<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549

                                   FORM 10-KSB

          x     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
         ---      SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED,
                           EFFECTIVE OCTOBER 7, 1996]
                  For the fiscal year ended December 31, 1997.

         ---  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                 SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

           For the transition period from                  to
                                          ----------------    ------------------
                         Commission file number 0-13153

                                HABERSHAM BANCORP
--------------------------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)

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


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

Registrant's telephone number, including area code:        (706) 778-1000

Securities registered pursuant to Section 12(b) of the Exchange Act:
                  None
                  ----

Securities registered pursuant to Section 12(g) of the Exchange Act:
                  Common Stock, $1.00 par value
                  -----------------------------

Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes   x    No
    -----    -----

Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained herein, and no disclosure will be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB.  X
                 -----

State the issuer's revenues for its most recent fiscal year: $35,018,418


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State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock as of a specified date within the past 60
days:

1,435,353 Shares of Common Stock, $1.00 par value--$29,424,737 as of March 6,
1998 (based upon market value of $20.50/share).

State the number of shares outstanding of each of the issuer's classes of common
equity stock, as of December 31, 1997, covered by this report.

Common Stock, $1.00 par value--2,408,517 shares,

DOCUMENTS INCORPORATED BY REFERENCE

(1) Portions of the Company's Annual Report to Shareholders for the year ended
December 31, 1997 (the "Annual Report") are incorporated by reference into Part
II.

(2) Portions of the Company's Proxy Statement relating to the 1998 Annual
Meeting of Shareholders (the "Proxy Statement") are incorporated by reference
into Part III.

                                    PART I

Item 1.  BUSINESS.

                            BUSINESS OF THE COMPANY

   Habersham Bancorp (the "Company"), a Georgia corporation, was organized on
March 9, 1984. Effective December 31, 1984, the Company acquired all of the
outstanding shares of common stock of Habersham Bank ("Habersham Bank"). As a
result of this transaction, the former shareholders of Habersham Bank became
shareholders of the Company, and the Bank became the wholly-owned subsidiary of
the Company. Effective June 30, 1995, the Company consummated its acquisition of
Security Bancorp, Inc. ("Security") by agreeing to exchange 612,516 shares of
its common stock and cash of $1,990,269 for the outstanding shares of Security's
common stock in a merger of Security with and into the Company. Currently, the
primary business of the Company is the same as that of Habersham Bank, Security
State Bank ("Security State Bank") and BancMortgage Financial Corp
("BancMorgage"). The Company also has one direct nonbank subsidiary, The
Advantage Group, Inc., and three indirect nonbank subsidiaries, BancMortgage
Financial Corp., Appalachian Travel Service, Inc., and Advantage Insurers, Inc.
(each are subsidiaries of Habersham Bank).

                              BUSINESS OF THE BANKS

    Habersham Bank is a financial institution which was organized under the laws
of the State of Georgia in 1904. Habersham Bank operates a full-service
commercial banking business based in Habersham County, Georgia, providing such
customary banking services as checking and savings accounts, various types of
time deposits, safe deposit facilities and individual retirement accounts. It
also makes secured and unsecured loans and provides other financial services to
its customers. Habersham Bank has a full-time trust officer on staff and offers
a full spectrum of trust services, including trust administration, asset
management services, estate and will probate and administration, and other
services in the area of personal trusts.

    Security State Bank is a financial institution which was organized under the
laws of the State of Georgia in 1988. Security State Bank operates a


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full-service commercial banking business based in Cherokee and surrounding
counties in Georgia, providing such customary banking services as checking and
savings accounts, various types of time deposits, safe deposit facilities and
individual retirement accounts. It also makes secured and unsecured loans and
provides other financial services to its customers.

                      BUSINESS OF THE ADVANTAGE GROUP, INC.

     The Advantage Group, Inc. was organized as a wholly-owned nonbank
subsidiary of the Company in 1987. The Advantage Group, Inc. administers the
Company's Kids' Advantage banking program and markets and develops personal
computer software and other services.

                    BUSINESS OF BANCMORTGAGE FINANCIAL CORP.

     BancMortgage Financial Corp. was organized as a wholly-owned nonbank
subsidiary of Habersham Bank in 1996. BancMortgage Financial Corp. is a full
service mortgage and construction lending company located in the northern
Atlanta Metropolitan area. BancMortgage Financial Corp. also does business in
mid-Atlantic states as The Prestwick Mortgage Group and as BancFinancial
Services Corporation. See "Management's Discussion and Analysis or Plan of
Operation -Organization."

                  BUSINESS OF APPALACHIAN TRAVEL SERVICE, INC.

     Appalachian Travel Service, Inc. was acquired as a wholly-owned nonbank
subsidiary of Habersham Bank in 1996. Appalachian Travel Service, Inc. is a full
service travel agency located in Cornelia, Georgia.

                      BUSINESS OF ADVANTAGE INSURERS, INC.

     Advantage Insurers, Inc. was organized as a wholly-owned nonbank subsidiary
of Habersham Bank in 1997. Advantage Insurers, Inc. is a full service insurance
agency located in Cornelia, Georgia.

                                   COMPETITION

     The banking industry is highly competitive. Recent legislation, together
with other regulatory changes by the primary regulators of the various financial
institutions and competition from unregulated entities, has resulted in the
elimination of many traditional distinctions between commercial banks, thrift
institutions and other providers of financial services. Consequently,
competition among financial institutions of all types is virtually unlimited
with respect to legal ability and authority to provide most financial services.

     Habersham Bank's primary market area consists of Habersham County, Georgia.
Habersham Bank competes principally for all types of loans, deposits and other
financial services with four other commercial banks located in Habersham County,
Georgia. As of December 31, 1997, Habersham Bank was the largest of the
commercial banks located in Habersham County based upon total assets.


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<PAGE>   4
    Security State Bank's primary market area consists of Cherokee County,
Georgia. Security State Bank competes principally for all types of loans,
deposits and other financial services with other commercial banks located in
Cherokee County, Georgia.

    Habersham Bank and Security State Bank (collectively, the "Banks"), also
compete with other financial institutions located in Habersham and Cherokee
counties and with commercial banks, savings and loan associations and other
financial institutions located outside of Habersham and Cherokee counties. To a
lesser extent, Habersham Bank and Security State Bank compete for loans with
insurance companies, regulated small loan companies, credit unions and certain
governmental agencies.

    The Company and its non-bank subsidiaries also compete with numerous other
companies and financial institutions engaged in similar lines of business, such
as other bank holding companies, mortgage companies, mortgage servicers, leasing
companies, insurance companies, companies providing data processing services and
companies providing bank consulting services.

                                  EMPLOYEES

    As of December 31, 1997, the Company had 261 full-time equivalent employees.
Neither the Company nor any of its subsidiaries is a party to any collective
bargaining agreement. In the opinion of management, the Company and its
subsidiaries enjoy satisfactory relations with their respective employees.


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<PAGE>   5

                           SUPERVISION AND REGULATION

        The following discussion sets forth the material elements of the
regulatory framework applicable to banks and bank holding companies and provides
certain specific information related to the Company.

GENERAL

        The Company is a bank holding company registered with the Board of
Governors of the Federal Reserve System (the "Federal Reserve") under the Bank
Holding Company Act of 1956, as amended (the "BHC Act"). As such, the Company
and its non-bank subsidiaries are subject to the supervision, examination, and
reporting requirements of the BHC Act and the regulations of the Federal
Reserve.

        The BHC Act requires every bank holding company to obtain the prior
approval of the Federal Reserve before: (a) it may acquire direct or indirect
ownership or control of any voting shares of any bank if, after such
acquisition, the bank holding company will directly or indirectly own or control
more than 5% of the voting shares of the bank; (b) it or any of its
subsidiaries, other than a bank, may acquire all or substantially all of the
assets of any bank; or (c) it may merge or consolidate with any other bank
holding company.

        The BHC Act further provides that the Federal Reserve may not approve
any transaction that would result in a monopoly or would be in furtherance of
any combination or conspiracy to monopolize or attempt to monopolize the
business of banking in any section of the United States, or the effect of which
may be substantially to lessen competition or to tend to create a monopoly in
any section of the country, or that in any other manner would be in restraint of
trade, unless the anticompetitive effects of the proposed transaction are
clearly outweighed by the public interest in meeting the convenience and needs
of the community to be served. The Federal Reserve is also required to consider
the financial and managerial resources and future prospects of the bank holding
companies and banks concerned and the convenience and needs of the community to
be served. Consideration of financial resources generally focuses on capital
adequacy, which is discussed below.

        The BHC Act, as amended by the interstate banking provisions of the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Banking Act"), which became effective on September 29, 1995,
repealed the prior statutory restrictions on interstate acquisitions of banks by
bank holding companies, such that the Company, and any other bank holding
company located in Georgia may now acquire a bank located in any other state,
and any bank holding company located outside Georgia may lawfully acquire any
Georgia-based bank, regardless of state law to the contrary, in either case
subject to certain deposit-percentage, aging requirements, and other
restrictions. The Interstate Banking Act also generally provides that, as of
June 1, 1997, national and state-chartered banks may now branch interstate
through


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acquisitions of banks in other states. By adopting legislation prior to that
date, a state has the ability either to "opt in" and accelerate the date after
which interstate branching is permissible or "opt out" and prohibit interstate
branching altogether.

        In response to the Interstate Banking Act, the Georgia General Assembly
adopted the Georgia Interstate Banking Act, which was effective on July 1, 1995.
The Georgia Interstate Banking Act provides that (i) interstate acquisitions by
institutions located in Georgia will be permitted in states that also allow
national interstate acquisitions and (ii) interstate acquisitions of
institutions located in Georgia will be permitted by institutions in states that
allow national interstate acquisitions.

        Additionally, on January 26, 1996, the Georgia General Assembly adopted
the Georgia Interstate Branching Act, which permits Georgia-based banks and bank
holding companies owning or acquiring banks outside of Georgia and all
non-Georgia banks and bank holding companies owning or acquiring banks in
Georgia to merge any lawfully acquired bank into an interstate branch network.
The Georgia Interstate Branching Act also allows banks to establish de novo
branches on a limited basis as of July 1, 1996. Beginning July 1, 1998, the
number of de novo branches that may be established will no longer be limited.

