**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**June 30, 2007**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 Securities Exchange
                  Act of 1934 during the preceding 12 months (or for such shorter
                  period
                  that the registrant was required to file such reports), and
                  (2) has been subject to such filing requirements for the past 90
                  days.
 YesþNoo
 
 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**þ**
              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**o**Noþ
 
 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 - 10,925,218 shares as of July 31,
                  2007
 
 
  **GREAT
        LAKES BANCORP, INC. AND SUBSIDIARIES**
 **Form
        10-Q**
 **For
        the Quarterly Period Ended June 30, 2007**
 **TABLE
                    OF CONTENTS**
  **PAGE****PART
                    I.**
                
                **FINANCIAL
                    INFORMATION**ITEM
                    1.
                
                FINANCIAL
                    STATEMENTSCondensed
                    Consolidated Balance Sheets (Unaudited) - at June 30, 2007 and
                    December
                    31, 2006
                3Condensed
                    Consolidated Statements of Operations (Unaudited) - Three and
                    six months
                    ended June 30, 2007 and 2006
                4Condensed
                    Consolidated Statements of Shareholders’ Equity (Unaudited) - Six months
                    ended June 30, 2007 and 2006
                5Condensed
                    Consolidated Statements of Cash Flows (Unaudited) - Six months
                    ended June
                    30, 2007 and 2006
                6Notes
                    to Condensed Consolidated Financial Statements (Unaudited)
                7ITEM
                    2.
                
                MANAGEMENT’S
                    DISCUSSION AND ANALYSISOF
                    FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                14ITEM
                    3.
                
                QUANTITATIVE
                    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
                25ITEM
                    4.
                
                CONTROLS
                    AND PROCEDURES
                25**PART
                    II.**
                
                **OTHER
                    INFORMATION**ITEM
                    1.
                
                LEGAL
                    PROCEEDINGS
                26ITEM
                    1A.
                
                RISK
                    FACTORS
                26ITEM
                    2.
                
                UNREGISTERED
                    SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
                26ITEM
                    3.
                
                DEFAULTS
                    UPON SENIOR SECURITIES
                26ITEM
                    4.
                
                SUBMISSION
                    OF MATTERS TO A VOTE OF SECURITY HOLDERS
                27ITEM
                    5.
                
                OTHER
                    INFORMATION
                27ITEM
                    6.
                
                EXHIBITS
                27SIGNATURES
                28
 
 2
  **PART
        I. FINANCIAL INFORMATION**
  **ITEM
        1.** **FINANCIAL
        STATEMENTS**
  **GREAT
        LAKES BANCORP, INC. AND SUBSIDIARIES**
 **Condensed
        Consolidated Balance Sheets (Unaudited)**
 **(In
        thousands, except share and per share data)**
 **June
                    30,**
                
                **December
                    31,****2007**
                
                **2006****ASSETS**Cash
                    and cash equivalents:Cash
                    and due from banks
                
                $
                13,031
                
                $
                13,582Interest-earning
                    deposits in other financial institutions
                
                
                1,179
                
                
                444Total
                    cash and cash equivalents
                
                
                14,210
                
                
                14,026Restricted
                    cash
                
                
                3,875
                
                
                3,923Securities
                    available for sale, at fair value
                
                
                216,541
                
                
                233,853Securities
                    held to maturity, at amortized cost (fair value of $15,544 and
                    $15,758,
                    respectively)
                
                
                15,981
                
                
                15,997Federal
                    Home Loan Bank stock, at cost
                
                
                3,342
                
                
                2,712Loans,
                    net of allowance for loan losses of $2,978 and $3,781,
                    respectively
                
                
                533,667
                
                
                513,928Premises
                    and equipment, net
                
                
                26,474
                
                
                24,765Accrued
                    interest receivable
                
                
                3,683
                
                
                3,694Bank-owned
                    life insurance
                
                
                13,249
                
                
                13,006Deferred
                    tax asset, net
                
                
                56,950
                
                
                43,106Goodwill
                
                
                33
                
                
                12,832Other
                    assets
                
                
                3,968
                
                
                2,570TOTAL
                    ASSETS
                
                $
                891,973
                
                $
                884,412**LIABILITIES
                    AND SHAREHOLDERS’ EQUITY**Deposits:Noninterest-bearing
                
                $
                32,151
                
                $
                37,145Interest-bearing
                
                
                613,892
                
                
                597,511Total
                    deposits
                
                
                646,043
                
                
                634,656Short-term
                    borrowings
                
                
                9,114
                
                
                17,900Long-term
                    borrowings
                
                
                91,372
                
                
                86,372Accrued
                    expenses and other liabilities
                
                
                11,114
                
                
                9,974TOTAL
                    LIABILITIES
                
                
                757,643
                
                
                748,902Shareholders’
                    equity:Common
                    stock - 20,000,000 shares of $0.01 par value authorized, 10,925,387
                    shares  issued
                    and 10,925,218 shares outstanding at June 30, 2007; 10,923,213
                    shares  issued
                    and 10,921,796 shares outstanding at December 31,
                    2006
                
                
                109
                
                
                109Additional
                    paid-in capital
                
                
                136,012
                
                
                136,138Retained
                    earnings
                
                
                1,071
                
                
                1,934Treasury
                    stock, at cost; 169 and 1,417 shares, respectively
                
                
                (28
                )
                
                (234
                )Accumulated
                    other comprehensive loss
                
                
                (2,834
                )
                
                (2,437
                )TOTAL
                    SHAREHOLDERS’ EQUITY
                
                
                134,330
                
                
                135,510TOTAL
                    LIABILITIES AND SHAREHOLDERS’ EQUITY
                
                $
                891,973
                
                $
                884,412
 
 See
        accompanying notes to the consolidated financial statements.
  3
  **GREAT
        LAKES BANCORP, INC. AND SUBSIDIARIES**
 **Condensed
        Consolidated Statements of Operations (Unaudited)**
 **(In
        thousands, except share and per share data)**
 **Three
                    months ended**
                
                **Six
                    months ended****June
                    30,**
                
                **June
                    30,****2007**
                
                **2006**
                
                **2007**
                
                **2006**INTEREST
                    AND DIVIDEND INCOME:Interest
                    and fees on loans
                
                $
                8,354
                
                $
                6,703
                
                $
                16,324
                
                $
                12,754Interest
                    on investment securities:Taxable
                
                
                2,861
                
                
                3,249
                
                
                5,824
                
                
                6,230Tax-exempt
                
                
                130
                
                
                130
                
                
                260
                
                
                260Total
                    interest on securities
                
                
                2,991
                
                
                3,379
                
                
                6,084
                
                
                6,490Dividends
                    on FHLB stock
                
                
                62
                
                
                47
                
                
                91
                
                
                94Other
                    interest income
                
                
                24
                
                
                828
                
                
                44
                
                
                1,414TOTAL
                    INTEREST AND DIVIDEND INCOME
                
                
                11,431
                
                
                10,957
                
                
                22,543
                
                
                20,752INTEREST
                    EXPENSE:Deposits
                
                
                6,000
                
                
                5,558
                
                
                11,768
                
                
                10,581Short-term
                    borrowings
                
                
                224
                
                
                144
                
                
                585
                
                
                432Long-term
                    borrowings
                
                
                1,269
                
                
                1,358
                
                
                2,480
                
                
                2,391TOTAL
                    INTEREST EXPENSE
                
                
                7,493
                
                
                7,060
                
                
                14,833
                
                
                13,404NET
                    INTEREST INCOME
                
                
                3,938
                
                
                3,897
                
                
                7,710
                
                
                7,348PROVISION
                    (CREDIT) FOR LOAN LOSSES
                
                
                (380
                )
                
                318
                
                
                (113
                )
                
                558NET
                    INTEREST INCOME AFTER PROVISION (CREDIT) FOR LOAN LOSSES
                
                
                4,318
                
                
                3,579
                
                
                7,823
                
                
                6,790NONINTEREST
                    INCOME:Service
                    charges on deposit accounts
                
                
                214
                
                
                161
                
                
                390
                
                
                295Other
                    fees and service charges
                
                
                185
                
                
                131
                
                
                344
                
                
                243Gain
                    on sale of mortgage loans
                
                
                263
                
                
                -
                
                
                325
                
                
                -Loan
                    fee income
                
                
                182
                
                
                135
                
                
                302
                
                
                159Earnings
                    on bank-owned life insurance
                
                
                122
                
                
                116
                
                
                243
                
                
                231Other
                    operating income
                
                
                36
                
                
                44
                
                
                72
                
                
                74TOTAL
                    NONINTEREST INCOME
                
                
                1,002
                
                
                587
                
                
                1,676
                
                
                1,002NONINTEREST
                    EXPENSE:Salaries
                    and employee benefits
                
                
                3,332
                
                
                2,596
                
                
                6,374
                
                
                4,905Occupancy,
                    equipment and furnishings
                
                
                746
                
                
                595
                
                
                1,478
                
                
                1,152Data
                    processing and operations
                
                
                299
                
                
                229
                
                
                567
                
                
                450Professional
                    services
                
                
                171
                
                
                154
                
                
                375
                
                
                291Advertising
                
                
                139
                
                
                198
                
                
                273
                
                
                390Printing,
                    postage and supplies
                
                
                159
                
                
                99
                
                
                268
                
                
                209Other
                    operating expenses
                
                
                833
                
                
                539
                
                
                1,505
                
                
                940TOTAL
                    NONINTEREST EXPENSE
                
                
                5,679
                
                
                4,410
                
                
                10,840
                
                
                8,337LOSS
                    BEFORE INCOME TAXES
                
                
                (359
                )
                
                (244
                )
                
                (1,341
                )
                
                (545
                )INCOME
                    TAX BENEFIT
                
                
                (89
                )
                
                (191
                )
                
                (478
                )
                
                (411
                )NET
                    LOSS
                
                $
                (270
                )
                $
                (53
                )
                $
                (863
                )
                $
                (134
                )LOSS
                    PER SHARE - BASIC AND DILUTED
                
                $
                (0.02
                )
                $
                (0.01
                )
                $
                (0.08
                )
                $
                (0.02
                )Weighted
                    average basic and diluted shares outstanding
                
                
                10,923,665
                
                
                8,733,392
                
                
                10,922,965
                
                
                6,529,160
 
 See
        accompanying notes to the consolidated financial statements.
  4
  **GREAT
        LAKES BANCORP, INC. AND SUBSIDIARIES**
 **Condensed
        Consolidated Statements of Shareholders’ Equity
        (Unaudited)**
 **Six
        months ended June 30, 2007 and 2006**
 **(In
        thousands, except share data)**
 **Accumulated****Additional**
                
                
                
                
                
                **Other**
                
                **Total****Common**
                
                **Paid-in**
                
                **Retained**
                
                **Treasury**
                
                **Comprehensive**
                
                **Shareholders’****Stock**
                
                **Capital**
                
                **Earnings**
                
                **Stock**
                
                **Loss**
                
                **Equity****Balance
                    at January 1, 2006**
                
                **$**
                **43**
                
                **$**
                **35,383**
                
                **$**
                **2,830**
                
                **$**
                **-**
                
                **$**
                **(2,743**
                **)**
                **$**
                **35,513**Comprehensive
                    income:Net
                    loss
                
                
                -
                
                
                -
                
                
                (134
                )
                
