<PAGE>   1
                     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, 1998


            ----- 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 small business issuer as specified in its charter)

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

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

2,412,267 shares, common stock, $1.00 par value, as of July 31, 1998



<PAGE>   2






Item. 1   Financial Statements

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

<TABLE>
<CAPTION>
ASSET                                                               JUNE 30, 1998           DECEMBER 31, 1997

<S>                                                                 <C>                     <C>     
Cash and due from banks                                                $ 11,419                  $ 13,068
Federal funds sold                                                        7,420                    16,740
Investment securities available for sale
 (cost of $38,550 at June 30, 1998 and
  $32,860 at December 31, 1997)                                          38,835                    33,224
Investment securities held to maturity
 (estimated market value of $13,612 at
  June 30, 1998 and $11,606 at
  December 31, 1997)                                                     13,541                    11,405

Other investments                                                         2,597                     2,168

Loans held for sale                                                      65,386                    37,510

Loans                                                                   207,075                   198,212
  Less: Allowance for loan losses                                        (2,449)                   (2,336)
                                                                       --------                  --------
    Loans, net                                                          204,626                   195,876
                                                                       --------                  --------

Intangible assets                                                         3,447                     3,584
Other assets                                                             14,810                    14,622
                                                                       --------                  --------
    TOTAL ASSETS                                                       $362,081                  $328,197
                                                                       ========                  ========

LIABILITIES
Non-interest bearing deposits                                          $ 23,159                  $ 27,036
Interest bearing deposits                                               247,853                   234,629
Short-term borrowings                                                       758                     2,627
Other borrowings                                                         42,944                    25,402
Other liabilities                                                        16,574                     8,359
                                                                       --------                  --------
    TOTAL LIABILITIES                                                   331,288                   298,053
                                                                       --------                  --------

SHAREHOLDERS' EQUITY
Common Stock, $1.00 par value,
 10,000,000 shares authorized;
  2,411,267 and 2,408,517 shares issued
  at June 30, 1998 and December 31, 1997,
  respectively                                                            2,411                     2,409
Additional paid-in capital                                                9,138                     9,109
Retained earnings                                                        19,055                    18,386
Accumulated other comprehensive income                                      189                       240
                                                                       --------                  --------
    TOTAL SHAREHOLDERS' EQUITY                                           30,793                    30,144
                                                                       --------                  --------
    TOTAL LIABILITIES AND SHAREHOLDERS'
      EQUITY                                                           $362,081                  $328,197
                                                                       ========                  ========
</TABLE>


See notes to condensed consolidated financial statements.

<PAGE>   3

HABERSHAM BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) For the Three-Month Periods Ended June 30, 1998 and 1997
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
                                                                         1998                     1997
<S>                                                                 <C>                       <C>       
INTEREST INCOME
Loans                                                               $    6,274                $    5,823
Investment securities                                                      734                       608
Other                                                                      218                       195
                                                                    ----------                ----------
  TOTAL INTEREST INCOME                                                  7,226                     6,626

INTEREST EXPENSE
Deposits                                                                 3,276                     2,682
Other                                                                      504                       423
                                                                    ----------                ----------
  TOTAL INTEREST EXPENSE                                                 3,780                     3,105

NET INTEREST INCOME                                                      3,446                     3,521
Provision for loan losses                                                  159                       110
                                                                    ----------                ----------

NET INTEREST INCOME AFTER
 PROVISION FOR LOAN LOSSES                                               3,287                     3,411

OTHER INCOME
  Gain on sale of loans                                                  2,280                       583
  Loan fee income                                                          704                       361
  Service charges on deposits                                              157                       169
  Other service charges and commissions                                     62                        60
  Securities gains (losses), net                                            14                        (5)
  Travel service income                                                    375                       311
  Other income                                                             202                       116
                                                                    ----------                ----------
    Total other income                                                   3,794                     1,595