        The BHC Act generally prohibits the Company from engaging in activities
other than banking or managing or controlling banks or other permissible
subsidiaries and from acquiring or retaining direct or indirect control of any
company engaged in any activities other than those activities determined by the
Federal Reserve to be so closely related to banking or managing or controlling
banks as to be a proper incident thereto. In determining whether a particular
activity is permissible, the Federal Reserve must consider whether the
performance of such an activity reasonably can be expected to produce benefits
to the public, such as greater convenience, increased competition, or gains in
efficiency, that outweigh possible adverse effects, such as undue concentration
of resources, decreased or unfair competition, conflicts of interest, or unsound
banking practices. For example, factoring accounts receivable, acquiring or
servicing loans, leasing personal property, conducting discount securities
brokerage activities, performing certain data processing services, acting as
agent or broker in selling credit life insurance and certain other types of
insurance in connection with credit transactions, and performing certain
insurance underwriting activities all have been determined by the Federal
Reserve to be permissible activities of bank holding companies. The BHC Act does
not place territorial limitations on permissible non-banking activities of bank
holding companies. Despite prior approval, the Federal Reserve has the power to
order a holding company or its subsidiaries to terminate any activity or to
terminate its ownership or control of any subsidiary when it has reasonable
cause to believe that continuation of such activity or such ownership or control
constitutes a serious risk to the financial safety, soundness, or stability of
any bank subsidiary of that bank holding company.


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<PAGE>   7

        Each of the bank subsidiaries of the Company is a member of the Federal
Deposit Insurance Corporation (the "FDIC"), and as such, its deposits are
insured by the FDIC to the maximum extent provided by law. Each such subsidiary
is also subject to numerous state and federal statutes and regulations that
affect its business, activities, and operations, and each is supervised and
examined by one or more state or federal bank regulatory agencies.

        The FDIC and the Georgia Department of Banking and Finance (the "Georgia
Department") regularly examine the operations of the subsidiary banks and are
given authority to approve or disapprove mergers, consolidations, the
establishment of branches, and similar corporate actions. The FDIC and the
Georgia Department also have the power to prevent the continuance or development
of unsafe or unsound banking practices or other violations of law.

PAYMENT OF DIVIDENDS

        The Company is a legal entity separate and distinct from its banking and
other subsidiaries. The principal sources of cash flow of the Company, including
cash flow to pay dividends to its shareholders, are dividends by its subsidiary
banks. There are statutory and regulatory limitations on the payment of
dividends by the subsidiary banks to the Company as well as by the Company to
its shareholders.

        If, in the opinion of the federal banking regulator, a depository
institution under its jurisdiction is engaged in or is about to engage in an
unsafe or unsound practice (which, depending on the financial condition of the
depository institution, could include the payment of dividends), such authority
may require, after notice and hearing, that such institution cease and desist
from such practice. The federal banking agencies have indicated that paying
dividends that deplete a depository institution's capital base to an inadequate
level would be an unsafe and unsound banking practice. Under the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA"), a depository
institution may not pay any dividend if payment would cause it to become
undercapitalized or if it already is undercapitalized. See "-- Prompt Corrective
Action." Moreover, the federal agencies have issued policy statements that
provide that bank holding companies and insured banks should generally only pay
dividends out of current operating earnings.

        Under dividend restrictions imposed under federal and state laws, the
subsidiary banks, without obtaining governmental approvals, could declare
aggregate dividends to the Company of up to $1,390,000 (representing 50% of the
previous year's net income) in 1998.

        The payment of dividends by the Company and the subsidiary banks may
also be affected or limited by other factors, such as the requirement to
maintain adequate capital above regulatory guidelines.


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<PAGE>   8

CAPITAL ADEQUACY

         The Company and its subsidiary banks are required to comply with the
capital adequacy standards established by the Federal Reserve and the
appropriate federal banking regulator in the case of its banking subsidiaries.
There are two basic measures of capital adequacy for bank holding companies that
have been promulgated by the Federal Reserve: a risk-based measure and a
leverage measure. All applicable capital standards must be satisfied for a bank
holding company to be considered in compliance.

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

        The minimum guideline for the ratio (the "Total Risk-Based Capital
Ratio") of total capital ("Total Capital") to risk-weighted assets (including
certain off-balance-sheet items, such as standby letters of credit) is 8%. At
least half of Total Capital must comprise common stock, minority interests in
the equity accounts of consolidated subsidiaries, noncumulative perpetual
preferred stock, and a limited amount of cumulative perpetual preferred stock,
less goodwill and certain other intangible assets ("Tier 1 Capital"). The
remainder may consist of subordinated debt, other preferred stock, and a limited
amount of loan loss reserves ("Tier 2 Capital"). At December 31, 1997, the
Company's consolidated Total Risk-Based Capital Ratio and its Tier 1 Risk-Based
Capital Ratio (i.e., the ratio of Tier 1 Capital to risk-weighted assets) were
12.88% and 11.83% respectively.

        In addition, the Federal Reserve has established minimum leverage ratio
guidelines for bank holding companies. These guidelines provide for a minimum
ratio (the "Leverage Ratio") of Tier 1 Capital to average assets, less goodwill
and certain other intangible assets, of 3% for bank holding companies that meet
certain specified criteria, including having the highest regulatory rating. All
other bank holding companies generally are required to maintain a Leverage Ratio
of at least 3%, plus an additional cushion of 100 to 200 basis points. The
Company's Leverage Ratio at December 31, 1997 was 7.89%. The guidelines also
provide that bank holding companies experiencing internal growth or making
acquisitions will be expected to maintain strong capital positions substantially
above the minimum supervisory levels without significant reliance on intangible
assets. Furthermore, the Federal Reserve has indicated that it will consider a
"tangible Tier 1 Capital Leverage Ratio" (deducting all intangibles) and other
indicia of capital strength in evaluating proposals for expansion or new
activities.


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<PAGE>   9

        The subsidiary banks are subject to risk-based and leverage capital
requirements adopted by the FDIC, which are substantially similar to those
adopted by the Federal Reserve for bank holding companies.

        Each of the subsidiary banks was in compliance with applicable minimum
capital requirements as of December 31, 1997. The Company has not been advised
by any federal banking agency of any specific minimum capital ratio requirement
applicable to it or its subsidiary depository institutions.

        Failure to meet capital guidelines could subject a bank to a variety of
enforcement remedies, including issuance of a capital directive, the termination
of deposit insurance by the FDIC, a prohibition on the taking of brokered
deposits, and certain other restrictions on its business. As described below,
substantial additional restrictions can be imposed upon FDIC-insured depository
institutions that fail to meet applicable capital requirements. See "-- Prompt
Corrective Action."

        The federal bank regulators continue to indicate their desire to raise
capital requirements applicable to banking organizations beyond their current
levels. In this regard, the Federal Reserve and the FDIC have, pursuant to
FDICIA, recently adopted final regulations requiring regulators to consider
interest rate risk (when the interest rate sensitivity of an institution's
assets does not match the sensitivity of its liabilities or its
off-balance-sheet position) in the evaluation of a bank's capital adequacy. The
bank regulatory agencies' methodology for evaluating interest rate risk requires
banks with excessive interest rate risk exposure to hold additional amounts of
capital against such exposures.

SUPPORT OF SUBSIDIARY INSTITUTIONS

        Under Federal Reserve policy, the Company is expected to act as a source
of financial strength for, and to commit resources to support, each of its
banking subsidiaries. This support may be required at times when, absent such
Federal Reserve policy, the Company may not be inclined to provide it. In
addition, any capital loans by a bank holding company to any of its banking
subsidiaries are subordinate in right of payment to deposits and to certain
other indebtedness of such banks. In the event of a bank holding company's
bankruptcy, any commitment by the bank holding company to a federal bank
regulatory agency to maintain the capital of a banking subsidiary will be
assumed by the bankruptcy trustee and entitled to a priority of payment.

        Under the Federal Deposit Insurance Act ("FDIA"), a depository
institution insured by the FDIC can be held liable for any loss incurred by, or
reasonably expected to be incurred by, the FDIC after August 9, 1989, in
connection with (a) the default of a commonly controlled FDIC-insured depository
institution or (b) any assistance provided by the FDIC to any commonly
controlled FDIC-insured depository institution "in danger of default." "Default"
is defined


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generally as the appointment of a conservator or receiver, and "in danger of
default" is defined generally as the existence of certain conditions indicating
that a default is likely to occur in the absence of regulatory assistance. The
FDIC's claim for damages is superior to claims of shareholders of the insured
depository institution or its holding company, but is subordinate to claims of
depositors, secured creditors, and holders of subordinated debt (other than
affiliates) of the commonly controlled insured depository institution. The
subsidiary depository institutions of the Company are subject to these
cross-guarantee provisions. As a result, any loss suffered by the FDIC in
respect of these subsidiaries would likely result in assertion of the
cross-guarantee provisions, the assessment of such estimated losses against the
depository institution's banking affiliates, and a potential loss of the
Company's investment in such other subsidiary depository institutions.

PROMPT CORRECTIVE ACTION

        FDICIA establishes a system of prompt corrective action to resolve the
problems of undercapitalized institutions. Under this system, which became
effective in December 1992, the federal banking regulators are required to
establish five capital categories (well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically
undercapitalized) and to take certain mandatory supervisory actions, and are
authorized to take other discretionary actions, with respect to institutions in
the three undercapitalized categories, the severity of which will depend upon
the capital category in which the institution is placed. Generally, subject to a
narrow exception, FDICIA requires the banking regulator to appoint a receiver or
conservator for an institution that is critically undercapitalized. The federal
banking agencies have specified by regulation the relevant capital level for
each category.

