<PAGE>

                       HABERSHAM BANCORP AND SUBSIDIARIES

                        Consolidated Financial Statements

                           December 31, 2003 and 2002

                   (With Independent Auditors' Report Thereon)

<PAGE>

                          INDEPENDENT AUDITORS' REPORT

The Board of Directors
Habersham Bancorp:

We have audited the accompanying consolidated balance sheets of Habersham
Bancorp and subsidiaries (the Company) as of December 31, 2003 and 2002, and the
related consolidated statements of income, shareholders' equity and
comprehensive income, and cash flows for each of the years in the three-year
period ended December 31, 2003. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Habersham Bancorp
and subsidiaries at December 31, 2003 and 2002, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2003 in conformity with accounting principles generally
accepted in the United States of America.

As discussed in note 2 to the consolidated financial statements, the Company
changed its method of accounting for goodwill in 2002 and derivative instruments
in 2001.

Atlanta, Georgia
January 23, 2004

<PAGE>

                       HABERSHAM BANCORP AND SUBSIDIARIES

                          Consolidated Balance Sheets

                           December 31, 2003 and 2002

<TABLE>
<CAPTION>
                                                                          2003                 2002
                                                                      -------------       -------------
<S>                                                                   <C>                 <C>
                      ASSETS

Cash and due from banks (note 4)                                      $   8,381,184          13,831,994
Federal funds sold                                                               --          27,137,000
                                                                      -------------         -----------
                 Cash and cash equivalents                                8,381,184          40,968,994
                                                                      -------------         -----------
Investment securities available for sale (note 5)                        72,812,631          54,818,900
Investment securities held to maturity (estimated fair values of
     $5,177,539 in 2003 and $7,211,476 in 2002) - (note 6)                4,859,713           6,889,304
Other investments (notes 7 and 13)                                        1,652,034           2,389,134
Loans held for sale, fair value of $1,530,500
     at December 31, 2003                                                 1,521,900                  --
Loans (notes 8, 13, and 20)                                             265,460,932         307,346,274
     Less allowance for loan losses (note 8)                             (3,643,102)         (3,533,309)
                                                                      -------------         -----------
                 Loans, net                                             261,817,830         303,812,965
                                                                      -------------         -----------
Premises and equipment, net (note 9)                                      9,674,177           6,943,703
Accrued interest receivable                                               1,783,367           2,215,420
Other real estate (note 10)                                               2,634,673           3,197,020
Goodwill, net                                                             2,488,540           2,488,540
Other assets (note 14)                                                    7,087,565           5,686,675
                                                                      -------------         -----------
                 Total assets                                         $ 374,713,614         429,410,655
                                                                      =============         ===========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       2

<PAGE>

<TABLE>
<CAPTION>
                                                                                      2003               2002
                                                                                  ------------       -----------
<S>                                                                               <C>                <C>
                    LIABILITIES AND SHAREHOLDERS' EQUITY

Deposits (notes 11 and 20):

     Noninterest-bearing demand                                                   $ 37,853,329        47,967,072
     Money market and NOW accounts                                                  59,076,674        53,998,843
     Savings                                                                         9,473,852         8,312,857
     Time ($100,000 and over)                                                       63,730,583        93,366,488
     Other time                                                                    109,465,530       132,881,180
                                                                                  ------------       -----------
                 Total deposits                                                    279,599,968       336,526,440
Short-term borrowings (note 11)                                                        578,455           931,665
Federal funds purchased and securities sold
     under repurchase agreements (note 12)                                          12,383,776         8,227,114
Federal Home Loan Bank advances (note 13)                                           30,000,000        30,000,000
Accrued interest payable                                                             1,873,331         2,460,611
Other liabilities                                                                      598,934           521,371
                                                                                  ------------      ------------
                 Total liabilities                                                 325,034,464       378,667,201
                                                                                  ------------      ------------
Shareholders' equity (notes 15 and 17):
     Common stock, $1.00 par value. Authorized 10,000,000 shares; issued and
        outstanding 2,869,278 and 2,815,093 shares
        in 2003 and 2002, respectively                                               2,869,278         2,815,093
     Additional paid-in capital                                                     14,176,580        13,720,900
     Retained earnings                                                              32,469,482        33,530,334
     Accumulated other comprehensive income                                            163,810           677,127
                                                                                  ------------      ------------
                 Total shareholders' equity                                         49,679,150        50,743,454
Commitments (notes 8 and 9)
                                                                                  ------------      ------------
                 Total liabilities and shareholders' equity                       $374,713,614       429,410,655
                                                                                  ============      ============
</TABLE>

                                       3

<PAGE>

                       HABERSHAM BANCORP AND SUBSIDIARIES

                        Consolidated Statements of Income

                  Years ended December 31, 2003, 2002, and 2001

<TABLE>
<CAPTION>
                                                                               2003           2002            2001
                                                                           -----------    -----------     -----------
<S>                                                                        <C>            <C>             <C>
Interest income:

     Loans                                                                 $19,369,556     23,380,051      30,602,652
     Investments:
        Taxable securities                                                   1,900,731      2,025,239       1,902,153
        Tax exempt securities                                                  820,122        928,576       1,012,499
        Other investments                                                      139,894        415,731         689,773
     Federal funds sold                                                         54,593         44,350          55,009
                                                                           -----------    -----------     -----------
                 Total interest income                                      22,284,896     26,793,947      34,262,086
                                                                           -----------    -----------     -----------
Interest expense:

     Time deposits, $100,000 and over                                        2,243,234      3,469,661       5,189,132
     Other deposits                                                          4,009,389      6,360,212      11,869,731
     Federal funds purchased and securities sold under
        repurchase agreements                                                   77,504        414,427         448,720
     Short-term and other borrowings, primarily FHLB advances                1,791,540      1,796,787       2,895,392
                                                                           -----------    -----------     -----------
                 Total interest expense                                      8,121,667     12,041,087      20,402,975
                                                                           -----------    -----------     -----------
                 Net interest income                                        14,163,229     14,752,860      13,859,111
Provision for loan losses (note 8)                                             950,000      1,307,000       1,463,000
                                                                           -----------    -----------     -----------
                 Net interest income after provision for loan losses        13,213,229     13,445,860      12,396,111
                                                                           -----------    -----------     -----------
Noninterest income:

     Gain on sale of loans                                                     808,147        192,800         550,087
     Loan fee income                                                           382,781        343,322         247,988
     Service charges on deposit accounts                                       802,630        724,295         677,668
     Other service charges and commissions                                     219,534        262,021         282,102
     Securities gains, net (notes 5 and 6)                                     211,304        850,869         191,033
     Gain on sale of other investment                                           60,000         50,000              --
     Equity in (loss) earnings of investee (note 7)                                 --        (45,233)        120,336
     Gain on sale of CB Financial Corp. common stock (note 7)                       --        277,182              --
     Income from Company-owned life insurance                                  177,336        177,949         194,056
     Trust services fees                                                       439,566        561,583         365,872
     Other income                                                              771,134        568,216         479,697
                                                                           -----------    -----------     -----------
                 Total noninterest income                                    3,872,432      3,963,004       3,108,839
                                                                           -----------    -----------     -----------
Noninterest expense:
     Salaries and employee benefits (note 17)                                7,613,744      6,786,261       6,508,674
     Occupancy expenses                                                      1,529,737      1,345,206       1,347,554
     Computer services                                                         390,086        462,786         472,110
     Provision for losses on other real estate owned                                --             --          40,000
     Other (note 18)                                                         4,507,353      4,192,633       3,921,350
                                                                           -----------    -----------     -----------
                 Total noninterest expense                                  14,040,920     12,786,886      12,289,688
                                                                           -----------    -----------     -----------
                 Income from continuing operations before income taxes       3,044,741      4,621,978       3,215,262
Income tax expense (note 14)                                                   726,779      1,128,968         819,371
                                                                           -----------    -----------     -----------
                 Income from continuing operations                           2,317,962      3,493,010       2,395,891

Discontinued operations:
     Income from discontinued operations, net of taxes of
        $1,645,464 and $1,653,670 in 2002 and 2001, respectively
        (including loss on disposal of $110,064)                                    --      2,337,441       3,109,285
                                                                           -----------    -----------     -----------
                 Income before cumulative effect of change in
                    accounting principle                                     2,317,962      5,830,451       5,505,176
Cumulative effect of change in accounting principle, net of tax                     --             --        (162,385)
                                                                           -----------    -----------     -----------
                 Net income                                                $ 2,317,962      5,830,451       5,342,791
                                                                           ===========    ===========     ===========
</TABLE>

                                                                     (Continued)

                                       4

<PAGE>

                       HABERSHAM BANCORP AND SUBSIDIARIES

                        Consolidated Statements of Income

                  Years ended December 31, 2003, 2002, and 2001

<TABLE>
<CAPTION>
                                                                               2003           2002            2001
                                                                           -----------    -----------     -----------
<S>                                                                        <C>            <C>             <C>
Income from continuing operations per common
     share - basic                                                         $      0.82           1.27            0.89
Discontinued operations per common share - basic                                    --           0.85            1.15
Cumulative effect of change in accounting principle per
     common share - basic                                                           --             --           (0.06)
                                                                           -----------    -----------     -----------
                 Net income per common share - basic                       $      0.82           2.12            1.98
                                                                           ===========    ===========     ===========
Income from continuing operations per common
     share - diluted                                                       $      0.80           1.24            0.88
Discontinued operations per common share - diluted                                  --           0.83            1.14
Cumulative effect of change in accounting principle per
     common share - diluted                                                         --             --           (0.06)
                                                                           -----------    -----------     -----------
                 Net income per common share - diluted                     $      0.80           2.07            1.96
                                                                           ===========    ===========     ===========
Weighted average number of common shares outstanding                         2,839,063      2,752,242       2,698,746
Weighted average number of common and common equivalent
     shares outstanding                                                      2,895,113      2,815,972       2,729,291
</TABLE>

See accompanying notes to consolidated financial statements.

                                       5

<PAGE>

                       HABERSHAM BANCORP AND SUBSIDIARIES

    Consolidated Statements of Shareholders' Equity and Comprehensive Income

                  Years ended December 31, 2003, 2002, and 2001

<TABLE>
<CAPTION>
                                                                                                          ACCUMULATED
                                                                               ADDITIONAL                    OTHER
                                                 COMPREHENSIVE      COMMON      PAID-IN      RETAINED    COMPREHENSIVE
                                                    INCOME           STOCK      CAPITAL      EARNINGS     INCOME (LOSS)     TOTAL
                                                 -------------   ------------  -----------  ----------   --------------  ----------
<S>                                              <C>             <C>           <C>          <C>          <C>             <C>
Balance at December 31, 2000                                     $  2,698,746   12,417,064  23,666,118       (30,811)    38,751,117
Comprehensive income:
     Net income                                   $ 5,342,791              --           --   5,342,791            --      5,342,791
     Unrealized gains on investment
          securities, net of taxes (note 16)          536,116              --           --          --       536,116        536,116
                                                  -----------
                 Total comprehensive income       $ 5,878,907
                                                  ===========
Cash dividends, $0.24 per share                                            --           --    (647,698)           --       (647,698)
                                                                  -----------  -----------  ----------   -----------     ----------
Balance at December 31, 2001                                        2,698,746   12,417,064  28,361,211       505,305     43,982,326
Comprehensive income:
     Net income                                   $ 5,830,451              --           --   5,830,451            --      5,830,451
     Unrealized gains on investment
           securities, net of taxes (note 16)         171,822              --           --          --       171,822        171,822
                                                  -----------
                 Total comprehensive income       $ 6,002,273
                                                  ===========
Cash dividends, $0.24 per share                                            --           --    (661,328)           --       (661,328)
Issuance of common stock upon exercise of
           stock options                                              116,347    1,303,836          --            --      1,420,183
                                                                  -----------  -----------  ----------   -----------     ----------
Balance at December 31, 2002                                        2,815,093   13,720,900  33,530,334       677,127     50,743,454
Comprehensive income:
     Net income                                   $ 2,317,962              --           --   2,317,962            --      2,317,962
     Unrealized losses on investment
             securities, net of taxes (note 16)      (513,317)             --           --          --      (513,317)      (513,317)
                                                  -----------
                 Total comprehensive income       $ 1,804,645
                                                  ===========
Cash dividends, $1.18 per share                                            --           --  (3,378,814)           --     (3,378,814)
Issuance of common stock upon exercise of
             stock options                                             54,185      455,680          --            --        509,865
                                                                 ------------  -----------  ----------   ------------    ----------
Balance at December 31, 2003                                     $  2,869,278   14,176,580  32,469,482        163,810    49,679,150
                                                                 ============  ===========  ==========   ============    ==========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       6

<PAGE>

                       HABERSHAM BANCORP AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows

                  Years ended December 31, 2003, 2002, and 2001

<TABLE>
<CAPTION>
                                                                                       2003             2002             2001
                                                                                   ------------     ------------     ------------
<S>                                                                                <C>              <C>              <C>
Cash flows from operating activities:
     Net income                                                                    $  2,317,962        5,830,451        5,342,791
     Adjustments to reconcile net income to net cash
        provided by (used in) operating activities:
           Provision for loan losses                                                    950,000        1,307,000        1,463,000
           Provision for losses on other real estate owned                                   --               --           40,000
           Depreciation expense                                                         785,687          616,025          705,560
           (Gain) loss on sale of premises and equipment                                 (2,087)           8,513          (19,302)
           Net amortization (accretion) of premium/discount on
              investment securities                                                     663,156           38,307              (32)
           Securities gains, net                                                       (211,304)        (850,869)        (191,033)
           Gain on sale of other investment                                             (60,000)         (50,000)              --
           Gain on sale of CB Financial Corp. common stock                                   --         (277,182)              --
           Equity in loss (earnings) of investee                                             --           45,233         (120,336)
           Loss (gain) on sale of other real estate                                       8,467           (2,481)          72,562
           Net gain on sale of loans                                                   (808,147)        (192,800)        (550,087)
           Proceeds from sales of loans                                              45,776,797               --               --
           Net increase in loans held for sale                                      (46,490,550)              --               --
           Amortization of intangible assets                                                 --            4,000          238,094
           Deferred income tax (benefit) expense                                       (206,513)        (131,579)         379,700
           Net cash used in discontinued operations                                          --      (25,128,617)     (41,666,692)
           Changes in assets and liabilities:
              Decrease in accrued interest receivable                                   432,053          438,028        1,108,774
              (Increase) decrease in other assets                                      (929,941)         313,295         (830,252)
              Decrease in accrued interest payable                                     (587,280)        (855,592)        (951,140)
              Increase (decrease) in other liabilities                                   77,563          (68,879)        (104,615)
                                                                                   ------------     ------------     ------------
                 Net cash provided by (used in) operating activities                  1,715,863      (18,957,147)     (35,083,008)
                                                                                   ------------     ------------     ------------
Cash flows from investing activities:
     Investment securities available for sale:
        Proceeds from maturity                                                       22,573,728       12,932,887        7,735,714
        Proceeds from sale and calls                                                  9,676,024       12,918,166       10,533,516
        Purchases                                                                   (51,486,821)     (32,091,287)     (20,922,074)
     Investment securities held to maturity:
        Proceeds from maturity                                                        1,310,624        2,565,680        2,500,354
        Proceeds from calls                                                             732,700          305,777               --
     Other investments:
        Proceeds from sale                                                            1,434,200        9,257,300       11,881,600
        Purchases                                                                      (637,100)      (5,131,300)     (11,378,700)
     Proceeds from sale of CB Financial Corp. common stock                                   --        3,308,879               --
     Loans:
        Proceeds from sale of loans                                                          --       31,721,571      110,783,850
        Net decrease (increase) in loans                                             39,506,333      (18,078,687)     (57,550,304)
     Purchases of premises and equipment                                             (3,524,355)      (1,721,102)        (345,342)
     Proceeds from sales of premises and equipment                                       10,281          331,433           34,028
     Dividends received from other investment                                                --           62,042           62,042
     Purchase of Company-owned life insurance                                                --               --         (150,000)
     Net additions of other real estate                                                 (76,756)         (67,056)        (364,061)
     Proceeds from sale of other real estate                                          2,169,438        4,450,021          349,891
     Proceeds from sale of subsidiary, including settlement of
        intercompany loan                                                                    --       26,525,226               --
     Net cash provided by discontinued operations                                            --          271,705          198,054
                                                                                   ------------     ------------     ------------
                 Net cash provided by investing activities                           21,688,296       47,561,255       53,368,568
                                                                                   ------------     ------------     ------------
</TABLE>

                                                                     (Continued)

                                       7

<PAGE>

                       HABERSHAM BANCORP AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows

                  Years ended December 31, 2003, 2002, and 2001

<TABLE>
<CAPTION>
                                                                                     2003            2002             2001
                                                                                -------------    ------------     ------------
<S>                                                                             <C>              <C>              <C>
Cash flows from financing activities:
     Net (decrease) increase in deposits                                        $(56,926,472)         166,154       (4,672,004)
     Net (decrease) increase in short-term borrowings                               (353,210)         662,219         (580,409)
     Proceeds from other borrowings                                                       --               --        4,000,000
     Repayment of other borrowings                                                        --       (5,773,000)        (177,000)
     Net increase (decrease) in federal funds purchased and
        securities sold under repurchase agreements                                4,156,662      (22,223,552)      (5,544,729)
     Repayment of Federal Home Loan Bank advances, net                                    --               --      (48,899,369)
     Payment of cash dividends                                                    (3,378,814)        (661,328)        (647,698)
     Issuance of common stock upon exercise of stock options                         509,865        1,420,183               --
     Net cash provided by discontinued operations                                         --       22,223,887       41,220,075
                                                                                ------------     ------------     ------------
                 Net cash used in financing activities                           (55,991,969)      (4,185,437)     (15,301,134)
                                                                                ------------     ------------     ------------
                 (Decrease) increase in cash and cash equivalents                (32,587,810)      24,418,671        2,984,426
Cash and cash equivalents at beginning of year                                    40,968,994       16,550,323       13,565,897
                                                                                ------------     ------------     ------------
Cash and cash equivalents at end of year                                        $  8,381,184       40,968,994       16,550,323
                                                                                ============     ============     ============
Supplemental disclosures of cash flow information:
      Cash paid during the year for:

        Interest                                                                $  8,708,947       12,896,679       24,354,115
        Income taxes                                                                 650,000        4,080,020        1,148,510

Supplemental disclosures of noncash investing activities:

     Other real estate acquired through loan foreclosures                          1,727,535        2,891,800        3,359,850
     Loans granted to facilitate the sale of other real estate                       188,733               --          195,000
     Transfer of held to maturity securities to available for sale
        upon adoption of SFAS No. 133                                                     --               --          999,000
</TABLE>

See accompanying notes to consolidated financial statements.

