SECURITIES AND EXCHANGE COMMISSION


Washington, D. C. 20549





FORM 10-Q





T QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE


SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended March 31, 2009





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 Number)





282 Historic Highway 441 North, P. O. Box 1980, Cornelia, Georgia

30531(Address of principal executive offices)

(Zip Code)





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





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





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





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


Yes oNo T





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


Yes oNo T





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


Yes TNo o





Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).


Yes oNo o





Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Exchange Act Rule 12b-2:


Large accelerated filer o

Accelerated filer oNon-accelerated filer o

Smaller reporting company T


(do not check if a smaller reporting company)





Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).


Yes o  No T





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


2,818,593 shares, common stock, $1.00 par value, as of May 14, 2009.







1





Item. 1   Financial Statements





HABERSHAM BANCORP AND SUBSIDIARIES


CONDENSED CONSOLIDATED BALANCE SHEETS


(dollars in thousands)





ASSETS

MARCH 31, 2009
(unaudited)


DECEMBER 31,2008
(audited)Cash and due from banks

$
13,201


$
13,640Federal funds sold


10,623



620Total cash and cash equivalents


23,824



14,260Investment securities available for sale


98,915



97,278Investment securities held to maturity (estimated fair value of $1,042 at March 31, 2009 and $1,053 at December 31, 2008)


1,022



1,025Other investments


2,598



3,334Loans held for sale


665



-Loans


321,884



322,775Less allowance for loan losses


(11,223
)


(12,168
)Loans, net


310,661



310,607Premises and equipment, net


19,218



19,479Other real estate


32,309



27,337Cash surrender value of life insurance


10,033



9,936Accrued interest receivable


1,890



2,222Income tax receivable


2,825



2,504Other assets


8,485



6,887TOTAL ASSETS

$
512,445


$
494,869LIABILITIESNoninterest-bearing deposits

$
35,712


$
29,664Money market and NOW accounts


83,723



77,638Savings


39,287



43,180Time deposits, $100,000 and over


110,588



102,391Other time deposits


147,509



140,015Total deposits


416,819



392,888Short-term borrowings


757



760Federal funds purchased and securities sold under repurchase agreements


11,504



16,384Federal Home Loan Bank advances


38,000



38,000Accrued interest payable


3,090



2,805Other liabilities


1,618



2,034TOTAL LIABILITIES


471,788



452,871CommitmentsSTOCKHOLDERS’ EQUITYPreferred stock; 10,000,000 shares authorized; 3,000 shares issued and outstanding


2,978



2,978Common Stock, $1.00 par value, 10,000,000 shares authorized; 2,818,593 shares issued and outstanding


2,819



2,819Additional paid-in capital


13,490



13,490Retained earnings


20,818



22,518Accumulated other comprehensive income


552



193TOTAL STOCKHOLDERS’ EQUITY


40,657



41,998TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$
512,445


$
494,869





See notes to unaudited condensed consolidated financial statements.





2





HABERSHAM BANCORP AND SUBSIDIARIES


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


(Uaudited) For the Three-Month Periods Ended March 31, 2009 and 2008


(dollars in thousands, except per share amounts)




Three Months endedMarch 31,2009


2008INTEREST INCOMELoan interest and fees on loans

$
4,516


$
6,311Taxable investment securities


1,013



858Tax exempt securities


147



287Federal funds sold


7



69Other


4



78TOTAL INTEREST INCOME


5,687



7,603INTEREST EXPENSETime deposits, $100,000 and over


1,051



1,470Other deposits


1,681



1,847Short-term and other borrowings, primarily FHLB advances


485



690TOTAL INTEREST EXPENSE


3,217



4,007NET INTEREST INCOME


2,470



3,596Provision for loan losses


1,780



423NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES


690



3,173NONINTEREST INCOMEMortgage origination income


42



180Service charges on deposits


253



248Other service charges and commissions


59



69Investment securities gains


58



127Gain on sale and impairment of other investments, net


20



-Other income


492



533Total noninterest income


924



1,157NONINTEREST EXPENSESalary and employee benefits


2,059



2,381Occupancy


715



601Other real estate expense


292



133Computer services


172



145Telephone


112



119Leased equipment


128



120General and administrative expense


986



968Total noninterest expense


4,464



4,467LOSS BEFORE INCOME TAXES


(2,850
)


(137
)Income tax benefit


1,195



196NET (LOSS) EARNINGS

$
(1,655
)

$
59Net (loss) earnings per common share – Basic

$
(.60
)

$
.02Net (loss) earnings per common share – Diluted

$
(.60
)

$
.02Weighted average number of common shares outstanding


2,818,593



2,818,593Weighted average number of common and common equivalent shares outstanding


2,818,593



2,818,593Dividends per share

$
-


$
.10





See notes to unaudited condensed consolidated financial statements.





