##### Table of Contents



U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q

|                                              |  |                                                                                    |  | 
|--------------------------------------------- |  | ---------------------------------------------------------------------------------- |  | 
|x                                             |  | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934  |  | 
|                                              |  |                                                                                    |  | 
|For the quarterly period ended June 30, 2003 
|                                              |  |                                                                                    |  | 
|o                                             |  | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |  | 
|                                              |  |                                                                                    |  | 
|For the transition period from _____ to _____

Commission file number 0-13153

HABERSHAM BANCORP




(Exact name of registrant as specified in its charter)


|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Georgia                                                        |  | 58-1563165                          
|                                                               |  |                                     
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer
Identification No.)
|                                                               |  |                                     
|Highway 441 N.  P.O. Box 1980, Cornelia, Georgia               |  | 30531                               
|                                                               |  |                                     
|(Address of principal executive offices)                       |  | (Zip code)                          

(706) 778-1000




(Issuers telephone number, including area code)




---

(Former name, former address and former fiscal year,
if changed since last report)


Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 o

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes o No x

State the number of shares outstanding of each of the issuers classes of
common stock, as of the latest practicable date:

2,837,513 shares, common stock, $1.00 par value, as of July 31, 2003





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TABLE OF CONTENTS



|                                                   |  |  |  |  |  |  |  | 
|-------------------------------------------------- |  |  |  |  |  |  |  | 
|PART II                                           
|SIGNATURES                                        
|EX-11.1 COMPUTATION OF EARNINGS PER SHARE         
|EX-31.1 SECTION 302 CERTIFICATION OF THE CEO      
|EX-31.2 SECTION 302 CERTIFICATION OF THE CFO      
|EX-32.1 SECTION 906 CERTIFICATION OF THE CEO & CFO



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##### Table of Contents



Item. 1 Financial Statements

HABERSHAM BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(dollars in thousands)

|                                                                                                                                                       |                                |                                            |         |               |         |                   |         |        |         | 
|------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------ | ------------------------------------------ | ------- | ------------- | ------- | ----------------- | ------- | ------ | ------- | 
|                                                                                                                                                       |                                |                                            |         | JUNE 30, 2003 |         | DECEMBER 31, 2002
|                                                                                                                                                       |                                |                                            |         |               |         |                   |        
|ASSETS                                                                                                                                                 |                                |                                            |         |               |         |                   |         |       
|Cash and due from banks                                                                                                                                |                                | $                                          | 9,717   |               |         | $                 | 13,832  |       
|Federal funds sold                                                                                                                                     |                                |                                            | 7,262   |               |         |                   | 27,137  |       
|Investment securities available for sale
(cost of $58,100 at June 30, 2003 and
$53,793 at December 31, 2002)                                           |                                |                                            | 59,691  |               |         |                   | 54,819  |       
|Investment securities held to maturity
(estimated fair value of $6,468 at
June 30, 2003 and $7,211 at
December 31, 2002)                               |                                |                                            | 6,020   |               |         |                   | 6,889   |       
|Other investments                                                                                                                                      |                                |                                            | 1,652   |               |         |                   | 2,389   |       
|Loans held for sale                                                                                                                                    |                                |                                            | 5,111   |               |         |                   |        |       
|Loans                                                                                                                                                  |                                |                                            | 293,859 |               |         |                   | 307,346 |       
|                                                                                                                                                       | Less allowance for loan losses |                                            |         | (3,732        | )       |                   |         | (3,533 | )      
|                                                                                                                                                       |                                |                                            |         |               |         |                   |         |       
|                                                                                                                                                       |                                | Loans, net                                 |         |               | 290,127 |                   |         |        | 303,813 | 
|                                                                                                                                                       |                                |                                            |         |               |         |                   |         |       
|Intangible assets                                                                                                                                      |                                |                                            | 2,489   |               |         |                   | 2,489   |       
|Other assets                                                                                                                                           |                                |                                            | 18,046  |               |         |                   | 18,043  |       
|                                                                                                                                                       |                                |                                            |         |               |         |                   |         |       
|                                                                                                                                                       |                                | TOTAL ASSETS                               |         | $             | 400,115 |                   |         | $      | 429,411 | 
|                                                                                                                                                       |                                |                                            |         |               |         |                   |         |       
|LIABILITIES                                                                                                                                            |                                |                                            |         |               |         |                   |         |       
|Noninterest-bearing deposits                                                                                                                           |                                | $                                          | 42,428  |               |         | $                 | 47,967  |       
|Interest-bearing deposits                                                                                                                              |                                |                                            | 263,904 |               |         |                   | 288,559 |       
|Short-term borrowings                                                                                                                                  |                                |                                            | 572     |               |         |                   | 932     |       
|Federal funds purchased and securities
sold under repurchase agreements                                                                                |                                |                                            | 8,252   |               |         |                   | 8,227   |       
|Federal Home Loan Bank advances                                                                                                                        |                                |                                            | 30,000  |               |         |                   | 30,000  |       
|Other liabilities                                                                                                                                      |                                |                                            | 2,396   |               |         |                   | 2,982   |       
|                                                                                                                                                       |                                |                                            |         |               |         |                   |         |       
|                                                                                                                                                       |                                | TOTAL LIABILITIES                          |         |               | 347,552 |                   |         |        | 378,667 | 
|                                                                                                                                                       |                                |                                            |         |               |         |                   |         |       
|SHAREHOLDERS EQUITY                                                                                                                                   |                                |                                            |         |               |         |                   |         |       
|Common Stock, $1.00 par value,
10,000,000 shares authorized;
2,837,263 shares issued at June 30, 2003
and 2,815,093 shares issued at
December 31, 2002 |                                |                                            | 2,837   |               |         |                   | 2,815   |       
|Additional paid-in capital                                                                                                                             |                                |                                            | 13,959  |               |         |                   | 13,721  |       
|Retained earnings                                                                                                                                      |                                |                                            | 34,717  |               |         |                   | 33,531  |       
|Accumulated other comprehensive income                                                                                                                 |                                |                                            | 1,050   |               |         |                   | 677     |       
|                                                                                                                                                       |                                |                                            |         |               |         |                   |         |       
|                                                                                                                                                       |                                | TOTAL SHAREHOLDERS EQUITY                 |         |               | 52,563  |                   |         |        | 50,744  | 
|                                                                                                                                                       |                                |                                            |         |               |         |                   |         |       
|                                                                                                                                                       |                                | TOTAL LIABILITIES AND SHAREHOLDERS
EQUITY |         | $             | 400,115 |                   |         | $      | 429,411 | 
|                                                                                                                                                       |                                |                                            |         |               |         |                   |         |       

See notes to condensed consolidated financial statements.





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HABERSHAM BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) For the Three-Month Periods Ended June 30, 2003 and 2002
(dollars in thousands, except per share amounts)