                                       8

<PAGE>

                       HABERSHAM BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                  Years ended December 31, 2003, 2002, and 2001

(1)      ORGANIZATION AND BASIS OF PRESENTATION

         The consolidated financial statements of Habersham Bancorp and
         subsidiaries (the Company) include the financial statements of
         Habersham Bancorp and its wholly owned subsidiaries: Habersham Bank
         (the Bank) and The Advantage Group, Inc. The Bank owns 100% of
         Advantage Insurers, Inc. and, prior to December 2002, 100% of
         BancMortgage Financial Corp (BancMortgage) - (see note 3). All
         intercompany accounts and transactions have been eliminated in
         consolidation.

         During 1999, BancMortgage formed a wholly owned subsidiary,
         BancMortgage Reinsurance Ltd., a reinsurance company incorporated in
         Turks and Caicos. The subsidiary provides reinsurance to companies
         offering private mortgage insurance. During 2002, the Company sold
         BancMortgage to the then existing management of BancMortgage.

         The Company's continuing primary business is the operation of banks in
         rural and suburban communities in Habersham, White, Cherokee, Warren,
         and Gwinnett counties in Georgia. The Company's primary source of
         revenue is providing loans to businesses and individuals in its market
         area.

         (a)      USE OF ESTIMATES

                  The preparation of financial statements in conformity with
                  accounting principles generally accepted in the United States
                  of America requires management to make estimates and
                  assumptions that affect the reported amounts of assets and
                  liabilities and disclosure of contingent assets and
                  liabilities at the date of the financial statements and the
                  reported amounts of revenues and expenses during the reporting
                  period. Actual results could differ from those estimates.

                  Material estimates that are particularly susceptible to
                  significant change in the near term relate to the
                  determination of the allowance for loan losses and the
                  valuation of real estate acquired in connection with
                  foreclosures or in satisfaction of loans. In connection with
                  the determination of the allowance for loan losses and the
                  valuation of other real estate, management obtains independent
                  appraisals for significant properties. A substantial portion
                  of the Company's loans is secured by real estate in Habersham,
                  White, and Cherokee Counties and the metropolitan Atlanta
                  area. Accordingly, the ultimate collectibility of a
                  substantial portion of the Company's loan portfolio is
                  susceptible to changes in real estate market conditions in
                  these areas.

         (b)      INTEREST RATE RISK

                  The Company's assets and liabilities are generally monetary in
                  nature and interest rates have an impact on the Company's
                  performance. The Company manages the effect of interest rates
                  on its performance by striving to match maturities and
                  interest sensitivity between loans, investment securities,
                  deposits, and other borrowings. However, a significant change
                  in interest rates could have an effect on the Company's
                  results of operations.

         (c)      DISCONTINUED OPERATIONS

                  The consolidated financial statements for all years are
                  presented to separately report results of discontinued
                  operations from results of continuing operations. Disclosures
                  included herein pertain to the Company's continuing operations
                  unless otherwise noted (see note 3).

                                                                     (Continued)

                                       9

<PAGE>

                       HABERSHAM BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2003, 2002, and 2001

(2)      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         The accounting and reporting policies of the Company conform with
         accounting principles generally accepted in the United States of
         America and with general practice within the banking industry. The
         following is a summary of the more significant accounting policies:

         (a)      CASH AND CASH EQUIVALENTS

                  Cash and cash equivalents include cash on hand, amounts due
                  from banks, and Federal funds sold. Federal funds are
                  generally sold for one-day periods.

         (b)      INVESTMENT SECURITIES

                  The Company classifies its investment securities into one of
                  two categories: available for sale or held to maturity.

                  Investment securities classified as available for sale are
                  carried at fair value. The related unrealized gain or loss,
                  net of deferred income taxes, is included as a separate
                  component of shareholders' equity. Gains and losses from
                  dispositions are based on the net proceeds and the adjusted
                  carrying amounts of the securities sold, using the specific
                  identification method.

                  Investment securities classified as held to maturity are
                  stated at cost, adjusted for amortization of premiums, and
                  accretion of discounts. The Company has the intent and ability
                  to hold these investment securities to maturity.

                  Purchase premiums and discounts on investment securities are
                  amortized and accreted to interest income using the level
                  yield method on the outstanding principal balances, taking
                  into consideration prepayment assumptions.

                  A decline in the fair value of any security below cost that is
                  deemed other than temporary is charged to income resulting in
                  the establishment of a new cost basis for the security.

         (c)      OTHER INVESTMENTS

                  At December 31, 2003 and 2002, other investments are primarily
                  comprised of stock of the Federal Home Loan Bank of Atlanta.

                  Investment in stock of a Federal Home Loan Bank is required of
                  every federally insured institution that utilizes its
                  services. Federal Home Loan Bank stock is considered
                  restricted stock, as defined in Statement of Financial
                  Accounting Standards (SFAS) No. 115; accordingly, the
                  provisions of SFAS No. 115 are not applicable to this
                  investment. The Federal Home Loan Bank stock is reported in
                  the consolidated financial statements at cost. Dividend income
                  is recognized when earned.

                  The Company's investment in CB Financial Corp. was accounted
                  for using the equity method. Under the equity method, the
                  investment was initially recorded at cost. Subsequently, the
                  carrying amount of the investment was increased to reflect the
                  Company's share of income of the investee and reduced to
                  reflect the Company's share of losses of the investee or
                  dividends received from the investee.

                                                                     (Continued)

                                       10
<PAGE>

                       HABERSHAM BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2003, 2002, and 2001

(d)      DERIVATIVE INSTRUMENTS

         The Company adopted SFAS No. 133, "Accounting for Derivative
         Instruments and Hedging Activities", as amended, on January 1, 2001. In
         accordance with the transition provisions of SFAS No. 133, the Company
         recorded a net-of-tax cumulative effect loss of $162,000 on January 1,
         2001 to reflect the fair value of forward commitments to sell
         mortgage-backed securities held by BancMortgage. The provisions of SFAS
         No. 133 allow for a one-time transfer of investment securities
         previously classified as held to maturity to available for sale upon
         adoption. As a result, the Company transferred approximately $999,000
         of investment securities previously classified as held to maturity to
         its available for sale portfolio on January 1, 2001.

         In the normal course of business, as part of its former mortgage
         banking operations, the Company extended interest rate lock commitments
         to borrowers who applied for loan funding and met certain credit and
         underwriting criteria. Such commitments were typically for short terms.
         Such commitments to originate fixed-rate mortgage loans for resale and
         forward commitments to sell mortgage-backed securities were the
         Company's only derivative instruments. The Company recorded its forward
         commitments to sell mortgage-backed securities at fair value and did
         not account for these as hedges.

         Subsequent to the sale of BancMortgage, other than a minimal amount of
         interest rate lock commitments to originate mortgage loans for resale,
         the Company has no derivative instruments.

(e)      LOANS HELD FOR SALE

         Mortgage loans held for sale are carried at the lower of cost or market
         determined on an aggregate basis. Market values are determined on the
         basis of relevant delivery prices in the secondary mortgage market. At
         December 31, 2003, there were no valuation allowances relating to
         mortgage loans held for sale.

(f)      LOANS

         Loans are stated at the amount of unpaid principal, reduced by unearned
         income and the allowance for loan losses. Unearned income, primarily
         arising from discount basis installment loans, is recognized as
         interest income over the terms of the loans by the interest method.

         Interest on loans is generally recorded over the term of the loans
         using the simple interest method on the unpaid principal balance.
         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.

         Loan origination fees and certain direct origination costs are deferred
         and capitalized, respectively, and recognized over the life of the loan
         as an adjustment of the yield on the related loan based on the interest
         method.

         Impaired loans are measured based on the present value of expected
         future cash flows, discounted at the loan's effective interest rate, or
         at the loan's observable market price, or the fair value of the

                                                                     (Continued)

                                       11

<PAGE>

                       HABERSHAM BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2003, 2002, and 2001

         collateral if the loan is collateral dependent. Loans that are
         determined to be impaired require a valuation allowance equivalent to
         the amount of the impairment. The valuation allowance is established
         through the provision for loan losses.

         A loan is considered impaired when, based on current information and
         events, it is probable that the Company will be unable to collect all
         amounts due according to the contractual terms of the note agreement.
         Cash receipts on impaired loans which are accruing interest are applied
         to principal and interest under the contractual terms of the loan
         agreement. Cash receipts on impaired loans for which the accrual of
         interest has been discontinued are applied to reduce the principal
         amount of such loans until the required principal payments have been
         brought current and, if the future collection of principal is probable,
         are recognized as interest income thereafter.

(g)      ALLOWANCE FOR LOAN LOSSES

         The allowance for loan losses is maintained at a level estimated to be
         adequate to provide for probable losses in the loan portfolio.
         Management follows a consistent procedural discipline and accounts for
         loan loss contingencies in accordance with SFAS No. 5, "Accounting for
         Contingencies." The following is a description of how each portion of
         the allowance for loan losses is determined.

         For the purposes of determining the required allowance for loan losses
         and resulting periodic provisions, the Company segregates the loan
         portfolio into broad segments, such as: commercial real estate;
         residential real estate; construction; commercial business; and
         consumer loans. The Company provides for a general allowance for losses
         inherent in the portfolio by the above categories. The general
         allowance for losses on problem loans in these categories is 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 trends and conditions. General loss percentages for the
         problem loans are determined based upon loss percentages by loan
         classification as well as historical loss experience. Specific
         allowances are provided in the event that the specific collateral
         analysis on each problem loan indicates that the probable loss upon
         liquidation of collateral would be in excess of the general percentage
         allocation. For the remainder of the portfolio, general allowances for
         losses are calculated based on estimates of inherent losses which
         probably exist as of the evaluation date even though they might not
         have been identified by the more objective processes used for the
         portion of the allowance described above. Loss percentages used for
         this portion of the portfolio are generally based on historical loss
         factors adjusted where necessary for qualitative factors. This portion
         of the allowance is particularly subjective and requires judgments
         based on qualitative factors which do not lend themselves to exact
         mathematical calculations, such as: trends in delinquencies and
         nonaccruals; migration trends in the portfolio; trends in volume,
         terms, and portfolio mix; changes in lending policies and procedures;
         evaluations of the risk identification process; changes in the outlook
         for local and regional economic conditions; concentrations of credit;
         and peer group comparisons.

         Loans deemed uncollectible are charged to the allowance. Provisions for
         loan losses and recoveries on loans previously charged off are added to
         the allowance.

         Management believes that 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

                                                                     (Continued)

                                       12

<PAGE>

                       HABERSHAM BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2003, 2002, and 2001

         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.

(h)      OTHER REAL ESTATE

         Other real estate includes real estate acquired through foreclosure.
         Other real estate is carried at the lower of its recorded amount at
         date of foreclosure or estimated fair value less costs to sell. Any
         excess of carrying value of the related loan over the fair value of the
         real estate at date of foreclosure is charged against the allowance for
         loan losses. Any expense incurred in connection with holding such real
         estate or resulting from any writedowns subsequent to foreclosure is
         included in other noninterest expense.

(i)      PREMISES AND EQUIPMENT

         Premises and equipment are stated at cost less accumulated
         depreciation. Depreciation is computed using primarily the
         straight-line method over the estimated useful lives of the assets.
         Useful lives for depreciation are three years for computer software and
         automobiles; primarily 40 years for buildings; ten years for furniture,
         fixtures, and equipment; and the lease term or the life of the
         property, whichever is shorter, for leasehold improvements.

(j)      GOODWILL AND OTHER INTANGIBLE ASSETS

         In June 2001, the Financial Accounting Standards Board (FASB) issued
         SFAS No. 142, "Goodwill and Other Intangible Assets," which eliminates
         amortization of goodwill and intangible assets that have indefinite
         useful lives and requires annual tests of impairments of those assets.
         SFAS No. 142 also provides specific guidance about how to determine and
         measure goodwill and intangible asset impairments, and requires
         additional disclosures of information about goodwill and other
         intangible assets. The provisions of SFAS No. 142 were required to be
         applied starting with fiscal years beginning after December 15, 2001
         and applied to all goodwill and other intangible assets recognized in
         financial statements at the date of adoption.

         In accordance with the provisions of SFAS No. 142, the Company tested
         its goodwill for impairment. To accomplish this, the Company identified
         its reporting units and determined the carrying value of each reporting
         unit by assigning the assets and liabilities, including the existing
         goodwill and intangible assets, to those reporting units as of the date
         of adoption. The Company completed the test for goodwill impairment as
         required under SFAS No. 142 during the second quarter of 2003 and
         determined that the goodwill recorded as of January 1, 2003 was not
         impaired.

                                                                     (Continued)

                                       13
<PAGE>

                       HABERSHAM BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2003, 2002, and 2001

         At December 31, 2002, the Company had net unamortized goodwill of
         $2,488,540. The Company recorded amortization expense relating to such
         goodwill in the amount of approximately $257,300 for the year ended
         December 31, 2001. The following is a summary of net income and net
         income per share for the year ended December 31, 2001 excluding
         goodwill amortization expense.

<TABLE>
<S>                                                   <C>
Reported net income                                   $ 5,342,791
Add back goodwill amortization                            257,300
                                                      -----------
                 Adjusted net income                  $ 5,600,091
                                                      ===========
Basic net income per share:
     Reported net income                              $      1.98
     Add back goodwill amortization                          0.10
                                                      -----------
                 Adjusted net income                  $      2.08
                                                      ===========
Diluted net income per share:
     Reported net income                              $      1.96
     Add back goodwill amortization                          0.09
                                                      -----------
                 Adjusted net income                  $      2.05
                                                      ===========
</TABLE>

(k)      INCOME TAXES

         Income taxes are accounted for under the asset and liability method.
         Provisions for income taxes are based upon amounts reported in the
         statements of income (after exclusion of nontaxable income such as
         interest on state and municipal securities) and include deferred taxes
         on temporary differences between financial statement and tax bases of
         assets and liabilities measured using enacted tax rates expected to
         apply to taxable income in the year in which the differences are
         expected to be recovered or settled. The effect on deferred tax assets
         and liabilities of a change in tax rates is recognized in income in the
         period that includes the enactment date.

(l)      EARNINGS PER SHARE

         Basic earnings per share is computed by dividing net income by weighted
         average shares outstanding. Diluted earnings per share is computed by
         dividing net income by weighted average shares outstanding plus common
         share equivalents resulting from dilutive stock options, determined
         using the treasury stock method.

(m)      COMPREHENSIVE INCOME

         Other comprehensive income for the Company consists of items recorded
         directly in equity under SFAS No. 115, "Accounting for Certain
         Investments in Debt and Equity Securities."

(n)      SEGMENT INFORMATION

         SFAS No. 131 requires that certain disclosures be made by public
         business enterprises to report information about operating segments in
         annual financial statements and requires those enterprises to report
         selected information about operating segments in interim financial
         reports issued to shareholders. It also establishes standards for
         related disclosures about products and services,

                                                                     (Continued)

                                       14
<PAGE>

                       HABERSHAM BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2003, 2002, and 2001

         geographic areas, and major customers. Prior to the sale of
         BancMortgage, the Company's principal segments were banking and
         mortgage banking. Subsequently, the Company operates primarily as one
         segment.

(o)      STOCK-BASED COMPENSATION

         In December 2002, the FASB issued SFAS No. 148, "Accounting for
         Stock-Based Compensation - Transition and Disclosure an amendment of
         FASB Statement No. 123." SFAS No. 148 amends SFAS No. 123, "Accounting
         for Stock-Based Compensation," to provide alternative methods of
         transition for an entity that voluntarily changes to the fair value
         based method of accounting for stock-based employee compensation. It
         also amends the disclosure provisions of SFAS No. 123 to require
         prominent disclosure about the effects on reported net income of an
         entity's accounting policy decisions with respect to stock-based
         employee compensation. Finally, SFAS No. 148 also amends Accounting
         Principles Board (APB) Opinion No. 28, "Interim Financial Reporting,"
         to require disclosure about those effects in the interim financial
         information. The Bank adopted the provisions of SFAS No. 148 effective
         December 31, 2002.