        The capital levels established for each of the categories are as
follows:


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<TABLE>
<CAPTION>
====================================================================================================================
                                                       Total                Tier 1 Risk-
    Capital Category       Tier 1 Capital       Risk-Based Capital          Based Capital           Other
====================================================================================================================
<S>                        <C>                  <C>                       <C>                    <C>
Well Capitalized           5% or more           10% or more               6% or more             Not  subject  to a
                                                                                                 capital directive
--------------------------------------------------------------------------------------------------------------------
Adequately Capitalized     4% or more           8% or more                4% or more                    --
--------------------------------------------------------------------------------------------------------------------
Undercapitalized           less than 4%         less than 8%              less than 4%                  --
--------------------------------------------------------------------------------------------------------------------
Significantly              less than 3%         less than 6%              less than 3%                  --
Undercapitalized
--------------------------------------------------------------------------------------------------------------------
Critically                 2% or less                      --                       --                  --
Undercapitalized           tangible equity
====================================================================================================================
</TABLE>

        For purposes of the regulation, the term "tangible equity" includes core
capital elements counted as Tier 1 Capital for purposes of the risk-based
capital standards, plus the amount of outstanding cumulative perpetual preferred
stock (including related surplus), minus all intangible assets with certain
exceptions. A depository institution may be deemed to be in a capitalization
category that is lower than is indicated by its actual capital position if it
receives an unsatisfactory examination rating.

        An institution that is categorized as undercapitalized, significantly
undercapitalized, or critically undercapitalized is required to submit an
acceptable capital restoration plan to its appropriate federal banking agency.
Under FDICIA, a bank holding company must guarantee that a subsidiary depository
institution meets its capital restoration plan, subject to certain limitations.
The obligation of a controlling holding company under FDICIA to fund a capital
restoration plan is limited to the lesser of 5% of an undercapitalized
subsidiary's assets or the amount required to meet regulatory capital
requirements. An undercapitalized institution is also generally prohibited from
increasing its average total assets, making acquisitions, establishing any
branches, or engaging in any new line of business, except in accordance with an
accepted capital restoration plan or with the approval of the FDIC. In addition,
the appropriate federal banking agency is given authority with respect to any
undercapitalized depository institution to take any of the actions it is
required to or may take with respect to a significantly undercapitalized
institution as described below if it determines "that those actions are
necessary to carry out the purpose" of FDICIA.

        At December 31, 1997, each subsidiary bank had the requisite capital
levels to qualify as well capitalized.


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<PAGE>   12

FDIC INSURANCE ASSESSMENTS

        Pursuant to FDICIA, the FDIC adopted a new risk-based assessment system
for insured depository institutions that takes into account the risks
attributable to different categories and concentrations of assets and
liabilities. The new system, which went into effect on January 1, 1994, assigns
an institution to one of three capital categories: (a) well capitalized; (b)
adequately capitalized; and (c) undercapitalized. These three categories are
substantially similar to the prompt corrective action categories described
above, with the "undercapitalized" category including institutions that are
undercapitalized, significantly undercapitalized, and critically
undercapitalized for prompt corrective action purposes. An institution is also
assigned by the FDIC to one of three supervisory subgroups within each capital
group. The supervisory subgroup to which an institution is assigned is based on
a supervisory evaluation provided to the FDIC by the institution's primary
federal regulator and information which the FDIC determines to be relevant to
the institution's financial condition and the risk posed to the deposit
insurance funds (which may include, if applicable, information provided by the
institution's state supervisor). An institution's insurance assessment rate is
then determined based on the capital category and supervisory category to which
it is assigned. Under the final risk-based assessment system, as well as the
prior transitional system, there are nine assessment risk classifications (i.e.,
combinations of capital groups and supervisory subgroups) to which different
assessment rates are applied. Assessment rates for members of both the Bank
Insurance Fund ("BIF") and the Savings Association Insurance Fund ("SAIF") for
the first half of 1995, as they had during 1994, ranged from 23 basis points
(0.23% of deposits) for an institution in the highest category (i.e., "well
capitalized" and "healthy") to 31 basis points (0.31% of deposits) for an
institution in the lowest category (i.e., "undercapitalized" and "substantial
supervisory concern"). These rates were established for both funds to achieve a
designated ratio of reserves to insured deposits (i.e., 1.25%) within a
specified period of time.

        Once the designated ratio for the BIF was reached in May 1995, the FDIC
reduced the assessment rate applicable to BIF deposits in two stages, so that,
beginning 1996, the deposit insurance premiums for 92% of all BIF members in the
highest capital and supervisory categories were set at $2,000 per year,
regardless of deposit size. The FDIC elected to retain the existing assessment
rate range of 23 to 31 basis points for SAIF members for the foreseeable future
given the undercapitalized nature of that insurance fund.

        Recognizing that the disparity between the SAIF and BIF premium rates
had adverse consequences for SAIF-insured institutions and other banks with SAIF
assessed deposits, including reduced earnings and an impaired ability to raise
funds in capital markets and to attract deposits, in July 1995, the FDIC, the
Treasury Department, and the Office of Thrift Supervision released statements
outlining a proposed plan to recapitalize the SAIF, the principal feature of
which was a special one-time assessment on depository institutions holding
SAIF-insured deposits, which was intended to recapitalize the SAIF at a reserve
ratio of 1.25%. This proposal


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<PAGE>   13

contemplated elimination of the disparity between the assessment rates on BIF
and SAIF deposits following recapitalization of the SAIF.

        A variation of this proposal designated the Deposit Insurance Funds Act
of 1996 (the "Funds Act") was enacted by Congress as part of the omnibus budget
legislation and signed into law on September 30, 1996. As directed by the Funds
Act, the FDIC implemented a special one-time assessment of approximately 65.7
basis points (0.657%) on a depository institution's SAIF-insured deposits held
as of March 31, 1995 (or approximately 52.6 basis points on SAIF deposits
acquired by banks in certain qualifying transactions). In addition, the FDIC has
implemented a revision in the SAIF assessment rate schedule that effected, as of
October 1, 1996 (a) a widening in the assessment rate spread among institutions
in the different capital and risk assessment categories, (b) an overall
reduction of the assessment rate range assessable on SAIF deposits of from 0 to
27 basis points, and (c) a special interim assessment rate range for the last
quarter of 1996 of from 18 to 27 basis points on institutions subject to
Financing Corporation ("FICO") assessments. Effective as of January 1, 1997,
assessments to help pay off the $780 million in annual interest payments on the
$8 billion FICO bonds issued in the late 1980s as part of the government rescue
of the thrift industry are imposed on both BIF- and SAIF-insured deposits in
annual amounts presently estimated at 1.29 basis points and 6.44 basis points,
respectively. Beginning in January 2000, BIF- and SAIF- insured institutions
will share the FICO interest costs at equal rates currently estimated 2.43 basis
points.

        Under the FDIA, insurance of deposits may be terminated by the FDIC upon
a finding that the institution has engaged in unsafe and unsound practices, is
in an unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, rule, order, or condition imposed by the FDIC.

PROPOSED LEGISLATION AND REGULATORY ACTION

        New regulations and statutes are regularly proposed that contain
wide-ranging proposals for altering the structures, regulations and competitive
relationships of the nation's financial institutions. It cannot be predicted
whether or what form any proposed regulation or statute will be adopted or the
extent to which the business of the Company may be affected by such regulation
or statute.



                                       13

<PAGE>   14




Item 2.  PROPERTIES

    The Company's principal office is located at Habersham Bank's Central
Habersham office, on Highway 441 North, Cornelia, Georgia. The telephone number
of that office is (706) 778-1000.

    Habersham Bank's North Habersham (main) office is located at 201 Washington
Street, Clarkesville, Georgia. The telephone number of that office is (706)
778-1000. Habersham Bank also has three full-service branch offices and one
limited service office for receiving deposits. Its Central Habersham office is
located on Highway 441 North, Cornelia, Georgia, its South Habersham office is
located on Highway 441 By-Pass, Baldwin, Georgia and its Cleveland Office is
located at 575 South Main Street, Cleveland, Georgia. The Hospitality Center is
located at 802 N. Washington Street, Clarkesville, Georgia. Each office has a
24-hour teller machine. Habersham Bank owns its office properties without
encumbrance.

    Security State Bank's office is located at 1600 Marietta Highway, Canton,
Georgia, and the telephone number of that office is (770) 479-2111. Security
State Bank has one full service branch office. Its Waleska Office is located at
7265 Reinhardt College Parkway, Waleska, Georgia. Security State Bank owns its
office properties without encumbrance.

    The Advantage Group, Inc.'s principal office is located at Habersham Bank's
Central Habersham office, on Highway 441 North, Cornelia, Georgia. The telephone
number of that office is (706) 778-1000.

    BancMortgage Financial Corp.'s principal office is located at 990 Hammond
Drive, Suite 1020, Atlanta, Georgia 30328, and the telephone number of that
office is (770) 804-7208. This office is leased.

    Appalachian Travel Service, Inc.'s principal office is located at 104 Market
Centre, Cornelia, Georgia, and the telephone number of that office is (706)
778-5777. This office is leased.

     Advantage Insurers, Inc. principal office is located at 1080 South Main,
Cornelia, Georgia, and the telephone number of that office is (706) 778-2277.
This office is leased.

Item 3.  LEGAL PROCEEDINGS

    The Company is not a party to, nor is any of its property the subject of,
any material pending legal proceedings, other than ordinary routine litigation
incidental to its business, and no such proceedings are known to be contemplated
by governmental authorities.

Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

    None.


                                       14
<PAGE>   15

                                   PART II
Item 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

    The common stock of Habersham Bancorp is traded on the NASDAQ Stock Market
("NASDAQ") under the symbol HABC. At December 31, 1997, Habersham Bancorp had
approximately 600 shareholders of record. The following table sets forth the
high and low sale prices of the Company's common stock on a quarterly basis for
the past two fiscal years

<TABLE>
<CAPTION>
             1997                   High      Low
             ----                   ----      ---

          <S>                       <C>       <C>
          Fourth quarter            22.00     18.50
          Third quarter             21.50     19.75
          Second quarter            21.50     19.75
          First quarter             21.00     17.00

<CAPTION>
             1996                   High      Low
             ----                   ----      ---

          <S>                       <C>       <C>
          Fourth quarter            17.00     15.00
          Third quarter             15.50     14.50
          Second quarter            15.25     14.25
          First quarter             14.50     13.18
</TABLE>

    Cash dividends were paid quarterly at a rate of $.14 per share of common
stock in 1997. Cash dividends were paid quarterly at a rate of $.12 per share of
common stock in 1996.

