninterest
      Expense**




Noninterest
      expense increased $1.3 million, or 41.0% to $4.6 million for the quarter ended
      September 30, 2006 compared to the quarter ended September 30, 2005. Similarly,
      noninterest expense increased $3.2 million, or 32.8% to $13.0 million for the
      nine months ended September 30, 2006, compared to $9.8 million for the same
      period in 2005. These increases are primarily due to increased salaries and
      benefits and additional occupancy expense attributed to the development of
      the
      Bank’s branch locations and significant personnel additions to its lending and
      support functions and senior management team.




Salaries
      and employee benefits increased $843 thousand or 45.0% and $2.2 million or
      42.2%
      when comparing the three and nine month periods ended September 30, 2006,
      respectively, to those of the prior year. These increases were due to higher
      staffing levels as the number of full-time equivalent employees increased from
      173 to 234 at September 30, 2005 and 2006, respectively, in addition to annual
      merit increases and cost-of-living increases.




Occupancy,
      equipment and furnishings expense increased 28.1% from $492 thousand to $630
      thousand between the three months ended September 30,
      2005 and 2006, respectively. These expenses increased 15.4% from $1.5 million
      to
      $1.8 million for the nine months ended September 30, 2005 and 2006,
      respectively. These
      increases were primarily the result of equipment costs associated with the
      increased number of full-time equivalent employees and the occupancy of five
      additional branch offices, increasing the Bank’s number of branches from nine at
      September 30, 2005 to 14 at September 30,
      2006, respectively.





30


***Income
      Taxes***




The
      effective tax rates were 87.4% and 7.2% in the third quarters of 2006 and 2005,
      respectively, and 76.7% and 20.1% for the nine months ended September 30, 2006
      and 2005, respectively. Effective tax rates are impacted by items of income
      and
      expense that are not subject to federal or state taxation. The Company’s
      effective tax rates reflect the impact of these items, which include interest
      income from tax-exempt securities, earnings on bank-owned life insurance and
      the
      effect on taxable income of certain state tax credits. The decrease in effective
      tax rates over the prior year periods is due to an increase in the relative
      size
      of these tax-exempt items relative to pre-tax earnings.





**Liquidity**




The
      principal sources of funds for us to meet parent-only obligations are dividends
      from our banking subsidiary, which are subject to regulatory limitations. At
      September 30, 2006, our subsidiary bank had $1.2 million available for dividends
      that could be paid without prior regulatory approval.




The
      Bank’s primary sources of funds are customer deposits, short-term borrowings and
      proceeds from principal and interest payments on loans, mortgage-backed
      securities and other 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 and competition. In general, as
      interest rates rise, we expect to realize a reduction in cash flows from
      mortgage prepayments and principal paydowns on our mortgage-backed securities.
      The Bank may also obtain capital through additional investments by its parent
      company.




The
      overall asset/liability strategy of the Bank takes into account the need to
      maintain adequate liquidity to fund asset growth and deposit runoff. Management
      monitors the Bank’s liquidity position daily in conjunction with the Federal
      Reserve position monitoring. The Bank may borrow funds from the Federal Home
      Loan Bank of New York and various broker-dealers on a short or long-term basis.
      It may sell or pledge investment securities to create additional liquidity.
      Since its inception in November 1999, the Bank’s rapidly increasing core deposit
      base has provided its most significant source of funds. During the first nine
      months of 2006, the Bank’s deposits increased 5.7% from $621.1 million to $656.5
      million. S hort-term
      borrowings from the Federal Home Loan Bank and various broker-dealers have
      been
      used occasionally to offset fluctuations in deposit inflows and outflows and
      to
      manage liquidity needs at competitive rates .





31


**Capital**




At
      September 30, 2006, shareholders’ equity amounted to $136.3 million, or 15.7% of
      total assets, compared to $35.6 million, or 4.6% of total assets at December
      31,
      2005. This $100.7 million increase was primarily attributable to $101.7 million
      of equity resulting from our merger with Bay View on May 1, 2006, offset
      partially by $1.2 million of Bay View merger costs and $168 thousand of total
      comprehensive income.