                -
                
                
                -
                
                
                (134
                )Change
                    in net unrealized loss on securities available for sale, net
                    of
                    tax
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (2,120
                )
                
                (2,120
                )Total
                    comprehensive loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (2,254
                )Outstanding
                    Bay View shares at merger date - 6,613,099 shares
                
                
                66
                
                
                101,584
                
                
                -
                
                
                -
                
                
                -
                
                
                101,650Bay
                    View treasury stock at merger date - 1,417 shares
                
                
                -
                
                
                234
                
                
                -
                
                
                (234
                )
                
                -
                
                
                -Bay
                    View merger costs
                
                
                -
                
                
                (1,101
                )
                
                -
                
                
                -
                
                
                -
                
                
                (1,101
                )Stock-based
                    compensation plans:Compensation
                    expense on stock options
                
                
                -
                
                
                19
                
                
                -
                
                
                -
                
                
                -
                
                
                19**Balance
                    at June 30, 2006**
                
                **$**
                **109**
                
                **$**
                **136,119**
                
                **$**
                **2,696**
                
                **$**
                **(234**
                **)**
                **$**
                **(4,863**
                **)**
                **$**
                **133,827****Balance
                    at January 1, 2007**
                
                **$**
                **109**
                
                **$**
                **136,138**
                
                **$**
                **1,934**
                
                **$**
                **(234**
                **)**
                **$**
                **(2,437**
                **)**
                **$**
                **135,510**Comprehensive
                    income:Net
                    loss
                
                
                -
                
                
                -
                
                
                (863
                )
                
                -
                
                
                -
                
                
                (863
                )Change
                    in net unrealized loss on securities available for sale, net
                    of
                    tax
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (397
                )
                
                (397
                )Total
                    comprehensive loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (1,260
                )Release
                    of treasury stock - 1,248 shares
                
                
                -
                
                
                (206
                )
                
                -
                
                
                206
                
                
                -
                
                
                -Stock-based
                    compensation plans:Compensation
                    expense on stock options and related taxes
                
                
                -
                
                
                60
                
                
                -
                
                
                -
                
                
                -
                
                
                60Shares
                    issued for stock option exercises - 2,174 shares
                
                
                -
                
                
                20
                
                
                -
                
                
                -
                
                
                -
                
                
                20**Balance
                    at June 30, 2007**
                
                **$**
                **109**
                
                **$**
                **136,012**
                
                **$**
                **1,071**
                
                **$**
                **(28**
                **)**
                **$**
                **(2,834**
                **)**
                **$**
                **134,330**
  See
        accompanying notes to the consolidated financial statements.
  5
  **GREAT
        LAKES BANCORP, INC. AND SUBSIDIARIES**
 **Condensed
        Consolidated Statements of Cash Flows (Unaudited)**
 **(In
        thousands)**
 **Six
                    months ended June 30,****2007**
                
                **2006**CASH
                    FLOWS FROM OPERATING ACTIVITIES:Net
                    loss
                
                $
                (863
                )
                $
                (134
                )Adjustments
                    to reconcile net loss to net cash used in operating
                    activities:Depreciation
                    and amortization of premises and equipment
                
                
                823
                
                
                634Net
                    amortization of premiums on investment securities
                
                
                232
                
                
                343Net
                    amortization of deferred loan costs
                
                
                944
                
                
                792Compensation
                    expense on stock options
                
                
                60
                
                
                19Deferred
                    income tax benefit
                
                
                (481
                )
                
                (411
                )Gain
                    on sale of mortgage loans
                
                
                (325
                )
                
                -Provision
                    (credit) for loan losses
                
                
                (113
                )
                
                558Decrease
                    (increase) in accrued interest receivable
                
                
                11
                
                
                (581
                )Increase
                    in bank-owned life insurance
                
                
                (243
                )
                
                (231
                )Originations
                    of mortgage loans held for sale
                
                
                (38,527
                )
                
                -Proceeds
                    from sale of mortgage loans held for sale
                
                
                33,846
                
                
                -Decrease
                    (increase) in other assets
                
                
                (898
                )
                
                3,433Increase
                    (decrease) in accrued expenses and other liabilities
                
                
                310
                
                
                (9,683
                )Net
                    cash used in operating activities
                
                
                (5,224
                )
                
                (5,261
                )CASH
                    FLOWS FROM INVESTING ACTIVITIES:Net
                    decrease in restricted deposits
                
                
                48
                
                
                148Purchases
                    of securities available for sale
                
                
                -
                
                
                (55,104
                )Proceeds
                    from principal payments, maturities and calls on securities available
                    for
                    sale
                
                
                16,465
                
                
                15,543Purchase
                    of Federal Home Loan Bank stock
                
                
                (630
                )
                
                (1,508
                )Purchases
                    of loans
                
                
                -
                
                
                (15,352
                )Net
                    increase in loans
                
                
                (15,564
                )
                
                (50,505
                )Purchase
                    of premises and equipment
                
                
                (2,532
                )
                
                (4,107
                )Cash
                    received in Bay View merger
                
                
                -
                
                
                63,435Bay
                    View merger costs
                
                
                -
                
                
                (1,101
                )Net
                    cash used in investing activities
                
                
                (2,213
                )
                
                (48,551
                )CASH
                    FLOWS FROM FINANCING ACTIVITIES:Net
                    increase in deposits
                
                
                11,387
                
                
                31,946Net
                    decrease in short-term borrowings
                
                
                (8,786
                )
                
                (20,888
                )Proceeds
                    from long-term borrowings
                
                
                30,000
                
                
                167,000Repayment
                    of long-term borrowings
                
                
                (25,000
                )
                
                (136,500
                )Proceeds
                    from issuance of common stock
                
                
                20
                
                
                -Net
                    cash provided by financing activities
                
                $
                7,621
                
                $
                41,558NET
                    INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
                
                $
                184
                
                $
                (12,254
                )CASH
                    AND CASH EQUIVALENTS, BEGINNING OF PERIOD
                
                
                14,026
                
                
                95,500CASH
                    AND CASH EQUIVALENTS, END OF PERIOD
                
                $
                14,210
                
                $
                83,246Supplemental
                    disclosure of cash flow information:Cash
                    paid for interest
                
                $
                13,917
                
                $
                13,327Cash
                    refunded for income taxes
                
                
                224
                
                
                -Acquisition
                    of Bay View Capital Corporation:Assets
                    acquired (excluding cash and cash equivalents acquired)
                
                
                -
                
                
                73,049Liabilities
                    assumed
                
                
                -
                
                
                34,834
 
 See
        accompanying notes to the consolidated financial statements.
  6
 **GREAT
          LAKES BANCORP, INC. AND SUBSIDIARIES**
 **Notes
          to Condensed Consolidated Financial Statements (Unaudited)**
 **(1.)**  **ACCOUNTING
        POLICIES**
  The
        financial information included herein is unaudited. Such information reflects
        all adjustments, consisting of normal recurring adjustments, which are necessary
        in the opinion of management for a fair presentation of results for the interim
        periods. Results for interim periods are not necessarily indicative of the
        results of operations for the full year or any other interim
        period.
  The
        significant accounting policies of Great Lakes Bancorp, Inc. are described
        in
        Note 1 of the consolidated financial statements included in its 2006 Annual
        Report on Form 10-K filed with the Securities and Exchange Commission. For
        interim reporting purposes, the Company follows the same accounting policies
        and
        considers each interim period as an integral part of the annual period.
  **Recently
        Adopted Accounting Pronouncements**
  In
        July
        2006, the Financial Accounting Standards Board issued Interpretation No.
        48, *Accounting
        for Uncertainty in Income Taxes* (“FIN
        48”). This pronouncement addresses the accounting for uncertain tax positions
        and requires the recognition of the positive financial impact of uncertain
        income tax positions if those positions are ‘more likely than not’ of being
        sustained on review by taxing authorities based on the technical merits of
        the
        positions. FIN 48 differentiates between the ‘more likely than not’ and
‘probable’ criteria commonly used in evaluating uncertain tax positions. The
        Company adopted FIN 48 effective January 1, 2007. See Notes 2 and 7 for
        additional information relating to the adoption.
  **(2.)**  **MERGER
        WITH BAY VIEW CAPITAL CORPORATION**
  On
        May 1,
        2006, Great Lakes Bancorp, Inc. (“Old Great Lakes”) merged into Bay View Capital
        Corporation (“Bay View”) and the name of the surviving legal entity was changed
        back to Great Lakes Bancorp, Inc. (the “Company”). Details of the merger
        transaction are disclosed in Note 2 of the Company’s financial statements
        included in its 2006 Annual Report on Form 10-K. The merger was treated as
        a
        purchase of Bay View by Old Great Lakes, with the purchase price of $101.7
        million allocated to the individual assets and liabilities
        acquired.
  The
        Company intends to finalize the purchase price allocation in the third quarter
        upon completion of final Bay View tax returns. The table below provides an
        update of the purchase price allocation from previous reports. The table
        reflects an increase in deferred tax assets acquired in the purchase of $13.1
        million, an increase in other assets of $500 thousand, an increase in
        liabilities assumed of $830 thousand, and a net reduction in goodwill of
        $12.8
        million since December 31, 2006.
  The
        increase in deferred tax assets of $13.1 million is associated with the adoption
        of FIN 48 in the first quarter of 2007 as disclosed in Note 1 above. In adopting
        the new accounting standard, the Company recognized the future tax benefits
        associated with an uncertain tax position pertaining to a single Bay View
        transaction that contributed to its net operating loss carryforwards. The
        Company has recognized the additional tax benefits using the criterion in
        the
        new standard that it is ‘more likely than not’ that the tax position would be
        sustained upon review by taxing authorities. Prior to FIN 48, the recognition
        of
        the benefits of uncertain tax positions generally required a conclusion that
        it
        was ‘probable’ the tax position would be sustained upon review, a higher level
        of certainty.
  Cash
                  and cash equivalents
              
              $
              63,435Restricted
                  cash
              
              
              18,118Deferred
                  tax assets, net of valuation allowance of $7,273
              
              
              53,767Goodwill
              
              
              33Other
                  assets, including FSA recovery of $2,000
              
              
              3,760Total
                  assets acquired
              
              
              139,113Accounts
                  payable
              
              
              2,984FSA
                  settlement liability
              
              
              20,000Employee-related
                  liabilities
              
              
              3,623Accrued
                  insurance and professional fees
              
              
              3,994Leased
                  facility obligation
              
              
              5,345Other
                  liabilities
              
              
              1,517Total
                  liabilities assumed
              
              
              37,463Net
                  assets acquired
              
              $
              101,650
  7
 **GREAT
            LAKES BANCORP, INC. AND SUBSIDIARIES**
 **Notes
            to Condensed Consolidated Financial Statements
            (Unaudited)**
 
 **(3.)****INVESTMENT SECURITIES**
  The
        amortized cost and estimated fair value of investment securities are summarized
        below.
 **June
                    30, 2007*****(Dollars
                    in thousands)***
                
                **Amortized**
                
                **Unrealized**
                
                **Unrealized**
                
                **Fair****Cost**
                
                **Gains**
                
                **Losses**
                
                **Value****Securities
                    available for sale:**U.S.
                    Government agency obligations
                
                $
                19,998
                
                $
                -
                
                $
                (334
                )
                $
                19,664Mortgage-backed
                    securities:Government
                    agency issued or guaranteed
                