Item 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

    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 the results 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
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.

ORGANIZATION

    Habersham Bancorp owns all of the outstanding stock of Habersham Bank
("Habersham Bank"), Security State Bank ("Security Bank"), and The Advantage
Group, Inc. (collectively the "Company"). Habersham Bank owns all of the
outstanding stock of BancMortgage Financial Corp ("BancMortgage"), Appalachian
Travel Service, Inc. ("Appalachian") and Advantage Insurers, Inc. ("Advantage
Insurers"). The Advantage Group, Inc. is a non-bank subsidiary which engages
in the business of providing certain management consulting advice to depository
institutions. Advantage Insurers, which began operations March 31, 1997, offers
a full line of property, casualty and life insurance products. The Advantage
Group, Inc., Appalachian and Advantage Insurers do not comprise a significant
portion of the financial position, results of operations or cash flows of the
Company. Management's discussion and analysis, which follows, relates primarily
to Habersham Bank, Security Bank and BancMortgage.


                                       15
<PAGE>   16

     BancMortgage was organized in 1996 as a full service mortgage and
construction lending company located in the northern Atlanta Metropolitan area.
During the third quarter of 1997, BancMortgage acquired the assets and certain
liabilities of The Prestwick Mortgage Group, a national investment banking and
advisory firm specializing in the brokerage and evaluation of mortgage-related
assets for approximately $60,000. As a result of the acquisition, BancMortgage
does business as The Prestwick Mortgage Group and as BancFinancial Services
Corporation, a full-service wholesale mortgage lender specializing in sub-prime
mortgage loans, in the mid-Atlantic area.

RESULTS OF OPERATIONS

     The Company's net income was $2,157,276, $1,907,849 and $2,021,012 for the
years ended December 31, 1997, 1996 and 1995, respectively, with related diluted
earnings per common and common equivalent share of $ .86, $.79 and $.99,
respectively, representing an increase of 8.86% from 1996 to 1997 and a decrease
of 20.2% from 1995 to 1996. The increase in net income for 1997 was primarily
due to the increase in revenue from BancMortgage operations. The decrease in net
income for 1996 from 1995 was primarily due to the expenses incurred to start up
BancMortgage. In addition, higher than planned loan volume was sold to Habersham
Bank by BancMortgage, which resulted no gain being recognized upon sale.
Deferred loan fees on such loans of approximately $500,000 will be recognized in
subsequent periods over the lives of the loans. Net income represents a return
on average equity of 7.48%, 7.16% and 9.39% for 1997, 1996 and 1995,
respectively.

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 which will cover overhead and other costs and
provide a reasonable return to our shareholders. Net interest income for 1997
was approximately $13.7 million compared to $12.3 million in 1996 and $9.2
million in 1995. Net interest income for 1997 increased approximately $1.4
million or 10.82% when compared to 1996 and increased approximately $3.1 million
or 34.57% when compared to 1995.

     Interest income increased approximately $3.6 million or 15.39% in 1997 when
compared to 1996 and increased approximately $6.8 million or 41.14% in 1996 when
compared to 1995. The increase in interest income for 1997 resulted primarily
from an increase of approximately $5.6 million in the loan portfolio. The
increase in interest income for 1996 resulted primarily from the increase in the
loan portfolio of approximately $62.2 million from 1995. Habersham Bank's loan
portfolio decreased approximately $8.6 million from December 31, 1996 to
December 31, 1997 due to the sale of approximately $37 million in residential
mortgages offset by new loans of approximately $28 million. BancMortgage's loan
portfolio increased by approximately $14 million from December 31, 1996 to
December 31, 1997, net of originations of approximately $276 million offset by
sales of approximately $262 million. Average interest rates on loans were
10.03%, 10.47% and 9.81% in 1997, 1996 and 1995, respectively. Yields on
variable rate residential mortgages decreased during 1997 in response to
movements on various indices.

Average interest rates on investment securities were 6.32%, 5.90% and 5.74% in
1997, 1996 and 1995, respectively. Average interest rates on federal funds sold
were 5.80%, 5.66% and 4.75% in 1997, 1996 and 1995, respectively.

     The increase in interest expense for 1997 of $2.3 million over 1996
resulted primarily from additional interest expense on increased average
balances of interest bearing deposits of approximately $26 million when

                                       16
<PAGE>   17

compared to 1996 average balances and on increased average Federal Home Loan
Bank advances of approximately $6.2 million when compared to 1996 average
advances. The increase in interest expense for 1996 of $3.6 million over 1995
resulted primarily from additional interest expense on increased average
certificates of deposits of approximately $33.5 million and on increased average
Federal Home Loan Bank advances of approximately $26 million related to the
funding of loans originated by BancMortgage.

     The net interest margin of the Company was 4.74% in 1997, 4.96% in 1996 and
4.87% in 1995. By careful management of deposit and loan growth and pricing, the
Company maintains its net interest margin. Net interest margin decreased
primarily due to increases in interest expense paid on FHLB advances, a decrease
in yields on loans, which is partially offset by an increase in yields on
taxable investments and a decrease in interest paid on certificates of deposits.

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

     Average assets rose approximately $43.9 million or 16.23% in 1997 and $70.5
million or 35.1% in 1996 over 1995. Average loan balances increased
approximately $47.7 million or 25.30% in 1997 over 1996 and approximately $66.5
million or 54.25% in 1996 over 1995. These increases were offset by decreases in
average balances in investment securities of approximately $8.4 million or
15.93% in 1997 over 1996 and $1.5 million or 2.74% in 1996 over 1995. The
average balance of federal funds sold in 1997 decreased approximately $1 million
or 12.80% when compared to 1996 and increased approximately $629,000 or 8.48% in
1996 when compared to 1995.

     The average balance of deposits for 1997 increased by approximately $27.6
million or 13.10% over 1996 and increased by approximately $38.7 million or
22.52% over 1995. The weighted average rate paid was 5.18%, 5.62% and 4.49% in
1997, 1996 and 1995, respectively.


                                       17
<PAGE>   18

     The following table sets forth the consolidated average balance sheets for
the Company, average rates earned on interest earning assets, average rates paid
on deposits, 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, 1997, 1996 and 1995.

<TABLE>
<CAPTION>
                                 1997          1996       1997    1996        1997        1996
                                AVERAGE       AVERAGE     YIELD/  YIELD/     INCOME      INCOME
                                BALANCE       BALANCE     RATES   RATES     (EXPENSE)   (EXPENSE)
<S>                           <C>           <C>           <C>     <C>    <C>          <C>
ASSETS

Interest bearing balances
 with other banks             $    168,516  $    279,148   6.66%  6.74%  $    11,217 $     18,824
Federal funds sold               7,015,000     8,045,000   5.80%  5.66%      406,956      455,733
Investment securities:(3)

 Taxable                        24,616,892    32,062,428   7.05%  6.16%    1,735,588    1,975,911
 Non-taxable                    19,842,315    20,821,319   5.37%  5.49%    1,064,947    1,143,088
                              ------------  ------------
 Total investment securities    44,459,207    52,883,747

Loans, net (taxable)(1)(2)     236,673,265   188,885,803  10.03% 10.47%   23,743,448   19,773,296
Cash and due from banks          8,948,696     7,038,373
Premises & equipment             7,827,736     5,414,446
Other assets                     9,776,640     8,346,113
                              ------------  ------------                 ----------- ------------
TOTAL ASSETS                  $314,869,060  $270,892,630                  26,962,156   23,366,852
                              ============  ============                 ----------- ------------

LIABILITIES

Money market & NOW            $ 44,119,467  $ 37,566,357   3.10%  3.04%   (1,366,113)  (1,140,686)
Savings accounts                 7,790,505     7,639,507   2.78%  2.71%     (216,384)    (206,935)
Certificates of deposit        161,251,544   141,763,866   5.86%  5.75%   (9,454,476)  (8,153,533)
Short-term and other
 borrowings                     36,501,152    30,316,397   6.21%  5.09%   (2,268,193)  (1,542,481)
Demand deposit accounts         25,026,047    23,626,106
Other liabilities               11,331,058     3,335,003                 ----------- ------------
                                                                         (13,305,166) (11,043,635)
                                                                         ----------- ------------
Shareholders' equity            28,849,287    26,645,394
                              ------------  ------------

TOTAL LIABILITIES & EQUITY    $314,869,060  $270,892,630
                              ============  ============
NET INTEREST MARGIN                                        4.74%  4.96%  $13,656,990 $ 12,323,217
                                                                         =========== ============
</TABLE>


                                       18
<PAGE>   19



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

<TABLE>
<CAPTION>
                                   1995             1995               1995
                                 AVERAGE           YIELD/             INCOME
                                 BALANCE            RATES            (EXPENSE)
<S>                           <C>                  <C>            <C>
ASSETS

Interest bearing balances
 with other banks             $    847,000          4.52%         $    38,281
Federal funds sold               7,416,000          4.75%             352,521
Investment securities:(3)
 Taxable                        34,917,011          6.24%           2,180,683
 Non-taxable                    19,457,262          5.57%           1,083,349
                              ------------
 Total investment securities    54,374,273

Loans, net (taxable)(1)(2)     122,451,274         10.54%          12,901,162
Cash and due from banks          5,118,340
Premises & equipment             3,980,079
Other assets                     6,195,447
                              ------------                        -----------
TOTAL ASSETS                  $200,382,413                         16,555,996
                              ============                        -----------

LIABILITIES

Money market & NOW            $ 35,706,305          3.02%          (1,077,322)

Savings accounts                 6,542,031          2.52%            (164,639)
Certificates of deposit        108,190,308          5.43%          (5,870,005)

Short-term and other
 borrowings                      4,339,038          6.60%            (286,507)
Demand deposit accounts         21,439,056
Other liabilities                2,645,613
                                                                  -----------
                                                                   (7,398,473)
                                                                  -----------
Shareholders' equity            21,520,062
                              ------------
TOTAL LIABILITIES & EQUITY    $200,382,413
                              ============

NET INTEREST MARGIN                                 4.87%         $ 9,157,523
                                                                  ===========
</TABLE>

(1)  Interest earnings on nonaccrual loans are included in the foregoing
     analysis to the extent that such interest earnings had been recorded during
     1997, 1996 and 1995.
(2)  Loan fees of $264,180 are included in interest income for the year ended
     December 31, 1995.
(3)  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.


