Exhibit 13.0

HABERSHAM BANCORP

AND SUBSIDIARIES

Consolidated Financial Statements

December 31, 2008, 2007 and 2006

(with Independent Accountants’ Report thereon)

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS

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To the Board of Directors and Stockholders

Habersham Bancorp and Subsidiaries

We have audited the accompanying consolidated balance sheets of Habersham Bancorp and subsidiaries as of December 31, 2008 and 2007, and the related consolidated statements of operations, comprehensive income, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2008. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Habersham Bancorp and subsidiaries as of December 31, 2008 and 2007, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2008, in conformity with accounting principles generally accepted in the United States of America.

\s\Porter Keadle Moore, LLP

Atlanta, Georgia

March 2, 2009

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Habersham Bancorp and Subsidiaries

Consolidated Balance Sheets

December 31, 2008 and 2007

Assets
	2008		2007
Cash and due from banks	$	13,639,940		18,196,283
Federal funds sold		620,036		4,188,944
Cash and cash equivalents		14,259,976		22,385,227
Investment securities available for sale		97,277,891		89,890,102
Investment securities held to maturity, estimated fair value of $1,052,829 and $2,751,684		1,025,435		2,689,198
Other investments		3,334,124		3,408,924
Loans held for sale		-		1,865,850
Loans, net of allowance for loan loss of  $12,167,645 and $2,136,848		310,606,916		348,250,843
Premises and equipment, net		19,479,393		16,081,593
Accrued interest receivable		2,221,546		2,752,173
Other real estate		27,336,874		11,498,271
Goodwill		-		3,549,780
Cash surrender value of life insurance		9,936,088		9,538,611
Income tax receivable		2,504,297		332,161
Other assets		6,886,725		1,976,614
Total assets	$	494,869,265		514,219,347
Liabilities and Stockholders’ Equity
Deposits:
Noninterest-bearing demand	$	29,664,234		29,740,791
Money market and NOW accounts		77,638,103		96,236,923
Savings		43,180,202		60,076,631
Time ($100,000 and over)		102,390,560		116,043,575
Other time		140,014,565		88,168,718
Total deposits		392,887,664		390,266,638
Short-term borrowings		760,468		766,608
Federal funds purchased and securities sold under repurchase agreements		16,383,982		26,183,807
Federal Home Loan Bank advances		38,000,000		38,000,000
Accrued interest payable		2,805,353		3,303,394
Other liabilities		2,033,785		1,516,725
Total liabilities		452,871,252		460,037,172
Commitments
Stockholders’ equity:
Preferred stock; 10,000,000 shares authorized; 3,000 shares issued and outstanding in 2008		2,977,762		-
Common stock, $1.00 par value; 10,000,000 shares authorized; 2,818,593 shares issued and outstanding		2,818,593		2,818,593
Additional paid-in capital		13,490,587		13,490,587
Retained earnings		22,517,920		38,135,126
Accumulated other comprehensive income (loss)		193,151		(262,131	)
Total stockholders’ equity		41,998,013		54,182,175
Total liabilities and stockholders’ equity	$	494,869,265		514,219,347

See accompanying notes to consolidated financial statements.

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Habersham Bancorp and Subsidiaries

Consolidated Statements of Operations

For the Years Ended December 31, 2008, 2007 and 2006

	2008			2007			2006
Interest income:
Loans	$	21,416,324			31,670,690			29,927,711
Investments:
Taxable securities		3,559,252			3,086,017			2,873,933
Tax exempt securities		906,024			1,110,046			982,884
Other investments		157,440			236,914			233,392
Federal funds sold		95,542			271,871			442,118
Total interest income		26,134,582			36,375,538			34,460,038
Interest expense:
Time deposits, $100,000 and over		4,718,506			5,792,183			3,949,260
Other deposits		7,062,904			8,345,735			7,116,569
Federal funds purchased and securities sold under repurchase agreements		621,668			611,682			213,262
Short-term and other borrowings, primarily FHLB advances		1,884,968			2,097,304			1,938,568
Total interest expense		14,288,046			16,846,904			13,217,659
Net interest income		11,846,536			19,528,634			21,242,379
Provision for loan losses		16,020,862			675,225			-
Net interest (loss) income after provision for loan losses		(4,174,326	)		18,853,409			21,242,379
Noninterest income:
Mortgage origination income		402,275			774,490			785,147
Service charges on deposit accounts		1,081,228			988,256			902,238
Other service charges and commissions		264,526			254,240			265,653
Securities gains (losses), net		362,769			4,900			(13,216	)
Gain (loss) on sale of premises and equipment		(7,576	)		7,545			83,555
Income from life insurance		397,477			190,084			172,116
Trust services fees		481,730			410,069			314,139
Other income		1,134,373			1,148,957			1,146,118
Total noninterest income		4,116,802			3,778,541			3,655,750
Noninterest expense:
Salaries and employee benefits		9,473,561			10,544,056			9,779,789
Goodwill impairment		3,549,780			-			-
Occupancy expenses		2,652,590			2,401,145			2,209,495
Losses on sales, write-downs and other expenses on other real estate		1,363,928			177,733			71,374
Computer services		608,457			632,601			553,849
Telephone		493,476			453,464			444,214
Leased equipment expense		470,217			422,836			375,769
Other		4,018,455			4,040,338			3,759,065
Total noninterest expense		22,630,464			18,672,173			17,193,555
Earnings (loss) before income taxes		(22,687,988	)		3,959,777			7,704,574
Income tax benefit (expense)		7,838,667			(1,020,420	)		(2,411,665	)
Net earnings (loss)	$	(14,849,321	)		2,939,357			5,292,909
Earnings (loss) per common share – basic	$	(5.27	)		1.00			1.80
Earnings (loss)  per common share – diluted	$	(5.27	)		1.00			1.77
Weighted average number of common shares outstanding		2,818,593			2,942,292			2,942,737
Weighted average number of common and common equivalent shares outstanding		2,818,593			2,952,528			2,983,048