Capital
      guidelines issued by the Federal Reserve Board and the FDIC, respectively,
      require us and our banking subsidiary to maintain certain capital ratios, set
      forth below. At September 30, 2006, Great Lakes Bancorp, Inc. and Greater
      Buffalo Savings Bank were deemed to be “well capitalized” under the regulations
      of the Federal Reserve Board and the FDIC, respectively, and in compliance
      with
      applicable capital requirements.




**Minimum
                  To Be Well****Capitalized
                  Under****For
                  Capital**
              
              
              **Prompt
                  Corrective****Actual**
              
              
              **Adequacy
                  Purposes**
              
              
              **Action
                  Provisions****Amount**
              
              **Ratio**
              
              
              **Amount**
              
              **Ratio**
              
              
              **Amount**
              
              **Ratio*****(Dollars
                  in thousands)*****September
                  30, 2006:**Total
                  risk-based capital (to risk-weighted assets):Great
                  Lakes Bancorp, Inc.
              
              $
              101,244
              
              
              22.3
              %
              
              $
              36,325
              
              
              8.0
              %
              
              $
              N/A
              
              
              N/A
              %Greater
                  Buffalo Savings Bank
              
              
              51,131
              
              
              11.5
              
              
              
              35,528
              
              
              8.0
              
              
              
              44,410
              
              
              10.0Tier
                  1 capital (to risk-weighted assets):Great
                  Lakes Bancorp, Inc.
              
              
              97,869
              
              
              21.6
              
              
              
              18,163
              
              
              4.0
              
              
              
              N/A
              
              
              N/AGreater
                  Buffalo Savings Bank
              
              
              47,756
              
              
              10.8
              
              
              
              17,764
              
              
              4.0
              
              
              
              26,646
              
              
              6.0Tier
                  1 capital (to average assets):Great
                  Lakes Bancorp, Inc.
              
              
              97,869
              
              
              11.6
              
              
              
              33,740
              
              
              4.0
              
              
              
              N/A
              
              
              N/AGreater
                  Buffalo Savings Bank
              
              
              47,756
              
              
              5.7
              
              
              
              33,300
              
              
              4.0
              
              
              
              41,625
              
              
              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 capital (to average assets):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




32


**ITEM
              3.**
            **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 IRR.
      An Asset/Liability Committee, comprised of members of the Board of Directors
      and
      senior management is responsible for the management of IRR. This Committee
      meets
      monthly and reports to the Board of Directors concerning asset/liability
      policies, strategies and the Company’s current IRR position. The Committee’s top
      priority is to structure and price the institution’s assets and liabilities to
      maintain an acceptable interest rate spread while managing the risk of changes
      in interest rates.




The
      primary objectives of the Company’s interest rate risk management strategy are
      to:




§
            evaluate
                the interest rate risk inherent in the 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 Bank’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 Bank’s assets mature or reprice more slowly or to a
      lesser extent than its liabilities, the Bank’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
      Bank
      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 September 30, 2006, concluded that the Bank’s interest rate risk
      profile was liability sensitive. Assuming an immediate 200 basis point increase
      in interest rates for all of the Bank’s interest-bearing assets and liabilities
      (+200 basis point shock), estimated net interest income would decrease
      approximately 6.1%
      during
      the first year and 10.8%
      during
      the second year. Assuming an immediate 200 basis point decrease in interest
      rates for all of the Bank’s interest-bearing assets and liabilities (-200 basis
      point shock), estimated net interest income would increase approximately
		5.8%
      during
      the first year and 19.5%
      during
      the second year.





**ITEM
              4.**
            **CONTROLS
                AND PROCEDURES**





***Evaluation
      of disclosure controls and procedures***




The
      Company carried out an evaluation, under the supervision and with the
      participation of the Company’s management, including the Chief Executive Officer
      ("CEO") and Chief Financial Officer ("CFO"), of the effectiveness of the design
      and operation our “disclosure controls and procedures” (as defined in Rule
      13a-15(e) under the Securities Exchange Act of 1934, as amended). Based on
      that
      evaluation, the CEO and CFO have concluded that, as of the date of this report,
      the Company’s disclosure controls and procedures are effective to ensure that
      material information relating to the Company and its consolidated subsidiaries
      is recorded, processed, summarized and reported in a timely manner. Management
      will continue to review this matter with particular emphasis on the
      documentation of the Company’s disclosure controls and procedures.