OTHER EXPENSES
  Salary and employee benefits                                           3,955                     2,425
  Occupancy                                                                679                       581
  Travel service expense                                                   344                       314
  Computer services                                                        168                        92
  General and administrative expense                                     1,400                       863
                                                                    ----------                ----------
    Total other expense                                                  6,546                     4,275

INCOME BEFORE INCOME TAXES                                                 535                       731
Income tax expense                                                         116                       208
                                                                    ----------                ----------
NET INCOME                                                          $      419                $      523
                                                                    ==========                ==========
NET INCOME PER COMMON SHARE - BASIC                                 $      .17                $      .22
                                                                    ==========                ==========
NET INCOME PER COMMON SHARE - DILUTED                               $      .17                $      .21
                                                                    ==========                ==========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING - BASIC                                           2,411,267                 2,369,410
                                                                    ==========                ==========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING - DILUTED                                         2,507,699                 2,504,033
                                                                    ==========                ==========
</TABLE>


See notes to condensed consolidated financial statements.


<PAGE>   4

HABERSHAM BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) For the Six-Month Periods Ended June 30, 1998 and 1997
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
                                                                      1998                       1997
<S>                                                                 <C>                       <C>       
INTEREST INCOME
Loans                                                               $   12,237                $   11,490
Investment securities                                                    1,430                     1,217
Other                                                                      469                       405
                                                                    ----------                ----------
  TOTAL INTEREST INCOME                                                 14,136                    13,112

INTEREST EXPENSE
Deposits                                                                 6,447                     5,280
Other                                                                      823                     1,068
                                                                    ----------                ----------
  TOTAL INTEREST EXPENSE                                                 7,270                     6,348

NET INTEREST INCOME                                                      6,866                     6,764
Provision for loan losses                                                  318                       233
                                                                    ----------                ----------

NET INTEREST INCOME AFTER
 PROVISION FOR LOAN LOSSES                                               6,548                     6,531

OTHER INCOME
  Gain on sale of loans                                                  3,810                     1,409
  Loan fee income                                                        1,160                       589
  Service charges on deposits                                              309                       336
  Other service charges and commissions                                    123                       108
  Securities gains (losses), net                                            34                        (9)
  Travel service income                                                    660                       589
  Other income                                                             380                       245
                                                                    ----------                ----------
    Total other income                                                   6,476                     3,267

OTHER EXPENSES
  Salary and employee benefits                                           7,249                     4,594
  Occupancy                                                              1,313                       962
  Travel service expense                                                   603                       568
  Computer services                                                        300                       218
  General and administrative expense                                     2,461                     1,852
                                                                    ----------                ----------
    Total other expense                                                 11,926                     8,194

INCOME BEFORE INCOME TAXES                                               1,098                     1,604
Income tax expense                                                         236                       464
                                                                    ----------                ----------
NET INCOME                                                          $      862                $    1,140
                                                                    ==========                ==========
NET INCOME PER COMMON SHARE - BASIC                                 $      .36                $      .48
                                                                    ==========                ==========
NET INCOME PER COMMON SHARE - DILUTED                               $      .34                $      .46
                                                                    ==========                ==========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING - BASIC                                           2,410,966                 2,368,512
                                                                    ==========                ==========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING - DILUTED                                         2,507,964                 2,495,968
                                                                    ==========                ==========

</TABLE>
See notes to condensed consolidated financial statements. 


