SECURITIES AND
EXCHANGE COMMISSION


Washington, D. C.
20549





FORM
10-K





x ANNUAL REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE


SECURITIES
EXCHANGE ACT OF 1934


For the
fiscal year ended December 31, 2007.





o TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE


SECURITIES
EXCHANGE ACT OF 1934


For the
transition period from _____ to ___________________





Commission
file number 0-13153





HABERSHAM
BANCORP


(Exact
name of registrant as specified in its charter)





Georgia
            
            58-1563165(State
      or other jurisdiction of incorporation or organization)
            
            (I.R.S.
      Employer Identification Number)





282 Historic Highway 441 North, P. O. Box 1980,
      Cornelia, Georgia
            30531(Address
      of principal executive offices)
            (Zip
      Code)





Registrant's
telephone number, including area code:   (706)
778-1000
 
 Securities
registered pursuant to Section 12(b) of the Exchange Act:
 Common Stock, $1.00 par value
  Securities
registered pursuant to Section 12(g) of the Exchange Act: None


Indicate
by check mark whether the registrant is a well-known seasoned issuer as defined
in Rule 405 of the Securities Act.


Yes oNo x





Indicate
by check mark if the registrant is not required to file reports under Section 13
or Section 15(d) of the Act.


Yes oNo x





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


Yes xNo o




Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.


o





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
definition of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Exchange Act Rule 12b-2:
 o o o Smaller
reporting company T (do not
check if a smaller reporting company)







Page 1 of
50




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
 Yes £  No
T
 
 State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold, or the average bid and asked prices of such common equity, as of the
last business day of the registrant’s most recently completed second fiscal
quarter.
 
 1,743,974 Shares of Common
Stock, $1.00 par value--$34,181,890 as of June 30, 2007 (based upon
market value of $19.60 /share as of that date).
 
 
 Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of March 14, 2008.
 
 Common Stock, $1.00 par
value--2,818,593 shares
 
 
 DOCUMENTS
INCORPORATED BY REFERENCE
 
 (1)  Portions
of the Company's Annual Report to Shareholders for the year ended December 31,
2007 (the "Annual Report") are incorporated by reference into Part
II.
 
 (2)  Portions
of the Company's Proxy Statement relating to the 2008 Annual Meeting of
Shareholders (the "Proxy Statement") are incorporated by reference into Part
III.
 
 PART
I
 Item
1.  BUSINESS.
 
 History of the
Company
 
 Habersham
Bancorp (the "Company"), a Georgia corporation, was organized on March 9,
1984.  Effective December 31, 1984, the Company acquired all of the
outstanding shares of common stock of Habersham Bank ("Habersham
Bank").  As a result of this transaction, the former shareholders of
Habersham Bank became shareholders of the Company, and Habersham Bank became the
wholly-owned subsidiary of the Company. Habersham Bank has one subsidiary,
Advantage Insurers, Inc., a property, casualty and life insurance agency
organized in 1997.
 
 Effective
June 30, 1995, the Company acquired Security Bancorp, Inc. and its subsidiary
bank, Security State Bank.  The Company consolidated the charters of
Security State Bank and Habersham Bank in 1999. The Company acquired
Liberty Bank & Trust on July 25, 2005 and subsequently merged that bank with
and into Habersham Bank.
 
 Business of the
Bank
 
 Habersham
Bank is a financial institution organized under the laws of the State of Georgia
in 1904.  Habersham Bank operates a full-service commercial banking
business based in Habersham, White, Cherokee, Warren, Gwinnett, Stephens,
Forsyth and Hall Counties, Georgia, providing such customary banking services as
checking and savings accounts, various types of time deposits, safe deposit
facilities and individual retirement accounts.  It also makes secured
and unsecured loans and provides other financial services to its
customers.  Habersham Bank has a full-time trust officer on staff and
offers a full spectrum of trust services, including trust administration, asset
management services, estate and will probate and administration, and other
services in the area of personal trusts.
 
 Competition
 
 The
banking industry is highly competitive.  During the past several
years, legislation and regulatory changes, together with competition from
unregulated entities, has resulted in the elimination of many traditional
distinctions between commercial banks, thrift institutions and other providers
of financial services.  Consequently, competition among financial
institutions of all types is virtually unlimited with respect to legal ability
and authority to provide most financial services.


Page 2 of
50




Habersham
Bank's primary market area consists of Habersham, White, Cherokee, Warren,
Gwinnett, Stephens, Forsyth and Hall Counties, Georgia.  Habersham
Bank competes principally for all types of loans, deposits and other financial
services with large regional banks and other community banks located in its
primary market area. To a lesser extent, Habersham Bank competes for loans with
insurance companies, regulated small loan companies, credit unions, and certain
governmental agencies.





The
Company and its non-bank subsidiary, Advantage Insurers, also compete with
numerous other insurance agencies offering property, casualty and life
insurance.





See “Risk
Factors – Competition from Other Financial Institutions May Adversely Affect our
Profitability.”





Employees





As of
December 31, 2007, the Company had 180 full-time equivalent
employees.  Neither the Company nor any of its subsidiaries is a party
to any collective bargaining agreement.  In the opinion of management,
the Company and its subsidiaries enjoy satisfactory relations with their
respective employees.








SUPERVISION
AND REGULATION





Both
Habersham Bancorp (the “Company”) and Habersham Bank (the “Bank”) are subject to
extensive state and federal banking regulations that impose restrictions on and
provide for general regulatory oversight of their operations.  These
laws are generally intended to protect depositors and not
shareholders.  Legislation and regulations authorized by legislation
influence, among other things:





            how,
      when and where we may expand
geographically;





            into
      what product or service market we may
enter;





            how
      we must manage our assets; and





            under
      what circumstances money may or must flow between the parent bank holding
      company and the subsidiary bank.




Set forth
below is an explanation of the major pieces of legislation affecting our
industry and how that legislation affects our actions.  The following
summary is qualified by reference to the statutory and regulatory provisions
discussed.  Changes in applicable laws or regulations may have a
material effect on our business and prospects, and legislative changes and the
policies of various regulatory authorities may significantly affect our
operations.  We cannot predict the effect that fiscal or monetary
policies, or new federal or state legislation may have on our business and
earnings in the future.




Habersham
Bancorp
  Because
the Company owns all of the capital stock of the Bank, it is a bank holding
company under the federal Bank Holding Company Act of 1956.  As a
result, we are primarily subject to the supervision, examination and reporting
requirements of the Bank Holding Company Act and the regulations of the Federal
Reserve.  As a bank holding company located in Georgia, the Georgia
Department of Banking and Finance (the “GDBF”) also regulates and monitors all
significant aspects of our operations.
  Acquisitions of
Banks.The Bank Holding Company
Act requires every bank holding company to obtain the Federal Reserve’s prior
approval before:


Page 3 of
50




·
            acquiring
      direct or indirect ownership or control of any voting shares of any bank
      if, after the acquisition, the bank holding company will directly or
      indirectly own or control more than 5% of the bank’s voting
      shares;




·
            acquiring
      all or substantially all of the assets of any bank;
  or




·
            merging
      or consolidating with any other bank holding
  company.





Additionally,
the Bank Holding Company Act provides that the Federal Reserve may not approve
any of these transactions if it would result in or tend to create a monopoly,
substantially lessen competition or otherwise function as a restraint of trade,
unless the anticompetitive effects of the proposed transaction are clearly
outweighed by the public interest in meeting the convenience and needs of the
community to be served.  The Federal Reserve is also required to
consider the financial and managerial resources and future prospects of the bank
holding companies and banks concerned.  The Federal Reserve’s
consideration of financial resources generally focuses on capital adequacy,
which is discussed below.




Under the
Bank Holding Company Act, if we are adequately capitalized and adequately
managed, we or any other bank holding company located in Georgia may purchase a
bank located outside of Georgia.  Conversely, an adequately
capitalized and adequately managed bank holding company located outside of
Georgia may purchase a bank located inside of Georgia.  In each case,
however, restrictions may be placed on the acquisition of a bank that has only
been in existence for a limited amount of time or will result in specified
concentrations of deposits.  Currently, Georgia law prohibits
acquisitions of banks that have been chartered for less than three
years.




Change in Bank
Control.Subject to
various exceptions, the Bank Holding Company Act and the Change in Bank Control
Act, together with related regulations, require Federal Reserve approval prior
to any person or company acquiring “control” of the bank holding
company.  Control is conclusively presumed to exist if an individual
or company acquires 25% or more of any class of voting securities of a bank
holding company.  Control is also presumed to exist, although
rebuttable, if a person or company acquires 10% or more, but less than 25%, of
any class of voting securities and either:




·
            the
      bank holding company has registered securities under Section 12 of
      the Securities Exchange Act of 1934;
or




·
            no
      other person owns a greater percentage of that class of voting securities
      immediately after the transaction.





The
regulations provide a procedure for challenging rebuttable presumptions of
control.




Permitted
Activities. The Bank Holding Company
Act has generally prohibited a bank holding company from engaging in activities
other than banking or managing or controlling banks or other permissible
subsidiaries and from acquiring or retaining direct or indirect control of any
company engaged in any activities other than those determined by the Federal
Reserve to be closely related to banking or managing or controlling banks as to
be a proper incident thereto.  Provisions of the Gramm-Leach-Bliley Act
have expanded the permissible activities of a bank holding company that
qualifies as a financial holding company.  Under the regulations
implementing the Gramm-Leach-Bliley Act, a financial holding company may engage
in additional activities that are financial in nature or incidental or
complementary to financial activity.  Those activities include, among
other activities, certain insurance and securities activities.








Page 4 of
50




Support of
Subsidiary Institutions.  Under Federal Reserve policy, we are
expected to act as a source of financial strength for the Bank and to commit
resources to support the Bank.  This support may be required at times
when, without this Federal Reserve policy, we might not be inclined to provide
it.  In addition, any capital loans made by us to the Bank will be
repaid only after its deposits and various other obligations are repaid in
full.  In the unlikely event of our bankruptcy, any commitment by it
to a federal banking regulator to maintain the capital of the Bank will be
assumed by the bankruptcy trustee and entitled to a priority of
payment.




Habersham
Bank




Because
the Bank is a commercial bank chartered under the laws of the State of Georgia,
it is primarily subject to the supervision, examination and reporting
requirements of the FDIC and the GDBF.  The FDIC and the GDBF
regularly examine the Bank’s operations and have the authority to approve or
disapprove mergers, the establishment of branches and similar corporate
actions.  Both regulatory agencies also have the power to prevent the
continuance or development of unsafe or unsound banking practices or other
violations of law.




Because
the Bank’s deposits are insured by the FDIC to the maximum extent provided by
law, it is also subject to certain FDIC regulations.  The Bank is also
subject to numerous state and federal statutes and regulations that affect its
business, activities and operations.




Branching.Under Georgia
law, the Bank may open branch offices throughout Georgia with the prior approval
of its primary bank regulator.  In addition, with prior regulatory
approval, the Bank may acquire branches of existing banks located in
Georgia.  The Bank and any other national or state-chartered bank
generally may branch across state lines by merging with banks in other states if
allowed by the applicable states’ laws.  Georgia law, with limited
exceptions, currently permits branching across state lines through interstate
mergers.




Under the
Federal Deposit Insurance Act, states may “opt-in” and allow out-of-state banks
to branch into their state by establishing a new start-up branch in the
state.  Currently, Georgia has not opted-in to this
provision.  Therefore, interstate merger is the only method through
which a bank located outside of Georgia may branch into Georgia.  This
provides a limited barrier of entry into the Georgia banking market, which
protects us from an important segment of potential
competition.  However, because Georgia has elected not to opt-in, our
ability to establish a new start-up branch in another state may be
limited.  Many states that have elected to opt-in have done so on a
reciprocal basis, meaning that an out-of-state bank may establish a new start-up
branch only if their home state has also elected to
opt-in.  Consequently, until Georgia changes its election, the only
way the Bank will be able to branch into states that have elected to opt-in on a
reciprocal basis will be through interstate merger.




Prompt Corrective
Action.The Federal Deposit Insurance Corporation Improvement
Act of 1991 establishes a system of prompt corrective action to resolve the
problems of undercapitalized financial institutions.  Under this
system, the federal banking regulators have established five capital categories,
well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized, in which all institutions are
placed.  The federal banking regulators have also specified by
regulation the relevant capital levels for each of the other
categories.  As of December 31, 2007, the Bank qualified for the
well-capitalized category.








Page 5 of
50




FDIC Insurance
Assessments.The FDIC has adopted a risk-based assessment system for
insured depository institutions that takes into account the risks attributable
to different categories and concentrations of assets and
liabilities.  The system assesses higher rates on those institutions
that pose greater risks to the Deposit Insurance Fund (the
“DIF”).  The FDIC places each institution in one of four risk
categories using a two-step process based first on capital ratios (the capital
group assignment) and then on other relevant information (the supervisory group
assignment).  Within the lower risk category, Risk Category I, rates
will vary based on each institution’s CAMELS component ratings, certain
financial ratios, and long-term debt issuer ratings.




Capital
group assignments are made quarterly and an institution is assigned to one of
three capital categories: (1) well capitalized; (2) adequately capitalized;
and (3) undercapitalized.  These three categories are substantially
similar to the prompt corrective action categories described above, with the
“undercapitalized” category including institutions that are undercapitalized,
significantly undercapitalized and critically undercapitalized for prompt
corrective action purposes.  The FDIC also assigns an institution to
one of three supervisory subgroups based on a supervisory evaluation that the
institution’s primary federal banking regulator provides to the FDIC and
information that the FDIC determines to be relevant to the institution’s
financial condition and the risk posed to the deposit insurance
funds.  Assessments range from 5 to 43 cents per $100 of deposits,
depending on the institution’s capital group and supervisory
subgroup.  Institutions that are well capitalized will be charged a
rate between 5 and 7 cents per $100 of deposits.




The FDIC
may terminate its insurance of deposits if it finds that the institution has
engaged in unsafe and unsound practices, is in an unsafe or unsound condition to
continue operations, or has violated any applicable law, regulation, rule, order
or condition imposed by the FDIC.




Community
Reinvestment Act.The Community Reinvestment Act requires
that, in connection with examinations of financial institutions within their
respective jurisdictions, the federal bank regulators shall evaluate the record
of each financial institution in meeting the credit needs of its local
community, including low and moderate-income neighborhoods.  These
facts are also considered in evaluating mergers, acquisitions and applications
to open a branch or facility.  Failure to adequately meet these
criteria could impose additional requirements and limitations on the
Bank.  Additionally, the Bank must publicly disclose the terms of
various Community Reinvestment Act-related agreements.




Allowance for
Loan and Lease Losses.The Allowance for Loan and Lease Losses
(the “ALLL”) represents one of the most significant estimates in the Bank’s
financial statements and regulatory reports.  Because of its
significance, the Bank has developed a system by which it develops, maintains
and documents a comprehensive, systematic and consistently applied process for
determining the amounts of the ALLL and the provision for loan and lease
losses.  The Interagency Policy Statement on the Allowance for Loan
and Lease Losses, issued on December 13, 2006, encourages all banks to ensure
controls are in place to consistently determine the ALLL in accordance with
GAAP, the bank’s stated policies and procedures, management’s best judgment and
relevant supervisory guidance.  Consistent with supervisory guidance,
the Bank maintains a prudent and conservative, but not excessive, ALLL, that is
at a level that is appropriate to cover estimated credit losses on individually
evaluated loans determined to be impaired as well as estimated credit losses
inherent in the remainder of the loan and lease portfolio.  The Bank’s
estimate of credit losses reflects consideration of all significant factors that
affect the collectibility of the portfolio as of the evaluation
date.  See “Management’s Discussion and Analysis – Critical Accounting
Policies.”





Page 6 of
50





Commercial Real
Estate Lending.  The Bank’s lending operations may be subject
to enhanced scrutiny by federal banking regulators based on its concentration of
commercial real estate loans.  On December 6, 2006, the federal
banking regulators issued final guidance to remind financial institutions of the
risk posed by commercial real estate (“CRE”) lending
concentrations.  CRE loans generally include land development,
construction loans and loans secured by multifamily property, and nonfarm,
nonresidential real property where the primary source of repayment is derived
from rental income associated with the property.




Other
Regulations.Interest and other charges collected or contracted for by
the Bank are subject to state usury laws and federal laws concerning interest
rates.  The Bank’s loan operations are also subject to federal laws
applicable to credit transactions, such as the:




·
            Truth-In-Lending
      Act, governing disclosures of credit terms to consumer
      borrowers;




·
            Home
      Mortgage Disclosure Act of 1975, requiring financial institutions to
      provide information to enable the public and public officials to determine
      whether a financial institution is fulfilling its obligation to help meet
      the housing needs of the community it
serves;




·
            Equal
      Credit Opportunity Act, prohibiting discrimination on the basis of race,
      creed or other prohibited factors in extending
  credit;




·
            Fair
      Credit Reporting Act of 1978, as amended by the Fair and Accurate Credit
      Transactions Act, governing the use and provision of information to credit
      reporting agencies, certain identify theft protections, and certain credit
      and other disclosures;




·
            Fair
      Debt Collection Act, governing the manner in which consumer debts may be
      collected by collection agencies;




·
            Soldiers’
      and Sailors’ Civil Relief Act of 1940, as amended by the Servicemembers’
      Civil Relief Act, governing the repayment terms of, and property rights
      underlying, secured obligations of persons currently on active duty with
      the United States military;




·
            Talent
      Amendment in the 2007 Defense Authorization Act, establishing a 36% annual
      percentage rate ceiling, which includes a variety of charges including
      late fees, for consumer loans to military service members and their
      dependents; and




·
            rules
      and regulations of the various federal banking regulators charged with the
      responsibility of implementing these federal
  laws.





The
Bank’s deposit operations are subject to federal laws applicable to depository
accounts, such as the:




·
            Truth-In-Savings
      Act, requiring certain disclosures for consumer deposit
      accounts;





·
            Right
      to Financial Privacy Act, which imposes a duty to maintain confidentiality
      of consumer financial records and prescribes procedures for complying with
      administrative subpoenas of financial
records;




·
              Electronic
      Funds Transfer Act and Regulation E issued by the Federal Reserve to
      implement that act, which govern automatic deposits to and withdrawals
      from deposit accounts and customers’ rights and liabilities arising from
      the use of automated teller machines and other electronic banking
      services; and
 
 ·
              rules
      and regulations of the various federal banking regulators charged with the
      responsibility of implementing these federal
  laws.


Page 7 of
50





Capital
Adequacy




The
Company and the Bank are required to comply with the capital adequacy standards
established by the Federal Reserve, in the case of the Company and the FDIC in
the case of the Bank.  The Federal Reserve has established a
risk-based and a leverage measure of capital adequacy for bank holding
companies.  The Bank is also subject to risk-based and leverage
capital requirements adopted by its primary regulator, which are substantially
similar to those adopted by the Federal Reserve for bank holding
companies.