***Changes
      in internal control over financial reporting***




There
      has
      been no change in the Company’s internal control over financial reporting that
      occurred during the last fiscal quarter that has materially affected, or is
      reasonably likely to materially affect, the Company’s internal control over
      financial reporting.





33


**PART
      II. OTHER INFORMATION**





**ITEM
              1.**
            **LEGAL
                PROCEEDINGS**





As
      reported in the Company’s Form 8-K dated July 12, 2006, a settlement agreement
      was reached between the Company and Financial Security Assurance Inc. A copy
      of
      the Settlement Agreement has been attached as Exhibit 10.1 of this Form
      10-Q.





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





The
      Company is required to report “Risk Factors” in its Annual Report on Form 10-K
      and update this disclosure quarterly for material changes, if any, in those
      risk
      factors. Given the impact on the Company of the merger transaction on May 1,
      2006 that is described in Note 2 to the accompanying financial statements,
      we
      have included a full summary of risk factors in this report.





***The
      Company is dependent on the ability of its subsidiaries to pay dividends in
      order to meet its obligations.***




The
      Company is a holding company and conducts almost all of its operations through
      its subsidiaries. Accordingly, the Company generally depends on the payment
      of
      dividends by its subsidiaries to meet its obligations. The Company’s right to
      participate in any distribution of earnings or assets of its subsidiaries is
      subject to the prior claims of creditors of such subsidiaries. Under federal
      and
      state law, Greater Buffalo Savings Bank (“GBSB”) is limited in the amount of
      dividends it may pay to its parent without prior regulatory approval. Also,
      bank
      regulators have the authority to prohibit GBSB from paying dividends if the
      bank
      regulators determine that GBSB is in an unsafe or unsound condition or that
      the
      payment would be an unsafe and unsound banking practice.





***Interest
      rate volatility could significantly harm the Company’s
      business.***




The
      Company’s results of operations are affected by the monetary and fiscal policies
      of the federal government and the regulatory policies of governmental
      authorities. A significant component of the Company’s earnings consists of
      GBSB’s net interest income, which is the difference between its income from
      interest-earning assets, such as loans, and its expense of interest-bearing
      liabilities, such as deposits. A change in market interest rates could adversely
      affect GBSB’s earnings if market interest rates change such that the interest
      GBSB pays on deposits and borrowings increases faster than the interest it
      collects on loans and investments. Consequently, GBSB, along with other
      financial institutions generally, is sensitive to interest rate
      fluctuations.





***The
      Company’s results of operations are significantly affected if its borrowers are
      unable to pay their loans.***




Lending
      money is an essential part of the banking business. However, borrowers do not
      always repay their loans. The risk of non-payment is affected by:




•
            
            credit
                risks of a particular borrower;•
            
            changes
                in economic and industry conditions;•
            
            the
                duration of the loan; and•
            
            in
                the case of a collateralized loan, uncertainties as to the future
                value of
                the collateral.




Generally,
      commercial/industrial, construction and commercial real estate loans present
      a
      greater risk of nonpayment by a borrower than other types of loans. In addition,
      consumer loans typically have shorter terms and lower balances with higher
      yields compared to real estate mortgage loans, but generally carry higher risks
      of default. Consumer loan collections are dependent on the borrower’s continuing
      financial stability, and thus are more likely to be affected by adverse personal
      circumstances. Furthermore, the application of various federal and state laws,
      including bankruptcy and insolvency laws, may limit the amount that can be
      recovered on these loans.





***The
      Company’s financial condition and results of operations would be adversely
      affected if GBSB’s allowance for loan losses is not sufficient to absorb actual
      losses.***




There
      is
      no precise method of predicting loan losses. Excess loan losses could have
      a
      material adverse effect on GBSB’s financial condition and results of operations.
      GBSB attempts to maintain an appropriate allowance for loan losses to provide
      for estimated losses in its loan portfolio. GBSB periodically determines the
      amount of its allowance for loan losses based upon consideration of several
      factors, including:




•
            
            a
                regular review of the quality, mix and size of the overall loan
                portfolio;•
            
            historical
                loan loss experience;•
            
            evaluation
                of non-performing loans;•
            
            assessment
                of economic conditions and their effects on GBSB’s existing portfolio;
                and•
            
            the
                amount and quality of collateral, including guarantees, securing
                loans.