         The Bank applies APB Opinion No. 25, "Accounting for Stock Issued to
         Employees," and related interpretations in accounting for its stock
         option plans. Accordingly, compensation cost is measured as the excess,
         if any, of the quoted market price of the Bank's stock at the date of
         grant over the amount an employee must pay to acquire the stock.

         Had compensation cost for the Company's stock option plans been
         determined based on the fair value at the grant dates for awards under
         those plans consistent with the method included in SFAS No. 123, the
         Company's net income and income per share for 2003, 2002, and 2001
         would have been reduced to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                             2003          2002          2001
                                          -----------    ---------    ----------
<S>                                       <C>            <C>          <C>
Net income                                $ 2,317,962    5,830,451     5,342,791
Deduct:
     Total stock-based compensation
      expense determined under fair
      value based method, net of related
      tax effect                             (686,291)    (981,163)     (693,398)
                                          -----------    ---------     ---------
                 Pro forma                $ 1,631,671    4,849,288     4,649,393
                                          ===========    =========     =========
Net income per common share - basic:

     As reported                                 0.82         2.12          1.98
     Pro forma                                   0.57         1.76          1.72
Net income per common share - diluted:

     As reported                                 0.80         2.07          1.96
     Pro forma                                   0.56         1.72          1.70
</TABLE>

                                                                     (Continued)

                                       15
<PAGE>

                       HABERSHAM BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2003, 2002, and 2001

(p)      RECENT ACCOUNTING PRONOUNCEMENTS

         In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
         Accounting and Disclosure Requirements for Guarantees, Including
         Indirect Guarantees of Indebtedness of Others" (FIN 45). FIN 45
         requires that the guarantor recognize, at the inception of certain
         guarantees, a liability for the fair value of the obligation undertaken
         in issuing such guarantee. FIN 45 also requires additional disclosure
         about the guarantor's obligations under certain guarantees that it has
         issued. The initial recognition and measurement provisions of this
         interpretation are applicable on a prospective basis to guarantees
         issued or modified after December 31, 2002 and the disclosure
         requirements are effective after December 15, 2002. The adoption of FIN
         45 did not have a material impact on the Company's financial condition
         or results of operations.

         In January 2003, the FASB issued Interpretation No. 46, "Consolidation
         of Variable Interest Entities and Interpretation of ARB No. 51" (FIN
         46). In December 2003, the FASB reissued FIN 46 (FIN 46R). FIN 46
         establishes the criteria for consolidating variable interest entities.
         The adoption of FIN 46 and FIN 46R is not expected to have a material
         impact on the consolidated financial statements of the Company as the
         Company does not have a variable interest in any entity.

         In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement
         133 on Derivative Instruments and Hedging Activities." SFAS No. 149
         amends and clarifies financial accounting and reporting for derivative
         instruments, including certain derivative instruments embedded in other
         contracts (collectively referred to as derivatives) and for hedging
         activities under SFAS No. 133. SFAS No. 149 is effective for contracts
         entered into or modified after June 30, 2003. The adoption of SFAS No.
         149 did not have a significant effect on the Company's consolidated
         financial statements.

         In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
         Financial Instruments with Characteristics of Both Liabilities and
         Equity." SFAS No. 150 establishes standards for how an issuer
         classifies and measures certain financial instruments with
         characteristics of both liabilities and equity, and imposes certain
         additional disclosure requirements. The provisions of SFAS No. 150 are
         generally effective for all financial instruments entered into or
         modified after May 31, 2003, and otherwise is effective at the
         beginning of the first interim period beginning after June 15, 2003.
         The adoption of this standard did not have a significant effect on the
         Company's consolidated financial statements.

                                                                     (Continued)

                                       16
<PAGE>

                       HABERSHAM BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2003, 2002, and 2001

(3)      DISCONTINUED OPERATIONS

         During the year ended December 31, 2002, the Company sold its mortgage
         banking subsidiary, BancMortgage Financial Corp., to the then existing
         management of BancMortgage, resulting in a loss of $110,064. The
         Company's consolidated financial statements have been reclassified to
         reflect the operations of BancMortgage as discontinued for the years
         ended December 31, 2002 and 2001. Financial information for the
         discontinued operations including the loss on sale is as follows:

<TABLE>
<CAPTION>
                                                YEARS ENDED DECEMBER 31,
                                              ----------------------------
                                                  2002            2001
                                              ------------     -----------
<S>                                           <C>              <C>
Net interest income                           $  4,344,227       4,250,349
Provision for loan losses                         (360,619)       (142,258)
Gain on sale of loans                           24,901,895      23,082,341
Other income                                     4,039,416       5,040,945
Salaries and employee benefits                 (24,008,524)    (21,770,940)
Other expense                                   (4,933,490)     (5,697,482)
Income tax expense                              (1,645,464)     (1,653,670)
Cumulative effect of change in accounting
     principle                                          --        (162,385)
                                              ------------     -----------
                 Net income                   $  2,337,441       2,946,900
                                              ============     ===========
</TABLE>

(4)      RESERVE REQUIREMENTS

         At December 31, 2003 and 2002, the Federal Reserve Bank required that
         the Bank maintain average reserve balances of $576,000 and $1,934,000,
         respectively.

                                                                     (Continued)

                                       17
<PAGE>

                       HABERSHAM BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2003, 2002, and 2001

(5)      INVESTMENT SECURITIES AVAILABLE FOR SALE

         Amortized cost, estimated fair values, and gross unrealized gains and
         losses of investment securities available for sale are as follows:

<TABLE>
<CAPTION>
                                                  GROSS       GROSS
                                 AMORTIZED      UNREALIZED  UNREALIZED    ESTIMATED
                                   COST           GAINS       LOSSES      FAIR VALUE
                                ------------    ----------  ----------    ----------
<S>                             <C>             <C>         <C>           <C>
December 31, 2003:
     U.S. treasuries            $ 14,770,436       54,925    (158,140)    14,667,221
     U.S. government agencies     45,399,109      292,602    (419,051)    45,272,660
     States and political
        subdivisions              11,644,889      591,844     (41,851)    12,194,882
     Equity investments              750,000           --     (72,132)       677,868
                                ------------    ---------    --------     ----------
                 Total          $ 72,564,434      939,371    (691,174)    72,812,631
                                ============    =========    ========     ==========
December 31, 2002:
     U.S. treasuries            $    499,626       14,982          --        514,608
     U.S. government agencies     40,968,954      688,246     (67,340)    41,589,860
     States and political
        subdivisions              11,574,370      488,147     (51,059)    12,011,458
     Equity investments              750,000           --     (47,026)       702,974
                                ------------    ---------    --------     ----------
                 Total          $ 53,792,950    1,191,375    (165,425)    54,818,900
                                ============    =========    ========     ==========
</TABLE>

         Proceeds from sales and calls of available for sale securities during
         2003, 2002, and 2001 were $9,676,024, $12,918,166, and $10,533,516,
         respectively.

         Gross gains of $215,014, $876,548, and $194,870 were recognized on
         those sales for 2003, 2002, and 2001, respectively. Gross losses of
         $11,333, $25,679, and $3,837 were recognized on those sales for 2003,
         2002, and 2001, respectively.

                                                                     (Continued)

                                       18


<PAGE>

                       HABERSHAM BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2003, 2002, and 2001

         The following investments available for sale have an unrealized loss at
         December 31, 2003 for which an other than temporary impairment has not
         been recognized.

<TABLE>
<CAPTION>
                                                 ESTIMATED       UNREALIZED
                                                 FAIR VALUE         LOSS
                                               -------------     ----------
<S>                                            <C>               <C>
Unrealized loss for less than 12 months:
     U.S. treasuries                           $   8,650,151      (158,140)
     U.S. government agencies                     27,055,607      (417,297)
     States and political subdivisions             1,889,711       (41,851)
                                               -------------      --------
                                                  37,595,469      (617,288)
                                               -------------      --------
Unrealized loss for greater than 12 months:
     U.S. government agencies                        368,105        (1,754)
     Equity investments                              677,868       (72,132)
                                               -------------      --------
                                                   1,045,973       (73,886)
                                               -------------      --------
                                               $  38,641,442      (691,174)
                                               =============      ========
</TABLE>

         At December 31, 2003, there were 16 U.S. Treasury, 38 U.S. government
         agency, and eight states and political subdivision securities with an
         unrealized loss for less than 12 months and one U.S. government agency
         security and one equity investment with an unrealized loss for more
         than 12 months. The total fair value of the securities with an
         unrealized loss at December 31, 2003 represented 98.24% of their
         amortized cost; therefore, the impairment is not considered severe.
         While the duration is dependent on the market, 22% of the duration of
         the existing unrealized loss could be shortened by the issuing agency
         calling the securities.

         The amortized cost and estimated fair values of investment securities
         available for sale, exclusive of equity investments, at December 31,
         2003, by contractual maturity, are shown below. Expected maturities
         will differ from contractual maturities because borrowers may have the
         right to call or prepay obligations with or without call or prepayment
         penalties. Callable securities and mortgage-backed securities are
         included in the year of their contractual maturity date.

<TABLE>
<CAPTION>
                                          AMORTIZED       ESTIMATED
                                            COST          FAIR VALUE
                                         -----------      ----------
<S>                                      <C>              <C>
Due in one year or less                  $   204,996         205,743
Due after one year through five years      5,309,372       5,385,229
Due after five years through ten years    17,825,312      17,949,052
Due after ten years                       48,474,754      48,594,739
                                         -----------      ----------
                 Total                   $71,814,434      72,134,763
                                         ===========      ==========
</TABLE>

         Investment securities available for sale with carrying values of
         approximately $44,527,000 and $51,121,000 were pledged as collateral at
         December 31, 2003 and 2002, respectively, for Federal Home Loan Bank
         advances, public deposits, and other deposits, as required by law.

                                                                     (Continued)

                                       19
<PAGE>

                       HABERSHAM BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2003, 2002 and 2001

(6)      INVESTMENT SECURITIES HELD TO MATURITY

         Amortized cost, estimated fair values, and gross unrealized gains and
         losses of investment securities held to maturity are as follows:

<TABLE>
<CAPTION>
                                                         GROSS             GROSS
                                     AMORTIZED         UNREALIZED        UNREALIZED         ESTIMATED
                                       COST              GAINS             LOSSES           FAIR VALUE
                                    -----------        ----------        ----------         ----------
<S>                                 <C>                <C>               <C>                <C>
December 31, 2003:
   U.S. government agencies         $   193,008            12,985                --            205,993
   States and political
      subdivisions                    4,666,705           304,841                --          4,971,546
                                    -----------        ----------        ----------         ----------
               Total                $ 4,859,713           317,826                --          5,177,539
                                    ===========        ==========        ==========         ==========
December 31, 2002:
   U.S. government agencies         $   248,840            16,500                --            265,340
   States and political
      subdivisions                    6,640,464           305,672                --          6,946,136
                                    -----------        ----------        ----------         ----------
               Total                $ 6,889,304           322,172                --          7,211,476
                                    ===========        ==========        ==========         ==========
</TABLE>

         There were no investments held to maturity at December 31, 2003 that
         had an unrealized loss.

         Proceeds from calls of investment securities held to maturity during
         2003 and 2002 were $732,700 and $305,777, respectively. Gross gains of
         $7,623 were recognized on those calls for 2003.

         The amortized cost and estimated fair values of securities held to
         maturity at December 31, 2003, by contractual maturity, are shown
         below. Expected maturities will differ from contractual maturities
         because borrowers may have the right to call or prepay obligations with
         or without call or prepayment penalties. Callable securities and
         mortgage-backed securities are included in the year of their
         contractual maturity date.

<TABLE>
<CAPTION>
                                                                       AMORTIZED              ESTIMATED
                                                                         COST                 FAIR VALUE
                                                                     --------------           ----------
<S>                                                                  <C>                      <C>
Due in one year or less                                              $      505,034              511,033
Due after one year through five years                                     1,713,491            1,840,558
Due after five years through ten years                                    1,093,759            1,178,464
Due after ten years                                                       1,547,429            1,647,484
                                                                     --------------            ---------
               Total                                                 $    4,859,713            5,177,539
                                                                     ==============            =========
</TABLE>

         Investment securities held to maturity with carrying values of
         approximately $3,453,000 and $5,439,000 were pledged as collateral at
         December 31, 2003 and 2002, respectively, for public deposits and other
         deposits, as required by law.

                                                                     (Continued)

                                       20

<PAGE>

                       HABERSHAM BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2003, 2002 and 2001

(7)      OTHER INVESTMENTS

         Other investments at December 31, 2003 and 2002 are summarized as
         follows:

<TABLE>
<CAPTION>
                                                                         2003                 2002
                                                                     -----------            ---------
<S>                                                                  <C>                    <C>
Federal Home Loan Bank stock                                         $ 1,500,000            2,137,100
Georgia Community Life Insurance Company common stock                     27,000               27,000
Community Financial Services, Inc. common stock                          100,000              100,000
Southeast Bankcard Association, Inc. common stock                         25,000               25,000
Forsyth Bancshares, Inc. common stock                                         --              100,000
Federal National Mortgage Association common stock                            34                   34
                                                                     -----------            ---------
               Total                                                 $ 1,652,034            2,389,134
                                                                     ===========            =========
</TABLE>

         The Company's former investment in CB Financial Corp. was accounted for
         using the equity method. Included in the initial investment in CB
         Financial Corp. common stock was approximately $1,278,000 in excess
         cost over the Company's underlying equity in the net assets of this
         investee. For the years ended December 31, 2002 and 2001, the Company
         recorded $(45,233) and $120,336, respectively, as equity in (loss)
         earnings of CB Financial Corp. Amortization of related excess cost over
         basis in CB Financial Corp. common stock for 2001 totaled $85,212.
         During the year ended December 31, 2002, the Company sold its
         investment in CB Financial Corp. for proceeds of $3,308,879 and
         recorded a gain of $277,182.

(8)      LOANS

         Loans at December 31, 2003 and 2002 are summarized as follows:

<TABLE>
<CAPTION>
                                                                  2003                            2002
                                                            --------------                    -----------
<S>                                                         <C>                               <C>
Real estate:
     Construction                                           $   51,053,828                    106,759,853
     Other                                                     183,429,787                    162,542,652
Commercial, financial, and agricultural                         14,771,944                     17,070,602
Consumer installment                                            16,355,605                     21,294,151
                                                            --------------                    -----------
                                                               265,611,164                    307,667,258
Less:
     Unamortized loan origination fees, net                        117,089                        250,749
     Unearned credit life premiums                                  29,459                         59,532
     Unamortized discount on SBA loans sold                          3,684                         10,703
     Allowance for loan losses                                   3,643,102                      3,533,309
                                                            --------------                    -----------
                        Total                               $  261,817,830                    303,812,965
                                                            ==============                    ===========
</TABLE>

                                                                     (Continued)

                                       21

<PAGE>

                       HABERSHAM BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2003, 2002 and 2001

         Changes in the allowance for loan losses are as follows:

<TABLE>
<CAPTION>
                                                      2003                 2002                 2001
                                                 -------------           ---------            ---------
<S>                                              <C>                     <C>                  <C>
Balance, January 1                               $   3,533,309           3,601,877            3,189,187
Provision for loan losses                              950,000           1,307,000            1,463,000
Loans charged off                                   (1,148,275)         (1,547,722)          (1,257,140)
Recoveries                                             308,068             172,154              206,830
                                                 -------------           ---------            ---------
Balance, December 31                             $   3,643,102           3,533,309            3,601,877
                                                 =============           =========            =========
</TABLE>

         The Company considers a loan to be impaired when it is probable that it
         will be unable to collect all amounts due according to the original
         terms of the loan agreement. The Company measures impairment of a loan
         on a loan-by-loan basis for commercial real estate, commercial
         business, and agricultural loans. Residential mortgages, installment,
         and other consumer loans are considered smaller balance, homogenous
         loans which are not evaluated individually for impairment. Amounts of
         impaired loans that are not probable of collection are charged off
         immediately. Impaired loans and related amounts included in the
         allowance for loan losses at December 31, 2003 and 2002 are as follows:

<TABLE>
<CAPTION>
                                                      2003                             2002
                                       -----------------------------       --------------------------
                                                           ALLOWANCE                        ALLOWANCE
                                         BALANCE             AMOUNT         BALANCE           AMOUNT
                                       -----------         ---------       ---------        ---------
<S>                                    <C>                 <C>             <C>              <C>
Impaired loans, with a related
   allowance                           $ 1,823,990           345,450       1,930,318          241,400
Impaired loans, without related
   allowance                               475,806                --         187,167               --
</TABLE>

         The average amount of impaired loans during 2003, 2002, and 2001 was
         $2,446,028, $3,204,728, and $1,962,408, respectively. The interest
         income recognized on such loans was $113,450 in 2003, $91,914 in 2002,
         and $145,584 in 2001, which approximated the amount of interest
         received on the cash basis.