3





HABERSHAM BANCORP AND SUBSIDIARIES


CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)


(Unaudited) For the Three-Month Periods Ended March 31, 2009 and 2008


(dollars in thousands)





Three Months endedMarch 31,2009


2008NET (LOSS) EARNINGS

$
(1,655
)

$
59OTHER COMPREHENSIVE INCOME (LOSS):Unrealized holding gains on investment securities available for sale arising during the period


572



559Unrealized holding gains (losses) on derivative financial instruments classified as cash flow hedges, arising during the period


30



(121
)Reclassification adjustment for realized gains on  investment securities available for sale


(58
)


(127
)Total other comprehensive income, before tax


544



311INCOME TAXES RELATED TO OTHER COMPREHENSIVE INCOME:Unrealized holding gains on investment securities available for sale arising during the period


(194
)


(190
)Unrealized holding (gains) losses on derivative financial instruments classified as cash flow hedges, arising during the period


(11
)


41Reclassification adjustment for realized gains on investment securities available for sale


20



43Total income taxes related to other comprehensive income


(185
)


(106
)Total other comprehensive income, net of tax


359



205Total comprehensive (loss) income

$
(1,296
)

$
264





See notes to unaudited condensed consolidated financial statements.





4





HABERSHAM BANCORP AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited) For the Three-Month Periods Ended March 31, 2009 and 2008


(dollars in thousands)




Three MonthsEnded March 31,2009


2008CASH FLOWS (USED BY) PROVIDED BY OPERATING ACTIVITIES

$
(2,118
)

$
1,794CASH FLOWS FROM INVESTING ACTIVITIES,Investment securities available for sale:Proceeds from maturity


2,208



1,536Proceeds from sales and calls


6,628



20,050Purchases


(9,960
)


(27,952
)Investment securities held to maturity:Proceeds from maturity


3



5Other investments:Proceeds from sale


759



75Purchases


(2
)


-Net (increase) decrease in loans


(7,173
)


5,405Purchases of premises and equipment


(41
)


(778
)Capitalized completion costs of other real estate


(433
)


(491
)Proceeds from sale of other real estate


690



503Net cash used by investing activities


(7,321
)


(1,647
)CASH FLOWS FROM FINANCING ACTIVITIES,Net increase (decrease) in deposits


23,931



12,428Net increase (decrease) in short-term borrowings


(3
)


(48
)Net (decrease) increase in federal funds purchased and securities sold under repurchase agreements


(4,880
)


(5,665
)Cash dividends paid


(45
)


(282
)Net cash provided by financing activities


19,003



6,433Increase in cash and cash equivalents


9,564



6,580CASH AND CASH EQUIVALENTS:  BEGINNING OF PERIOD


14,260



22,385CASH AND CASH EQUIVALENTS:  END OF PERIOD

$
23,824


$
28,965SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Other real estate acquired through loan foreclosures

$
5,339


$
3,860Change in components of other comprehensive income

$
359


$
205





See notes to unaudited condensed consolidated financial statements.





5





HABERSHAM BANCORP AND SUBSIDIARIES


Notes to Unaudited 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 2008 consolidated financial statements and notes thereto, included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2008.





Certain reclassifications have been made to the 2008 financial statement presentation to correspond to the current year’s format.





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, 2008.  The Company has consistently followed those policies in preparing this report.





3.
Other Comprehensive Income





Other comprehensive income for the Company consists of items recorded directly in equity under Statement of Financial Accounting Standards (“SFAS”) No. 115, “Accounting for Certain Investments in Debt and Equity Securities” in addition to the net of tax fair value of cash flow hedges.  Investment securities
classified as available for sale are carried at fair value with the related unrealized gain or loss, net of deferred income taxes included as a separate component of stockholders’ equity.  At March 31, 2009, fair value of the available for sale investment securities increased approximately $514,000 when compared to the fair value at December 31, 2008.  The corresponding equity component of unrealized gain and loss on available for sale securities, net of tax, also increased approximately
$340,000.  These changes were the results of movements in the bond market as it responds to interest rate changes in the market.  At March 31, 2009, fair value of the cash flow hedges increased approximately $30,000 when compared to the fair value at December 31, 2008.  The corresponding equity component of unrealized holding gains on derivative financial instruments classified as cash flow hedges, net of tax, also increased approximately $19,000.





4.
Net Earnings Per Share





Basic earnings (loss) per share is computed by dividing net earnings (loss) less dividends paid on preferred stock by the weighted average of common shares outstanding.  Diluted earnings (loss) per share is computed by dividing net earnings (loss) less dividends paid on preferred stock by the weighted average of common shares outstanding
plus common share equivalents resulting from dilutive stock options, determined using the treasury stock method.  Options on 71,250 and 103,500 shares were not included in the diluted (loss) per share computations for the three months ended March 31, 2009 and 2008, respectively, as they were antidilutive.





6





The reconciliation of the amounts used in the computation of earnings (loss) per share for the three-month periods ended March 31, 2009 and 2008 is shown below.