|                                                                           |                                       |                        |                     |       |       |       |           |       |       |       | 
|-------------------------------------------------------------------------- | ------------------------------------- | ---------------------- | ------------------- | ----- | ----- | ----- | --------- | ----- | ----- | ----- | 
|                                                                           |                                       |                        |                     |       | 2003  |       | 2002     
|                                                                           |                                       |                        |                     |       |       |       |           |      
|INTEREST INCOME                                                            |                                       |                        |                     |       |       |       |           |      
|Loans                                                                      |                                       | $                      | 5,129               |       |       | $     | 5,961     |      
|Investment securities                                                      |                                       |                        | 614                 |       |       |       | 780       |      
|Federal funds sold                                                         |                                       |                        | 16                  |       |       |       | 11        |      
|Other                                                                      |                                       |                        | 48                  |       |       |       | 81        |      
|                                                                           |                                       |                        |                     |       |       |       |           |      
|                                                                           | TOTAL INTEREST INCOME                 |                        |                     | 5,807 |       |       |           | 6,833 |      
|INTEREST EXPENSE                                                           |                                       |                        |                     |       |       |       |           |      
|Time deposits, $100,000 and over                                           |                                       |                        | 601                 |       |       |       | 857       |      
|Other deposits                                                             |                                       |                        | 1,055               |       |       |       | 1,606     |      
|Short-term and other borrowings, primarily
FHLB advances                   |                                       |                        | 464                 |       |       |       | 551       |      
|                                                                           |                                       |                        |                     |       |       |       |           |      
|                                                                           |                                       | TOTAL INTEREST EXPENSE |                     |       | 2,120 |       |           |       | 3,014 |      
|NET INTEREST INCOME                                                        |                                       |                        | 3,687               |       |       |       | 3,819     |      
|Provision for loan losses                                                  |                                       |                        | 262                 |       |       |       | 357       |      
|                                                                           |                                       |                        |                     |       |       |       |           |      
|NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES                        |                                       |                        | 3,425               |       |       |       | 3,462     |      
|NONINTEREST INCOME                                                         |                                       |                        |                     |       |       |       |           |      
|                                                                           | Gain on sale of loans                 |                        |                     | 148   |       |       |           | 19    |      
|                                                                           | Loan fee income                       |                        |                     | 271   |       |       |           | 69    |      
|                                                                           | Service charges on deposits           |                        |                     | 215   |       |       |           | 173   |      
|                                                                           | Other service charges and commissions |                        |                     | 50    |       |       |           | 60    |      
|                                                                           | Securities gains(losses), net         |                        |                     | 5     |       |       |           | (1    | )    
|                                                                           | Other income                          |                        |                     | 414   |       |       |           | 349   |      
|                                                                           |                                       |                        |                     |       |       |       |           |      
|                                                                           |                                       |                        | Total other income  |       |       | 1,103 |           |       |       | 669   | 
|NONINTEREST EXPENSE                                                        |                                       |                        |                     |       |       |       |           |      
|                                                                           | Salary and employee benefits          |                        |                     | 1,887 |       |       |           | 1,683 |      
|                                                                           | Occupancy                             |                        |                     | 369   |       |       |           | 319   |      
|                                                                           | Computer services                     |                        |                     | 91    |       |       |           | 111   |      
|                                                                           | General and administrative expense    |                        |                     | 1,097 |       |       |           | 1,152 |      
|                                                                           |                                       |                        |                     |       |       |       |           |      
|                                                                           |                                       |                        | Total other expense |       |       | 3,444 |           |       |       | 3,265 | 
|INCOME BEFORE INCOME TAXES                                                 |                                       |                        | 1,084               |       |       |       | 866       |      
|Income tax expense                                                         |                                       |                        | 316                 |       |       |       | 131       |      
|                                                                           |                                       |                        |                     |       |       |       |           |      
|INCOME FROM CONTINUING OPERATIONS                                          |                                       |                        | 768                 |       |       |       | 735       |      
|Income from discontinued operations, net of income
taxes of $93            |                                       |                        |                    |       |       |       | 81        |      
|                                                                           |                                       |                        |                     |       |       |       |           |      
|NET INCOME                                                                 |                                       | $                      | 768                 |       |       | $     | 816       |      
|                                                                           |                                       |                        |                     |       |       |       |           |      
|Income from continuing operations per
common share  basic                 |                                       | $                      | .27                 |       |       | $     | .27       |      
|Income from discontinued operations per
common share  basic               |                                       |                        | .00                 |       |       |       | .03       |      
|                                                                           |                                       |                        |                     |       |       |       |           |      
|NET INCOME PER COMMON SHARE  BASIC                                        |                                       | $                      | .27                 |       |       | $     | .30       |      
|                                                                           |                                       |                        |                     |       |       |       |           |      
|Income from continuing operations per
common share  diluted               |                                       | $                      | .27                 |       |       | $     | .26       |      
|Income from discontinued operations per
common share  diluted             |                                       |                        | .00                 |       |       |       | .03       |      
|                                                                           |                                       |                        |                     |       |       |       |           |      
|NET INCOME PER COMMON SHARE  DILUTED                                      |                                       | $                      | .27                 |       |       | $     | .29       |      
|                                                                           |                                       |                        |                     |       |       |       |           |      
|WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING                       |                                       |                        | 2,834,835           |       |       |       | 2,718,370 |      
|                                                                           |                                       |                        |                     |       |       |       |           |      
|WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES OUTSTANDING |                                       |                        | 2,877,486           |       |       |       | 2,809,277 |      
|                                                                           |                                       |                        |                     |       |       |       |           |      
|Dividends per share                                                        |                                       | $                      | .06                 |       |       | $     | .06       |      
|                                                                           |                                       |                        |                     |       |       |       |           |      

See notes to condensed consolidated financial statements.





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HABERSHAM BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) For the Six-Month Periods Ended June 30, 2003 and 2002
(dollars in thousands, except per share amounts)

|                                                                           |                                       |                        |                     |        |       |       |           |        |       |       | 
|-------------------------------------------------------------------------- | ------------------------------------- | ---------------------- | ------------------- | ------ | ----- | ----- | --------- | ------ | ----- | ----- | 
|                                                                           |                                       |                        |                     |        | 2003  |       | 2002     
|                                                                           |                                       |                        |                     |        |       |       |           |       
|INTEREST INCOME                                                            |                                       |                        |                     |        |       |       |           |       
|Loans                                                                      |                                       | $                      | 10,292              |        |       | $     | 12,001    |       
|Investment securities                                                      |                                       |                        | 1,310               |        |       |       | 1,513     |       
|Federal funds sold                                                         |                                       |                        | 29                  |        |       |       | 17        |       
|Other                                                                      |                                       |                        | 86                  |        |       |       | 236       |       
|                                                                           |                                       |                        |                     |        |       |       |           |       
|                                                                           | TOTAL INTEREST INCOME                 |                        |                     | 11,717 |       |       |           | 13,767 |      
|INTEREST EXPENSE                                                           |                                       |                        |                     |        |       |       |           |       
|Time deposits, $100,000 and over                                           |                                       |                        | 1,255               |        |       |       | 1,789     |       
|Other deposits                                                             |                                       |                        | 2,189               |        |       |       | 3,483     |       
|Short-term and other borrowings, primarily
FHLB advances                   |                                       |                        | 933                 |        |       |       | 1,140     |       
|                                                                           |                                       |                        |                     |        |       |       |           |       
|                                                                           |                                       | TOTAL INTEREST EXPENSE |                     |        | 4,377 |       |           |        | 6,412 |      
|NET INTEREST INCOME                                                        |                                       |                        | 7,340               |        |       |       | 7,355     |       
|Provision for loan losses                                                  |                                       |                        | 525                 |        |       |       | 649       |       
|                                                                           |                                       |                        |                     |        |       |       |           |       
|NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES                        |                                       |                        | 6,815               |        |       |       | 6,706     |       
|NONINTEREST INCOME                                                         |                                       |                        |                     |        |       |       |           |       
|                                                                           | Gain on sale of loans                 |                        |                     | 213    |       |       |           | 69     |      
|                                                                           | Loan fee income                       |                        |                     | 473    |       |       |           | 157    |      
|                                                                           | Service charges on deposits           |                        |                     | 418    |       |       |           | 340    |      
|                                                                           | Other service charges and commissions |                        |                     | 99     |       |       |           | 125    |      
|                                                                           | Securities gains, net                 |                        |                     | 10     |       |       |           | 839    |      
|                                                                           | Other income                          |                        |                     | 792    |       |       |           | 726    |      
|                                                                           |                                       |                        |                     |        |       |       |           |       
|                                                                           |                                       |                        | Total other income  |        |       | 2,005 |           |        |       | 2,256 | 
|NONINTEREST EXPENSE                                                        |                                       |                        |                     |        |       |       |           |       
|                                                                           | Salary and employee benefits          |                        |                     | 3,653  |       |       |           | 3,359  |      
|                                                                           | Occupancy                             |                        |                     | 734    |       |       |           | 624    |      
|                                                                           | Computer services                     |                        |                     | 198    |       |       |           | 224    |      
|                                                                           | General and administrative expense    |                        |                     | 2,139  |       |       |           | 2,202  |      
|                                                                           |                                       |                        |                     |        |       |       |           |       
|                                                                           |                                       |                        | Total other expense |        |       | 6,724 |           |        |       | 6,409 | 
|INCOME BEFORE INCOME TAXES                                                 |                                       |                        | 2,096               |        |       |       | 2,553     |       
|Income tax expense                                                         |                                       |                        | 570                 |        |       |       | 529       |       
|                                                                           |                                       |                        |                     |        |       |       |           |       
|INCOME FROM CONTINUING OPERATIONS                                          |                                       |                        | 1,526               |        |       |       | 2,024     |       
|Income from discontinued operations, net of income
taxes of $551           |                                       |                        |                    |        |       |       | 680       |       
|                                                                           |                                       |                        |                     |        |       |       |           |       
|NET INCOME                                                                 |                                       | $                      | 1,526               |        |       | $     | 2,704     |       
|                                                                           |                                       |                        |                     |        |       |       |           |       
|Income from continuing operations per
common share  basic                 |                                       | $                      | .54                 |        |       | $     | .75       |       
|Income from discontinued operations per
common share  basic               |                                       |                        | .00                 |        |       |       | .25       |       
|                                                                           |                                       |                        |                     |        |       |       |           |       
|NET INCOME PER COMMON SHARE  BASIC                                        |                                       | $                      | .54                 |        |       | $     | 1.00      |       
|                                                                           |                                       |                        |                     |        |       |       |           |       
|Income from continuing operations per
common share  diluted               |                                       | $                      | .53                 |        |       | $     | .73       |       
|Income from discontinued operations per
common share  diluted             |                                       |                        | .00                 |        |       |       | .24       |       
|                                                                           |                                       |                        |                     |        |       |       |           |       
|NET INCOME PER COMMON SHARE  DILUTED                                      |                                       | $                      | .53                 |        |       | $     | .97       |       
|                                                                           |                                       |                        |                     |        |       |       |           |       
|WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING                       |                                       |                        | 2,826,607           |        |       |       | 2,708,612 |       
|                                                                           |                                       |                        |                     |        |       |       |           |       
|WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES OUTSTANDING |                                       |                        | 2,873,277           |        |       |       | 2,787,765 |       
|                                                                           |                                       |                        |                     |        |       |       |           |       
|Dividends per share                                                        |                                       | $                      | .12                 |        |       | $     | .12       |       
|                                                                           |                                       |                        |                     |        |       |       |           |       