                
                38,328
                
                
                -
                
                
                (873
                )
                
                37,455Privately
                    issued
                
                
                159,681
                
                
                14
                
                
                (3,375
                )
                
                156,320State
                    and municipal obligations
                
                
                2,152
                
                
                -
                
                
                (46
                )
                
                2,106Corporate
                    and other debt obligations
                
                
                1,004
                
                
                -
                
                
                (8
                )
                
                996Total
                    available for sale securities
                
                $
                221,163
                
                $
                14
                
                $
                (4,636
                )
                $
                216,541**Securities
                    held to maturity:**State
                    and municipal obligations
                
                $
                12,974
                
                $
                -
                
                $
                (445
                )
                $
                12,529Corporate
                    and other debt obligations
                
                
                3,007
                
                
                12
                
                
                (4
                )
                
                3,015Total
                    held to maturity securities
                
                $
                15,981
                
                $
                12
                
                $
                (449
                )
                $
                15,544
  **December
                    31, 2006*****(Dollars
                    in thousands)***
                
                **Amortized**
                
                **Unrealized**
                
                **Unrealized**
                
                **Fair****Cost**
                
                **Gains**
                
                **Losses**
                
                **Value****Securities
                    available for sale:**U.S.
                    Government agency obligations
                
                $
                19,997
                
                $
                -
                
                $
                (323
                )
                $
                19,674Mortgage-backed
                    securities:Government
                    agency issued or guaranteed
                
                
                42,546
                
                
                9
                
                
                (601
                )
                
                41,954Privately
                    issued
                
                
                172,138
                
                
                -
                
                
                (3,060
                )
                
                169,078State
                    and municipal obligations
                
                
                2,155
                
                
                -
                
                
                (16
                )
                
                2,139Corporate
                    and other debt obligations
                
                
                1,008
                
                
                -
                
                
                -
                
                
                1,008Total
                    available for sale securities
                
                $
                237,844
                
                $
                9
                
                $
                (4,000
                )
                $
                233,853**Securities
                    held to maturity:**State
                    and municipal obligations
                
                $
                12,987
                
                $
                -
                
                $
                (243
                )
                $
                12,744Corporate
                    and other debt obligations
                
                
                3,010
                
                
                16
                
                
                (12
                )
                
                3,014Total
                    held to maturity securities
                
                $
                15,997
                
                $
                16
                
                $
                (255
                )
                $
                15,758
  At
        June
        30, 2007 and December 31, 2006, securities with a carrying value of $146.7
        million and $148.5 million, respectively, were pledged to secure borrowings
        and
        letters of credit from the FHLB and Federal Reserve Bank, as well as repurchase
        agreements and certain deposits. Included in mortgage-backed securities are
        collateralized mortgage obligations with an amortized cost and fair value
        of
        $184.6 million and $180.7 million at June 30, 2007, and an amortized cost
        and
        fair value of $200.6 million and $197.3 million at December 31, 2006. There
        were
        no sales of securities during the six-month periods ended June 30, 2007 and
        2006.
  8
 **GREAT
            LAKES BANCORP, INC. AND SUBSIDIARIES**
 **Notes
            to Condensed 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 June 30, 2007 and December
        31, 2006.
 **June
                    30, 2007****Less
                    than 12 months**
                
                **12
                    months or longer**
                
                **Total*****(Dollars
                    in thousands)***
                
                **Fair**
                
                **Unrealized**
                
                **Fair**
                
                **Unrealized**
                
                **Fair**
                
                **Unrealized****Value**
                
                **Losses**
                
                **Value**
                
                **Losses**
                
                **Value**
                
                **Losses****Securities
                    available for sale:**U.S.
                    Government agency obligations
                
                $
                -
                
                $
                -
                
                $
                19,664
                
                $
                (334
                )
                $
                19,664
                
                $
                (334
                )Mortgage-backed
                    securities:Government
                    agency issued or guaranteed
                
                
                4,152
                
                
                (16
                )
                
                33,303
                
                
                (857
                )
                
                37,455
                
                
                (873
                )Privately
                    issued
                
                
                35,641
                
                
                (273
                )
                
                118,458
                
                
                (3,102
                )
                
                154,099
                
                
                (3,375
                )State
                    and municipal obligations
                
                
                734
                
                
                (15
                )
                
                1,372
                
                
                (31
                )
                
                2,106
                
                
                (46
                )Corporate
                    and other debt obligations
                
                
                996
                
                
                (8
                )
                
                -
                
                
                -
                
                
                996
                
                
                (8
                )Total
                    available for sale securities
                
                $
                41,523
                
                $
                (312
                )
                $
                172,797
                
                $
                (4,324
                )
                $
                214,320
                
                $
                (4,636
                )**Securities
                    held to maturity:**State
                    and municipal obligations
                
                $
                -
                
                $
                -
                
                $
                12,529
                
                $
                (445
                )
                $
                12,529
                
                $
                (445
                )Corporate
                    and other debt obligations
                
                
                -
                
                
                -
                
                
                1,003
                
                
                (4
                )
                
                1,003
                
                
                (4
                )Total
                    held to maturity securities
                
                $
                -
                
                $
                -
                
                $
                13,532
                
                $
                (449
                )
                $
                13,532
                
                $
                (449
                )**Total
                    temporarily impaired securities**
                
                $
                41,523
                
                $
                (312
                )
                $
                186,329
                
                $
                (4,773
                )
                $
                227,852
                
                $
                (5,085
                )
  **December
                    31, 2006****Less
                    than 12 months**
                
                **12
                    months or longer**
                
                **Total*****(Dollars
                    in thousands)***
                
                **Fair**
                
                **Unrealized**
                
                **Fair**
                
                **Unrealized**
                
                **Fair**
                
                **Unrealized****Value**
                
                **Losses**
                
                **Value**
                
                **Losses**
                
                **Value**
                
                **Losses****Securities
                    available for sale:**U.S.
                    Government agency obligations
                
                $
                -
                
                $
                -
                
                $
                19,674
                
                $
                (323
                )
                $
                19,674
                
                $
                (323
                )Mortgage-backed
                    securities:Government
                    agency issued or guaranteed
                
                
                23,356
                
                
                (136
                )
                
                14,056
                
                
                (465
                )
                
                37,412
                
                
                (601
                )Privately
                    issued
                
                
                37,382
                
                
                (134
                )
                
                131,696
                
                
                (2,926
                )
                
                169,078
                
                
                (3,060
                )State
                    and municipal obligations
                
                
                747
                
                
                (2
                )
                
                1,392
                
                
                (14
                )
                
                2,139
                
                
                (16
                )Total
                    available for sale securities
                
                $
                61,485
                
                $
                (272
                )
                $
                166,818
                
                $
                (3,728
                )
                $
                228,303
                
                $
                (4,000
                )**Securities
                    held to maturity:**State
                    and municipal obligations
                
                $
                -
                
                $
                -
                
                $
                12,744
                
                $
                (243
                )
                $
                12,744
                
                $
                (243
                )Corporate
                    and other debt obligations
                
                
                -
                
                
                -
                
                
                998
                
                
                (12
                )
                
                998
                
                
                (12
                )Total
                    held to maturity securities
                
                $
                -
                
                $
                -
                
                $
                13,742
                
                $
                (255
                )
                $
                13,742
                
                $
                (255
                )**Total
                    temporarily impaired securities**
                
                $
                61,485
                
                $
                (272
                )
                $
                180,560
                
                $
                (3,983
                )
                $
                242,045
                
                $
                (4,255
                )
  Management
        of the Company reviewed the investment securities that were in an unrealized
        loss position at June 30, 2007 and December 31, 2006 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.
  Management
        believes that the declines in fair value were caused by increases in interest
        rates and not the credit deterioration of the individual issuers. At June
        30,
        2007, the Company owned 92 securities with aggregate unrealized losses of
        $5.1
        million. Those investment securities consisted principally of mortgage-backed
        securities classified as available for sale. All but two of the Company’s
        securities in an unrealized loss position at June 30, 2007 were investment
        grade
        with credit ratings of “AAA.” The remaining two securities had unrealized losses
        of approximately $13 thousand at June 30, 2007. Management believes the Company
        will collect all payments due according to the contractual terms of the
        securities.
  9
 **GREAT
            LAKES BANCORP, INC. AND SUBSIDIARIES**
 **Notes
            to Condensed Consolidated Financial Statements
            (Unaudited)**
  **(4.)**  **LOANS**
  Loans
        receivable at June 30, 2007 and December 31, 2006 are summarized as
        follows:
 ***(Dollars
                    in thousands)***
                
                **June
                    30,**
                
                **December
                    31,****2007**
                
                **2006**Real
                    estate loans:Residential
                
                $
                252,240
                
                $
                253,709Home
                    equity
                
                
                56,664
                
                
                53,676Commercial
                
                
                87,622
                
                
                78,666Construction
                
                
                19,904
                
                
                25,481Commercial
                    and industrial loans
                
                
                63,044
                
                
                55,055Automobile
                    loans
                
                
                49,315
                
                
                43,719Other
                    consumer loans
                
                
                1,106
                
                
                659Total
                    loans
                
                
                529,895
                
                
                510,965Allowance
                    for loan losses
                
                
                (2,978
                )
                
                (3,781
                )Deferred
                    loan costs, net
                
                
                6,750
                
                
                6,744Total
                    loans, net
                
                $
                533,667
                
                $
                513,928
  Residential
        real estate loans included loans held for sale of $4.5 million at June 30,
        2007
        and $1.2 million at December 31, 2006. Loans held for sale of $1.8 million
        were
        included in construction loans at June 30, 2007. There were no construction
        loans classified as held for sale at December 31, 2006.
  **(5.)**  **DEPOSITS**
  A
        summary
        of deposits at June 30, 2007 and December 31, 2006 are as follows:
 **June
                    30, 2007**
                
                **December
                    31, 2006****Weighted**
                
                
                
                **Weighted*****(Dollars
                    in thousands)***
                
                
                
                **Average**
                
                
                
                **Average****Amount**
                
                **Rate**
                
                **Amount**
                
                **Rate**Noninterest-bearing
                    checking
                
                $
                32,151
                
                
                -
                %
                $
                37,145
                
                
                -
                %Interest-bearing
                    checking
                
                
                46,647
                
                
                1.15
                
                
                45,139
                
                
                1.21Savings
                    and money market
                
                
                216,848
                
                
                3.23
                
                
                214,454
                
                
                3.17Total
                    core deposits
                
                
                295,646
                
                
                2.55
                
                
                296,738
                
                
                2.47Certificates
                    of deposit, due:Within
                    one year
                
                
                313,255
                
                
                4.75
                
                
                272,659
                
                
                4.70One
                    to two years
                
                
                33,403
                
                
                4.55
                
                
                55,126
                
                
                4.47Two
                    to three years
                
                
                3,376
                
                
                4.55
                
                
                9,223
                
                
                4.10Three
                    to five years
                
                
                363
                
                
                4.24
                
                
                910
                
                
                3.92Total
                    certificates of deposits
                
                
                350,397
                
                
                4.73
                
                
                337,918
                
                
                4.65Total
                    deposits
                
                $
                646,043
                
                
                3.73
                %
                $
                634,656
                
                
                3.63
                %
  The
        aggregate amount of certificates of deposit in denominations of $100,000
        or more
        at June 30, 2007 and December 31, 2006 was $127.9 million and $138.7 million,
        respectively.
  10
 **GREAT
            LAKES BANCORP, INC. AND SUBSIDIARIES**
 **Notes
            to Condensed Consolidated Financial Statements
            (Unaudited)**
  **(6.)****BORROWINGS**
  The
        Company’s borrowings at June 30, 2007 and December 31, 2006 are comprised of the
        following:
 ***(Dollars
                    in thousands)***
                