The
risk-based capital standards are designed to make regulatory capital
requirements more sensitive to differences in risk profiles among banks and bank
holding companies, to account for off-balance-sheet exposure, and to minimize
disincentives for holding liquid assets.  Assets and off-balance-sheet
items, such as letters of credit and unfunded loan commitments, are assigned to
broad risk categories, each with appropriate risk weights.  The
resulting capital ratios represent capital as a percentage of total
risk-weighted assets and off-balance-sheet items.




The
minimum guideline for the ratio of total capital to risk-weighted assets is
8%.  Total capital consists of two components; Tier 1 Capital and Tier
2 Capital.  Tier 1 Capital generally consists of common stockholders’
equity, minority interests in the equity accounts of consolidated subsidiaries,
qualifying noncumulative perpetual preferred stock, and a limited amount of
qualifying cumulative perpetual preferred stock, less goodwill and other
specified intangible assets.  Tier 1 Capital must equal at least
4% of risk-weighted assets.  Tier 2 Capital generally consists of
subordinated debt, other preferred stock and hybrid capital, and a limited
amount of loan loss reserves.  The total amount of Tier 2 Capital is
limited to 100% of Tier 1 Capital.  At December 31, 2007 our ratio of
total capital to risk-weighted assets was 12.90% and our ratio of Tier 1 Capital
to risk-weighted assets was 12.37%.




In
addition, the Federal Reserve has established minimum leverage ratio guidelines
for bank holding companies.  These guidelines provide for a minimum
ratio of Tier 1 Capital to average assets, less goodwill and other specified
intangible assets, of 3% for bank holding companies that meet specified
criteria, including having the highest regulatory rating and implementing the
Federal Reserve’s risk-based capital measure for market risk.  All
other bank holding companies generally are required to maintain a leverage ratio
of at least 4%.At
December 31, 2007, our leverage ratio was 9.99%.  The guidelines also
provide that bank holding companies experiencing internal growth or making
acquisitions will be expected to maintain strong capital positions substantially
above the minimum supervisory levels without reliance on intangible
assets.  The Federal Reserve considers the leverage ratio and other
indicators of capital strength in evaluating proposals for expansion or new
activities.




Failure
to meet capital guidelines could subject a bank or bank holding company to a
variety of enforcement remedies, including issuance of a capital directive, the
termination of deposit insurance by the FDIC, a prohibition on accepting
brokered deposits and certain other restrictions on its business.  As
described above, significant additional restrictions can be imposed on
FDIC-insured depository institutions that fail to meet applicable capital
requirements.  See “Habersham Bank – Prompt Corrective Action”
above.




Payment
of Dividends
  The
Company is a legal entity separate and distinct from the Bank.  The
principal source of the Company’s cash flow, including cash flow to pay
dividends to its shareholders, is dividends that the Bank pays to the Company as
its sole shareholder.  Statutory and regulatory limitations apply to
the Bank’s payment of dividends to the Company as well as to the Company’s
payment of dividends to its shareholders.


Page 8 of
50




The Bank
is required to obtain prior approval of the GDBF if the total of all dividends
declared by the Bank in any year will exceed 50% of the Bank’s net income for
the prior year.  The payment of dividends by the Company and the Bank
may also be affected by other factors, such as the requirement to maintain
adequate capital above regulatory guidelines.  In 2008, the Bank will
be able to pay up to $1,975,000 in cash dividends without prior regulatory
approval.




If, in
the opinion of the federal banking regulator, the Bank was engaged in or about
to engage in unsafe or unsound practice, the federal banking regulator could
require, after notice and a hearing, that the Bank stop or refrain from engaging
in the practice it considers unsafe or unsound.  The federal banking
regulators have indicated that paying dividends that deplete a depository
institution’s capital base to an inadequate level would be an unsafe and unsound
banking practice.  Under the Federal Deposit Insurance Corporation
Improvement Act of 1991, a depository institution may not pay any dividend if
payment would cause it to become undercapitalized or if it already is
undercapitalized.  Moreover, the federal banking regulators have
issued policy statements that provide that bank holding companies and insured
banks should generally only pay dividends out of current operating
earnings.




Restrictions
on Transactions with Affiliates




The
Company and the Bank are subject to the provisions of Section 23A of the Federal
Reserve Act.  Section 23A places limits on the amount
of:




·
            a
      bank’s loans or extensions of credit to
  affiliates;




·
            a
      bank’s investment in affiliates;




·
            assets
      a bank may purchase from affiliates, except for real and personal property
      exempted by the Federal Reserve;




·
            loans
      or extensions of credit to third parties collateralized by the securities
      or obligations of affiliates; and




·
            a
      bank’s guarantee, acceptance or letter of credit issued on behalf of an
      affiliate.





The total
amount of the above transactions is limited in amount, as to any one affiliate,
to 10% of a bank’s capital and surplus and, as to all affiliates combined, to
20% of a bank’s capital and surplus.  In addition to the limitation on
the amount of these transactions, each of the above transactions must also meet
specified collateral requirements.  The Bank must also comply with
other provisions designed to avoid the taking of low-quality
assets.




The
Company and the Bank are also subject to the provisions of Section 23B of the
Federal Reserve Act which, among other things, prohibit an institution from
engaging in the above transactions with affiliates unless the transactions are
on terms substantially the same, or at least as favorable to the institution or
its subsidiaries, as those prevailing at the time for comparable transactions
with nonaffiliated companies.




The Bank
is also subject to restrictions on extensions of credit to their executive
officers, directors, principal shareholders and their related
interests.  These extensions of credit (1) must be made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with third parties and
(2) must not involve more than the normal risk of repayment or present
other unfavorable features.




Proposed
Legislation and Regulatory Action
  New
regulations and statutes are regularly proposed that contain wide-ranging
proposals for altering the structures, regulations and competitive relationships
of financial institutions operating and doing business in the United
States.  We cannot predict whether or in what form any proposed
regulation or statute will be adopted or the extent to which our business may be
affected by any new regulation or statute.


Page 9 of
50




Effect
of Governmental Monetary Policies
  The
Bank’s earnings are affected by domestic economic conditions and the monetary
and fiscal policies of the United States government and its
agencies.  The Federal Reserve’s monetary policies have had, and are
likely to continue to have, an important impact on the operating results of
commercial banks through its power to implement national monetary policy in
order, among other things, to curb inflation or combat a
recession.  The monetary policies of the Federal Reserve affect the
levels of bank loans, investments and deposits through its control over the
issuance of United States government securities, its regulation of the discount
rate applicable to member banks and its influence over reserve requirements to
which member banks are subject.  Neither the Company nor the Bank can
predict the nature or impact of future changes in monetary and fiscal
policies.
 
 
 Item
1A.  RISK FACTORS
 
 An
investment in the Company’s common stock involves a high degree of risk.If any
of the following risks or other risks, which have not been identified of which
we may believe are immaterial or unlikely, actually occur, our business,
financial condition and results of operations could be harmed.  In
such a case, the trading price of our common stock could decline, and you may
lose all or part of your investment.  The risks discussed below also
include forward-looking statements, and our actual results may differ
substantially from those discussed in these forward-looking
statements.
 
 Investors
should consider carefully the risks described below and the other information in
this report before deciding to invest in the Company’s common
stock.
  If
the value of real estate in our core market were to decline materially, a
significant portion of our loan portfolio could become under-collateralized,
which could have a material adverse effect on our business, financial condition
and results of operations.
 
 At December 31, 2007,
approximately 89.69% of our loans had real estate as a primary or secondary
component of collateral.  The real estate collateral in each case
provides an alternate source of repayment in the event of default by the
borrower and may deteriorate in value during the time the credit is
extended.  Our market and the U.S. generally are experiencing a period
of reduced real estate values, and if we are required to liquidate the
collateral securing a loan to satisfy the debt during a period of reduced real
estate values, our earnings and capital could be adversely
affected.  With most of our loans secured by commercial and
residential real estate located in northern Georgia, a decline in local economic
conditions could adversely affect the values of our real estate
collateral.  Consequently, a decline in local economic conditions in
northern Georgia may have a greater effect on our earnings and capital than on
the earnings and capital of larger financial institutions whose real estate loan
portfolios are geographically diverse.See the disclosure below under “—An
economic downturn, especially one affecting our market areas, could adversely
affect our financial condition, results of operations, or cash
flows.”
   We
make and hold in our portfolio a significant number of land acquisition and
development, and construction loans, which pose more credit risk than other
types of loans typically made by financial institutions.
  We offer land acquisition and
development and construction loans for builders and developers. As of December
31, 2007, approximately $100.9 million of our loan portfolio represented loans
for which the related property is neither presold nor preleased. These land
acquisition and development and construction loans are considered more risky
than other types of residential mortgage loans. The primary credit risks
associated with land acquisition and development and construction lending are
underwriting, project risks and market risks. Project risks include cost
overruns, borrower credit risk, project completion risk, general contractor
credit risk, and environmental and other hazard risks. Market risks are risks
associated with the sale of the completed residential units. They include
affordability risk, which means the risk of affordability of financing by
borrowers, product design risk, and risks posed by competing projects. There can
be no assurance that losses in our land acquisition and development and
construction loan portfolio will not exceed our reserves, which could adversely
impact our earnings. Given the current environment, we expect that in 2008, the
non-performing loans in our land acquisition and development and construction
portfolio could increase substantially and these non-performing loans could
result in a material level of charge-offs, which will negatively impact our
capital and earnings. See
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations—Loans.”


Page 10 of
50
  Current
and anticipated deterioration in the housing market and the homebuilding
industry may lead to increased losses and further worsening of delinquencies and
non-performing assets in our loan portfolios.  Consequently, our
results of operations may be adversely impacted.
  There has
been substantial industry concern and publicity over asset quality among
financial institutions due in large part to issues related to subprime mortgage
lending, declining real estate values and general economic concerns. As of
December 31, 2007, our non-performing assets had increased significantly to
$29.9 million, or 8.30%, of our loan portfolio plus other real estate owned.
Furthermore, the housing and the residential mortgage markets recently have
experienced a variety of difficulties and changed economic conditions. If market
conditions continue to deteriorate, they may lead to additional valuation
adjustments in our loan portfolios and other real estate owned as we continue to
reassess the market value of our loan portfolio, the losses associated with the
loans in default and the net realizable value of other real estate
owned.
  The
homebuilding industry has experienced a significant and sustained decline in
demand for new homes and an oversupply of new and existing homes available for
sale in various markets, including some of the markets in which we lend. Our
customers who are builders and developers face greater difficulty in selling
their homes in markets where these trends are more pronounced. Consequently, we
are facing increased delinquencies and non-performing assets as these builders
and developers are forced to default on their loans with us. We do not know when
the housing market will improve, and accordingly, additional downgrades,
provisions for loan losses and charge-offs related to our loan portfolio may
occur.  See “Management’s Discussion and Analysis of Financial
Condition and Results of Operations—Nonperforming Assets and Past Due
Loans.”
  An
economic downturn, especially one affecting our market areas, could adversely
affect our financial condition, results of operations or cash
flows.
  Our
success depends upon the growth in population, income levels, deposits and
housing development in our primary market areas.  If the communities
in which we operate do not grow, or if prevailing economic conditions locally or
nationally are unfavorable, our business may not succeed. Unpredictable economic
conditions may have an adverse effect on the quality of our loan portfolio and
our financial performance. Economic recession over a prolonged period or other
economic problems in our market areas could have a material adverse impact on
the quality of the loan portfolio and the demand for our products and
services.  We have already experienced a higher percentage of
non-performing loans to total loans in 2007 than in past years based in part on
general economic conditions in our market areas.Future
adverse changes in the economies in our market areas may have a material adverse
effect on our financial condition, results of operations or cash
flows.  Further, the banking industry in Georgia is affected by
general economic conditions such as inflation, recession, unemployment and other
factors beyond our control.  As a community bank, we are less able to
spread the risk of unfavorable local economic conditions than larger or more
regional banks. Moreover, we cannot give any assurance that we will benefit from
any market growth or favorable economic conditions in our primary market areas
even if they do occur.
  Page 11 of
50
  The
market value of the real estate securing our loans as collateral has been
adversely affected by the slowing economy and unfavorable changes in economic
conditions in our market areas and could be further adversely affected in the
future. As of December 31, 2007, approximately 89.69% of our loans receivable
were secured by real estate. Any sustained period of increased payment
delinquencies, foreclosures or losses caused by the adverse market and economic
conditions, including the downturn in the real estate market, in our markets
will further adversely affect the value of our assets, revenues, results of
operations and financial condition.
  We
could suffer loan losses from a decline in credit quality.
  We could
sustain losses if borrowers, guarantors and related parties fail to perform in
accordance with the terms of their loans.  Our underwriting and credit
monitoring procedures and credit policies, including the establishment and
review of the allowance for loan losses, may not prevent unexpected losses that
could materially adversely affect our results of operations.
  If
our allowance for loan losses is not sufficient to cover actual loan losses, our
earnings could decrease.
  Our
success depends to a significant extent upon the quality of our assets,
particularly loans. In originating loans, there is a substantial likelihood that
credit losses will be experienced. The risk of loss will vary with, among other
things, general economic conditions, the type of loan being made, the
creditworthiness of the borrower over the term of the loan and, in the case of a
collateralized loan, the quality of the collateral for the loan.
 
 Our loan
customers may not repay their loans according to the terms of these loans, and
the collateral securing the payment of these loans may be insufficient to assure
repayment.  We may experience significant loan losses, which could
have a material adverse effect on our operating results.  Management
makes various assumptions and judgments about the collectibility of our loan
portfolio, including the creditworthiness of our borrowers and the value of the
real estate and other assets serving as collateral for the repayment of many of
our loans.  We maintain an allowance for loan losses in an attempt to
cover any loan losses that may occur.  In determining the size of the
allowance, we rely on an analysis of our loan portfolio based on historical loss
experience, volume and types of loans, trends in classifications, volume and
trends in delinquencies and non-accruals, national and local economic conditions
and other pertinent information.
 
 If our
assumptions are wrong, our current allowance may not be sufficient to cover our
loan losses, and adjustments may be necessary to allow for different economic
conditions or adverse developments in our loan portfolio.  Material
additions to our allowance would materially decrease our net
income.  Our allowance for loan losses was $2,136,848, or .61% of
loans, as of December 31, 2007.  We expect to increase our allowance
in 2008, but can make no assurance that our allowance will be adequate to cover
future loan losses given current and future market conditions.
  In
addition, federal and state regulators periodically review our allowance for
loan losses and may require us to increase our provision for loan losses or
recognize future loan charge-offs based on judgments different than those of our
management.  Any increase in our allowance for loan losses or loan
charge-offs as required by these regulatory agencies could have a negative
effect on our operating results.  See “Management’s Discussion and
Analysis of Financial Condition and Results of Operations—Allowance for Loan
Losses.”
   Our
profitability is vulnerable to interest rate fluctuations.
  Our
profitability depends substantially upon our net interest income. Net interest
income is the difference between the interest earned on assets, such as loans
and investment securities, and the interest paid for liabilities, such as
savings and time deposits and out-of-market certificates of
deposit.  Market interest rates for loans, investments and deposits
are highly sensitive to many factors beyond our control.  Recently,
interest rate spreads have generally narrowed due to changing market conditions,
policies of various government and regulatory authorities and competitive
pricing pressures, and we cannot predict whether these rate spreads will narrow
even further.  This narrowing of interest rate spreads could adversely
affect our financial condition and results of operations.
  Page 12 of
50
  At
December 31, 2007 we were in an asset sensitive position, which generally, means
that changes in interest rates affect our interest earned on assets quicker than
our interest paid for liabilities since the rates earned on our assets reset
sooner than rates paid on our liabilities.  Accordingly, we anticipate
that interest rate decreases by the Federal Reserve Bank in the first quarter of
2008 will have a negative affect on our net interest income over the short
termuntil the
interest rates paid on our liabilities reset.
  In
addition, we cannot predict whether interest rates will continue to remain at
present levels.  Changes in interest rates may cause significant
changes, up or down, in our net interest income. Depending on our portfolio of
loans and investments, our results of operations may be adversely affected by
changes in interest rates. See “Management’s Discussion and Analysis of
Financial Condition and Results of Operations—Interest Rate
Sensitivity.”
  
 Even
though our common stock is currently traded on the Nasdaq Global Market, it has
substantially less liquidity than the average stock quoted on a national
securities exchange.
 
 The
trading volume in our common stock on the Nasdaq Global Market is relatively low
when compared with larger companies listed on the Nasdaq Global Market or stock
exchanges.  We cannot say with any certainty that a more active and
liquid trading market for our common stock will develop.  Because of
this, it may be more difficult for you to sell a substantial number of shares
for the same price at which you could sell a smaller number of shares, and you
may not be able to sell your shares at all.
 