         As of December 31, 2003 and 2002, Habersham Bank's loans to customers
         for agribusiness purposes in the poultry industry were approximately
         $5.7 million and $6.0 million, respectively. There is no other
         significant concentration of loans to customers in a particular
         industry.

         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 loss in the event of nonperformance by the
         other party to the financial instrument for commitments to extend
         credit and standby letters of credit is represented by the contractual
         amount 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, 2003 and 2002, the Company had outstanding loan
         commitments approximating $45,900,000 and $76,807,000, respectively,
         and standby letters of credit approximating $3,852,000 and $2,788,000,
         respectively. The amount of collateral obtained, if deemed necessary,
         for these financial instruments by the Company, upon extension

                                                                     (Continued)

                                       22

<PAGE>

                       HABERSHAM BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2003, 2002 and 2001

         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 terms of the contract and the collateral
         proved to be of no value is equal to the face amount of the financial
         instrument.

(9)      PREMISES AND EQUIPMENT

         Premises and equipment are summarized as follows:

<TABLE>
<CAPTION>
                                                                                DECEMBER 31
                                                                     --------------------------------
                                                                         2003                 2002
                                                                     ------------          ----------
<S>                                                                  <C>                   <C>
Land                                                                 $  1,448,000           1,224,000
Buildings                                                               8,915,400           6,482,824
Furniture and equipment                                                 6,248,470           6,762,942
                                                                     ------------          ----------
               Total                                                   16,611,870          14,469,766
Less accumulated depreciation                                           6,937,693           7,526,063
                                                                     ------------          ----------
               Premises and equipment, net                           $  9,674,177           6,943,703
                                                                     ============          ==========
</TABLE>

         The Company has entered into operating lease agreements for property
         and equipment through 2008. Approximate minimum rentals under such
         leases are as follows:

<TABLE>
<S>                     <C>
2004                    $ 126,420
2005                      114,078
2006                       81,040
2007                       27,958
2008                        4,011
                        ---------
                        $ 353,507
                        =========
</TABLE>

         Rental expense was $169,350 in 2003, $131,196 in 2002, and $136,224 in
         2001.

(10)     OTHER REAL ESTATE OWNED

         Other real estate owned at December 31, 2003 and 2002 consists of the
         following:

<TABLE>
<CAPTION>
                                            2003                 2002
                                        -----------            ---------
<S>                                     <C>                    <C>
Commercial real estate                  $ 1,573,957            1,725,624
Residential properties                    1,060,716            1,511,396
                                        -----------            ---------
                                          2,634,673            3,237,020
Valuation allowance                              --              (40,000)
                                        -----------            ---------
                                        $ 2,634,673            3,197,020
                                        ===========            =========
</TABLE>

                                                                     (Continued)

                                       23

<PAGE>

                       HABERSHAM BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2003, 2002 and 2001

         The following is a summary of the activity in the allowance for other
         real estate owned:

<TABLE>
<CAPTION>
                                                                         2003                   2002
                                                                     -----------               ------
<S>                                                                  <C>                       <C>
Balance, beginning of year                                           $    40,000               40,000
Provision for losses                                                          --                   --
Charge-offs                                                              (40,000)                  --
                                                                     -----------               ------
Balance, end of year                                                 $        --               40,000
                                                                     ===========               ======
</TABLE>

(11)     DEPOSITS AND BORROWINGS

         At December 31, 2003, the scheduled maturities of certificates of
         deposit are as follows:

<TABLE>
<S>                                              <C>
Six months or less                               $   97,912,927
Over six through 12 months                           29,595,506
Over one year through five years                     45,687,680
                                                 --------------
           Total                                 $  173,196,113
                                                 ==============
</TABLE>

         Short-term borrowings of $578,455 and $931,665 at December 31, 2003 and
         2002, respectively, consists of a U.S. Treasury, tax, and loan deposit
         note.

(12)     FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER REPURCHASE AGREEMENTS

         Certain information related to the Company's securities sold under
         repurchase agreements is summarized as follows:

<TABLE>
<CAPTION>
                                                                         2003                  2002
                                                                     ------------           ----------
<S>                                                                  <C>                    <C>
Balance at year-end                                                  $  8,194,766            8,227,114
Maximum outstanding during year                                        27,642,492           15,493,612
Average outstanding during year                                         8,368,577            7,096,726
Weighted average interest rate during year                                   0.72%                1.65%
Weighted average interest rate at end of year                                0.60%                1.24%
</TABLE>

         At December 31, 2003 and 2002, the Company had available repurchase
         agreement line of credit commitments with Compass Bank totaling
         $22,950,000 and $1,570,000, respectively. No amounts were outstanding
         under that commitment at December 31, 2003 and 2002. All securities
         sold under repurchase agreements are held by independent trustees. The
         Company also had available repurchase agreement line of credit
         commitments with the National Bank of Commerce totaling $1,901,000 and
         $222,000 at December 31, 2003 and 2002, respectively. No amounts were
         outstanding under that commitment at December 31, 2003 and 2002.
         Securities sold under repurchase agreements at December 31, 2003 and
         2002 are collateralized by investment securities with aggregate
         carrying values of approximately $11,294,000 and $8,571,000,
         respectively.

         Federal funds purchased at December 31, 2003 amounted to $4,189,000.

                                                                     (Continued)

                                       24

<PAGE>

                       HABERSHAM BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2003, 2002 and 2001

(13)     FHLB ADVANCES

         At December 31, 2003 and 2002, the Company had available line of credit
         commitments with the Federal Home Loan Bank (FHLB) totaling
         $230,833,000 of which $30,000,000 was advanced and $200,833,000 was
         available.

         The advances outstanding at December 31, 2003 and 2002 consist of three
         fixed rate advances of $10,000,000 each that bear interest at 6.72%,
         6.02%, and 4.93% and mature in 2005, 2010, and 2011 (callable each
         year), respectively.

         At December 31, 2003, the Company has pledged against FHLB advances,
         certain investment securities, all stock of the FHLB, and certain
         qualifying first mortgage loans with an outstanding balance of
         $17,285,847.

(14)     INCOME TAXES

         Income tax expense (benefit) relating to continuing operations for the
         years ended December 31, 2003, 2002, and 2001 are as follows:

<TABLE>
<CAPTION>
                                                     2003                2002                 2001
                                                 -----------         ------------           ----------
<S>                                              <C>                 <C>                    <C>
Current:
   Federal                                       $   905,978            1,159,108              423,079
   State                                              27,314              101,439               16,592
                                                 -----------         ------------           ----------
               Total current                         933,292            1,260,547              439,671
                                                 -----------         ------------           ----------
Deferred:
   Federal                                          (175,538)              63,409              379,700
   State                                             (30,975)            (194,988)                  --
                                                 -----------         ------------           ----------
               Total deferred                       (206,513)            (131,579)             379,700
                                                 -----------         ------------           ----------
               Total                             $   726,779            1,128,968              819,371
                                                 ===========         ============           ==========
</TABLE>

                                                                     (Continued)

                                       25

<PAGE>

                       HABERSHAM BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2003, 2002 and 2001

         The provision for income taxes is less than that computed by applying
         the Federal statutory rate of 34% to income before income taxes as
         indicated by the following:

<TABLE>
<CAPTION>
                                                    2003                 2002                  2001
                                                 -----------           ---------            ---------
<S>                                              <C>                   <C>                  <C>
Income tax on income before income
   taxes at statutory rate                       $ 1,035,212           1,571,473            1,093,189
Differences resulting from:
   Tax-exempt income                                (265,337)           (300,556)            (309,410)
   Earnings on cash surrender value of
      life insurance                                 (60,294)            (60,503)             (65,979)
   Amortization of intangible assets                      --                  --               71,759
   State income tax, net of Federal tax effect        (2,416)            (61,742)              10,951
   Other                                              19,614             (19,704)              18,861
                                                 -----------           ---------            ---------
               Income tax expense                $   726,779           1,128,968              819,371
                                                 ===========           =========            =========
</TABLE>

         At December 31, 2003 and 2002, the significant components of the
         Company's net deferred tax assets and liabilities are as follows:

<TABLE>
<CAPTION>
                                                                        2003                 2002
                                                                     -----------            ---------
<S>                                                                  <C>                    <C>
Deferred tax assets:
   Allowance for loan losses                                         $ 1,216,879            1,260,349
   Other real estate                                                     163,578              107,015
   Deferred compensation                                                 161,708              114,279
   Furniture, fixtures, and equipment due to differences
      in depreciation methods                                             77,345                   --
   Unearned credit life premiums                                          11,116               22,465
   Other                                                                   1,702                   --
                                                                     -----------            ---------
                                                                       1,632,328            1,504,108
Deferred tax liabilities:
   Unrealized gain on investment securities available for sale           (84,387)            (348,823)
   Deferred loan fees                                                       (230)             (51,795)
   Prepaid expenses                                                     (125,598)            (130,483)
   Furniture, fixtures, and equipment due to differences
      in depreciation methods                                                 --               (3,970)
   Other                                                                      --              (17,873)
                                                                     -----------            ---------
                                                                        (210,215)            (552,944)
                                                                     -----------            ---------
               Net deferred tax asset                                $ 1,422,113              951,164
                                                                     ===========            =========
</TABLE>

         The net deferred tax asset is included in other assets in the
         consolidated balance sheets.

         No valuation allowance has been recorded by the Company as management
         considers it more likely than not that all deferred tax assets will be
         realized. In assessing the realizability of deferred tax assets,
         management considers whether it is more likely than not that some
         portion or all of the deferred tax assets

                                                                     (Continued)

                                       26

<PAGE>

                       HABERSHAM BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2003, 2002 and 2001

         will not be realized. The ultimate realization of deferred tax assets
         is dependent upon the generation of future taxable income during the
         periods in which those temporary differences become deductible.
         Management considers the scheduled reversal of tax liabilities,
         projected future taxable income, and tax planning strategies in making
         this assessment.

(15)     SHAREHOLDERS' EQUITY

         The Company and the Bank are subject to various regulatory capital
         requirements administered by the Federal banking agencies. Failure to
         meet minimum 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
         consolidated financial statements. Under capital adequacy guidelines,
         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 the Bank's classifications under the regulatory framework
         for prompt corrective action are also subject to qualitative judgments
         by the regulators about components, risk weightings, and other factors.

         Quantitative measures established by regulation to ensure capital
         adequacy require the Company and the Bank to maintain minimum amounts
         and ratios (set forth in the table below) 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, 2003, that the Company and the
         Bank meet all capital adequacy requirements to which they are subject.

         As of December 31, 2003, 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 table. There
         are no conditions or events since that notification that management
         believes have changed the Bank's capital categories.

                                                                     (Continued)

                                       27

<PAGE>

                       HABERSHAM BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2003, 2002 and 2001

         The Company's and the Bank's actual capital amounts and ratios as of
         December 31, 2003 and 2002 are as follows (dollars in thousands):

<TABLE>
<CAPTION>
                                                                                                        TO BE WELL CAPITALIZED UNDER
                                                                                                             PROMPT CORRECTIVE
                                                   ACTUAL              FOR CAPITAL ADEQUACY PURPOSES         ACTION PROVISIONS
                                              ---------------------    -----------------------------    ----------------------------
                                              AMOUNT          RATIO     AMOUNT                RATIO      AMOUNT               RATIO
                                              -------         -----    ---------              ------    --------              -----
<S>                                           <C>             <C>      <C>                    <C>       <C>                   <C>
As of December 31, 2003:
   Total capital (to risk-weighted assets):
      Company                                 $50,543         17.26%   $  23,433                  8%    $    N/A                N/A
      Habersham Bank                           46,366         15.94%      23,270                  8%      29,087                10%

   Tier I capital (to risk-weighted assets):
      Company                                  46,954         16.03%      11,717                  4%         N/A                N/A
      Habersham Bank                           42,777         14.71%      11,635                  4%      17,452                 6%

   Tier I capital (to average assets):
      Company                                  46,954         12.34%      15,224                  4%         N/A                N/A
      Habersham Bank                           42,777         11.35%      15,071                  4%      18,838                 5%

As of December 31, 2002:
   Total capital (to risk-weighted assets):
      Company                                 $51,009         15.47%   $  26,386                  8%    $    N/A                N/A
      Habersham Bank                           47,789         14.59%      26,212                  8%      32,765                10%

   Tier I capital (to risk-weighted assets):
      Company                                  47,530         14.41%      13,193                  4%         N/A                N/A
      Habersham Bank                           44,310         13.52%      13,106                  4%      19,659                 6%

   Tier I capital (to average assets):
      Company                                  47,530          9.42%      20,176                  4%         N/A                N/A
      Habersham Bank                           44,310          8.85%      20,018                  4%      25,022                 5%
</TABLE>

                                                                     (Continued)

                                       28

<PAGE>

                       HABERSHAM BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2003, 2002 and 2001

(16)     COMPREHENSIVE INCOME

         Comprehensive income includes net income and other comprehensive income
         (loss) which is broadly defined as nonowner related changes in
         shareholders' equity. The following table sets forth the amounts of
         other comprehensive income (loss) included in shareholders' equity
         along with the related tax effect for the years ended December 31,
         2003, 2002, and 2001.

<TABLE>
<CAPTION>
                                                   PRETAX               TAX              NET OF TAX
                                                   AMOUNT             EXPENSE              AMOUNT
                                                 ----------           --------           ----------
<S>                                              <C>                  <C>                <C>
2003:
   Net unrealized holding losses on
      investment securities available for
      sale arising during the year               $ (574,072)           195,184            (378,888)
         Less reclassification adjustment
            for net gains realized in
             net income                             203,681            (69,252)            134,429
                                                 ----------           --------            --------
               Other comprehensive loss          $ (777,753)           264,436            (513,317)
                                                 ==========           ========            ========
2002:
   Net unrealized holding gains on
      investment securities available for
      sale arising during the year               $1,111,205           (377,809)            733,396
         Less reclassification adjustment
            for net gains realized in
            net income                              850,869           (289,295)            561,574
                                                 ----------           --------            --------
               Other comprehensive income        $  260,336            (88,514)            171,822
                                                 ==========           ========            ========
2001:
   Net unrealized holding gains on
      investment securities available for
      sale arising during the year               $1,003,331           (341,133)            662,198
         Less reclassification adjustment
            for net gains realized in
            net income                              191,033            (64,951)            126,082
                                                 ----------           --------            --------
               Other comprehensive income        $  812,298           (276,182)            536,116
                                                 ==========           ========            ========
</TABLE>

(17)     EMPLOYEE BENEFIT AND STOCK OPTION PLANS

         The Company has a contributory profit sharing plan under Internal
         Revenue Code Section 401(k) - (the 401(k) Plan). The 401(k) Plan covers
         substantially all employees. Employees may contribute up to 15% of
         their annual salaries not to exceed the amount allowed by the IRS. At
         its discretion, the Company may make matching contributions in an
         amount not to exceed 100% of each participant's first 3% of
         compensation contributed. The Company's contributions to the plan
         totaled $118,772 in 2003, $171,093 in 2002, and $121,882 in 2001.

         During 1998, the Bank's board of directors approved the Director's
         Retirement Plan (the Plan), a noncontributory retirement plan. Amounts
         earned on the life insurance policies purchased by the Bank over

                                                                     (Continued)

                                       29
<PAGE>

                       HABERSHAM BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statement

                        December 31, 2003, 2002, and 2001

     the rate, as defined in the Plan, to be retained for the benefit of the
     Bank are to be deferred and paid to the directors upon retirement. As of
     December 31, 2003 and 2002, the cash surrender values of the life insurance
     policies totaled $4,524,601 and $4,318,490, respectively, and is included
     in other assets in the balance sheet.

     The Company has an Incentive Stock Option Plan that provides that officers
     and certain employees of the Company may be granted options to purchase
     shares of common stock of the Company at an amount equal to the fair market
     value of the stock at the date of grant. The options, which may be
     exercised immediately, expire five years from the date of grant.

     The Company's Outside Directors Stock Option Plan provides that outside
     directors of Habersham Bancorp and its subsidiaries may be granted options
     to purchase shares of common stock of the Company at an amount equal to the
     fair market value of the stock at the date of grant. The options are fully
     vested on the date of grant, exercisable six months from the date of grant,
     and expire ten years from the date of grant. Shares reserved for future
     grants under this plan are approximately 278,675 at December 31, 2003.