                **June
                    30,**
                
                **December
                    31,****2007**
                
                **2006**Federal
                    Home Loan Bank overnight borrowings
                
                $
                8,914
                
                $
                17,500Other
                
                
                200
                
                
                400Short-term
                    borrowings
                
                
                9,114
                
                
                17,900Securities
                    sold under agreements to repurchase
                
                
                69,000
                
                
                74,000Federal
                    Home Loan Bank term advance
                
                
                10,000
                
                
                -Subordinated
                    debentures
                
                
                12,372
                
                
                12,372Long-term
                    borrowings
                
                
                91,372
                
                
                86,372Total
                    borrowings
                
                $
                100,486
                
                $
                104,272
  At
        June
        30, 2007 and December 31, 2006, short-term borrowings had a weighted average
        rate of 5.48% and 5.39%, respectively. At June 30, 2007 long-term borrowings
        bore interest rates ranging from 3.86% to 8.06% and had a weighted average
        rate
        of 5.31%. At December 31, 2006, long-term borrowings bore fixed interest
        rates
        ranging from 4.68% to 8.06% and had a weighted average rate of 5.35%. Interest
        expense from borrowings totaled $1.5 million for both three-month periods
        ended
        June 30, 2007 and 2006. Interest expense from borrowings totaled $3.1 million
        and $2.8 million for the six-month periods ended June 30, 2007 and 2006,
        respectively.
  **(7.)**  **INCOME
        TAXES**
  As
        disclosed in Notes 1 and 2, the Company adopted FIN 48 in the first quarter
        of
        2007 and recognized a $13.1 million increase in deferred tax assets associated
        with an uncertain tax position pertaining to a single Bay View transaction
        that
        contributed to its net operating loss carryforwards.
  FIN
        48
        requires the disclosure of unrecognized tax benefits associated with uncertain
        tax positions, the amounts and nature of changes in such unrecognized tax
        benefits during the reporting periods, and the amounts of estimated interest
        and
        penalties recorded for uncertain tax positions. The Company currently has
        no
        unrecognized tax benefits associated with uncertain tax positions. The Company
        has established a policy that any interest or penalties recorded for uncertain
        tax positions in the future will be classified as a component of income tax
        expense.
  During
        the second quarter of 2007, the Company received a request from the State
        of
        California for information pertaining to net operating loss carryforwards
        associated with certain Bay View related acquisitions consummated several
        years
        ago. The Company has responded to the initial request and does not believe
        that
        the matter will have a material impact on the Company’s net operating loss
        carryforwards.
  FIN
        48
        also requires the disclosure of tax years that remain subject to examination
        by
        various tax jurisdictions. Old Great Lakes is potentially subject to Federal
        tax
        examination for 2003 and later years and New York State examination for 2004
        and
        later years. Bay View is potentially subject to Federal tax examination for
        2002
        and later years and California examination for 1997 and later years. In
        addition, Bay View tax returns are potentially subject to review in several
        other state jurisdictions in which the Company does not currently operate.
  The
        effective tax rates were 24.9% and 78.3% for the second quarters of 2007
        and
        2006, respectively. The effective tax rates were 35.7% and 75.4% for the
        six
        months ended June 30, 2007 and 2006, 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 decreases in effective tax rates over the prior year periods are due
        to
        decreases in the relative size and amount of these tax-exempt items compared
        to
        total pre-tax losses. In addition, during the second quarter of 2007, New
        York
        State reduced tax rates from 7.5% to 7.1% effective January 1, 2007 and the
        Company recorded a reduction of its deferred tax assets of approximately
        $120
        thousand associated with this rate change through a charge to second quarter
        results.
  11
 **GREAT
            LAKES BANCORP, INC. AND SUBSIDIARIES**
 **Notes
            to Condensed Consolidated Financial Statements
            (Unaudited)**
  The
        tax
        effects of temporary differences that give rise to the deferred tax assets
        and
        deferred tax liabilities at June 30, 2007 and December 31, 2006 are as
        follows:
 ***(Dollars
                    in thousands)***
                
                **June
                    30,**
                
                **December
                    31,****2007**
                
                **2006**Deferred
                    tax assets:Tax
                    loss carryforwards
                
                $
                45,300
                
                $
                30,822Tax
                    credit carryovers
                
                
                5,740
                
                
                5,794Capital
                    loss carryforward
                
                
                4,097
                
                
                4,097Securitizations
                
                
                3,587
                
                
                3,611Other
                    accrued expenses not currently deductible for tax purposes
                
                
                3,260
                
                
                3,552Net
                    unrealized loss on securities available for sale
                
                
                1,789
                
                
                1,554Allowance
                    for loan losses
                
                
                1,111
                
                
                1,417Hedge
                    losses
                
                
                965
                
                
                1,236Other
                
                
                388
                
                
                419Gross
                    deferred tax assets
                
                
                66,237
                
                
                52,502Valuation
                    allowance
                
                
                (7,273
                )
                
                (7,273
                )Deferred
                    tax assets, net of valuation allowance
                
                
                58,964
                
                
                45,229Deferred
                    tax liabilities:Depreciation
                    and amortization
                
                
                (1,048
                )
                
                (1,046
                )Deferred
                    loan origination costs
                
                
                (884
                )
                
                (994
                )Rehabilitation
                    credit basis reduction
                
                
                (82
                )
                
                (83
                )Total
                    deferred tax liabilities
                
                
                (2,014
                )
                
                (2,123
                )Net
                    deferred tax asset
                
                $
                56,950
                
                $
                43,106
  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.
  The
        Company has recognized a valuation allowance of $7.3 million against the
        deferred tax assets relating to certain net operating loss carry forwards
        and a
        capital loss carryforward resulting from the Bay View merger. The net operating
        loss carryforwards relate to states where the Company does not currently
        operate. The capital loss expires in four years and can only be used to offset
        capital gains. The Company has no assurance of generating capital gains in
        the
        future.
  With
        respect to the remainder of the deferred tax assets, management has concluded
        that these assets should be recognized without reserve. This conclusion is
        based
        on our projections of future taxable income, using what management believes
        to
        be conservative asset growth and asset return assumptions. If met, the income
        projections would allow the full utilization of the deferred tax assets well
        before their expiration dates.
  **(8.)**  **PER
        SHARE DATA**
  The
        Company’s common stock per share information presented herein is based upon the
        weighted average number of shares outstanding during each period, retroactively
        adjusted for stock issued pursuant to the merger with Bay View. The diluted
        earnings per share calculations exclude the effect of shares issuable upon
        the
        exercise of options and warrants that could potentially dilute basic earnings
        per share in the future because their effect would have been anti-dilutive
        for
        the periods presented. For the three months ended June 30, 2007 and 2006,
        the
        number of stock options excluded from the computations of earnings per share
        was
        302,548 and 233,739, respectively. For the six months ended June 30, 2007
        and
        2006, the number of stock options and warrants excluded from the computations
        of
        earnings per share was 296,799 and 217,408, respectively. These stock options
        were outstanding at the end of each of the periods presented.
  12
 **GREAT
            LAKES BANCORP, INC. AND SUBSIDIARIES**
 **Notes
            to Condensed Consolidated Financial Statements
            (Unaudited)**
  **(9.)****STOCK-BASED
        COMPENSATION**
  The
        Company recognized compensation expense related to stock options of $20 thousand
        and $60 thousand for the three and six months ended June 30, 2007, respectively.
        The Company measures compensation expense related to stock options based
        on the
        fair value of the options at the grant date and records the expense on a
        straight-line basis over the required service period. The weighted-average
        fair
        value of options granted during the six months ended June 30, 2007 was $5.57.
        The Company used the Black-Scholes option pricing model to value the options
        together with the following weighted-average assumptions:
  **Six
                  months****ended****June 30, 2007**Dividend
                  yield
              
              
              0.00
              %Expected
                  volatility
              
              
              28.17
              %Risk-free
                  interest rate
              
              
              4.69
              %Expected
                  term of options (in years)
              
              
              6.7
  Expected
        volatility estimates were developed based on the historical volatility of
        the
        Company’s stock and a group of peer banks. The risk-free interest rate
        represents the five-year U.S. Treasury interest rate at the grant date. The
        expected term of the options is an estimate derived from analysis of the
        vesting
        term and contractual lives of the options. The Company assumes no payment
        of
        dividends in the valuation.
  The
        aggregate intrinsic values of options outstanding at June 30, 2007 in the
        table
        below represent the values that would have been received by the option holders
        had the options been exercised on that date (i.e., the excess of the market
        value of the Company’s stock over the exercise price of the options). The total
        intrinsic value of options exercised during the six months ended June 30,
        2007
        was $11 thousand and cash received from the exercise of the stock options
        was
        $20 thousand.
  The
        following table summarizes the stock option activity during the first six
        months
        of 2007. No options were granted during the six months ended June 30,
        2006.
  **Weighted****Weighted**
              
              **average****average**
              
              **remaining**
              
              **Aggregate****Number**
              
              **exercise**
              
              **contractual**
              
              **intrinsic****of
                  shares**
              
              **price**
              
              **term**
              
              **value**Options
                  outstanding at December 31, 2006
              
              
              227,767
              
              $
              11.01Options
                  granted
              
              
              85,000
              
              
              13.70Options
                  exercised
              
              
              (2,174
              )
              
              9.20Options
                  expired
              
              
              (1,800
              )
              