<PAGE>   5

HABERSHAM BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) For the Six-Month Periods Ended June 30, 1998 and 1997
(dollars in thousands)

<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES:                                                1998              1997
 <S>                                                                               <C>              <C>     
  Net income                                                                       $     862        $   1,140
  Adjustments to reconcile net income to net cash
     used in operating activities:
      Provision for loan losses                                                          318              233
      Provision for ORE losses                                                             -               29
      Provision for depreciation                                                         648              454
     (Gain)loss on sale of investment securities                                         (34)               9
      Gain on sale of other real estate                                                   (9)               -
      Net gain on sale of loans                                                       (3,810)          (1,409)
      Amortization of intangible assets                                                  137              116
      Deferred income tax benefit                                                        (16)             (16)
      Proceeds from sale of loans held for sale                                      139,910           98,350
      Net increase in loans held for sale                                           (164,125)        (104,017)

  Changes in assets and liabilities:
     Increase in interest receivable                                                     (97)             (64)
     Increase in other assets                                                           (207)            (101)
     Decrease in interest payable                                                       (149)            (559)
     Increase in other liabilities                                                     8,380            3,622
                                                                                   ---------        ---------
  Net cash used in operating activities                                              (18,192)          (2,213)
                                                                                   ---------        ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Investment securities available for sale:
    Proceeds from maturity                                                             4,537            7,217
    Proceeds from sale                                                                 2,564            4,334
    Purchases                                                                        (12,758)          (8,028)
  Investment securities held to maturity:
    Proceeds from maturity                                                             1,075            2,477
    Purchases                                                                         (3,211)            (894)
  Other investments:
    Proceeds from sale                                                                 1,247            2,876
    Purchases                                                                         (1,675)            (699)
  Purchase of Cornelia Insurance Agency, net of
    cash and cash equivalents acquired                                                     -             (380)
  Loans:
    Proceeds from sale                                                                21,950           21,453
    Net increase in loans                                                            (30,991)         (19,117)
  Purchases of premises and equipment                                                   (538)          (2,309)
  Proceeds from sale of premises and equipment                                            62                -
  Proceeds from sale of other real estate                                                103              543
                                                                                   ---------        ---------
    Net cash (used in) provided by
     investing activities                                                            (17,635)           7,473
                                                                                   ---------        ---------
</TABLE>

<PAGE>   6


HABERSHAM BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(Unaudited) For the Six-Month Periods Ended June 30, 1998 and 1997
(dollars in thousands)

<TABLE>
<CAPTION>
<S>                                                                                 <C>              <C>   
CASH FLOWS FROM FINANCING ACTIVITIES:
  Net increase in deposits                                                            9,347           17,139
  Net (decrease) increase in short-term borrowings                                   (1,869)           3,398
  Proceeds from (repayment) of Federal Home
   Loan Bank advances, net                                                           17,542          (21,807)
  Cash dividends paid                                                                  (193)            (166)
  Sale of treasury stock                                                                  -              122
  Issuance of common stock                                                               31                -
                                                                                    -------          -------
    Net cash provided by (used in) financing activities                              24,858           (1,314)
                                                                                    -------          -------

(Decrease) increase in cash and cash equivalents                                    (10,969)           3,946

CASH AND CASH EQUIVALENTS:  BEGINNING OF PERIOD                                      29,808           15,713
                                                                                    -------          -------
CASH AND CASH EQUIVALENTS:  END OF PERIOD                                           $18,839          $19,659
                                                                                    =======          =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
  Interest                                                                          $ 7,409          $ 6,904
  Income taxes                                                                            -              420

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES:
Other real estate acquired through loan foreclosures                                $   293          $   195
Loans granted to facilitate the sale
  of other real estate                                                                  170                -
Unrealized gain (loss) on investment securities
  available for sale, net of tax effect                                                 (51)               -
</TABLE>

See notes to condensed consolidated financial statements.


<PAGE>   7


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 generally accepted accounting principles 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 1997 consolidated financial statements
and notes thereto, included in the Company's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1997.

     Certain reclassifications have been made to the prior periods in order to
conform to classifications adopted in the current period.

2.   Accounting Policies

     Reference is made to the accounting policies of the Company described in
the notes to consolidated financial statements contained in the Company's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1997. The Company
has consistently followed those policies in preparing this report.