     The following table summarizes information about stock options outstanding
     at December 31, 2003:

<TABLE>
<CAPTION>
                                NUMBER            WEIGHTED
                           OUTSTANDING AND         AVERAGE      WEIGHTED
                            EXERCISABLE AT        REMAINING      AVERAGE
                             DECEMBER 31,    CONTRACTUAL LIFE   EXERCISE
RANGE OF EXERCISE PRICES         2003             IN YEARS        PRICE
------------------------   ---------------   ----------------   --------
<S>                        <C>               <C>                <C>
         9.69                       20,900               2.00   $   9.69
     10.00 - 11.00                   1,053               0.12      10.63
         12.75                      20,500               1.00      12.75
         13.50                       6,250               2.00      13.50
     16.50 - 16.88                  44,750               3.00      16.53
         17.82                      91,000               4.00      17.82
     18.50 - 19.00                  10,000               2.25      18.93
         24.99                      68,500               5.00      24.99
                           ---------------   ----------------   --------
                                   262,953               3.48   $  18.21
                           ===============
</TABLE>

                                       30

<PAGE>

                       HABERSHAM BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statement

                        December 31, 2003, 2002, and 2001

     A summary of the status of the Company's stock option plans and changes
     during 2003, 2002, and 2001 is presented below:

<TABLE>
<CAPTION>

                                          2003                  2002                   2001
                                   ------------------   -------------------   ---------------------
                                             WEIGHTED              WEIGHTED                WEIGHTED
                                              AVERAGE               AVERAGE                AVERAGE
                                             EXERCISE              EXERCISE                EXERCISE
                                   SHARES     PRICE      SHARES    PRICE        SHARES     PRICE
                                   -------   --------   --------   --------   ----------   --------
<S>                                <C>       <C>        <C>        <C>        <C>          <C>
Outstanding at beginning of year   313,410   $  15.23    414,272   $  14.22      416,022   $  13.94
Granted                             68,500      24.49    122,500      17.91       99,000      16.50
Exercised                          (73,655)     12.26   (116,347)     12.19           --         --
Terminated                         (45,302)     16.83   (107,015)     17.35     (100,750)     15.72
                                   -------              --------              ----------

Outstanding and exercisable
at end of year                     262,953   $  18.21    313,410   $  15.23      414,272   $  14.22
                                   =======              ========              ==========
</TABLE>

     The estimated fair value of options granted during 2003, 2002, and 2001 was
     $15.22, $12.51, and $10.61, respectively, per share. The fair value of
     options granted under the Company's fixed stock option plans during 2003,
     2002, and 2001 was estimated on the date of grant using the Black-Scholes
     option-pricing model with the following weighted average assumptions used:
     expected dividend yield of 2.54%, 1.55%, and 1.42% in 2003, 2002, and 2001,
     respectively; expected volatility of 93% in 2003, 97% in 2002, and 87% in
     2001; weighted average risk-free interest rate of 3.35%, 3.03%, and 4.39%
     in 2003, 2002, and 2001, respectively; and an expected weighted average
     life of five years in 2003, 2002, and 2001.

(18) OTHER EXPENSES

     Items comprising other expenses for the years ended December 31, 2003,
     2002, and 2001 are as follows:

<TABLE>
<CAPTION>

                                      2003         2002        2001
                                   ----------   ---------   ---------
<S>                                <C>          <C>         <C>
Outside services                   $  988,986   1,071,419   1,158,469
Advertising and public relations      565,173     745,738     464,723
Office supplies                       415,029     406,491     412,831
Other                               2,538,165   1,968,985   1,885,327
                                   ----------   ---------   ---------
          Total                    $4,507,353   4,192,633   3,921,350
                                   ==========   =========   =========
</TABLE>

     Outside services include charges for FDIC insurance, legal and professional
     services, insurance, director fees, and State of Georgia Department of
     Banking fees.

(19) FAIR VALUE OF FINANCIAL INSTRUMENTS

     The following disclosure of the estimated fair value of financial
     instruments is made in accordance with the requirements of SFAS No. 107,
     "Disclosures about Fair Value of Financial Instruments." The estimated fair
     value amounts have been determined by the Company using available market
     information and appropriate valuation methodologies. However, considerable
     judgment is necessarily required to interpret market data to develop the
     estimates of fair value. Accordingly, the estimates presented herein are
     not necessarily indicative of the amounts the Company could realize in a
     current market exchange. The use of

                                       31

<PAGE>

                       HABERSHAM BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statement

                        December 31, 2003, 2002, and 2001

     different market assumptions and/or estimation methodologies may have a
     material effect on the estimated fair value amounts.

<TABLE>
<CAPTION>

                                                             DECEMBER 31, 2003
                                                       ----------------------------
                                                          CARRYING
                                                           AMOUNT       FAIR VALUE
                                                       -------------   ------------
<S>                                                    <C>             <C>
Assets:
  Cash and cash equivalents                            $   8,381,184      8,381,184
  Investment securities available for sale                72,812,631     72,812,631
  Investment securities held to maturity                   4,859,713      5,177,539
  Other investments                                        1,652,034      1,652,034
  Loans held for sale                                      1,521,900      1,530,500
  Loans                                                  261,717,830    274,803,722

Liabilities:
  Deposits                                               279,599,968    293,579,966
  Short-term borrowings                                      578,455        578,455
  Federal funds purchased and securities sold under
    repurchase agreements                                 12,383,776     12,383,776
  FHLB advances                                           30,000,000     33,090,314
  </TABLE>

<TABLE>
<CAPTION>

                                                             DECEMBER 31, 2002
                                                       ----------------------------
                                                          CARRYING
                                                           AMOUNT       FAIR VALUE
                                                       -------------   ------------
<S>                                                    <C>             <C>
Assets:
  Cash and cash equivalents                            $  40,968,994     40,968,994
  Investment securities available for sale                54,818,900     54,818,900
  Investment securities held to maturity                   6,889,304      7,211,476
  Other investments                                        2,389,134      2,389,134
  Loans                                                  303,812,965    320,480,546

Liabilities:
  Deposits                                               336,526,440    354,676,560
  Short-term borrowings                                      931,665        931,665
  Federal funds purchased and securities sold under
    repurchase agreements                                  8,227,114      8,227,114
  FHLB advances                                           30,000,000     31,685,610
</TABLE>

     The carrying amounts of cash and cash equivalents, interest-bearing demand
     and savings accounts, short-term borrowings, and federal funds purchased
     and securities sold under repurchase agreements are a reasonable estimate
     of their fair value due to the short-term nature or short term to maturity
     of these financial instruments. The fair value of investment securities
     available for sale and investment securities held to maturity is based on
     quoted market prices and dealer quotes. Fair values of mortgage loans held
     for sale are determined based on relevant delivery prices in the secondary
     mortgage market. The fair value of other loans, time deposits, and FHLB
     advances is estimated by discounting the future cash flows using interest
     rates currently charged/paid by the Bank for such financial instruments
     with similar credit risks and maturities.

                                       32

<PAGE>

                       HABERSHAM BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statement

                        December 31, 2003, 2002, and 2001

     The fair value of Federal Home Loan Bank stock approximates carrying value.
     Other insignificant investments have been reflected above with fair values
     equaling carrying values.

     As required by SFAS No. 107, demand deposits are shown at their carrying
     value. No value has been ascribed to core deposits, which generally bear a
     low rate of interest or no interest and do not fluctuate in response to
     changes in interest rates.

     The carrying values and fair values of commitments to extend credit and
     standby letters of credit are not significant.

     The fair value estimates presented herein are based on pertinent
     information available to management as of December 31, 2003 and 2002.
     Although management is not aware of any factors that would significantly
     affect the estimated fair value amounts, such amounts have not been
     comprehensively revalued for purposes of these financial statements and,
     therefore, current estimates of fair value may differ significantly from
     the amounts presented herein.

(20) RELATED PARTY TRANSACTIONS

     In the ordinary course of business, the Company extends loans to its
     directors, executive officers, and principal stockholders and their
     affiliates at terms and rates comparable to those prevailing at the time
     for comparable transactions with other customers. In the opinion of
     management, these loans do not involve more than the normal credit risk nor
     present other unfavorable features. An analysis of the activity during 2003
     and 2002 of loans to executive officers, directors, and principal
     shareholders is as follows:

<TABLE>
<CAPTION>

                            2003            2002
                       -------------   -------------
<S>                    <C>             <C>
Balance, January 1     $   6,493,528       5,814,075
Amounts advanced          13,739,745       7,285,879
Repayments                (9,455,286)     (6,606,426)
                       -------------   -------------
Balance, December 31   $  10,777,987       6,493,528
                       =============   =============
</TABLE>

     At December 31, 2002, a time deposit of $930,000 of a business controlled
     by the principal shareholders of the Company was pledged as collateral for
     a loan with aggregate principal balances of $930,000 made to unrelated
     parties.

                                       33

<PAGE>

                       HABERSHAM BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2003, 2002, and 2001

(21) CONDENSED FINANCIAL STATEMENTS OF HABERSHAM BANCORP (PARENT ONLY)

     The parent company only condensed financial statements are presented below:

                            CONDENSED BALANCE SHEETS

                           December 31, 2003 and 2002

<TABLE>
<CAPTION>

                      ASSETS                             2003           2002
                                                     ------------   ------------
<S>                                                  <C>            <C>
Cash                                                 $  2,258,955      1,573,338
Investment in subsidiaries, primarily banks            45,534,970     47,556,356
Other investments                                              --        100,000
Equipment, net                                             99,496        142,898
Other assets                                            1,945,164      1,586,876
                                                     ------------   ------------
Total assets                                         $ 49,838,585     50,959,468
                                                     ============   ============
    LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable                                     $    159,435        216,014
Shareholders' equity:
    Common stock                                        2,869,278      2,815,093
    Additional paid-in capital                         14,176,580     13,720,900
    Retained earnings                                  32,469,482     33,530,334
    Accumulated other comprehensive income                163,810        677,127
                                                     ------------   ------------
        Total shareholders' equity                     49,679,150     50,743,454
                                                     ------------   ------------
        Total liabilities and shareholders' equity   $ 49,838,585     50,959,468
                                                     ============   ============
</TABLE>

                                       34

<PAGE>

                       HABERSHAM BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2003, 2002, and 2001

                        CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>

                                                              YEARS ENDED DECEMBER 31
                                                     ----------------------------------------
                                                         2003           2002          2001
                                                     ------------   -----------   -----------
<S>                                                  <C>            <C>           <C>
Income:
    Dividends from banks                             $  4,700,000     1,110,650     1,737,750
    Equity in (loss) earnings of investee                      --       (45,233)      120,336
    Management fees from subsidiaries                     668,666     1,346,508     1,341,936
    Gain on sale of investment securities
      available for sale                                       --       838,355            --
    Gain on sale of CB Financial Corp.
      common stock                                             --       277,182            --
    Gain on sale of other investment                       60,000        50,000            --
    Dividend income                                            --            --        58,791
    Other income                                            2,087        35,137        12,316
                                                     ------------   -----------   -----------
          Total income                                  5,430,753     3,612,599     3,271,129

    Expenses:
      General and administrative                        1,957,856     2,184,360     2,220,716
                                                     ------------   -----------   -----------
          Income before income taxes
            and equity in undistributed
              earnings of subsidiaries                  3,472,897     1,428,239     1,050,413
    Income tax benefit (expense)                          353,134      (108,564)      201,041
                                                     ------------   -----------   -----------
          Income before equity in
            undistributed earnings of
              subsidiaries                              3,826,031     1,319,675     1,251,454

    (Distributions in excess of earnings) equity
      in undistributed earnings of subsidiaries        (1,508,069)    4,510,776     4,091,337
                                                     ------------   -----------   -----------
          Net income                                 $  2,317,962     5,830,451     5,342,791
                                                     ============   ===========   ===========
</TABLE>

                                       35

<PAGE>

                       HABERSHAM BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2003, 2002, and 2001

                      CONSOLIDATED STATEMENTS OF CASH FLOW

<TABLE>
<CAPTION>
                                                      YEARS ENDED DECEMBER 31
                                              ---------------------------------------
                                                  2003          2002          2001
                                              -----------   -----------   -----------
<S>                                           <C>           <C>           <C>
Cash flows from operating activities:
  Net income                                  $ 2,317,962     5,830,451     5,342,791
  Adjustments to reconcile net income
    to net cash provided by operating
    activities:
      Depreciation                                 88,903        65,099        74,215
      Gain on sale of equipment                    (2,087)       (6,268)      (11,544)
      Amortization of intangible assets                --            --        85,212
      Gain on sale of investment
        securities available for sale                  --      (838,355)           --
      Gain on sale of other investment            (60,000)      (50,000)           --
      Gain on sale of CB Financial
        Corp. common stock                             --      (277,182)           --
      (Increase) decrease in other assets        (358,288)       80,746      (199,215)
      (Decrease) increase in other
        liabilities                               (56,579)       56,036       (29,874)
      Equity in loss (earnings) of investee            --        45,233      (120,336)
      Distributions in excess of earnings
        (equity in undistributed earnings)
        of subsidiaries                         1,508,069    (4,510,776)   (4,091,337)
                                              -----------   -----------   -----------
          Net cash provided by
            operating activities                3,437,980       394,984     1,049,912
                                              -----------   -----------   -----------
Cash flows from investing activities:
  Dividends received from other investment             --        62,042        62,042
  Proceeds from sale of CB Financial Corp.
    common stock                                       --     3,308,879            --
  Proceeds from sale of investment
    securities available for sale                      --     2,246,875            --
  Proceeds from sale of other investments         160,000       150,000            --
  Capital contribution to subsidiary                   --            --    (4,000,000)
  Purchase of equipment                           (47,914)      (98,214)      (76,539)
  Proceeds from sale of equipment                   4,500        19,001        12,746
                                              -----------   -----------   -----------
          Net cash provided by (used
            in) investing activities              116,586     5,688,583    (4,001,751)
                                              -----------   -----------   -----------
</TABLE>

                                       36

<PAGE>

                       HABERSHAM BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2003, 2002, and 2001

<TABLE>
<CAPTION>

                                                      YEARS ENDED DECEMBER 31
                                              ---------------------------------------
                                                  2003          2002          2001
                                              -----------   -----------   -----------
<S>                                           <C>           <C>           <C>
Cash flows from financing activities:
    Proceeds from borrowings                           --            --     4,000,000
    Payment of borrowings                              --    (5,773,000)     (177,000)
    Payment of cash dividends                  (3,378,814)     (661,328)     (647,698)
    Proceeds from issuance of common
      stock upon exercise of stock options        509,865     1,420,183            --
                                              -----------   -----------   -----------
          Net cash (used in) provided
            by financing activities            (2,868,949)   (5,014,145)    3,175,302
                                              -----------   -----------   -----------
          Increase in cash                        685,617     1,069,422       223,463
Cash at beginning of year                       1,573,338       503,916       280,453
                                              -----------   -----------   -----------
Cash at end of year                           $ 2,258,955     1,573,338       503,916
                                              ===========   ===========   ===========
</TABLE>

     The Department of Banking and Finance requires the prior approval for a
     bank to pay dividends in excess of 50% of the preceding year's earnings.
     Based on this limitation, the amount of cash dividends available from the
     Bank for payment in 2004 is approximately $1,596,000, subject to
     maintenance of the minimum capital requirements. As a result of this
     restriction, at December 31, 2003, approximately $43,906,000 of the parent
     company's investment in the Bank is restricted as to dividend payments from
     the Bank to the parent company.

                                       37

<PAGE>

                       HABERSHAM BANCORP AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2003, 2002, and 2001

(22) QUARTERLY FINANCIAL DATA (UNAUDITED)

     The supplemental quarterly financial data for the years ended December 31,
     2003 and 2002 is summarized as follows:

<TABLE>
<CAPTION>
                                                         QUARTER ENDED
                                      ---------------------------------------------------
                                       MARCH 31     JUNE 30    SEPTEMBER 30   DECEMBER 31
                                         2003        2003          2003           2003
                                      ----------   ---------   ------------   -----------
<S>                                   <C>          <C>         <C>            <C>
Interest income                       $5,900,481   5,788,942      5,373,653     5,221,820
Interest expense                       2,256,984   2,119,777      1,934,152     1,810,754
Net interest income                    3,643,497   3,669,165      3,439,501     3,411,066
Provision for loan losses                262,500     262,500        262,500       162,500
Net income                               758,278     767,730        376,659       415,295
Net income per share - basic                0.27        0.27           0.13          0.15
Net income per share - diluted              0.26        0.27           0.13          0.14
</TABLE>

<TABLE>
<CAPTION>
                                       MARCH 31     JUNE 30    SEPTEMBER 30   DECEMBER 31
                                         2002        2002          2002           2002
                                      ----------   ---------   ------------   -----------
<S>                                   <C>          <C>         <C>            <C>
Interest income                       $6,934,880   6,832,615      6,600,597     6,425,855
Interest expense                       3,398,847   3,013,660      2,873,817     2,754,763
Net interest income                    3,536,033   3,818,955      3,726,780     3,671,092
Provision for loan losses                291,500     357,500        238,500       419,500
Income from continuing operations      1,289,096     735,386        936,139       532,389
Income from discontinued operations      598,932      80,638      1,213,655       444,216
Net income                             1,888,028     816,024      2,149,794       976,605
Income from continuing operations
    per share - basic                       0.47        0.27           0.33          0.20
Net income per share - basic                0.70        0.30           0.77          0.35
Income from continuing operations
    per share - diluted                     0.46        0.26           0.33          0.19
Net income per share - diluted              0.68        0.29           0.76          0.34
</TABLE>

                                       38
<PAGE>

SELECTED FINANCIAL DATA
(In thousands, except share and per share data)

<TABLE>
<CAPTION>
                                                        FOR THE YEARS ENDED DECEMBER 31
                                         2003            2002           2001             2000         1999
<S>                                   <C>            <C>            <C>             <C>            <C>
SUMMARY OF OPERATIONS
Interest income                       $    22,285    $    26,794    $    34,262     $    37,285    $    28,060
Interest expense                            8,122         12,041         20,403          22,781         14,872
Provision for loan losses                     950          1,307          1,463             955            500
Other income                                3,872          3,963          3,109           2,555          2,445
Other expense                              14,041         12,787         12,290          11,872         12,532

Income from continuing operations           2,318          3,493          2,396           2,903          2,710
Income (loss) from discontinued
 operations                                    --          2,337          3,109             124           (956)
Cumulative effect of
 change in accounting principle                --             --           (162)             --             --
                                      -----------    -----------    -----------     -----------    -----------
Net income                                  2,318          5,830          5,343           3,027          1,754

PER SHARE AMOUNTS
Income from continuing
  operations - diluted                $       .80    $      1.24    $       .88     $      1.08    $      1.04
Income (loss) from discontinued
  operations - diluted                         --            .83           1.14             .04           (.37)
Cumulative effect of change in
  accounting principle - diluted               --             --           (.06)             --             --
                                      -----------    -----------    -----------     -----------    -----------
Net income per common share-diluted   $       .80    $      2.07    $      1.96     $      1.12    $       .67

Dividends                                    1.18            .24            .24             .24            .20
Weighted average number of
 common and common equivalent
 shares outstanding                     2,895,113      2,815,972      2,729,291       2,699,949      2,609,360

AT DECEMBER 31
Total assets                          $   374,714    $   429,411    $   546,503     $   543,108    $   461,976
Earning assets                            342,794        395,047        503,562         504,640        424,663
Loans                                     261,818        303,813        440,527         441,850        365,499
Deposits                                  279,600        336,526        336,360         341,032        317,420
Long-term debt                             30,000         30,000         35,775          21,950          1,950
Shareholders' equity                       49,679         50,743         43,982          38,751         35,429

RATIOS
Return on average assets                      .59%          1.41%          1.22%            .68%           .49%
Return on average equity                     4.49%         12.24%         12.80%           8.21%          5.10%
Dividend payout ratio                      147.50%         11.59%         12.26%          21.41%         29.75%
Average equity to average
 assets ratio                               13.24%         11.52%          9.55%           8.32%          9.64%
</TABLE>


Balance sheet amounts have not been adjusted to reflect discontinued operations.