See accompanying notes to consolidated financial statements.

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Habersham Bancorp and Subsidiaries

Consolidated Statements of Comprehensive Income

For the Years Ended December 31, 2008, 2007 and 2006

	2008			2007			2006
Net (loss) earnings	$	(14,849,321	)		2,939,357			5,292,909
Other comprehensive income:
Unrealized holding gains on investment securities available for sale arising during period		1,097,054			836,769			283,072
Unrealized holding gains (losses) on derivative financial instruments classified as cash flow hedges arising during the period		(62,356	)		(149,402	)		36,269
Reclassification adjustment for (gains) losses on investment securities available for sale		(344,877	)		(4,900	)		13,216
Total other comprehensive income before tax		689,821			682,467			332,557
Income taxes related to other comprehensive income:
Unrealized holding gains on investment securities available for sale arising during period		(372,998	)		(284,502	)		(96,244	)
Unrealized holding (gains) losses on derivative financial instruments classified as cash flow hedges arising during the period		21,201			50,797			(12,332	)
Reclassification adjustment for gains (losses) on investment securities available for sale		117,258			1,666			(4,494	)
Total income taxes related to other comprehensive income		(234,539	)		(232,039	)		(113,070	)
Total other comprehensive income, net of tax		455,282			450,428			219,487
Total comprehensive income (loss)	$	(14,394,039	)		3,389,785			5,512,396

See accompanying notes to consolidated financial statements.

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Habersham Bancorp and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

For the Years Ended December 31, 2008, 2007 and 2006

	Preferred Stock		Common Stock			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
Balance, December 31, 2005	$	-		2,921,240			14,723,175			33,544,763			(932,046	)		50,257,132
Net earnings		-		-			-			5,292,909			-			5,292,909
Change in other comprehensive income, net of tax		-		-			-			-			219,487			219,487
Cash dividends, $.36 per share		-		-			-			(1,060,172	)		-			(1,060,172	)
Tax benefit from options exercised		-		-			84,280			-			-			84,280
Issuance of common stock upon exercise of stock options		-		47,353			723,132			-			-			770,485
Balance, December 31, 2006		-		2,968,593			15,530,587			37,777,500			(712,559	)		55,564,121
Net earnings		-		-			-			2,939,357			-			2,939,357
Change in other comprehensive income, net of tax		-		-			-			-			450,428			450,428
Common stock repurchase  - 150,000 shares		-		(150,000	)		(2,040,000	)		-			-			(2,190,000	)
Cash dividends, $.90 per share		-		-			-			(2,581,731	)		-			(2,581,731	)
Balance, December 31, 2007		-		2,818,593			13,490,587			38,135,126			(262,131	)		54,182,175
Net loss		-		-			-			(14,849,321	)		-			(14,849,321	)
Change in other comprehensive income, net of tax		-		-			-			-			455,282			455,282
Cumulative effect of change in accounting principle due to adoption of EITF 06-10		-		-			-			(63,237	)		-			(63,237	)
Issuance of preferred stock , net of issuance costs of $22,238		2,977,762		-			-			-			-			2,977,762
Cash dividends, $.25 per share		-		-			-			(704,648	)		-			(704,648	)
Balance, December 31, 2008	$	2,977,762		2,818,593			13,490,587			22,517,920			193,151			41,998,013

See accompanying notes to consolidated financial statements.