 We cannot
predict the effect, if any, that future sales of our common stock in the market,
or the availability of shares of common stock for sale in the market, will have
on the market price of our common stock.  As a result, sales of
substantial amounts of our common stock in the market, or the potential for such
sales, could cause the price of our common stock to decline or impair our future
ability to raise capital through sales of our common stock.
  Our
operations may require us to raise additional capital in the future, but that
capital may not be available when it is needed, which could adversely affect our
financial condition and results of operations.
  We are
required by federal and state regulatory authorities to maintain adequate levels
of capital to support our operations. We anticipate that our current capital
resources will satisfy our capital requirements for the foreseeable future. We
may at some point, however, need to raise additional capital to support our
continued growth.
  Our
ability to raise additional capital, if needed, will depend on conditions in the
capital markets at that time, which are outside our control, and on our
financial performance.  Accordingly, we cannot assure you of our
ability to raise additional capital, if needed, on terms acceptable to
us.  If we cannot raise additional capital when needed, our ability to
further expand our operations could be materially impaired.
   Competition
from other financial institutions may adversely affect our
profitability.
  The
banking business is highly competitive, and we experience strong competition
from many other financial institutions. We compete with commercial banks, credit
unions, savings and loan associations, mortgage banking firms, consumer finance
companies, securities brokerage firms, insurance companies, money market funds
and other financial institutions, which operate in our primary market areas and
elsewhere.  Our market areas are served principally by community and
regional banks.
  Page 13 of
50
  We
compete with these institutions both in attracting deposits and in making
loans.  In addition, we have to attract our customer base from other
existing financial institutions and from new residents.  Many of our
competitors are well-established and much larger financial
institutions.  We may face a competitive disadvantage as a result of
our smaller size and lack of geographic diversification, and we have no
assurance that our competitive strategy will be successful.
   Our
business strategy includes the continuation of growth plans, and our financial
condition and results of operations could be negatively affected if we fail to
grow or fail to manage our growth effectively.
  We intend
to continue pursuing a growth strategy for our business.  Our ability
to grow successfully will depend on a variety of factors, including the
continued availability of desirable business opportunities, the competitive
responses from other financial institutions in our market areas and our ability
to manage our growth.  Our prospects must be considered in light of
the risks, expenses and difficulties frequently encountered by companies in
growth stages of development. We cannot assure you we will be able to expand our
market presence in our existing markets or successfully enter new markets or
that any such expansion will not adversely affect our results of
operations.  Failure to manage our growth effectively could have a
material adverse effect on our business, financial condition, results of
operations, or future prospects, and could adversely affect our ability to
successfully implement our business strategy.  Also, if our growth
occurs more slowly than anticipated or declines, our results of operations could
be materially adversely affected.
   Our
plans for future expansion depend, in some instances, on factors beyond our
control, and an unsuccessful attempt to achieve growth could have a material
adverse effect on our business, financial condition, results of operations and
future prospects.
  We may
engage in new branch expansion in the future.  We may also seek to
acquire other financial institutions, or parts of those institutions, though we
have no present plans in that regard.  Expansion involves a number of
risks, including:
  •
              the
      time and costs of evaluating new markets, hiring experienced local
      management and opening new offices;
  •
              the
      time lags between these activities and the generation of sufficient assets
      and deposits to support the costs of the
  expansion;
  •
              we
      may not be able to finance an acquisition without diluting the interests
      of our existing shareholders;
  •
              the
      diversion of our management’s attention to the negotiation of a
      transaction may detract from their business
  productivity;
  •
              we
      may enter into new markets where we lack experience;
  and
  §
              we
      may introduce new products and services with which we have no prior
      experience into our business.
   If
we fail to retain our key employees, our growth and profitability could be
adversely affected.
  Our
success is, and is expected to remain, highly dependent on our executive
management team of Habersham Bank, consisting of our Chief Executive Officer,
David Stovall, and our President, Edward D. Ariail.  This is
particularly true because, as a community bank, we depend on our management
team’s ties to the community to generate business for us. Our operations will
continue to place significant demands on our management, and the loss of any
such person’s services may have an adverse effect upon our growth and
profitability.
  Page 14 of
50
  Our
directors and executive officers own a significant portion of our common stock
and can influence stockholder decisions.
  Our
directors and executive officers, as a group, beneficially owned approximately
46.3% of our fully diluted outstanding common stock as of December 31,
2007.  As a result of their ownership, the directors and executive
officers will have the ability, if they voted their shares in concert, to
influence the outcome of all matters submitted to our shareholders for approval,
including the election of directors.
   We
are subject to extensive policies and regulations that could limit or restrict
our activities and impose financial requirements or limitations on the conduct
of our business, which limitations or restrictions could adversely affect our
profitability.
  As a bank
holding company, we are primarily regulated by the Board of Governors of the
Federal Reserve System (“Federal Reserve Board”).  Our subsidiary bank
is primarily regulated by the Federal Deposit Insurance Corporation (the “FDIC”)
and the Georgia Department of Banking and Finance. Our compliance with the
Federal Reserve Board, FDIC and Department of Banking and Finance regulations is
costly and may limit our growth and restrict certain of our activities,
including payment of dividends, mergers and acquisitions, investments, loans and
interest rates charged, interest rates paid on deposits and locations of
offices. We are also subject to capital requirements of our
regulators.
  Our
financial condition and results of operations are also affected by credit
policies of monetary authorities, particularly the Federal Reserve
Board.  Actions by monetary and fiscal authorities could have an
adverse effect on our deposit levels, loan demand or business and
earnings.
  The
policies, laws and regulations applicable to the banking industry could change
at any time, and we cannot predict the effects of these changes on our business
and profitability.  Because government policy and regulation greatly
affects the business and financial results of all commercial banks and bank
holding companies, our cost of compliance could adversely affect our ability to
operate profitably.
   As
a community bank, we have different lending risks than larger
banks.
  We
provide services to our local communities.  Our ability to diversify
our economic risks is limited by our own local markets and
economies.  We lend primarily to small to medium-sized businesses,
and, to a lesser extent, individuals which may expose us to greater lending
risks than those of banks lending to larger, better-capitalized businesses with
longer operating histories.
  We manage
our credit exposure through careful monitoring of loan applicants and loan
concentrations in particular industries, and through loan approval and review
procedures. We have established an evaluation process designed to determine the
adequacy of our allowance for loan losses.  The classification of
loans and the establishment of the allowance for loan losses is an estimate
based on experience, judgment and expectations regarding our borrowers, the
economies in which we and our borrowers operate, as well as the judgment of our
regulators. We cannot be certain that our loan loss reserves will be sufficient
to absorb future loan losses or prevent a material adverse effect on our
business, financial condition, or results of operations.  See “--If
our allowance for loan losses is not sufficient to cover actual loan losses, our
earnings could decrease” and “Management’s Discussion and Analysis of Financial
Condition and Results of Operations—Allowance for Loan Losses.”
  Page 15 of
50
  Our
recent results may not be indicative of our future results, and may not provide
guidance to assess the risk of an investment in our common stock.
  We may
not be able to sustain our historical rate of growth or may not even be able to
grow our business at all.  In the future, we may not have the benefit
of several favorable factors, such as a generally increasing interest rate
environment, a strong residential mortgage market or the ability to find
suitable expansion opportunities. Various factors, such as economic conditions,
regulatory and legislative considerations and competition, may also impede or
prohibit our ability to expand our market presence.  If we experience
a significant decrease in our historical rate of growth, our results of
operations and financial condition may be adversely affected due to a high
percentage of our operating costs being fixed expenses.
   Natural
disasters could negatively affect our local economies or disrupt our operations,
which could have an adverse effect on our business or results of
operations.
  The
economy of northern Georgia is affected, from time to time, by tornadoes and
other natural disasters.  We cannot predict whether, or to what
extent, damage caused by these events will affect our operations, our customers
or the economies in our banking markets.  However, weather events
could cause a decline in loan originations, destruction or decline in the value
of properties securing our loans, or an increase in the risks of delinquencies,
foreclosures and loan losses.
   Item
1B.  UNRESOLVED STAFF COMMENTS
  None
 
 Item
2.  PROPERTIES
 
 The
Company's principal office (as well as that of Advantage Insurers, Inc.)is
located at Habersham Bank's Central Habersham office, 282 Historic Highway 441,
Cornelia, Georgia.  The telephone number of that office is (706)
778-1000.
 
 Habersham
Bank's North Habersham (main) office is located at 1151 Washington Street,
Clarkesville, Georgia.  The telephone number of that office is (706)
778-1000.  Habersham Bank also has twelve full-service branch
offices.   Its Central Habersham office is located at 282
Historic Highway 441, Cornelia, Georgia; its South Habersham office is located
at 186 441 By-Pass, Baldwin, Georgia; its Cleveland Office is located at 575
South Main Street, Cleveland, Georgia; its Canton Office is located at 1925
Marietta Highway, Canton, Georgia; its Hickory Flat Office is located at 6782
Hickory Flat Highway, Canton, Georgia; its Warrenton Office is located at 189
Legion Drive, Warrenton, Georgia; its Braselton Office is located at 6322 Grand
Hickory Drive, Braselton, Georgia; its Toccoa Office is located at 27 North Big
A Road; its Eastanollee Office is located at 370 Wal-Mart Way, Eastanollee,
Georgia; its Cumming Office is located at 2740 Nuckolls Road, Cumming, Georgia
and its Flowery Branch Office is located at 6360 Sprout Springs Road, Flowery
Branch, Georgia.  Each office has a 24-hour teller
machine.  Habersham Bank owns its office properties without
encumbrance, with the exception of the Flowery Branch Office, which is
leased.
 
 
 Item
3.  LEGAL PROCEEDINGS
 
 The
Company is not a party to, nor is any of its property the subject of, any
material pending legal proceedings, other than ordinary routine litigation
incidental to its business, and no such proceedings are known to be contemplated
by governmental authorities.
 
 Item
4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
 None.


Page 16 of
50




PART
II
 Item
5.  MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
 
 The
common stock of Habersham Bancorp is traded on the Nasdaq Global Market
("Nasdaq") under the symbol HABC.  At December 31, 2007 Habersham
Bancorp had approximately 501 shareholders of record.  The following
table sets forth the high and low sale prices and the cash dividends paid on the
Company's common stock on a quarterly basis for the past two fiscal years and a
portion of the first quarter of 2007.




2007
            
            High
            
            
            Low
            
            
            DividendsFirst
      quarter(through
      March 13, 2008)
            
            $
            15.62
            
            
            $
            13.08
            
            
            $
            .102007:
            
            High
            
            
            Low
            
            
            DividendFourth
      Quarter
            
            $
            17.01
            
            
            $
            12.82
            
            
            $
            .60Third
      Quarter
            
            
            20.00
            
            
            
            15.65
            
            
            
            .10Second
      Quarter
            
            
            23.97
            
            
            
            19.58
            
            
            
            .10First
      Quarter
            
            
            24.50
            
            
            
            22.00
            
            
            
            .102006:
            
            High
            
            
            Low
            
            
            DividendFourth
      Quarter
            
            $
            25.00
            
            
            $
            24.00
            
            
            $
            .09Third
      Quarter
            
            
            25.05
            
            
            
            24.00
            
            
            
            .09Second
      Quarter
            
            
            25.50
            
            
            
            22.05
            
            
            
            .09First
      Quarter
            
            
            25.50
            
            
            
            21.91
            
            
            
            .09





Cashdividendson Habersham Bank’s common
stock may bedeclaredand paid only out of its
retained earnings, and dividends may not be distributed atanytime when the Bank’s paid-in
capital and appropriated earnings do not, in combinations, equal at least 20% of
its capital stock account.  In addition, the GDBF’s rules and
regulations require prior approval before cash dividends may be declared and
paid if: (i) the Bank’s ratio of equity capital to adjusted total assets is less
than 6%; (ii) the aggregate amount of dividends declared or anticipated to be
declared in that calendaryearexceeds50% of theBank’snet earnings, after taxes but before
dividends,for
the previous calendar year, or (iii) the percentage of
the Bank’s loans classified as adverse as to repayment or recovery by the GDBF
at the most recent examination of the Bank exceeds 80% of the Bank’s equity as
reflected at such examination.  As ofDecember 31,
2007the Bank
could declare dividends to the Company up to approximately $1,975,000 without
regulatory approval.
  The
following table sets forth information regarding the Company's purchases of its
common stock on a monthly basis during the fourth quarter of 2007.
 
 Period
              
              Total
      Number of Shares Purchased
              
              Average
      Price Paid Per Share
              
              Total
      Number of Shares (or Units) Purchased as Part of Publicly Announced Plans
      or Programs 1
              
              Maximum
      Number (or Appropriate Dollar Value) of Shares (or Units) that May Yet Be
      Purchased Under the Plans or ProgramsOctober
      1 through October 31, 2007
              
              150,000
              
              14.60
              
              150,000
              
              0November
      1 through November 30, 2007
              
              0
              
              0
              
              0
              
              0December
      1 through December 31, 2007
              
              0
              
              0
              
              0
              
              0Total
              
              150,000
              
              14.60
              
              150,000
              
              0


Page 17 of
50




(1)
              During
      the third quarter of 2007, the Habersham Bancorp Board of
      Directors approved a program to repurchase up to 150,000 shares
      of the company’s outstanding common stock. The
      Company repurchased all of the 150,000 shares in October of 2007 through a
      privately negotiated
transaction.
  The
Company did not issue any of its equity securities without registration under
the Securities Act of 1933, as amended, during 2007.
 
 See Item
12—Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters” for a table presenting information on equity securities
subject to future issuance under the Company’s equity compensation
plans.
 
 PERFORMANCE
GRAPH
 
 The
Performance Graph below compares the yearly percentage change in the cumulative
total shareholder return on our common stock to the cumulative total return on
the Nasdaq Stock Market (U.S.) Index and the Nasdaq Bank Stock Index from
December 31, 2002 through the last trading day of each succeeding fiscal year
through December 31, 2007.  The Performance Graph assumes reinvestment
of dividends, where applicable. The information in this graph is “furnished” and
not “filed” for purposes of liability under Section 18 of the Securities
Exchange Act of 1934, as amended.
 
 Graph
  
  Page 18 of
50




Item
6.  SELECTED FINANCIAL DATA





SELECTED
FINANCIAL DATA


(In
thousands, except share and per share data)





For
      the years ended December 312007
            
            
            2006
            
            
            2005
            
            
            2004
            
            
            2003SUMMARY
      OF OPERATIONSInterest
      income
            
            $
            36,376
            
            
            $
            34,460
            
            
            $
            25,936
            
            
            $
            20,743
            
            
            $
            22,593Interest
      expense
            
            
            16,847
            
            
            
            13,218
            
            
            
            8,600
            
            
            
            6,791
            
            
            
            8,122Provision
      for loan losses
            
            
            675
            
            
            
            -
            
            
            
            330
            
            
            
            483
            
            
            
            950Other
      income
            
            
            3,779
            
            
            
            3,656
            
            
            
            3,448
            
            
            
            4,431
            
            
            
            3,490Other
      expense
            
            
            18,672
            
            
            
            17,194
            
            
            
            14,991
            
            
            
            14,777
            
            
            
            14,000Net
      earnings
            
            
            2,939
            
            
            
            5,293
            
            
            
            3,813
            
            
            
            2,343
            
            
            
            2,296PER
      SHARE AMOUNTSNet
      earnings per common share–diluted
            
            $
            1.00
            
            
            $
            1.77
            
            
            $
            1.30
            
            
            $
            .80
            
            
            
            .79Dividends
            
            $
            .90
            
            
            $
            .36
            
            
            $
            .32
            
            
            $
            1.28
            
            
            $
            1.18Weighted
      average number of common and common equivalent shares
      outstanding
            
            
            2,952,528
            
            
            
            2,983,048
            
            
            
            2,938,698
            
            
            
            2,939,951
            
            
            
            2,895,113AT
      DECEMBER 31Total
      assets
            
            $
            514,219
            
            
            $
            555,738
            
            
            $
            478,431
            
            
            $
            385,933
            
            
            $
            374,978Earning
      assets
            
            
            450,294
            
            
            
            502,035
            
            
            
            435,091
            
            
            
            355,093
            
            
            
            342,664Loans,
      net
            
            
            348,251
            
            
            
            342,816
            
            
            
            316,773
            
            
            
            277,137
            
            
            
            261,818Deposits
            
            
            390,267
            
            
            
            450,629
            
            
            
            372,762
            
            
            
            292,957
            
            
            
            279,600Long-term
      debt
            
            
            38,000
            
            
            
            38,000
            
            
            
            42,300
            
            
            
            36,000
            
            
            
            30,000Stockholders’
      equity
            
            
            54,182
            
            
            
            55,564
            
            
            
            50,257
            
            
            
            48,006
            
            
            
            49,229RATIOSReturn
      on average assets
            
            
            .59
            %
            
            
            1.13
            %
            
            
            .91
            %
            
            
            .62
            %
            
            
            .58
            %Return
      on average equity
            
            
            5.23
            %
            
            
            10.06
            %
            
            
            7.76
            %
            
            
            4.86
            %
            
            
            4.44
            %Dividend
      payout ratio
            
            
            90.00
            %
            
            
            20.03
            %
            
            
            24.63
            %
            
            
            160.00
            %
            
            
            149.37
            %Average
      equity to average assets ratio
            
            
            11.24
            %
            
            
            11.25
            %
            
            
            11.77
            %
            
            
            12.66
            %
            
            
            13.24
            %








Item
7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS








ORGANIZATION





Habersham
Bancorp (the “Company”) owns all of the outstanding stock of Habersham Bank
("Habersham Bank") and The Advantage Group, Inc.  Habersham Bank owns
all of the outstanding stock of Advantage Insurers, Inc. (“Advantage Insurers”).
Advantage Insurers offers a full line of property, casualty and life insurance
products. The Advantage Group, Inc. and Advantage Insurers do not comprise a
significant portion of the financial position, results of operations, or cash
flows of the Company and as a result management’s discussion and analysis, which
follows relates primarily to Habersham Bank.





The
Company’s continuing primary business is the operation of banks in rural and
suburban communities in Habersham, White, Cherokee, Warren, Gwinnett, Stephens,
Forsyth and Hall counties in Georgia.  The Company’s primary source of
revenue is interest income on loans to businesses and individuals in its market
area.




EXECUTIVE
SUMMARY
 
 The
Company’s primary source of income is interest income from loans and investment
securities.  Its profitability depends largely on net interest income,
which is the difference between the interest received on interest-earning assets
and the interest paid on deposits, borrowings and other interest-bearing
liabilities.


Page 19 of
50




Year
Ended December 31, 2007





Year-to-date
net earnings for the year ended December 31, 2007 was $2.9 million or $1.00 per
diluted share, a decrease of 44.5 % when compared to $5.3 million or $1.77 per
diluted share for the year ended December 31, 2006.   The
decrease was attributable primarily to an increase in nonaccrual loans, which
reduced interest income and increased expenses related to the provision for loan
losses.  During 2007, nonaccrual loans increased by $17.8 million, or
3549.1%, and net interest income decreased by $1.7 million, or approximately
8.1%.  The increase in nonaccrual loans resulted principally from a
decline in the 1-4 family real estate market in both construction lending and
new mortgages.  To maintain an adequate allowance for loan losses, the
Company increased the provision for loan losses to $675,225 during
2007.  In addition, increases in interest costs outpaced increases in
interest earned as variable rate interest loans repriced at lower interest rates
more quickly than the rates paid on deposit balances as each responded to
decreases in the interest rates set by the Federal Reserve
Bank.  Increases in noninterest expense, which includes salaries and
employee benefits, occupancy expenses, computer expenses, telephone expense,
etc. of approximately $1.5 million resulted primarily from the staffing and
operation of the Cumming office, which began operation in January
2007.





Total
assets of $514.2 million at December 31, 2007 reflects a decrease of $41.5
million from $555.7 million at December 31, 2006.  The decrease is due
primarily to decreases in cash and cash equivalents and short-term investments
in federal funds sold.  The federal funds sold balance increased
temporarily as a result of a $78.5 million increase in deposit balances at
December 31, 2006 that was paid out during January 2007.  Increases in
other real estate, the loan portfolio, investment securities and premises and
equipment totaled approximately $11.0 million (2037.3%), $5.4 million (1.6%),
$4.3 million (4.9%) and $3.2 million (24.4%), respectively, for
2007.  The increase in other real estate properties resulted primarily
from foreclosures of construction loans secured by 1-4 family properties located
in the metro Atlanta area and surrounding counties.  The net increase
in the loan portfolio resulted primarily from activity within the commercial
lending portfolio, which increased $4.6 million.