                                       39
<PAGE>

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") and prior to December 2002, owned all of the outstanding stock of
BancMortgage Financial Corp ("BancMortgage"). The Advantage Group, Inc., a
non-bank subsidiary providing marketing and advertising services, ceased
operation September 30, 2001. Advantage Insurers, which began operations on
March 31, 1997, 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.

     During the year ended December 31, 2002, the Company sold BancMortgage to
the existing management of BancMortgage resulting in a loss of $110,064. The
Company's consolidated financial statements have been reclassified to reflect
the operations of BancMortgage as discontinued. 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, and
Gwinnett counties in Georgia. The Company's primary source of revenue is
providing 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. During 2003 interest rates remained at historically low
levels and management expects interest rates to remain at these levels
throughout most of the coming year. Management will continue to focus on
maintaining a profitable net interest margin in 2004.

    2003 was a year of transition for Habersham Bancorp. One of the expected
results of the sale of BancMortgage on December 5, 2003, was a decrease in total
assets of Habersham Bank as approximately $57.8 million of residential home
construction and acquisition and development loans which originated from
BancMortgage matured or paid-off. The loss of these assets was offset by the
redemption at maturity of over $21.4 million in nationally brokered certificates
of deposit which are not considered core deposits of the Bank. Cash available
has been reinvested in longer term investment securities available for sale.

     Net income was also impacted by the sale of BancMortgage. Interest income
and interest expense trended downward over 2003, as the loans originated from
BancMortgage matured and paid-out and as the nationally brokered certificates of
deposits were redeemed. Additional expense was incurred for the staffing of
Habersham Mortgage, a new division of Habersham Bank, and a new branch office in
Braselton.

     Management has developed a strategy for asset growth and expansion of its
financial services through branching into selective growth markets in North
Georgia. Habersham Bank began this expansion program of its traditional banking
business with the completion of a branch office in Braselton, Georgia. Braselton
is the home of Chateau Elan, a winery and golf community, and an area of rapid
growth of residential properties. Additionally, Habersham Bank purchased an
existing branch location from a regional bank in the Hickory Flat area of
eastern

                                       40
<PAGE>

Cherokee County. The Hickory Flat location is scheduled to open for operation in
March 2004 and is to replace the Waleska Office which is scheduled to close
during the first quarter of 2004. Cherokee County is considered one of the
fastest growing communities in Georgia.

     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 that 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,
loan losses and the adequacy of the Company's loan loss allowance, changes in
regulation and legislation, and competition.

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 income, 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
in 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.

     Certain economic factors could have a material impact on the loan loss
allowance determination and its adequacy. The depth and duration of any economic
recession would have an impact on the credit risk associated with the loan
portfolio. Another factor that can impact the determination is a consideration
for concentrations in collateral which secure the loan portfolio. The Company's
loan portfolio is secured primarily by commercial and residential real estate
with such loans comprising approximately 88.3% of the total loan portfolio.
While there is a risk that the value of the real estate securing the loans in
the portfolio could decrease during an economic recession, the majority of the
real estate securing the loan portfolio is 1 - 4 family residential properties
which are generally not as affected by downturns in the economy. The Company
also has concentrations in mortgages for agribusiness purposes in the poultry
industry and in commercial loans for the travel accommodation industry. See
"Nonperforming Assets and Past Due 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 borrowers ability to pay. The balance of unsecured loans
at December 31, 2003 was $8.2 million which does not pose a significant risk to
the Company.

    The Company is not aware of any large loan relationships that if defaulted
would have a significant impact on the allowance for loan losses.

                                       41
<PAGE>

     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 income was $2,317,962, $5,830,451, and $5,342,791,
for the years ended December 31, 2003, 2002, and 2001, respectively, with
related diluted earnings per common and common equivalent share of $.80, $2.07,
and $1.96, respectively, representing a decrease of 61.35% from 2003 to 2002 and
an increase of 5.61% from 2001 to 2002.

     Net income represents a return on average equity of 4.49%, 12.24%, and
12.80% for 2003, 2002, and 2001, respectively.

     During the year ended December 31, 2002, the Company sold BancMortgage to
the existing management of BancMortgage resulting in a loss of $110,064. The
Company's consolidated financial statements have been reclassified to reflect
the operations of BancMortgage as discontinued. Management's discussion and
analysis, which follows, relates primarily to Habersham Bank.

<TABLE>
<CAPTION>
                                          2003          2002          2001
<S>                                    <C>           <C>           <C>
Income from continuing operations      $2,317,962    $3,493,010    $2,395,891
Diluted earnings per common and
  common equivalent share              $      .80    $     1.24    $      .88
</TABLE>

     The decrease in income from continuing operations for the year ended
December 31, 2003, when compared to the year ended December 31, 2002, was
primarily due to additional salary and other expenses associated with the
establishment of a new mortgage lending division ("Habersham Mortgage") during
the first quarter of 2003 and the building and staffing of a new branch located
in Braselton, Georgia during the fourth quarter of 2003. Also, contributing to
the decrease in income from continuing operations was a decrease in gains on the
sale of investment securities and other investments. These decreases were offset
somewhat by an increase in the net interest margin for the year ended December
31, 2003 to 3.95% when compared to 3.91% for the year ended December 31, 2002.

     The increase in income from continuing operations for the year ended
December 31, 2002, when compared to the year ended December 31, 2001, was
primarily the result of improvement in the Company's net interest margin which
increased from 3.38% for the year ended December 31, 2001 to 3.91% for the year
ended December 31, 2002. In addition, the Company recognized gains on sale of
investment securities available for sale of $851,000 for the year ended December
31, 2002 compared to $191,000 for the year ended December 31, 2001. The Company
also sold its investment in CB Financial Corp. common stock during 2002
resulting in a gain of $277,182.

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 shareholders.

<TABLE>
<CAPTION>
                                          2003          2002          2001
<S>                                   <C>           <C>           <C>
Net interest income                   $14,163,229   $14,752,860   $13,859,111
</TABLE>

     Net interest income for 2003 decreased approximately $590,000 when compared
to 2002 and increased approximately $894,000 when compared to 2001.

                                       42
<PAGE>

     Fluctuations occurring in interest rates and balances in the loan,
securities, and deposit portfolios directly impact net interest income. Other
borrowings are also impacted by rate movements and balances. Net interest income
is impacted by interest income from loans, investment securities, and federal
funds sold offset by interest paid on deposits and borrowings.

     During 2003, interest income decreased approximately $4.0 million when
compared to 2002 as a result of average loan balances in 2003 decreasing
approximately $24.8 million when compared to 2002 in addition to the average
loan rates in 2003 decreasing approximately .79% when compared to 2002. The
decrease in the loan portfolio is primarily the result of payoffs of real estate
construction loans. Interest income on investment securities decreased
approximately $499,000 when compared to 2002 primarily due to decreases in the
interest yield of approximately 1.17%.

     Interest income on investment securities was also impacted by the declining
interest rate environment. The weighted average yield on investment securities
was 4.05%, 5.22%, and 5.29%, for the years ended December 31, 2003, 2002, and
2001, respectively. Average yields on federal funds sold were 1.50%, 1.39%, and
3.22%, for the years ended December 31, 2003, 2002, and 2001, respectively.

     Interest expense for 2003 decreased approximately $3.9 million when
compared to 2002 as a result of average deposit balances in 2003 decreasing
approximately $43.4 million when compared to 2002 in addition to the average
deposit rate in 2003 decreasing approximately .84% when compared to 2002. The
decrease in the deposit portfolio is primarily the result of the redemption of
national market certificates of deposit during the year.

     Interest income decreased approximately $7.5 million or 21.8% in 2002 when
compared to 2001 primarily due to decreases in interest rates which
significantly impacted the earnings on the Company's loan portfolio. The average
yield on the Company's loan portfolio decreased significantly from 9.15% in 2001
to 7.62% in 2002. Additionally during 2002, the Company's loan portfolio
decreased approximately $17.7 million due to the sale of construction loans of
approximately $31.7 million and decreases in the commercial and consumer
portfolios of approximately $11 million offset by new residential and
construction loans of approximately $25.0 million.

     The decrease in interest expense of approximately $8.4 million or 41.0% in
2002 when compared to 2001 was primarily due to a continued declining interest
rate environment and decreases in average balances of time deposits and
borrowings. The average portfolio of time deposits decreased approximately $23.8
million and average borrowings decreased approximately $16.2 million during
2002. The weighted average interest rate paid on deposits in 2002 decreased
significantly from 5.32% for the year ended December 31, 2001 to 3.29% for the
year ended December 31, 2002 as time deposits repriced at lower rates. The
average interest rate paid for borrowings decreased 59 basis points from 5.29%
in 2001 to 4.70% in 2002.

     The net interest margin of the Company was 3.95% in 2003, 3.91% in 2002,
and 3.38% in 2001. The net interest margin of the Company was maintained during
2003 due to close management of yields earned on loans and investment securities
and on rates paid for deposits and borrowings.

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

    Average loan balances declined approximately $24.8 million or 8.08% in 2003
from 2002 primarily as a result of the maturity and payoffs of real estate
construction and mortgage loans of approximately $40.6 million offset by new
commercial loans of approximately $15.8 million.

                                       43
<PAGE>

     Average balances of investment securities increased approximately $10.6
million or 18.72% in 2003 over 2002 as a result of investing the excess cash
from loan maturities and payoffs in investment securities. Available for sale
mortgage backed and treasury securities purchases totaled approximately $51.5
million offset by proceeds from maturities, sales, and calls of approximately
$32.2 million during 2003. Held to maturity investment securities and other
stock investments decreased due to the calls and maturities of approximately
$1.3 million and $.8 million, respectively. Average federal funds sold increased
approximately $444,000 or 13.91% in 2003 over 2002.

     The average balance of deposits, excluding noninterest-bearing deposits,
for 2003 decreased by approximately $43.4 million or 14.52% from 2002 and
decreased approximately $21.8 million or 6.80% from 2001. The decrease in
average deposits for 2003 is primarily due to the redemption at maturity of
national market certificates of deposit of approximately $48.5 million offset by
increases in money market and savings accounts of approximately $3.7 million and
$1.4 million, respectively.

     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. This information is presented for the years ended December 31,
2003, 2002, and 2001.

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


<TABLE>
<CAPTION>
                                                                2003                                      2002
                                            -------------------------------------------  ------------------------------------------
                                               Average          Income/       Average       Average         Income/      Average
                                               Balance         (Expense)     Yield/Cost     Balance        (Expense)     Yield/Cost
                                            ---------------   ------------   ----------  --------------   ------------   ----------
<S>                                         <C>               <C>            <C>         <C>              <C>            <C>
Interest-earning assets:
    Loans, net (1)                          $   282,142,667   $ 19,271,998     6.83%     $  306,940,750   $ 23,380,051     7.62%
    Investment securities (2):
       Taxable                                   49,730,498      1,900,731     3.82%         37,013,214      2,025,239     5.47%
       Tax exempt                                17,394,027        820,122     4.71%         19,528,459        928,576     4.75%
    Federal funds sold                            3,639,083         54,593     1.50%          3,194,367         44,350     1.39%
    Loans held for sale                           2,523,729         97,558     3.87%                  -              -
                                            ---------------   ------------               --------------   ------------
      Total interest-earning assets             355,430,004     22,145,002     6.23%        366,676,790     26,378,216     7.19%
                                            ---------------   ------------               --------------   ------------
Noninterest-earning assets                       34,856,621                                  71,306,128
                                            ---------------                              --------------
        Total assets                        $   390,286,625                              $  437,982,918
                                            ===============                              ==============
Interest-bearing liabilities:
    Money market and NOW                    $    57,534,840       (355,015)    0.62%     $   53,770,339       (495,558)    0.92%
    Savings accounts                              9,298,757        (41,537)    0.45%          7,947,215        (63,280)    0.80%
    Certificates of deposit                     188,858,305     (5,856,071)    3.10%        237,423,845     (9,271,035)    3.90%
                                            ---------------   ------------               --------------   ------------
       Total deposits                           255,691,902     (6,252,623)    2.45%        299,141,399     (9,829,873)    3.29%
    Short-term and other borrowings              39,724,975     (1,869,044)    4.70%         47,023,799     (2,211,214)    4.70%
                                            ---------------   ------------               --------------   ------------
       Total interest-bearing liabilities       295,416,877    ( 8,121,667)    2.75%        346,165,198    (12,041,087)    4.12%
                                            ---------------   ------------               --------------   ------------

Noninterest-bearing liabilities                  43,205,622                                  44,169,231
                                            ---------------                              --------------
        Total liabilities                       338,622,499                                 390,334,429
Shareholders' equity                             51,664,126                                  47,648,489
                                            ---------------                              --------------
       Total liabilities and
          shareholders' equity              $   390,286,625                              $  437,982,918
                                            ===============                              ==============
Net interest income                                           $ 14,023,335                                $ 14,337,129
                                                              ============                                ============
          Net interest margin                                                  3.95%                                       3.91%
                                                                               ====                                        ====
</TABLE>

                                       44

<PAGE>

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

<TABLE>
<CAPTION>
                                                               2001
                                              -----------------------------------------
                                                 Average        Income/        Average
                                                 Balance       (Expense)     Yield/Cost
                                              ------------   -------------   ----------
<S>                                           <C>            <C>             <C>
Interest-earning assets:
      Loans, net (1)                          $333,320,432   $  30,602,652     9.15%
      Investment securities (2):
         Taxable                                34,133,332       1,902,153     5.57%
         Tax exempt                             20,916,246       1,012,499     4.84%
      Federal funds sold                         1,708,000          55,009     3.22%
                                              ------------   -------------
         Total interest-earning assets         390,078,010      33,572,313     8.61%
                                              ------------   -------------
Noninterest-earning assets                      70,524,835
                                              ------------
         Total assets                         $460,602,845
                                              ============
Interest-bearing liabilities:
      Money market and NOW                    $ 52,263,513        (996,734)    1.91%
      Savings accounts                           7,431,483        (124,870)    1.68%
      Certificates of deposit                  261,260,988     (15,937,259)    6.10%
                                              ------------   -------------
         Total deposits                        320,955,984     (17,058,863)    5.32%
      Short-term and other borrowings           63,238,289      (3,344,112)    5.29%
                                              ------------   -------------
         Total interest-bearing liabilities    384,194,273     (20,402,975)    5.31%
                                              ------------   -------------
Noninterest-bearing liabilities                 34,675,505
                                              ------------
          Total liabilities                    418,869,778
Shareholders' equity                            41,733,067
         Total liabilities and
                                              ------------
            shareholders' equity              $460,602,845
                                              ============
Net interest income                                          $  13,169,338
                                                             =============
            Net interest margin                                                3.38%
                                                                               ====
</TABLE>

(1)  Interest earnings on nonaccrual loans are included in the foregoing
     analysis to the extent that such interest earnings had been recorded during
     2003, 2002, and 2001.

(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 shareholders' equity.