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Habersham Bancorp and Subsidiaries

Consolidated Statements of Cash Flows

For the Years Ended December 31, 2008, 2007 and 2006

	2008			2007			2006
Cash flows from operating activities:
Net (loss) earnings	$	(14,849,321	)		2,939,357			5,292,909
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
Provision for loan losses		16,020,862			675,225			-
Write downs of real estate owned		451,616			142,000			16,500
Goodwill impairment		3,549,780			-			-
Income from life insurance		(397,477	)		(190,084	)		(172,116	)
Depreciation expense		1,110,407			1,170,791			1,052,771
Loss (gain) on sale and disposals of premises and equipment		7,576			(7,545	)		(83,555	)
Net amortization of premium/discount in investment securities		140,531			80,651			133,912
Securities (gain) loss, net		(362,769	)		(4,900	)		13,216
Loss (gain) on sale of other real estate		175,167			(82,556	)		(15,454	)
Net gain on sale of loans		(147,027	)		(774,490	)		(785,147	)
Proceeds from sales of loans		20,886,277			35,732,752			33,611,309
Increase in loans held for sale		(18,873,400	)		(33,640,997	)		(33,889,839	)
Amortization of intangible assets		62,064			62,064			62,064
Deferred income tax (benefit) expense		(4,850,715	)		301,978			189,186
Changes in assets and liabilities:
(Increase) decrease in accrued interest receivable		530,627			185,808			(578,810	)
(Increase) decrease in other assets		(2,590,491	)		(466,156	)		(199,369	)
Increase (decrease) in accrued interest payable		(498,041	)		324,106			1,016,581
Increase (decrease) in other liabilities		453,823			(396,657	)		27,769
Net cash provided by operating activities		819,489			6,051,347			5,691,927
Cash flows from investing activities:
Investment securities available for sale:
Proceeds from maturities		9,265,767			6,555,706			6,767,710
Proceeds from sales and calls		46,279,585			4,136,400			2,013,278
Purchases		(61,976,570	)		(14,843,351	)		(20,512,685	)
Investment securities held to maturity:
Proceeds from maturities		431,192			599,800			31,801
Proceeds from calls		1,250,415			-			80,000
Other investments:
Proceeds from sales		74,800			-			553,500
Purchases		-			(43,700	)		(543,300	)
Net decrease (increase)  in loans		3,770,333			(17,310,848	)		(27,098,118	)
Purchases of premises and equipment		(4,515,783	)		(4,364,275	)		(3,592,734	)
Proceeds from sales of premises and equipment		-			43,156			219,240
Capitalized completion costs of other real estate		(1,759,558	)		(435,179	)		-
Purchase of  life insurance		-			(4,501,753	)		-
Redemption of life insurance		-			200,056			-
Proceeds from sales of other real estate		3,146,904			616,231			3,309,672
Net cash used in investing activities		(4,032,915	)		(29,347,757	)		(38,771,636	)

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Habersham Bancorp and Subsidiaries

Consolidated Statements of Cash Flows, continued

For the Years Ended December 31, 2008, 2007 and 2006

	2008			2007			2006
Cash flows from financing activities:
Net increase (decrease) in deposits	$	2,621,026			(60,362,122	)		77,866,814
Net (decrease) increase in short-term borrowings		(6,140	)		(12,170	)		3,336
Proceeds from  FHLB advances		7,000,000			4,000,000			8,000,000
Repayment of FHLB advances		(7,000,000	)		(4,000,000	)		(12,300,000	)
Net (decrease) increase in federal funds purchased and securities sold under repurchase agreements		(9,799,825	)		20,309,852			(2,549,368	)
Payment of cash dividends		(704,648	)		(2,581,731	)		(1,060,172	)
Common stock repurchase		-			(2,190,000	)		-
Issuance of  preferred stock		3,000,000			-			-
Preferred stock issuance costs		(22,238	)		-			-
Issuance of common stock upon exercise of stock options		-			-			770,485
Net cash (used) provided by financing activities		(4,911,825	)		(44,836,171	)		70,731,095
Change in cash and cash equivalents		(8,125,251	)		(68,132,581	)		37,651,386
Cash and cash equivalents at beginning of the year		22,385,227			90,517,808			52,866,422
Cash and cash equivalents at end of year	$	14,259,976			22,385,227			90,517,808
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest	$	14,786,087			16,522,798			12,201,078
Income taxes	$	-			1,261,000			2,403,000
Supplemental disclosures of noncash investing activities:
Other real estate acquired through loan foreclosures	$	17,852,732			11,200,792			1,055,372

See accompanying notes to consolidated financial statements.