                                       19
<PAGE>   20

     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>
                                   1997 AS COMPARED TO 1996              1996 AS COMPARED TO 1995
                                  INCREASE (DECREASE) DUE TO            INCREASE (DECREASE) DUE TO
                                NET      RATE(1)    VOLUME(1)         NET          RATE(1)   VOLUME(1)
                               ------------------------------        --------------------------------
<S>                            <C>          <C>         <C>          <C>         <C>          <C>
INTEREST BEARING ASSETS
 Interest bearing balances
   with other banks            $   (7,607)        (150) $   (7,457)  $  (19,457) $    6,210   $  (25,667)
 Investment securities:
   Taxable                       (240,323)     218,322    (458,645)    (825,004)   (646,878)    (178,126)
   Non-taxable                    (78,141)     (24,394)    (53,747)     679,971     603,993       75,978
                               ----------  -----------  ----------   ----------  ----------   ----------
    Total Investment securities  (318,464)     193,928    (512,392)    (145,033)    (42,885)    (102,148)
 Federal funds sold               (48,777)       9,521     (58,298)     103,212      73,334       29,878
 Loans, gross (taxable)         3,970,152   (1,033,195)  5,003,347    6,872,134    (150,065)   7,022,199
                               ----------  -----------  ----------   ----------  ----------   ----------

    TOTAL INTEREST INCOME       3,595,304     (829,896)  4,425,200    6,810,856    (113,406)   6,924,262
                               ----------  -----------  ----------   ----------  ----------   ----------

INTEREST BEARING LIABILITIES
  Money market & NOW              225,428       26,211     199,217       63,364       7,190       56,174
  Savings accounts                  9,449        5,357       4,092       42,296      14,640       27,656
  Certificates of deposit       1,300,943      180,402   1,120,541    2,283,527     460,483    1,823,044
  Short-term and
   other borrowings               725,711      410,908     314,803    1,255,975    (458,531)   1,714,506
                               ----------  -----------  ----------   ----------  ----------   ----------

     TOTAL INTEREST EXPENSE     2,261,531      622,878   1,638,653    3,645,162      23,782    3,621,380
                               ----------  -----------  ----------   ----------  ----------   ----------

NET INTEREST INCOME            $1,333,773  $(1,452,774) $2,786,547   $3,165,694  $ (137,188)  $3,302,882
                               ==========  ===========  ==========   ==========  ==========   ==========
</TABLE>


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

OTHER INCOME AND OTHER EXPENSE

     Noninterest income in 1997 increased $5.8 million or 253.77% when compared
to 1996 and increased $906,000 or 66.07% when compared to 1995. These increases
were due primarily to increases in loan fee income of approximately $869,000 and
$476,000 for 1997 and 1996, respectively and gains on sale of loans of
approximately $3.8 million and $335,000 for 1997 and 1996, respectively. These
increases are attributable to the operations of BancMortgage beginning in 1996.
In addition, sales income from Appalachian Travel Services, a business acquired
in 1996, increased approximately $849,000 and $274,000 for 1997 and 1996,
respectively.

     Other noninterest expense in 1997 increased by approximately $6.6 million
or 56.53% as compared to 1996 and the 1996 amount increased approximately $3.9
million or 50.21% as compared to 1995. The increase for 1997 was primarily due
to increases of $4,188,043, $639,805 and $895,347 in personnel, occupancy and
other operating expenses, respectively. These increases are the result of
staffing requirements and operating expenses for the new Cleveland Office -
Habersham Bank, the new Waleska Office - Security Bank and new offices for
BancMortgage in Cobb and Fulton counties. BancMortgage also expanded into
Virginia with the acquisition of The Prestwick Group and BancFinancial Services
Corporation. The increase for 1996 was primarily due to the addition of
$1,706,341, $179,399 and $955,001 in personnel, occupancy and other operating
expenses, respectively, related to the start up of BancMortgage.


                                       20
<PAGE>   21


PROVISION FOR LOAN LOSSES

     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 $422,000 in 1997 as compared to $360,000 in
1996 and $98,043 in 1995. The Company's allowance for loan losses was $2,336,079
at December 31, 1997, which was l.18% of year-end loans and 108.1% of total
nonperforming loans, as compared to $2,261,406 at December 31, 1996, which was
1.09% of year-end loans and 115.7% of total nonperforming loans.

     At December 31, 1997, loans over 90 days past due and nonaccrual loans
totaled $2,533,157 or 1.07% of gross outstanding loans as compared to $1,358,801
or .59% of gross outstanding loans at December 31, 1996. The increase for 1997
was primarily due to the addition of two loans totaling approximately $1.1
million having Small Business Administration guarantees between 80% and 85%.

     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.

     Net charge-offs amounted to $347,327 in 1997 representing .18% of average
loans, as compared to $434,382 in 1996, representing .23% of average loans, as
compared to $134,961 in 1995, representing .11% of average loans.


                                        21

<PAGE>   22



     The following table summarizes, for each of the years in the five year
period ended December 31, 1997, selected information related to the allowance
for loan losses:

<TABLE>
<CAPTION>

                                               1997          1996        1995         1994          1993
<S>                                       <C>          <C>          <C>           <C>           <C>
Balance of allowance for loan
 losses at beginning of period..          $  2,261,406 $  2,335,788 $  1,744,335  $  1,601,902  $  1,703,592
                                          ------------ ------------ ------------  ------------  ------------
Balance of allowance of Security
 Bank at June 30, 1995                                                   628,371
Loans charged-off:

 Commercial, financial &
  agricultural                                (224,976)    (183,218)     (22,252)     (37,146)      (250,732)
 Real estate - mortgage                       (142,871)    (256,126)     (47,110)     (17,011)
 Installment loans to individuals             (145,373)    (108,660)     (44,242)     (49,962)       (45,433)
Other                                          (34,390)     (23,014)     (62,230)     (21,025)       (80,262)
                                          ------------ ------------ ------------  -----------   ------------
    Total charged-off loans                   (547,610)    (571,018)    (175,834)    (125,144)      (376,427)
                                          ------------ ------------ ------------  -----------   ------------

Recoveries:
 Commercial, financial &
  agricultural                                  22,454       32,857        5,566        1,893
 Real estate - mortgage                        108,247       65,150        1,610        4,772
 Installment loans to individuals               61,324       28,760       17,429       15,387         11,917
 Other                                           8,258        9,869       16,268       37,429         13,055
                                          ------------ ------------ ------------  -----------   ------------
    Total recoveries                           200,283      136,636       40,873       59,481         24,972
                                          ------------ ------------ ------------  -----------   ------------

 Net charge-offs                              (347,327)    (434,382)    (134,961)     (65,663)      (351,455)

 Additions to allowance ......                 422,000      360,000       98,043      208,096        249,765
                                          ------------ ------------ ------------  -----------   ------------
 Balance of allowance for loan
  losses at end of period ....            $  2,336,079 $  2,261,406 $  2,335,788  $ 1,744,335   $  1,601,902
                                          ============ ============ ============  ===========   ============
 Average amount of loans .....            $236,673,265 $188,885,803 $122,451,274  $97,723,297   $103,336,660
                                          ============ ============ ============  ===========   ============

 Ratio of net charge-offs during
  the period to average loans
  outstanding during the period                    .15%         .23%         .11%         .07%          .034%

 Ratio of allowance to year-end loans             1.18%        1.09%        1.61%        1.73%          1.54%
</TABLE>

     The Company's provision for loan losses is based upon management's
continuing review and evaluation of the loan portfolio and is intended to create
an allowance adequate to absorb losses on loans outstanding as of the end of
each reporting period. For individually significant amounts, management's review
consists of evaluations of the borrowers' strength, value of the related
collateral and other factors. This evaluation is made by classifying loans based
on values assigned to each of the aforementioned variables. These
classifications are assigned by the loan reviewers and are reviewed by the Board
of Directors. Totals by loan classification, along with related historical loss
ratios, are used to determine the allowance required to provide for losses. The
review of groups of loans, which are individually insignificant, is based upon
delinquency status of the group, lending policies and previous collection
experience of each category. The effects of current conditions on specific
industries or classes of borrowers are also considered in determining allowance
for loan loss requirements. Management believes such allowance is adequate to
absorb losses on loans outstanding at December 31, 1997.


                                       22
<PAGE>   23

     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.

     The allocation of allowance for loan losses by loan categories for the
period ended December 31, 1997 is as follows:

<TABLE>
<CAPTION>
                                                           PERCENT OF LOANS
                                                           IN EACH CATEGORY
                                                 AMOUNT     TO TOTAL LOANS
     <S>                                       <C>         <C>
     Commercial, financial & agricultural      $  720,380         7.9%
     Real estate - construction and mortgage    1,133,044        84.0%
     Installment loans to individuals             482,655         8.1%
                                               ----------       -----
          TOTAL                                $2,336,079       100.0%
                                               ==========       =====
</TABLE>

LOANS

     Loans increased approximately $5.6 million or 2.43%, in 1997 as compared to
1996 and increased approximately $85.4 million or 58.74% in 1996 as compared to
1995. Loans held for sale increased approximately $14.2 million or 60.99% in
1997 when compared to 1996. The Company's remaining loan portfolio decreased
$8.6 million in 1997 due to the sale of approximately $37 million in residential
mortgages which had been originated by BancMortgage and purchased by Habersham
Bank offset by new loans in 1997. Of the 1996 increase approximately $23.2
million is attributable to loans originated by BancMortgage held for sale as of
December 31, 1996, and approximately $67.7 million is attributable to loans
originated by BancMortgage which were sold to Habersham Bank and included in
Habersham Bank's portfolio as of December 31, 1996.