                                       45
<PAGE>

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:

<TABLE>
<CAPTION>
                                                          2003 vs. 2002                           2002 vs. 2001
                                                        Increase (Decrease)                    Increase (Decrease)
                                                              Due to                                  Due to
                                          -----------------------------------------   -----------------------------------------
                                            Average       Average                      Average         Average
                                           Volume (1)     Rate (1)          Net       Volume (1)       Rate (1)        Net
                                          ------------  -----------    ------------   -----------    -----------    -----------
<S>                                       <C>           <C>            <C>            <C>            <C>            <C>
Interest Income:
   Loans                                  $(1,889,614)  $(2,218,439)   $(4,108,053)   $(2,413,741)   $(4,808,860)   $(7,222,601)
   Investment securities:
      Taxable                                 695,635      (820,143)      (124,508)       160,409        (37,323)       123,086
      Tax exempt                             (101,386)       (7,068)      (108,454)       (67,169)       (16,754)       (83,923)
   Federal funds sold                           6,182         4,061         10,243         47,861        (58,520)       (10,659)
   Loans held for sale                         97,558            --         97,558             --             --             --
                                          -----------   -----------    -----------    -----------    -----------    -----------
      Total interest-earning assets        (1,191,625)   (3,041,589)    (4,233,214)    (2,272,640)    (4,921,457)    (7,194,097)
                                          ===========   ===========    ===========    ===========    ===========    ===========
Interest Expense:
   Money market and NOW                        34,633      (175,176)      (140,543)        28,780       (529,956)      (501,176)
   Savings accounts                            10,812       (32,555)       (21,743)         8,663        (70,253)       (61,590)
   Certificates of deposit                 (1,894,056)   (1,520,908)    (3,414,964)    (1,454,066)    (5,212,158)    (6,666,224)
   Short-term and other borrowings           (343,045)          875       (342,170)      (857,747)      (275,151)    (1,132,898)
                                          -----------   -----------    -----------    -----------    -----------    -----------
      Total interest-bearing liabilities   (2,191,656)   (1,727,764)    (3,919,420)    (2,274,370)    (6,087,518)    (8,361,888)
                                          ===========   ===========    ===========    ===========    ===========    ===========

   Change in net interest income          $ 1,000,031   $(1,313,825)   $  (313,794)   $     1,730    $ 1,166,061    $ 1,167,791
                                          ===========   ===========    ===========    ===========    ===========    ===========
</TABLE>

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

NONINTEREST INCOME AND NONINTEREST EXPENSE

     Noninterest income in 2003 decreased slightly over 2002. Increases in gain
on sale of loans of $615,000 resulted from the creation of Habersham Mortgage, a
division of Habersham Bank, which began operation in 2003. During 2002,
Habersham Bancorp sold its investments in common stock of FLAG Financial Corp,
CB Financial Corp, and Greater Rome for gains of $838,000, $277,000, and
$50,000, respectively, in order to focus primarily on enhancing financial
services offered at Habersham Bank. This resulted in lower gains on investment
securities for 2003.

     Noninterest income in 2002 increased $854,000 or 27.48% when compared to
2001. Noninterest income in 2002 when compared to 2001 increased primarily due
to an increase in gains on sales of investment securities available for sale of
$660,000 in 2002 compared to 2001. Income from trust services also increased in
2002 to $562,000 from $366,000 in 2001 due to growth in the trust department
operations in 2002.

     Noninterest expense in 2003 increased approximately $1,254,000 or 9.81% as
compared to 2002. The increase in salaries and employee benefits is due to
additional costs associated with the creation of Habersham Mortgage, a division
of Habersham Bank and staffing requirements for our new location in Braselton.
Occupancy expenses increased due to increased depreciation expense associated

                                       46
<PAGE>

with purchases of new mainframe computer hardware and software during the fourth
quarter of 2002, in addition to depreciation expense on purchases of new teller
machines and software and replacement of personal computers at all locations
during 2003.

     Noninterest expense in 2002 increased by approximately $497,000 or 4.05% as
compared to 2001. The increase for 2002 was primarily due to increases of
$278,000 in salaries and employee benefits and $281,000 in marketing expenses
offset by a decrease of approximately $87,000 in outside services expense.
Salaries and employee benefits increased primarily as a result of annual salary
adjustments and additional staffing requirements. Outside services expense
consists of FDIC insurance, legal and professional services, insurance, director
fees, and Georgia Department of Banking and Finance fees.

INCOME TAX EXPENSE

     The effective tax rate for the Company decreased during 2003 to 23.87%
compared to the effective tax rate during 2002 of 24.43%. The effective tax rate
for the year ended December 31, 2001 was 25.48%. Higher tax-exempt income as a
percentage of pre-tax income each year is the primary cause for these
fluctuations.

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
periodically based on a review of all significant loans, with particular
emphasis on impaired, non-accruing, 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 the 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 probably exist as of the
evaluation date. Loss percentages used for non-problem loans in the portfolio
are based on historical loss factors. The general allowance for losses on
problem loans is 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. General loss percentages for the problem loans are
determined based upon historical loss experience and regulatory requirements.

     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, the Company has established an unallocated allowance of
approximately $289,000 at December 31, 2003. The basis for the unallocated
allowance is due to a number of qualitative factors, such as concentrations of
credit and changes in the outlook for local and regional economic conditions.
Management believes its allowance for loan losses is adequate to absorb losses
on loans outstanding at December 31, 2003.

                                       47
<PAGE>

     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,
2003, 2002, 2001, 2000, and 1999 is as follows:

<TABLE>
<CAPTION>
                                2003                      2002                      2001
                       ------------------------  -----------------------  ------------------------
                                    Percent of               Percent of                Percent of
                                     Loans to                 Loans to                  Loans to
                         Amount     Total loans    Amount    Total loans      Amount   Total loans
                       -----------  -----------  ----------  -----------  ------------ -----------
<S>                    <C>          <C>          <C>         <C>          <C>          <C>
Commercial, financial
  and agricultural     $   411,359      5.6%     $  372,075     5.6%      $   859,875      7.4%
Real estate              2,315,343     88.3%      2,214,516    87.5%        1,968,745     84.8%
Installment loans
  to individuals           618,639      6.1%        724,794     6.9%          598,657      7.8%
Unallocated                297,761        -         221,924       -           174,600        -
                       -----------    -----      ----------   -----       -----------    -----
  Total                $ 3,643,102    100.0%     $3,533,309   100.0%      $ 3,601,877    100.0%
                       ===========    =====      ==========   =====       ===========    =====

<CAPTION>
                                  2000                      1999
                         -----------------------  ------------------------
                                     Percent of                Percent of
                                      Loans to                  Loans to
                           Amount    Total loans   Amount      Total loans
                         ----------  -----------  -----------  -----------
<S>                      <C>         <C>          <C>          <C>
Commercial, financial
  and agricultural       $  775,783      6.7%     $   921,585      5.2%
Real estate               2,026,521     86.7%       1,619,563     89.4%
Installment loans
  to individuals            386,883      6.6%         442,005      5.4%
Unallocated                       -        -                -        -
                         ----------    -----      -----------    -----
  Total                  $3,189,187    100.0%     $ 2,983,153    100.0%
                         ==========    =====      ===========    =====
</TABLE>

     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.
The provision for loan losses was $950,000 in 2003 as compared to $1,307,000 in
2002. Decreases in the loan portfolio due to the maturity and repayments of
construction loans originated by BancMortgage resulted in the decrease in the
provision.

     Management is 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.

     The following table summarizes, for each of the years in the five year
period ended December 31, 2003, selected information related to the allowance
for loan losses.

<TABLE>
<CAPTION>
                                            2003           2002           2001           2000           1999
<S>                                     <C>            <C>            <C>            <C>            <C>
Balance of allowance for loan
 losses at beginning of period          $  3,533,309   $  3,601,877   $  3,189,187   $  2,983,153   $  2,653,070
                                        ------------   ------------   ------------   ------------   ------------
Charge-offs:
 Commercial, financial and
  agricultural                              (329,905)      (372,583)      (481,978)      (266,960)      (117,133)
 Real estate                                (137,861)      (470,433)      (283,163)      (151,517)        (6,106)
 Installment loans to individuals           (660,230)      (670,977)      (444,584)      (324,084)      (141,661)
 Other                                       (20,279)       (33,729)       (47,415)       (43,377)       (32,059)
                                        ------------   ------------   ------------   ------------   ------------
Total charge-offs                         (1,148,275)    (1,547,722)    (1,257,140)      (785,938)      (296,959)
                                        ------------   ------------   ------------   ------------   ------------
Recoveries:
 Commercial, financial and
  agricultural                               130,864         25,759         63,451              -          4,128
 Real estate                                  45,581         25,244         24,720            965         59,570
 Installment loans to individuals            125,179        112,017        105,671         32,052         57,872
 Other                                         6,444          9,134         12,988          3,955          5,472
                                        ------------   ------------   ------------   ------------   ------------
Total recoveries                             308,068        172,154        206,830         36,972        127,042
                                        ------------   ------------   ------------   ------------   ------------
 Net charge-offs                            (840,207)    (1,375,568)    (1,050,310)      (748,966)      (169,917)

 Provision for loan losses                   950,000      1,307,000      1,463,000        955,000        500,000
                                        ------------   ------------   ------------   ------------   ------------
 Balance of allowance for loan
  losses at end of period               $  3,643,102   $  3,533,309   $  3,601,877   $  3,189,187   $  2,983,153
                                        ============   ============   ============   ============   ============
 Average amount of loans                $282,142,667   $306,940,750   $333,320,432   $346,749,588   $255,925,990
                                        ============   ============   ============   ============   ============

 Ratio of net charge-offs during
  the period to average loans
  outstanding during the period                  .30%           .45%           .32%           .22%           .07%

 Ratio of allowance to year-end loans           1.37%          1.15%          1.11%           .57%           .94%
</TABLE>

                                       48
<PAGE>

     Net charge-offs amounted to $840,207 in 2003. There were 11 commercial
loans charged-off with an average balance of $29,991. Real estate secured loans
charged-off totaled 11 with an average balance of $47,200. Installment loans
charge-offs totaled 143 with an average charge-off balance of $4,800. Commercial
loan recoveries totaled 8 loans for an average amount of $16,000, real estate
secured loans recoveries totaled 7 loans for an average amount of $5,000, and
installment loan recoveries totaled 104 loans for an average of $1,000.

     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 that 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.

LOANS

     The amount of loans outstanding at December 31 for each of the last five
years is set forth in the following table according to type of loan and is net
of unamortized loan origination fees and unamortized discount on SBA loans sold.
The Company had no foreign loans at December 31 in any of the last five years.

<TABLE>
<CAPTION>
                               2003            2002         2001            2000         1999
<S>                         <C>            <C>           <C>            <C>           <C>
Commercial, financial
  and agricultural          $ 14,651,171   $ 17,070,602  $ 23,921,875   $ 25,566,931  $ 16,623,264
Real estate - construction    50,134,674    106,759,853   119,663,535    113,201,531   106,915,963
Real estate - mortgage       184,348,892    162,281,200   156,022,201    218,040,964   174,244,063
Installment loans to
  individuals                 16,355,654     21,294,151    25,531,911     25,287,734    20,168,672
                            ------------   ------------  ------------   ------------  ------------
    Total                   $265,490,391   $307,405,806  $325,139,522   $382,097,160  $317,951,962
                            ============   ============  ============   ============  ============
</TABLE>

     Loans decreased approximately $41.9 million or 13.63% in 2003 as compared
to 2002. Decreases in the real estate construction portfolio, primarily due to
the maturity and payoffs of construction loans in the Atlanta area that had been
originated by BancMortgage Financial Corp, were offset by new residential
mortgages and commercial real estate. Decreases also occurred in the commercial,
financial, and agricultural portfolio and in the consumer lending portfolio due
to interest rate and economic pressures.

     The decrease in loans in 2002 resulted primarily from decreases in the
commercial and consumer loan portfolios of approximately $6.8 million and $4.2
million, respectively, in addition to the sale of residential mortgages and
construction loans of approximately $31.5 million offset by new residential
mortgage and construction loans of approximately $24.9 million.

                                       49
<PAGE>

     The following table sets forth the maturities and sensitivities to changes
in interest rates of loans at December 31, 2003.

<TABLE>
<CAPTION>
                                                   DUE AFTER
                                      DUE IN       ONE THROUGH    DUE AFTER
                                     ONE YEAR      FIVE YEARS     FIVE YEARS        TOTAL
                                     --------      -----------    ----------        -----
<S>                                <C>            <C>            <C>             <C>
LOAN MATURITY:
  Commercial, financial
  and agricultural .............   $ 10,511,117   $  4,085,115   $     54,939    $ 14,651,171
  Real estate - construction ...     50,134,674              -              -      50,134,674
  Real estate - mortgage .......    115,948,544     64,522,002      3,878,346     184,348,892
  Installment loans to
    individuals ................      5,663,795     10,641,093         50,766      16,355,654
                                   ------------   ------------   ------------    ------------
       TOTAL ...................   $182,258,130   $ 79,248,210   $  3,984,051    $265,490,391
                                   ============   ============   ============    ============

LOAN INTEREST RATE SENSITIVITY:
Loans with:
 Predetermined interest rates ..   $ 53,977,780   $ 78,916,626   $  3,939,649    $136,834,055
 Floating or adjustable
  interest rates ...............    128,280,350        331,584         44,402     128,656,336
                                   ------------   ------------   ------------    ------------
    TOTAL ......................   $182,258,130   $ 79,248,210   $  3,984,051    $265,490,391
                                   ============   ============   ============    ============
</TABLE>

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.

     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.

<TABLE>
<CAPTION>
                                          2003          2002          2001         2000         1999
<S>                                    <C>           <C>           <C>           <C>          <C>
NONPERFORMING ASSETS:

Accruing loans 90 days past due        $   503,954   $ 2,178,898    $3,031,122   $1,814,820   $  319,731
Nonaccrual                               2,299,796     2,115,485     2,097,964      789,341      623,114
Restructured loans                          26,217       492,064       689,510      709,787      781,803
Other real estate owned                  2,634,673     3,197,020     4,685,704    1,579,245    1,440,084
                                       -----------   -----------   -----------   ----------   ----------
Total nonperforming assets             $ 5,464,640   $ 7,983,467   $10,504,300   $4,893,193   $3,164,732
                                       ===========   ===========   ===========   ==========   ==========

RATIOS:

Nonperforming loans (excluding
  restructured loans) to total loans          1.06%         1.40%         1.58%         .68%         .30%

Nonperforming assets to total loans
  plus other real estate owned                2.04%         2.57%         3.18%        1.28%         .99%
Allowance to nonperforming loans            128.73%        73.82%        61.90%       96.24%      172.97%
</TABLE>


     Most of the classifications of nonperforming assets had decreased at
December 31, 2003 over December 31, 2002 with the exception of nonaccrual loans.
Accruing loans over 90 days at December 31, 2002 consisted primarily of twenty
loans collateralized with residential properties which were moved into the other
real estate or collected. At December 31, 2003, accruing loans 90 days past due
consisted of five real estate secured loans of approximately $263,000 with the
remainder in consumer and commercial loans of approximately $126,000 and
$114,000, respectively.

     The increase in loans on nonaccrual status during 2003 was primarily due to
the movement of approximately $1,633,000 of loans collateralized by 1-4 family
residential properties to nonaccrual status during 2003.

     Restructured loans decreased during 2003 due to the reclassification of one
note of approximately $492,000 and one note of approximately $26,000 classified
as a restructured loan.

                                       50
<PAGE>

     During 2003, additions to other real estate of approximately $1.7 million
were offset by sales of other real estate of approximately $2.2 million. At
December 31, 2003, other real estate consisted of three properties of
approximately $1.6 million which are secured by commercial real estate and
thirteen properties of approximately $1 million which are secured by residential
properties.

     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 $217,088, $298,461, and $353,847 in 2003, 2002, and
2001, respectively, compared with interest income recognized of $113,450,
$91,914, and $145,584, respectively.

     At December 31, 2003, the Company had no significant loans which management
designated as potential problem loans which have not been disclosed above as
nonaccrual or past due loans.

     Habersham Bank held a concentration in mortgages for agribusiness purposes
in the poultry industry which totaled approximately $5.7 million and $6 million
at December 31, 2003 and 2002, or approximately 2.18% and 1.97% of total net
loans at December 31, 2003 and 2002, respectively. These mortgages for
agribusiness purposes are primarily secured by real estate consisting of
residences, poultry houses, and equipment. None of the mortgages are considered
individually significant. Habersham Bank held a concentration in commercial
loans for the travel accommodation industry which total approximately $19.7
million at December 31, 2003, or approximately 7.41% of total net loans. These
loans are primarily secured by commercial real estate.

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, 2003
approximately $72.8 million of investment securities were classified as
available for sale. Approximately $164,000 of net unrealized gain, net of income
taxes, was included in shareholders' equity related to available for sale
investment securities.

    The following table sets forth the carrying amounts of investment securities
at December 31, 2003, 2002, and 2001.