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Habersham Bancorp and Subsidiaries

Notes to Consolidated Financial Statements

(1) Organization and Basis of Presentation

The consolidated financial statements of Habersham Bancorp and subsidiaries (the “Company”) include the financial statements of Habersham Bancorp and its wholly owned subsidiaries: Habersham Bank (the “Bank”) and The Advantage Group, Inc. The Bank owns 100% of Advantage Insurers, Inc. All intercompany accounts and transactions have been eliminated in consolidation.

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

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans. In connection with the determination of the allowance for loan losses and the valuation of other real estate, management obtains independent appraisals for significant properties. A substantial portion of the Company’s loans is secured by real estate in Habersham, White, and Cherokee Counties and the metropolitan Atlanta area. Accordingly, the ultimate collectibility of a substantial portion of the Company’s loan portfolio is susceptible to changes in real estate market conditions in these areas.

Interest Rate Risk

The Company’s assets and liabilities are generally monetary in nature and interest rates have an impact on the Company’s performance. The Company manages the effect of interest rates on its performance by striving to match maturities and interest sensitivity between loans, investment securities, deposits and other borrowings. On a limited basis, the Company utilized derivative instruments to minimize fluctuation in earnings that are caused by interest rate volatility. However, a significant change in interest rates could have an effect on the Company’s results of operations.

Reclassifications

Certain 2007 and 2006 amounts have been reclassified to conform with the 2008 presentation. These reclassifications had no effect on the operations, financial condition or cash flows of the company.

(2) Summary of Significant Accounting Policies

The accounting and reporting policies of the Company conform with accounting principles generally accepted in the United States of America and general practices within the banking industry. The following is a summary of the more significant accounting policies:

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, amounts due from banks, and Federal funds sold. Federal funds are generally sold for one-day periods.

Investment Securities

The Company classifies its investment securities in two categories: available for sale or held to maturity.

Investment securities classified as available for sale are carried at fair value. The related unrealized gain or loss, net of deferred income taxes, is included as a separate component of stockholders’ equity. Gains and losses from dispositions are based on the net proceeds and the adjusted carrying amounts of the securities sold, using the specific identification method.

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Investment securities classified as held to maturity are stated at cost, adjusted for amortization of premiums, and accretion of discounts. The Company has the intent and ability to hold these investment securities to maturity.

Purchase premiums and discounts on investment securities are amortized and accreted to interest income using the level yield method on the outstanding principal balances, taking into consideration prepayment assumptions.

A decline in the fair value of any security below cost that is deemed other than temporary is charged to earnings, resulting in the establishment of a new cost basis for the security.

Other Investments

At December 31, 2008 and 2007, other investments are primarily comprised of stock of the Federal Home Loan Bank of Atlanta.

Investment in stock of a Federal Home Loan Bank is required of every federally insured institution that utilizes its services. Federal Home Loan Bank stock is considered restricted stock, as defined in Statement of Financial Accounting Standards (SFAS) No. 115; accordingly, the provisions of SFAS No. 115 are not applicable to this investment. The Federal Home Loan Bank stock is reported in the consolidated financial statements at cost. Dividend income is recognized when earned.

Loans Held for Sale

Mortgage loans held for sale are carried at the lower of cost or market determined on an aggregate basis. Market values are determined on the basis of relevant delivery prices in the secondary mortgage market.  There were no loans held for sale at December 31, 2008.  There was no valuation allowance relating to mortgage loans held for sale at December 31, 2007.

Loans

Loans are stated at the amount of unpaid principal, reduced by unearned income and the allowance for loan losses.

Interest on loans is generally recorded over the terms of the loans using the simple interest method on the unpaid principal balance. Accrual of interest is discontinued when either principal or interest becomes 90 days past due, unless the loan is both well secured and in the process of collection, or when in management’s opinion, reasonable doubt exists as to the full collection of interest or principal. Income on such loans is then recognized only to the extent that cash is received and where the future collection of principal is probable.

Loan origination fees and certain direct origination costs are deferred and capitalized, respectively, and recognized over the life of the loan as an adjustment of the yield on the related loan based on the interest method.

Impaired loans are measured based on the present value of expected future cash flows, discounted at the loan’s effective interest rate, or at the loan’s observable market price, or the fair value of the collateral if the loan is collateral dependent. Loans that are determined to be impaired require a valuation allowance equivalent to the amount of the impairment. The valuation allowance is established through the provision for loan losses.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the note agreement. Cash receipts on impaired loans, which are accruing interest, are applied to principal and interest under the contractual terms of the loan agreement. Cash receipts on impaired loans for which the accrual of interest has been discontinued are applied to reduce the principal amount of such loans until the required principal payments have been brought current and, if the future collection of principal is probable, are recognized as interest income thereafter.