See notes to condensed consolidated financial statements.





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HABERSHAM BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) For the Six-month Periods Ended June 30, 2003 and 2002
(dollars in thousands)

|                                      |                                                     |                                                                                             |                                              |        |      |         |      |        |   |         |  
|------------------------------------- | --------------------------------------------------- | ------------------------------------------------------------------------------------------- | -------------------------------------------- | ------ | ---- | ------- | ---- | ------ | - | ------- | -
|                                      |                                                     |                                                                                             |                                              |        | 2003 |         | 2002
|                                      |                                                     |                                                                                             |                                              |        |      |         |     
|CASH FLOWS FROM OPERATING ACTIVITIES: |                                                     |                                                                                             |                                              |        |      |         |      |       
|                                      | Net income                                          |                                                                                             | $                                            | 1,526  |      |         | $    | 2,704  |  
|                                      |                                                     | Adjustments to reconcile net income to net cash
(used in) provided by operating activities: |                                              |        |      |         |      |        |   |        
|                                      |                                                     |                                                                                             | Provision for loan losses                    |        |      | 525     |      |        |   | 649     |  
|                                      |                                                     |                                                                                             | Depreciation                                 |        |      | 364     |      |        |   | 296     |  
|                                      |                                                     |                                                                                             | Gain on sale of investment securities        |        |      | (10     | )    |        |   | (839    | )
|                                      |                                                     |                                                                                             | (Gain)loss on sale of other real estate      |        |      | (3      | )    |        |   | 54      |  
|                                      |                                                     |                                                                                             | Gain on sale of other investments            |        |      | (60     | )    |        |   |        |  
|                                      |                                                     |                                                                                             | Loss on sale of premises & equipment         |        |      |        |      |        |   | 11      |  
|                                      |                                                     |                                                                                             | Gain on sale of loans                        |        |      | (213    | )    |        |   | (69     | )
|                                      |                                                     |                                                                                             | Amortization of intangible assets            |        |      |        |      |        |   | 4       |  
|                                      |                                                     |                                                                                             | Equity in earnings of investee               |        |      |        |      |        |   | (53     | )
|                                      |                                                     |                                                                                             | Deferred income tax benefit                  |        |      | (24     | )    |        |   | (19     | )
|                                      |                                                     |                                                                                             | Proceeds from sale of loans held for sale    |        |      | 22,622  |      |        |   |        |  
|                                      |                                                     |                                                                                             | Origination of loans held for sale           |        |      | (27,520 | )    |        |   |        |  
|                                      |                                                     |                                                                                             | Net cash provided by discontinued operations |        |      |        |      |        |   | 28,195  |  
|                                      | Changes in assets and liabilities:                  |                                                                                             |                                              |        |      |         |      |        |  
|                                      |                                                     |                                                                                             | Decrease in interest receivable              |        |      | 236     |      |        |   | 207     |  
|                                      |                                                     |                                                                                             | Decrease in other assets                     |        |      | 306     |      |        |   | 70      |  
|                                      |                                                     |                                                                                             | Decrease in interest payable                 |        |      | (618    | )    |        |   | (1,178  | )
|                                      |                                                     |                                                                                             | Decrease in other liabilities                |        |      | 32      |      |        |   | (820    | )
|                                      |                                                     |                                                                                             |                                              |        |      |         |      |        |  
|                                      | Net cash (used in) provided by operating activities |                                                                                             |                                              | (2,837 | )    |         |      | 29,212 |  
|                                      |                                                     |                                                                                             |                                              |        |      |         |      |        |  
|CASH FLOWS FROM INVESTING ACTIVITIES: |                                                     |                                                                                             |                                              |        |      |         |      |       
|                                      | Investment securities available for sale:           |                                                                                             |                                              |        |      |         |      |        |  
|                                      |                                                     |                                                                                             | Proceeds from maturity                       |        |      | 10,698  |      |        |   | 5,359   |  
|                                      |                                                     |                                                                                             | Proceeds from sale and call                  |        |      | 4,136   |      |        |   | 4,317   |  
|                                      |                                                     |                                                                                             | Purchases                                    |        |      | (19,137 | )    |        |   | (10,986 | )
|                                      | Investment securities held to maturity:             |                                                                                             |                                              |        |      |         |      |        |  
|                                      |                                                     |                                                                                             | Proceeds from maturity                       |        |      | 470     |      |        |   | 972     |  
|                                      |                                                     |                                                                                             | Proceeds from call                           |        |      | 405     |      |        |   |        |  
|                                      | Other investments:                                  |                                                                                             |                                              |        |      |         |      |        |  
|                                      |                                                     |                                                                                             | Proceeds from sale                           |        |      | 797     |      |        |   | 2,517   |  
|                                      |                                                     |                                                                                             | Purchases                                    |        |      |        |      |        |   | (1,248  | )
|                                      | Loans:                                              |                                                                                             |                                              |        |      |         |      |        |  
|                                      |                                                     |                                                                                             | Proceeds from sale                           |        |      |        |      |        |   | 12,244  |  
|                                      |                                                     |                                                                                             | Net decrease (increase) in loans             |        |      | 12,263  |      |        |   | (1,409  | )
|                                      | Purchases of premises and equipment                 |                                                                                             |                                              | (854   | )    |         |      | (558   | )
|                                      | Proceeds from sale of premises & equipment          |                                                                                             |                                              |       |      |         |      | 195    |  
|                                      | Proceeds from sale of other real estate             |                                                                                             |                                              | 752    |      |         |      | 3,681  |  
|                                      | Net additions of other real estate                  |                                                                                             |                                              | (74    | )    |         |      | (10    | )
|                                      | Dividends received from other investment            |                                                                                             |                                              |       |      |         |      | 62     |  
|                                      | Net cash used in discontinued operations            |                                                                                             |                                              |       |      |         |      | 609    |  
|                                      |                                                     |                                                                                             |                                              |        |      |         |      |        |  
|                                      | Net cash provided by investing activities           |                                                                                             |                                              | 9,456  |      |         |      | 15,745 |  
|                                      |                                                     |                                                                                             |                                              |        |      |         |      |        |  





