##### Table of Contents



U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q

|  |  |                                                                                  
|- |  | ---------------------------------------------------------------------------------
|x |  | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2002


|  |  |                                                                                   
|- |  | ----------------------------------------------------------------------------------
|o |  | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from  to


Commission file number 0-13153

HABERSHAM BANCORP




(Exact name of registrant as specified in its charter)


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

(706) 778-1000




(Issuers telephone number, including area code)






---

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


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

Yes x    No o

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

2,785,718 shares, common stock, $1.00 par value, as of July 25, 2002





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TABLE OF CONTENTS



|                                                                                               |  |  |  |  |  |  |  | 
|---------------------------------------------------------------------------------------------- |  |  |  |  |  |  |  | 
|Item. 1 Financial Statements                                                                  
|Notes to Condensed Consolidated Financial Statements                                          
|Item. 2 Managements Discussion and Analysis of Financial Condition and Results of Operations.
|PART II                                                                                       
|Item 1. Legal proceedings.                                                                    
|Item 2. Changes in securities.                                                                
|Item 3. Defaults upon senior securities.                                                      
|Item 4. Submission of matters to a vote of security holders.                                  
|Item 5. Other information.                                                                    
|Item 6. Exhibits list and reports on Form 8-K                                                 
|SIGNATURES                                                                                    
|COMPUTATION OF EARNING PER SHARE                                                              
|STATEMENT 906 CERTIFICATION OF THE CEO AND CFO                                                



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##### Table of Contents






Item. 1 Financial Statements

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

|                                                                                                                                                        |                                |                                            |         |                   |         |   |         |        |         | 
|------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------ | ------------------------------------------ | ------- | ----------------- | ------- | - | ------- | ------ | ------- | 
|ASSETS                                                                                                                                                  |                                | JUNE 30, 2002                              |         | DECEMBER 31, 2001
|Cash and due from banks                                                                                                                                 |                                | $                                          | 18,150  |                   |         | $ | 16,550  |       
|Investment securities available for sale
(cost of $49,004 at June 30, 2002 and
$46,855 at December 31, 2001)                                            |                                |                                            | 49,703  |                   |         |   | 47,620  |       
|Investment securities held to maturity
(estimated fair values of $8,953 at
June 30, 2002 and $9,767 at
December 31, 2001)                               |                                |                                            | 8,674   |                   |         |   | 9,646   |       
|Other investments                                                                                                                                       |                                |                                            | 8,326   |                   |         |   | 9,604   |       
|                                                                                                                                                        |                                |                                            |         |                   |         |   |         |       
|Loans held for sale                                                                                                                                     |                                |                                            | 91,538  |                   |         |   | 115,464 |       
|                                                                                                                                                        |                                |                                            |         |                   |         |   |         |       
|Loans                                                                                                                                                   |                                |                                            | 312,822 |                   |         |   | 325,064 |       
|                                                                                                                                                        | Less allowance for loan losses |                                            |         | (3,658            | )       |   |         | (3,836 | )      
|                                                                                                                                                        |                                |                                            |         |                   |         |   |         |       
|                                                                                                                                                        |                                | Loans, net                                 |         |                   | 309,164 |   |         |        | 321,228 | 
|                                                                                                                                                        |                                |                                            |         |                   |         |   |         |       
|Intangible assets                                                                                                                                       |                                |                                            | 2,494   |                   |         |   | 2,508   |       
|Other assets                                                                                                                                            |                                |                                            | 19,798  |                   |         |   | 23,883  |       
|                                                                                                                                                        |                                |                                            |         |                   |         |   |         |       
|                                                                                                                                                        |                                | TOTAL ASSETS                               |         | $                 | 507,847 |   |         | $      | 546,503 | 
|                                                                                                                                                        |                                |                                            |         |                   |         |   |         |       
|LIABILITIES                                                                                                                                             |                                |                                            |         |                   |         |   |         |       
|Noninterest bearing deposits                                                                                                                            |                                | $                                          | 43,693  |                   |         | $ | 31,136  |       
|Interest bearing deposits                                                                                                                               |                                |                                            | 289,270 |                   |         |   | 305,224 |       
|Short-term borrowings                                                                                                                                   |                                |                                            | 798     |                   |         |   | 269     |       
|Federal funds purchased and securities
sold under repurchase agreements                                                                                 |                                |                                            | 20,190  |                   |         |   | 30,451  |       
|Other borrowings                                                                                                                                        |                                |                                            | 3,646   |                   |         |   | 5,773   |       
|Federal Home Loan Bank Advances                                                                                                                         |                                |                                            | 71,963  |                   |         |   | 100,416 |       
|Other liabilities                                                                                                                                       |                                |                                            | 31,293  |                   |         |   | 29,252  |       
|                                                                                                                                                        |                                |                                            |         |                   |         |   |         |       
|                                                                                                                                                        |                                | TOTAL LIABILITIES                          |         |                   | 460,853 |   |         |        | 502,521 | 
|                                                                                                                                                        |                                |                                            |         |                   |         |   |         |       
|                                                                                                                                                        |                                |                                            |         |                   |         |   |         |       
|SHAREHOLDERS EQUITY                                                                                                                                    |                                |                                            |         |                   |         |   |         |       
|Common Stock, $1.00 par value,
10,000,000 shares authorized;
2,755,468 and 2,698,746 shares
issued at June 30, 2002
and December 31, 2001, respectively |                                |                                            | 2,755   |                   |         |   | 2,699   |       
|Additional paid-in capital                                                                                                                              |                                |                                            | 13,038  |                   |         |   | 12,417  |       
|Retained earnings                                                                                                                                       |                                |                                            | 30,740  |                   |         |   | 28,361  |       
|Accumulated other comprehensive income                                                                                                                  |                                |                                            | 461     |                   |         |   | 505     |       
|                                                                                                                                                        |                                |                                            |         |                   |         |   |         |       
|                                                                                                                                                        |                                | TOTAL SHAREHOLDERS EQUITY                 |         |                   | 46,994  |   |         |        | 43,982  | 
|                                                                                                                                                        |                                |                                            |         |                   |         |   |         |       
|                                                                                                                                                        |                                | TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |         | $                 | 507,847 |   |         | $      | 546,503 | 
|                                                                                                                                                        |                                |                                            |         |                   |         |   |         |       

See notes to condensed consolidated financial statements.





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##### Table of Contents



HABERSHAM BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) For the Three-Month Periods Ended June 30, 2002 and 2001
(dollars in thousands, except per share amounts)