Allowance for Loan Losses

The allowance for loan losses is maintained at a level estimated to be adequate to provide for probable losses in the loan portfolio. Management follows a consistent procedural discipline and accounts for loan loss contingencies in accordance with SFAS No. 5, Accounting for Contingencies and SFAS No. 114, Accounting by Creditors for Impairment of a Loan.   The following is a description of how each portion of the allowance for loan losses is determined.

For the purposes of determining the required allowance for loan losses and resulting periodic provisions, the Company segregates the loan portfolio into broad segments, such as: commercial real estate, residential real estate, construction, commercial business, and consumer loans. The Company provides for a general allowance for losses inherent in the portfolio by the above categories. The general allowance for losses on problem loans in these categories 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 trends and conditions. General loss percentages for the problem loans are determined based upon loss percentages by loan classification as well as historical loss experience. Specific allowances are provided in the event that the specific collateral analysis on each problem loan indicates that the probable loss upon liquidation of collateral would be in excess of the general percentage allocation. For the remainder of the portfolio, general allowances for losses are calculated based on estimates of inherent losses which are likely to exist as of the evaluation date even though they might not have been identified by the more objective processes used for the portion of the allowance described above.

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Loss percentages used for the general allocation portion of the portfolio are generally based on historical loss factors adjusted where necessary for qualitative factors. This portion of the allowance is particularly subjective and requires judgments based on qualitative factors which do not lend themselves to exact mathematical calculations, such as: trends in delinquencies and nonaccruals; migration trends in the portfolio; trends in volume, terms, and portfolio mix; changes in lending policies and procedures; evaluations of the risk identification process; changes in the outlook for local and regional economic conditions; concentrations of credit; and peer group comparisons.

Management uses a devoted internal loan reviewer who is independent of the lending function to challenge and corroborate the loan grading system and provide additional analysis in determining the adequacy of the allowance for loan losses and the future provisions for estimated loan losses.  From time to time, the Company utilizes independent external loan reviewers to supplement and challenge the internal loan reviewers.

Loans deemed uncollectible are charged to the allowance. Provisions for loan losses and recoveries on loans previously charged off are added to the allowance.

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

Other Real Estate

Other real estate includes real estate acquired through foreclosure. Other real estate is carried at the lower of its recorded amount at the date of foreclosure or estimated fair value less costs to sell based on independent appraisals. Any excess of carrying value of the related loan over the fair value of the real estate at date of foreclosure is charged against the allowance for loan losses. Fair value is principally based on independent appraisals performed by local credentialed appraisers.  Any expense incurred in connection with holding such real estate or resulting from any writedowns subsequent to foreclosure is included in other noninterest expense.

Premises and Equipment

Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed using primarily the straight-line method over the estimated useful lives of the assets. Useful lives for depreciation are three years for computer software and automobiles; primarily 40 years for buildings; ten years for furniture, fixtures, and equipment; and the lease term or the life of the property, whichever is shorter, for leasehold improvements.

Goodwill and Other Intangible Assets

Goodwill represents the excess of the purchase price for bank acquisitions over the fair value of the net assets acquired.  Goodwill is tested annually for impairment unless events or circumstances arise that would indicate the need for more frequent testing.  The impairment tests are performed at the reporting level which in the Company’s case is effectively the entire entity.   During the fourth quarter of 2008, the Company engaged an independent business valuation firm to perform an assessment of the Company’s goodwill.  The assessment concluded that the Company had an impairment of its goodwill.  The fair value was determined based on two different approaches, the market approach and the income approach. Based on the assessment, the Company concluded that all of the goodwill was impaired and a non-cash impairment charge of $3,549,780 was recorded to operations during the fourth quarter of 2008.

Derivative Instruments and Hedging Activities

The fair value of derivatives is recognized in the financial statements as assets or liabilities.  The accounting for the changes in the fair value of a derivative depends on the intended use of the derivative instrument at inception.  The change in fair value of instruments used as fair value hedges is accounted for as income of the period simultaneous with accounting for the fair value change of the item being hedged.  The change in fair value of the effective portion of cash flow hedges is accounted for in comprehensive income rather than income.  The change in fair value of derivative instruments that do not qualify as a hedge is accounted for in the income of the period of the change.