Expansion
efforts for 2007 resulted in the purchase of properties in Hall and Warren
counties for new office locations.  The Warrenton office was moved
from a downtown location to a new site to improve operational
efficiency.  Construction on the Hall County Flowery Branch office
began in 2007 with an estimated completion date during the fourth quarter of
2008.  Also, a temporary branch office was opened in the Flowery
Branch area during November 2007 in order to provide service during the
construction phase of the new building.





A
decrease in total shareholders’ equity of approximately $1.4 million resulted
from a stock repurchase program and dividends paid during 2007 of approximately
$2.2 million and $2.6 million, respectively, offset by year-to-date earnings of
approximately $2.9 million.   The Company repurchased 150,000
shares under the repurchase program in October 2007 and paid an additional $.50
per share dividend during December 2007.





Year
Ended December 31, 2006





Net
earnings for 2006 were $5,292,909, representing an increase of 38.80% from
2005.  Diluted earnings per share were $1.77, up $.47 per share from
2005, and return on average equity was 10.06% as compared to 7.76% for
2005.  Year-to-date net earnings reflect the increase in net interest
income of approximately $3.9 million when compared to net earnings of
2005.








Page 20 of
50




The
variable rate loan portfolio increased during 2006 by approximately $18.8
million which allows for quicker response to increases in the prime interest
lending rate than the deposit portfolio.  The majority of the variable
rate loan portfolio is a daily adjustable rate product tied to the prime rate
and can adjust immediately to prime rate increases while interest bearing
deposits are primarily adjusted at maturity.  Maintaining a profitable
net interest margin (net interest income divided by average earning assets)
continued to be the focus of management during 2006.





Total
assets of $556 million at December 31, 2006, reflected an increase of $77.3
million or 16.16% from $478 million at December 31, 2005.  Management
reported that the increase was due primarily due to excess cash from a short
term deposit made at year-end invested in federal funds sold and in cash and due
from banks, loan growth in the Cherokee County and Gwinnett County markets,
purchases of investment securities and investment in premises and equipment of
approximately $37.7 million, $25.5 million, and $11.8 million and $2.4 million,
respectively.





Management
has developed strategies for asset growth and expansion of its financial
services into selective growth markets in North Georgia.  During 2006,
Habersham Bank expanded its services into Forsyth County with the operation of a
Loan Production Office while a new branch building was under
construction.  The new building was officially opened for business in
January 2007.





The
following discussion sets forth the major factors that affect the Company's
results of operations and financial condition.  These comments should
be read in conjunction with the consolidated financial statements and related
notes.





This
discussion contains forward-looking statements involving risks and
uncertainties.  Results may differ significantly from those discussed
in the forward-looking statements.  Factors that might cause such a
difference include, but are not limited to, risks involving the potential
adverse effect of unexpected changes in interest rates and the current interest
rate environment, difficulties in expanding into new market areas, loan losses
and the adequacy of the Company’s loan loss allowance, changes in regulation and
legislation, competition and other risks identified in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2007 and its other filings
with the Securities and Exchange Commission.








CRITICAL ACCOUNTING
ESTIMATES





In
reviewing and understanding financial information for the Company, you are
encouraged to read and understand the significant accounting policies which are
used in preparing the consolidated financial statements of the
Company.  These policies are described in Note 2 to the consolidated
financial statements which are presented elsewhere in this annual
report.  Of these policies, management believes that the accounting
for the allowance for loan losses is the most critical.  This is
because of the subjective nature of the estimates used in establishing the
allowance and the effect these estimates have on the Company’s
earnings.  Because the allowance is replenished by means of a
provision for loan losses that is charged as an expense against net earnings,
the estimation of the allowance affects the Company’s earnings
directly.  Losses on loans result from a broad range of causes, from
borrower-specific problems to industry issues to the impact of the economic
environment.  The identification of the factors that lead to default
or non-performance under a loan agreement and the estimation of loss in these
situations is very subjective.  In addition, a dramatic change in the
performance of one or a small number of borrowers can have a significant impact
on the estimate of losses.  As described further below, under
“Allowance for Loan Losses”, management has implemented a process that has been
applied consistently to systematically consider the many variables that impact
the estimation of the allowance for loan losses.








Page 21 of
50




The
commercial and residential real estate loan portfolio is split out into
construction, land development and other land loans, loans secured by 1-4 family
residential properties, and commercial properties totaling approximately $175.9
million, $76.4 million and $62.0 million, respectively. The construction, land
development and other land loan portfolios have been the hardest hit by the
downturn in the economy resulting in increases in nonperforming
assets.  While there is a risk that the value of the 1-4 family real
estate residential mortgages securing these loans in the portfolio could
decrease during an economic recession, these loans are generally not as affected
by downturns in the economy.  Habersham Bank held concentrations of
loans to customers, which totaled 100% or more of Tier 1 Capital in land and
subdivision development and real estate lessors (amortized non-owner occupied)
at December 31, 2007 and 2006.  See “Loans.”





The
Company will, from time to time, make unsecured loans.  The risk to
the Company is greater for unsecured loans as the ultimate repayment of the loan
is only dependent on the borrower’s ability to pay.  The balance of
unsecured loans at December 31, 2007 was $11.9 million.





Refer
to the section entitled “Allowance for Loan Losses” for an additional discussion
of the key assumptions and methods used in determining the allowance for loan
losses, as well as inherent risks in estimating the allowance.





RESULTS
OF OPERATIONS





Habersham
Bancorp’s net earnings were $2,939,357, $5,292,909 and $3,813,471, for the years
ended December 31, 2007, 2006 and 2005, respectively, with related diluted
earnings per common and common equivalent share of, $1.00, $1.77 and $1.30
respectively, representing a decrease of 44.50% from 2006 to 2007 and an
increase of 36.15% from 2005 to 2006.





Net
earnings represents a return on average equity of 5.23%, 10.06% and 7.76% in
2007, 2006 and 2005, respectively.





The
decrease in net earnings for the year ended December 31, 2007, when compared to
the year ended December 31, 2006, was primarily due to decreases in net interest
income of approximately $1.7 million or 8.07% and in increases in noninterest
expense of approximately $1.5 million or 8.6% and in the provision for loan
losses of $675,225. The provision for loan loss was increased in order to
maintain an adequate allowance for loan losses.  Interest income was
net of the loss of interest income of approximately $616,000 on nonaccrual loans
during 2007.  Increases in noninterest expense are primarily
attributable to increases in salaries and employee benefits, occupancy expenses,
computer services and in other expenses of approximately $764,000, $192,000,
$79,000 and $435,000, respectively.  The noninterest expense increases
related to the staffing and operation of the Cumming Office, which began
operation in January 2007.





The
increase in net earnings for the year ended December 31, 2006, when compared to
the year ended December 31, 2005, was primarily due to the increase in net
interest income of approximately $3.9 million.  Noninterest income for
2006 increased approximately $208,000, or 6.03% when compared to 2005, primarily
due to increases in service charges on deposit accounts totaling approximately
$200,000.  Noninterest expense increased approximately $2.2 million,
or 14.69% when compared to 2005.  This increase is attributable to
increases in salaries and employee benefits, occupancy expense, computer
services, and other expense totaling approximately $1.3 million, $279,000,
$94,000 and $527,000, respectively.





Page 22 of
50





NET
INTEREST INCOME





Net
interest income is the largest single source of income for the
Company.  Management strives to attain a level of earning asset growth
while providing a net yield on earning assets that will cover overhead and other
costs and provide a reasonable return to our stockholders.





2007
            
            
            2006
            
            
            2005Net
      interest income
            
            $
            19,528,634
            
            
            $
            21,242,379
            
            
            $
            17,335,931








Net
interest income for 2007 decreased approximately $1.7 million or 8.07% when
compared to 2006, which had increased approximately $3,906,000, or 22.53%, when
compared to 2005.  Net interest income is affected by interest income
from loans, investment securities and federal funds sold offset by interest paid
on deposits and borrowings.  The following table compares the weighted
average tax equivalent yields for loans, investment securities and federal funds
sold and the weighted average rates for deposits and borrowings for 2007, 2006
and 2005.





2007
            
            
            2006
            
            
            2005Interest
      yields earned:
            
            Yields
            
            
            Yields
            
            
            YieldsLoans
            
            
            8.91
            %
            
            
            9.01
            %
            
            
            7.52
            %Investment
      securities
            
            
            5.32
            %
            
            
            5.08
            %
            
            
            4.67
            %Federal
      funds sold
            
            
            4.93
            %
            
            
            4.89
            %
            
            
            2.86
            %Loans
      held for sale
            
            
            5.58
            %
            
            
            4.72
            %
            
            
            3.15
            %Interest
      rates paid:
            
            Rates
            
            
            Rates
            
            
            RatesDeposits
            
            
            4.15
            %
            
            
            3.54
            %
            
            
            2.46
            %Borrowings
            
            
            5.00
            %
            
            
            4.71
            %
            
            
            4.52
            %





Yields
and rates reflect adjustments in pricing as the Federal Reserve moves the prime
interest rate.





During
2007, average balances in Habersham Bank’s interest earning assets increased
approximately $23.8 million or 5.49% in the aggregate.  During the
same time period, average balances in interest bearing liabilities increased
approximately $36.4 million or 10.16% during 2007.





During
2007, interest income increased approximately $1.9 million when compared to
2006.  Increases in interest income resulting from the loan portfolio
and investment securities totaling approximately $1.7 million and $343,000,
respectively, were offset by decreases in federal funds sold income of
approximately $170,000.  Interest income from loans was net of
interest losses on nonaccrual loans totaling approximately $616,000 during
2007.  Loan yields also decreased by .10% when comparing yields for
2007 to yields for 2006.





During
2006, interest income increased approximately $8.5 million, or 32.86%, when
compared to 2005.  Increases in interest income resulted from interest
on loans, investment securities and federal funds sold totaling approximately
$7,506,000, $753,000 and $265,000, respectively.  The increase in
interest income from loans resulted primarily from the increase in average
balances in Habersham Bank’s loan portfolio during 2006. Loan production in
commercial and residential real estate secured loans during 2006 created an
increase in loan balances of approximately $23 million during 2006. Increases in
the prime lending rate during the first six months of 2006 from 7.25% at
December 31, 2005 to 8.25% at June 30, 2006 also positively affected interest
income as variable rate loans in Habersham Bank’s loan portfolio repriced in
response to the prime rate changes.





Page 23 of
50





Interest
expense for 2007 increased approximately $3.6 million, or 27.46% when compared
to 2006.  Interest expense for deposits and borrowings increased
approximately $3.1 million and $557,000, respectively.  Increases in
the average balances of time deposits of approximately $30.1 million were offset
by decreases in average balances in the interest bearing demand and savings
deposits totaling approximately $1.2 million and $1.0 million, respectively.
Increases in average short-term and other borrowings balances of approximately
$8.5 million primarily resulted from an increase in securities sold under
repurchase agreements.





Interest
expense for 2006 increased approximately $4.6 million, or 53.69%, when compared
to 2005, primarily as a result of increases of approximately $52.7 million in
the average balances of the interest bearing deposit portfolios at Habersham
Bank, offset by decreases of approximately $3.4 million in other
borrowings.  During 2006, average balances in time deposit accounts,
interest bearing demand deposit accounts and in savings accounts increased
approximately $21.2 million, $17.1 million and $14.4 million, respectively, when
compared to average balances in the same portfolios in 2005.





The
tax equivalent net interest margin of the Company was 4.41% in 2007, 5.03% in
2006 and 4.61% in 2005.  The net interest margin of the Company
decreased due to decreases in loan yields, increases in deposit and short-term
borrowing rates and the loss of interest on nonaccrual loans.







CONSOLIDATED
AVERAGE BALANCES, INTEREST INCOME AND EXPENSE, AND AVERAGE YIELDS EARNED AND
RATES PAID







Average
balances in the total loan portfolio increased approximately $22.9 million, or
6.91% at December 31, 2007 from 2006 average balances.  The total loan
portfolio increased approximately $4.1 million during 2007.





Increases
in the commercial and real estate secured lending portfolios totaled
approximately $4.7 million and $336,000, respectively, offset by a decrease in
the consumer lending portfolio of approximately $872,000.  The real
estate secured lending portfolio increase is net of approximately $11.0 million
of foreclosures of construction loans secured by 1-4 family residential
properties as a result of the decline in the real estate market for both
construction lending and acquisition and development of residential
properties.





Average
balances in the total loan portfolio increased approximately $33.8
million, or 11.36%, at December 31, 2006 from 2005 average
balances.  The total loan portfolios increased approximately $25.5
million, or 7.95%, when comparing December 31, 2006 to December 31,
2005.  Increases in the lending portfolio of commercial and
residential real estate and in the consumer lending portfolio totaled
approximately $23.4 million and $2.7 million, respectively.  These
increases were offset by a decrease in the commercial lending portfolio of
approximately $649,000. Increased activity within the commercial and residential
construction portfolio resulted in an increase of approximately $31.9 million
offset by a decrease in the remaining real estate secured portfolio of
approximately $8.5 million.





Average
balances of investment securities increased approximately $4.3 million, or
4.72%, from year-end 2006 to 2007.  Purchases of investment securities
totaled approximately $14.9 million during 2007 offset by maturities, sales and
calls of investment securities of approximately $7.2 million and $4.1 million,
respectively. Purchases of U.S. government-sponsored enterprises and tax-exempt
state and political subdivisions securities totaled approximately $8.9 million
and $5.9 million, respectively.








Page 24 of
50




Average
balances in the total deposit portfolio increased approximately $18.9 million,
or 5.18% during 2007.  Average account balances in time deposits
increased approximately $30.1 million.  Decreases in account balances
in noninterest bearing accounts, interest bearing demand deposits and in savings
totaled approximately $9.0 million, $1.2 million and $1.0 million, respectively.
Deposit balances moved from lower interest rates in money market and savings
accounts to higher yields in time deposit accounts.





The
average balances in the total deposit portfolio increased approximately $48.6
million during 2006. Interest bearing account balances of time deposits,
interest bearing demand deposits and savings deposits increased approximately
$21.2 million, $17.1 million and $14.4 million, respectively. Noninterest
bearing demand deposit account balances decreased approximately $4.1
million.





The
following table sets forth the consolidated average balance sheets for the
Company, average rates earned on interest-earning assets, average rates paid on
interest-bearing liabilities, interest income and interest expense for each
category of interest-earning assets and interest-bearing liabilities, and net
interest margin.  Yields on non-taxable instruments are reported on a
tax-equivalent basis.  This information is presented for the years
ended December 31, 2007, 2006 and 2005.





Page 25 of
50




CONSOLIDATED
AVERAGE BALANCES, INTEREST INCOME AND EXPENSE, AND AVERAGE YIELDS EARNED AND
RATES PAID


2007
            
            
            2006Average
              Balance
            
            
            Income/
              (Expense)
            
            
            Average
              Yield/Cost
            
            
            Average
              Balance
            
            
            Income/
              (Expense)
            
            
            Average
              Yield/CostInterest-earning
      assets:Loans,
      net (1)
            
            $
            354,273,983
            
            
            
            31,578,826
            
            
            
            8.91
            %
            
            $
            331,363,746
            
            
            
            29,854,762
            
            
            
            9.01
            %Investment
      securities (2):Taxable
            
            
            67,679,357
            
            
            
            3,322,931
            
            
            
            4.91
            %
            
            
            67,479,130
            
            
            
            3,107,325
            
            
            
            4.60
            %Tax
      exempt
            
            
            26,944,544
            
            
            
            1,110,046
            
            
            
            6.24
            %
            
            
            22,882,099
            
            
            
            982,884
            
            
            
            6.51
            %Federal
      funds sold
            
            
            5,515,521
            
            
            
            271,871
            
            
            
            4.93
            %
            
            
            9,036,945
            
            
            
            442,118
            
            
            
            4.89
            %Loans
      held for sale
            
            
            1,647,006
            
            
            
            91,864
            
            
            
            5.58
            %
            
            
            1,545,039
            
            
            
            72,949
            
            
            
            4.72
            %Total
      interest-earning assets
            
            
            456,060,411
            
            
            
            36,375,538
            
            
            
            8.10
            %
            
            
            432,306,959
            
            
            
            34,460,038
            
            
            
            8.09
            %Noninterest-earning
      assets
            
            
            43,047,263
            
            
            
            
            
            
            
            
            
            
            
            35,179,810Total
      assets
            
            $
            499,107,674
            
            
            
            
            
            
            
            
            
            
            $
            467,486,769Interest-bearing
      liabilities:Money
      market and NOW
            
            $
            85,395,092
            
            
            
            (1,636,616
            )
            
            
            1.92
            %
            
            $
            86,590,932
            
            
            
            (1,533,639
            )
            
            
            1.77
            %Savings
      accounts
            
            
            60,330,900
            
            
            
            (2,512,417
            )
            
            
            4.16
            %
            
            
            61,332,587
            
            
            
            (2,351,977
            )
            
            
            3.83
            %Certificates
      of deposit
            
            
            194,897,350
            
            
            
            (9,988,885
            )
            
            
            5.13
            %
            
            
            164,822,662
            
            
            
            (7,180,212
            )
            
            
            4.36
            %Total
      deposits
            
            
            340,623,342
            
            
            
            (14,137,918
            )
            
            
            4.15
            %
            
            
            312,746,181
            
            
            
            (11,065,828
            )
            
            
            3.54
            %Short-term
      and other borrowings
            
            
            54,190,150
            
            
            
            (2,708,986
            )
            
            
            5.00
            %
            
            
            45,652,371
            
            
            
            (2,151,831
            )
            
            
            4.71
            %Total
      interest-bearing liabilities
            
            
            394,813,492
            
            
            
            (16,846,904
            )
            
            
            4.27
            %
            
            
            358,398,552
            
            
            
            (13,217,659
            )
            
            
            3.69
            %Noninterest-
      bearing deposits
            
            
            42,484,417
            
            
            
            
            
            
            
            
            
            
            
            51,482,129Other
      noninterest-bearing Liabilities
            
            
            5,686,245
            
            
            
            
            
            
            
            
            
            
            
            5,001,319Total
      liabilities
            
            
            442,984,154
            
            
            
            
            
            
            
            
            
            
            
            414,882,000Stockholders'
      equity
            
            
            56,123,520
            
            
            
            
            
            
            
            
            
            
            
            52,604,769Total
      liabilities and stockholders' equity
            
            $
            499,107,674
            
            
            
            
            
            
            
            
            
            
            $
            467,486,769Net
      interest income
            
            
            
            
            
            $
            19,528,634
            
            
            
            
            
            
            
            
            
            
            $
            21,242,379Net
      interest margin
            
            
            
            
            
            
            
            
            
            
            4.41
            %
            
            
            
            
            
            
            
            
            
            
            5.03
            %Interest
      rate spread
            
            
            
            
            
            
            
            
            
            
            3.83
            %
            
            
            
            
            
            
            
            
            
            
            4.40
            %




Page 26 of
50





CONSOLIDATED
AVERAGE BALANCES, INTEREST INCOME AND EXPENSE, AND AVERAGE YIELDS EARNED AND
RATES PAID, CONTINUED





2005Average
              Balance
            
            
            Income/
              (Expense)
            
            
            Average
              Yield/CostInterest-earning
      assets:Loans,
      net (1)
            
            $
            297,566,778
            
            
            $
            22,381,406
            
            
            
            7.52
            %Investment
      securities (2):Taxable
            
            
            62,143,278
            
            
            
            2,530,007
            
            
            
            4.07
            %Tax
      exempt
            
            
            18,280,795
            
            
            
            807,397
            
            
            
            6.69
            %Federal
      funds sold
            
            
            6,206,271
            
            
            
            177,491
            
            
            
            2.86
            %Loans
      held for sale
            
            
            1,270,199
            
            
            
            39,968
            
            
            
            3.15
            %Total
      interest-earning assets
            
            
            385,467,321
            
            
            
            25,936,269
            
            
            
            6.84
            %Noninterest-earning
      assets
            
            
            31,953,575Total
      assets
            
            $
            417,420,896Interest-bearing
      liabilities:Money
      market and NOW
            
            $
            69,479,318
            
            
            
            (710,963
            )
            
            
            1.02
            %Savings
      accounts
            
            
            46,961,741
            
            
            
            (1,110,185
            )
            
            
            2.36
            %Certificates
      of deposit
            
            
            143,560,942
            
            
            
            (4,562,138
            )
            
            
            3.18
            %Total
      deposits
            
            
            260,002,001
            
            
            
            (6,383,286
            )
            
            
            2.46
            %Short-term
      and other borrowings
            
            
            49,097,093
            
            
            
            (2,217,052
            )
            
            
            4.52
            %Total
      interest-bearing liabilities
            
            
            309,099,094
            
            
            
            (8,600,338
            )
            
            
            2.78
            %Noninterest-
      bearing deposits
            
            
            55,581,576Other
      noninterest-bearing Liabilities
            
            
            3,483,422Total
      liabilities
            
            
            368,164,092Stockholders'
      equity
            
            
            49,256,804Total
      liabilities and stockholders' equity
            
            $
            417,420,896Net
      interest income
            
            
            
            
            
            $
            17,335,931Net
      interest margin
            
            
            
            
            
            
            
            
            
            
            4.61
            %Interest
      rate spread
            
            
            
            
            
            
            
            
            
            
            4.06
            %








(1)
            Interest
      earnings on nonaccrual loans are included in the foregoing analysis to the
      extent that such  interest earnings had been recorded during
      2007, 2006 and 2005.  Income includes loan fees of $1,459,325,
      $2,037,032 and $1,869,748 for 2007, 2006 and 2005,
      respectively.