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HABERSHAM BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  CONTINUED
(Unaudited) For the Six-Month Periods Ended June 30, 2003 and 2002
(dollars in thousands)

|                                                                                      |                                                                                                    |                                       |         |         |         |      |        |         |         |  
|------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------- | ------------------------------------- | ------- | ------- | ------- | ---- | ------ | ------- | ------- | -
|                                                                                      |                                                                                                    |                                       |         | 2003    |         | 2002
|                                                                                      |                                                                                                    |                                       |         |         |         |     
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                 |                                                                                                    |                                       |         |         |         |      |        |        
|                                                                                      | Net decrease in deposits                                                                           |                                       |         | (30,194 | )       |      |        | (3,397  | )      
|                                                                                      | Net (decrease) increase in short-term borrowings                                                   |                                       |         | (360    | )       |      |        | 529     |        
|                                                                                      | Net increase (decrease) in federal funds purchased
and securities sold under repurchase agreements |                                       |         | 25      |         |      |        | (10,261 | )      
|                                                                                      | Repayment of notes payable                                                                         |                                       |         |        |         |      |        | (2,127  | )      
|                                                                                      | Issuance of common stock                                                                           |                                       |         | 260     |         |      |        | 677     |        
|                                                                                      | Cash dividends paid                                                                                |                                       |         | (340    | )       |      |        | (325    | )      
|                                                                                      | Net cash used by discontinued operations                                                           |                                       |         |        |         |      |        | (28,453 | )      
|                                                                                      |                                                                                                    |                                       |         |         |         |      |        |         |        
|                                                                                      |                                                                                                    | Net cash used by financing activities |         |         | (30,609 | )    |        |         | (43,357 | )
|                                                                                      |                                                                                                    |                                       |         |         |         |      |        |         |        
|(Decrease) increase in cash and cash equivalents                                      |                                                                                                    |                                       | (23,990 | )       |         |      | 1,600  |        
|CASH AND CASH EQUIVALENTS: BEGINNING OF PERIOD                                        |                                                                                                    |                                       | 40,969  |         |         |      | 16,550 |        
|                                                                                      |                                                                                                    |                                       |         |         |         |      |        |         |        
|CASH AND CASH EQUIVALENTS: END OF PERIOD                                              |                                                                                                    | $                                     | 16,979  |         |         | $    | 18,150 |        
|                                                                                      |                                                                                                    |                                       |         |         |         |      |        |         |        
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                                    |                                                                                                    |                                       |         |         |         |      |        |        
|Cash paid during the period for:                                                      |                                                                                                    |                                       |         |         |         |      |        |        
|                                                                                      | Interest                                                                                           |                                       | $       | 4,995   |         |      | $      | 8,332   |        
|                                                                                      | Income taxes                                                                                       |                                       |         | 480     |         |      |        | 1,865   |        
|SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES:                             |                                                                                                    |                                       |         |         |         |      |        |        
|Other real estate acquired through loan foreclosures                                  |                                                                                                    | $                                     | 857     |         |         | $    | 1,372  |        
|Loans granted to facilitate the sale of
other real estate                             |                                                                                                    |                                       | 41      |         |         |      |       |        
|Unrealized gain (loss) on investment securities
available for sale, net of tax effect |                                                                                                    |                                       | 373     |         |         |      | (44    | )      

See notes to condensed consolidated financial statements.





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HABERSHAM BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements

1. Basis of Presentation

The condensed consolidated financial statements contained in this report
are unaudited but reflect all adjustments, consisting only of normal recurring
accruals, which are, in the opinion of management, necessary for a fair
presentation of the results of the interim periods reflected. Certain
information and note disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America have been condensed or omitted pursuant to applicable
rules and regulations of the Securities and Exchange Commission. The results
of operations for the interim periods reported herein are not necessarily
indicative of results to be expected for the full year.

The condensed consolidated financial statements included herein should be
read in conjunction with the Companys 2002 consolidated financial statements
and notes thereto, included in the Companys Annual Report on Form 10-K for the
fiscal year ended December 31, 2002.

2. Accounting Policies

Reference is made to the accounting policies of the Company described in
the notes to the consolidated financial statements contained in the Companys
Annual Report on Form 10-K for the fiscal year ended December 31, 2002. The
Company has consistently followed those policies in preparing this report.

3. Other Comprehensive 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
Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for
Certain Investments in Debt and Equity Securities. Comprehensive income for
the six months ended June 30, 2003 and 2002 was $1,899,000 and $2,660,000,
respectively, and for the three months ended June 30, 2003 and 2002 was
$1,098,000 and $1,403,000, respectively.

4. Derivative Instruments

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

The Companys objective in entering into forward commitments to sell
mortgage-backed securities was to mitigate the interest rate risk associated
with mortgage loans held for sale and commitments to originate fixed-rate
mortgage loans for resale.





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Subsequent to the sale of BancMortgage in December of 2002, the Company has no
significant derivative instruments.

5. Stock-based Compensation

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

The Company applies APB Opinion No. 25, Accounting for Stock Issued to
Employees,and related interpretations in accounting for its stock option
plans. Accordingly, compensation cost is measured as the excess, if any, of
the quoted market price of the Companys stock at the date of grant over the
amount an employee must pay to acquire the stock. Compensation cost determined
under SFAS No. 123 did not differ from the compensation cost determined under
APB Opinion No. 25 for the three and six months ended June 30, 2003 and 2002,
as all stock options granted are vested on the date of grant and there were no
options granted during the first six months of 2003 or 2002.

6. Recent Accounting Pronouncements

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.
SFAS No. 145 updates, clarifies, and simplifies existing accounting
pronouncements. SFAS No. 145 requires that in certain circumstances previous
items classified as extraordinary that do not meet the criteria in APB Opinion
No. 30 must be reclassified. SFAS No. 145 is effective for fiscal years
beginning after May 15, 2002. The adoption of SFAS No. 145 did not have a
material effect on the Companys financial condition or results of operations.

In July 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. SFAS No. 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities.
SFAS No. 146 requires recognition of a liability for a cost associated with an
exit or disposal activity when the liability is incurred, as opposed to when
the entity commits to an exit plan. SFAS No. 146 is effective prospectively for
exit or disposal activities initiated after December 31, 2002. The adoption of
SFAS No. 146 did not have a material impact on the Companys financial
condition or results of operations.

In October 2002, the FASB issued SFAS No. 147, Acquisitions of Certain
Financial Institutions. SFAS No. 147 removes acquisitions of financial
institutions from the scope of both SFAS No. 72, Accounting for Certain
Acquisitions of Banking or Thrift Institutions, and FASB Interpretation No. 9,
Applying APB Opinions No. 16 and 17, When a Savings and Loan Association or a
Similar Institution is Acquired in a Business Combination Accounted for by the
Purchase Method, and requires that those transactions be accounted for in
accordance with SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill
and Other Intangible Assets. In addition, SFAS No. 147





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amends SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets, to include in its scope long-term customer-relationship intangible
assets of financial institutions such as depositor- and borrower-relationship
intangible assets and credit cardholder intangible assets. SFAS No. 147s
transition provisions require affected institutions to reclassify their SFAS
No. 72 goodwill as SFAS No. 142 goodwill as of the date the Company initially
applied SFAS No. 142 in its entirety. The adoption of SFAS No. 147 did not have
a material impact on the Companys financial condition or results of
operations.

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

In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities and Interpretation of ARB No. 51(FIN 46). FIN 46
establishes the criteria for consolidating variable interest entities. FIN 46
is effective for fiscal years or interim periods beginning after June 15, 2003,
to variable entities that were acquired before February 1, 2003. Management
does not anticipate that the adoption of FIN 46 will have a material impact on
the Companys financial condition or results of operations.