(dollars in thousands, except share and per share amounts)

Three Months ended
March 31, 2009


Three Months ended
March 31, 2008Net (loss) earnings

$
(1,655
)

$
59Less dividends on preferred stock


(45
)


-Net (loss) earnings available to common shareholders

$
(1,700
)

$
59Weighted average common shares outstanding


2,818,593



2,818,593(Loss) earnings per share:Basic

$
( .60
)

$
.02Diluted

$
( .60
)

$
.02





5.
Nonperforming Assets





Nonperforming assets consist of nonaccrual loans, accruing loans 90 days past due and otherreal estate owned. Accrual of interest is discontinued
when either principal or interest becomes 90 days past due, (unless the loan is both well secured and in the process of collection), or when in management’s opinion, reasonable doubt exists as to the full collection of interest or principal.  Income on such loans is then recognized only to the extent that cash is received and when the future collection of principal is probable.  Our Other Real Estate Owned (“OREO”) policies and procedures provide that a foreclosure appraisal
be obtained which provides a fair market value and a disposition (quick sale) value.  The disposition value is the valuation used to place the property into OREO.  Any difference between the disposition value and the loan balance is recommended for charge-off.  When the property is transferred to OREO, the property is listed with a realtor to begin sales efforts.





The following summarizes nonperforming assets:





(dollars in thousands)

March 31, 2009


December 31, 2008Accruing loans 90 days past due

$
126


$
802Nonaccrual loans


52,099



56,055Other real estate


32,309



27,337Total nonperforming assets

$
84,534


$
84,194





6.
Fair Value Measurements and Disclosures





Effective January 1, 2008, the Company adopted Financial Accounting Standards Board (“FASB”) Statement   No.157, Fair Value Measurements (“SFAS No. 157”), which provides a framework for measuring fair value under  generally accepted accounting
principles.  SFAS No. 157 applies to all financial instruments that are being measured  and reported on a fair value basis.





The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures.  Securities available-for-sale and interest rate swap derivatives are recorded at fair value on a recurring basis.  Additionally, from time to time, the Company may be
required to record at fair value other assets on a nonrecurring basis, such as impaired loans and foreclosed real estate.  Additionally, the Company is required to disclose, but not record, the fair value of other financial instruments.





7





Fair Value Hierarchy





Under SFAS No.157, the Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.  These levels are:





Level 1 –
Valuation is based upon quoted prices for identical instruments traded in active markets.


Level 2 –
Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.


Level 3 –
Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability.  Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.





Following is a description of valuation methodologies used for assets and liabilities which are either recorded or disclosed at fair value.





Cash and Cash Equivalents





For disclosure purposes for cash, due form banks and Federal funds sold, the carrying amount is a reasonable estimate of fair value.





Investment Securities Available for Sale





Investment securities available for sale are recorded at fair value on a recurring basis.  Fair value measurement is based upon quoted prices, if available.  If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value
of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions.  Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange and U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter market funds.  Level 2 securities include mortgage-backed securities issued by government sponsored enterprises and municipal bonds.  Securities
classified as Level 3 include asset-backed securities in less liquid markets.





Investment Securities Held to Maturity





For disclosure purposed the fair value of investment securities held to maturity is based on quoted market prices and dealer quotes.





Other Investments





For disclosure purposes the carrying value of other investments approximate fair value.





Loans and Mortgage Loans Held for Sale





The Company does not record loans at fair value on a recurring basis.  However, from time to time, a loan is considered impaired and a specific allocation is established within the allowance for loan losses.





Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired.  Once a loan is identified as individually impaired, management measures impairment in accordance with SFAS No.114,  Accounting
by Creditors for Impairment of a Loans, (“SFAS No.114”).  The fair value of impaired loans is estimated using one of three methods, including collateral value, market value of similar debt, and discounted cash flows.  Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans.  In accordance with SFAS No.157, impaired loans where an allowance is
established based on the fair value of collateral require classification in the fair value hierarchy.  When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the impaired loan as nonrecurring Level 2.  When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the impaired loan
as nonrecurring Level 3.





8





For disclosure purposes, the fair value of fixed rate loans which are not considered impaired, is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings.  For unimpaired variable rate loans, the carrying amount is a reasonable estimate
of fair value for disclosure purposes.





Loans held for sale are recorded at the lower of cost or market value.  The fair value of loans held for sale is based on what secondary markets are currently offering for portfolios with similar characteristics.  As such, the Company classifies loans held for sale subject to nonrecurring fair value adjustments as Level
2.





Other Real Estate





Other real estate properties are adjusted to fair value upon transfer of the loans to other real estate.  Subsequently, other real estate assets are carried at the lower of carrying value or fair value.  Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation
of the value of the collateral.  When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the other real estate as nonrecurring Level 2.  When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market prices, the Company records the other real estate asset as nonrecurring Level 3.





Cash Surrender Value of Life Insurance





For disclosure purposes the carrying value of the cash surrender value of life insurance reasonable approximates its fair value.





Derivative Instruments and Hedging Activities





For derivative instruments, fair value is estimated as the amount that the Company would receive or pay to terminate the contracts at the reporting date, taking into account the current unrealized gains or losses on open contracts.





Deposits





For disclosure purposes, the fair value of demand deposits, savings accounts, NOW accounts and money market deposits is the amount payable on demand at the reporting date, while the fair value of fixed maturity certificates of deposit is estimated by discounting the future cash flows using current rates at which comparable certificates would
be issued.