     The composition of the Company's loan portfolio changed during 1997 as a
result of a decrease in real estate secured mortgage loans of approximately
$18.5 million or 15.09% as compared to 1996; construction loans increased
approximately $11.7 million or 23.28%, in 1997 as compared to 1996, and
commercial loans decreased $2.4 million or 13.49%, in 1997 as compared to 1996.
The composition of the Company's loan portfolio changed during 1996 due to the
loans originated by BancMortgage and either sold to Habersham Bank or held for
sale as of December 31, 1996. Construction loans increased by approximately
$33.7 million or 204.39%, in 1996 when compared to 1995, commercial loans
increased by approximately $350,000 or 1.94% in 1996 when compared to 1995, and
real estate secured loans increased by approximately $27.2 million in 1996 or
28.27% when compared to 1995.

     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 discounts. The Company had
no foreign loans at December 31 for each of the last five years.

<TABLE>
<CAPTION>
                                              1997          1996          1995          1994         1993

<S>                                      <C>            <C>          <C>           <C>           <C>
Commercial, financial and agricultural.. $ 15,824,792   $ 18,292,993 $ 17,945,695  $ 13,653,109  $19,006,561
Real estate - construction .............   61,965,365     50,263,496   16,512,884     5,564,753    5,112,344
  Real estate - mortgage ...............  104,347,783    122,897,806   96,361,817    68,992,708   68,830,196
  Installment loans to individuals .....   16,115,903     15,410,015   14,613,500    12,637,913   11,204,998
                                         ------------   ------------ ------------  ------------ ------------
    TOTAL............................... $198,253,843   $206,864,310 $145,433,896  $100,848,483 $104,154,099
                                         ============   ============ ============  ============ ============
</TABLE>


                                       23
<PAGE>   24

     The following table sets forth the maturities and sensitivities of loans at
December 31, 1997 to changes in interest rates.

<TABLE>
<CAPTION>
                                               DUE AFTER
                                  DUE IN       ONE THROUGH     DUE AFTER
LOAN MATURITY:                   ONE YEAR      FIVE YEARS      FIVE YEARS       TOTAL
                                 --------      ----------      ----------       -----
<S>                              <C>             <C>           <C>         <C>
  Commercial, financial
   and agricultural ............ $11,593,353     $3,262,333    $ 969,106   $15,824,792
  Real estate - construction ...  61,206,085        759,280            -    61,965,365
                                 -----------     ----------    ----------   ----------
       TOTAL ................... $72,799,438     $4,021,613    $ 969,106   $77,790,157
                                 ===========     ==========    ==========  ===========

LOAN INTEREST RATE SENSITIVITY:
Selected loans with:
 Predetermined interest rates .. $11,444,327     $3,047,076    $ 969,106   $15,460,509
 Floating or adjustable
  interest rates ...............  61,355,111        974,537            -    62,329,648
                                 -----------     ----------    ----------  -----------
    TOTAL                        $72,799,438     $4,021,613    $ 969,106   $77,790,157
                                 ===========     ==========    =========   ===========
</TABLE>

NONPERFORMING ASSETS AND PAST DUE LOANS

     Nonperforming assets consist of nonaccrual loans, restructured loans and
other real estate owned. Nonperforming assets decreased $285,753 or 6.56% from
December 31, 1996 to December 31, 1997 and increased $890,803 or 25.69% from
December 31, 1995 to December 31, 1996. This increase was primarily due to the
increase in 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>
     NONPERFORMING ASSETS:              1997            1996          1995           1994           1993
     <S>                             <C>             <C>           <C>            <C>           <C>
     Nonaccrual                      $1,251,157      $  981,801    $1,022,683     $  568,822    $  763,425
     Restructured loans                 913,753         973,559     1,227,411      1,318,790     1,169,987
     Other real estate owned          1,908,094       2,403,397     1,217,860      1,165,954     1,180,431
                                     ----------      ----------    ----------     ----------    ----------
       Total nonperforming assets    $4,073,004      $4,358,757    $3,467,954     $3,053,566    $3,113,843
                                     ==========      ==========    ==========     ==========    ==========

     RATIOS:
     Nonperforming loans to total loans    1.09%            .95%         1.55%          1.87%         1.86%
     Nonperforming assets to total loans
       plus other real estate owned        2.04%           2.08%         2.36%          2.99%         2.96%
     Allowance to nonperforming assets    57.36%          51.88%        67.35%         57.12%        51.44%

     Accruing loans past due 90 days
       or more                       $1,282,000      $  377,000    $  258,000       $196,017      $196,864
</TABLE>

     Accrual of interest is discontinued when, in management's opinion,
collectibility of such interest is doubtful unless it is both well secured and
in the process of collection. Interest income that would have been recorded on
these nonaccrual, impaired and restructured loans in accordance with their
original terms totaled $289,782, $213,484 and $214,523, respectively, in 1997,
1996 and 1995, compared with interest income recognized of $252,930, $180,780
and $164,015 respectively.

     At December 31, 1997, 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.


                                       24
<PAGE>   25

    The Company had impaired loans of $1,251,157 and $981,801 as of December 31,
1997 and 1996, respectively. No allowance was necessary for such loans under
generally accepted accounting principles. The interest income recognized on such
loans was $165,686 and $84,646 for the years ended December 31, 1997 and 1996,
respectively.

     Habersham Bank held a concentration in mortgages for agribusiness purposes
in the poultry industry which totaled approximately $12 million, or
approximately 6.34% of total net loans at December 31, 1997 and which totaled
approximately $16 million, or approximately 8.32% of total net loans at December
31, 1996.

INVESTMENT SECURITIES

     The Company has classified all investment securities as either available
for sale or held to maturity depending upon whether the Company has the intent
and ability to hold the investment securities 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, 1997, approximately $33.2 million of
investment securities were classified as available for sale. Approximately
$240,000 of net unrealized gain, net of income taxes, was included in
Shareholders' Equity related to the available for sale investment securities.

     The following table sets forth the carrying amounts of investment
securities at December 31, 1997, 1996 and 1995.

<TABLE>
<CAPTION>
                                          1997            1996             1995
<S>                                   <C>              <C>             <C>
Investment securities available for sale:
    U.S. Treasury                     $   201,438      $   801,003     $ 3,811,579
    U.S. Government agencies           20,982,863       21,625,933      26,742,352
    States & political subdivisions    11,345,182        8,520,859       9,059,417
    Other investments                     694,940          680,881         699,961
                                      -----------      -----------     -----------
         Total                        $33,224,423      $31,628,676     $40,313,309
                                      ===========      ===========     ===========

Investment securities held to maturity:
    U.S. Treasury                                                      $   199,634
    U.S. Government agencies          $ 1,351,357      $ 2,187,521       3,407,647
    States & political subdivisions     9,954,423       12,122,431      12,545,318
    Other investments                      99,000          198,000         497,000
                                      -----------      -----------     -----------
      Total                           $11,404,780      $14,507,952     $16,649,599
                                      ===========      ===========     ===========
</TABLE>

     In December 1995, in accordance with the "Guide to the Implementation of
Statement of Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities", the Company reclassified certain
investments with an unamortized cost of $5,569,161 and a market value of
$5,848,273 as available for sale. The reclassification resulted in unrealized
gain of $279,112.


                                       25

<PAGE>   26


     THE FOLLOWING TABLE SET FORTH THE MATURITIES OF INVESTMENT SECURITIES AT
DECEMBER 31, 1997 and the related weighted yields of such securities on a tax
equivalent basis (assuming a 34% tax rate).

<TABLE>
<CAPTION>
                                             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                                         $  201,438
 U.S. Government agencies                 $2,295,365    7,088,260   $5,501,379   $6,097,859
 States & political subdivisions           1,893,186    4,339,067    2,289,935    2,822,994
 Other investments                                                                  694,940

Weighted average yields:
 U.S. Treasury                                               6.24%
 U.S. Government agencies                       5.07%        6.51%        6.44%        7.49%
 States & political subdivisions                6.34%        5.65%        5.26%        5.30%

Investment securities held to maturity:
Carrying Value:
 U.S. Government agencies                 $  323,958   $   619,343  $  353,795   $   54,261
 States & political subdivisions           1,781,130     3,689,808   3,775,984      707,501
 Other investments                            99,000

Weighted average yields:
 U.S. Government agencies                       5.59%        6.26%        8.33%       10.53%
 States & political subdivisions                5.35%        4.89%        4.88%        5.53%
</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,
1997.

DEPOSITS

     Average deposits increased approximately $27.6 million and $38.7 million
during 1997 and 1996, respectively.

     The following table sets forth the average amount of deposits for each
category which exceeds 10% of average total deposits for the years ended
December 31, 1997, 1996 and 1995.

<TABLE>
<CAPTION>
                                                   1997               1996               1995
                                               AVG. AMT           AVG. AMT           AVG. AMT
                                            OUTSTANDING        OUTSTANDING        OUTSTANDING
<S>                                       <C>                  <C>                <C>
Interest bearing demand deposits ......   $ 44,119,467          $ 37,566,357      $35,706,305
Nonininterest bearing demand deposits.      25,026,047            23,626,106       21,439,056
Time certificates of deposits .........    161,251,544           141,763,866      108,190,308

                                            AVG. RATE            AVG RATE            AVG RATE
Interest bearing demand deposits....          3.10%                 3.04%             3.02%
Noninterest bearing demand deposits .          n/a                  n/a                n/a
Time certificates of deposits .......         5.86%                 6.46%             5.43%
</TABLE>

     At December 31, 1997, time certificates of deposit of $100,000 or more
totaled $49,827,445. The maturities of all time certificates of deposit over
$100,000 are as follows:

<TABLE>
     <S>                                     <C>
     3 months or less                        $ 14,286,540
     Over 3 but less than 6 months              9,692,457
     Over 6 but not more than 12 months        15,933,719
     Over 1 year but not more than 5 years      9,914,729
                                             ------------
       TOTAL                                 $ 49,827,445
                                             ============
</TABLE>


                                       26

<PAGE>   27



OTHER BORROWINGS

     Other borrowings decreased approximately $20.4 million during 1997 as
compared with 1996 as a result of repayments to the Federal Home Loan Bank.
Other borrowings increased approximately $44 million during 1996 as compared
with 1995 as a result of borrowings from the Federal Home Loan Bank.