|                                                                                             |                                                            |                     |           |       |        |      |           |        |       | 
|-------------------------------------------------------------------------------------------- | ---------------------------------------------------------- | ------------------- | --------- | ----- | ------ | ---- | --------- | ------ | ----- | 
|                                                                                             |                                                            |                     |           | 2002  |        | 2001
|INTEREST INCOME                                                                              |                                                            |                     |           |       |        |      |           |       
|Loans                                                                                        |                                                            | $                   | 7,271     |       |        | $    | 10,075    |       
|Investment securities                                                                        |                                                            |                     | 780       |       |        |      | 729       |       
|Federal funds sold                                                                           |                                                            |                     | 11        |       |        |      | 10        |       
|Other                                                                                        |                                                            |                     | 81        |       |        |      | 211       |       
|                                                                                             |                                                            |                     |           |       |        |      |           |       
|                                                                                             | TOTAL INTEREST INCOME                                      |                     |           | 8,143 |        |      |           | 11,025 |      
|                                                                                             |                                                            |                     |           |       |        |      |           |       
|INTEREST EXPENSE                                                                             |                                                            |                     |           |       |        |      |           |       
|Time deposits, $100,000 and over                                                             |                                                            |                     | 856       |       |        |      | 1,435     |       
|Other deposits                                                                               |                                                            |                     | 1,607     |       |        |      | 3,368     |       
|Short-term and other borrowings, primarily
FHLB advances                                     |                                                            |                     | 904       |       |        |      | 1,655     |       
|                                                                                             |                                                            |                     |           |       |        |      |           |       
|                                                                                             | TOTAL INTEREST EXPENSE                                     |                     |           | 3,367 |        |      |           | 6,458  |      
|                                                                                             |                                                            |                     |           |       |        |      |           |       
|NET INTEREST INCOME                                                                          |                                                            |                     | 4,776     |       |        |      | 4,567     |       
|Provision for loan losses                                                                    |                                                            |                     | 254       |       |        |      | 432       |       
|                                                                                             |                                                            |                     |           |       |        |      |           |       
|                                                                                             |                                                            |                     |           |       |        |      |           |       
|NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES                                          |                                                            |                     | 4,522     |       |        |      | 4,135     |       
|                                                                                             |                                                            |                     |           |       |        |      |           |       
|NONINTEREST INCOME                                                                           |                                                            |                     |           |       |        |      |           |       
|                                                                                             | Gain on sale of loans                                      |                     |           | 5,323 |        |      |           | 6,172  |      
|                                                                                             | Loan fee income                                            |                     |           | 815   |        |      |           | 1,059  |      
|                                                                                             | Brokerage fee income                                       |                     |           | 47    |        |      |           | 96     |      
|                                                                                             | Service charges on deposits                                |                     |           | 173   |        |      |           | 168    |      
|                                                                                             | Other service charges and commissions                      |                     |           | 60    |        |      |           | 67     |      
|                                                                                             | Securities losses, net                                     |                     |           |      |        |      |           | (3     | )    
|                                                                                             | (Loss) gain on change in fair value of forward commitments |                     |           | (407  | )      |      |           | 253    |      
|                                                                                             | Other income                                               |                     |           | 569   |        |      |           | 414    |      
|                                                                                             |                                                            |                     |           |       |        |      |           |       
|                                                                                             |                                                            | Total other income  |           |       | 6,580  |      |           |        | 8,226 | 
|                                                                                             |                                                            |                     |           |       |        |      |           |       
|NONINTEREST EXPENSE                                                                          |                                                            |                     |           |       |        |      |           |       
|                                                                                             | Salary and employee benefits                               |                     |           | 7,122 |        |      |           | 7,034  |      
|                                                                                             | Occupancy                                                  |                     |           | 801   |        |      |           | 802    |      
|                                                                                             | Computer services                                          |                     |           | 176   |        |      |           | 202    |      
|                                                                                             | General and administrative expense                         |                     |           | 1,964 |        |      |           | 1,795  |      
|                                                                                             |                                                            |                     |           |       |        |      |           |       
|                                                                                             |                                                            | Total other expense |           |       | 10,063 |      |           |        | 9,833 | 
|INCOME BEFORE INCOME TAXES                                                                   |                                                            |                     | 1,039     |       |        |      | 2,528     |       
|Income tax expense                                                                           |                                                            |                     | 223       |       |        |      | 822       |       
|                                                                                             |                                                            |                     |           |       |        |      |           |       
|INCOME BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE, NET OF TAX                |                                                            |                     | 816       |       |        |      | 1,706     |       
|Cumulative effect of change in accounting
principle, net of tax                              |                                                            |                     |          |       |        |      |          |       
|                                                                                             |                                                            |                     |           |       |        |      |           |       
|NET INCOME                                                                                   |                                                            | $                   | 816       |       |        | $    | 1,706     |       
|                                                                                             |                                                            |                     |           |       |        |      |           |       
|Income before cumulative effect of change
in accounting principle per common share basic    |                                                            | $                   | .30       |       |        | $    | .63       |       
|Cumulative effect of change in accounting
principle per common share  basic                 |                                                            |                     |          |       |        |      |          |       
|                                                                                             |                                                            |                     |           |       |        |      |           |       
|NET INCOME PER COMMON SHARE  BASIC                                                          |                                                            | $                   | .30       |       |        | $    | .63       |       
|                                                                                             |                                                            |                     |           |       |        |      |           |       
|                                                                                             |                                                            |                     |           |       |        |      |           |       
|Income before cumulative effect of change
in accounting principle per common share
 diluted |                                                            | $                   | .29       |       |        | $    | .63       |       
|Cumulative effect of change in accounting
principle per common share  diluted               |                                                            |                     |          |       |        |      |          |       
|                                                                                             |                                                            |                     |           |       |        |      |           |       
|NET INCOME PER COMMON SHARE  DILUTED                                                        |                                                            | $                   | .29       |       |        | $    | .63       |       
|                                                                                             |                                                            |                     |           |       |        |      |           |       
|WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING                                         |                                                            |                     | 2,718,370 |       |        |      | 2,698,746 |       
|                                                                                             |                                                            |                     |           |       |        |      |           |       
|WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES OUTSTANDING                   |                                                            |                     | 2,809,227 |       |        |      | 2,718,450 |       
|                                                                                             |                                                            |                     |           |       |        |      |           |       
|Dividends per share                                                                          |                                                            | $                   | .06       |       |        | $    | .06       |       
|                                                                                             |                                                            |                     |           |       |        |      |           |       

See notes to condensed consolidated financial statements.





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##### Table of Contents



HABERSHAM BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) For the Six-Month Periods Ended June 30, 2002 and 2001
(dollars in thousands, except per share amounts)

|                                                                                             |                                                     |                     |           |        |        |      |           |        |        | 
|-------------------------------------------------------------------------------------------- | --------------------------------------------------- | ------------------- | --------- | ------ | ------ | ---- | --------- | ------ | ------ | 
|                                                                                             |                                                     |                     |           | 2002   |        | 2001
|INTEREST INCOME                                                                              |                                                     |                     |           |        |        |      |           |       
|Loans                                                                                        |                                                     | $                   | 14,804    |        |        | $    | 20,133    |       
|Investment securities                                                                        |                                                     |                     | 1,513     |        |        |      | 1,484     |       
|Federal funds sold                                                                           |                                                     |                     | 17        |        |        |      | 14        |       
|Other                                                                                        |                                                     |                     | 236       |        |        |      | 393       |       
|                                                                                             |                                                     |                     |           |        |        |      |           |       
|                                                                                             | TOTAL INTEREST INCOME                               |                     |           | 16,570 |        |      |           | 22,024 |       
|                                                                                             |                                                     |                     |           |        |        |      |           |       
|INTEREST EXPENSE                                                                             |                                                     |                     |           |        |        |      |           |       
|Time deposits, $100,000 and over                                                             |                                                     |                     | 1,789     |        |        |      | 2,928     |       
|Other deposits                                                                               |                                                     |                     | 3,483     |        |        |      | 6,808     |       
|Short-term and other borrowings, primarily
FHLB advances                                     |                                                     |                     | 1,892     |        |        |      | 3,409     |       
|                                                                                             |                                                     |                     |           |        |        |      |           |       
|                                                                                             | TOTAL INTEREST EXPENSE                              |                     |           | 7,164  |        |      |           | 13,145 |       
|                                                                                             |                                                     |                     |           |        |        |      |           |       
|NET INTEREST INCOME                                                                          |                                                     |                     | 9,406     |        |        |      | 8,879     |       
|Provision for loan losses                                                                    |                                                     |                     | 678       |        |        |      | 716       |       
|                                                                                             |                                                     |                     |           |        |        |      |           |       
|                                                                                             |                                                     |                     |           |        |        |      |           |       
|NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES                                          |                                                     |                     | 8,728     |        |        |      | 8,163     |       
|NONINTEREST INCOME                                                                           |                                                     |                     |           |        |        |      |           |       
|                                                                                             | Gain on sale of loans                               |                     |           | 11,157 |        |      |           | 9,725  |       
|                                                                                             | Loan fee income                                     |                     |           | 1,661  |        |      |           | 1,842  |       
|                                                                                             | Brokerage fee income                                |                     |           | 114    |        |      |           | 308    |       
|                                                                                             | Service charges on deposits                         |                     |           | 340    |        |      |           | 337    |       
|                                                                                             | Other service charges and commissions               |                     |           | 125    |        |      |           | 140    |       
|                                                                                             | Securities gains, net                               |                     |           | 839    |        |      |           | 51     |       
|                                                                                             | Gain on change in fair value of forward commitments |                     |           |       |        |      |           | 669    |       
|                                                                                             | Other income                                        |                     |           | 1,210  |        |      |           | 866    |       
|                                                                                             |                                                     |                     |           |        |        |      |           |       
|                                                                                             |                                                     | Total other income  |           |        | 15,446 |      |           |        | 13,938 | 
|                                                                                             |                                                     |                     |           |        |        |      |           |       
|NONINTEREST EXPENSE                                                                          |                                                     |                     |           |        |        |      |           |       
|                                                                                             | Salary and employee benefits                        |                     |           | 14,717 |        |      |           | 12,370 |       
|                                                                                             | Occupancy                                           |                     |           | 1,581  |        |      |           | 1,636  |       
|                                                                                             | Computer services                                   |                     |           | 374    |        |      |           | 366    |       
|                                                                                             | General and administrative expense                  |                     |           | 3,719  |        |      |           | 3,400  |       
|                                                                                             |                                                     |                     |           |        |        |      |           |       
|                                                                                             |                                                     | Total other expense |           |        | 20,391 |      |           |        | 17,772 | 
|                                                                                             |                                                     |                     |           |        |        |      |           |       
|INCOME BEFORE INCOME TAXES                                                                   |                                                     |                     | 3,783     |        |        |      | 4,329     |       
|Income tax expense                                                                           |                                                     |                     | 1,079     |        |        |      | 1,354     |       
|                                                                                             |                                                     |                     |           |        |        |      |           |       
|INCOME BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE, NET OF TAX                |                                                     |                     | 2,704     |        |        |      | 2,975     |       
|Cumulative effect of change in accounting
principle, net of tax                              |                                                     |                     |          |        |        |      | (162      | )     
|                                                                                             |                                                     |                     |           |        |        |      |           |       
|NET INCOME                                                                                   |                                                     | $                   | 2,704     |        |        | $    | 2,813     |       
|                                                                                             |                                                     |                     |           |        |        |      |           |       
|                                                                                             |                                                     |                     |           |        |        |      |           |       
|Income before cumulative effect of change
in accounting principle per common share  basic   |                                                     | $                   | 1.00      |        |        | $    | 1.10      |       
|Cumulative effect of change in accounting
principle per common share  basic                 |                                                     |                     |          |        |        |      | (.06      | )     
|                                                                                             |                                                     |                     |           |        |        |      |           |       
|NET INCOME PER COMMON SHARE  BASIC                                                          |                                                     | $                   | 1.00      |        |        | $    | 1.04      |       
|                                                                                             |                                                     |                     |           |        |        |      |           |       
|                                                                                             |                                                     |                     |           |        |        |      |           |       
|Income before cumulative effect of change
in accounting principle per common share  diluted |                                                     | $                   | .97       |        |        | $    | 1.10      |       
|Cumulative effect of change in accounting
principle per common share  diluted               |                                                     |                     |          |        |        |      | (.06      | )     
|                                                                                             |                                                     |                     |           |        |        |      |           |       
|NET INCOME PER COMMON SHARE  DILUTED                                                        |                                                     | $                   | .97       |        |        | $    | 1.04      |       
|                                                                                             |                                                     |                     |           |        |        |      |           |       
|                                                                                             |                                                     |                     |           |        |        |      |           |       
|WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING                                         |                                                     |                     | 2,708,612 |        |        |      | 2,698,746 |       
|                                                                                             |                                                     |                     |           |        |        |      |           |       
|WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES OUTSTANDING                   |                                                     |                     | 2,787,765 |        |        |      | 2,716,382 |       
|                                                                                             |                                                     |                     |           |        |        |      |           |       
|Dividends per share                                                                          |                                                     | $                   | .12       |        |        | $    | .12       |       
|                                                                                             |                                                     |                     |           |        |        |      |           |       

See notes to condensed consolidated financial statements.