Federal Funds Purchased and Retail Repurchase Agreements





For disclosure purposes the carrying amount for Federal funds purchased and retail repurchase agreements is a reasonable estimate of fair value due to the short-term nature of these financial instruments.





FHLB Advances





For disclosure purposes the fair value of the FHLB fixed rate borrowing is estimated using discounted cash flows, based on the current incremental borrowing rates for similar types of borrowing arrangements.





Commitments to Extend Credit and Standby Letter of Credit





Because commitments to extend credit and standby letters of credit are made using variable rates and have short maturities, the carrying value and the fair value are immaterial for disclosure.




9




Assets Recorded at Fair Value on a Recurring Basis





The tables below presents the recorded amount of assets (liabilities) measured at fair value on a recurring basis as of March 31, 2009 and December 31, 2008.





March 31, 2009(dollars in thousands)

Total


Level 1


Level 2


Level 3Investment securities  available for sale

$
98,915



2,375



96,540



-Interest rate swap


(65
)


-



(65
)


-Total net assets at fair value

$
98,850



2,375



96,475



-





December 31, 2008(dollars in thousands)

Total


Level 1


Level 2


Level 3Investment securities  available for sale

$
97,277



8,411



88,866



-Interest rate swap


(95
)


-



(95
)


-Total net assets at fair value

$
97,182



8,411



88,771



-





Assets Recorded at Fair Value on a Nonrecurring Basis





The Company may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with U.S. generally accepted accounting principles.  These include assets that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period.  Assets
measured at fair value on a nonrecurring basis are included in the table below as of March 31, 2009 and December 31, 2008.





March 31, 2009(dollars in thousands)

Total


Level 1


Level 2


Level 3Other real estate

$
32,309



-



32,309



-Loans


64,049



-



64,049



-Total

$
96,358



-



96,358



-





December 31, 2008(dollars in thousands)

Total


Level 1


Level 2


Level 3Other real estate

$
27,337



-



27,337



-Loans


58,660



-



58,660



-Total

$
85,997



-



85,997



-




10




The carrying amount and estimated fair values of the Company’s assets and liabilities which are required to be either disclosed or recorded at fair value at March 31, 2009 and December 31, 2008:





March 31, 2009


December 31, 2008Carrying
Amount


Fair
Value


Carrying
Amount


Fair
ValueAssets:Cash and cash equivalents

$
23,824



23,824



14,260



14,260Investment securities available for sale


98,915



98,915



97,278



97,278Investment securities held to maturity


1,022



1,042



1,025



1,053Other investments


2,598



2,598



3,334



3,334Loans held for sale


665



665



-



-Loans, net


310,661



310,821



310,607



311,010Cash surrender value of  life insurance


10,033



10,033



9,936



9,936Liabilities:Deposits

$
416,819



419,916



392,888



396,813Short-term borrowings


757



757



760



760Federal funds purchased and securities sold under repurchase agreements


11,504



11,504



16,384



16,384FHLB advances


38,000



39,284



38,000



39,280Interest rate swaps


65



65



95



95








Limitations





Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial statement element. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly
affect the estimates.





Fair value estimates included herein are based on existing on- and off-balance-sheet financial instruments without attempting to estimate the value of anticipated future business and the fair value of assets and liabilities that are not required to be recorded or disclosed at fair value like premises and equipment. In addition, the tax ramifications
related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.





7.
Recent Accounting Pronouncements





In April 2009, the FASB issued FSP FAS 141 (R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies.  This FASB Staff Position amends and clarifies SFAS No. 141 (R), Business Combinations, to address application issues
on the initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination.  This statement is effective for financial statements issued for fiscal years beginning after December 15, 2008.  The Company cannot determine what impact this will have until the transactions occur.





In April 2009, the FASB issued FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly.  This FASB Staff Position provides additional guidance for estimating
fair value in accordance with SFAS No. 157, Fair Value Measurements, when the volume and level of activity for the asset or liability have significantly decreased.  It also includes guidance on identifying circumstances that indicate a transaction is not orderly.  It emphasizes that even if there has been a significant decrease in the volume and level of activity for the asset or liability and regardless of the valuation technique used, the objective of a fair value measurement remains the same.  Fair
value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions.  This FASB Staff Position is effective for interim and annual reporting periods ending after June 15, 2009 with early adoption being permitted for periods ending after March 15, 2009 and shall be applied prospectively.  The Company does not anticipate the new accounting principle to have a material effect
on its financial position or results of operations.





11





In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than- Temporary Impairments.  This FASB Staff Position amends the other-than-temporary impairment guidance in U.S. GAAP for debt securities to make the guidance more operational and
to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements and does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. This FASB Staff Position is effective for interim and annual reporting periods ending after June 15, 2009 with early adoption being permitted for periods ending after March 15, 2009.  The Company does not anticipate the new accounting principle
to have a material effect on its financial position or results of operations.