34


***The
      Company’s financial condition may be adversely affected if GBSB is unable to
      attract sufficient deposits to fund its anticipated loan
      growth.***




GBSB
      funds its loan growth primarily through deposits. To the extent that GBSB is
      unable to attract and maintain sufficient levels of deposits to fund its loan
      growth, GBSB could be required to raise additional funds through public or
      private financings.





***The
      Company could experience significant difficulties and complications in
      connection with its growth and acquisition strategy.***




The
      Company has grown significantly over the last few years and may seek to continue
      to grow by acquiring financial institutions and branches as well as
      non-depository entities engaged in permissible activities for its subsidiaries.
      However, the market for acquisitions is highly competitive. The Company may
      not
      be successful in identifying financial institution and branch acquisition
      candidates, integrating acquired institutions or preventing deposit erosion
      at
      acquired institutions or branches.




As
      part
      of an acquisition strategy, the Company may acquire additional banks and
      non-bank entities that it believes provide a strategic fit with its business.
      The Company may not be successful with this strategy, and may not be able to
      manage this growth adequately and profitably. For example, acquiring any bank
      or
      non-bank entity will involve risks commonly associated with acquisitions,
      including:




•
            
            potential
                exposure to unknown or contingent liabilities of entities the Company
                acquires•
            
            exposure
                to potential asset quality issues of acquired entities;•
            
            potential
                disruption to the Company’s business;•
            
            potential
                diversion of the time and attention of the Company’s management;
                and•
            
            the
                possible loss of key employees and customers of the businesses the
                Company
                acquires.




GBSB
      intends to strengthen its position in its current markets by undertaking
      additional de novo branch openings. Based on its experience, GBSB believes
      that
      it generally takes up to three years for new banking facilities to achieve
      operational profitability due to the impact of organizational and overhead
      expenses and the start-up phase of generating loans and deposits. To the extent
      that GBSB undertakes additional de novo branch openings, GBSB is likely to
      continue to experience the effects of higher operating expenses relative to
      operating income from the new banking facilities, which may have an adverse
      effect on GBSB’s net income, earnings per share, return on average shareholders’
equity and return on average assets.




The
      Company may encounter unforeseen expenses, as well as difficulties and
      complications in integrating expanded operations and new employees without
      disruption to its overall operations. Following an acquisition, the Company
      may
      need to expend substantial resources to integrate the entities. The integration
      of new entities often involves combining different industry cultures and
      business methodologies. The failure to integrate successfully the entities
      the
      Company may acquire into its existing operations could adversely affect its
      results of operations and financial condition.





***The
      Company could be adversely affected by changes in the law, especially changes
      in
      the regulation of the banking industry.***




The
      Company and its subsidiaries operate in a highly regulated environment and
      are
      subject to supervision and regulation by several governmental regulatory
      agencies, including the Federal Reserve Board, the Federal Deposit Insurance
      Corporation and the New York State Banking Department. Regulations are generally
      intended to provide protection for depositors and customers rather than for
      investors. The Company is subject to changes in federal and state law,
      regulations, governmental policies, income tax laws and accounting principles.
      Changes in regulation could adversely affect the banking industry as a whole
      and
      could limit the Company’s growth and the return to investors by restricting such
      activities as:




•
            
            the
                payment of dividends;•
            
            mergers
                with or acquisitions of other institutions;•
            
            investments;•
            
            loans
                and interest rates;•
            
            the
                provision of securities, insurance or trust services;
                and•
            
            the
                types of non-deposit activities in which the Company’s financial
                institution subsidiaries may
                engage.




In
      addition, legislation or agency rulemaking may change present capital
      requirements, which could restrict the Company’s activities and require the
      Company to maintain additional capital.





35





***The
      Company’s results of operations could be adversely affected due to significant
      competition.***




The
      Company may not be able to compete effectively in its markets, which could
      adversely affect its results of operations. The banking and financial services
      industry in GBSB’s market areas is highly competitive. The competitive
      environment is a result of:




•
            
            changes
                in regulation;•
            
            prevailing
                economic conditions in the Western New York area;•
            
            changes
                in technology and product delivery systems;•
            
            declining
                population trends; and•
            
            the
                accelerated pace of consolidation among financial services
                providers.




GBSB
      competes for loans, deposits and customers with various bank and non-bank
      financial service providers, many of which are larger in terms of total assets
      and capitalization, have greater access to the capital markets and offer a
      broader array of financial services than GBSB does. Competition with such
      institutions may cause GBSB to increase its deposit rates or decrease its
      interest rate spread on loans it originates.