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on

Derivative Instruments and Hedging Activities. SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under SFAS
No. 133. SFAS No. 149 is effective for contracts entered into or modified after
June 30, 2003. The Company does not expect that SFAS No. 149 will have a
significant effect on its consolidated financial statements.

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

7. Segment Information

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





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customers. Prior to the sale of BancMortgage, the Companys principal segments
were banking and mortgage banking. Subsequently, the Company operates
primarily in one segment.

Item. 2 Managements Discussion and Analysis of Financial Condition and
Results of Operations.

HABERSHAM BANCORP AND SUBSIDIARIES

Organization

Habersham Bancorp (the Company) owns all of the outstanding stock of
Habersham Bank (Habersham Bank) and The Advantage Group, Inc. Habersham Bank
owns all of the outstanding stock of Advantage Insurers, Inc. (Advantage
Insurers), an insurance subsidiary that does not comprise a significant
portion of the Companys financial position, results of operations or cash
flows. Prior to December 2002, Habersham Bank also owned all of the
outstanding stock of BancMortgage Financial Corp (BancMortgage).

BancMortgage was organized in 1996 as a full-service mortgage and
construction lending company located in the northern Atlanta metropolitan area.
During December 2002, the Company sold BancMortgage to the existing management
of BancMortgage resulting in a loss of $110,064. The Companys consolidated
income statement and statement of cash flows for the three and six months ended
June 30, 2002 have been reclassified to reflect the operations of BancMortgage
as discontinued. Managements discussion and analysis, which follows,
therefore, relates primarily to Habersham Bank.

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

Forward Looking Statements

Certain statements contained in this Quarterly Report on Form 10-Q and the
exhibits hereto which are not statements of historical fact constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act (the Act). In addition, certain statements in future
filings by the Company with the Securities and Exchange Commission, in press
releases, and in oral and written statements made by or with the approval of
the Company which are not statements of historical fact constitute
forward-looking statements within the meaning of the Act. Examples of
forward-looking statements include, but are not limited to: (1) projections of
revenues, income or loss, earnings or loss per share, the payment or
non-payment of dividends, capital structure and other financial items; (2)
statements of plans and objectives of the Company or its management or Board of
Directors, including those relating to products or services; (3) statements of
future economic performance; and (4) statements of assumptions underlying such
statements. Words such as believes, anticipates, expects, intends,
targeted, and similar expressions are intended to identify forward-looking
statements but are not the exclusive means of identifying such statements.

Forward-looking statements involve risks and uncertainties which may cause
actual results to differ materially from those in such statements. Facts that
could cause actual results to differ from those discussed in the
forward-looking statements include, but are not limited to: (1) the strength
of the U.S. economy in general and





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the strength of the local economies in which operations are conducted; (2) the
effects of and changes in trade, monetary and fiscal policies and laws,
including interest rate policies of the Board of Governors of the Federal
Reserve System; (3) inflation, interest rate, market and monetary fluctuations;
(4) the timely development of and acceptance of new products and services and
perceived overall value of these products and services by users; (5) changes in
consumer spending, borrowing and saving habits; (6) acquisitions; (7) the
ability to increase market share and control expenses; (8) the effect of
changes in laws and regulations (including laws and regulations concerning
taxes, banking, securities and insurance) with which the Company and its
subsidiaries must comply; (9) the effect of changes in accounting policies and
practices, as may be adopted by the regulatory agencies as well as the
Financial Accounting Standards Board; (10) changes in the Companys
organization, compensation and benefit plans; (11) the costs and effects of
litigation and of unexpected or adverse outcomes in such litigation; and (12)
the success of the Company at managing the risks involved in the foregoing.

Such forward-looking statements speak only as of the date on which such
statements are made, and the Company undertakes no obligation to update any
forward-looking statement to reflect events or circumstances after the date on
which such statement is made or to reflect the occurrence of unanticipated
events.

Critical Accounting Policies

In reviewing and understanding financial information for the Company, you
are encouraged to read and understand the significant accounting policies which
are used in preparing the consolidated financial statements of the Company.

These policies are described in note 2 to the consolidated financial
statements which were presented in the Companys 2002 annual report on Form
10-K. Of these policies, management believes that the accounting for the
allowance for loan losses is the most critical. Please see Asset Quality for
a further discussion of the Companys methodology in determining the allowance.

The risk associated with lending 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.

Losses on loans result from a broad range of causes, from
borrower-specific problems to industry issues to the impact of the economic
environment. The identification of the factors that lead to default or
non-performance under a loan agreement and the estimation of loss in these
situations is very subjective. In addition, a dramatic change in the
performance of one or a small number of borrowers can have a significant impact
in the estimate of losses. As described further below, management has
implemented a process that has been applied consistently to systematically
consider the many variables that impact the estimation of the allowance for
loan losses.

The allowance for loan losses methodology is based on a loan
classification system. For purposes of determining the required allowance for
loan losses and resulting periodic provisions, the Company identifies the
problem loans in its portfolio and segregates the remainder of the loan
portfolio into broad segments, such as commercial, commercial real estate,
residential mortgage and consumer. The Company provides for a general
allowance for losses inherent in the portfolio for each of the above
categories. The general allowance is calculated based on estimates of inherent
losses which probably exist as of the evaluation date. Loss percentages





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used for non-problem loans in this portion of the portfolio are based on
historical loss factors. The general allowance for losses on problem loans is
based on a review and evaluation of these loans, taking into consideration
financial condition and strengths of the borrower, related collateral, cash
flows available for debt repayment, and known and expected economic conditions.
General loss percentages for the problem loans are determined based upon
historical loss experience and regulatory requirements.

For loans considered impaired, specific allowances are provided in the
event that the specific collateral analysis on each problem loan indicates that
the liquidation of the collateral would not result in repayment of these loans
if the loan is collateral dependent or if the present value of expected future
cash flows on the loan are less than the balance. In addition to these
allocated reserves, the Company has established an unallocated reserve of
approximately $301,000 at June 30, 2003 and $222,000 at December 31, 2002. The
basis for the unallocated reserve is due to a number of qualitative factors,
such as concentrations of credit and changes in the outlook for local and
regional economic conditions.

Certain economic factors could have a material impact on the loan loss
allowance calculation and its adequacy. The depth and duration of any economic
recession would have an impact on the credit risk associated with the loan
portfolio. Another factor that can impact the calculation is a consideration
for concentrations in collateral which secure the loan portfolio. The
Companys loan portfolio is secured primarily by commercial and residential
real estate loans comprising approximately 87.35% of the total loan portfolio.
While there is a risk that the appraised value of the real estate securing the
loans in the portfolio could decrease in value during an economic recession,
the majority of the real estate securing the loan portfolio is 1  4 family
residential properties which are not generally as affected by the down turns in
the economy.

The Company will from time to time make unsecured loans. The risk to the
Company is greater for unsecured loans as the ultimate repayment of the loan is only
dependent on the borrowers ability to pay. The balance of unsecured loans at June 30,
2003 and December 31, 2002 was $8.2 million and $8.8 million, respectively.

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

Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic conditions, the
financial condition of borrowers and other factors. In addition, various
regulatory agencies, as an integral part of their examination process, periodically review
the Companys allowance for loan losses. Such agencies may require the Company to
recognize additions to the allowance based on their judgments about information
available to them at the time of their examination.

Refer to the section entitled Asset Quality for an additional discussion
of the key assumptions and methods used in determining the allowance for loan
losses.

Material Changes in Financial Condition

The Companys total assets decreased $29.3 million, to $400.1 million at
June 30, 2003 from $429.4 million at December 31, 2002. The decrease was
primarily due to decreases in federal funds sold and the Companys loan
portfolio of approximately $19.8 million and $8.4 million, respectively. These
decreases were offset by reductions in the deposit portfolio of approximately
$30.2 million. National market certificates of deposit decreased approximately
$18.9 million, comprising the majority of the $30.2 million decrease in the
deposit portfolio. In view of the sale





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of BancMortgage in December 2002, the Company does not currently require these
certificates of deposit as a funding source. Other certificates of deposit
balances are declining due to the low interest rates currently available in the
market. Loans held for sale increased approximately $5 million during the
first six months of 2003, as the Company began operations of a mortgage
department.