              137.61Options
                  outstanding at June 30, 2007
              
              
              308,793
              
              $
              11.02
              
              
              5.1
                  years
              
              $
              767,149Options
                  exercisable at June 30, 2007
              
              
              223,793
              
              $
              10.01
              
              
              3.3
                  years
              
              $
              763,749
  **(10.)** **RECENTLY
        ISSUED ACCOUNTING STANDARDS NOT YET ADOPTED**
  In
        February 2007, the Financial Accounting Standard Board issued Statement of
        Financial Accounting Standard No. 159, *The
        Fair Value Option for Financial Assets and Liabilities.* This
        accounting standard provides significant new alternatives for the use of
        fair
        value measurement of the Company’s financial instruments, including investment
        securities, loans, deposit liabilities and term debt. The standard is effective
        for the first quarter of 2008. Management is currently assessing the potential
        impact of the new standard on the Company’s financial position and future
        results of operations, taking into consideration a variety of potential
        implementation strategies.
  In
        September 2006, the FASB issued SFAS No. 157, *Fair
        Value Measurements,* (“FAS
        157”). FAS 157 provides guidance related to fair value methodologies used to
        measure assets and liabilities. This Statement is effective for the first
        quarter of 2008. Management does not expect the adoption of FAS 157 to have
        a
        material effect on the Company’s financial statements.
  13
  **ITEM
        2.** **MANAGEMENT’S
        DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
        OPERATIONS**
  **OVERVIEW**
  The
        following is management’s discussion and analysis of the major factors that
        influenced our consolidated results of operations and financial condition
        for
        the three and six-month periods ended June 30, 2007 and 2006. This analysis
        should be read in conjunction with the unaudited condensed consolidated
        financial statements and related notes as set forth in this report.
  **Forward-Looking
        Statements**
  This
        Quarterly Report on Form 10-Q contains forward-looking statements within
        the
        meaning of Section 27A of the Securities Act of 1933. When used or incorporated
        by reference, the words “anticipate”, “estimate”, “expect”, “believes”,
“project”, “target”, “goal”, and other similar expressions are intended to
        identify such forward-looking statements. Such forward-looking statements
        are
        subject to certain risks, uncertainties and assumptions, among other things,
        the
        following important factors that could affect the actual outcome of future
        events: general economic conditions, either nationally or in the Company’s
        market areas, that are worse than expected; significantly increased competition
        among depository and other financial institutions; inflation and changes
        in the
        interest rate environment that reduce the Company’s net interest margins or fair
        value of financial instruments; changes in laws or government regulations
        affecting financial institutions, including changes in regulatory fees and
        capital requirements; the Company’s ability to enter new markets successfully
        and capitalize on growth opportunities; the Company’s ability to successfully
        integrate acquired entities; changes in consumer spending, borrowing and
        savings
        habits; changes in accounting policies and practices, as may be adopted by
        the
        bank regulatory agencies, taxing authorities, the Financial Accounting Standards
        Board, and the Public Company Accounting Oversight Board; and changes in
        the
        Company’s organization, compensation and benefit plans. 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.
  **CRITICAL
        ACCOUNTING ESTIMATES**
  Management
        of the Company is required to evaluate and disclose those accounting estimates
        that it judges to be critical - those most important to the portrayal of
        the
        Company’s financial condition and results of operations and that require
        management’s most subjective and complex judgments. Management considers the
        accounting estimates relating to the adequacy of the allowance for loan losses
        and the carrying value of deferred tax assets to be critical estimates, as
        the
        judgments associated with these estimates could have a material effect on
        the
        Company’s results of operations.
  **Adequacy
        of the Allowance for Loan Losses**
  The
        allowance for loan losses represents the Company’s estimate of probable losses
        that are in the loan portfolio and are reasonably estimable. Additions to
        the
        allowance are made with charges to earnings. Significant judgment is involved
        in
        estimating losses that are probable of existing in the loan portfolio but
        may
        not be readily apparent at any given point in time.
  The
        Bank
        performs periodic reviews of its loan portfolio to identify risks and to
        assess
        the collectibility of its loans. Loss percentages are applied to homogeneous
        groups of loans where specific losses may be difficult to quantify. These
        groups
        of loans generally consist of residential mortgage loans, consumer loans
        and
        commercial loans. In addition, specific reserves are applied to loans that
        have
        been classified as substandard, doubtful or loss assets. Loan loss estimates
        relating to individual loans and groups of homogeneous loans are compiled
        and
        the Company assesses the adequacy of the loan loss allowance relating to
        the
        loan portfolio taken as a whole.
  **Carrying
        Value of Deferred Taxes**
  The
        Company acquired significant net deferred income tax assets in the Bay View
        merger whose realization is dependent upon the Company’s generation of future
        taxable income before the tax benefits expire. Under the accounting guidelines,
        the Company is required to first recognize a deferred tax asset to the full
        extent of the tax benefits that can be used, and then to evaluate whether
        a
        valuation allowance should be recorded against the asset to the extent that
        it
        is judged more likely than not that some or all of the deferred tax assets
        will
        ultimately not be realized. Significant judgment is involved in assessing
        whether a valuation allowance should be recorded against the deferred tax
        assets
        and, if so, the appropriate amount of such valuation allowance. Details
        pertaining to the valuation allowance recorded against the Company’s net
        deferred tax assets are provided in Note 7 of the notes to the accompanying
        condensed consolidated financial statements.
  14
  **AVERAGE
        BALANCE SHEETS WITH RESULTANT INTEREST AND RATES**
  The
        following tables present an analysis of average yields earned on
        interest-earning assets as well as the average rates paid on interest-bearing
        liabilities on a fully tax-equivalent basis for the three and six months
        ended
        June 30, 2007 and 2006. All average balances represent daily average
        balances.
 **Three
                    Months Ended June 30,****2007**
                
                **2006*****(Dollars
                    in thousands)***
                
                **Average**
                
                
                
                **Average**
                
                **Average**
                
                
                
                **Average****Balance**
                
                **Interest**
                
                **Rate**
                
                **Balance**
                
                **Interest**
                
                **Rate****Assets:**Taxable
                    securities
                
                $
                227,097
                
                $
                2,861
                
                
                5.04
                %
                $
                261,667
                
                $
                3,249
                
                
                4.97
                %Tax-exempt
                    securities(1)
                
                
                15,131
                
                
                197
                
                
                5.20
                
                
                15,165
                
                
                197
                
                
                5.20Total
                    investment securities(2)
                
                
                242,228
                
                
                3,058
                
                
                5.05
                
                
                276,832
                
                
                3,446
                
                
                4.98Short-term
                    investments(3)
                
                
                4,877
                
                
                24
                
                
                1.96
                
                
                67,776
                
                
                828
                
                
                4.90FHLB
                    Stock
                
                
                3,315
                
                
                62
                
                
                7.48
                
                
                4,357
                
                
                47
                
                
                4.33Loans(4)
                
                
                540,127
                
                
                8,354
                
                
                6.20
                
                
                458,721
                
                
                6,703
                
                
                5.86Total
                    interest-earning assets
                
                
                790,547
                
                $
                11,498
                
                
                5.83
                %
                
                807,686
                
                $
                11,024
                
                
                5.47
                %Allowance
                    for loan losses
                
                
                (3,631
                )
                
                
                
                
                
                
                
                (3,151
                )Noninterest-earning
                    assets
                
                
                108,536
                
                
                
                
                
                
                
                
                75,217Total
                    assets
                
                $
                895,452
                
                
                
                
                
                
                
                $
                879,752**Liabilities
                    and shareholders’ equity:**Deposits:Interest-bearing
                    checking
                
                $
                44,711
                
                $
                133
                
                
                1.19
                %
                $
                42,924
                
                $
                158
                
                
                1.48
                %Savings
                
                
                84,029
                
                
                454
                
                
                2.16
                
                
                113,834
                
                
                646
                
                
                2.28Money
                    market
                
                
                135,010
                
                
                1,318
                
                
                3.92
                
                
                140,278
                
                
                1,373
                
                
                3.92Certificates
                    of deposit
                
                
                346,116
                
                
                4,095
                
                
                4.74
                
                
                319,300
                
                
                3,381
                
                
                4.25Total
                    interest-bearing deposits
                
                
                609,866
                
                
                6,000
                
                
                3.95
                
                
                616,336
                
                
                5,558
                
                
                3.62Short-term
                    borrowings
                
                
                15,614
                
                
                224
                
                
                5.75
                
                
                12,129
                
                
                144
                
                
                4.77Long-term
                    borrowings
                
                
                95,218
                
                
                1,269
                
                
                5.35
                
                
                110,339
                
                
                1,358
                
                
                4.94Total
                    interest-bearing liabilities
                
                
                720,698
                
                $
                7,493
                
                
                4.17
                %
                
                738,804
                
                $
                7,060
                
                
                3.83
                %Noninterest-bearing
                    deposits
                
                
                28,767
                
                
                
                
                
                
                
                
                25,411Other
                    liabilities
                
                
                10,440
                
                
                
                
                
                
                
                
                14,700Shareholders’
                    equity
                
                
                135,547
                
                
                
                
                
                
                
                
                100,837Total
                    liabilities and shareholders’ equity
                
                $
                895,452
                
                
                
                
                
                
                
                $
                879,752Net
                    interest income
                
                
                
                
                $
                4,005
                
                
                
                
                
                
                
                $
                3,964Interest
                    rate spread
                
                
                
                
                
                
                
                
                1.66
                %
                
                
                
                
                
                
                
                1.64
                %Contribution
                    of interest-free funds
                
                
                
                
                
                
                
                
                0.37
                
                
                
                
                
                
                
                
                0.33Net
                    interest margin
                
                
                
                
                
                
                
                
                2.03
                %
                
                
                
                
                
                
                
                1.97
                %Ratio
                    of average interest-earning assets to average interest-bearing
                    liabilities
                
                
                
                
                
                
                
                
                109.69
                %
                
                
                
                
                
                
                
                109.32
                %
  (1)
              The
                  interest on tax-exempt securities is calculated on a fully tax-equivalent
                  basis assuming a federal tax rate of 34% for the periods
                  presented.
 (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 $57 and $38 thousand are included in interest
                  and fees on
                  loans for the three months ended June 30, 2007 and 2006,
                  respectively.
  15
  **Six
                    Months Ended June 30,****2007**
                
                **2006*****(Dollars
                    in thousands)***
                
                **Average**
                
                
                
                **Average**
                
                **Average**
                
                
                
                **Average****Balance**
                
                **Interest**
                
                **Rate**
                
                **Balance**
                
                **Interest**
                
                **Rate****Assets:**Taxable
                    securities
                
                $
                231,288
                
                $
                5,824
                
                
                5.04
                %
                $
                253,009
                
                $
                6,230
                
                
                4.92
                %Tax-exempt
                    securities(1)
                
                
                15,135
                
                
                394
                
                
                5.19
                
                
                15,170
                
                
                394
                
                
                5.20Total
                    investment securities(2)
                
                
                246,423
                
                
                6,218
                
                
                5.05
                
                
                268,179
                
                
                6,624
                
                
                4.94Short-term
                    investments(3)
                
                
                4,637
                
                
                44
                
                
                1.91
                
                
                59,933
                
                
                1,414
                
                
                4.76FHLB
                    Stock
                
                
                3,329
                
                
                91
                
                
                5.50
                
                
                3,998
                
                
                94
                
                
                4.73Loans(4)
                
                
                532,797
                
                
                16,324
                
                
                6.18
                
                
                442,956
                
                
                12,754
                
                
                5.81Total
                    interest-earning assets
                
                
                787,186
                
                $
                22,677
                
                
                5.81
                %
                
                775,066
                
                $
                20,886
                
                
                5.43
                %Allowance
                    for loan losses
                
                
                (3,763
                )
                
                
                
                
                
                
                
                (3,059
                )Noninterest-earning
                    assets
                
                
                108,666
                
                
                
                
                
                
                
                
                59,816Total
                    assets
                
                $
                892,089
                
                
                
                
                
                
                
                $
                831,823**Liabilities
                    and shareholders’ equity:**Deposits:Interest-bearing
                    checking
                
                $
                43,781
                
                $
                262
                
                
                1.21
                %
                $
                42,914
                
                $
                324
                
                
                1.52
                %Savings
                
                
                86,207
                
                
                930
                
                
                2.17
                
                
                125,762
                
                
                1,433
                
                
                2.30Money
                    market
                
                
                131,202
                
                
                2,546
                
                
                3.91
                
                
                128,626
                
                
                2,455
                
                
                3.85Certificates
                    of deposit
                
                
                342,658
                
                
                8,030
                
                
                4.73
                
                
                310,982
                
                
                6,369
                
                
                4.13Total
                    interest-bearing deposits
                
                
                603,848
                
                
                11,768
                
                
                3.93
                
                
                608,284
                
                
                10,581
                
                
                3.51Short-term
                    borrowings
                
                
                21,427
                
                
                585
                
                
                5.51
                
                
                18,364
                
                
                432
                
                
                4.74Long-term
                    borrowings
                
                
                92,974
                
                
                2,480
                
                
                5.38
                
                
                102,399
                
                
                2,391
                
                
                4.71Total
                    interest-bearing liabilities
                
                
                718,249
                
                $
                14,833
                
                
                4.16
                %
                
                729,047
                
                $
                13,404
                
                
                3.71
                %Noninterest-bearing
                    deposits
                
                
                27,904
                
                
                