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##### Table of Contents



HABERSHAM BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) For the Six-Month Periods Ended June 30, 2002 and 2001
(dollars in thousands)

|                                      |                                                                                             |                                                  |   |        |          |   |   |         |          |  
|------------------------------------- | ------------------------------------------------------------------------------------------- | ------------------------------------------------ | - | ------ | -------- | - | - | ------- | -------- | -
|CASH FLOWS FROM OPERATING ACTIVITIES: |                                                                                             | 2002                                             |   | 2001  
|                                      | Net income                                                                                  |                                                  | $ | 2,704  |          |   | $ | 2,813   |         
|                                      | Cumulative effect of change in accounting principle                                         |                                                  |   |       |          |   |   | 162     |         
|                                      | Adjustments to reconcile net income to net cash
provided by (used in) operating activities: |                                                  |   |        |          |   |   |         |         
|                                      |                                                                                             | Provision for loan losses                        |   |        | 678      |   |   |         | 716      |  
|                                      |                                                                                             | Depreciation                                     |   |        | 632      |   |   |         | 678      |  
|                                      |                                                                                             | Gain on sale of investment securities            |   |        | (839     | ) |   |         | (51      | )
|                                      |                                                                                             | Increase in fair value of derivative instruments |   |        |         |   |   |         | (669     | )
|                                      |                                                                                             | Loss (gain) on sale of premises & equipment      |   |        | 11       |   |   |         | (13      | )
|                                      |                                                                                             | Loss on sale of other real estate                |   |        | 112      |   |   |         | 9        |  
|                                      |                                                                                             | Write down of other real estate                  |   |        | 74       |   |   |         |         |  
|                                      |                                                                                             | Net gain on sale of loans                        |   |        | (11,157  | ) |   |         | (9,725   | )
|                                      |                                                                                             | Amortization of intangible assets                |   |        | 14       |   |   |         | 130      |  
|                                      |                                                                                             | Equity in earnings of investee                   |   |        | (53      | ) |   |         | (64      | )
|                                      |                                                                                             | Deferred income tax expense                      |   |        | 19       |   |   |         | 56       |  
|                                      |                                                                                             | Proceeds from sale of loans held for sale        |   |        | 560,205  |   |   |         | 499,430  |  
|                                      |                                                                                             | Net increase in loans held for sale              |   |        | (525,943 | ) |   |         | (556,935 | )
|                                      |                                                                                             |                                                  |   |        |          |   |   |        
|                                      | Changes in assets and liabilities:                                                          |                                                  |   |        |          |   |   |         |         
|                                      |                                                                                             | Decrease in interest receivable                  |   |        | 367      |   |   |         | 504      |  
|                                      |                                                                                             | Decrease (increase) in other assets              |   |        | 347      |   |   |         | (35      | )
|                                      |                                                                                             | Decrease in interest payable                     |   |        | (1,168   | ) |   |         | (724     | )
|                                      |                                                                                             | Increase in other liabilities                    |   |        | 3,209    |   |   |         | 17,569   |  
|                                      |                                                                                             |                                                  |   |        |          |   |   |        
|                                      | Net cash provided by (used in) operating activities                                         |                                                  |   | 29,212 |          |   |   | (46,149 | )       
|                                      |                                                                                             |                                                  |   |        |          |   |   |        
|                                      |                                                                                             |                                                  |   |        |          |   |   |        
|CASH FLOWS FROM INVESTING ACTIVITIES: |                                                                                             |                                                  |   |        |          |   |   |        
|                                      | Investment securities available for sale:                                                   |                                                  |   |        |          |   |   |         |         
|                                      |                                                                                             | Proceeds from maturity                           |   |        | 5,359    |   |   |         | 3,466    |  
|                                      |                                                                                             | Proceeds from sale and call                      |   |        | 4,317    |   |   |         | 4,701    |  
|                                      |                                                                                             | Purchases                                        |   |        | (10,986  | ) |   |         | (6,761   | )
|                                      | Investment securities held to maturity:                                                     |                                                  |   |        |          |   |   |         |         
|                                      |                                                                                             | Proceeds from maturity                           |   |        | 972      |   |   |         | 1,192    |  
|                                      | Other investments:                                                                          |                                                  |   |        |          |   |   |         |         
|                                      |                                                                                             | Proceeds from sale                               |   |        | 2,517    |   |   |         | 5,387    |  
|                                      |                                                                                             | Purchases                                        |   |        | (1,248   | ) |   |         | (4,855   | )
|                                      | Loans:                                                                                      |                                                  |   |        |          |   |   |         |         
|                                      |                                                                                             | Proceeds from sale                               |   |        | 12,244   |   |   |         | 66,476   |  
|                                      |                                                                                             | Net increase in loans                            |   |        | (1,409   | ) |   |         | (19,325  | )
|                                      | Purchases of premises and equipment                                                         |                                                  |   | (692   | )        |   |   | (533    | )       
|                                      | Proceeds from sale of premises & equipment                                                  |                                                  |   | 193    |          |   |   | 28      |         
|                                      | Proceeds from sale of other real estate                                                     |                                                  |   | 4,434  |          |   |   | 181     |         
|                                      | Net additions of other real estate                                                          |                                                  |   | (18    | )        |   |   | (432    | )       
|                                      | Dividends received from other investment                                                    |                                                  |   | 62     |          |   |   | 62      |         
|                                      |                                                                                             |                                                  |   |        |          |   |   |        
|                                      | Net cash provided by investing activities                                                   |                                                  |   | 15,745 |          |   |   | 49,587  |         
|                                      |                                                                                             |                                                  |   |        |          |   |   |        





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##### Table of Contents



HABERSHAM BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  CONTINUED
(Unaudited) For the Six-Month Periods Ended June 30, 2002 and 2001
(dollars in thousands)

|                                                                                                       |                                                                                         |      |                                       |         |   |         |        |         |   |        |  
|------------------------------------------------------------------------------------------------------ | --------------------------------------------------------------------------------------- | ---- | ------------------------------------- | ------- | - | ------- | ------ | ------- | - | ------ | -
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                                  |                                                                                         | 2002 |                                       | 2001   
|                                                                                                       | Net (decrease) increase in deposits                                                     |      |                                       | (3,397  | ) |         |        | 7,642   |  
|                                                                                                       | Net increase (decrease) in short-term borrowings                                        |      |                                       | 529     |   |         |        | (93     | )
|                                                                                                       | Net decrease in federal funds purchased and
securities sold under repurchase agreements |      |                                       | (10,261 | ) |         |        | (11,257 | )
|                                                                                                       | (Repayment of) proceeds from notes payable                                              |      |                                       | (2,127  | ) |         |        | 4,000   |  
|                                                                                                       | Repayment of Federal Home Loan
Bank advances, net                                       |      |                                       | (28,453 | ) |         |        | (1,577  | )
|                                                                                                       | Issuance of common stock                                                                |      |                                       | 677     |   |         |        |        |  
|                                                                                                       | Cash dividends paid                                                                     |      |                                       | (325    | ) |         |        | (324    | )
|                                                                                                       |                                                                                         |      |                                       |         |   |         |        |        
|                                                                                                       |                                                                                         |      | Net cash used by financing activities |         |   | (43,357 | )      |         |   | (1,609 | )
|                                                                                                       |                                                                                         |      |                                       |         |   |         |        |        
|                                                                                                       |                                                                                         |      |                                       |         |   |         |        |        
|Increase in cash and cash equivalents                                                                  |                                                                                         |      | 1,600                                 |         |   |         | 1,829  |        
|                                                                                                       |                                                                                         |      |                                       |         |   |         |        |        
|CASH AND CASH EQUIVALENTS: BEGINNING OF PERIOD                                                         |                                                                                         |      | 16,550                                |         |   |         | 13,566 |        
|                                                                                                       |                                                                                         |      |                                       |         |   |         |        |        
|CASH AND CASH EQUIVALENTS: END OF PERIOD                                                               |                                                                                         | $    | 18,150                                |         |   | $       | 15,395 |        
|                                                                                                       |                                                                                         |      |                                       |         |   |         |        |        
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                                                     |                                                                                         |      |                                       |         |   |         |        |        
|Cash paid during the period for:                                                                       |                                                                                         |      |                                       |         |   |         |        |        
|                                                                                                       | Interest                                                                                |      | $                                     | 8,332   |   |         | $      | 13,869  |  
|                                                                                                       | Income taxes                                                                            |      |                                       | 1,865   |   |         |        | 827     |  
|                                                                                                       |                                                                                         |      |                                       |         |   |         |        |        
|SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES:                                              |                                                                                         |      |                                       |         |   |         |        |        
|                                                                                                       |                                                                                         |      |                                       |         |   |         |        |        
|Other real estate acquired through loan foreclosures                                                   |                                                                                         | $    | 1,372                                 |         |   | $       | 1,679  |        
|Loans granted to facilitate the sale of other real estate                                              |                                                                                         |      |                                      |         |   |         | 195    |        
|Unrealized (loss) gain on investment securities
available for sale, net of tax effect                  |                                                                                         |      | (44                                   | )       |   |         | 402    |        
|Transfer of held to maturity securities to
available for sale securities upon adoption of SFAS No. 133 |                                                                                         |      |                                      |         |   |         | 999    |        

See notes to condensed consolidated financial statements.