3.   Accounting Pronouncements

     In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" (Statement 130). Statement 130 establishes standards for reporting and
displaying comprehensive income and its components in a full set of general
purpose financial statements. The Company adopted Statement 130 effective
January 1, 1998. The primary component of the differences between net income and
comprehensive income for the Company is net unrealized gains and losses on
investment securities. Total comprehensive income for the six months ended June
30, 1998 was $810,307 compared to $1,139,178 for the six months ended June 30,
1997. Total comprehensive income for the three months ended June 30 1998 was
$369,108 compared to $675,223 for the three months ended June 30, 1997.

     In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
(Statement 131). Statement 131 is effective for financial statements for years
beginning after December 15, 1997.


<PAGE>   8

     In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities"
(Statement 133). Statement 133 is effective for financial statements for all
fiscal quarters of all fiscal years beginning after June 15, 1999. The Company
does not believe the provisions of Statement 133 will have a significant impact
on the financial statements, as the Company does not have a material amount of
derivative instruments.


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

HABERSHAM BANCORP AND SUBSIDIARIES

Organization

     Habersham Bancorp owns all of the outstanding stock of Habersham Bank
("Habersham Bank"), Security State Bank ("Security Bank"), and The Advantage
Group, Inc. (collectively the "Company"). Habersham Bank owns all of the
outstanding stock of BancMortgage Financial Corp ("BancMortgage"), Appalachian
Travel Service, Inc. ("Appalachian") and Advantage Insurers, Inc. ("Advantage
Insurers"). Advantage Insurers, which began operations March 31, 1997, offers a
full line of property, casualty and life insurance products. The Advantage
Group, Inc. is a non-bank subsidiary which engages in the business of providing
certain management consulting advice to depository institutions.

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

     The Advantage Group, Inc., Appalachian and Advantage Insurers do not
comprise a significant portion of the financial position, results of operations
or cash flows of the Company for the six month period ended ended June 30, 1998.
Management's discussion and analysis, which follows, relates primarily to
Habersham Bank, Security Bank and BancMortgage.


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.


<PAGE>   9

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 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) technological
changes; (7) acquisitions; (8) the ability to increase market share and control
expenses; (9) the effect of changes in laws and regulations (including laws and
regulations concerning taxes, banking, securities and insurance) with which the
Company and its subsidiary must comply; (10) 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; (11) changes in the Company's
organization, compensation and benefit plans; (12) the costs and effects of
litigation and of unexpected or adverse outcomes in such litigation; and (13)
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 to reflect the occurrence of unanticipated events.


Material Changes in Financial Condition

     The Company's total assets increased approximately $34 million during the
first six months of 1998 primarily due to increases in mortgage loans held for
sale of approximately $28 million, increases in the loan portfolios of Habersham
Bank and Security State Bank of approximately $9 million and increases in
investment securities of approximately $8 million. These increases were funded
primarily by decreases in cash and cash equivalents of approximately $11
million, increases in deposits of approximately $9 million, increases in
borrowings consisting primarily of Federal Home Loan Bank advances of
approximately $16 million and increases in other liabilities of approximately $8
million.

     At June 30, 1998, loans over 90 days past due and nonaccrual loans totaled
$1,782,783 or .86% of gross outstanding loans, as compared to $2,537,571 or
1.31% of gross outstanding loans at December 31, 1997. Loans over 90 days past
due and still accruing decreased approximately $1.2 million primarily due to the
reclassification of approximately $1.1 million in past due loans having Small
Business Administration (SBA) guarantees between 80% to 85% to non-accrual
status. Nonaccrual loans increased approximately $476,000 due to the
reclassification of two SBA loans of approximately $1.1 million, the addition of
one commercial loan of approximately $410,000 secured by real estate and other
additions totaling approximately $129,000 offset by approximately $1.1 million
in repayments.