                
                
                
                
                
                25,319Other
                    liabilities
                
                
                10,282
                
                
                
                
                
                
                
                
                9,251Shareholders’
                    equity
                
                
                135,654
                
                
                
                
                
                
                
                
                68,206Total
                    liabilities and shareholders’ equity
                
                $
                892,089
                
                
                
                
                
                
                
                $
                831,823Net
                    interest income
                
                
                
                
                $
                7,844
                
                
                
                
                
                
                
                $
                7,482Interest
                    rate spread
                
                
                
                
                
                
                
                
                1.65
                %
                
                
                
                
                
                
                
                1.72
                %Contribution
                    of interest-free funds
                
                
                
                
                
                
                
                
                0.36
                
                
                
                
                
                
                
                
                0.23Net
                    interest margin
                
                
                
                
                
                
                
                
                2.01
                %
                
                
                
                
                
                
                
                1.95
                %Ratio
                    of average interest-earning assets to average interest-bearing
                    liabilities
                
                
                
                
                
                
                
                
                109.60
                %
                
                
                
                
                
                
                
                106.31
                %
  (1)
              The
                  interest on tax-exempt securities is calculated on a fully tax-equivalent
                  basis assuming a federal tax rate of 34% for the periods
                  presented.
 (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 $115 and $103 thousand are included in interest
                  and fees
                  on loans for the six months ended June 30, 2007 and 2006,
                  respectively.
  16
  **Rate
        / Volume Analysis**
  The
        following table quantifies the extent to which changes in interest rates
        and
        changes in the volume of interest-earning assets and interest-bearing
        liabilities have affected the Company’s net interest income (on a fully
        tax-equivalent basis). For each category of interest-earning assets and
        interest-bearing liabilities, information is provided on changes attributable
        to: (1) changes in interest rate (changes in interest rate multiplied by
        current
        volume); (2) changes in volume (changes in volume multiplied by prior interest
        rate); and (3) the net change.
 **Three
                      months ended**
                  
                  **Six
                      months ended****June
                      30, 2007 vs. 2006**
                  
                  **June
                      30, 2007 vs. 2006****Increase/(Decrease)**
                  
                  
                  
                  **Increase/(Decrease)****Due
                      to Change in**
                  
                  **Total
                      Net**
                  
                  **Due
                      to Change in**
                  
                  **Total
                      Net*****(Dollars
                      in thousands)***
                  
                  **Average**
                  
                  **Average**
                  
                  **Increase**
                  
                  **Average**
                  
                  **Average**
                  
                  **Increase****Volume**
                  
                  **Rate**
                  
                  **(Decrease)**
                  
                  **Volume**
                  
                  **Rate**
                  
                  **(Decrease)**INTEREST
                      INCOME:Taxable
                      securities
                  
                  $
                  (429
                  )
                  $
                  41
                  
                  $
                  (388
                  )
                  $
                  (535
                  )
                  $
                  129
                  
                  $
                  (406
                  )Tax-exempt
                      securities
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (1
                  )
                  
                  1
                  
                  
                  -Total
                      investment securities
                  
                  
                  (429
                  )
                  
                  41
                  
                  
                  (388
                  )
                  
                  (536
                  )
                  
                  130
                  
                  
                  (406
                  )Short-term
                      investments
                  
                  
                  (768
                  )
                  
                  (36
                  )
                  
                  (804
                  )
                  
                  (1,305
                  )
                  
                  (65
                  )
                  
                  (1,370
                  )FHLB
                      Stock
                  
                  
                  (11
                  )
                  
                  26
                  
                  
                  15
                  
                  
                  (16
                  )
                  
                  13
                  
                  
                  (3
                  )Loans
                  
                  
                  1,190
                  
                  
                  461
                  
                  
                  1,651
                  
                  
                  2,587
                  
                  
                  983
                  
                  
                  3,570Total
                      interest-earning assets
                  
                  $
                  (18
                  )
                  $
                  492
                  
                  $
                  474
                  
                  $
                  730
                  
                  $
                  1,061
                  
                  $
                  1,791INTEREST
                      EXPENSE:Deposits:Interest-bearing
                      checking
                  
                  **$**
                  7
                  
                  $
                  (32
                  )
                  $
                  (25
                  )
                  **$**
                  7
                  
                  $
                  (69
                  )
                  $
                  (62
                  )Savings
                  
                  
                  (169
                  )
                  
                  (23
                  )
                  
                  (192
                  )
                  
                  (451
                  )
                  
                  (52
                  )
                  
                  (503
                  )Money
                      market
                  
                  
                  (52
                  )
                  
                  (3
                  )
                  
                  (55
                  )
                  
                  49
                  
                  
                  42
                  
                  
                  91Certificates
                      of deposit
                  
                  
                  284
                  
                  
                  430
                  
                  
                  714
                  
                  
                  649
                  
                  
                  1,012
                  
                  
                  1,661Total
                      interest-bearing deposits
                  
                  
                  70
                  
                  
                  372
                  
                  
                  442
                  
                  
                  254
                  
                  
                  933
                  
                  
                  1,187Short-term
                      borrowings
                  
                  
                  41
                  
                  
                  39
                  
                  
                  80
                  
                  
                  72
                  
                  
                  81
                  
                  
                  153Long-term
                      borrowings
                  
                  
                  (186
                  )
                  
                  97
                  
                  
                  (89
                  )
                  
                  (220
                  )
                  
                  309
                  
                  
                  89Total
                      borrowings
                  
                  
                  (145
                  )
                  
                  136
                  
                  
                  (9
                  )
                  
                  (148
                  )
                  
                  390
                  
                  
                  242Total
                      interest-bearing liabilities
                  
                  $
                  (75
                  )
                  $
                  508
                  
                  $
                  433
                  
                  $
                  106
                  
                  $
                  1,323
                  
                  $
                  1,429CHANGE
                      IN NET INTEREST INCOME
                  
                  $
                  57
                  
                  $
                  (16
                  )
                  $
                  41
                  
                  $
                  624
                  
                  $
                  (262
                  )
                  $
                  362
  17
  **RESULTS
        OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2007 AND
        2006**
  **Net
        Interest Income**
  Net
        interest income on a taxable-equivalent basis was $4.0 million for the 2007
        and
        2006 quarters. Increases in interest income were offset by increases in interest
        expense. Average earning assets decreased by $17.1 million, or 2.1%, comparing
        the two quarters. The yield on earning assets in 2007 increased to 5.83%
        from
        5.47% in 2006.  This increase in yield is attributable to growth in loan
        balances in 2007. However, the increase by 34 basis points in the rate paid
        on
        interest-bearing liabilities from 3.83% in 2006 to 4.17% in 2007, primarily
        a
        result of the repricing of maturing certificates of deposit with higher rates
        and stiff competition for deposits, offset the increase in yield on
        interest-earning assets.
  The
        Company’s net interest margin was 2.03% in the 2007 quarter compared to 1.97% in
        2006. Interest-free funds provided 37 basis points to the margin in 2007,
        compared to 33 basis points in 2006 and the interest rate spread improved
        by 2
        basis points from quarter to quarter. Average noninterest-bearing demand
        deposits increased 13.2% to $28.8 million for the 2007 quarter compared with
        $25.4 million in 2006.
  Increases
        in the Company’s average loan balances provided the most significant
        contribution to the 36 basis point increase in the average rate earned on
        interest-earning assets. Interest income on loans increased by $1.7 million
        to
        $8.4 million in 2007. This increase resulted from a $81.4 million increase
        in
        average loans outstanding to $540.1 in 2007 from $458.7 million in 2006.
        The
        rate earned on average loans increased to 6.20% in 2007 from 5.86% in
        2006.
  The
        Company continued to experience significant migration of interest-bearing
        deposits from savings accounts into higher-rate certificate accounts in
        comparing the 2006 and 2007 second quarters. The average balance of certificate
        accounts increased $26.8 million, or 8.4% in 2007. A 34 basis point increase
        in
        the rates paid on interest-bearing liabilities to 4.17% in the 2007 quarter
        resulted in a $433 thousand increase in the Company’s funding costs in 2007,
        despite a decrease in average interest-bearing liabilities of $18.1
        million.
  **Provision** **for Loan Losses**
  The
        Company recorded a credit to its provision for loan losses of $380 thousand
        in
        the second quarter of 2007 compared to a provision for loan losses of $318
        thousand for the 2006 quarter. The $380 thousand benefit reflects the workout
        of
        two commercial credit issues that arose in the fourth quarter of 2006 and
        reductions in formula-based reserves on the Company’s automobile loan portfolios
        that continued to exhibit minimal losses. See “Non-Performing Assets and
        Allowance for Loan Losses” herein for additional information.
  **Noninterest
        Income**
  The
        following table summarizes the Company’s noninterest income:
  ***(Dollars
                      in thousands)***
                  
                  **Three Months Ended June 30,****2007**
                  
                  **2006**Service
                      charges on deposit accounts
                  
                  $
                  214
                  
                  $
                  161Other
                      fees and service charges
                  
                  
                  185
                  
                  
                  131Gain
                      on sale of mortgage loans
                  
                  
                  263
                  
                  
                  -Loan
                      fee income
                  
                  
                  182
                  
                  
                  135Earnings
                      on bank-owned life insurance
                  
                  
                  122
                  
                  
                  116Other
                      operating income
                  
                  
                  36
                  
                  
                  44Total
                      noninterest income
                  
                  $
                  1,002
                  
                  $
                  587
  Noninterest
        income increased by approximately 71% for the second quarter of 2007 compared
        to
        the second quarter of 2006. Services
        charges on deposit accounts relate primarily to overdraft charges. Other
        fees
        and service charges relate primarily to ATM and debit card income. Increases
        in
        letter of credit and loan servicing fees contributed to the increase in loan
        fee
        income from 2006 to 2007. The gain on sale of mortgage loans in the current
        quarter relates to the Company’s new mortgage banking activities which began in
        late 2006. Other
        operating income includes early withdrawal penalties on deposit accounts
        and
        other miscellaneous income. The Company anticipates that noninterest income
        will
        continue to increase in 2007 as its branch network grows and matures, the
        loan
        portfolios increase and the impact of its new mortgage banking initiative
        takes
        effect.
  18
  **Noninterest
        Expense**
  The
        following table summarizes the Company’s noninterest expense:
 ***(Dollars
                      in thousands)***
                  
                  **Three Months Ended June 30,****2007**
                  
                  **2006**Salaries
                      and employee benefits
                  
                  $
                  3,332
                  
                  $
                  2,596Occupancy,
                      equipment and furnishings
                  