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HABERSHAM BANCORP AND SUBSIDIARIES




Notes to Condensed Consolidated Financial Statements

1. Basis of Presentation

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

The condensed consolidated financial statements included herein should be
read in conjunction with the Companys 2001 consolidated financial statements
and notes thereto, included in the Companys Annual Report on Form 10-K for the
fiscal year ended December 31, 2001.

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, 2001. The
Company has consistently followed those policies in preparing this report.

3. Other Comprehensive Income

Other comprehensive income refers to revenues, expenses, gains, and
losses that are included in comprehensive income but excluded from earnings
under current accounting standards. Currently, other comprehensive income for
the Company consists of items recorded directly in equity under Statement of
Financial Accounting Standards (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities. Comprehensive income for the six
months ended June 30, 2002 and 2001 was $2,660,000 and $3,215,000,
respectively, and for the three months ended June 30, 2002 and 2001 was
$1,403,000 and $1,501,000, respectively.

4. Derivative Instruments

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





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In the normal course of business, the Company extends interest rate lock
commitments to borrowers who apply for loan funding and meet certain credit and
underwriting criteria. Such commitments are typically for short terms. With
the exception of commitments to originate fixed-rate mortgage loans for resale
and forward commitments to sell mortgage-backed securities, the Company does
not hold any derivative instruments.

The Companys objective in entering into forward commitments to sell
mortgage-backed securities is to mitigate the interest rate risk associated
with commitments to originate fixed-rate mortgage loans and mortgage loans held
for sale. If the fair value of the Companys commitments to originate
fixed-rate mortgage loans for resale results in an asset, such asset is
recorded only to the extent of losses in the forward commitments to sell
mortgage-backed securities. Losses are recorded on the Companys commitments
to originate fixed-rate mortgage loans for resale when fair values are less
than carrying values. The Company records its forward commitments to sell
mortgage-backed securities at fair value and does not account for these as
hedges. During the quarters ended June 30, 2002 and 2001, (losses) and gains
relating to the change in fair value of forward commitments to sell
mortgage-backed securities in the amounts of $(407,000) and $253,000,
respectively, were recorded in income. During the six-month period ended June
30, 2002, there was no change in the fair value of forward commitments relating
to commitments to sell mortgage-backed securities, compared to gains of
$669,000 relating to the change in fair value of forward commitments for the
six-month period ending June 30, 2001.

5. Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (FASB) issued
SFAS No. 141, Business Combinationswhich is effective for all business
combinations initiated after June 30, 2001. SFAS No. 141 requires companies to
account for all business combinations using the purchase method of accounting,
recognize intangible assets if certain criteria are met, as well as provide
additional disclosures regarding business combinations and allocation of
purchase price. Because the Company has not initiated any business combinations
since the effective date of SFAS No. 141, this pronouncement has not impacted
the Companys consolidated financial statements.

In June 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets, which eliminates amortization of goodwill and intangible assets that
have indefinite useful lives and requires annual tests of impairments of those
assets. SFAS No. 142 also provides specific guidance about how to determine and
measure goodwill and intangible asset impairments, and requires additional
disclosures of information about goodwill and other intangible assets. The
Company adopted the provisions of SFAS No. 142 effective January 1, 2002.

In accordance with the provisions of SFAS No. 142, the Company is required
to test its goodwill for impairment. To accomplish this the Company identified
its reporting units and determined the carrying value of each reporting unit by
assigning the assets and liabilities, including the existing goodwill and
intangible assets, to those reporting units as of the date of adoption. The
Company has up to six months from the date of adoption to determine the fair
value of each reporting unit and compare it to the reporting units carrying
amount. To the extent a reporting units carrying amount exceeds its fair
value, an indication exists that the reporting units goodwill may be impaired
and the Company must perform the second step of the





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transitional impairment test. Any transitional impairment loss is recognized
as the cumulative effect of a change in accounting principle in the Companys
statement of earnings. The Company completed the test for goodwill impairment
as required under SFAS No. 142 during the second quarter of 2002 and determined
that the goodwill recorded as of June 30, 2002 was not impaired.

At June 30, 2002 and December 31, 2001, the Company had net unamortized
goodwill of approximately $2,499,000 and net unamortized equity-method goodwill
of approximately $1,058,000. The following is a summary of net income and net
income per share for the three and six months ended June 30, 2001 excluding
goodwill amortization expense.

|                                              |  |                    |           |                  |  |   |           | 
|--------------------------------------------- |  | ------------------ | --------- | ---------------- |  | - | --------- | 
|                                              |  | Three months ended |           | Six months ended
|                                              |  | June 30, 2001      |           | June 30, 2001   
|Reported net income                           |  | $                  | 1,706,000 |                  |  | $ | 2,813,000 | 
|Add back: goodwill amortization               |  |                    | 32,000    |                  |  |   | 65,000    | 
|Add back: equity-method goodwill amortization |  |                    | 21,000    |                  |  |   | 43,000    | 
|                                              |  |                    |           |                  |  |   |           | 
|Adjusted net income                           |  | $                  | 1,759,000 |                  |  | $ | 2,921,000 | 
|                                              |  |                    |           |                  |  |   |           | 
|                                              |  |                    |           |                  |  |   |           | 
|Basic net income per share:                   |  |                    |           |                  |  |   |           | 
|Reported net income                           |  | $                  | .63       |                  |  | $ | 1.04      | 
|Add back: goodwill amortization               |  |                    | .01       |                  |  |   | .02       | 
|Add back: equity-method goodwill amortization |  |                    | .01       |                  |  |   | .02       | 
|                                              |  |                    |           |                  |  |   |           | 
|Adjusted net income                           |  | $                  | .65       |                  |  | $ | 1.08      | 
|                                              |  |                    |           |                  |  |   |           | 
|                                              |  |                    |           |                  |  |   |           | 
|Diluted net income per share:                 |  |                    |           |                  |  |   |           | 
|Reported net income                           |  | $                  | .63       |                  |  | $ | 1.04      | 
|Add back: equity-method goodwill amortization |  |                    | .01       |                  |  |   | .02       | 
|Add back: goodwill amortization               |  |                    | .01       |                  |  |   | .02       | 
|                                              |  |                    |           |                  |  |   |           | 
|Adjusted net income                           |  | $                  | .65       |                  |  | $ | 1.08      | 
|                                              |  |                    |           |                  |  |   |           | 

In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which addresses financial
accounting and reporting for the impairment of long-lived assets and for
long-lived assets to be disposed of. The provisions of SFAS No. 144 are
effective for financial statements issued for fiscal years beginning after
December 15, 2001. The Company adopted the provisions of SFAS No. 144 on
January 1, 2002. The adoption of SFAS No. 144 did not have a material impact
on the Companys consolidated financial statements.

6. Segment Information

The Company has two significant reportable segments: banking and mortgage
banking. The Company offers traditional banking services through Habersham
Bank. The Company originates and sells loans in the secondary market through
its mortgage banking segment, BancMortgage Financial Corp.

The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates
performance based on net income of the respective segments.





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At and for the three months ended June 30, 2002

|                                     |  |         |         |         |  |              |        |       |  |              |         |              |  |   |       |   |  |   |        |   |  |   |         | 
|------------------------------------ |  | ------- | ------- | ------- |  | ------------ | ------ | ----- |  | ------------ | ------- | ------------ |  | - | ----- | - |  | - | ------ | - |  | - | ------- | 
|                                     |  |         |         |         |  | Mortgage     |        |       |  |              |         |              |  |   |       |   |  |   |        |   |  |  
|                                     |  | Banking |         | Banking |  | Eliminations |        | Other |  | Eliminations |         | Consolidated
|Interest income                      |  | $       | 6,885   |         |  | $            | 1,311  |       |  | $            | (53     | )            |  | $ |      |   |  | $ |       |   |  | $ | 8,143   | 
|Interest expense                     |  |         | 2,977   |         |  |              | 406    |       |  |              | (53     | )            |  |   | 37    |   |  |   |       |   |  |   | 3,367   | 
|Provision for loan losses            |  |         | 263     |         |  |              | (9     | )     |  |              |        |              |  |   |      |   |  |   |       |   |  |   | 254     | 
|Gain on sale of loans                |  |         | 19      |         |  |              | 5,304  |       |  |              |        |              |  |   |      |   |  |   |       |   |  |   | 5,323   | 
|Other noninterest income             |  |         | 587     |         |  |              | 748    |       |  |              | (164    | )            |  |   | 426   |   |  |   | (340   | ) |  |   | 1,257   | 
|Depreciation on premises &
equipment |  |         | 138     |         |  |              | 168    |       |  |              |        |              |  |   | 17    |   |  |   |       |   |  |   | 323     | 
|Other noninterest expense            |  |         | 2,854   |         |  |              | 6,852  |       |  |              | (164    | )            |  |   | 538   |   |  |   | (340   | ) |  |   | 9,740   | 
|Income tax expense (benefit)         |  |         | 182     |         |  |              | 93     |       |  |              |        |              |  |   | (52   | ) |  |   |       |   |  |   | 223     | 
|Net income (loss)                    |  |         | 638     |         |  |              | 278    |       |  |              |        |              |  |   | (100  | ) |  |   |       |   |  |   | 816     | 
|Total assets                         |  | $       | 425,630 |         |  | $            | 97,150 |       |  | $            | (18,385 | )            |  | $ | 4,707 |   |  | $ | (1,255 | ) |  | $ | 507,847 | 