Total loans at Habersham Bank decreased $13.5 million, to $293.8 million
at June 30, 2003 from $307.3 million at December 31, 2002. The decrease was
primarily the result of a decrease in the real estate loan portfolio of
approximately $29.9 million and by decreases of approximately $.9 million in
other loan portfolios offset by increases in the commercial loan portfolio of
approximately $17.3 million. The decrease in the real estate loan portfolio
was primarily due to the roll-off of approximately $25.4 million in
construction loans originated through BancMortgage. The balance in these loans
is expected to continue decreasing because the principal will be paid off as
construction is completed. In addition, due to the interest rate on mortgage
loans, many real estate loans are being refinanced.

Investment securities available for sale and held to maturity increased
$3.3 million during the first six months of 2003 primarily due to purchases of
approximately $19 million offset by maturities and calls of approximately $15.7
million. Other investments decreased $737,000 from $2.4 million at December
31, 2002 to $1.6 million at June 30, 2003 due to the redemption of FHLB stock
during the first quarter of 2003 of $637,000 and the sale of an investment in
Forsyth Bancshares, Inc. common stock of $100,000.

Total liabilities decreased $31.1 million, to $347.6 million at June 30,
2003 from $378.7 million at December 31, 2002. Decreases in the deposit
portfolio were primarily due to the redemption of certificates of deposit of
approximately $31.3 million.

Material Changes in Results of Operations

Total interest income for the second quarter of 2003 and for the first six
months of 2003 decreased $1,026,000 or 15.02% and $2,050,000 or 14.89%,
respectively, when compared to the second quarter of 2002 and the first six
months of 2002. These decreases were due to decreases in the loan portfolio of
Habersham Bank. Average loan balances decreased $17.8 million or 5.69% during
the first six months of 2003 compared to the first six months of 2002. Loan
yields decreased by .73% to 6.94% for the first six months of 2003 compared to
7.67% for the first six months of 2003. Average investment securities balances
increased $2.6 million or 4.66% during the first six months of 2003 compared to
the first six months of 2002. Yields on investment securities
decreased by .90% to 4.35% for the first six months of 2003 compared to 5.25% for the first
six months of 2002.

Total interest expense for the second quarter of 2003 decreased $894,000
or 29.66%, when compared to the second quarter of 2002. Total interest expense
for the first six months of 2003 decreased $2,035,000 or 31.74% when compared
to the first six months of 2002. The decrease in interest expense was primarily
due to redemptions of certificates of deposit with higher rates as well as a
declining interest rate environment during 2003. Average interest bearing
deposits for the first six months of 2003 decreased approximately $42.5 million
or 13.90% when compared to the first six months of 2002. Average certificates
of deposit decreased approximately $44.4 million offset by increases in average
savings accounts and average NOW and money market accounts of approximately
$1.4 and $.5 million, respectively.





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Average rates on interest-bearing deposits decreased by .83% to 2.62%
during the first six months of 2003 compared to 3.45% for the first six months
of 2002. Average rates for NOW and other deposit accounts and certificates of
deposit decreased to .65% and 2.46%, respectively, during the first six months
of 2003 compared to .92% and 3.26%, respectively, during the first six months
of 2002.

Interest expense on short-term and other borrowings for the second quarter
of 2003 decreased $87,000 or 15.79% when compared to the second quarter of 2002
and decreased $207,000 or 18.16% for the first six months of 2003 when compared
to the first six months of 2002 primarily due to a decrease in average
borrowings of approximately $10.9 million or 20.76% when comparing the first
six months of 2003 with the first six months of 2002. Average rates on
borrowings increased by .14% to 4.49% for the first six months of 2003 compared
to 4.35% for the first six months of 2002.

Net interest income decreased approximately $132,000 or 3.46%, for the
second quarter of 2003 as compared to the second quarter of 2002 and remained
relatively constant as compared to the first six months of 2002 as a result of
the items discussed above.

The net interest margin of the Company, net interest income divided by
average earning-assets, was 4.00% for the first six months of 2003 compared to
3.82% for the first six months of 2002. The increase in the net interest
margin resulted primarily from decreases in the average rates paid on deposit
accounts.

Noninterest income increased $434,000 or 64.87% for the second quarter of
2003 over the same period in 2002. Noninterest income decreased $251,000 or
11.13% for the first six months of 2003 over the same period in 2002. During
the second quarter of 2003, increases in loan fee income and in gain on sale of
loans of approximately $202,000 and $129,000, respectively, were the result of
increased activity in loans held for sale. The decrease in the first six
months of 2003 is primarily due to the decrease in securities gain of
approximately $829,000 offset by increases in loan fee income and in service
charges on deposits of approximately $316,000 and $78,000, respectively. The
security gain for the first six months of 2002 consisted primarily of the gain
on the sale of Habersham Bancorps investment in FLAG common stock. The
increase in loan fee income for the three and six month periods was primarily
the result of increased activity in loans held for sale by Habersham Mortgage,
a division of Habersham Bank.

Noninterest expense increased $179,000 or 5.48% for the second quarter of
2003 over the same period in 2002. Noninterest expense increased $315,000 or
4.91% for the first six months of 2003 over the same period in 2002. These
increases were due to increases in salary and employee benefits and occupancy
expenses. Salary and employee benefits increased primarily due to annual
salary adjustments. Occupancy expenses increased approximately $50,000 and
$110,000 for the second quarter and the first six month period of 2003,
respectively, over the same periods in 2002 due in part to the addition of two
offices in Braselton and Gainesville, Georgia.

Income tax expense for the three months ended June 30, 2003 and 2002 was
$316,000 and $131,000, respectively. Income tax expense for the six months
ended June 30, 2003 and 2002 was $570,000 and $529,000, respectively. The
effective tax rate for the six months ended June 30, 2003 and 2002 was 27.19%
and 20.72%, respectively. The increase in the effective tax rate in 2003 was
due to a decrease in tax-exempt income.





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##### Table of Contents



Asset Quality

The allowance for loan losses represents a reserve for probable losses in
the loan portfolio. The adequacy of the allowance for loan losses is evaluated
periodically based on a review of all significant loans, with particular
emphasis on impaired, non-accruing, past due, and other loans that management
believes require special attention. The determination of the allowance for
loan losses is subjective and based on consideration of a number of factors and
assumptions. As such, the accounting policy followed in the determination of
the allowance is considered a critical accounting policy. See Critical
Accounting Policies for a discussion of managements methodology in
determining the allowance.

A provision for loan losses in the amount of $262,000 was charged to
expense for the quarter ended June 30, 2003 compared to $357,000 for the
quarter ended June 30, 2002. A provision for loan losses in the amount of
$525,000 was charged to expense for the first six months of 2003 compared to
$649,000 for the first six months of 2002. Net charge-offs for the first six
months totaled approximately $326,000. At June 30, 2003 and December 31, 2002,
the ratio of allowance for loan losses to total loans, including loans held for
sale, was 1.25% and 1.15%, respectively.

Nonperforming assets consist of nonaccrual loans, accruing loans 90 days
past due, restructured loans and other real estate owned. Nonperforming assets
decreased approximately $547,000 or 6.85% from December 31, 2002 to June 30,
2003. The decrease for the first six months of 2003 was primarily due to
decreases in accruing loans 90 days past due and restructured loans of
approximately $678,000 and $42,000, respectively, offset by increases in
nonaccrual loans and other real estate of approximately $151,000 and $22,000,
respectively.

The Company had impaired loans of $2,137,000 and $2,115,000 at June 30,
2003 and December 31, 2002, respectively. Impaired loans consist of loans on
nonaccrual status. The interest income recognized on such loans for the
six-month periods ended June 30, 2003 and 2002 was not material.