***The
      Company’s anticipated future growth may require it to raise additional capital
      in the future, but that capital may not be available when it is
      needed.***




The
      Company and GBSB are required by federal and state regulatory authorities to
      maintain adequate levels of capital to support GBSB’s operations. The Company
      anticipates that its current capital resources will satisfy its and GBSB’s
      capital requirements for the foreseeable future. The Company may at some point,
      however, need to raise additional capital to support continued growth, both
      internally and through acquisitions.




The
      Company’s ability to raise additional capital, if needed, will depend on
      conditions in the capital markets at that time, which are outside its control,
      and on its financial performance. If the Company cannot raise additional capital
      when needed, its ability to expand its operations through internal growth and
      acquisitions could be materially impaired.





***Adverse
      economic conditions in GBSB’s market areas may adversely impact its results of
      operations and financial condition.***




The
      majority of GBSB’s business is concentrated in Western New York, which in recent
      years has been a slower growth market than many other areas of the United
      States. As a result, GBSB’s loan portfolio and results of operations may be
      adversely affected by factors that have a significant impact on the economic
      conditions in this market area. The local economy of this market area in recent
      years have been less robust than the economy of the nation as a whole and may
      not be subject to the same fluctuations as the national economy. Adverse
      economic conditions in GBSB’s market area, including the loss of certain
      significant employers, could reduce its growth rate, affect its borrowers’
abilities to repay their loans and generally affect GBSB’s financial condition
      and results of operations. Furthermore, a downturn in real estate values in
      GBSB’s market area could cause many of its loans to become inadequately
      collateralized.





***Certain
      provisions of the Company’s certificate of incorporation and by-laws may
      discourage takeovers.***




The
      Company’s certificate of incorporation and by-laws contain certain anti-takeover
      provisions that may discourage or may make more difficult or expensive a tender
      offer, change in control or a takeover attempt that is opposed by its board
      of
      directors. In particular, the certificate of incorporation and by-laws of the
      Company:




•
            
            classify
                its board of directors into three classes, so that shareholders elect
                only
                one-third of its board of directorseach
                year;•
            
            permit
                shareholders to remove directors only for cause;•
            
            do
                not permit shareholders to take action except at an annual or special
                meeting of shareholders;•
            
            require
                shareholders to give advance notice to nominate candidates for election
                to
                the board of directors or tomake
                shareholder proposals at a shareholders’ meeting;•
            
            permit
                the board of directors to issue, without shareholder approval unless
                otherwise required by law, preferredstock
                with such terms as its board of directors may determine;
                and•
            
            prohibit
                the acquisition of 5% or more of the Company’s common stock, without the
                prior approval of its board ofdirectors.




Section
      203 of the Delaware General Corporation Law (“DGCL”) generally provides that a
      publicly-held Delaware corporation, such as the Company, that has not “opted
      out” of coverage by this section in the prescribed manner may not engage in any
      business combination with an interested shareholder for a period of three years
      following the date that the shareholders became an interested shareholder.




36


These
      provisions of the Company’s certificate of incorporation and by-laws and of
      Delaware law could discourage potential acquisition proposals and could delay
      or
      prevent a change in control, even though a majority of the Company’s
      shareholders may consider such proposals desirable. Such provisions could also
      make it more difficult for third parties to remove and replace the members
      of
      the Company’s board of directors. Moreover, these provisions could diminish the
      opportunities for shareholders to participate in certain tender offers,
      including tender offers at prices above then-current market price of the
      Company’s common stock, and may also inhibit increases in the trading price of
      the Company’s common stock that could result from takeover
      attempts.





***Loss
      of members of the Company’s executive team could have a negative impact on its
      business.***




The
      Company’s success is dependent, in part, on the continued service of its
      executive officers, including Barry M. Snyder, Chairman of the Board and Andrew
      W. Dorn, Jr., President and Chief Executive Officer. The loss of the services
      of
      either of these key persons could have a negative impact on the Company’s
      business because of their skills, relationships in the banking community and
      years of industry experience, and the difficulty of promptly finding qualified
      successors.