At and for the three months ended June 30, 2001

|                                     |  |         |         |         |  |              |         |       |  |              |         |              |  |   |       |   |  |   |      |   |  |   |         | 
|------------------------------------ |  | ------- | ------- | ------- |  | ------------ | ------- | ----- |  | ------------ | ------- | ------------ |  | - | ----- | - |  | - | ---- | - |  | - | ------- | 
|                                     |  |         |         |         |  | Mortgage     |         |       |  |              |         |              |  |   |       |   |  |   |      |   |  |  
|                                     |  | Banking |         | Banking |  | Eliminations |         | Other |  | Eliminations |         | Consolidated
|Interest income                      |  | $       | 9,338   |         |  | $            | 1,958   |       |  | $            | (285    | )            |  | $ | 14    |   |  | $ |     |   |  | $ | 11,025  | 
|Interest expense                     |  |         | 5,552   |         |  |              | 1,159   |       |  |              | (285    | )            |  |   | 32    |   |  |   |     |   |  |   | 6,458   | 
|Provision for loan losses            |  |         | 215     |         |  |              | 217     |       |  |              |        |              |  |   |      |   |  |   |     |   |  |   | 432     | 
|Gain on sale of loans                |  |         | 319     |         |  |              | 5,853   |       |  |              |        |              |  |   |      |   |  |   |     |   |  |   | 6,172   | 
|Other noninterest income             |  |         | 485     |         |  |              | 1,600   |       |  |              | (152    | )            |  |   | 424   |   |  |   | (303 | ) |  |   | 2,054   | 
|Depreciation on premises &
equipment |  |         | 139     |         |  |              | 164     |       |  |              |        |              |  |   | 23    |   |  |   |     |   |  |   | 326     | 
|Other noninterest expense            |  |         | 2,573   |         |  |              | 6,719   |       |  |              | (152    | )            |  |   | 670   |   |  |   | (303 | ) |  |   | 9,507   | 
|Income tax expense (benefit)         |  |         | 382     |         |  |              | 498     |       |  |              |        |              |  |   | (58   | ) |  |   |     |   |  |   | 822     | 
|Net income (loss)                    |  |         | 870     |         |  |              | 965     |       |  |              |        |              |  |   | (129  | ) |  |   |     |   |  |   | 1,706   | 
|Total assets                         |  | $       | 456,779 |         |  | $            | 128,337 |       |  | $            | (28,595 | )            |  | $ | 5,428 |   |  | $ | (390 | ) |  | $ | 561,559 | 

At and for the six months ended June 30, 2002

|                                     |  |         |         |         |  |              |        |       |  |              |         |              |  |   |       |  |  |   |        |   |  |   |         | 
|------------------------------------ |  | ------- | ------- | ------- |  | ------------ | ------ | ----- |  | ------------ | ------- | ------------ |  | - | ----- |  |  | - | ------ | - |  | - | ------- | 
|                                     |  |         |         |         |  | Mortgage     |        |       |  |              |         |              |  |   |       |  |  |   |        |   |  |  
|                                     |  | Banking |         | Banking |  | Eliminations |        | Other |  | Eliminations |         | Consolidated
|Interest income                      |  | $       | 13,906  |         |  | $            | 2,803  |       |  | $            | (139    | )            |  | $ |      |  |  | $ |       |   |  | $ | 16,570  | 
|Interest expense                     |  |         | 6,327   |         |  |              | 891    |       |  |              | (139    | )            |  |   | 85    |  |  |   |       |   |  |   | 7,164   | 
|Provision for loan losses            |  |         | 625     |         |  |              | 53     |       |  |              |        |              |  |   |      |  |  |   |       |   |  |   | 678     | 
|Gain on sale of loans                |  |         | 69      |         |  |              | 11,088 |       |  |              |        |              |  |   |      |  |  |   |       |   |  |   | 11,157  | 
|Other noninterest income             |  |         | 1,112   |         |  |              | 2,482  |       |  |              | (321    | )            |  |   | 1,692 |  |  |   | (676   | ) |  |   | 4,289   | 
|Depreciation on premises &
equipment |  |         | 263     |         |  |              | 336    |       |  |              |        |              |  |   | 33    |  |  |   |       |   |  |   | 632     | 
|Other noninterest expense            |  |         | 5,877   |         |  |              | 13,704 |       |  |              | (321    | )            |  |   | 1,175 |  |  |   | (676   | ) |  |   | 19,759  | 
|Income tax expense                   |  |         | 387     |         |  |              | 551    |       |  |              |        |              |  |   | 141   |  |  |   |       |   |  |   | 1,079   | 
|Net income                           |  |         | 1,283   |         |  |              | 1,148  |       |  |              |        |              |  |   | 273   |  |  |   |       |   |  |   | 2,704   | 
|Total assets                         |  | $       | 425,630 |         |  | $            | 97,150 |       |  | $            | (18,385 | )            |  | $ | 4,707 |  |  | $ | (1,255 | ) |  | $ | 507,847 | 





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At and for the six months ended June 30, 2001

|                                     |  |         |         |         |  |              |         |       |  |              |         |              |  |   |       |   |  |   |      |   |  |   |         | 
|------------------------------------ |  | ------- | ------- | ------- |  | ------------ | ------- | ----- |  | ------------ | ------- | ------------ |  | - | ----- | - |  | - | ---- | - |  | - | ------- | 
|                                     |  |         |         |         |  | Mortgage     |         |       |  |              |         |              |  |   |       |   |  |   |      |   |  |  
|                                     |  | Banking |         | Banking |  | Eliminations |         | Other |  | Eliminations |         | Consolidated
|Interest income                      |  | $       | 19,389  |         |  | $            | 3,132   |       |  | $            | (526    | )            |  | $ | 29    |   |  | $ |     |   |  | $ | 22,024  | 
|Interest expense                     |  |         | 11,612  |         |  |              | 1,987   |       |  |              | (526    | )            |  |   | 72    |   |  |   |     |   |  |   | 13,145  | 
|Provision for loan losses            |  |         | 429     |         |  |              | 287     |       |  |              |        |              |  |   |      |   |  |   |     |   |  |   | 716     | 
|Gain on sale of loans                |  |         | 346     |         |  |              | 9,379   |       |  |              |        |              |  |   |      |   |  |   |     |   |  |   | 9,725   | 
|Other noninterest income             |  |         | 1,170   |         |  |              | 3,122   |       |  |              | (321    | )            |  |   | 920   |   |  |   | (678 | ) |  |   | 4,213   | 
|Depreciation on premises &
equipment |  |         | 299     |         |  |              | 336     |       |  |              |        |              |  |   | 43    |   |  |   |     |   |  |   | 678     | 
|Other noninterest expense            |  |         | 5,556   |         |  |              | 11,257  |       |  |              | (321    | )            |  |   | 1,280 |   |  |   | (678 | ) |  |   | 17,094  | 
|Income tax expense (benefit)         |  |         | 817     |         |  |              | 635     |       |  |              |        |              |  |   | (98   | ) |  |   |     |   |  |   | 1,354   | 
|Net income (loss)                    |  |         | 1,790   |         |  |              | 1,273   |       |  |              |        |              |  |   | (250  | ) |  |   |     |   |  |   | 2,813   | 
|Total assets                         |  | $       | 456,779 |         |  | $            | 128,337 |       |  | $            | (28,595 | )            |  | $ | 5,428 |   |  | $ | (390 | ) |  | $ | 561,559 | 




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 BancMortgage Financial Corp
(BancMortgage), and Advantage Insurers, Inc. (Advantage Insurers). The
Advantage Group, Inc., a non-bank subsidiary which engages in the business of
providing marketing and advertising services, ceased operation September 30,
2001. Advantage Insurers, which began operations on March 31, 1997, offers a
full line of property, casualty, and life insurance products.

The Advantage Group, Inc. and Advantage Insurers do not comprise a
significant portion of the financial position, results of operations, or cash
flows of the Company. Managements discussion and analysis, which follows,
relates primarily to Habersham Bank and BancMortgage.

BancMortgage was organized in 1996 as a full service mortgage and
construction lending company located in the northern Atlanta metropolitan area.
During 1997, BancMortgage acquired for approximately $60,000 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. Concurrent with the acquisition of The Prestwick
Mortgage Group, BancMortgage also formed BancFinancial Services Corporation, a
full-service wholesale mortgage lender specializing in sub-prime mortgage
loans. The Prestwick Mortgage Group and BancFinancial Services Corporation are
based in Virginia.