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Income Taxes

Income taxes are accounted for under the asset and liability method. Provisions for income taxes are based upon amounts reported in the statements of operations (after exclusion of nontaxable income such as interest on state and municipal securities) and include deferred taxes on temporary differences between financial statement and tax bases of assets and liabilities measured using enacted tax rates expected to apply to taxable income in the year in which the differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Earnings (Loss) Per Share

Basic earnings (loss) per share is computed by dividing net earnings (loss) by the weighted average of common shares outstanding. Diluted earnings (loss) per share is computed by dividing net earnings (loss) by the weighted average of common shares outstanding plus common share equivalents resulting from dilutive stock options, determined using the treasury stock method.  Options on 174,750, 201,625 and 50,500 shares were not included in the diluted earnings (loss) per share computation for 2008, 2007 and 2006, respectively, as they were antidilutive.

Comprehensive Income

Other comprehensive income for the Company consists of items recorded directly in equity under SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, and the net of tax effect of changes in the fair value of cash flow hedges.

Recent Accounting Pronouncements

Business Combinations

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations.”  SFAS No. 141 (R) will significantly changed how entities apply the acquisition method to business combinations.  The most significant changes affecting how the Corporation will account for business combinations under this Statement include: the acquisition date is the date the acquirer obtains control; (and only) identifiable assets acquired, liabilities assumed, and non-controlling interests in the acquiree are stated at fair value on the acquisition date; assets or liabilities arising from non-contractual contingencies are measured at their acquisition date fair value only if it is more likely than not that they meet the definition of an asset or liability on the acquisition date; adjustments subsequently made to the provisional amounts recorded on the acquisition date are made retroactively during a measurement period not to exceed one year; acquisition related restructuring costs that do not meet the criteria of SFAS No.146, “Accounting for Cost Associated with Exit or Disposal Activities,” are expensed as incurred; transaction costs are expensed as incurred; reversals of deferred income tax valuation allowances and income tax contingencies are recognized in the earnings subsequent to the measurement period; and the allowance for loan losses of an acquiree is not permitted to be recognized by the acquirer. Additionally, SFAS No. 141(R) requires new and modified disclosures surrounding subsequent changes to acquisition–related contingencies, contingent consideration, non-controlling interest interests, acquisition-related transaction costs, fair values and cash flows not expected to be collected for acquired loans and an enhanced goodwill rollforward.  The Company is required to apply SFAS No. 141(R) prospectively to all business combinations completed after January 1, 2009.

Accounting for Transfers of Financial Assets and Repurchase Financing Transaction

In February 2008, the FASB issued FASB Staff Position (“FSP”) FAS 140-3, “Accounting for Transfers of Financial Assets and Repurchase Financing Transactions.”   This statement provides guidance regarding the accounting for a transfer of a financial asset and repurchase financing where the counterparties for both transactions are the same.  In these circumstances, certain criteria must be met in order to not account for the transactions as a linked transaction.  This FSP becomes effective for the fiscal years and interim periods within those fiscal years, beginning on or after November 15, 2008.  The Company does not anticipate that this FSP will have a material effect on the Company’s financial position, results of operations, or disclosures.

Disclosures about Derivative Instruments and Hedging Activities

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities.” SFAS No. 161 is an amendment to SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” The objective of SFAS No. 161 is to expand the disclosure requirements of SFAS No. 133 with the intent to improve the financial reporting of how and why an entity uses derivative instruments; how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations; and how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows.  The statement is effective for financial statements issued for fiscal years beginning after November 15, 2008.  The Company does not anticipate the new accounting principle to have a material effect on its financial position or results of operation.

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Hierarchy of Generally Accepted Accounting Principles

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles.” SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States (the GAAP hierarchy).  The current GAAP hierarchy, as set forth in the American Institute of Certified Public Accountants (AICPA) Statement on Auditing Standards No. 69, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles, has been criticized because (1) it is directed to the auditor rather than the entity, (2) it is complex, and (3) it ranks FASB Statements of Financial Accounting Concepts, which are subject to the same level of due process as FASB Statements of Financial Accounting Standards, below industry practices that are widely recognized as generally accepted but that are not subject to due process.  The FASB believes that the GAAP hierarchy should be directed to entities because it is the entity (not its auditor) that is responsible for selecting accounting principles for financial statements that are presented in conformity with GAAP.  Accordingly, the FASB concluded that the GAAP hierarchy should reside in the accounting literature established by the FASB and is issuing this Statement to achieve that result.  The Company does not anticipate the new accounting principle to have a material effect on its financial position or results of operation.

Determining the Fair Value of a Financial Asset When the Market for that Asset is Not Active

In October 2008, the FASB issued FSP FAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active.”  This FASB Staff Position clarifies the application of SFAS No. 157, “Fair Value Measurements,” in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active.  FSP FAS 157-3 provides guidance on (1) how an entity’s own assumption should be considered when measuring fair value when relevant observable inputs do not exist, (2) how available observable inputs in a market that is not active should be considered when measuring fair value and (3) how the use of market quotes should be considered when assessing the relevance of observable and unobservable inputs available to measure fair value.  This FASB Staff Position is effective immediately.  The Company does not anticipate the new accounting principle to have a material effect on its financial position or results of operation.