The Companys other real estate totaled $3,348,000 and $3,197,000 at June
30, 2003 and December 31, 2002, respectively. The increase was due primarily
to foreclosures of mortgage loans secured by residential property of approximately
$857,000 and additions of expenses to complete construction of approximately
$74,000 offset by sales of foreclosed properties of approximately $780,000.

Liquidity and Capital Resources

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

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

The Companys liquidity position depends primarily upon the liquidity of
its assets relative to its need to respond to short-term demand for funds
caused by





---



##### Table of Contents



withdrawals from deposit accounts and loan funding commitments. Primary
sources of liquidity are scheduled repayments on the Companys loans and
interest on and maturities of its investment securities. Sales of investment
securities available for sale represent another source of liquidity to the
Company. The Company may also utilize its cash and due from banks and federal
funds sold to meet liquidity requirements as needed.

The Company also has the ability, on a short-term basis, to purchase
federal funds from other financial institutions up to $25,000,000. At June 30,
2003, the Company had purchased none of the available federal funds.
Presently, the Company has made arrangements with commercial banks for
short-term advances up to $10,000,000 under a repurchase agreement line of
credit of which none was advanced at June 30, 2003, in addition to a total
available line of $230,833,000 which is available to the Company, subject to
available collateral, from the Federal Home Loan Bank of which approximately
$30,000,000 was advanced at June 30, 2003.

Habersham Banks liquidity policy requires that the ratio of cash and
certain short-term investments to net withdrawable deposit accounts be at least
20%. The Banks liquidity ratios at June 30, 2003 and 2002 were 26.09% and
20.55%, respectively.

At June 30, 2003, Habersham Bancorp and Habersham Bank were required to
have minimum Tier 1 and total capital ratios of 4% and 8%, respectively.
Additionally, the Company and the Bank are required to maintain a leverage
ratio (Tier 1 capital to average assets) of at least 4%. The Companys and the
Banks ratios at June 30, 2003 follow:

|              |  |           |       |           |  |  |       |  
|------------- |  | --------- | ----- | --------- |  |  | ----- | -
|              |  | Habersham |       | Habersham
|              |  | Bank      |       | Bancorp  
|              |  |           |       |          
|Tier 1        |  |           | 14.68 | %         |  |  | 15.46 | %
|Total Capital |  |           | 15.85 | %         |  |  | 16.62 | %
|Leverage      |  |           | 11.81 | %         |  |  | 12.41 | %

Commitments and Contractual Obligations

The Company is a party to financial instruments with off-balance-sheet
risk in the normal course of its lending activities to meet the financing needs
of its customers. These financial instruments include commitments to extend
credit and standby letters of credit. The Companys exposure to credit losses
in the event of nonperformance by the other party to the financial instrument
for commitments to extend credit and standby letters of credit is represented
by the contractual amounts of those instruments. The Company uses the same
credit policies in making theses commitments as it does for on-balance-sheet
instruments and evaluates each customers creditworthiness on a case by case
basis. At June 30, 2003, the Company had outstanding loan commitments
approximating $48,518,000 and standby letters of credit approximating
$1,714,000. The amount of collateral obtained, if deemed necessary, for these
financial instruments by the Company, upon extension of credit, is based on
managements credit evaluation of the customer. Collateral held, if any,
varies but may include inventory, equipment, real estate, or other property.
The accounting loss the Company would incur if any party of the financial
instrument failed completely to perform according to the term of the contract
and the collateral proved to be of no value is equal to the face amount of the
financial instrument.

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





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##### Table of Contents



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

|                                            |                                               |   |             |             |           |   |             |            |            |   |            |            |  |   |           |           |  |   |           |           | 
|------------------------------------------- | --------------------------------------------- | - | ----------- | ----------- | --------- | - | ----------- | ---------- | ---------- | - | ---------- | ---------- |  | - | --------- | --------- |  | - | --------- | --------- | 
|                                            |                                               |   | Due In      |             | Due In    |   | Due In      |            | Due In     |   | Due In    
|                                            |                                               |   | One Year    |             | Two Years |   | Three Years |            | Four Years |   | Five Years
|                                            |                                               |   |             |             |           |   |             |            |            |   |            |            |  |   |           |           |  |   |           |          
|Commitments on lines of credit              |                                               | $ | 48,518,191  |             |           | $ |            |            |            | $ |           |            |  | $ |          |           |  | $ |          |          
|Standby letters of credit                   |                                               |   | 1,714,120   |             |           |   |            |            |            |   |           |            |  |   |          |           |  |   |          |          
|Commitments under lease agreements          |                                               |   | 119,392     |             |           |   | 107,738     |            |            |   | 96,951     |            |  |   | 28,205    |           |  |   | 2,712     |          
|Deposits                                    |                                               |   | 256,841,881 |             |           |   | 19,238,367  |            |            |   | 18,187,381 |            |  |   | 9,317,423 |           |  |   | 2,746,332 |          
|FHLB advances                               |                                               |   |            |             |           |   |            |            |            |   | 10,000,000 |            |  |   |           |           |  |   |          |          
|Short-term borrowings                       |                                               |   | 572,509     |             |           |   |            |            |            |   |           |            |  |   |          |           |  |   |          |          
|Securities sold under repurchase agreements |                                               |   | 8,251,857   |             |           |   |            |            |            |   |           |            |  |   |          |           |  |   |          |          
|                                            |                                               |   |             |             |           |   |             |            |            |   |            |            |  |   |           |           |  |   |           |          
|                                            | Total commitments and
contractual obligations |   | $           | 316,017,950 |           |   | $           | 19,346,105 |            |   | $          | 28,284,332 |  |   | $         | 9,345,628 |  |   | $         | 2,749,044 | 

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

Interest Rate Sensitivity

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

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

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





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##### Table of Contents



The interest rate sensitivity analysis, calculated as of June 30, 2003, below
has a three month positive gap of approximately $38 million (interest-bearing
assets exceeding interest-bearing liabilities repricing within three months).