Since forming BancMortgage Financial Corp. in December of 1995, loan
volume has consistently grown to approximately $312 million for the quarter
ended June 30, 2002. This increase in volume has required corresponding
increases in capital and funding from the Bank that could be difficult to
sustain. As a result, management has determined that it is in the Companys
best interests to either renegotiate certain aspects of its agreement with the
BancMortgage management team or sell BancMortgage





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to certain members of its management team under the terms of the Mortgage
Banking Agreement dated January 2, 1996 by and among the Company, the Bank,
BancMortgage, Robert S. Cannon and Anthony L. Watts (the Agreement). The
Agreement provides that Messrs. Cannon and Watts, who currently serve as
BancMortgages co-chief executive officers, have a right of first refusal to
purchase BancMortgage at a price equal to its current book value, which was
equal to $8.230 million at June 30, 2002. Messrs. Cannon and Watts have
exercised this right, and if they are able to obtain financing to consummate
this transaction, the sale will occur during the current fiscal year. Although
BancMortgage represents a significant portion of our consolidated revenues, we
believe that its sale, if consummated, will ultimately be accretive to earnings
in view of the anticipated accompanying decrease in capital funding
requirements and compensation and other expenses relating to the operation of
the subsidiary.

During 1999, BancMortgage formed a wholly owned subsidiary, BancMortgage
Reinsurance LTD., a reinsurance company incorporated in Turks and Caicos. The
subsidiary provides insurance to companies offering private mortgage insurance.

Forward Looking Statements

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

Forward-looking statements involve risks and uncertainties which may cause
actual results to differ materially from those in such statements. Facts that
could cause actual results to differ from those discussed in the
forward-looking statements include, but are not limited to: (1) the strength
of the U.S. economy in general and the strength of the local economies in which
operations are conducted; (2) the effects of and changes in trade, monetary and
fiscal policies and laws, including interest rate policies of the Board of
Governors of the Federal Reserve System; (3) inflation, interest rate, market
and monetary fluctuations; (4) the timely development of and acceptance of new
products and services and perceived overall value of these products and
services by users; (5) changes in consumer spending, borrowing and saving
habits; (6) acquisitions; (7) the ability to increase market share and control
expenses; (8) the effect of changes in laws and regulations (including laws and
regulations concerning taxes, banking, securities and insurance) with which the
Company and its subsidiaries must comply; (9) the effect of changes in
accounting policies and practices, as may be adopted by the regulatory agencies
as well as the Financial Accounting Standards Board; (10) changes in the
Companys organization, compensation and benefit plans; (11) the costs and
effects of litigation and of unexpected or adverse outcomes in such litigation;
and (12) the success of the Company at managing the risks involved in the
foregoing.





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

Critical Accounting Policies

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

These policies are described in note 1 to the consolidated financial
statements which were presented in the Companys 2001 annual report on Form
10-K. Of these policies, management believes that the accounting for the
allowance for loan losses is the most critical.

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

The risk associated with lending varies with the creditworthiness of the
borrower, the type of loan (consumer, commercial, or real estate) and its
maturity. Cash flows adequate to support a repayment schedule is an element considered
for all types of loans. Real estate loans are impacted by market conditions
regarding the value of the underlying property used as collateral. Commercial
loans are also impacted by the management of the business as well as economic
conditions.

The allowance for loan losses methodology is based on a loan
classification system. For purposes of determining the required allowance for
loan losses and resulting periodic provisions, the Company identifies the
problem loans in its portfolio and segregates the remainder of the loan
portfolio into broad segments, such as commercial, commercial real estate,
residential mortgage, and consumer. The Company provides for a general
allowance for losses inherent in the portfolio for each of the above
categories. The general allowance is calculated based on estimates of inherent
losses which probably exist as of the evaluation date. Loss percentages used
for non-problem loans in the portfolio are based on historical loss factors.
The general allowance for losses on problem loans is based on a review and
evaluation of these loans, taking into consideration financial condition and
strengths of the borrower, related collateral, cash flows available for debt
repayment, and known and expected economic conditions. General loss
percentages for the problem loans are determined based upon historical loss
experience and regulatory requirements. For loans considered impaired,
specific allowances are provided in the event that the specific collateral
analysis on each problem loan indicates that the liquidation of the collateral
would not result in repayment of these loans if the loan is collateral
dependent or if the present value of expected future cash flows on the loan are
less than the balance. In addition to these allocated reserves, the Company
had established an unallocated reserve of approximately $175,000 at December
31, 2001. There were no unallocated reserves at June 30, 2002. The unallocated
reserve at December 31, 2001 was due to a number of qualitative factors, such
as concentrations





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of credit and changes in the outlook for local and regional economic
conditions. Management believes its allowance for loan losses is adequate to
absorb losses on loans outstanding at June 30, 2002.

Material Changes in Financial Condition

The Companys total assets decreased $38.7 million, to $507.8 million at
June 30, 2002 from $546.5 million at December 31, 2001. The decrease was
primarily due to
a decrease in loans held for sale of approximately $23.9 million as a result of
a decrease in production at BancMortgage due to a slow down in refinancing
activity. Total loans at Habersham Bank decreased $12.0 million, to $309.2
million at June 30, 2002 from $321.2 million at December 31, 2001. The
decrease was primarily due to a reduction in real estate mortgage and
construction loans of approximately $4.0 million and $1.7 million,
respectively, as well as the reduction in commercial loans by approximately
$4.4 million. Also, the Company sold its credit card portfolio totaling
approximately $2.0 million during the first quarter of 2002.

Investment securities available for sale and held to maturity increased
approximately $1.1 million to $58.4 million at June 30, 2002 from $57.3 million
at December 31, 2001. This increase resulted from purchases in the available
for sale portfolio of approximately $11 million offset by maturities of
approximately $8.4 million. Also, the Company liquidated its investment in
FLAG Financial common stock for approximately $2.2 million resulting in a gain
of approximately $838,000.

Other investments decreased $1.3 million to $8.3 million at June 30, 2002
from $9.6 million at December 31, 2001 due to the redemption of FHLB stock
during the first six months of 2002.

Total liabilities decreased $41.6 million, to $460.9 million at June 30,
2002 from $502.5 million at December 31, 2001. With the decrease in loans and
loans held for sale, funds were available to reduce total borrowings from
$136.9 million at December 31, 2001 to $96.6 million at June 30, 2002. The
Company repaid $28.5 million and $10.2 million in FHLB advances and in federal
funds purchased, respectively, during the first six months of 2002 and with the
proceeds from the sale of the FLAG Financial Corp. common stock, reduced other
borrowings by $2.1 million.

Material Changes in Results of Operations

Total interest income for the second quarter of 2002 decreased $2,882,000
or 26.14%, when compared to the second quarter of 2001. Total interest income
for the first six months of 2002 decreased $5,454,000 or 24.76% when compared
to the first six months of 2001. The decrease was primarily due to decreases
in interest income from loans offset by increases in investment security
income.

Interest income from loans for the second quarter of 2002 and for the
first six months of 2002 decreased $2,804,000 or 27.83% and $5,329,000 or
26.47%, respectively, when compared to the second quarter of 2001 and the first
six months of 2001. These decreases were due to reduction in the loan
portfolios of Habersham Bank and BancMortgage Financial Corp. as well as a
declining interest rate environment during the first six months of 2002.
Average loan balances decreased $53,865,000 or 11.86% during the first six
months of 2002 compared to the first six months of 2001.
Loan yields decreased by 1.46% to 7.40% for the first six months of 2002
compared to 8.86% for the first six months of 2001.





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Interest income from investment securities increased $51,000 or 6.99% for
the second quarter of 2002 when compared to the second quarter of 2001.
Interest income from investment securities increased $29,000 or 1.95% for the
first six months of 2002 when compared to the first six months of 2001. These
increases were primarily due to an increase in the available for sale
investment security portfolio of Habersham Bank offset by a decrease in the
investment security yields. Average investment securities balances increased
$2,820,000 or 5.15% during the first six months of 2002 compared to the first
six months of 2001. Average yields on investment securities decreased by .17%
to 5.25% for the first six months of 2002 when compared to 5.42% for the first
six months of 2001.

Total interest expense for the second quarter of 2002 decreased $3,091,000
or 47.86%, when compared to the second quarter of 2001. Total interest expense
for the first six months of 2002 decreased $5,981,000 or 45.50%, when compared
to the first six months of 2001. The decrease in interest expense on deposits
was primarily due to changes in the mix of the deposit portfolio as well as a
declining interest rate environment during 2002. Total average deposits for
the first six months of 2002 decreased approximately $20.3 million or 5.63%
when compared to the first six months of 2001. Average certificates of deposits
decreased approximately $34.8 million which was offset by increases in average
NOW and demand deposit accounts of approximately $7.0 million and $7.3 million,
respectively. Average interest rates on total deposits decreased by 2.39% to
3.45% during the first six months of 2002 compared to 5.84% for the first six
months of 2001.

Interest expense on short-term and other borrowings decreased $751,000 or
45.38% when compared to the first quarter of 2001. Interest expense on
short-term and other borrowings decreased $1.5 million or 44.50% when compared
to the first six months of 2001. The decreases were primarily due to decreases
in average borrowings of approximately $30 million as well a decrease in the
average rate on borrowings of 1.90% to 3.55% for the first six months of 2002
compared to 5.45% for the first six months of 2001.