(2)
            Average
      yields for available for sale securities are computed using the historical
      cost balances. Such yields do not give effect to changes in fair value
      that are reflected as a component of stockholders’ equity.





Page 27 of
50





The
following table sets forth a summary of the changes in interest income and
interest expense resulting from changes in volume and rates for the periods
indicated:


2007
      vs. 2006
            
            
            
            
            
            
            
            
            2006
      vs. 2005Increase
      (Decrease)
            
            
            
            
            
            
            
            
            Increase
      (Decrease)Due
      to
            
            
            
            
            
            
            
            
            Due
      toAverage
            
            
            Average
            
            
            
            
            
            Average
            
            
            AverageVolume
      (1)
            
            
            Rate
      (1)
            
            
            Net
            
            
            Volume
      (1)
            
            
            Rate
      (1)
            
            
            NetInterest
      Income:Loans
            
            $
            2,064,212
            
            
            $
            (340,148
            )
            
            $
            1,724,064
            
            
            $
            2,541,532
            
            
            $
            4,931,824
            
            
            $
            7,473,356Investment
      securities:Taxable
            
            
            18,389
            
            
            
            197,217
            
            
            
            215,606
            
            
            
            217,169
            
            
            
            360,149
            
            
            
            577,318Tax
      exempt
            
            
            264,465
            
            
            
            (137,303
            )
            
            
            127,162
            
            
            
            307,827
            
            
            
            (132,340
            )
            
            
            175,487Federal
      funds sold
            
            
            (172,198
            )
            
            
            1,951
            
            
            
            (170,247
            )
            
            
            80,957
            
            
            
            183,670
            
            
            
            264,627Loans
      held for sale
            
            
            4,813
            
            
            
            14,102
            
            
            
            18,915
            
            
            
            8,657
            
            
            
            24,324
            
            
            
            32,981Total
      interest-earning assets
            
            $
            2,179,681
            
            
            $
            (264,181
            )
            
            $
            1,915,500
            
            
            $
            3,156,142
            
            
            $
            5,367,627
            
            
            $
            8,523,769Interest
      Expense:Money
      market and NOW
            
            $
            (21,166
            )
            
            $
            124,143
            
            
            $
            102,977
            
            
            $
            174,538
            
            
            $
            648,138
            
            
            $
            822,676Savings
      accounts
            
            
            (38,365
            )
            
            
            198,805
            
            
            
            160,440
            
            
            
            341,457
            
            
            
            900,335
            
            
            
            1,241,792Certificates
      of deposit
            
            
            1,311,256
            
            
            
            1,497,417
            
            
            
            2,808,673
            
            
            
            674,958
            
            
            
            1,943,116
            
            
            
            2,618,074Short-term
      and other borrowings
            
            
            402,129
            
            
            
            155,026
            
            
            
            557,155
            
            
            
            (155,701
            )
            
            
            90,480
            
            
            
            (65,221
            )Total
      interest-bearing liabilities
            
            $
            1,653,854
            
            
            $
            1,975,391
            
            
            $
            3,629,245
            
            
            $
            1,035,252
            
            
            $
            3,582,069
            
            
            $
            4,617,321Change
      in net interest income
            
            $
            525,827
            
            
            $
            (2,239,572
            )
            
            $
            (1,713,745
            )
            
            $
            2,120,890
            
            
            $
            1,785,558
            
            
            $
            3,906,448





1)
            The
      changesin
      interest income and/or expense not due solely to rate or volume have been
      allocated to the rate component.




Page 28 of
50





NONINTEREST INCOME AND NONINTEREST
EXPENSE








In
2007, noninterest income and noninterest expense increased approximately
$123,000, or 3.36% and $1.5 million or 8.6% when compared to 2006.





Noninterest
income increased primarily from increases in trust services fees, service
charges on deposit accounts and income from bank-owned life insurance totaling
approximately $96,000, $86,000 and $18,000, respectively.  These
increases were offset by decreases in gain on sale of premises and equipment,
other service charges and mortgage origination income totaling approximately
$76,000, $11,000 and $11,000, respectively. Net security gains in 2007 totaled
approximately $5,000 compared to a net loss of approximately $13,000 for
2006.





An
overdraft protection product and a business development plan for the Trust
Department, each introduced in 2006, continued to generate additional NSF fees
and trust fees in 2007.  Income from bank-owned life insurance
increased with the addition of a Senior Executive Retirement Plan (“SERP”)
funded by the purchase of bank-owned life insurance during 2007.





Noninterest
income increased approximately $208,000, or 6.03%, during 2006 resulting
primarily from increases in service charges on deposit accounts, trust services
fees, gains from the sale of premises and equipment, and in other income of
approximately $200,000, $76,000, $70,000 and $75,000,
respectively.  These increases were offset by decreases in mortgage
origination income and in income from bank-owned life insurance of approximately
$196,000 and $10,000, respectively.  A net loss of $13,216 occurred on
securities sales in 2006 compared to a net loss of $5,654 in
2005.  The increase in service charges on deposit accounts resulted
from the introduction of an overdraft protection product which generated
additional NSF fees during 2006. The Trust Department introduced a business
development plan in 2006 which produced additional accounts and increases in
trust fees.  The gain on sale of premises and equipment resulted from
the sale of a portion of land to the Georgia Department of Transportation for
right-of-way and the sale of computer equipment during
2006.   Increases in other income primarily consisted of
additional activity in master money transactions and insurance commissions
approximately $49,000 and $22,000, respectively, with the remaining increase
spread over various accounts.





Increases
in salaries and employee benefits, occupancy expenses, computer expenses and
telephone expenses totaled approximately $764,000, $192,000, $79,000 and $9,000,
respectively. Other expense increased $435,000 during 2007 when compared to
2006. Increases in other expenses, outside services, marketing expenses and
office supplies totaled approximately $263,000, $109,000, $43,000 and $20,000,
respectively.  All areas of other expense increased due to the
staffing and operation of the Cumming Office, which began operation in January
2007.





Noninterest
expense in 2006 increased approximately $2,202,000 or 14.69% as compared to
2005.  Increases in salaries and employee benefits, occupancy expenses
and computer expenses totaled approximately $1,302,000, $279,000 and $94,000,
respectively.  These increases reflect the impact of a full year’s
expense in salaries and employee benefits, occupancy expenses and computer
expense occurring as a result of the Liberty merger in July of 2005 compared to
six months of expense in 2005 as well as annual salary
adjustments.  Other expense increased approximately $527,000 or 12.79%
when compared to 2005.  Increases in other expenses, outside services,
advertising and public relations, office supplies and telephone totaled
approximately $225,000, $112,000, $80,000, $75,000 and $35,000,
respectively.





Page 29 of
50





INCOME
TAX EXPENSE





Income
tax expense for the periods ended December 31, 2007, 2006 and 2005 was
approximately $1,020,000, $2,412,000 and $1,649,000, respectively. The effective
tax rate for the periods ended December 31, 2007, 2006 and 2005 was 25.77%,
31.30% and 30.19%, respectively.  Tax-exempt income on investment
securities in municipal bonds for the periods ended December 31, 2007, 2006 and
2005 was 28.03%, 12.76% and 14.78% of pre-tax income,
respectively.  Income tax expense for the years ended December 31,
2007, 2006 and 2005 is more fully explained in Note 14 to the consolidated
financial statements.








ALLOWANCE
FOR LOAN LOSSES





The
allowance for loan losses represents a reserve for probable losses in the loan
portfolio.  The adequacy of the allowance for loan losses is evaluated
monthly based on a review of all significant loans, with particular emphasis on
impaired, nonaccruing, past due and other loans that management believes require
special attention.  The determination of the allowance for loan losses
is subjective and based on consideration of a number of factors and assumptions.
As such, the accounting policy followed in the determination of the allowance is
considered a critical accounting policy.  See “Critical Accounting
Estimates.”





The
allowance for loan losses methodology is based on a loan classification
system.  For purposes of determining the required allowance for loan
losses and resulting periodic provisions, the Company identifies problem loans
in its portfolio and segregates the remainder of the loan portfolio into broad
segments, such as commercial, commercial real estate, residential mortgage and
consumer.  The Company provides for a general allowance for losses
inherent in the portfolio for each of the above categories.  The
general allowance is calculated based on estimates of inherent losses which are
likely to exist as of the evaluation date.  Loss percentages used for
non-problem loans in the portfolio are based on historical loss
factors.  Specific allowance allocations for losses on problem loans
are based on a review and evaluation of these loans, taking into consideration
financial condition and strengths of the borrower, related collateral, cash
flows available for debt repayment, and known and expected economic
conditions.





For
loans considered impaired, specific allowances are provided in the event that
the specific collateral analysis on each problem loan indicates that the
liquidation of the collateral would not result in repayment of these loans if
the loan is collateral dependent or if the present value of expected future cash
flows on the loan are less than the balance.  In addition to these
allocated allowances, at any point in time, the Company may have an unallocated
component of the allowance.  Unallocated portions of the allowance are
due to a number of quantitative and qualitative factors, such as improvement in
the condition of impaired loans and credit concentrations.  The level
of the unallocated portion of the allowance serves as a prime indicator to
management for the need of additional provisions for loan loss as management
prospectively accounts for this critical accounting estimate.





Page 30 of
50





The
allowance for loan losses allocation is based on subjective judgment and
estimates and, therefore, is not necessarily indicative of the specific amounts
or loan categories in which charge-offs may ultimately occur. The allocation of
the allowance for loan losses by loan category at December 31, 2007, 2006, 2005,
2004 and 2003 is as follows:





2007
            
            
            2006
            
            
            2005
            
            
            2004
            
            
            2003Amount
            
            
            Percent
              of
      Loans
              to
              Total
              Loans
            
            
            Amount
            
            
            Percent
      of
              Loans
      to
              Total
              Loans
            
            
            Amount
            
            
            Percent
      of
              Loans
      to
              Total
              Loans
            
            
            Amount
            
            
            Percent
      of
              Loans
      to
              Total
              Loans
            
            
            Amount
            
            
            Percent
      of
              Loans
      to
              Total
              LoansCommercial,
      financial and agricultural
            
            $
            65,151
            
            
            
            5.8
            %
            
            $
            217,535
            
            
            
            4.6
            %
            
            $
            69,844
            
            
            
            5.2
            %
            
            $
            366,110
            
            
            
            5.9
            %
            
            $
            411,359
            
            
            
            5.5
            %Real
      estate
            
            
            1,734,310
            
            
            
            89.7
            %
            
            
            2,090,590
            
            
            
            90.6
            %
            
            
            2,714,789
            
            
            
            90.5
            %
            
            
            2,564,713
            
            
            
            89.1
            %
            
            
            2,315,343
            
            
            
            88.3
            %Installment
      loans to individuals
            
            
            322,676
            
            
            
            4.5
            %
            
            
            299,478
            
            
            
            4.8
            %
            
            
            981,002
            
            
            
            4.3
            %
            
            
            629,068
            
            
            
            5.0
            %
            
            
            618,639
            
            
            
            6.2
            %Unallocated
            
            
            14,711
            
            
            
            -
            
            
            
            837,186
            
            
            
            -
            
            
            
            178,890
            
            
            
            -
            
            
            
            74,752
            
            
            
            -
            
            
            
            297,761
            
            
            
            -Total
            
            $
            2,136,848
            
            
            
            100.00
            %
            
            $
            3,444,789
            
            
            
            100.00
            %
            
            $
            3,944,525
            
            
            
            100.00
            %
            
            $
            3,634,643
            
            
            
            100.00
            %
            
            $
            3,643,102
            
            
            
            100.00
            %





The
Company's provision for loan losses is intended to create an adequate allowance
for losses in the loan portfolio at the end of each reporting
period.  Management determined that due to increases in the number of
charge-offs occurring in the third and fourth quarters of 2007 and reductions in
the unallocated portion of the allowance, a provision for loan losses totaling
$675,225 would be made for the year ended December 31, 2007.





No
provision for loan losses was expensed in 2006, as compared to $330,000 in 2005,
as management determined the allowance for loan losses to be adequate for the
period indicated by a growing unallocated portion of the allowance, due to the
lower level of impaired loans.





The
following table summarizes, for each of the years in the five year period ended
December 31, 2007, selected information related to the allowance for
loan


losses.


2007
            
            
            2006
            
            
            2005
            
            
            2004
            
            
            2003Balance
      of allowance for loan losses at beginning of period ..
            
            $
            3,444,789
            
            
            $
            3,944,525
            
            
            $
            3,634,643
            
            
            $
            3,643,102
            
            
            $
            3,533,309Liberty
      Bank and Trust allowance
            
            
            -
            
            
            
            -
            
            
            
            215,079
            
            
            
            -
            
            
            
            -Charge-offs:Commercial,
      financial and agricultural
            
            
            (89,474
            )
            
            
            (254,672
            )
            
            
            (44,799
            )
            
            
            (145,422
            )
            
            
            (329,905
            )Real
      estate
            
            
            (1,744,773
            )
            
            
            (180,191
            )
            
            
            (113,310
            )
            
            
            (427,365
            )
            
            
            (137,861
            )Installment
      loans to individuals
            
            
            (262,191
            )
            
            
            (251,983
            )
            
            
            (273,935
            )
            
            
            (228,331
            )
            
            
            (660,230
            )Other
            
            
            (19,563
            )
            
            
            (15,780
            )
            
            
            (12,307
            )
            
            
            (11,074
            )
            
            
            (20,279
            )Total
      charge-offs
            
            
            (2,116,001
            )
            
            
            (702,626
            )
            
            
            (444,351
            )
            
            
            (812,192
            )
            
            
            (1,148,275
            )Recoveries:Commercial,
      financial and agricultural
            
            
            2,663
            
            
            
            34,030
            
            
            
            29,952
            
            
            
            56,558
            
            
            
            130,864Real
      estate
            
            
            50,085
            
            
            
            18,595
            
            
            
            45,409
            
            
            
            143,308
            
            
            
            45,581Installment
      loans to individuals
            
            
            76,975
            
            
            
            146,841
            
            
            
            131,120
            
            
            
            114,624
            
            
            
            125,179Other
            
            
            3,112
            
            
            
            3,424
            
            
            
            2,673
            
            
            
            6,743
            
            
            
            6,444Total
      recoveries
            
            
            132,835
            
            
            
            202,890
            
            
            
            209,154
            
            
            
            321,233
            
            
            
            308,068Net
      charge-offs
            
            
            (1,983,166
            )
            
            
            (499,736
            )
            
            
            (235,197
            )
            
            
            (490,959
            )
            
            
            (840,207
            )Provision
      for loan losses
            
            
            675,225
            
            
            
            -
            
            
            
            330,000
            
            
            
            482,500
            
            
            
            950,000Balance of allowance for
      loan losses at end of period
            
            $
            2,136,848
            
            
            $
            3,444,789
            
            
            $
            3,944,525
            
            
            $
            3,634,643
            
            
            $
            3,643,102Average
      amount of loans
            
            $354,273,983
            
            
            $
            331,363,746
            
            
            $
            297,566,778
            
            
            $
            271,736,598
            
            
            $
            282,142,667Ratio of net charge-offs during
      the period to average loans outstanding during the
      period
            
            
            .56
            %
            
            
            .15
            %
            
            
            .08
            %
            
            
            .18
            %
            
            
            .30
            %Ratio
      of allowance to total year-end loans
            
            
            .61
            %
            
            
            .99
            %
            
            
            1.23
            %
            
            
            1.29
            %
            
            
            1.37
            %





Page 31 of
50





During
2007, charge-offs of real estate secured loans, consumer and commercial loans
which totaled approximately $1,745,000, $282,000, and $89,000, respectively,
were offset by recoveries of $50,000, $80,000 and $3,000,
respectively.  During 2006, charge-offs of consumer loans, real estate
secured loans and commercial loans which totaled approximately $268,000,
$180,000 and $255,000, were offset by recoveries of $150,000, $19,000 and
$34,000, respectively.