***If
      it should be ultimately determined that the Company’s reserves for the
      contingent liabilities remaining from the dissolution of Bay View Capital
      Corporation’s subsidiaries are not adequate, it could have a material adverse
      effect on the Company.***




The
      Company has established reserves for those liabilities that have been sufficient
      to date. However, if the Company’s remaining reserves were insufficient to
      discharge any future liabilities and contingent liabilities remaining from
      the
      Bay View subsidiaries, it could have a material adverse effect.





***Certain
      indemnification obligations of the Company under the purchase agreement survive
      indefinitely and are not limited in amount which could adversely affect the
      financial condition of the Company.***




Although
      the sale agreement of Bay View Acceptance Corporation, in general, limits the
      indemnification obligations of the Company to $3.2 million and provides that
      it
      would not be liable for breaches of its representations and warranties in the
      purchase agreement after 18 months have elapsed from the date of the sale,
      certain of the Company’s indemnification obligations under the agreement are not
      limited as to amount or time.





***If
      the transfer restrictions are not effective in preventing an ownership change
      of
      the Company from occurring, the Company’s ability to use net operating loss
      carryforwards could be severely limited.***




Although
      the transfer restrictions are valid under the DGCL, there is little judicial
      precedent regarding the enforcement of similar transfer restrictions. Thus,
      a
      transfer could occur that would violate the transfer restrictions, and the
      Company may be unable to enforce the transfer restrictions. Even if a court
      were
      to enforce the transfer restrictions, the Internal Revenue Service, or IRS,
      could nevertheless disagree that the transfer restrictions provided a sufficient
      remedy with respect to an ownership change resulting from a prohibited
      transfer.





***The
      transfer restrictions may delay or prevent takeover bids by third parties and
      may delay or frustrate attempts by shareholders to replace
      management.***




The
      transfer restrictions on the common stock of the Company are complex and are
      designed to preserve the value of its net operating loss carryforwards for
      the
      benefit of its shareholders. Any person who seeks to acquire a significant
      interest in the Company will be required to negotiate with its board of
      directors. The transfer restrictions may also make it more difficult to effect
      a
      business combination transaction that shareholders may perceive to be favorable
      because of the need to negotiate with the Company’s board of directors. The
      transfer restrictions could also make it more difficult for shareholders to
      replace current management because no single shareholder may cast votes for
      more
      than 5% of the Company’s outstanding common stock.





***The
      value of the net operating loss carryforwards is subject to challenge by the
      IRS
      or may not ultimately be realized.***




Based
      on
      the current federal corporate income tax rate of 34%, the net operating loss
      carryforwards could provide significant future tax savings to the Company.
      However, the ability of the Company to use these tax benefits will depend on
      a
      number of factors including:




•
            
            the
                ability of the Company to generate sufficient taxable income to utilize
                the net operating loss carryforwards;•
            
            the
                absence of a future ownership change of the Company within the meaning
                of
                Section 382 of the Code;•
            
            the
                acceptance by the IRS of the positions taken on the Company’s prior tax
                returns as to the amount and timingof
                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.





37


**ITEM
              2.**
            **UNREGISTERED
                SALES OF EQUITY SECURITIES AND USE OF
                PROCEEDS**




NONE





**ITEM
              3.**
            **DEFAULTS
                UPON SENIOR SECURITIES**




NONE





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





NONE





**ITEM
              5.**
            **OTHER
                INFORMATION**





NONE





**ITEM
              6.**
            **EXHIBITS**





(a)
            The
                following exhibits are filed as part of this
                report.





**Exhibit
                #**
            
            **Description**10.1
            
            Settlement
                Agreement and Release, dated July 12, 2006, by and among the Registrant
                andFinancial
                Security Assurance, Inc.31.1
            
            Certification
                of the Chief Executive Officer Pursuant to Rule 13a-14(a) and Rule
                15d-14(a) ofthe
                Securities Exchange Act of 1934, as amended31.2
            
            Certification
                of the Chief Financial Officer Pursuant to Rule 13a-14(a) and Rule
                15d-14(a) ofthe
                Securities Exchange Act of 1934, as amended32.1
            
            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
                200232.2
            
            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





38


**SIGNATURES**




In
      accordance with the requirements 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/
			Michael J. Rogers
            ,
                November 8, 2006Michael
                J. RogersExecutive
                Vice President and Chief Financial Officer(Principal
                Financial and Principal Accounting Officer)





39