CAPITAL RESOURCES

     The Company is 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 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 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 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, 1997, that the
Company meets all capital adequacy requirements to which it is subject.

     As of December 31, 1997, the most recent notifications from both the
Federal Deposit Insurance Corporation and the Federal Reserve Bank of Atlanta
categorized the Banks as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized the Banks must
maintain minimum total risk-based, Tier 1 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 Banks' categories.

     The Company's and the Banks' actual capital amounts and ratios as of
December 31, 1997 follows (dollars in thousands):

<TABLE>
<CAPTION>
                                                                        TO BE WELL
                                                                        CAPITALIZED
                                                                        UNDER PROMPT
                                                      FOR CAPITAL     CORRECTIVE ACTION
                                      ACTUAL       ADEQUACY PURPOSES     PROVISIONS
                                 AMOUNT    RATIO    AMOUNT    RATIO    AMOUNT RATIO
                                 ------    -----    ------    -----    ------ -----
  <S>                            <C>       <C>     <C>        <C>     <C>     <C>
  As of December 31, 1997
  Total Capital(to Risk Weighted Assets):
   The Company                   $28,584   12.88%    $17,747    8%         N/A   N/A
   Habersham Bank                 20,019   11.32%     14,142    8%     $17,677   10%
   Security Bank                   7,235   15.16%      3,819    8%       4,773   10%

  Tier I Capital(to Risk Weighted Assets):
   The Company                   $26,248   11.83%    $ 8,874    4%         N/A   N/A
   Habersham Bank                 18,143   10.26%      7,071    4%     $10,606    6%
   Security Bank                   6,775   14.19%      1,909    4%       2,864    6%

  Tier I Capital(to Average Assets):
   The Company                   $26,248    7.89%    $13,301    4%         N/A   N/A
   Habersham Bank                 18,143    6.57%     11,042    4%     $13,803    5%
   Security Bank                   6,775   12.06%      2,247    4%       2,809    5%
</TABLE>


                                       27

<PAGE>   28


     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.

     Treasury stock activity in 1997 consisted of 36,985 shares sold upon
exercise of options at a per share price of $8.33 and 5,207 shares sold under a
dividend reinvestment plan. Treasury stock activity in 1996 consisted of 38,000
shares sold upon exercise of options at a per share price of $7.51. Treasury
stock activity in 1995 consisted of 38,000 shares sold upon exercise of options
at a per share price of $6.78 and 41,447 shares acquired from dissenters upon
the acquisition of Security Bank at a per share price of $6.33.

     Cash dividends were paid at a rate of $.035 per share in March, June,
September and December of 1997. Cash dividends were paid at a rate of $.03 per
share in March, June, September and December 1996. Cash dividends were paid at a
rate of $.05 per share in June 1995 and December 1995.

     Effective May 15, 1995, the Company declared a 5 for 1 stock split of its
common stock effected in the form of a 400% stock dividend. In addition,
effective April 15, 1995, the Company changed the par value of its common stock
from $2.50 to $1.00 per share and increased the number of authorized shares of
common stock to 10,000,000 shares. All references to share and per share amounts
reflect the split. Also, $875,000 has been retroactively charged to Additional
Paid-in Capital and credited to Common Stock to reflect the stock split and the
change in par value.

     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 do current and dynamic projections of interest
income and equity, as well as more traditional asset and liability management
methods.

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

     The interest rate sensitivity analysis below has a negative one year gap of
approximately $36.8 million (excess of interest bearing liabilities to earning
assets repricing within one year). However, the Company's experience has shown
that NOW, IMMA and Savings deposits of approximately $53.1 million are not rate
sensitive.

     The time period indicated in the table represents the shorter of the time
remaining before the asset or liability either matures or can be repriced. The
principal amounts for each asset and liability are shown in the period in which
it matures or reprices. The rate indicated represents the effective yield. Funds
from loan principal payments and anticipated loan repayments are included in the
period in which they are anticipated to be received. Savings, NOW and IMMA
accounts have been included as subject to repricing within three months.


                                       28
<PAGE>   29

<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY ANALYSIS

                                  DUE IN      DUE AFTER      DUE AFTER     DUE AFTER    DUE AFTER      TOTAL
                       YIELD/     THREE     THREE THROUGH   SIX THROUGH   ONE THROUGH     FIVE
EARNING ASSETS:         RATE      MONTHS      SIX MONTHS   TWELVE MONTHS   FIVE YEARS     YEARS
<S>                    <C>     <C>          <C>            <C>           <C>          <C>          <C>
 Federal funds sold     5.80%  $ 16,740,000                                                        $ 16,740,000
 Investment securities  6.30%     1,831,390  $    938,817  $  3,622,432  $15,937,916  $ 22,298,648   44,629,203
 Loans                 10.03%   113,433,448    24,058,581    26,348,229   32,026,413    39,897,154  235,763,825
                       -----   ------------  ------------  ------------  -----------  ------------ ------------
 Total earning assets   9.35%   132,004,838    24,997,398    29,970,661   47,964,329    62,195,802  297,133,028
                               ------------  ------------  ------------  -----------  ------------ ------------

INTEREST BEARING LIABILITIES:

Deposits:
  Money Market and NOW  3.10%    45,183,589                                                          45,183,589
  Savings               2.78%     7,947,487                                                           7,947,487
  Certificates of
    Deposit             5.86%    49,075,800    39,957,899    53,626,379   38,807,054        31,220  181,498,352
  Short term
    borrowings          6.21%    25,029,372     3,000,000                                            28,029,372
Total interest bearing         ------------  ------------  ------------ ------------  ------------ ------------
  liabilities           5.33%   127,236,248   $42,957,899    53,626,379   38,807,054        31,220  262,658,800
                       -----   -----------   ------------  ------------ ------------  ------------ ------------

INTEREST RATE SPREAD    4.02%
                       =====
Excess (deficiency) of earning
 assets over (to) interest
 bearing liabilities           $ 4,768,590   $(17,960,501) $(23,655,718)$  9,157,275  $ 62,164,582 $ 34,474,228
                               ===========   ============  ============ ============  ============ ============

Cumulative Gap                 $ 4,768,590   $(13,191,911) $(36,847,629)$(27,690,354) $ 34,474,228

Ratio of cumulative gap to
 total cumulative earning assets     3.61%         (8.40%)      (19.71%)     (11.79%)       11.60%
Ratio of earning assets to
 interest bearing liabilities      103.75%         92.25%        83.54%        89.46%      113.13%
</TABLE>

     Management strives to maintain the ratio of cumulative earning assets to
cumulative interest bearing liabilities within a range of 60% to 140%.

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

     The Company's liquidity program is designed and intended to provide
guidance in funding the credit and investment activities of the affiliate banks
while at the same time ensuring that the deposit obligations of the affiliate
banks 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. Habersham Bank's liquidity policy requires a minimum
ratio of 20% of cash and certain short-term investments to net withdrawable
deposit accounts and Security Bank's liquidity policy requires a minimum of 25%.
The following table lists the liquidity ratios for the Banks.

<TABLE>
<CAPTION>
                                      1997         1996
     <S>                             <C>          <C>
     Habersham Bank                  30.64%       21.83%
     Security Bank                   25.51%       26.84%
</TABLE>

     The approval of the Georgia Department of Banking and Finance is required


                                       29
<PAGE>   30

if dividends declared by the Banks to the Company in any year will exceed 50% of
the net income of the Banks for the previous calendar year. As of December 31,
the Banks could declare dividends to the Company up to approximately $1,390,000
without regulatory approval.

ACCOUNTING PRONOUNCEMENTS

     In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities. SFAS No. 125
was amended by SFAS No. 127, which defers the effective date of certain
provisions of SFAS No. 125 until January 1, 1998. This statement provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities based on consistent application of a
financial-components approach that focuses on control. It distinguishes
transfers of financial assets that are sales from transfers that are secured
borrowings. Effective January 1, 1997, the Company adopted the provisions of
SFAS No. 125 on a prospective basis. The impact of SFAS No. 125 on the Company's
consolidated financial statements was not material.

     In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. SFAS No. 130 requires all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed in equal prominence with the
other financial statements. The term "comprehensive income" is used in the
statement to describe the total of all components of comprehensive income
including net income. "Other comprehensive income" refers to revenues, expenses,
gains and losses that are included in comprehensive income but excluded from
earnings under current accounting standards. Currently, other comprehensive
income for the Company consists of items previously recorded directly in equity
under SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." SFAS No. 130 is effective for financial statements for years
beginning after December 15, 1997.

     In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 supersedes SFAS No. 14 and
establishes new standards for the disclosures 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,
geographic areas and major customers. SFAS No. 131 is effective for statements
for years beginning after December 15, 1997.

YEAR 2000

     The Company recognizes that there is a business risk in computerized
systems as the calendar nears the next century. The Federal Financial
Institutions Examination Council ("FFIEC") issued an interagency statement on
May 5, 1997, providing an outline for institutions to effectively manage the
Year 2000 challenges. The Company has developed an ongoing Action Plan designed
to ensure that its operational and financial systems will not be adversely
affected by software failures due to processing errors arising from calculations
using the year 2000 date. The Company has formed a Year 2000 committee assigned
to this project and the Board of Directors and senior management of the Company
have established year 2000 compliance as a strategic initiative. The Company is
well into the assessment and renovation phases of the project in which all
critical applications are identified, programing issues determined and
vendors/servicers contacted. While the Company believes


                                       30
<PAGE>   31

that it has available resources to assure year 2000 compliance, it is to some
extent dependent on vendor cooperation.