The
number and the average balance of charge-offs during 2007 and 2006 by category
follow:





2007
            
            
            2006Category
            
            Number
            
            
            Average Charge-off
            
            
            Number
            
            
            Average Charge-offReal
      estate
            
            
            25
            
            
            $
            69,791
            
            
            
            10
            
            
            $
            18,019Consumer
            
            
            82
            
            
            
            3,436
            
            
            
            46
            
            
            
            5,821Commercial
            
            
            5
            
            
            
            17,895
            
            
            
            11
            
            
            
            23,152





The
risk associated with loans varies with the creditworthiness of the borrower, the
type of loan (consumer, commercial or real estate) and its
maturity.  Cash flows adequate to support a repayment schedule is an
element considered for all types of loans.  Real estate loans are
impacted by market conditions regarding the value of the underlying property
used as collateral.  Commercial loans are also impacted by the
management of the business as well as economic conditions.





Management
believes the allowance for loan losses is adequate. While management uses
available information to recognize losses on loans, future additions to the
allowance may be necessary based on changes in economic conditions, the
financial condition of borrowers and other factors.  In addition,
various regulatory agencies, as an integral part of their examination process,
periodically review the Company’s allowance for loan losses.  Such
agencies may require the Company to recognize additions to the allowance based
on their judgments about information available to them at the time of their
examination. The Bank’s most recent regulatory examination concluded in February
2008 and no additions to the allowance at December 31, 2007 were
required.








LOANS





The
total loan portfolio for 2007 when compared to 2006 increased approximately $4.1
million.  During 2007, increases in the commercial lending and real
estate secured lending portfolios of approximately $4.6 million and $336,000,
respectively, were offset by decreases in the consumer lending portfolio of
approximately $872,000 during 2007.  The average yields on the total
loan portfolio for 2007 and 2006 were 8.91% and 9.01%,
respectively.





The
total loan portfolio for 2006 when compared to 2005 increased approximately
$25.5 million.  An increase in the real estate construction-lending
portfolio totaled approximately $23.4 million as a result of loan growth
occurring in the Cherokee and Braselton market areas.  The
consumer-lending portfolio also increased approximately $2.7 million during
2006. The commercial lending portfolio decreased approximately $649,000 during
2006. The average yields on the total loan portfolio for 2006 and 2005 were
9.01% and 7.52%, respectively.





Page 32 of
50





The
amount of loans (net of unearned fees) outstanding at December 31 for each of
the last five years is set forth in the following table according to type of
loan. The Company had no foreign loans at December 31 in any of the last five
years.





2007
            
            
            2006
            
            
            2005
            
            
            2004
            
            
            2003Commercial,
      financial and agricultural
            
            $
            20,496,648
            
            
            $
            15,833,001
            
            
            $
            16,465,079
            
            
            $
            16,673,310
            
            
            $
            14,651,171Real
      estate - construction
            
            
            175,904,135
            
            
            
            152,752,981
            
            
            
            120,872,011
            
            
            
            79,683,839
            
            
            
            50,134,674Real
      estate - mortgage
            
            
            138,373,167
            
            
            
            161,188,518
            
            
            
            169,645,585
            
            
            
            170,504,085
            
            
            
            184,348,892Installment loans toindividuals
            
            
            15,630,412
            
            
            
            16,502,794
            
            
            
            13,751,608
            
            
            
            13,927,123
            
            
            
            16,355,654Total
            
            $
            350,404,362
            
            
            $
            346,277,294
            
            
            $
            320,734,283
            
            
            $
            280,788,357
            
            
            $
            265,490,391








Loans
(net of unearned fees) increased approximately $4.1 million or 1.19% at December
31, 2007 as compared to December 31, 2006.  Increases in commercial
and real estate secured lending totaled approximately $4.7 million and $364,000,
respectively, offset by maturity and payoffs in consumer lending of
approximately $872,000.





Loans
(net of unearned fees) increased approximately $25.5 million or 7.96% at
December 31, 2006 as compared to December 31, 2005. Increases in real estate
construction lending and consumer lending totaling approximately $31.9 million
and $2.8 million, respectively were offset by maturity and payoffs in real
estate mortgages and commercial lending of approximately $8.5 million and
$632,000, respectively.





The
following table sets forth the maturities and sensitivities to changes in
interest rates of loans at December 31, 2007.





DUE
      AFTERDUE
      IN
            
            
            ONE
      THROUGH
            
            
            DUE
      AFTERLOAN
      MATURITY:
            
            ONE YEAR
            
            
            FIVE YEARS
            
            
            FIVE YEARS
            
            
            TOTALCommercial,
      financial and agricultural
            
            $
            17,540,897
            
            
            $
            2,955,750
            
            
            $
            -
            
            
            $
            20,496,647Real
      estate – construction
            
            
            173,868,685
            
            
            
            2,035,450
            
            
            
            -
            
            
            
            175,904,135Real
      estate – mortgage
            
            
            103,724,493
            
            
            
            33,383,413
            
            
            
            1,293,321
            
            
            
            138,401,227Installment
      loans to individuals
            
            
            8,733,598
            
            
            _6,888,668
            
            
            _8,147
            
            
            
            15,630,413TOTAL
            
            $
            303,867,673
            
            
            $
            45,263,281
            
            
            $
            1,301,468
            
            
            $
            350,432,422LOAN
      INTEREST RATE SENSITIVITY:Loans
      with:Predetermined
      interest rates
            
            $
            49,617,111
            
            
            $
            45,263,281
            
            
            $
            1,301,468
            
            
            $
            96,181,860Floating
      or adjustable interest rates
            
            
            254,250,562
            
            
            
            -
            
            
            
            -
            
            
            
            254,250,562TOTAL
            
            $
            303,867,673
            
            
            $
            45,263,281
            
            
            $
            1,301,468
            
            
            $
            350,432,422








NONPERFORMING ASSETS AND PAST DUE
LOANS





Nonperforming assets consist of
nonaccrual loans, accruing loans 90 days past due, restructured loans, and other
real estate owned.Accrual of interest is discontinued when either
principal or interest becomes 90 days past due, unless the loan is both
well secured and in the process of collection, or when in management’s opinion,
reasonable doubt exists as to the full collection of interest or principal.
Income on such loans is then recognized only to the extent that cash is received
and where the future collection of principal is probable.





Page 33 of
50





The
following table sets forth the totals of nonperforming assets, selected ratios,
and accruing loans past due 90 days or more at December 31 for each of the last
five years.








NONPERFORMING
      ASSETS:
            
            2007
            
            
            2006
            
            
            2005
            
            
            2004
            
            
            2003Accruing
      loans 90 days past due
            
            $
            41,594
            
            
            $
            37,585
            
            
            $
            799,128
            
            
            $
            381,670
            
            
            $
            503,954Nonaccrual
      loans
            
            
            18,326,924
            
            
            
            502,233
            
            
            
            363,003
            
            
            
            3,252,464
            
            
            
            2,299,796Restructured
      loans
            
            
            -
            
            
            
            52,560
            
            
            
            130,613
            
            
            
            119,031
            
            
            
            26,217Other
      real estate owned
            
            
            11,498,271
            
            
            
            537,975
            
            
            
            2,773,662
            
            
            
            1,289,880
            
            
            
            2,634,673Total
      nonperforming assets
            
            $
            29,866,789
            
            
            $_1,130,353
            
            
            $
            4,066,406
            
            
            $
            5,043,045
            
            
            $
            5,464,640RATIOS:Nonperforming
      loans (excluding restructured loans) to net loans
            
            
            5.27
            %
            
            
            .16
            %
            
            
            .36
            %
            
            
            1.29
            %
            
            
            1.06
            %Nonperforming
      assets to net loans plus other real estate owned
            
            
            8.30
            %
            
            
            .33
            %
            
            
            1.27
            %
            
            
            1.79
            %
            
            
            2.04
            %Allowance
      to nonperforming loans
            
            
            11.63
            %
            
            
            581.52
            %
            
            
            305.13
            %
            
            
            96.84
            %
            
            
            128.73
            %





Nonperforming
assets increased approximately $28.7 million or 2542.25% from December 31, 2006
to December 31, 2007.  Increases resulted from an increased number of
loans reaching a 90 day past due or nonaccrual status as the decline in the 1-4
family real estate market in both construction lending and new mortgages
declined sharply after June 30, 2007.  The result of this activity is
reflected in the increases in other real estate, nonaccrual loans and accruing
loans 90 days past due totaling approximately $11.0 million, $17.8 million and
$4,000, respectively.  The effects of the real estate market decline
is visible in the loan portfolio as loans move from 90 days past due, to
nonaccrual status, to foreclosure and finally to other real
estate.  Further details regarding the nonperforming assets are
discussed below.





Nonperforming
assets decreased approximately $2,936,000 or 72.20% from December 31, 2005 to
December 31, 2006.  The decrease was primarily due to decreases in
other real estate, accruing loans 90 days past due and in restructured loans of
approximately $2,236,000, $762,000 and $78,000, respectively, offset by an
increase in nonaccrual loans of approximately $139,000.





Loans
classified as 90 days past due increased approximately $4,000 from December 31,
2006 to December 31, 2007.  The increase is the net result of the
following changes:





Balance
      at December 31, 2006
            
            $
            37,585New
      loans classified to 90 days past due status
            
            
            508,12190
      days past due loans charged-off
            
            
            (67,492
            )Payments
      received
            
            
            (436,620
            )Balance
      at December 31, 2007
            
            $
            41,594




The
following summarizes accruing loans 90 days past due at December 31,
2007:





Balance
      at December 31, 2007
            
            NumberReal
      estate secured loans – residential
            
            
            1
            
            
            
            41,594








The
Company had impaired loans of $18,326,924 and $502,233 at December 31, 2007 and
2006, respectively. Impaired loans consist of loans on nonaccrual
status.  The increase is the net result of the following
changes:





Balance
      at December 31, 2006
            
            $
            502,233Advances
            
            
            2,488Loans
      reclassified to nonaccrual status
            
            
            34,924,711Payments
      received on nonaccrual loans
            
            
            (3,929,437
            )Nonaccrual
      loans charged-off
            
            
            (1,764,848
            )Nonaccrual
      loans reclassified to other real estate
            
            
            (11,200,791
            )Nonaccrual
      loan reclassified back to accrual status
            
            
            (207,432
            )Balance
      at December 31, 2007
            
            $
            18,326,924





Page 34 of
50





The
following summarizes nonaccrual loans at December 31, 2007:


Balance
      at December 31, 2007
            
            NumberReal
      estate – construction and development loans
            
            
            36
            
            
            $
            18,146,355Real
      estate – residential loans
            
            
            4
            
            
            
            145,108Commercial
      loans
            
            
            1
            
            
            
            25,350Consumer
      loans
            
            
            1
            
            
            
            10,111Total
      nonaccural loans
            
            
            42
            
            
            $
            18,326,924





The
increase in loans on nonaccrual status during 2007 was the result of the
addition of approximately $34.4 million of construction and subdivision
development loans offset by $10.7 million being reclassified to other real
estate, $3.9 million in payments received and $1.8 million of charge-offs to
allowance for loan losses.





The
following summarizes nonaccrual loans at December 31, 2006:


Balance
      at December 31, 2006
            
            NumberReal
      estate – residential loans
            
            
            6
            
            
            $
            132,455Real
      estate – commercial loans
            
            
            3
            
            
            
            362,015Consumer
      loans
            
            
            3
            
            
            
            7,763Total
      nonaccural loans
            
            
            12
            
            
            $
            502,233





The
increase in loans on nonaccrual status during 2006 was the result of the
addition of three commercial real estate loans to nonaccrual status totaling
approximately $362,000.  This increase was offset by decreases in
residential real estate loans and consumer loans in nonaccrual status totaling
approximately $164,000 and $59,000, respectively.





Restructured
loans decreased during 2007 due to the payoff of one loan totaling approximately
$52,500.





The
Company’s other real estate consists of 64 properties totaling approximately
$11,498,000 at December 31, 2007.  This increase was primarily due to
foreclosures of construction loans secured by 1-4 family residential properties
as a result of the decline in the real estate market for both construction
lending and acquisition and development of residential
properties.  The foreclosed properties are located in the Metro
Atlanta area and surrounding counties and have appraised values totaling
approximately $14,147,000.  Efforts are underway to finish
construction on fifteen of the houses which were in various stages of
construction at foreclosure date in order to list the properties with real
estate agents.





At
December 31, 2006, the Company’s other real estate consisted of six properties
totaling approximately $538,000 at December 31, 2006 and eight properties
totaling approximately $2,774,000 at December 2005.  This decrease was
primarily due to the sale of a multi-family residential property totaling
approximately $2,470,000 during the third quarter of 2006.  Other
sales totaling approximately $821,000 were offset by increases in foreclosures
of residential properties totaling approximately $1,055,000.





At
December 31, 2007, the Company’s other real estate consisted of the
following:





Number of Properties
            
            
            AmountCommercial
      properties
            
            
            2
            
            
            $
            639,500Residential
      properties
            
            
            1
            
            
            
            33,844Vacant
      lots
            
            
            39
            
            
            
            4,500,483Residential
      construction properties
            
            
            22
            
            
            
            6,324,44464
            
            
            $
            11,498,271





Our
Other Real Estate Owned (“OREO”) policies and procedures provide that a
foreclosure appraisal be obtained which provides a fair market value and a
disposition (quick sale) value.  The disposition value is the
valuation used to place the property into OREO.  Any difference
between the disposition value and the loan balance is recommended for
charge-off.  When the property is transferred to OREO, the property is
listed with a realtor to begin sales efforts.





Page 35 of
50





Accrual
of interest is discontinued when either principal or interest becomes 90 days
past due unless the loan is both well secured and in the process of collection,
or in management's opinion, when reasonable doubt exists as to the full
collection of interest or principal.  Interest income that would have
been recorded on these nonaccrual and restructured loans in accordance with
their original terms totaled $1,209,139, $26,112 and $73,603 in 2007, 2006 and
2005, respectively, compared with interest income recognized of $592,664,
$10,058 and $37,569, respectively.





At
December 31, 2007, management was not aware of any loans classified for
regulatory purposes as loss, doubtful, substandard or special mention that have
not been disclosed which 1) represent or result from trends or uncertainties
which management reasonably expects will materially impact future operating
results, liquidity or capital resources, or 2) represent material credits about
which management is aware of any information which causes management to have
serious doubts as to the ability of such borrowers to comply with the loan
repayment terms.





Loan
concentrations are monitored based upon purpose codes as defined by Federal
Banking Regulations and by North American Industry Classification System (NAICS)
industry codes.  Habersham Bank held concentrations of loans based on
purpose codes to customers, which totaled 100% or more of Tier 1 Capital at
December 31, 2007 and 2006 as follows:





2007
            
            
            2006Land
      and subdivision development
            
            $
            100,880,811
            
            
            
            56,943,812Real
      estate lessors (amortized non-owner occupied)
            
            
            73,456,063
            
            
            
            51,464,636$
            174,336,874
            
            
            
            108,408,448





INVESTMENT
SECURITIES





The
Company has classified its investment securities as available for sale and held
to maturity.  The classification of certain investment securities as
available for sale is consistent with the Company's investment philosophy of
maintaining flexibility to manage the securities portfolio.  At
December 31, 2007 approximately $90.0 million of investment securities were
classified as available for sale and approximately $2.7 million of investment
securities were classified as held to maturity.  Approximately
$240,000 of net unrealized loss, net of income taxes, was included in
stockholders' equity related to available for sale investment
securities.





The
following table sets forth the carrying amounts of investment securities at
December 31, 2007, 2006 and 2005.


2007
            
            
            2006
            
            
            2005Investment
      securities available for sale:U.S.
      government-sponsored enterprises
            
            $
            33,567,386
            
            
            $
            30,673,849
            
            
            $
            22,442,975Mortgage-backed
      securities
            
            
            29,927,360
            
            
            
            31,191,082
            
            
            
            34,365,696State
      and political subdivisions
            
            
            26,213,358
            
            
            
            22,937,446
            
            
            
            15,997,351Other
      investments
            
            
            181,998
            
            
            
            180,038
            
            
            
            309,210Total
            
            $
            89,890,102
            
            
            $
            84,982,415
            
            
            $
            73,115,232Investment
      securities held to maturity:Mortgage-backed
      securities
            
            $
            43,179
            
            
            $
            68,124
            
            
            $
            100,164State
      and political subdivisions
            
            
            2,646,019
            
            
            
            3,221,198
            
            
            
            3,287,285Total
            
            $
            2,689,198
            
            
            $
            3,289,322
            
            
            $
            3,387,449





The
following table sets forth the maturities of debt investment securities at
carrying value at December 31, 2007 and the related weighted tax equivalent
yields.




Page 36 of
50




MATURING
      INONE
      YEAR
            
            
            1-5
            
            
            5-10
            
            
            AFTER
      10OR
      LESS
            
            
            YEARS
            
            
            YEARS
            
            
            YEARSInvestment
      securities available for sale:Carrying
      value:U.S.
      government-sponsored enterprises
            
            $
            646,534
            
            
            $
            5,700,099
            
            
            $
            13,547,614
            
            
            $
            13,673,139Mortgage-backed
      securities
            
            
            66,234
            
            
            
            1,444,561
            
            
            
            3,243,704
            
            
            
            25,172,861State
      and political subdivisions
            
            
            950,344
            
            
            
            2,081,161
            
            
            
            6,256,012
            
            
            
            16,925,841Weighted
      average yields:U.S.
      government-sponsored enterprises
            
            
            3.34
            %
            
            
            4.94
            %
            
            
            5.06
            %
            
            
            5.66
            %Mortgage-backed
      securities
            
            
            3.05
            %
            
            
            3.68
            %
            
            
            4.15
            %
            
            
            4.96
            %State
      and political subdivisions
            
            
            5.41
            %
            
            
            5.64
            %
            
            
            5.90
            %
            
            
            5.91
            %Investment securities held
      to maturity:Carrying
      value:Mortgage-backed
      securities
            
            $
            2,700
            
            
            $
            29,192
            
            
            $
            5,761
            
            
            $
            5,526State
      and political subdivisions
            
            
            545,103
            
            
            
            679,627
            
            
            
            1,374,416
            
            
            
            46,873Weighted
      average yields:Mortgage-backed
      securities
            
            
            5.52
            %
            
            
            8.23
            %
            
            
            10.59
            %
            
            
            5.19
            %State
      and political subdivisions
            
            
            6.53
            %
            
            
            6.40
            %
            
            
            6.92
            %
            
            
            8.12
            %








No
securities were held which represent a combined total for one issuer which is in
excess of 10% of the Company's stockholders’ equity at December 31,
2007.





DERIVATIVE
INSTRUMENTS





During
2004, Habersham Bank entered into two interest rate swap agreements with Compass
Bank to partially offset the interest rate risk associated with variable rate
Federal Home Loan Bank (“FHLB”) borrowings.