     Additions to the allowance for loan losses are made periodically to
maintain the allowance at an appropriate level based upon management's analysis
of risk in the loan portfolio. The balance of the allowance for loan losses is
in accordance with 

<PAGE>   10

the internal calculation of the allowance for loan losses and accounts for
factors such as classified and past due loans as well as portfolio growth and
diversification. A provision for loan losses in the amount of $159,000 was
charged to expense for the quarter ended June 30, 1998. This provision for
losses exceeded the net charge-offs for the second quarter which totaled
$36,000. At June 30, 1998 and December 31, 1997, the ratio of allowance for loan
losses to total loans was l.l8%. Management considers the current allowance for
loan losses appropriate based upon its analysis of the potential risk in the
portfolio, although there can be no assurance that the assumptions underlying
such analysis will continue to be correct.


     The Company had impaired loans of $1,727,234 and $1,251,157 as of June 30,
1998 and December 31, 1997, respectively. Impaired loans consist of loans on
nonaccrual status. The interest income recognized on such loans for the
six-month periods ended June 30, 1998 and 1997 was not material.

     The Company's other real estate totaled $1,937,225 and $1,908,094 as of
June 30, 1998 and December 31, 1997, respectively. This increase is due to
additions to other real estate of approximately $293,000 offset by sales of
property of approximately $264,000.

Material Changes in Results of Operations

     Total interest income for the second quarter of 1998 increased $600,000 or
9.06%, when compared to the second quarter of 1997. Total interest income for
the first six months of 1998 increased $1,024,000 or 7.81%, when compared to the
first six months of 1997.

     Interest income from loans for the second quarter of 1998 increased
$451,000 or 7.75% when compared to the second quarter of 1997. Interest income
from loans for the first six months of 1998 increased $747,000 or 6.50%, when
compared to the first six months of 1997 due to an increase in the average loan
portfolio of approximately $31 million, when comparing the first six months of
1998 to the same period in 1997. Interest income was negatively impacted by the
placement of two loans aggregating approximately $1.4 million at one of the
Company's subsidiaries on nonaccural status. Loan yields decreased by .67% to
9.47% for the first six months of 1998 compared to yields of 10.14% for the
first six months of 1997.

     Interest income from investment securities increased $126,000 or 20.72% for
the second quarter of 1998 when compared to the second quarter of 1997. Interest
income from investment securities increased $213,000 or 17.50% for the first six
months of 1998, when compared to the first six months of 1997. The increase in
interest income from investments was primarily due to an increase in the average
investment portfolio of approximately $8 million, when comparing the first six
months of 1998 to the same period of 1997. Average yields on investment
securities decreased by .19% to 6.19% for the first six months of 1998 compared
to 6.38% for the first six months of 1997.

     Total interest expense for the second quarter of 1998 increased $675,000 or
21.74%, when compared to the second quarter of 1997. Total interest expense for
the first six months of 1998 increased $922,000 or 14.52% when compared to the
first six months of 1997.

     Interest expense on deposits increased $594,000 or 22.15%, when compared to
the second quarter of 1997. Interest expense on deposits increased $1,167,000 or
22.10% when compared to the first six months of 1997. This increase was due to
average balances in interest bearing deposit accounts increasing approximately
$53 million or 25.61% when compared to the first six months of 1997.
Consolidated average rates on 


<PAGE>   11

deposits decreased by .15% to 4.94% during the first six months of 1998 compared
to 5.09% for the first six months of 1997. The decrease in rate is primarily due
to the percentage increase in NOW and Money Market accounts to the total deposit
portfolio. NOW and Money Market accounts carry an interest rate of 2.5%.

     Other interest expense increased $81,000 or 19.15% when compared to the
second quarter of 1997. Other interest expense decreased $245,000 or 22.94% when
compared to the first six months of 1997. This decrease was primarily due to
consolidated average borrowings decreasing approximately $2.7 million or 8.22%
when compared to the first six months of 1997. Consolidated average rates on
borrowings decreased by 1.01% to 5.40% for the first six months of 1998 compared
to 6.41% for the first six months of 1997.