                  
                  746
                  
                  
                  595Data
                      processing and operations
                  
                  
                  299
                  
                  
                  229Professional
                      services
                  
                  
                  171
                  
                  
                  154Advertising
                  
                  
                  139
                  
                  
                  198Printing,
                      postage and supplies
                  
                  
                  159
                  
                  
                  99Other
                      operating expense
                  
                  
                  833
                  
                  
                  539Total
                      noninterest expense
                  
                  $
                  5,679
                  
                  $
                  4,410
  Noninterest
        expense increased by $1.3 million for the second quarter of 2007 compared
        to the
        second quarter of 2006. Salaries and employee benefits increased $736 thousand
        relating to expansion of the branch network and significant additions to
        the
        lending businesses, support functions and senior management team. Increases
        in
        occupancy, equipment and furnishings expense relate to the Company’s branch
        expansion and continued development of its infrastructure. The increase in
        data
        processing and
        operations expense
        was impacted by overall growth of the Company and increases in number of
        customer accounts. Professional services expense increased mainly due to
        growth
        in the size and complexity of the Company and the increasing cost of compliance
        with laws and regulations. The increase in printing, postage and supplies
        is
        mainly attributable to expenses of the annual shareholders meeting. Other
        operating expense includes insurance premiums, franchise taxes, communications
        expenses and other general operating expenses.
  **Income
        Taxes**
  The
        Company’s effective tax rates were 24.9% and 78.3% in the second quarters of
        2007 and 2006, respectively. Effective tax rates are impacted by income and
        expense items that are not subject to Federal or state taxation. The Company’s
        income tax rates reflect the impact of such items, including tax-exempt interest
        income from municipal securities, tax-exempt earnings on bank-owned life
        insurance and the effect of certain state tax credits. In addition, during
        the
        second quarter of 2007, New York State reduced tax rates from 7.5% to 7.1%
        effective January 1, 2007 and the Company recorded a reduction of its deferred
        tax assets associated with this tax change. As a result of this change, the
        Company’s net loss increased by approximately $120 thousand for the three months
        ended June 30, 2007.
  **RESULTS
        OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2007 AND
        2006**
  **Net
        Interest Income**
  Net
        interest income on a tax-equivalent basis increased from $7.5 million for
        the
        six months ended June 30, 2006 to $7.8 million in 2007 on overall improvement
        in
        the average volumes and interest rates of earning assets, offset in part
        by
        increases in rates on interest-bearing deposits. Average interest-earning
        assets
        grew by $12.1 million from $775.1 million in the 2006 period to $787.2 million
        in the 2007 period and the average rate earned on the assets improved from
        5.43%
        to 5.81%. The improvement in interest income was offset to a large degree
        by
        rising costs of funding. Interest rates on average interest-bearing liabilities
        increased from 3.71% for the 2006 period to 4.16% for the 2007
        period.
  The
        Company’s net interest margin was 2.01% in the six-month period ended June 30,
        2007, compared to 1.95% in 2006. Interest-free funds provided 36 basis points
        to
        the margin in 2007, compared to 23 basis points in 2006. Average
        noninterest-bearing demand deposits increased 10.2% to $27.9 million for
        the
        first six months of 2007, compared with $25.3 million in 2006. The positive
        impact of the contribution of interest-free funds on the 2007 net interest
        margin was offset in part by a 7 basis point decrease in the interest rate
        spread.
  Increases
        in the Company’s average loan balances provided the most significant
        contribution to the 38 basis point increase in the average rate earned on
        interest-earning assets from 5.43% in 2006 to 5.81% in 2007. Interest income
        on
        loans increased by $3.6 million to $16.3 million in 2007. This increase resulted
        from an $89.8 million increase in average loans outstanding to $532.8 in
        2007
        from $443.0 million in 2006. The rate earned on average loans increased to
        6.18%
        in 2007 from 5.81% in 2006.
  The
        Company experienced significant migration of interest-bearing deposits from
        savings accounts into higher-rate money market and certificate accounts in
        comparing the first six months of 2006 and 2007. The combined average balances
        of money market and certificate accounts increased $34.3 million, or 7.8%
        in
        2007. A 45 basis point increase in the rates paid on interest-bearing
        liabilities to 4.16% in the first six months of 2007 resulted in a $1.4 million
        increase in the Company’s funding costs in 2007.
  19


**Provision** **for
      Loan Losses**




During
      the six month period ended June 30, 2007, the Company recorded a credit to
      its
      provision for loan losses of $113 thousand compared to a provision for loan
      losses of $558 thousand for the same period in 2006. The $113 thousand benefit
      reflects reductions in formula-based reserves on the Company’s mortgage and
      automobile loans that continued to exhibit minimal losses, offset in part by
      net
      increases in provisions for the Company’s impaired commercial loans. See
“Non-Performing Assets and Allowance for Loan Losses” herein for additional
      information.




**Noninterest
      Income**




The
      following table summarizes the Company’s noninterest income:




***(Dollars
                  in thousands)***
              
              **Six
                  Months Ended June 30,****2007**
              
              **2006**Service
                  charges on deposit accounts
              
              $
              390
              
              $
              295Other
                  fees and service charges
              
              
              344
              
              
              243Gain
                  on sale of mortgage loans
              
              
              325
              
              
              -Loan
                  fee income
              
              
              302
              
              
              159Earnings
                  on bank-owned life insurance
              
              
              243
              
              
              231Other
                  operating income
              
              
              72
              
              
              74Total
                  noninterest income
              
              $
              1,676
              
              $
              1,002




Noninterest
      income increased by approximately 67.3% for the six months ended June 30, 2007
      compared to the same period of 2006. Services
      charges on deposit accounts relate primarily to overdraft charges and returned
      check fee income. Other fees and service charges relate primarily to ATM and
      debit card income. Increases in letter of credit and loan servicing fees
      contributed to the increase in loan fee income from 2006 to 2007. The gain
      on
      sale of mortgage loans relates to the Company’s new mortgage banking activities
      which began in late 2006. Other
      operating income includes early withdrawal penalties on deposit accounts and
      other miscellaneous income. The Company anticipates that noninterest income
      will
      continue to increase in 2007 as its branch network grows and matures, the loan
      portfolios increase and the impact of its new mortgage banking initiative takes
      effect.




**Noninterest
      Expense**




The
      following table summarizes the Company’s noninterest expense:


***(Dollars
                  in thousands)***
              
              **Six
                  Months Ended June 30,****2007**
              
              **2006**Salaries
                  and employee benefits
              
              $
              6,374
              
              $
              4,905Occupancy,
                  equipment and furnishings
              
              
              1,478
              
              
              1,152Data
                  processing and operations
              
              
              567
              
              
              450Professional
                  services
              
              
              375
              
              
              291Advertising
              
              
              273
              
              
              390Printing,
                  postage and supplies
              
              
              268
              
              
              209Other
                  operating expense
              
              
              1,505
              
              
              940Total
                  noninterest expense
              
              $
              10,840
              
              $
              8,337




Noninterest
      expense increased by $2.5 million for the first six months of 2007 compared
      to
      the same period of 2006. Salaries and employee benefits increased $1.5 million
      relating to expansion of the branch network and significant additions to the
      lending businesses, support functions and senior management team. Increases
      in
      occupancy, equipment and furnishings expense relate to the Company’s branch
      expansion and continued development of its infrastructure. The increase in
      data
      processing and
      operations expense
      was impacted by overall growth of the Company and increases in number of
      customer accounts. Professional services expense increased mainly due to growth
      in the size and complexity of the Company and the increasing cost of compliance
      with laws and regulations. Other operating expense includes insurance premiums,
      franchise taxes, communications expenses and other general operating
      expenses.




20




**Income
      Taxes**




The
      Company’s effective tax rates were 35.7% and 75.4% for the six months ended June
      30, 2007 and 2006, respectively. Effective tax rates are impacted by income
      and
      expense items that are not subject to Federal or state taxation. The Company’s
      income tax provision reflects the impact of such items, including tax-exempt
      interest income from municipal securities, tax-exempt earnings on bank-owned
      life insurance and the effect of certain state tax credits. In addition, during
      the second quarter of 2007, New York State reduced tax rates from 7.5% to 7.1%
      effective January 1, 2007 and the Company recorded a reduction of its deferred
      tax assets associated with this tax change. As a result of this change, the
      Company’s net loss increased by approximately $120 thousand for the six months
      ended June 30, 2007.




**FINANCIAL
      CONDITION**




**Lending
      Activities**




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


***(Dollars
                  in thousands)***
              
              **June
                  30, 2007**
              
              **December
                  31, 2006****Amount**
              
              **Percent**
              
              **Amount**
              
              **Percent**Real
                  estate loans:Residential
              
              $
              252,240
              
              
              47.6
              %
              $
              253,709
              
              
              49.6
              %Home
                  equity
              
              
              56,664
              
              
              10.7
              
              
              53,676
              
              
              10.5Commercial
              
              
              87,622
              
              
              16.5
              
              
              78,666
              
              
              15.4Construction
              
              
              19,904
              
              
              3.8
              
              
              25,481
              
              
              5.0Total
                  mortgage loans
              
              
              416,430
              
              
              78.6
              
              
              411,532
              
              
              80.5Commercial
                  and industrial loans
              
              
              63,044
              
              
              11.9
              
              
              55,055
              
              
              10.8Automobile
                  loans
              
              
              49,315
              
              
              9.3
              
              
              43,719
              
              
              8.6Other
                  consumer loans
              
              
              1,106
              
              
              0.2
              
              
              659
              
              
              0.1Total
                  loans
              
              
              529,895
              
              
              100.0
              %
              
              510,965
              
              
              100.0
              %Allowance
                  for loan losses
              
              
              (2,978
              )
              
              
              
              
              (3,781
              )Deferred
                  loan costs, net
              
              
              6,750
              
              
              
              
              
              6,744Total
                  loans, net
              
              $
              533,667
              
              
              
              
              $
              513,928




Total
      loans increased $19.8 million or 3.8% from $513.9 million at December 31, 2006
      to $533.7 million at June 30, 2007. The growth in loans was comprised primarily
      of increases in commercial real estate loans of $9.0 million or 11.4%,
      commercial and industrial loans of $8.0 million or 14.5% and automobile loans
      of
      $5.6 million or 12.8%, offset by a decrease in construction loans of $5.6
      million or 21.9%. The loan portfolio had a weighted average yield of 6.58%
      at
      June 30, 2007 and 6.46% at December 31, 2006.




**Non-Performing
      Assets and** **Allowance
      for Loan Losses**




The
      table
      below sets forth the amounts and categories of the Company’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).




***(Dollars
                  in thousands)***
              
              **June
                  30,**
              
              **December
                  31,****2007**
              
              **2006**Nonaccrual
                  loans
              
              $
              1,481
              
              $
              3,548Accruing
                  loans contractually past due 90 days or more
              
              
              210
              
              
              -Total
                  non-performing loans
              
              
              1,691
              
              
              3,548Foreclosed
                  assets(1)
              
              
              1,018
              
              
              91Total
                  non-performing assets
              
              $
              2,709
              
              $
              3,639Ratios:Non-performing
                  loans to total loans
              
              
              0.32
              %
              
              0.69
              %Non-performing
                  assets to total assets
              
              
              0.30
              %
              
              0.41
              %




(1) Includes
      $956 thousand of foreclosed property that was sold subsequent to the end of
      the
      quarter at the recorded carrying value.