At
December 31, 2007 and 2006, the swaps were being accounted for as cash flow
hedges and the fair values are included in other comprehensive income, net of
taxes.  At December 31, 2007, Habersham Bank recorded a liability for
approximately $33,000 to reflect the fair value of the swaps.  At
December 31, 2006, Habersham Bank recorded an asset for approximately $116,000
to reflect the fair value of the swaps.  No hedge ineffectiveness from
these cash flow hedges was recognized in the consolidated statement of
earnings.




Refer
to Note 13 of the consolidated financial statements for a more complete
description of the use of derivatives and hedging activities.








DEPOSITS








The
deposit portfolio increased for 2007 approximately $18.1 million after excluding
large short-term deposits from a customer and its affiliates totaling
approximately $78.5 million held at December 31, 2006. Increases in time
deposits, money market and NOW account balances totaled approximately $27.6
million and $10.1 million, respectively, were offset by decreases in noninterest
bearing and savings account balances of approximately $17.5 million and $2.1
million, respectively. The average rates paid on interest bearing deposits for
2007 and 2006 were 4.15% and 3.54%, respectively.





At
December 31, 2006 and 2005, the deposit portfolio included large short-term
deposits from a customer and its affiliates totaling approximately $78.5 million
and $36.3 million, respectively.  Excluding these short-term deposits,
the deposit portfolio increased approximately $35.7 million, or 10.60% for 2006
when compared to 2005. Increases in interest bearing deposits totaling
approximately $44.8 million were offset by decreases in noninterest bearing
deposits totaling approximately $9.1 million. The average rates paid on interest
bearing deposits for 2006 and 2005 were 3.54% and 2.46%,
respectively.





Page 37 of
50





Average
deposits increased approximately $18.8 million, or 5.18%, and $48.6 million, or
15.41%, during 2007 and 2006, respectively.





The
following table sets forth the average amount of deposits and average rate paid
on such deposits for the years ended December 31, 2007, 2006 and
2005.





2007
            
            
            2006
            
            
            2005AVG.
      AMT OUTSTANDING
            
            
            RATE
            
            
            AVG.
      AMT OUTSTANDING
            
            
            RATE
            
            
            AVG.
      AMT OUTSTANDING
            
            
            RATEInterest-bearing
      demand deposits
            
            $
            85,395,092
            
            
            
            1.92
            %
            
            $
            86,590,932
            
            
            
            1.77
            %
            
            $
            69,479,318
            
            
            
            1.02
            %Saving
      deposits
            
            
            60,330,900
            
            
            
            4.16
            %
            
            
            61,332,587
            
            
            
            3.83
            %
            
            
            46,961,741
            
            
            
            2.37
            %Noninterest-bearing
      demand deposits
            
            
            42,484,417
            
            
            
            n/a
            
            
            
            51,482,129
            
            
            
            n/a
            
            
            
            55,581,576
            
            
            
            n/aTime
      deposits
            
            
            194,897,350
            
            
            
            5.13
            %
            
            
            164,822,662
            
            
            
            4.36
            %
            
            
            143,560,942
            
            
            
            3.18
            %Total
      average deposits
            
            $
            383,107,759
            
            
            
            
            
            
            $
            364,228,310
            
            
            
            
            
            
            $
            315,583,577





At December
31, 2007, time certificates of deposit of $100,000 or more, totaled
$116,043,575.  The maturities of all time certificates of deposit over
$100,000 are as follows:





3
      months or less
            
            $
            19,677,228Over
      3 but less than 6 months
            
            
            26,608,704Over
      6 but not more than 12 months
            
            
            40,745,819Over
      1 year but not more than 5 years
            
            
            29,011,824TOTAL
            
            $
            116,043,575





BORROWINGS





Total
borrowings increased approximately $20.3 million, or 45.46%, during 2007
compared to 2006 primarily due to increases in securities sold under repurchase
agreements.





Total
borrowings decreased approximately $6.8 million, or 13.29%, during 2006 compared
to 2005 primarily due to the net repayments of Federal Home Loan Bank advances
totaling $4.3 million in 2006.  Balances in securities sold under
repurchase agreements decreased approximately $2.6 million during 2006 compared
to 2005.





At
December 31, 2007, the Company had available line of credit commitments with the
Federal Home Loan Bank (FHLB) totaling $38.2 million, of which $38.0 million was
advanced and $221,000 was available.  The composition of FHLB advances
is more fully explained in Note 12 to the consolidated financial
statements.





At
December 31, 2007 and 2006, the Company had available repurchase agreement line
of credit commitments with a regional bank totaling $550,000 and $5,860,000,
respectively.  No amounts were outstanding under that commitment at
December 31, 2007 and 2006.  The Company also had available repurchase
agreement line of credit commitments with another regional bank totaling
$2,100,000 and $133,500 at December 31, 2007 and 2006,
respectively.  No amounts were outstanding under that commitment at
December 31, 2007 and 2006.





CAPITAL
RESOURCES





The
Company and the Bank are subject to various regulatory capital requirements
administered by the federal banking agencies.  Failure to meet minimal
capital requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Company’s financial statements.  Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Company and the Bank must meet specific capital guidelines that involve
quantitative measures of the Company’s and the Bank’s assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting
practices.  The Company’s and the Bank’s capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.





Page 38 of
50





Quantitative
measures established by regulations to ensure capital adequacy require the
Company and the Bank to maintain minimum amounts and ratios (set forth below in
the table) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined).  Management believes, as of December 31, 2007 and
2006, that the Company and the Bank meet all capital adequacy requirements to
which they are subject.





As
of December 31, 2007, the most recent notifications from both the Federal
Deposit Insurance Corporation and the Federal Reserve Bank of Atlanta
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized, the Bank must
maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios
as set forth in the following table. There are no conditions or events since
that notification that management believes have changed the Bank’s
categories.





The
Company’s and the Bank’s actual capital amounts and ratios as of December 31,
2007 and 2006 follow (in thousands):




TO
      BE WELLCAPITALIZEDUNDER
      PROMPTCORRECTIVEFOR
      CAPITAL
            
            
            ACTIONACTUAL
            
            
            ADEQUACY
            
            
            PURPOSES
            
            
            PROVISIONSAMOUNT
            
            
            RATIO
            
            
            AMOUNT
            
            
            RATIO
            
            
            AMOUNT
            
            
            RATIOAs
      of December 31, 2007Total
      Capital (to Risk-Weighted Assets):Company
            
            $
            52,542
            
            
            
            12.90
            %
            
            $
            32,589
            
            
            
            8
            %
            
            
            N/A
            
            
            
            N/AHabersham
      Bank
            
            
            49,322
            
            
            
            12.13
            %
            
            
            32,521
            
            
            
            8
            %
            
            $
            40,651
            
            
            
            10
            %Tier
      I Capital (to Risk-Weighted Assets):Company
            
            $
            50,405
            
            
            
            12.37
            %
            
            $
            16,295
            
            
            
            4
            %
            
            
            N/A
            
            
            
            N/AHabersham
      Bank
            
            
            47,185
            
            
            
            11.61
            %
            
            
            16,260
            
            
            
            4
            %
            
            $
            24,391
            
            
            
            6
            %Tier
      I Capital (to Average Assets):Company
            
            $
            50,405
            
            
            
            9.99
            %
            
            $
            20,192
            
            
            
            4
            %
            
            
            N/A
            
            
            
            N/AHabersham
      Bank
            
            
            47,185
            
            
            
            9.38
            %
            
            
            20,131
            
            
            
            4
            %
            
            $
            25,164
            
            
            
            5
            %As
      of December 31, 2006Total
      Capital (to Risk-Weighted Assets):Company
            
            $
            55,610
            
            
            
            14.03
            %
            
            $
            31,720
            
            
            
            8
            %
            
            
            N/A
            
            
            
            N/AHabersham
      Bank
            
            
            51,915
            
            
            
            13.19
            %
            
            
            31,477
            
            
            
            8
            %
            
            $
            39,346
            
            
            
            10
            %Tier
      I Capital (to Risk-Weighted Assets):Company
            
            $
            52,165
            
            
            
            13.16
            %
            
            $
            15,860
            
            
            
            4
            %
            
            
            N/A
            
            
            
            N/AHabersham
      Bank
            
            
            48,470
            
            
            
            12.32
            %
            
            
            15,738
            
            
            
            4
            %
            
            $
            23,608
            
            
            
            6
            %Tier
      I Capital (to Average Assets):Company
            
            $
            52,165
            
            
            
            10.83
            %
            
            $
            19,260
            
            
            
            4
            %
            
            
            N/A
            
            
            
            N/AHabersham
      Bank
            
            
            48,470
            
            
            
            10.14
            %
            
            
            19,115
            
            
            
            4
            %
            
            $
            23,893
            
            
            
            5
            %





While
management believes that the current level of capital is sufficient for the
current and foreseeable needs of the Company, capital needs are continually
evaluated by management.




Cash
dividends were paid at a rate of $.10 per share in March, June, September and
December of 2007.  Also, a special cash dividend of $.50 was paid in
December 2007. Cash dividends were paid at a rate of $.09 per share in March,
June, September and December of 2006.





Page 39 of
50





Management
is not aware of any required regulatory changes or any recommendation by any
regulatory authority which will have a material effect on the Company's
liquidity, capital or results of operations.





It
is the policy of the Federal Reserve that bank holding companies should pay cash
dividends on common stock only out of net earnings available over the past year
and only if prospective earnings retention is consistent with the organization’s
expected future needs and financial condition.  The policy provides
that bank holding companies should not maintain a level of cash dividends that
undermines the bank holding company’s ability to serve as a source of strength
to its banking subsidiaries.





Furthermore,
the approval of the Georgia Department of Banking and Finance is required if
dividends declared by Habersham Bank to the Company in any year will exceed 50%
of the bank’s net earnings for the previous calendar year.  As of
December 31, 2007, Habersham Bank could declare dividends to the Company up to
approximately $1,975,000 without regulatory approval.








INTEREST RATE
SENSITIVITY





The
objective of asset and liability management is to manage and measure the level
and volatility of earnings and capital by controlling interest rate
risk.  To accomplish this objective, management makes use of interest
rate and income simulation models to perform current and dynamic projections of
interest income and equity, as well as more traditional asset and liability
management methods.





The
Company’s historical performance in various economic climates is considered by
management in making long-term asset and liability decisions for the
Company.





The
relative interest rate sensitivity of the Company’s assets and liabilities
indicates the extent to which the Company’s net interest income may be affected
by interest rate movements.  The Company’s ability to reprice assets
and liabilities in the same dollar amounts and at the same time minimizes
interest rate risks.  One method of measuring the impact of interest
rate changes on net interest income is to measure, in a number of time frames,
the interest sensitivity gap by subtracting interest sensitive liabilities from
interest sensitive assets, as reflected in the following table.  Such
an interest sensitivity gap represents the risk, or opportunity, in
repricing.  If more assets than liabilities are repriced at a given
time in a rising rate environment, net interest income improves; in a declining
rate environment, net interest income deteriorates.  Conversely, if
more liabilities than assets are repriced while interest rates are rising, net
interest income deteriorates; if interest rates are falling, net interest income
improves.





Page 40 of
50





INTEREST RATE SENSITIVITY
ANALYSIS





INTEREST-EARNING
      ASSETS:
            
            DUE
      IN THREE MONTHS
            
            
            DUE
      AFTER THREE THROUGH SIX MONTHS
            
            
            DUE
      AFTER SIX THROUGH TWELVE MONTHS
            
            
            DUE
      AFTER ONE THROUGH FIVE YEARS
            
            
            DUE
      AFTER FIVE YEARS
            
            
            TOTALFederal
      funds sold
            
            $
            4,188,944
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            4,188,944Investment
      securities
            
            
            361,677
            
            
            
            201,084
            
            
            
            1,648,153
            
            
            
            9,934,641
            
            
            
            80,433,745
            
            
            
            92,579,300Loans
            
            
            265,288,779
            
            
            
            16,772,427
            
            
            
            21,727,900
            
            
            
            45,341,498
            
            
            
            1,257,087
            
            
            
            350,387,691Total
      interest-earning assets
            
            
            269,839,400
            
            
            
            16,973,511
            
            
            
            23,376,053
            
            
            
            55,276,139
            
            
            
            81,690,832
            
            
            
            447,155,935INTEREST-BEARING
      LIABILITIES:Deposits:Money
      market and NOW
            
            
            96,236,923
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            96,236,923Savings
            
            
            60,076,631
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            60,076,631Certificates
      of deposit
            
            
            35,287,353
            
            
            
            39,169,120
            
            
            
            75,691,438
            
            
            
            54,064,382
            
            
            
            -
            
            
            
            204,212,293Borrowings
            
            
            26,950,415
            
            
            
            7,000,000
            
            
            
            -
            
            
            
            31,000,000
            
            
            
            -
            
            
            
            64,950,415Total
      interest-bearing liabilities
            
            
            218,551,322
            
            
            
            46,169,120
            
            
            
            75,691,438
            
            
            
            85,064,382
            
            
            
            -
            
            
            
            425,476,262Excess
      (deficiency) of  interest-earning assets over
      interest-  bearing liabilities
            
            $
            51,288,078
            
            
            $
            (29,195,609
            )
            
            $
            (52,315,385
            )
            
            $
            (29,788,243
            )
            
            $
            81,690,832
            
            
            $
            21,679,673Cumulative
      gap
            
            $
            51,288,078
            
            
            $
            22,092,469
            
            
            $
            (30,222,916
            )
            
            $
            (60,011,159
            )
            
            $
            21,679,673Ratio
      of cumulative gap to total cumulative interest-earning
    assets
            
            
            19.01
            %
            
            
            7.70
            %
            
            
            (9.74
            %)
            
            
            (16.42
            %)
            
            
            4.85
            %Ratio
      of interest-earning assets to interest-bearing liabilities
            
            
            123.47
            %
            
            
            108.35
            %
            
            
            91.12
            %
            
            
            85.90
            %
            
            
            105.10
            %








The
Company’s strategy is to maintain a ratio of interest sensitive assets to
interest sensitive liabilities in the range of 80% to 120% at the less-than
one-year-time frame.  At December 31, 2007, the Company’s ratio of
interest-earning assets to interest-bearing liabilities was
91.12%.  The interest rate sensitivity analysis has a negative
one-year gap of approximately $30.2 million (excess of interest-bearing
liabilities repricing over interest-earning assets).  The Company’s
experience has shown that NOW, money market, and savings deposits of
approximately $156.3 million are less sensitive to short term rate
movements.





MARKET
RISK





Market
risk reflects the risk of economic loss resulting from adverse changes in market
prices and interest rates.  The risk of loss can be reflected in
either diminished current market values or reduced potential net interest income
in future periods.





Market
risk arises primarily from interest rate risk inherent in the Company’s lending
and deposit taking activities. The structure of the Company’s loan and deposit
portfolios is such that a significant decline in the prime rate may adversely
impact net market values and interest income.  Management seeks to
manage this risk through the use of its investment securities portfolio. The
composition and size of the investment portfolio is managed so as to reduce the
interest rate risk in the deposit and loan portfolios while at the same time
maximizing the yield generated from the portfolio.  The Company is
also subject to equity risk as a result of changes in market values of its
equity securities.





The
table below presents the contractual balances and the estimated fair value of
the Company’s balance sheet fixed rate financial instruments and their expected
maturity dates as of December 31, 2007. Variable rate financial instruments are
presented at their next rate change date.  The expected maturity
categories take into consideration historical prepayments experience as well as
management’s expectations based on the interest rate environment as of December
31, 2007.





Page 41 of
50





MARKET
RISK INFORMATION (in thousands)


Principal/Notional
      Amount Maturing in:
            
            
            Fair2008
            
            
            2009
            
            
            2010
            
            
            2011
            
            
            2012
            
            
            Thereafter
            
            
            Total
            
            
            ValueRate-sensitive
      assets:Fixed
      interest rate loans
            
            $
            49,617
            
            
            $
            28,650
            
            
            $
            10,513
            
            
            $
            5,039
            
            
            $
            1,061
            
            
            $
            1,257
            
            
            $
            96,137
            
            
            $
            138,525Average
      interest rate
            
            
            8.19
            %
            
            
            8.45
            %
            
            
            7.80
            %
            
            
            8.50
            %
            
            
            9.45
            %
            
            
            8.09
            %
            
            
            8.25
            %Variable
      interest rate loans
            
            
            254,251
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            254,251
            
            
            
            254,251Average
      interest rate
            
            
            7.99
            %
            
            
            -
            %
            
            
            -
            %
            
            
            -
            %
            
            
            -
            %
            
            
            -
            %
            
            
            7.99
            %Fixed
      interest rate securities
            
            
            2,211
            
            
            
            1,346
            
            
            
            3,141
            
            
            
            1,761
            
            
            
            3,687
            
            
            
            79,538
            
            
            
            91,684
            
            
            
            90,929Average
      interest rate
            
            
            5.01
            %
            
            
            4.78
            %
            
            
            4.86
            %
            
            
            5.16
            %
            
            
            5.16
            %
            
            
            5.37
            %
            
            
            5.32
            %Variable
      interest rate securities
            
            
            713
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            713
            
            
            
            713Average
      interest rate
            
            
            5.66
            %
            
            
            -
            %
            
            
            -
            %
            
            
            -
            %
            
            
            -
            %
            
            
            -
            %
            
            
            5.66
            %Rate-sensitive
      liabilities:Savings
      and interest-bearing deposits
            
            
            156,314
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            156,314
            
            
            
            156,314Average
      interest rate
            
            
            2.88
            %
            
            
            -
            %
            
            
            -
            %
            
            
            -
            %
            
            
            -
            %
            
            
            -
            %
            
            
            2.88
            %Fixed
      interest rate time deposits
            
            
            150,153
            
            
            
            18,829
            
            
            
            24,154
            
            
            
            9,129
            
            
            
            1,947
            
            
            
            -
            
            
            
            204,212
            
            
            
            206,391Average
      interest rate
            
            
            5.08
            %
            
            
            4.93
            %
            
            
            5.15
            %
            
            
            5.30
            %
            
            
            5.22
            %
            
            
            -
            %
            
            
            5.09
            %Fixed
      interest rate Borrowings
            
            
            33,950
            
            
            
            -
            
            
            
            10,000
            
            
            
            10,000
            
            
            
            -
            
            
            
            -
            
            
            
            53,950
            
            
            
            53,973Average
      interest rate
            
            
            4.09
            %
            
            
            -
            %
            
            
            6.02
            %
            
            
            4.93
            %
            
            
            -
            %
            
            
            -
            %
            
            
            4.52
            %Variable
      interest rate borrowings
            
            
            -
            
            
            
            11,000
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            11,000
            
            
            
            11,000Average
      interest rate
            
            
            -
            %
            
            
            5.16
            %
            
            
            -
            %
            
            
            -
            %
            
            
            -
            %
            
            
            -
            %
            
            
            5.16
            %





Equity
securities of $209,110 with an estimated fair value of $182,000 are subject to
changes in market values.