     Net interest income decreased $75,000 or 2.1%, for the second quarter of
1998, when compared to the second quarter of 1997. Net interest income increased
$102,000 or 1.51%, for the first six months of 1998, when compared to the first
six months of 1997 as a result of the items discussed above.

     The net interest margin of the Company, the net interest income divided by
average total interest-earning assets, was 4.31% for the second quarter of 1998
as compared to 4.85% for the first six months of 1997. The decrease in net
interest margin resulted primarily from a decrease in loan pricing and a
decrease in the yield on investment securities.

     Other income increased $2,199,000 or 137.87% for the second quarter of 1998
over the same period in 1997. Other income increased $3,209,000 or 98.22% for
the first six months of 1998 over the same period in 1997. This increase was due
primarily to the increases on gains on sale of loans of approximately $1,697,000
and $2,401,000 for the second quarter and first six months of 1998,
respectively, as well as increase in loan fees of approximately $343,000, and
$571,000 for the second quarter and first six months of 1998, respectively.

     Other expenses increased $2,271,000 or 53.12% for the first quarter of 1998
over the same period in 1997. Other expense increased $3,732,000 or 45.55% for
the first six months of 1998 over the same period in 1997. This increase was due
to increased salary and employee benefits of approximately $1,530,000 and
$2,655,000 for the second quarter of 1998 and the first six months of 1998,
respectively, associated with the expansion of BancMortgage operations due to
the addition of two new office locations in Gainesville and Fayetteville,
Georgia and the acquisition of The Prestwick Mortgage Group and BancFinancial
Services Corporation. This line of business compensates staff by commissions
that are directly related to production volume. Occupancy expense, computer and
other operating expenses increased approximately $98,000 $76,000 and $537,000,
respectively, for the second quarter of 1998 when compared to the same period in
1997. Occupancy expense, computer and other operating expense increased
approximately $351,000 $82,000 and $609,000, respectively, for the first six
months of 1998 due to the increased activities of BancMortgage.

     Income tax expense for the three months ended June 30, 1998 and 1997 was
$116,000 and $208,000, respectively. Income tax expense for the six months ended
June 30, 1998 and 1997 was $236,000 and $464,000, respectively. The effective
tax rate for the three months ended June 30, 1998 and 1997 was 22% and 28%,
respectively. The effective tax rate decreased due to an increase in tax exempt
security income as a percentage of income before income taxes.


<PAGE>   12


Liquidity and Capital Resources

     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% and Security Bank's liquidity policy requires a minimum of 25%. The
following table lists the liquidity ratios for the Banks at June 30, 1998.

<TABLE>
                         <S>                      <C>   
                         Habersham Bank           21.86%
                         Security Bank            28.21%
</TABLE>


     Habersham Bank has established various sources of funds to be used in the
management of its liquidity position. Federal funds agreement guidelines
totaling $9.5 million have been provided by Compass Bank and The Bankers Bank.
Repurchase agreement guidelines are collateral based. Also established is a
borrowing arrangement for advances with an available credit line of $65 million
at the Federal Home Loan Bank of Atlanta. Security Bank has also established
various sources of funds to be used in the management of its liquidity position.
Federal Funds agreement guidelines totaling $2.3 million have been provided by
Compass Bank and The Bankers Bank for Security Bank.