In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments.This FASB Staff Position amends SFAS No. 107, Disclosures about Fair Value of Financial Instruments,
to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements.  It also amends APB No. 28, Interim Financial Reporting, to require those disclosures in summarized financial information at interim reporting periods.  This FASB Staff  Position is effective for interim and annual reporting periods ending after June 15, 2009 with early
adoption being permitted for periods ending after March 15, 2009.  The Company does not anticipate the new accounting principle to have a material effect on its financial position or results of operations.





12





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”).  Advantage Insurers offers a full line of property, casualty
and life insurance products.  Neither the Advantage Group nor Advantage Insurers comprises a significant portion of the financial position, results of operations, or cash flows of the Company and as a result, management’s discussion and analysis, which follows relates primarily to Habersham Bank.





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





Executive Summary





Habersham Bancorp reported a first quarter loss of $1.7 million or $.60 per diluted share when compared to first quarter earnings of $59,000 or $.02 per diluted share in 2008.





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





Interest income for the first quarter of 2009 and 2008 was approximately $5.7 million and $7.6 million respectively, representing a decrease of approximately 25.20% when comparing the first quarter of 2009 to the same period of 2008. The decrease resulted from the effect of the falling prime interest rate on our outstanding variable rate loans,
decreases in average loan balances and increases in the number and balances of loans in nonaccrual status.





Interest expense for the first quarter of 2009 and 2008 was approximately $3.2 million and $4.0 million respectively, representing a decrease of approximately 19.72% when comparing the first quarter of 2009 to the same period of 2008.   This decrease resulted from declining rates paid on deposit and borrowing balances for the
three-month periods ended March 31, 2009 when compared to the same periods in 2008.





Net interest income before provision for loan loss for the first quarter of 2009 decreased approximately $1.1 million or 31.31%, when compared to the same period in 2008 as a result of the items discussed above.





Declines in the U.S. economy and our local real estate markets contributed to our increasing provisions for loan losses.  As delinquencies and foreclosures continue to increase, Habersham Bank recorded provisions to its allowance for loan losses during the first quarters of 2009 and 2008 of approximately $1.8 million and $423,000,
respectively.





The net interest margin for the first quarter of 2009 was 2.38% compared to 3.31% for the same period in 2008.  Two factors which impact the net interest margin are average interest-earning assets, which decreased approximately $16.9 million, and average interest-bearing liabilities, which increased approximately $21.6 million, when
comparing the first quarter of 2009 to the first quarter of 2008.





The Company’s total assets increased $17.5 million, or 3.54%, to $512.4 million at March 31, 2009 from $494.9 million at December 31, 2008.   This increase resulted from net increases in cash and cash equivalents, in other real estate, in investment securities portfolios and in the total loan portfolios of approximately
$9.6 million, $5.0 million, $898,000 and $719,000, respectively.





13





Total liabilities (deposits, borrowings and other liabilities) at March 31, 2009 increased approximately $18.9 million or 4.18% from $452.9 million at December 31, 2008 to $471.8 million at March 31, 2009.   Time deposit account balances and NOW and money market account balances and noninterest bearing account balances increased
approximately $15.7 million, $6.1 million and $6.0 million, respectively, and were offset by decreases in other borrowings and saving account balances of approximately $4.9 million and $3.9 million, respectively.





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.  Factors 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 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) risks involved in making and integrating acquisitions and expanding into new geographic markets; (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.





Material Changes in Financial Condition





The Company’s total assets increased $17.5 million, or 3.54%, to $512.4 million at March 31, 2009 from $494.9 million at December 31, 2008.   This increase resulted from net increases in cash and cash equivalents, in other real estate, in investment securities portfolios and in the total loan portfolios of approximately
$9.6 million, $5.0 million, $898,000 and $719,000, respectively.





Cash and cash equivalents


The increase in cash and cash equivalents, primarily in federal funds sold, of approximately $9.6 million, resulted from customer activity within deposit accounts during the first quarter of 2009.





14





Investment securities


During the first quarter of 2008, purchases of investment securities available for sale totaled approximately $10.0 million, offset by maturities, calls and sales of approximately $8.8 million. Investment securities held to maturity decreased approximately $3,000 by payments received during the first quarter of 2009.  The calls and
sales within the investment securities portfolio generated net gains of approximately $58,000.  The unrealized gain on the investment securities available for sale portfolio increased approximately $514,000 during the first quarter of 2009.  Other   investments of $639,000 were sold resulting in gains of approximately $120,000, which were offset by an impairment write off of $100,000 in another investment.





Loans


Loans held for sale increased approximately $665,000 and the total loan portfolio decreased approximately $891,000 when comparing balances at March 31, 2009 to December 31, 2008.  Decreases occurring in the real estate construction lending, commercial and consumer lending portfolios totaling approximately $4.6 million, $672,000 and
$781,000, respectively, were offset by increases in the residential and commercial properties portfolio totaling approximately $3.2 million and $1.9 million, respectively.    The allowance for loan losses decreased approximately $945,000 during the first quarter of 2009.  See a more detailed discussion in “Asset Quality”.