Other accounting standards that have been issued or proposed by the FASB and other standard setting entities that do not require adoption until a future date are not expected to have a material impact on the Company’s consolidated financial statements upon adoption.

(3)  Cumulative Effect of Change in Accounting Principle

Effective January 1, 2008, the Company adopted Emerging Issues Task Force Issue No. 06-10, Accounting for Collateral Assignment Split-Dollar Life Insurance Arrangements (“EITF 06-10”).  EITF 06-10 requires a company to recognize a liability for the postretirement benefit related to a collateral assignment split-dollar life insurance arrangement if the employer has agreed to maintain a life insurance policy during the employee’s retirement or provide the employee with a death benefit based on the substantive agreement with the employee.  The Company has post retirement benefits with several of its executives and directors.  Refer to Note 17 – “Employee Benefit and Stock Option Plans.”  Since the Company has agreed to maintain life insurance policies in place during the retirement years of these individuals, the Company must record a liability for the present value of the future costs to maintain the policies in force (mortality costs.)  EITF 06-10 allows companies to record the effects of adopting the EITF as a change in accounting principle through a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption.  On January 1, 2008, the Company recorded a liability and a cumulative-effect adjustment to retained earnings in the amount of $63,237, net of tax.  Additional increases in the liability will be charged to earnings in the year incurred.  For the year ended December 31, 2008, $17,784 was recorded to expense for the increase in the liability for future mortality costs.

(4)  Reserve Requirements

At December 31, 2008 and 2007, the Federal Reserve Bank required that the Bank maintain average reserve balances of $1,008,000 and $926,000, respectively.

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(5) Investment Securities Available for Sale

Amortized cost, estimated fair values, and gross unrealized gains and losses of investment securities available for sale are as follows:

December 31, 2008	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
U.S. government-sponsored enterprises	$	26,698,164		450,650		16,018		27,132,796
Mortgage-backed securities		55,390,658		1,066,636		45,143		56,412,151
State and political subdivisions		14,591,833		30,802		1,075,052		13,547,583
Equity securities		209,110		-		23,749		185,361
Total	$	96,889,765		1,548,088		1,159,962		97,277,891
December 31, 2007	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
U.S. government-sponsored enterprises	$	33,384,277		225,251		42,142		33,567,386
Mortgage-backed securities		30,362,134		88,900		523,674		29,927,360
State and political subdivisions		26,298,632		215,492		300,766		26,213,358
Equity securities		209,110		-		27,112		181,998
Total	$	90,254,153		529,643		893,694		89,890,102

Proceeds from sales and calls of available for sale securities during 2008, 2007 and 2006 were $46,279,585, $4,136,400 and $2,013,278, respectively.

Gross gains of $373,313, $4,900 and $9,881 were recognized on those sales for 2008, 2007 and 2006, respectively. 

Gross losses of $28,436 and $23,097 were recognized on those sales for 2008 and 2006, respectively.   There were no losses recognized in 2007.

The following investments available for sale have an unrealized loss at December 31, 2008 and 2007 for which an other than temporary impairment has not been recognized:

	2008				2007
	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
Unrealized loss for less than 12 months:
U.S. government-sponsored enterprises	$	858,685		14,391		2,287,869		4,399
Mortgage-backed securities		2,621,883		12,534		527,339		13,067
State and political subdivisions		9,974,570		860,452		7,646,042		197,502
	$	13,455,138		887,377		10,461,250		214,968
Unrealized loss for greater than 12 months:
U.S. government-sponsored enterprises	$	60,555		1,627		5,796,199		37,743
Mortgage-backed securities		4,599,716		32,609		21,917,295		510,607
State and political subdivisions		1,519,588		214,600		4,414,426		103,264
Equity securities		185,361		23,749		181,998		27,112
		6,365,220		272,585		32,309,918		678,726
	$	19,820,358		1,159,962		42,771,168		893,694

At December 31, 2008, there was one U.S. government-sponsored enterprise security, 15 mortgage-backed securities, and 32 state and political subdivision securities with an unrealized loss for less than 12 months and one U.S. government-sponsored enterprise security, 14 mortgage-backed securities, and 5 state and political subdivision securities with an unrealized loss for more than 12 months. The total fair value of the securities with an unrealized loss at December 31, 2008 represented 94.15% of their amortized cost; therefore, the impairment is not considered severe. While the duration is dependent on the market, the existing unrealized loss could be shortened by the issuing agency calling the securities.