     At June 30, 1998, Habersham Bancorp, Habersham Bank, and Security Bank were
required to have minimum Tier 1 and total capital ratios of 4% and 8%,
respectively. Additionally, the Company and the Banks are required to maintain a
leverage ratio (Tier 1 capital to average assets) of at least 4%. The Company
and the Banks' ratios at June 30, 1998 follow:

<TABLE>
<CAPTION>
                   Habersham        Security        Habersham
                      Bank            Bank           Bancorp
<S>                <C>              <C>             <C>   
Tier 1                9.69%          14.30%           11.35%
Total Capital        10.72%          15.28%           12.38%                 
Leverage              6.44%          11.21%            7.72%
</TABLE>


<PAGE>   13


Interest Rate Sensitivity

     The objective of asset and liability management is to measure and manage
both the level and volatility of earnings and capital based upon the impact of
changes in interest rates. The Company uses interest rate shock tests as well as
traditional asset / liability modeling in order to maintain a mix of maturity
and interest rate sensitivity between loans, investment securities, liquid
investments, deposits, and borrowings.

     The interest rate sensitivity analysis, calculated as of June 30, 1998,
below has a three month negative gap of approximately $38 million (interest
bearing liabilities exceeding interest-earning assets repricing within three
months).

<TABLE>
<CAPTION>
                                       YIELD/   DUE IN       DUE AFTER        DUE AFTER     DUE AFTER    DUE AFTER     TOTAL  
                                       RATE     THREE      THREE THROUGH     SIX THROUGH   ONE THROUGH      FIVE              
                                                MONTHS       SIX MONTHS     TWELVE MONTHS   FIVE YEARS      YEARS             
<S>                                   <C>      <C>         <C>              <C>            <C>           <C>         <C>
EARNING ASSETS:                                                                                                               
 Federal funds sold                    6.65%   $  7,420                                                              $  7,420
 Investment securities                 6.19%      1,094      $  3,016        $  3,524       $ 16,691      $28,051      52,376 
 Loans                                 9.47%    102,103        16,056          32,968         59,567       61,767     272,461 
                                       ----    --------      --------        --------       --------       ------    -------- 
  Total earning assets                 8.87%    110,617        19,072          36,492         76,258       89,818     332,257 
INTEREST BEARING LIABILITIES:        
 Deposits
  Money Market and NOW                 2.50%     54,974                                                                54,974 
  Savings                              2.78%      8,225                                                                 8,225 
  Certificates of deposit              5.93%     41,850        42,168          67,376         33,245           15     184,654 
 Borrowings                            5.40%     43,702             -               -              -            -      43,702 
                                       ----    ---------     --------        --------       --------       ------    --------
  Total interest bearing                                                                                                      
   liabilities                         5.24%    148,751        42,168          67,376         33,245           15     291,555 
                                                                                                                              
NET INTEREST MARGIN:                   4.31%                                                                                  
                                       ====     
Excess(deficiency) of earning
 assets over(to) interest bearing
 liabilities                                   $(38,134)     $(23,096)       $(30,884)      $ 43,013     $ 89,803    $ 40,702 
                                               ========      ========        ========       ========     ========    ======== 
                                                                                                                              
Cumulative gap                                 $(38,134)     $(61,230)       $(92,114)      $(49,101)    $ 40,702             
                                                                                                                              
Ratio of cumulative gap to total                                                                                              
 cumulative earning assets                       (34.47%)      (47.21%)        (55.43%)       (20.25%)      12.25%            
                                                                                                                              
Ratio of cumulative earning assets             
  to interest bearing liabilities                 74.36%        67.93%          64.34%         83.16%      113.96%
</TABLE>

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


Year 2000

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


<PAGE>   14

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

     At the present time, the Company is well into the testing phase of the
Action Plan which will be substantially completed by December 31, 1998. At this
time, the Company has not determined the cost of making modifications to correct
any year 2000 problems; however, equipment and software expenses are not
expected to materially differ from past expenses. The Company routinely upgrades
and purchases technologically advanced software and hardware on a continual
basis and expects to specifically evaluate and test such purchases for year 2000
compliance. The Company is also in the process of addressing any customer
relationships it believes could be materially affected by the year 2000 issue.