Other real estate


Other real estate balances increased approximately $5.0 million during the first quarter of 2009.  This increase was the result of foreclosures and additional expenses to build out residential construction projects totaling approximately $5.3 million and $433,000, offset by sales of ORE properties totaling approximately $800,000.    See
a more detailed discussion in “Asset Quality”.





Deposits


Total deposits increased approximately $23.9 million when comparing balances at March 31, 2009 to December 31, 2008 balances, with increases occurring in time deposits, noninterest bearing deposits and NOW and money market account balances of approximately $15.7  million, $6.0 million, $6.1 million, respectively, offset by a decease
in savings account balances of approximately $3.9 million.





Borrowings


Total borrowings decreased approximately $4.9 million when comparing March 31, 2009 balances to December 31, 2008 with decreases occurring primarily in federal funds purchased and securities sold under repurchase agreements.





Material Changes in Results of Operations





Net interest income is the largest single source of income for the Company.  Management strives to attain a level of earning asset growth while providing a net yield on earning assets that will cover overhead and other costs and provide a reasonable return to our stockholders.  Net interest income is affected by interest
income from loans, investment securities and federal funds sold offset by interest paid on deposits and borrowings.  The following table compares the weighted average tax equivalent yields for loans, investment securities and federal funds sold and the weighted average rates for deposits and borrowings for the first quarter of 2009 and 2008.





Three Months endedMarch 31,2009


2008INTEREST YIELDS EARNED:Loans


5.64
%


7.40
%Investment securities


4.87
%


5.33
%Federal funds sold


.34
%


3.31
%INTEREST RATES PAID:Deposits


2.93
%


3.75
%Borrowings


3.68
%


4.44
%





15





Total interest income for the first quarter of 2009 decreased approximately $1.9 million or 25.20%, when compared to the first quarter of 2008.   The decrease in interest income is the result of the following:  1) Approximately $43.7 million or 72.2% of the loan portfolio is a variable rate loan product which may reprice
daily, monthly, quarterly or annually.  As the prime rate decreases, as it has in the periods being discussed, the loan yields decrease accordingly.  2) Average loan balances also decreased approximately $16.1 million or 4.44% due to maturities, payouts and foreclosures when comparing the first quarter periods ending March 31, 2009 and 2008.  3)  Nonaccrual loans at March 31, 2009 increased approximately $28.8 million or 123.43%, when compared nonaccrual loans at March
31, 2008.    Interest income is reduced as a result of the number and balances of loans in nonaccrual status.  See a more detailed discussion in “Asset Quality”.





Total interest expense for the first quarter of 2009 decreased approximately $790,000 or 19.71% when compared to the first quarter of 2008.  Average balances in interest bearing accounts increased approximately $21.6 million when comparing the first quarter of 2009 to the first quarter of 2008.  During the same period,
the average interest rate paid on deposits decreased approximately .82%.   Rates on savings and money market accounts, interest bearing demand deposits, and time deposits decreased approximately 1.34%, .96% and 1.03%, respectively.   Average balances in other borrowings decreased approximately $8.9 million when comparing the first quarter of 2009 to the first quarter of 2008 with a decrease in the average rate paid on borrowings of approximately .76%.





Net interest income before provision for loan losses decreased approximately $1.1 million or 31.31% for the first quarter of 2009 when compared to the same period in 2008 as a result of the items discussed above.





The net interest margin of the Company, net interest income divided by average earning assets, was 2.38% for the first quarter of 2009 compared to 3.31% for the first quarter of 2008.





A provision for the allowance for loan losses for the first quarter of 2009 and 2008 totaled approximately $1.8 million and $423,000, respectively.





Noninterest income decreased $233,000 or 20.14% for the first quarter of 2009 over the same period in 2008. Decreases occurring in mortgage origination income, in net gains realized on calls and sales within the investment securities portfolio, other income
and in service charges totaled approximately $138,000, $69,000, $41,000 and $5,000, respectively, during the first quarter of 2009.  These decreases were offset by a gain on the sale of other investments of approximately $120,000, which were offset by an impairment write off of $100,000 in another investment.





Noninterest expense decreased $3,000 or .06% for the first quarter of 2009 over the same period in 2008. Deceases in salary and employee benefits of approximately $322,000 were offset by increases in other real estate expenses, occupancy, computer services
and general and administrative expenses totaling approximately $159,000,  $114,000, $27,000 and $11,000, respectively.   The decrease in salary and employee benefits resulted from ongoing efforts to decrease salary expense through reduction in staff and in hours worked.  Other real estate expense includes costs to maintain an increasing number of foreclosed properties.   Increases in occupancy related to charges for the Flowery Branch Office in Hall County which
opened during the fourth quarter of 2008.  The increase in general and administrative expenses resulted from increased expenses in legal and professional services and FDIC insurance totaling approximately $93,000 and $68,000, respectively, offset by decreases in various other expense accounts of approximately $150,000.





An income tax benefit of approximately $1.2 million was recorded for the three months ended March 31, 2009 compared to an income tax benefit of approximately $196,000 for the three months ended March 31, 2008.   Tax-exempt income of approximately $281,000 was 9.86% of pre-tax loss for the first quarter of 2009 when compared
to 297.08% of pre-tax income for the first quarter of 2008.