|                                                                                       |                       |                                    |        |               |         |             |        |               |        |            |         |           |        |       |        |        |        |   |        |        |        |   |        |         |         | 
|-------------------------------------------------------------------------------------- | --------------------- | ---------------------------------- | ------ | ------------- | ------- | ----------- | ------ | ------------- | ------ | ---------- | ------- | --------- | ------ | ----- | ------ | ------ | ------ | - | ------ | ------ | ------ | - | ------ | ------- | ------- | 
|                                                                                       |                       |                                    |        | DUE IN        |         | DUE AFTER   |        | DUE AFTER     |        | DUE AFTER  |         | DUE AFTER |        | TOTAL
|(Dollars in Thousands)                                                                 |                       | THREE                              |        | THREE THROUGH |         | SIX THROUGH |        | ONE THROUGH   |        | FIVE      
|                                                                                       |                       |                                    |        | MONTHS        |         | SIX MONTHS  |        | TWELVE MONTHS |        | FIVE YEARS |         | YEARS    
|                                                                                       |                       |                                    |        |               |         |             |        |               |        |            |         |          
|INTEREST-EARNING ASSETS:                                                               |                       |                                    |        |               |         |             |        |               |        |            |         |           |        |       |        |        |        |   |        |        |        |   |        |        
|                                                                                       | Fed funds sold        |                                    | $      | 7,262         |         |             | $      |              |        |            | $       |          |        |       | $      |       |        |   | $      |       |        |   | $      | 7,262   |        
|                                                                                       | Investment securities |                                    |        | 1,325         |         |             |        | 544           |        |            |         | 507       |        |       |        | 6,850  |        |   |        | 56,485 |        |   |        | 65,711  |        
|                                                                                       | Loans                 |                                    |        | 166,928       |         |             |        | 22,579        |        |            |         | 38,187    |        |       |        | 64,807 |        |   |        | 1,358  |        |   |        | 293,859 |        
|                                                                                       |                       |                                    |        |               |         |             |        |               |        |            |         |           |        |       |        |        |        |   |        |        |        |   |        |         |        
|                                                                                       |                       | Total interest-earning assets      |        |               | 175,515 |             |        |               | 23,123 |            |         |           | 38,694 |       |        |        | 71,657 |   |        |        | 57,843 |   |        |         | 366,832 | 
|INTEREST-BEARING LIABILITIES:                                                          |                       |                                    |        |               |         |             |        |               |        |            |         |           |        |       |        |        |        |   |        |        |        |   |        |        
|                                                                                       | Deposits              |                                    |        |               |         |             |        |               |        |            |         |           |        |       |        |        |        |   |        |        |        |   |        |         |        
|                                                                                       |                       | Money
Market and NOW               |        |               | 59,479  |             |        |               |       |            |         |           |       |       |        |        |       |   |        |        |       |   |        |         | 59,479  | 
|                                                                                       |                       | Savings                            |        |               | 9,243   |             |        |               |       |            |         |           |       |       |        |        |       |   |        |        |       |   |        |         | 9,243   | 
|                                                                                       |                       | Certificates of deposit            |        |               | 60,060  |             |        |               | 21,673 |            |         |           | 63,958 |       |        |        | 49,479 |   |        |        | 12     |   |        |         | 195,182 | 
|                                                                                       | Borrowings            |                                    |        | 8,824         |         |             |        |              |        |            |         |          |        |       |        | 10,000 |        |   |        | 20,000 |        |   |        | 38,824  |        
|                                                                                       |                       |                                    |        |               |         |             |        |               |        |            |         |           |        |       |        |        |        |   |        |        |        |   |        |         |        
|                                                                                       |                       | Total interest-bearing
liabilities |        |               | 137,606 |             |        |               | 21,673 |            |         |           | 63,958 |       |        |        | 59,479 |   |        |        | 20,012 |   |        |         | 302,728 | 
|Excess(deficiency) of interest-earning
assets over(to) interest-bearing
liabilities    |                       | $                                  | 37,909 |               |         | $           | 1,450  |               |        | $          | (25,264 | )         |        | $     | 12,178 |        |        | $ | 37,831 |        |        | $ | 64,104 |        
|                                                                                       |                       |                                    |        |               |         |             |        |               |        |            |         |           |        |       |        |        |        |   |        |        |        |   |        |         |        
|Cumulative gap                                                                         |                       | $                                  | 37,909 |               |         | $           | 39,359 |               |        | $          | 14,095  |           |        | $     | 26,273 |        |        | $ | 64,104 |        |        |   |        |        
|Ratio of cumulative gap to total
cumulative interest-earning assets                    |                       |                                    | 21.60  | %             |         |             | 19.81  | %             |        |            | 5.94    | %         |        |       | 8.50   | %      |        |   | 17.48  | %      |        |   |        |        
|Ratio of cumulative interest-earning assets
to cumulative interest-bearing
liabilities |                       |                                    | 127.55 | %             |         |             | 124.71 | %             |        |            | 106.31  | %         |        |       | 109.29 | %      |        |   | 121.18 | %      |        |   |        |        

Management strives to maintain the ratio of cumulative interest-earning
assets to cumulative interest-bearing liabilities within a range of 80% to 120%
at the less than
one-year time frame. At June 30, 2003, the Company was outside the range of
80% to 120% for the Less Than 3 Months and the 3-6 Months categories
primarily due to the rate of real estate construction loan repayments over the
rate of national market certificates of deposit redemptions which creates an
excess of cash available for investment held in Federal Funds Sold. Management
is taking steps to increase interest earning assets, primarily through quality
loans and investment securities.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

As of June 30, 2003, there were no substantial changes in the composition
of the Companys market-sensitive assets and liabilities or their related
market values from that reported as of December 31, 2002. The foregoing
disclosures related to the market risk of the Company should be read in
conjunction with the Companys audited consolidated financial statements,
related notes and managements discussion and analysis of financial condition
and results of operations for the year ended December 31, 2002 included in the
Companys 2002 Annual Report on Form 10K.





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##### Table of Contents



Item 4. CONTROLS AND PROCEDURES

As of the end of the period covered by this report, the Company carried
out an evaluation, under the supervision and with the participation of the
Companys management, including the Companys Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of the
Companys disclosure controls and procedures pursuant to Exchange Act Rule
13a-14. Based upon that evaluation, the Companys Chief Executive Officer and
Chief Financial Officer concluded that the Companys disclosure controls and
procedures are effective in timely alerting them to material information
relating to the Company (including its consolidated subsidiaries) that is
required to be included in the Companys periodic filings with the Securities
and Exchange Commission. There have been no significant changes in the
Companys internal controls or, to the Companys knowledge, in other factors
that could significantly affect those internal controls subsequent to the date
the Company carried out its evaluation, and there have been no corrective
actions with respect to significant deficiencies or material weaknesses.





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##### Table of Contents






PART II
OTHER INFORMATION

Item 1. Legal proceedings.



| |     
| | ----
| | None

Item 2. Changes in securities.



| |     
| | ----
| | None

Item 3. Defaults upon senior securities.



| |     
| | ----
| | None

Item 4. Submission of matters to a vote of security holders.



|    |  |                                                                                          
|--- |  | -----------------------------------------------------------------------------------------
|(a) |  | The regular annual meeting of the shareholders of the
Company was held
on April 19, 2003.



|    |  |                                                                                                                                                                                                                                                                                                                 
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) |  | The business conducted at the meeting included the
election of the Board of Directors. The Directors elected at the
meeting were: Edward D. Ariail, Thomas A. Arrendale, Jr., Thomas
A. Arrendale, III, Michael C. Martin, James E. McCollum, James A.
Stapleton, Jr., David D. Stovall, and Calvin R. Wilbanks.



| |                                                                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | At the registrants Annual Meeting of Shareholders on April 19, 2003,
the shareholders elected directors to serve for a term of one year or
until their successors are duly qualified and elected. The following
table sets forth the number of votes cast and withheld with respect to
each nominated director. There were no broker non-votes or
abstentions.

|                         |  |           |         |                |  |  |        | 
|------------------------ |  | --------- | ------- | -------------- |  |  | ------ | 
|Name                     |  | Votes For |         | Votes Withheld
|Edward D. Ariail         |  |           | 883,123 |                |  |  | 17,396 | 
|Thomas A. Arrendale, Jr. |  |           | 870,323 |                |  |  | 30,196 | 
|Thomas A. Arrendale, III |  |           | 883,123 |                |  |  | 17,396 | 
|Michael C. Martin        |  |           | 891,323 |                |  |  | 9,196  | 
|James E. McCollum        |  |           | 883,123 |                |  |  | 17,396 | 
|James A. Stapleton, Jr.  |  |           | 891,323 |                |  |  | 9,196  | 
|David D. Stovall         |  |           | 883,123 |                |  |  | 17,396 | 
|Calvin R. Wilbanks       |  |           | 878,523 |                |  |  | 21,996 | 

Item 5. Other information.



| |     
| | ----
| | None

Item 6. Exhibit and reports on Form 8-K

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

(b)  Form 8-K filed on April 22, 2003, reporting earnings for the first
quarter of 2003 under Item 9 pursuant to instructions contained in Item 12 and
SEC Release Nos. 33-8176 and 34-47226.





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##### Table of Contents



|            |  |                                                                                                                      
|----------- |  | ---------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Document                                                                                                             
|            |  |                                                                                                                      
|11.1        |  | Computation of Earnings Per Share.                                                                                   
|            |  |                                                                                                                      
|31.1        |  | Certification of Chief Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (the Act).
|            |  |                                                                                                                      
|31.2        |  | Certification of Chief Financial Officer filed pursuant to Section 302 of the Act.                                   
|            |  |                                                                                                                      
|32.1        |  | Certification of Chief Executive Officer and Chief Financial Officer furnished pursuant to Section 906 of the Act.   




SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.

|                     |  |                                                                                                                
|-------------------- |  | ---------------------------------------------------------------------------------------------------------------
|                     |  | HABERSHAM BANCORP
(Registrant)                                                                                 
|                     |  |                                                                                                                
|Date August 14, 2003 |  | /S/ Annette Banks                                                                                              
|                     |  |                                                                                                                
|                     |  | Chief Financial Officer
(for the Registrant and as the
Registrants principal financial and
accounting officer)