     At the present time, the Company expects its most critical application
software vendors to have all systems compliant by June 1998, at which time
testing will commence. Management expects testing to be substantially completed
by December 31, 1998. At this time, the Company has not determined the cost of
making modifications to correct any year 2000 problems; however, equipment and
software expenses are not expected to materially differ from past results. The
Company routinely upgrades and purchases technologically advanced software and
hardware on a continual basis and expects to specifically evaluate and test such
purchases for year 2000 compliance. The Company is also in the process of
addressing any loan relationships it believes could be materially affected by
the year 2000 issue.

SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)     QUARTER ENDED
<TABLE>
<CAPTION>
                                   MARCH 30  JUNE 30   SEPT. 30   DEC. 31
                               (Dollars in thousands except per share amounts)
   <S>                              <C>       <C>        <C>      <C>
   1997:
     Interest income ..........     $6,487    $6,626     $6,880   $6,969
     Net interest income ......      3,243     3,520      3,499    3,395
     Net income ...............        617       523        468      549
     Diluted net income per common
      and common equivalent share.     .25       .21        .19      .21

  1996:
     Interest income ..........     $5,002    $5,295     $6,126   $7,135
     Net interest income ......      2,727     2,863      3,153    3,771
     Net income ...............        487       402        378      671
     Diluted net income per common
      and common equivalent share.     .20       .17        .16      .26
</TABLE>

Item 7.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The consolidated balance sheets of the Company as of December 31, 1997 and
1996, and the related consolidated statements of income, shareholders' equity
and cash flows and notes to the consolidated financial statements for each of
the years in the three years period ended December 31, 1997, and the reports
issued thereon by the Company's independent public accountants are attached
hereto as Exhibit 13 and are incorporated herein by reference.

Item 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

     On February 25, 1997, the Company replaced its existing independent public
accounting firm, Deloitte & Touche LLP ("Deloitte"), with KPMG Peat Marwick LLP.
Neither of Deloitte's reports on the Company's financial statements for the
years ended December 31, 1995 or 1996 contained an adverse opinion or a
disclaimer of opinion or was qualified or modified as to uncertainty, audit
scope or accounting principles. The change of accountants was approved by the
Board of Directors. The Company had no disagreements with Deloitte during any of
the years ended December 31, 1995 or 1996 or during the interim period through
February 25, 1997 (date of dismissal) on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure that
would have caused that firm to make reference to the subject disagreement if it
had not been resolved to Deloitte's satisfaction.


                                       31
<PAGE>   32

                           PART III

Item 9.   DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
          PERSONS; AND FINANCIAL DISCLOSURE

     Information concerning the Company's directors and executive officers
appears in the Proxy Statement under the headings "Election of
Directors-Nominees," and "Compliance with Section 16(a) of the Exchange Act" and
"Executive Officers" and is incorporated by reference herein.

Item l0.  EXECUTIVE COMPENSATION

     Information concerning the compensation of the Company's management appears
in the Proxy Statement under the headings "Executive Compensation" and "Election
of Directors - Compensation of Directors" and is incorporated by reference
herein.

 Item 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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

Item 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Information concerning certain relationships and related transactions
appears in the Proxy Statement under the heading "Certain Transactions" and is
incorporated by reference herein.

                                     PART IV
Item 13.  EXHIBITS, LIST AND REPORTS ON FORM 8-K

(a) The registrant submits herewith as exhibits to this report on Form 10-KSB
the exhibits required by Item 601 of Regulation S-K, subject to Rule 12b-32
under the Securities Exchange Act of 1934.

<TABLE>
<CAPTION>
Exhibit No.                  Document
-----------                  --------
<S>       <C>
 3.1      Amended and restated Articles of Incorporation of Habersham Bancorp,
          as amended. (1)

 3.2      By-laws of Habersham Bancorp, as amended as of November 20, 1989 (2)
          and as of March 16, 1991. (3)

10.1*     Habersham Bancorp Savings Investment Plan, as amended and restated
          March 17, 1990, and the related Trust Agreements, as amended March 17,
          1990. (2)

10.2*     Habersham Bancorp Incentive Stock Option Plan, as amended
          February 26, 1994. (4)

10.3*     Habersham Bancorp Outside Directors Stock Option Plan. (5)

10.4*     Habersham Bancorp 1996 Incentive Stock Option Plan. (6)

10.5*     Mortgage Banking Agreement Dated as of January 2, 1996 among Habersham
          Bancorp, Habersham Bank, BancMortgage Financial Corp. and Robert S.
          Cannon and Anthony L. Watts.
</TABLE>

                                       32
<PAGE>   33
<TABLE>
<S>       <C>
13.0      Financial statements and notes thereto contained in the Habersham
          Bancorp 1997 Annual Report.

16.0      Change in Accountants. (7)

21.0      Subsidiaries of Habersham Bancorp.

23.1      Consent of KPMG Peat Marwick LLP

23.2      Consent of Deloitte & Touche LLP

24.0      A Power of Attorney is set forth on the signature page to this Form
          10-KSB.

27.0      Financial Data Schedule (for SEC use only).
</TABLE>

(1)   Incorporated herein by reference to exhibit 3(a) in Amendment No. 1 to
Registrant's Registration Statement on Form S-4 (Regis. No. 33-57915).

(2) Incorporated herein by reference to exhibit of same number in the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1989
(File No. 0-13153).

(3) Incorporated herein by reference to exhibit of same number in the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1991
(File No. 0-13153).

(4) Incorporated herein by reference to exhibit of same number in the
Registrant's Annual Report on Form 10-KSB for the year ended December 31, 1993
(File No. 0-13153).

(5) Incorporated herein by reference to exhibit of same number in the
Registrant's Annual Report on Form 10-KSB for the year ended December 31, 1994
(File No. 0-13153).

(6) Incorporated herein by reference to exhibit of same number in the
Registrant's Annual Report on Form 10-KSB for the year ended December 31, 1995
(File No. 0-13153).

(7) Incorporated herein by reference to exhibit of same number in the
Registrant's current report on Form 8-K dated March 4, 1997.
(File No. 0-13153).

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

    (b) Reports on Form 8-K:

    No reports on Form 8-K were filed during the last quarter of the year ended
December 31, 1997.


                                       33
<PAGE>   34



                                  SIGNATURES



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

                                    HABERSHAM BANCORP (Registrant)

By: /s/ David D. Stovall                     Date:   March 30, 1998
    -----------------------                        -------------------
    Director, President and
    Chief Executive Officer

                              POWER OF ATTORNEY

     KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Thomas A. Arrendale, Jr. and David D. Stovall,
and each of them, his attorneys-in-fact, each with full power of substitution,
for him in his name, place and stead, in any and all capacities, to sign any
amendment to this Report on Form 10-KSB, and to file the same, with exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission and hereby ratifies and confirms all that each of said
attorney-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue thereof.

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

<TABLE>
<CAPTION>
     Signature                       Title                      Date
     ---------                       -----                      ----
<S>                           <C>                          <C>
/s/ Thomas A. Arrendale, Jr   Chairman of the Board        March 30, 1998
----------------------------   and Director

/s/ Thomas A. Arrendale, III  Vice Chairman of the Board   March 30, 1998
                               and Director

/s/ David D. Stovall          Director, President and      March 30, 1998
----------------------------  Chief Executive Officer *

/s/ James Holcomb             Director                     March 30, 1998
----------------------------

/s/ James A. Stapleton, Jr    Director                     March 30, 1998
----------------------------

/s/ C. Kenneth White          Director                     March 30, 1998
----------------------------

/s/ Calvin R. Wilbanks        Director                     March 30, 1998
----------------------------
</TABLE>

* Principal financial officer, principal executive officer, controller and
principal accounting officer.


                                       34
<PAGE>   35


                                EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit No.                       Document
-----------                       --------

<S>              <C>
    3.1   Amended and restated Articles of Incorporation of Habersham Bancorp,
          as amended. (1)

    3.2   By-laws of Habersham Bancorp, as amended as of November 20, 1989 (2)
          and as of March 16, 1991 March 16, 1991 (3)

   10.1*  Habersham Bancorp Savings Investment Plan, as amended and restated
          March 17, 1990, and the related Trust Agreements, as amended March 17,
          1990 (2)

   10.2*  Habersham Bancorp Incentive Stock Option Plan, as amended February
          26, 1994 (4)

   10.3*  Habersham Bancorp Outside Directors Stock Plan (5)

   10.4*  Habersham Bancorp 1996 Incentive Stock Option Plan (6)

   10.5*  Mortgage Banking Agreement dated as of January 2, 1996 among Habersham
          Bancorp, Habersham Bank, BancMortgage Financial Corp., and Robert S.
          Cannon and Anthony L. Watts.

   13.0   Financial statements and notes thereto contained in the Habersham
          Bancorp 1997 Annual Report

   16.0   Change in Accountants (7)

   21.0   Subsidiaries of Habersham Bancorp

   23.1   Consent of KPMG Peat Marwick LLP

   23.2   Consent of Deloitte & Touche LLP

   24.0   A Power of Attorney is set forth on the signature page to this
          Form 10-KSB

   27.0   Financial Data Schedule (for SEC use only)
</TABLE>

(1)  Incorporated herein by reference to exhibit 3(a) in Amendment No. 1 to the
Registrant's Registration Statement on Form S-4 (Regis. No. 33-57915).

(2) Incorporated herein by reference to exhibit of same number in the Registrant
Annual Report on Form 10-K for the year December 31, 1989. (File No. 0-13153).


                                       35
<PAGE>   36


(3) Incorporated herein by reference to exhibit of same number in the Registrant
Annual Report on Form 10-K for the year ended December 31, 1991.(File No.
0-13153).

(4) Incorporated herein by reference to exhibit of same number in the
Registrant's Annual Report on Form 10-KSB for the year ended December 31, 1993.
(File No. 0-13153).

(5) Incorporated herein by reference to exhibit of same number in the
Registrant's Annual Report on Form 10-KSB for the year ended December 31, 1994.
(File No. 0-13153).

(6) Incorporated herein by reference to exhibit of same number in the
Registrant's Annual Report on Form 10-KSB for the year ended December 31, 1995.
(File No. 0-13153).

(7) Incorporated herein by reference to exhibit of same number in the
Registrant's current report on Form 8-K dated March 4, 1997. (File No. 0-13153).

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


                                       36