<TABLE>
<CAPTION>
                                          2003              2002             2001
<S>                                   <C>              <C>             <C>
Investment securities available
  for sale:
    U.S. Treasury                     $14,667,221      $   514,608     $  1,544,065
    U.S. Government agencies           45,272,660       41,589,860       31,131,435
    States & political subdivisions    12,194,882       12,011,458       12,176,829
    Other investments                     677,868          702,974        2,768,062
                                      -----------      -----------     ------------
      Total                           $72,812,631      $54,818,900     $ 47,620,391
                                      ===========      ===========     ============
Investment securities held
    to maturity:
    U.S. Government agencies          $   193,008      $   248,840     $  2,100,963
    States & political subdivisions     4,666,705        6,640,464        7,545,175
                                      -----------      -----------     ------------
      Total                           $ 4,859,713      $ 6,889,304     $  9,646,138
                                      ===========      ===========     ============
</TABLE>

                                       51
<PAGE>

     The following table sets forth the maturities of debt investment securities
at carrying value at December 31, 2003 and the related weighted yields of such
securities on a tax equivalent basis (assuming a 34% tax rate).

<TABLE>
<CAPTION>
                                                      MATURING IN
                                    ONE YEAR       1-5          5-10        AFTER 10
                                    OR LESS       YEARS         YEARS        YEARS
<S>                                <C>          <C>          <C>          <C>
Investment securities available
 for sale:

Carrying value:
 U.S. Treasury                     $        -   $2,653,782   $7,133,201   $ 4,880,238
 U.S. Government agencies                   -    1,300,212    7,079,868    36,892,580
 States & political subdivisions      205,743    1,431,235    3,735,983     6,821,921

Weighted average yields:

 U.S. Treasury                              -%        3.51%        3.66%         4.27%
 U.S. Government agencies                   -%        2.82%        3.81%         4.32%
 States & political subdivisions         5.73%        3.90%        4.77%         4.59%

Investment securities held
 to maturity:

Carrying value:
 U.S. Government agencies          $        -   $   64,505   $   99,447   $    29,056
 States & political subdivisions      505,034    1,648,986      994,312     1,518,373

Weighted average yields:
 U.S. Government agencies                   -%        6.27%        8.31%         5.86%
 States & political subdivisions         4.71%        4.76%        4.64%         4.93%
</TABLE>

     No securities were held which represent a combined total for one issuer
which is in excess of 10% of the Company's shareholders' equity at December 31,
2003.

DERIVATIVE INSTRUMENTS

     The Company adopted Statement of Financial Accounting Standards (SFAS) No.
133, "Accounting for Derivative Instruments and Hedging Activities," as amended,
on January 1, 2001. In accordance with the transition provisions of SFAS No.
133, the Company recorded a net-of-tax cumulative effect loss of $162,000 on
January 1, 2001 to reflect the fair value of forward commitments to sell
mortgage-backed securities held by BancMortgage. The provisions of SFAS No. 133
allowed for a one time transfer of investment securities previously classified
as held to maturity to available for sale upon adoption. As a result, the
Company transferred approximately $999,000 of investment securities previously
classified as held to maturity to its available for sale portfolio on January 1,
2001.

     In the normal course of business, as part of its former mortgage banking
operations, the Company extended interest rate lock commitments to borrowers who
applied for loan funding and met certain credit and underwriting criteria. Such
commitments were typically for short terms. Such commitments to originate
fixed-rate mortgage loans for resale and forward commitments to sell
mortgage-backed securities were the Company's only derivative instruments.

     At December 31, 2003, other than a minimal amount of interest rate lock
commitments to originate mortgage loans for resale, the Company did not have any
derivative instruments.

                                       52
<PAGE>

DEPOSITS

     Average deposits decreased approximately $40.0 million and decreased
approximately $14.2 million during 2003 and 2002, respectively.

    The following table sets forth the average amount of deposits and average
rate paid on such deposits for each category which exceeds 10% of average total
deposits for the years ended December 31, 2003, 2002, and 2001.

<TABLE>
<CAPTION>
                                            2003                  2002                2001
                                          AVG. AMT    AVG       AVG. AMT    AVG     AVG. AMT      AVG
                                       OUTSTANDING    RATE    OUTSTANDING   RATE   OUTSTANDING    RATE
<S>                                    <C>           <C>      <C>           <C>    <C>            <C>
Interest-bearing demand deposits       $ 57,534,840   .62%    $ 53,770,339   .92%  $ 52,263,513   1.91%
Nonininterest-bearing demand deposits    39,691,635   n/a       36,264,247   n/a     28,669,906    n/a
Time certificates of deposit            188,858,305  3.10%     237,423,845  3.90%   261,260,988   6.10%
</TABLE>

     At December 31, 2003, time certificates of deposit of $100,000 or more
totaled $63,730,583. The maturities of all time certificates of deposit over
$100,000 are as follows:

<TABLE>
<S>                                    <C>
3 months or less                       $ 13,290,442
Over 3 but less than 6 months            24,060,994
Over 6 but not more than 12 months       12,128,073
Over 1 year but not more than 5 years    14,251,074
                                       ------------
  TOTAL                                $ 63,730,583
                                       ============
</TABLE>

BORROWINGS

     Borrowings increased approximately $3.8 million during 2003 compared to
2002 primarily due to the purchase of federal funds at year-end of approximately
$4.2 million. Other short-term borrowings, the treasury note and securities sold
under repurchase agreements, decreased approximately $354,000 and $32,000,
respectively.

     At December 31, 2003, the Company has a Daily Rate Credit line and a
Warehouse line of credit with the Federal Home Loan Bank totaling $230,833,000
of which $30,000,000 was advanced and $200,833,000 was available. Both of these
lines of credit are specific collateral agreements. The Daily Rate Credit line
is secured by qualifying first mortgage loans, commercial loans, and pledged
securities. The Warehouse line of credit is secured by qualifying first mortgage
loans. The advances outstanding at December 31, 2003 and 2002 consist of three
fixed rate advances of $10,000,000 each that bear interest at 6.72%, 6.02%, and
4.93% and mature in 2005, 2010, and 2011 (callable each year), respectively.

     At December 31, 2003, the Company had available repurchase agreement line
of credit commitments with Compass Bank totaling $22,950,000 of which none was
advanced. The Company also had available repurchase agreement line of credit
commitments with the National Bank of Commerce totaling $1,901,000 at December
31, 2003 of which none was advanced.

CAPITAL RESOURCES

     The Company is 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 must meet specific capital guidelines that involve quantitative measures
of the Company's assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. The Company's capital amounts
and classification are also

                                       53
<PAGE>

subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.

     Quantitative measures established by regulations to ensure capital adequacy
require the Company 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, 2003, that the
Company meets all capital adequacy requirements to which it is subject.

     As of December 31, 2003, 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, 2003 follow (in thousands):

<TABLE>
<CAPTION>
                                                                                   TO BE WELL
                                                                                  CAPITALIZED
                                                                                  UNDER PROMPT
                                                                                   CORRECTIVE
                                                                FOR CAPITAL          ACTION
                                               ACTUAL         ADEQUACY PURPOSES    PROVISIONS
                                            AMOUNT   RATIO    AMOUNT      RATIO   AMOUNT  RATIO
<S>                                         <C>      <C>      <C>         <C>     <C>
As of December 31, 2003
Total Capital (to risk-weighted assets):
  Company                                   $50,543  17.26%   $23,433       8%       N/A   N/A
  Habersham Bank                             46,366  15.94%    23,270       8%    $29,087   10%

Tier I Capital (to risk-weighted assets):
  Company                                   $46,954  16.03%   $11,717       4%       N/A   N/A
  Habersham Bank                             42,777  14.71%    11,635       4%    $17,452    6%

Tier I Capital (to average assets):
  Company                                   $46,954  12.34%   $15,224       4%       N/A   N/A
  Habersham Bank                             42,777  11.35%    15,071       4%    $18,838    5%
</TABLE>

     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 $.06 per share in March, June, and
September of 2003, with a special dividend of $1.00 paid in December of 2003.
The special dividend was paid in celebration of Habersham Bank's 100th
anniversary coming in 2004 and in light of the favorable tax treatment of
dividend income under recent tax law changes.

     Cash dividends were paid at a rate of $.06 per share in each of March,
June, September, and December for 2002.

     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.

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.

                                       54
<PAGE>

     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.

INTEREST RATE SENSITIVITY ANALYSIS

<TABLE>
<CAPTION>
                                   DUE IN       DUE AFTER        DUE AFTER       DUE AFTER      DUE AFTER
                                   THREE       THREE THROUGH    SIX THROUGH     ONE THROUGH       FIVE
                                   MONTHS       SIX MONTHS     TWELVE MONTHS     FIVE YEARS       YEARS         TOTAL
<S>                             <C>            <C>             <C>              <C>            <C>           <C>
INTEREST-EARNING ASSETS:
 Investment securities          $    200,382   $    304,981    $    205,414     $  7,098,720   $69,184,979   $ 76,994,476
 Loans                           132,878,489     24,444,667      24,934,974       79,248,210     3,984,052    265,490,392
                                ------------   ------------    ------------     ------------   -----------   ------------
 Total interest-earning assets   133,078,871     24,749,648      25,140,388       86,346,930    73,169,031    342,484,868
                                ------------   ------------    ------------     ------------   -----------   ------------
INTEREST-BEARING
  LIABILITIES:

Deposits:
  Money market and NOW           59,076,674               -               -                -             -     59,076,674
  Savings                         9,473,852               -               -                -             -      9,473,852
  Certificates of
    deposit                      38,821,434      59,091,492      29,595,506       45,680,059         7,622    173,196,113
  Borrowings                     12,962,231               -               -       10,000,000    20,000,000     42,962,231
                                -----------    ------------    ------------     ------------   -----------   ------------
Total interest-bearing
  liabilities                   120,334,191      59,091,492      29,595,506       55,680,059    20,007,622    284,708,870
                                -----------    ------------    ------------     ------------   -----------   ------------
Excess (deficiency) of
  interest-earning assets
  over interest-
  bearing liabilities           $12,744,680    $(34,341,844)   $ (4,455,118)    $ 30,666,871   $53,161,409   $ 57,775,998
                                ===========    ============    ============     ============   ===========   ============

Cumulative gap                  $12,744,680    $(21,597,164)   $(26,052,282)    $  4,614,589   $57,775,998

Ratio of cumulative gap to
  total cumulative earning-
  assets                               9.58%         (13.68)%        (14.24)%           1.71%        16.87%
Ratio of interest-earning
  assets to interest-bearing
  liabilities                        110.59%          87.96%          87.54%          101.74%       120.29%
</TABLE>

     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, 2003, the Company was able to meet such
objective. The interest rate sensitivity analysis has a negative one year gap of
approximately $26 million (excess of interest-bearing liabilities to
interest-earning assets repricing within one year). However, the Company's
experience has shown that NOW, money market, and savings deposits of
approximately $68.5 million are less sensitive to short term rate movements,
thus the negative one year gap is likely lower.

                                       55
<PAGE>

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 in tabular form the contractual balances and the
estimated fair value of the Company's balance sheet financial instruments and
their expected maturity dates as of December 31, 2003. 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, 2003.

MARKET RISK INFORMATION (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                PRINCIPAL/NOTIONAL AMOUNT MATURING IN:                   FAIR
                               2004       2005      2006      2007     2008    THEREAFTER    TOTAL       VALUE
<S>                          <C>         <C>       <C>       <C>      <C>      <C>          <C>        <C>
RATE-SENSITIVE ASSETS:
Fixed interest rate
 loans                       $  53,978   $33,608   $33,994   $6,322   $4,992     $ 3,940    $136,834   $ 146,148
Average interest rate             6.27%     6.23%     6.43%    7.24%    6.85%       5.64%       6.35%

Variable interest rate
 loans                         128,280       332         -        -        -          44     128,656     128,656
Average interest rate             5.23%     5.50%        -%       -%       -%        3.89%      5.23%

Fixed interest rate
 securities                        711       481     1,376    2,209    3,033      68,062      75,872      76,190
Average interest rate             5.01%     4.77%     3.25%    4.12%    3.49%       4.29%       4.24%

Variable interest rate
 securities                      1,122         -         -        -        -           -       1,122       1,122
Average interest rate             3.31         -%        -%       -%       -%          -%       3.31%

RATE-SENSITIVE LIABILITIES:
Savings and interest-
  bearing deposits              68,551         -         -        -        -           -      68,551      68,551
Average interest rate              .46%        -%        -%       -%       -%          -%        .46%

Fixed interest rate
  time deposits                127,488    16,268    20,146    6,878    2,388           8     173,176     225,009
Average interest rate             2.98%     4.73%     4.68%    4.96%    4.32           -%       3.52%

Variable interest rate
  time deposits                     20         -         -        -        -           -          20          20
Average interest rate             3.45%        -%        -%       -%       -%          -%       3.45%

Fixed interest rate
  Borrowings                         -    10,000         -        -        -      20,000      30,000      33,090
Average interest rate                -%     6.72%        -%       -%       -%       5.48%       5.89%

Variable interest rate
  borrowings                    12,962         -         -        -        -           -      12,962      12,962
Average interest rate              .86%        -%        -%       -        -%          -%        .86%
</TABLE>

Equity investments of $750,000 are subject to changes in market values.

                                       56
<PAGE>

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" 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 $25,000,000. At December 31, 2003,
federal funds purchased from other financial institutions total $4,189,000. The
Company can borrow funds from the FHLB, subject to eligible collateral of loans.
At December 31, 2003, our maximum borrowing capacity from the FHLB was
$230,833,000 and the Company had outstanding borrowings of $30,000,000 leaving
available unused borrowing capacity of $200,833,000. In addition, the Company
has made arrangements with commercial banks for short-term advances up to
$24,851,000 under repurchase agreement lines of credit of which none was
advanced at December 31, 2003.

     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, 2003 and 2002 were 33.50% and 21.11%,
respectively.

OFF-BALANCE SHEET COMMITMENTS AND CONTRACTUAL OBLIGATIONS

     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, 2003, the Company had outstanding loan commitments approximating
$45,900,000 and standby letters of credit approximating $3,852,000. 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

                                       57
<PAGE>

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.

     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.

<TABLE>
<CAPTION>
                                             2004           2005           2006           2007          2008
<S>                                      <C>            <C>            <C>            <C>            <C>
Commitments on lines of credit             45,900,002              -              -              -              -
Standby letters of credit                   3,851,779              -              -              -              -
Commitments under lease agreements            126,420        114,078         81,040         27,958          4,011
Deposits                                  233,912,287     16,268,443     20,146,357      6,877,652      2,387,607
FHLB advances                                       -     10,000,000              -              -              -
Short-term borrowings                         578,455              -              -              -              -
Federal funds purchased and securities
  sold under repurchased agreements        12,383,776              -              -              -              -
                                         ------------   ------------   ------------   ------------   ------------
 Total commitments and
    contractual obligations              $296,752,719   $ 26,382,521   $ 20,227,397   $  6,905,610   $  2,391,618
                                         ============   ============   ============   ============   ============
</TABLE>

     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.

ACCOUNTING PRONOUNCEMENTS

     In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" (FIN 45). FIN 45 requires that the
guarantor recognize, at the inception of certain guarantees, a liability for the
fair value of the obligation undertaken in issuing such guarantee. FIN 45 also
requires additional disclosure about the guarantor's obligations under certain
guarantees that it has issued. The initial recognition and measurement
provisions of this interpretation are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002 and the disclosure
requirements are effective for financial statements for periods ending after
December 15, 2002. The adoption of FIN 45 did not have a material impact on the
Company's financial condition or results of operations.

     In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities and Interpretation of ARB No. 51" (FIN 46). In
December 2003, the FASB reissued FIN 46 (FIN46R). FIN 46 establishes the
criteria for consolidating variable interest entities. The adoption of FIN 46
and FIN 46R is not expected to have a material impact on the consolidated
financial statements of the Company as the Company does not have a variable
interest in any entity.

     In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments,
including certain

                                       58
<PAGE>

derivative instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities under SFAS No. 133. SFAS No. 149 is
effective for contracts entered into or modified after June 30, 2003. The
adoption of SFAS No. 149 did not have a significant effect on the Company's
consolidated financial statements.

     In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." SFAS
No. 150 establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity, and
imposes certain additional disclosure requirements. The provisions of SFAS No.
150 are generally effective for all financial instruments entered into or
modified after May 31, 2003, and otherwise is effective at the beginning of the
first interim period beginning after June 15, 2003. The adoption of this
standard did not have a significant effect on the Company's consolidated
financial statements.

     The common stock of the Company is traded on the Nasdaq Stock Market
("Nasdaq") under the symbol HABC. At December 31, 2003, the Company had
approximately 541 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.

<TABLE>
<CAPTION>
2003:            HIGH    LOW    DIVIDEND
<S>             <C>     <C>     <C>
Fourth Quarter  $25.50  $22.55  $  1.00
Third Quarter    23.00   19.83     0.06
Second Quarter   21.12   17.31     0.06
First Quarter    19.68   17.08     0.06
</TABLE>

<TABLE>
<CAPTION>
2002:             HIGH    LOW   DIVIDEND
<S>             <C>     <C>     <C>
Fourth Quarter  $18.50  $16.26  $  0.06
Third Quarter    20.76   17.64     0.06
Second Quarter   22.99   17.65     0.06
First Quarter    17.44   15.75     0.06
</TABLE>

     The approval of the Georgia Department of Banking and Finance is required
if dividends declared by the Bank to the Company in any year will exceed 50% of
the net income of the Bank for the previous calendar year. As of December 31,
2003, the Bank could declare dividends to the Company up to approximately
$1,596,000 without regulatory approval.

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