21


An
      analysis of the allowance for loan losses for the six months ended June 30,
      2007
      and 2006 is presented below:


***(Dollars
                  in thousands)***
              
              **Six
                  Months Ended June 30,****2007**
              
              **2006**Balance,
                  beginning of period
              
              $
              3,781
              
              $
              2,910Provision
                  (credit) for loan losses
              
              
              (113
              )
              
              558Net
                  charge-offs:Charge-offs
              
              
              (692
              )
              
              (99
              )Recoveries
              
              
              2
              
              
              1Net
                  charge-offs
              
              
              (690
              )
              
              (98
              )Balance,
                  end of period
              
              $
              2,978
              
              $
              3,370Ratio
                  of allowance for loan losses to:Total
                  loans
              
              
              0.55
              %
              
              0.71
              %Non-performing
                  loans
              
              
              176.13
              %
              
              201.42
              %Ratio
                  of annualized net charge-offs to average total loans
              
              
              0.26
              %
              
              0.05
              %




The
      Company’s credit to loan loss provisions of $113 thousand for the six months
      ended June 30, 2007 is the net of the first quarter provision charge of $267
      thousand and the second quarter provision credit of $380 thousand. The credit
      to
      loan loss provisions of $380 thousand for the quarter ended June 30, 2007 is
      comprised of approximately $247 thousand relating to reductions in formula-based
      reserve factors for automobile loans, reductions of $94 thousand relating to
      specific reserves previously recognized for commercial credits, and
      approximately $39 thousand relating to reductions in outstanding balances on
      loans subject to formula-based reserving. Charge-offs of $692 thousand for
      the
      six months ended June 30, 2007 included $594 thousand pertaining to a commercial
      credit that was included in foreclosed assets at June 30, 2007 and sold after
      the end of the quarter. Impaired loans totaled $1.7 million at June 30, 2007
      and
      the allowance for loan losses relating to impaired loans was $312 thousand.




While
      the
      Company’s loan loss allowance is allocated among its various loan portfolios,
      the allowance is considered to be general in nature and available to absorb
      losses from any loan category. Management has concluded that the allowance
      for
      loan losses at June 30, 2007 is adequate to cover probable losses in the loan
      portfolios at that date. Factors beyond the Company’s control, however, such as
      national and local economic trends, can adversely impact the credit quality
      of
      its loans and the adequacy of loan loss allowance recorded. As a result, no
      assurance can be given that adverse economic conditions or other developments
      will not result in increased losses in the portfolio or that the allowance
      for
      loan losses will be sufficient to meet actual losses as they arise.




**Investment
      Activities**




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




Available
      for sale investments may be sold in response to changing market and interest
      rate conditions or for other business purposes. Activity in this portfolio
      is
      undertaken to manage liquidity and interest rate risk and to take advantage
      of
      market opportunities. This portfolio decreased $17.3 million in the first six
      months of 2007 to $216.5 million at June 30, 2007. The decrease in the portfolio
      resulted principally from $16.5 million of repayments of investment securities
      during the quarter and a decrease in the fair value of the securities held
      of
      $631 thousand. There were no purchases or sales of available for sale securities
      in the first six months of 2007. The available for sale portfolio had net
      unrealized losses of $4.6 million and $4.0 million at June 30, 2007 and December
      31, 2006, respectively.




The
      Company has concluded that the unrealized losses at June 30, 2007 and December
      31, 2006 were temporary in nature. 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.




Securities
      classified as held to maturity are carried at amortized cost. The
      portfolio totaled $16.0 million at June 30, 2007 and December 31, 2006. There
      were no purchases or sales of held
      to
      maturity securities
      in the first six months of 2007. The held
      to
      maturity portfolio had
      net
      unrealized losses of $437 thousand and $239 thousand at June 30, 2007 and
      December 31, 2006, respectively.




22




**Funding
      Activities**




**Deposits**




Deposits
      comprised of noninterest-bearing demand deposits and interest-bearing savings
      and time deposits represent the Company’s primary source of funding. The Company
      gathers deposits in its market areas by paying competitive interest rates,
      offering high quality customer service, using technology to deliver services
      efficiently and effectively, and by aggressively marketing its products. The
      Company offers a variety of products designed to attract and retain customers,
      with the primary focus on building and expanding long-term relationships. At
      June 30, 2007, total deposits were $646.0 million, representing an increase
      of
      $11.3 million from year-end 2006. The weighted average interest rate on deposits
      was 3.73% at June 30, 2007, representing and increase of 10 basis points from
      year-end 2006. Certificates of deposit at June 30, 2007 and December 31, 2006
      were 54.2% and 53.2% of total deposits with weighted average rates of 4.73%
      and
      4.65%, respectively.




23


**LIQUIDITY
      AND CAPITAL RESOURCES**




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




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




Capital
      guidelines issued by the Federal Reserve Board and the FDIC require the Company
      and our banking subsidiary to maintain certain capital ratios, set forth below.
      At June 30, 2007, 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*****(Dollars
                  in thousands)***
              
              
              
              **For
                  Capital**
              
              **Prompt
                  Corrective****Actual**
              
              **Adequacy
                  Purposes**
              
              **Action
                  Provisions****Amount**
              
              **Ratio**
              
              **Amount**
              
              **Ratio**
              
              **Amount**
              
              **Ratio****June
                  30, 2007:**Total
                  risk-based capital (to risk-weighted assets):Great
                  Lakes Bancorp, Inc.
              
              $
              96,927
              
              
              19.4
              %
              $
              40,068
              
              
              8.0
              %
              $
              N/A
              
              
              N/A
              %Greater
                  Buffalo Savings Bank
              
              
              53,332
              
              
              11.0
              
              
              38,723
              
              
              8.0
              
              
              48,403
              
              
              10.0Tier
                  1 capital (to risk-weighted assets):Great
                  Lakes Bancorp, Inc.
              
              
              93,949
              
              
              18.8
              
              
              20,034
              
              
              4.0
              
              
              N/A
              
              
              N/AGreater
                  Buffalo Savings Bank
              
              
              50,354
              
              
              10.4
              
              
              19,361
              
              
              4.0
              
              
              29,042
              
              
              6.0Tier
                  1 leverage:Great
                  Lakes Bancorp, Inc.
              
              
              93,949
              
              
              11.2
              
              
              33,684
              
              
              4.0
              
              
              N/A
              
              
              N/AGreater
                  Buffalo Savings Bank
              
              
              50,354
              
              
              6.2
              
              
              32,671
              
              
              4.0
              
              
              40,839
              
              
              5.0
  **December
                  31, 2006:**Total
                  risk-based capital (to risk-weighted assets):Great
                  Lakes Bancorp, Inc.
              
              $
              99,322
              
              
              20.8
              %
              $
              38,278
              
              
              8.0
              %
              $
              N/A
              
              
              N/A
              %Greater
                  Buffalo Savings Bank
              
              
              50,037
              
              
              10.8
              
              
              36,972
              
              
              8.0
              
              
              46,216
              
              
              10.0Tier
                  1 capital (to risk-weighted assets):Great
                  Lakes Bancorp, Inc.
              
              
              95,541
              
              
              20.0
              
              
              19,139
              
              
              4.0
              
              
              N/A
              
              
              N/AGreater
                  Buffalo Savings Bank
              
              
              46,256
              
              
              10.0
              
              
              18,486
              
              
              4.0
              
              
              27,729
              
              
              6.0Tier
                  1 leverage:Great
                  Lakes Bancorp, Inc.
              
              
              95,541
              
              
              11.6
              
              
              32,817
              
              
              4.0
              
              
              N/A
              
              
              N/AGreater
                  Buffalo Savings Bank
              
              
              46,256
              
              
              5.8
              
              
              31,776
              
              
              4.0
              
              
              39,720
              
              
              5.0




24




**ITEM
      3.         QUANTITATIVE AND
      QUALITATIVE DISCLOSURES ABOUT MARKET RISK**




The
      Company uses a variety of methods to measure the sensitivity of its income to
      changes in interest rates, including simulation, valuation techniques and gap
      analyses. Interest-rate risk is the sensitivity of income to changes in market
      interest rates over both short-term and long-term horizons. The primary goal
      of
      interest rate risk management is to control this risk within limits approved
      by
      the Board of Directors. These limits take into consideration the Company’s
      tolerance for interest rate risk. The Company attempts to control interest-rate
      risk by identifying exposures, quantifying them and taking appropriate actions.
      For a full discussion of interest rate risk see “Qualitative and Quantitative
      Disclosures about Market Risk” in the Company’s 2006 Annual Report on Form 10-K.
      The Company has completed its interest rate risk the analysis for the second
      quarter of 2007 and the Company’s interest rate risk profile is materially
      unchanged.




**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 end of the period
      covered by 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***




No
      changes in the Company’s internal control over financial reporting occurred
      during the fiscal quarter ended June 30, 2007 that have materially affected,
      or
      are reasonably likely to materially affect, the Company’s internal control over
      financial reporting.





25


**PART
      II. OTHER INFORMATION**




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




NONE




**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. There were no material changes during the second quarter of 2007 to
      those risk factors disclosed in the 2006 Annual Report.




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




The
      Company established a share repurchase program effective as of May 15,
      2007, which was publicly announced on May 8, 2007, pursuant to which up to
      5% of
      the outstanding common stock of the Company on May 15, 2007 (546,152
      shares) may be acquired through November 15, 2007. As of June 30, 2007, no
      shares of common stock have been acquired under the program.




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




NONE


26




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




The
      Annual Meeting of Shareholders was held on May 15, 2007. Of 10,923,213 shares
      entitled to vote at the meeting, 9,689,490 shares were voted. The following
      matters were voted on at the meeting:




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





**Nominee**
            
            **Votes
                For**
            
            **Votes
                Withheld**William
                A. Evans
            
            
            9,439,558
            
            
            249,932Robert
                B. Goldstein
            
            
            8,755,306
            
            
            934,184Acea
                M. Mosey-Pawlowski
            
            
            9,449,966
            
            
            239,524Frederick
                A. Wolf
            
            
            9,450,974
            
            
            238,516




Terms
      of
      our other directors, Charles G. Cooper, Andrew W. Dorn, Jr., Carolyn B. Frank,
      Gerard T. Mazurkiewicz, John W. Rose, James A. Smith, Barry M. Snyder and David
      L. Ulrich had not expired at the time of the Annual Meeting and they continued
      in office.




Proposal
                2:
            To
                approve an amendment to the Company’s Certificate of Incorporation to
                reduce the number of the Company’sauthorized
                shares of common stock.





**Votes
                For**
            
            **Votes**
              **Against**
            
            **Votes**
              **Abstained**
            
            **Broker**
              **Nonvotes**9,595,657
            
            
            25,107
            
            
            68,726
            
            
            -





Proposal
                3:
            To
                amend the Company’s Amended and Restated 2002 Stock Option
                Plan.





**Votes
                For**
            
            **Votes**
              **Against**
            
            **Votes**
              **Abstained**
            
            **Broker**
              **Nonvotes**9,077,143
            
            
            606,349
            
            
            5,998
            
            
            -




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




NONE




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




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





**Exhibit
                #**
            
            **Description**31.1
            
            Certification
                of the Chief Executive Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 200231.2
            
            Certification
                of the Chief Financial Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 200232.1
            
            Certification
                of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350,
                as
                adopted 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,
                as
                adopted pursuant to Section
                906 of the Sarbanes-Oxley Act of
                2002




27




**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***
            ,
                August 8, 2007Michael
                J. RogersExecutive
                Vice President and Chief Financial Officer(Principal
                Financial and Principal Accounting Officer)




28