Net interest income increased approximately $209,000 or 4.57%, for the
second quarter of 2002 as compared to the second quarter of 2001 and increased
approximately $527,000 or 5.94% as compared to the first six months of 2001 as
a result of the items discussed above.

The net interest margin of the Company, net interest income divided by
average interest-earning assets, was 3.99% for the first six months of 2002
compared to 3.33% for the first six months of 2001. The increase in the net
interest margin resulted primarily from decreases in average balances and in
the average rates paid on borrowings and deposit accounts.

Noninterest income decreased $1,646,000 or 20.01% for the second quarter
of 2002 over the same period in 2001. Noninterest income increased $1,508,000
or 10.82% for the first six months of 2002 over the same period in 2002. The
decrease during the second quarter of 2002 is related to decreased production
at BancMortgage during the second quarter of 2002 compared to the second
quarter of 2001 resulting in decreases in gain on sale of loans and loan fee
income of $879,000 and $244,000, respectively. Also, during the second quarter
of 2002, the Company recorded a loss due to the change in fair value of forward
commitments of $407,000 compared to a gain of $253,000 recorded for the second
quarter of 2001. The increase in the first six months is due to increased
production at BancMortgage for the six month period ended June 30, 2002. Also,
during the first six months of 2002, no change in fair value of forward
commitments was recorded as compared to a gain of $669,000 recorded for the
first six months of 2001. In addition, the Company recognized a gain of
$839,000





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from the sale of its holdings of FLAG Financial Corp. common stock during the
first six months of 2002.

Other income increased $155,000 or 37.44% for the second quarter of 2002
over the same period in 2001 and increased $344,000 or 39.72% for the first six
months of 2002 over the same period in 2001. These increases were primarily
due to increases in trust department fee income at Habersham Bank and
additional income generated by BancMortgage Reinsurance of approximately
$174,000 and $110,000, respectively.

Noninterest expense increased $230,000 or 2.34% for the second quarter of
2002 over the same period in 2001. Noninterest expense increased $2,619,000 or
14.74% for the first six months of 2002 over the same period in 2001. These
increases in 2002 were due to increased salary and employee benefits. Salary
and employee benefits increased primarily due to the production volume
generated by BancMortgage, which compensates staff by commissions that are
directly related to production volume, as well as annual salary adjustments.
General and administrative expenses increased approximately $319,000 for the
first six months of 2002 over the same period in 2001 primarily due to a write
down of repossessed assets in the amount of $200,000 in the second quarter of
2002, in addition to increases in advertising and public relations expense.

Income tax expense for the three months ended June 30, 2002 and 2001 was
$223,000 and $822,000, respectively. Income tax expense for the first six
months ended June 30, 2002 and 2001 was $1,079,000 and $1,354,000,
respectively. The effective tax rates for the six months ended June 30, 2002
and 2001 were 28.52% and 32.49%, respectively.

Asset Quality

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

A provision for loan losses in the amount of $254,000 was charged to
expense for the quarter ended June 30, 2002 compared to $432,000 for the
quarter ended June 30, 2001. A provision for loan losses in the amount of
$678,000 was charged to expense for the first six months of 2002 compared to
$716,000 for the first six months of 2001. Net charge-offs for the first six
months totaled approximately $855,000. At June 30, 2002 and December 31, 2001,
the ratio of allowance for loan losses to total loans, including loans held for
sale, was .90% and .87%, respectively.

Nonperforming assets consist of nonaccrual loans, accruing loans 90 days
past due, restructured loans and other real estate owned. Nonperforming assets
decreased approximately $3,772,000 or 31.60% from December 31, 2001 to June 30,
2002. The decrease in nonperforming assets for the six months of 2002 was
primarily due to a net decrease of other real estate properties of
approximately $3.2 million. Nonaccrual loans and restructured loans also
decreased by approximately $604,000 and $100,000, respectively, offset by an
increase of approximately $182,000 in past due loans over 90 days during the
first six months of 2002.





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The Company had impaired loans of $2,508,332 and $3,112,413 at June 30,
2002 and December 31, 2001, respectively. Impaired loans consist of loans on
nonaccrual status. The interest income recognized on such loans for the
six-month periods ended June 30, 2002 and 2001 was not material.

The Companys other real estate totaled $1,853,837 and $5,104,658 at June
30, 2002 and December 31, 2001, respectively. This decrease was due primarily
to the payoffs generated from the sale of other real estate properties and write
downs of approximately $4,434,000 and $74,000, respectively, offset by
additional foreclosures of real estate secured loans and expenses to complete
construction of approximately $1,372,000 and $18,000, respectively.

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.

The Company also has the ability, on a short-term basis, to purchase
federal funds from other financial institutions up to $25,000,000. At June 30,
2002, the Company had purchased approximately $15,000,000 of the available
federal funds. Presently, the Company has made arrangements with commercial
banks for short-term advances up to $9,000,000 under a repurchase agreement
line of credit of which none was advanced at June 30, 2002, in addition to a
total available line of $230,833,000 which is available to the Company, subject
to available collateral, from the Federal Home Loan Bank of which approximately
$72,000,000 was advanced at June 30, 2002.

Habersham Banks liquidity policy requires that the ratio of cash and
certain short-term investments to net withdrawable deposit accounts be at least
20%. The Banks liquidity ratios at June 30, 2002 and 2001 were 20.55% and
21.28%, respectively.

At June 30, 2002, 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 and the
Banks ratios at June 30, 2002 follow:





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|              |  |           |       |           |  |  |       |  
|------------- |  | --------- | ----- | --------- |  |  | ----- | -
|              |  | Habersham |       | Habersham
|              |  | Bank      |       | Bancorp  
|Tier 1        |  |           | 10.97 | %         |  |  | 11.44 | %
|Total Capital |  |           | 11.94 | %         |  |  | 12.39 | %
|Leverage      |  |           | 8.39  | %         |  |  | 8.76  | %

Commitments and Contractual Obligations

The Company is a party to financial instruments with off-balance-sheet
risk in the normal course of its lending activities to meet the financing needs
of its customers. These financial instruments include commitments to extend
credit and standby letters of credit. The Companys exposure to credit losses
in the event of nonperformance by the other party to the financial instrument
for commitments to extend credit and standby letters of credit is represented
by the contractual amounts of those instruments. The Company uses the same
credit policies in making these commitments as it does for on-balance-sheet
instruments and evaluates each customers creditworthiness on a case-by-case
basis. At June 30, 2002, the Company had outstanding loan commitments
exclusive of mortgage loan commitments of BancMortgage approximating
$93,223,000 and standby letters of credit approximating $4,776,000. The amount
of collateral obtained, if deemed necessary, for these financial instruments by
the Company, upon extension of credit, is based on managements credit
evaluation of the customer. Collateral held, if any, varies but may include
inventory, equipment, real estate, or other property. The accounting loss the
Company would incur if any party of the financial instrument failed completely
to perform according to the term of the contract and the collateral proved to
be of no value is equal to the face amount of the financial instrument.

At June 30, 2002, the Company has commitments, primarily at a fixed rate,
to originate mortgage loans in the amount of approximately $54,650,000.

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

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

|                                        |                                               |   |            |             |           |  |             |            |            |  |            |            |  |  |   |            |  |  |   |           | 
|--------------------------------------- | --------------------------------------------- | - | ---------- | ----------- | --------- |  | ----------- | ---------- | ---------- |  | ---------- | ---------- |  |  | - | ---------- |  |  | - | --------- | 
|                                        |                                               |   | Due In     |             | Due In    |  | Due In      |            | Due In     |  | Due In    
|                                        |                                               |   | One Year   |             | Two Years |  | Three Years |            | Four Years |  | Five Years
|Commitments to originate mortgage loans |                                               | $ | 54,650,200 |             |           |  |             |            |            |  |            |            |  |  |   |            |  |  |   |          
|                                        | Commitments on lines of credit                |   |            | 93,223,414  |           |  |             |            |            |  |            |            |  |  |   |            |  |  |   |           | 
|                                        | Standby letters of credit                     |   |            | 4,775,585   |           |  |             |            |            |  |            |            |  |  |   |            |  |  |   |           | 
|                                        | Commitments under lease agreements            |   |            | 1,152,724   |           |  | $           | 987,704    |            |  | $          | 761,675    |  |  | $ | 431,139    |  |  | $ | 110,367   | 
|                                        | Deposits                                      |   |            | 276,167,918 |           |  |             | 32,059,968 |            |  |            | 8,815,162  |  |  |   | 15,081,209 |  |  |   | 838,348   | 
|                                        | FHLB advances                                 |   |            | 41,963,426  |           |  |             |            |            |  |            |            |  |  |   | 10,000,000 |  |  |   |           | 
|                                        | Other borrowings                              |   |            | 379,200     |           |  |             | 408,000    |            |  |            | 438,000    |  |  |   | 470,400    |  |  |   | 505,200   | 
|                                        | Short-term borrowings                         |   |            | 798,077     |           |  |             |            |            |  |            |            |  |  |   |            |  |  |   |           | 
|                                        | Federal funds purchased                       |   |            | 15,000,000  |           |  |             |            |            |  |            |            |  |  |   |            |  |  |   |           | 
|                                        | Securities sold under repurchase agreements   |   |            | 5,189,743   |           |  |             |            |            |  |            |            |  |  |   |            |  |  |   |           | 
|                                        |                                               |   |            |             |           |  |             |            |            |  |            |            |  |  |   |            |  |  |   |          
|                                        | Total commitments and contractual obligations |   | $          | 493,300,287 |           |  | $           | 33,455,672 |            |  | $          | 10,014,837 |  |  | $ | 25,982,748 |  |  | $ | 1,453,915 | 