INFLATION





The
Company's assets and liabilities are generally monetary in
nature.  Therefore, interest rates have a greater impact on the
Company's performance than the effects of general levels of
inflation.  Interest rates do not necessarily move in the same
direction or magnitude as the prices of goods and services.  See
“Interest Rate Sensitivity Analysis” section above.





LIQUIDITY





Liquidity
management involves the matching of the cash flow requirements of customers,
either depositors withdrawing funds or borrowers needing loans, and the ability
of the Company to meet those requirements.





The
Company's liquidity program is designed and intended to provide guidance in
funding the credit and investment activities of the Company while at the same
time ensuring that the deposit obligations of the Company are met on a timely
basis.  In order to permit active and timely management of assets and
liabilities, these accounts are monitored regularly in regard to volume, mix and
maturity.





Scheduled
amortization and prepayments of loans, maturities and calls of investment
securities and funds from operations provide a daily source of
liquidity.  In addition, the Company may and does seek outside sources
of funds.





The
Company has the ability, on a short-term basis, to purchase federal funds from
other financial institutions up to $30,000,000.  At December 31, 2007,
there were no federal funds purchased from other financial institutions. The
Company can borrow funds from the FHLB, subject to eligible collateral of
loans.  At December 31, 2007, our maximum borrowing capacity from the
FHLB was $38,221,000 and the Company had outstanding borrowings of $38,000,000
leaving available unused borrowing capacity of $221,000.  In addition,
the Company has made arrangements with commercial banks for short-term advances
up to $2,650,000 under repurchase agreement lines of credit of which none was
advanced at December 31, 2007.





Page 42 of
50





Loan
repayments and maturing investment securities are a relatively predictable
source of funds.  However, deposit flows, calls of investment
securities and prepayment of loans are strongly influenced by interest rates,
general and local economic conditions, and competition in the
marketplace.  These factors reduce the predictability of the timing of
these sources of funds.





Habersham
Bank's liquidity policy requires a minimum ratio of 20% of cash and certain
short-term investments to net withdrawable deposit accounts.  The
Bank’s liquidity ratios at December 31, 2007 and 2006 were 24.27% and 44.52%,
respectively.





OFF-BALANCE
SHEET COMMITMENTS





The
Company is a party to financial instruments with off-balance-sheet risk in the
normal course of its lending activities to meet the financing needs of its
customers. These financial instruments include commitments to extend credit and
standby letters of credit.  The Company’s exposure to credit losses in
the event of nonperformance by the other party to the financial instrument for
commitments to extend credit and standby letters of credit is represented by the
contractual amounts of those instruments.  The Company uses the same
credit policies in making these commitments as it does for on-balance-sheet
instruments and evaluates each customer’s creditworthiness on a case by case
basis.  At December 31, 2007, the Company had outstanding loan
commitments approximating $73,283,000 and standby letters of credit
approximating $5,499,000.  The amount of collateral obtained, if
deemed necessary, for these financial instruments by the Company, upon extension
of credit, is based on management’s credit evaluation of the
customer.  Collateral held, if any, varies but may include inventory,
equipment, real estate, or other property. The accounting loss the Company would
incur if any party to the financial instrument failed completely to perform
according to the term of the contract and the collateral proved to be of no
value is equal to the face amount of the financial instrument.





The
Company’s commitments are funded through internal funding sources of scheduled
repayments of loans and sales and maturities of investment securities available
for sale or external funding sources through acceptance of deposits from
customers or borrowing from other financial institutions.





CONTRACTUAL
OBLIGATIONS





The
following table is a summary of the Company’s commitments to extend credit,
commitments under contractual leases as well as the Company’s contractual
obligations, consisting of deposits, FHLB advances and borrowed funds by
contractual maturity date.





2008
            
            
            2009
            
            
            2010
            
            
            2011
            
            
            2012Commitments
      on lines of credit
            
            
            73,283,000
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Standby
      letters of credit
            
            
            5,499,000
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Commitments
      under lease agreements
            
            
            598,876
            
            
            
            577,945
            
            
            
            549,513
            
            
            
            327,775
            
            
            
            164,820Deposits
            
            
            336,202,256
            
            
            
            18,833,871
            
            
            
            24,153,725
            
            
            
            9,129,179
            
            
            
            1,947,607FHLB
      advances
            
            
            7,000,000
            
            
            
            11,000,000
            
            
            
            10,000,000
            
            
            
            10,000,000
            
            
            
            -Short-term
      borrowings
            
            
            766,608
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Federal
      funds purchased and  securities sold under repurchased
      agreements
            
            
            26,183,807
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Total
      commitments and contractual obligations
            
            $
            449,533,547
            
            
            $
            30,411,816
            
            
            $
            34,703,238
            
            
            $
            19,456,954
            
            
            $
            2,112,427




Page 43 of
50





Although
management regularly monitors the balance of outstanding commitments to fund
loans to ensure funding availability should the need arise, management believes
that the risk of all customers fully drawing on all these lines of credit at the
same time is remote.





The
common stock of the Company is traded on the Nasdaq Global Market (“Nasdaq”)
under the symbol HABC.  At December 31, 2007, the Company had
approximately 501 shareholders of record.  The following table sets
forth the high and low sales prices, and the cash dividends paid on, the
Company’s common stock on a quarterly basis for the last two fiscal
years.








2007:
            
            High
            
            
            Low
            
            
            DividendFourth
      Quarter
            
            $
            17.01
            
            
            $
            12.82
            
            
            $
            .60Third
      Quarter
            
            
            20.00
            
            
            
            15.65
            
            
            
            .10Second
      Quarter
            
            
            23.97
            
            
            
            19.58
            
            
            
            .10First
      Quarter
            
            
            24.50
            
            
            
            22.00
            
            
            
            .102006:
            
            High
            
            
            Low
            
            
            DividendFourth
      Quarter
            
            $
            25.00
            
            
            $
            24.00
            
            
            $
            .09Third
      Quarter
            
            
            25.05
            
            
            
            24.00
            
            
            
            .09Second
      Quarter
            
            
            25.50
            
            
            
            22.05
            
            
            
            .09First
      Quarter
            
            
            25.50
            
            
            
            21.91
            
            
            
            .09








Item
7a.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.





See
“Market Risk” under Item 7, “Management’s Discussion and Analysis of Financial
Condition and Results of Operations”.








Item
8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA





The
consolidated balance sheets of the Company and subsidiaries as of December 31,
2007 and 2006, the related consolidated statements of earnings, changes in
stockholders’ equity, comprehensive income, and cash flows and notes to the
consolidated financial statements for each of the years in the three year period
ended December 31, 2007, the report issued thereon by the Company’s independent
auditors and quarterly financial data (unaudited) are incorporated herein by
reference to the Company’s 2007 Annual Report to Shareholders and are attached
as Exhibit 13 hereto.








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





None.






Disclosure
Controls
 
 As of the
end of the period covered by this Annual Report on Form 10-K, our principal
executive officer and principal financial officer have evaluated the
effectiveness of our “disclosure controls and procedures” (“Disclosure
Controls”).  Disclosure Controls, as defined in Rule 13a-15(e) of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), are procedures
that are designed with the objective of ensuring that information required to be
disclosed in our reports filed under the Exchange Act, such as this Annual
Report, is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission’s rules and
forms.  Disclosure Controls are also designed with the objective of
ensuring that such information is accumulated and communicated to our
management, including the CEO and CFO, as appropriate to allow timely decisions
regarding required disclosure.


Page 44 of
50


Our
management, including the CEO and CFO, does not expect that our Disclosure
Controls will prevent all error and all fraud.  A control system, no
matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are
met.  Further, the design of a control system must reflect the fact
that there are resource constraints, and the benefits of controls must be
considered relative to their costs.  Because of the inherent
limitations in all control systems, no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any,
within the company have been detected.  These inherent limitations
include the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake.  The design
of any system of controls also is based in part upon certain assumptions about
the likelihood of future events, and there can be no assurance that any design
will succeed in achieving its stated goals under all potential future
conditions.
 
 Based
upon their controls evaluation, our CEO and CFO have concluded that our
Disclosure Controls are effective at a reasonable assurance level.
 
 Management’s
Report on Internal Control Over Financial Reporting
 
 Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
under the Securities Exchange Act of 1934.  Our internal control over
financial reporting is a process designed to provide reasonable assurance that
assets are safeguarded against loss from unauthorized use or disposition,
transactions are executed in accordance with appropriate management
authorization and accounting records are reliable for the preparation of
financial statements in accordance with generally accepted accounting
principles.
 
 Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements.  Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
 
 Management
assessed the effectiveness of our internal control over financial reporting as
of December 31, 2007.  Management based this assessment on criteria
for effective internal control over financial reporting described in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission.  Management’s assessment included an
evaluation of the design of our internal control over financial reporting and
testing of the operational effectiveness of its internal control over financial
reporting.  Management has reviewed the results of its assessment with
the Audit Committee of our Board of Directors.
 
 Based on
this assessment, management believes that the Company maintained effective
internal control over financial reporting as of December 31, 2007.
 
 This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial
reporting.  Management’s report was not subject to attestation by the
company’s registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the Company to provide only
management’s report in this annual report.
 
 Changes
to Internal Control Over Financial Reporting
 
 There
have been no changes in our internal control over financial reporting during our
fourth fiscal quarter that have materially affected, or are reasonably likely to
materially affect, our internal control over financial
reporting.
  Page 45 of
50




Item
9B.  OTHER INFORMATION





On
December 31, 2007, the Compensation Committee set the following annual base
salaries for the following executive officers for 2008:





David
      Stovall:
            
            $
            278,500Edward
      Ariail:
            
            $
            185,429Bonnie
      Bowling:
            
            $
            186,662Annette
      Banks
            
            $
            95,014








PART
III


Item
10.   DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
COVERANCE





The
Company has a Code of Ethics that applies to its senior management, including
its Chief Executive Officer, Chief Financial Officer and Comptroller. See
Exhibit 14 hereto.
 
 Additional
information concerning the Company's directors and executive officers appears in
the Company’s Proxy Statement for its 2008 Annual Meeting of Shareholders under
the headings "Election of Directors,” -“Compliance with Section 16(a) of the
Exchange Act” and "Executive Officers" and is incorporated by reference
herein.





Item
l1.  EXECUTIVE COMPENSATION





Additional
information concerning the compensation of the Company's management appears in
the Company’s Proxy Statement for its 2008 Annual Meeting of Shareholders under
the headings "Executive Compensation" and “Election of Directors - Compensation
of Directors” and is incorporated by reference herein.








Item
12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS





The
following table provides information regarding compensation plans under which
equity securities of the Company are authorized for issuance.  All
data is presented as of December 31, 2007.





Equity
      Compensation Plan Table(a)
            
            
            (b)
            
            
            (c)Plan
      category
            
            Number
      of securities to be issued upon exercise of outstanding options, warrants
      and rights
            
            
            Weighted-average
      exercise price of outstanding options, warrants and rights
            
            
            Number
      of securities remaining available for future issuance under equity
      compensation plans (excluding securities reflected in column
      (a))Equity
      compensation plans approved by security holders
            
            
            230,750
            
            
            $
            22.56
            
            
            
            316,799Equity
      compensation plans not approved by security holders
            
            
            0
            
            
            
            0
            
            
            
            0Total
            
            
            230,750
            
            
            $
            22.56
            
            
            
            316,799




Page 46 of
50





Additional
information concerning beneficial owners of more than 5% of the Company's stock
and information concerning the stock owned by the Company's management appears
in the Proxy Statement under the heading "Ownership of Stock" and is
incorporated by reference herein.








Item
13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE





Information
concerning certain relationships and related transactions appears in the
Company’s Proxy Statement for its 2008 Annual Meeting of Shareholders under the
heading "Certain Transactions" and is incorporated by reference
herein.  Information regarding director independence appears in the
Company’s Proxy Statement for its 2008 Annual Meeting of Shareholders under the
heading “Election of Directors” and is incorporated by reference
herein.





Item
14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES





Information
concerning principal accountant fees and services appears in the Company’s Proxy
Statement for its 2008 Annual Meeting of Shareholders under the heading “Audit
Committee Matters – Audit Fees” and is incorporated herein by
reference.








PART
IV





Item
15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES





(a)
            See
      Item 8 for a list of the financial statements filed as a part of this
      report. No financial statement schedules are applicable as the required
      information is included in the financial statements in Item
    8.





See the
attached Exhibit Index, appearing behind the signature page to this report, for
the exhibits required by Item 601 of Regulation S-K.





Page 47 of
50





SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.








HABERSHAM
      BANCORP (Registrant)/s/ David D.
      Stovall
            Date:
      March 28,
      2008By:
            Director,
      President and Chief Executive Officer








Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed by the following persons on behalf of the Registrant in the capacities
and on the dates indicated.





Signature
            
            Title
            Date/s/ Thomas A. Arrendale,
III
            
            Chairman
      of the Board
            March  28,
      2008and
      Director/s/ David D. Stovall
            
            Director,
      President and
            March  28,
      2008Chief
      Executive Officer */s/ Edward D. Ariail
            
            Director,
      Vice President andCorporate
      Secretary
            March  28,
      2008/s/  Michael C.
      Martin
            
            Director
            March  28,
      2008/s/ James A. Stapleton, Jr.
            
            Director
            March  28,
      2008/s/ Calvin R. Wilbanks
            
            Director
            March  28,
      2008/s/ Michael L. Owen
            
            Director
            March  28,
      2008/s/ Ben F. Cheek, III
            
            Director
            March  28,
      2008/s/ Annette Banks
            
            Vice
      President andChief
      Financial Officer **
            March
      28, 2008





*
Principal executive officer.


**
Principal financial and accounting officer.


EXHIBIT
INDEX





Exhibit
      No.
            Document3.1
            Amended
      and restated Articles of Incorporation of Habersham Bancorp, as amended by
      amendment dated April 16, 1988 (1) and further amended by amendment dated
      April 15, 2000 (2)3.2
            By-laws
      of Habersham Bancorp, as amended by resolutions dated January 29, 2000
      (3)




Page 48 of
50




10.1*
            [Reserved]10.2*
            Form
      of Director Supplemental Retirement Plan Agreement and Split Dollar
      Endorsement, with summary of terms specific to each director
      (3)10.3*
            Habersham
      Bancorp Outside Directors Stock Option Plan (4)10.3(a)*
            Form
      of option agreement under Habersham Bancorp Outside Directors Stock Option
      Plan (5)10.4*
            Habersham
      Bancorp 1996 Incentive Stock Option Plan, (6) as amended by the First
      Amendment thereto dated January 29, 2000 (7)10.4(a)*
            Form
      of incentive stock option agreement under Habersham Bancorp 1996 Incentive
      Stock Option Plan (3)10.4(b)*
            Form
      of non-qualified stock option agreement under Habersham Bancorp 1996
      Incentive Stock Option Plan (3)10.5*
            Form
      of Split Dollar Agreement and Collateral Assignment dated January 1, 1991,
      with summary of terms applicable to Mr. Ariail and Mr. Stovall
      (3)10.6*
            Habersham
      Bancorp 2005 Stock Option Plan (8)10.6(a)*
            Form
      of non-qualified stock option award pursuant to the 2005 Stock Option Plan
      (9)10.6(b)*
            Form
      of Incentive Stock Option award pursuant to the 2005 Stock Option Plan
      (10)10.7*
            Supplemental
      Executive Retirement Agreement Dated as of January 1, 2008 between the
      Company and David D. Stovall (11)10.8*
            Supplemental
      Executive retirement Agreement dated as of January 1, 2008 between the
      Bank and Edward D. Ariail (12)10.9*
            Supplemental
      Executive Retirement Agreement dated as of January 1, 2008 between the
      Company and Bonnie C. Bowling (13)13.0
            Financial
      statements and notes thereto contained in the Habersham Bancorp 2007
      Annual Report and quarterly financial data (unaudited)14.0
            Code
      of Ethics (14)21.0
            Subsidiaries
      of Habersham Bancorp  (14)23.1
            Consent
      of Porter Keadle Moore, LLP31.1
            Certification
      of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.31.2
            Certification
      of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.32.1
            Certification
      Pursuant to Rule 13a-14(b) of the Securities and Exchange Act of 1934 and
      18 U.S.C. Section 1350 as adopted Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.




Page 49 of
50




(1)
              Incorporated
      herein by reference to Exhibit 3(a) in Amendment No. 1 to Registrant's
      Registration Statement on Form S-4 (Regis. No.
  33-57915)
 
 (2)
              Incorporated
      herein by reference to Exhibit 3.1 to Registrant’s Quarterly Report on
      Form 10-Q for the quarter ended March 31, 2000 (File No.
      0-13153)
 
 (3)
              Incorporated
      here in by reference to Exhibit of the same number in the Registrant’s
      Annual Report on Form 10-K for the fiscal year ended December 31, 2004
      (File No. 0-13153)




(4)
            Incorporated
      herein by reference to Appendix B to the Registrant’s 2005 Proxy Statement
      for its Annual Meeting of Shareholders (File No.
  0-13153)





(5)
            Incorporated
      by reference to Exhibit 10.3 to the Registrant’s Quarterly Report of Form
      10-Q for the quarter ended June 30, 2005 (File No.
  0-13153)





(6)
            Incorporated
      herein by reference to Appendix A to the Registrant’s 1996 Proxy Statement
      for its Annual Meeting of the Shareholders (File No.
    0-13153)




(7)
            Incorporated
      herein by reference to Appendix A to the Registrant’s 2000 Proxy Statement
      for its Annual Meeting of Shareholders filed on Schedule 14A (File No.
      0-13153)





(8)
            Incorporated
      herein by reference to Appendix A to the Registrant’s 2005 Proxy Statement
      for its Annual Meeting of Shareholders (File No.
  0-13153)




(9)
            Incorporated
      by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form
      10-Q for the quarter ended June 30, 2005 (File No.
  0-13153)





(10)
            Incorporated
      by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form
      10-Q for the quarter ended June 30, 2005 (File No.
  0-13153)




(11)
              Incorporated
      by reference to Exhibit 10.1 to the Registrant’s Current Report on Form
      8-K filed on January 11, 2008 (File No.
0-13153)
 
 (12)
              Incorporated
      by reference to Exhibit 10.2 to the Registrant’s Current Report on Form
      8-K filed on January 11, 2008 (File No.
0-13153)
 
 (13)
              Incorporated
      by reference to Exhibit 10.3 to the Registrant’s Current Report on Form
      8-K filed on January 11, 2008 (File No.
0-13153)
 
 (14)
              Incorporated
      herein by reference to exhibit of same number in the Registrant’s Annual
      Report on Form 10-K for the year ended December 31, 2003 (File No.
      0-13153)





*
Indicates the Registrant’s plans, management contracts and compensatory
arrangements.






Page 50 of
50