     Accordingly, the Company believes that its internal systems and software
and the network connections it maintains will be adequately programmed to
address the Year 2000 issue. Based on information currently available,
management does not believe that the Company will incur significant costs in
connection with the Year 2000 issue. Nevertheless, these can be no assurances
that all hardware and software that the Company will use will be Year 2000
compliant, and the Company cannot predict with any certainty the costs the
Company will incur to respond to any Year 2000 issues. Further, the business of
the Company's customers and vendors may be negatively affected by the Year 2000
issue, and any financial difficulties incurred by the Company's customers and
vendors in solving Year 2000 issues could negatively affect their ability to
perform their agreements with the Company. Therefore, even if the Company does
not incur significant direct costs in connections with responding to the Year
2000 issue, there can be no assurance that the failure or delay of the Company's
customers, vendors or other third parties in addressing the Year 2000 issue or
the costs involved in such process will not have a material adverse effect on
the Company's business, financial condition and results of operations.



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 18, 1998.

        (b) The business conducted at the meeting included the election of the
Board of Directors. The Directors elected at the meeting were: Thomas A.
Arrendale, Jr., Thomas A. Arrendale, III, James J. Holcomb, James A. Stapleton,
Jr., David D. Stovall, C. Kenneth White, and Calvin R. Wilbanks.

At the registrant's Annual Meeting of Shareholders on April 18, 1998, 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 

<PAGE>   15

of votes cast and withheld with respect to each nominated director. Abstentions
and broker non-votes are also listed for each nominee.

<TABLE>
<CAPTION>
Name                          Votes For         Votes Against   Abstention & Non-Votes
                                                                                      
<S>                           <C>               <C>             <C>                   
Thomas A. Arrendale, Jr.      1,829,128             500                  0              
Thomas A. Arrendale, III      1,829,128             500                  0              
David D. Stovall              1,829,128             500                  0              
James J. Holcomb              1,829,128             500                  0              
James A. Stapleton, Jr.       1,829,128             500                  0              
C. Kenneth White              1,811,509          18,119                  0              
Calvin R. Wilbanks            1,829,128             500                  0              
</TABLE>                                          

Item 5. Other information.
                None

Item 6. Exhibits, list and reports on FORM 8-K

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

<TABLE>
<CAPTION>
Exhibit No.                  Document
-----------                  --------
<S>             <C>                                                                                
 3.1            Amended and restated Articles of Incorporation of Habersham Bancorp, as         
                amended. (1)                                                                    
                                                                                                
 3.2            By-laws of Habersham Bancorp, as amended as of November 20, 1989                
                (2) and as of March 16, 1991. (3)                                               
                                                                                                
10.1*           Habersham Bancorp Savings Investment Plan, as amended and restated March        
                17, 1990, and the related Trust Agreements, as amended March 17, 1990.          
                (2)                                                                             
                                                                                                
10.2*           Habersham Bancorp Incentive Stock Option Plan, as amended February 26, 1994. (4)
                                                                                               
10.3*           Habersham Bancorp Outside Directors Stock Option Plan. (5)                      
                                                                                                
10.4*           Habersham Bancorp 1996 Incentive Stock Option Plan. (6)                         
                                                                                                
10.5*           Mortgage Banking Agreement Dated as of January 2, 1996 among Habersham          
                Bancorp, Habersham Bank, BancMortgage Financial Corp. and Robert S. Cannon and  
                Anthony L. Watts. (7)                                                               
               
10.6            Option Agreement dated as of March 11, 1998 by and among Habersham Bancorp and
                certain shareholders of Empire Bank Corp.

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

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

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


<PAGE>   16

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

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

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

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

(7)  Incorporated herein by reference to exhibit of same number in the
Registrant's Annual Report on Form 10-KSB for the year ended December 31, 1997
(File No. 0-13153).      

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

                                   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 13, 1998                 /s/ David D. Stovall
    -----------------                ------------------------------------
                                     President and
                                     Chief Financial Officer
                                     (for the Registrant and as the
                                     Registrant's principal financial and
                                     accounting officer)