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

Interest Rate Sensitivity

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

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

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

The interest rate sensitivity analysis, calculated as of June 30, 2002,
below has a three month positive gap of approximately $20 million
(interest-earning assets exceeding interest-bearing liabilities repricing
within three months).

|                                                                                       |                       |                                    |        |         |         |               |         |               |        |             |         |           |        |       |         |        |        |   |        |        |         |   |        |         |         | 
|-------------------------------------------------------------------------------------- | --------------------- | ---------------------------------- | ------ | ------- | ------- | ------------- | ------- | ------------- | ------ | ----------- | ------- | --------- | ------ | ----- | ------- | ------ | ------ | - | ------ | ------ | ------- | - | ------ | ------- | ------- | 
|                                                                                       |                       |                                    |        | DUE IN  |         | DUE AFTER     |         | DUE AFTER     |        | DUE AFTER   |         | DUE AFTER
|                                                                                       |                       |                                    |        | THREE   |         | THREE THROUGH |         | SIX THROUGH   |        | ONE THROUGH |         | FIVE     
|                                                                                       |                       |                                    |        | MONTHS  |         | SIX MONTHS    |         | TWELVE MONTHS |        | FIVE YEARS  |         | YEARS     |        | TOTAL
|INTEREST-EARNING
ASSETS:                                                               |                       |                                    |        |         |         |               |         |               |        |             |         |           |        |       |         |        |        |   |        |        |         |   |        |        
|                                                                                       | Federal funds sold    |                                    | $      | 117     |         |               |         |               |        |             |         |           |        |       |         |        |        |   |        |        |         |   | $      | 117     |        
|                                                                                       | Investment securities |                                    |        | 301     |         |               | $       | 1,012         |        |             | $       | 942       |        |       | $       | 8,129  |        |   | $      | 47,993 |         |   |        | 58,377  |        
|                                                                                       | Loans                 |                                    |        | 193,381 |         |               |         | 21,018        |        |             |         | 48,270    |        |       |         | 77,652 |        |   |        | 64,039 |         |   |        | 404,360 |        
|                                                                                       |                       |                                    |        |         |         |               |         |               |        |             |         |           |        |       |         |        |        |   |        |        |         |   |        |        
|                                                                                       |                       | Total interest-earning assets      |        |         | 193,799 |               |         |               | 22,030 |             |         |           | 49,212 |       |         |        | 85,781 |   |        |        | 112,032 |   |        |         | 462,854 | 
|                                                                                       |                       |                                    |        |         |         |               |         |               |        |             |         |           |        |       |         |        |        |   |        |        |         |   |        |        
|INTEREST-BEARING
LIABILITIES:                                                          |                       |                                    |        |         |         |               |         |               |        |             |         |           |        |       |         |        |        |   |        |        |         |   |        |        
|                                                                                       | Deposits              |                                    |        |         |         |               |         |               |        |             |         |           |        |       |         |        |        |   |        |        |         |   |        |         |        
|                                                                                       |                       | Money Market and NOW               |        |         | 49,800  |               |         |               |       |             |         |           |       |       |         |        |       |   |        |        |        |   |        |         | 49,800  | 
|                                                                                       |                       | Savings                            |        |         | 8,137   |               |         |               |       |             |         |           |       |       |         |        |       |   |        |        |        |   |        |         | 8,137   | 
|                                                                                       |                       | Certificates of deposit            |        |         | 53,274  |               |         |               | 61,935 |             |         |           | 59,329 |       |         |        | 56,795 |   |        |        |        |   |        |         | 231,333 | 
|                                                                                       | Borrowings            |                                    |        | 63,046  |         |               |         | 95            |        |             |         | 189       |        |       |         | 11,822 |        |   |        | 21,445 |         |   |        | 96,597  |        
|                                                                                       |                       |                                    |        |         |         |               |         |               |        |             |         |           |        |       |         |        |        |   |        |        |         |   |        |        
|                                                                                       |                       | Total interest-bearing
liabilities |        |         | 174,257 |               |         |               | 62,030 |             |         |           | 59,518 |       |         |        | 68,617 |   |        |        | 21,445  |   |        |         | 385,867 | 
|                                                                                       |                       |                                    |        |         |         |               |         |               |        |             |         |           |        |       |         |        |        |   |        |        |         |   |        |        
|Excess (deficiency) of
interest-earning assets over
(to) interest-bearing
liabilities  |                       | $                                  | 19,542 |         |         | $             | (40,000 | )             |        | $           | (10,306 | )         |        | $     | 17,164  |        |        | $ | 90,587 |        |         | $ | 76,987 |        
|                                                                                       |                       |                                    |        |         |         |               |         |               |        |             |         |           |        |       |         |        |        |   |        |        |         |   |        |        
|                                                                                       |                       |                                    |        |         |         |               |         |               |        |             |         |           |        |       |         |        |        |   |        |        |         |   |        |        
|Cumulative gap                                                                         |                       | $                                  | 19,542 |         |         | $             | (20,458 | )             |        | $           | (30,764 | )         |        | $     | (13,600 | )      |        | $ | 76,987 |        |         |   |        |        
|                                                                                       |                       |                                    |        |         |         |               |         |               |        |             |         |           |        |       |         |        |        |   |        |        |         |   |        |        
|Ratio of cumulative gap to total
cumulative interest-earning assets                    |                       |                                    | 10.08  | %       |         |               | (9.48   | )%            |        |             | (11.61  | )%        |        |       | (3.88   | )%     |        |   | 16.63  | %      |         |   |        |        
|Ratio of cumulative
interest-earning assets to
cumulative interest-bearing
liabilities |                       |                                    | 111.21 | %       |         |               | 91.34   | %             |        |             | 89.60   | %         |        |       | 96.27   | %      |        |   | 119.95 | %      |         |   |        |        





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##### Table of Contents



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

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

As of June 30, 2002, 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, 2001. 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, 2001 included in the
Companys 2001 Annual Report on Form 10K.




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 20, 2002.                                                                                                                                                                                                                       
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | The business conducted at the meeting included the
election of the Board of Directors. The Directors elected at the
meeting were: Edward D. Ariail, Thomas A. Arrendale, Jr., Thomas
A. Arrendale, III, Michael C. Martin, James E. McCollum, James A.
Stapleton, Jr., David D. Stovall, and Calvin R. Wilbanks.



| |                                                                                                                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | At the registrants Annual Meeting of Shareholders on April 20, 2002,
the shareholders elected directors to serve for a term of one year or
until their successors are duly qualified and elected. The following
table sets forth the number of votes cast and withheld with respect to
each nominated director.

|                         |  |           |           |                |  |  |     | 
|------------------------ |  | --------- | --------- | -------------- |  |  | --- | 
|Name                     |  | Votes For |           | Votes Withheld
|Edward D. Ariail         |  |           | 2,075,430 |                |  |  | 230 | 
|Thomas A. Arrendale, Jr. |  |           | 2,075,430 |                |  |  | 230 | 
|Thomas A. Arrendale, III |  |           | 2,075,430 |                |  |  | 230 | 
|Michael C. Martin        |  |           | 2,075,430 |                |  |  | 230 | 
|James E. McCollum        |  |           | 2,075,430 |                |  |  | 230 | 
|James A. Stapleton, Jr.  |  |           | 2,075,430 |                |  |  | 230 | 
|David D. Stovall         |  |           | 2,075,430 |                |  |  | 230 | 
|Calvin R. Wilbanks       |  |           | 2,075,430 |                |  |  | 230 | 





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##### Table of Contents






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-Q the exhibits required by Item 601 of Regulation S-K, subject to Rule
12b-32 under the Securities Exchange Act of 1934.

|            |  |          |  | 
|----------- |  | -------- |  | 
|Exhibit No. |  | Document
|            |  |         



|3.1  |  | Amended and restated Articles of Incorporation of Habersham Bancorp, as
amended by amendments executed as of April 16, 1988 and April 17, 1995 (1) and
as further amended by amendment executed as of April 15, 2000. (2)
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |  |                                                                                                                                                                                                                          
|3.2  |  | By-laws of Habersham Bancorp, as amended as of November 20, 1989
(3) and as of March 16, 1991. (4)                                                                                                                       
|     |  |                                                                                                                                                                                                                          
|11.1 |  | Computation of Earnings Per Share.                                                                                                                                                                                       
|     |  |                                                                                                                                                                                                                          
|99.1 |  | Certification by Chief Executive Officer and Chief Financial Officer.                                                                                                                                                    

(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, 2000
(File No. 0-13153).

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

(4)     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).





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##### Table of Contents






SIGNATURES

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

|                     |  |  |                   |                                     
|-------------------- |  |  | ----------------- | ------------------------------------
|                     |  |  | HABERSHAM BANCORP
|                     |  |  | (Registrant)     
|                     |  |  |                   |                                     
|                     |  |  |                   |                                     
|Date August 14, 2002 |  |  |                   | /S/ Annette Banks                   
|                     |  |  |                   |                                     
|                     |  |  |                   | Chief Financial Officer             
|                     |  |  |                   | (for the Registrant and as the      
|                     |  |  |                   | Registrants principal financial and
|                     |  |  |                   | accounting officer)