16




Asset Quality




The allowance for loan losses represents a reserve for possible losses in the loan portfolio.  The adequacy of the allowance for loan losses is evaluated monthly based on a review of all significant loans, with particular emphasis on impaired, nonaccruing, past due and other loans that management believes require special attention.  The
determination of the allowance for loan losses is subjective and based on consideration of a number of factors and assumptions.





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





For loans considered impaired, specific allowances are provided in the event that the specific collateral analysis on each problem loan indicates that the liquidation of the collateral would not result in repayment of these loans if the loan is collateral dependent or if the present value of expected future cash flows on the loan is less than
the balance.  In addition to these allocated allowances, at any point in time, the Company may have an unallocated component of the allowance.  Unallocated portions of the allowance are due to a number of quantitative and qualitative factors, such as changes in the condition of impaired loans and credit concentrations.  All nonaccrual loans are considered impaired.





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 are an element considered for all loans.  Real estate loans are impacted by market conditions regarding the value
of the underlying property used as collateral.  Commercial loans are also impacted by the management of the business as well as economic conditions. The Company also makes unsecured loans from time to time. The risk to the Company is greater for unsecured loans as the ultimate repayment of the loan is only dependent on the borrower’s ability to pay.  The balance of unsecured loans at March 31, 2009 was approximately $13.7 million compared to $14.2 million at December 31, 2008.





At March 31, 2009 and December 31, 2008, the ratio of the allowance for loan losses to total loans was 3.49% and 3.77%, respectively.   For the first quarters of 2009 and 2008, the provision for loan losses totaled approximately $1.8 million and $423,000, respectively.





Net charge-offs for the first quarter of 2009 totaled approximately $2.7 million compared to net charge-offs totaling approximately $321,000 for the first quarter of 2008 as detailed below:





(dollars in thousands)

No.


March 31,
2009


No.


March 31,
2008Charge-offs:Commercial


4


$
359



1


$
25Real Estate


5



2,308



6



276Consumer


16



99



14



38Total Charge-offs


25



2,766



21



339Recoveries:Commercial






3







1Real Estate






21







-Consumer






18







18Total Recoveries






42







19Net Charge-offs





$
2,724






$
320





17





Nonperforming assets consist of nonaccrual loans, accruing loans 90 days past due and other real estate owned. The following summarizes nonperforming assets:





(dollars in thousands)

March 31,
2009


December 31,
2008Accruing loans 90 days past due

$
126


$
802Nonaccrual loans


52,099



56,055Other real estate


32,309



27,337Total nonperforming assets

$
84,534


$
84,194





Nonperforming assets increased approximately $340,000 or .40% from December 31, 2008 to March 31, 2009.   See the discussion that follows within this section for a description of the assets that comprised this increase.





Loans classified as 90 days past due decreased $677,000 or 84.34% from December 31, 2008 to March 31, 2009.   The increase is the net result of the following changes:





(dollars in thousands)Balance at December 31, 2008

$
802New loans classified to 90 days past due status


126Payments received


(25
)Charged-off


(5
)Forebearance & modification agreements


(772
)Balance at March 31, 2009

$
126





The following summarizes accruing loans 90 days past due at March 31, 2009 and December 31, 2008:





(dollars in thousands)

March 31,
2009


December 31,
2008Real estate secured construction loans

$
-


$
25Residential loans


126



772Consumer loans


-



5Balance at March 31, 2009

$
126


$
802





Impaired loans consist of loans on nonaccrual status.  The increase is the net result of the following changes:





(dollars in thousands)Balance at December 31, 2008

$
56,055Loans reclassified to nonaccrual status in 2009


11,267Advances


173Payments received on nonaccrual loans during 2009


(7,546
)Nonaccrual loans charged-off during 2009


(2,253
)Nonaccrual loans reclassified to other real estate


(5,339
)Nonaccrual loan reclassified to repossessions


(100
)Nonaccrual loans reclassified to accrual status in 2009


(158
)Balance at March 31, 2009

$
52,099





18





Nonaccrual loans may be reclassified to accrual status upon interest and payments being brought current.





Additions to loans on nonaccrual status consisted of the following:





(dollars in thousands)




March 31,
2009Real Estate – construction & development loans


15


$
9,641Real Estate – residential loans


6



1,024Real Estate – commercial


3



343Commercial loans


4



231Consumer loans


3



28Total nonaccrual loans


31


$
11,267





The following summarizes nonaccrual loans at March 31, 2009 and December 31, 2008:





(dollars in thousands)

Number


March 31,
2009


Number


December 31,
2008Real Estate – construction & development loans


56


$
47,577



50


$
52,443Real Estate – residential loans


13



1,252



11



313Real Estate – commercial


6



2,972



4



2,689Commercial loans


4



231



4



459Consumer loans


6



67



23



151Total nonaccrual loans


85


$
52,099



92


$
56,055





Other real estate at March 31, 2009 increased approximately $5.0 million or 18.19% when compared to December 31, 2008. The following summarizes other real estate at March 31, 2009 and December 31, 2008:





(dollars in thousands)

Number of Properties


March 31,
2009


Number of Properties


December 31,
2008Commercial properties


43


$
19,928



41


$
15,715Residential properties


3



1,423



2



673Vacant lots


203



10,795



207



10,786Residential construction properties


1



163



1



163Total other real estate


250


$
32,309



251


$
27,337





The increase in other real estate is the net result of the following changes:





(dollars in thousands)Balance at December 31, 2008

$
27,337Foreclosed property


5,339Additions to complete


433Sales of other real estate


(800
)Balance at March 31, 2009

$
32,309





Our Other Real Estate Owned (“OREO”) procedures provide that a foreclosure appraisal be obtained which provides a fair market value and a disposition (quick sale) value.  The disposition value is the valuation used to place the property into OREO.  Any difference between the disposition value and the loan balance
is recommended for charge-off.  Once the property is in OREO, the property is listed with a realtor to begin sales efforts.   The appraised value for the other real estate properties was approximately $36.8 million at March 31, 2009.





19





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 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.





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





At March 31, 2009 and December 31, 2008, the Company had additional line of credit commitments, subject to available collateral, available as shown below:





March 31,
2009


December 31,
2008(dollars in thousands)

Total Available


Total AvailableFederal discount window

$
14,885



24,630Federal funds line


10,000



10,000Retail repurchase agreement


5,000



921Retail repurchase agreement


7,000



-Retail repurchase agreement


5,000



3,950





The Company entered into a repurchase agreement for a long term advance of $5.0 million during the first quarter of 2008 which matures in January of 2018.  The Company has approximately $6.5 million outstanding in commercial sweep accounts at March 31, 2009.   In addition, the Company has a total available line of
$38.0 million, subject to available collateral, from the Federal Home Loan Bank.  The Company had $38.0 million in advances on this line at March 31, 2009.





Also, liquidity as a percent of deposits and total liabilities, with a target of 10%, is recommended to be calculated and monitored daily.   Based on these guidelines, the Bank’s liquidity ratios as a percent of deposits and total liabilities follow:





March 31,
2009

December 31,
2008Liquidity as a percent of deposits

18.08%

16.70%Liquidity as a percent of total liabilities

16.01%

14.72%








20





At March 31, 2009, 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 March 31, 2009 follow:





Habersham

HabershamBank

BancorpTier 1

8.67%

9.57%Total Capital

9.94%

10.83%Leverage

6.60%

7.31%





Item 3.  Quantitative and Qualitative Disclosures About Market Risk.





As of March 31, 2009, 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, 2008.  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, 2008 included in the Company’s 2008 Annual Report on Form 10K.





Item 4.  Controls and Procedures





As of the end of the period covered by this report, the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, reviewed and evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15.  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 not been any changes in the Company’s internal control over financial reporting or, to the Company’s knowledge, in other factors, during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.





PART II





OTHER INFORMATION





Item 1.  Legal proceedings.




None





Item 1.A. Risk Factors.





In addition to the other information set forth in this report, you should carefully consider the factors discussed below, as well as those included in Part I. “Item 1.A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, all of which could materially affect its business, financial
condition or future results.  The risks described below and in the Annual Report of Form 10-K are not the only risks facing the Company.  Additional risks and uncertainties not currently known to management or that management currently deems to be immaterial also may materially adversely affect the Company’s business, financial condition and/or operating results.





21





Our ability to raise capital could be limited, could affect our liquidity and could be dilutive to existing shareholders.





Current capital markets conditions are such that traditional sources of capital may not be available to us on reasonable terms if we need to raise such capital.  In such a case, there is no guarantee that we will be able to borrow funds or successfully raise additional capital at all or on terms that are favorable or otherwise not
dilutive to existing shareholders.





Volatility in the capital and credit markets, together with the current real estate slowdown, have resulted in significant pressure on the financial services industry.





We have experienced a higher level of foreclosures and losses upon foreclosure during recent periods than we have historically.  If current volatility and market conditions continue or worsen, our business, financial condition and results of operations could be materially adversely affected.  We may therefore experience
further increases in loan losses, deterioration of capital or limitations on our access to funding or capital.





The Emergency Economic Stabilization Act of 2008 (“EESA”) may not stabilize the financial services industry.





The EESA, which was signed into law on October 3, 2008, is intended to alleviate the financial crises affecting the U.S. banking system.  A number of programs are being developed and implemented under EESA.  The EESA may not have the intended effect, however, and as a result, the condition of the financial services industry
could decline instead of improve.  The failure of the EESA to improve the condition of the U.S. banking system could significantly adversely affect our access to funding or capital, the trading price of our stock, and other elements of our business, financial condition, and results of operations.





Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds





The Company did not repurchase any of its shares of common stock during the period covered by this report.





Item 3.  Defaults upon senior securities.




None





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




None





Item 5.  Other information.




None





Item 6.  Exhibits





(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.





31.1   Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.





31.2   Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.





32      Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.





22





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 May 14, 2009
/S/ Annette BanksChief Financial Officer(for the Registrant and as the
Registrant’s principal financial and
accounting officer)







23