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The amortized cost and estimated fair values of investment securities available for sale, exclusive of equity investments, at December 31, 2008, by contractual maturity, are shown below.  Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Callable securities and mortgage-backed securities are included in the year of their contractual maturity date.

	Amortized Cost		Estimated Fair Value
Due in one year or less	$	83,613		84,269
Due after one year through five years		2,323,812		2,325,313
Due after five years through ten years		16,583,966		16,808,370
Due after ten years		77,689,264		77,874,578
Total	$	96,680,655		97,092,530

Investment securities available for sale with carrying values of approximately $76,782,000 and $78,008,000 were pledged as collateral at December 31, 2008 and 2007, respectively, for Federal Home Loan Bank advances, public deposits, and other deposits, as required by law.

(6) Investment Securities Held to Maturity

Amortized cost, estimated fair values, and gross unrealized gains and losses of investment securities held to maturity are as follows:

December 31, 2008	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Mortgage-backed securities	$	26,835		890		84		27,641
State and political subdivisions		998,600		26,588		-		1,025,188
Total	$	1,025,435		27,478		84		1,052,829
December 31, 2007	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Mortgage-backed securities	$	43,179		868		2		44,045
State and political subdivisions		2,646,019		61,620		-		2,707,639
Total	$	2,689,198		62,488		2		2,751,684

Proceeds from calls of held to maturity securities during 2008 were $1,250,415.  There were no proceeds from calls in 2007.  Proceeds from calls of investment securities held to maturity during 2006 were $80,000.

Gross gains of $18,477 and gross losses of $585 were recognized on the calls in 2008.  There were no gains or losses on calls in 2007 or 2006.

The amortized cost and estimated fair values of securities held to maturity at December 31, 2008, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Callable securities and mortgage-backed securities are included in the year of their contractual maturity date.

	Amortized Cost		Estimated Fair Value
Due in one year or less	$	135,000		136,659
Due after one year through five years		561,700		569,500
Due after five years through ten years		324,149		342,167
Due after ten years		4,586		4,503
Total	$	1,025,435		1,052,829

Investment securities held to maturity with carrying values of approximately $999,000 and $2,564,000 were pledged as collateral at December 31, 2008 and 2007, respectively, for public deposits and other deposits, as required by law.

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(7) Loans

Loans at December 31, 2008 and 2007 are summarized as follows:

	2008		2007
Real estate:
Construction	$	148,110,567		175,904,135
Other		142,862,216		138,401,227
Commercial, financial and agricultural		16,808,412		20,496,647
Consumer installment		15,049,635		15,630,413
		322,830,830		350,432,422
Less:
Unamortized loan origination fees, net		34,888		28,060
Unearned credit life premiums		21,381		16,671
Allowance for loan losses		12,167,645		2,136,848
Total	$	310,606,916		348,250,843

Changes in the allowance for loan losses are as follows:

	2008			2007			2006
Balance, January 1	$	2,136,848			3,444,789			3,944,525
Provision for loan losses		16,020,862			675,225			-
Loans charged off		(6,045,113	)		(2,116,001	)		(702,626	)
Recoveries		55,048			132,835			202,890
Balance, December 31	$	12,167,645			2,136,848			3,444,789

The Company considers a loan to be impaired when it is probable that it will be unable to collect all amounts due according to the original terms of the loan agreement. The Company measures impairment of a loan on a loan-by-loan basis for commercial real estate, commercial business, and agricultural loans. Residential mortgages, installment, and other consumer loans are considered smaller balance, homogenous loans which are not evaluated individually for impairment. Amounts of impaired loans that are not probable of collection are charged off immediately. Impaired loans and related amounts included in the allowance for loan losses at December 31, 2008 and 2007 are as follows:

	2008				2007
	Balance		Allowance Amount		Balance		Allowance Amount
Impaired loans with a related allowance	$	57,683,000		11,054,000		18,327,000		102,000
Impaired loans without a related allowance		12,031,000		-		-		-

The average amount of impaired loans and the related interest income recognized during 2008, 2007 and 2006 was as follows:

	2008		2007		2006
Average impaired loans	$	31,172,000		6,152,000		530,000
Interest income recognized on nonaccrual loans		349,000		593,000		10,000

Habersham Bank held concentrations of loans to customers, which totaled 100% or more of Tier 1 capital by the following classifications at December 31, 2008 and 2007, as follows:

	2008		2007
Land and subdivision development	$	77,725,875		100,880,811
Real estate lessors (amortized non-owner occupied)		69,291,195		73,456,063
	$	147,017,070		174,336,874

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Nonperforming loans consist of nonaccrual loans and accruing loans 90 days past due. The following summarizes nonperforming loans at December 31, 2008 and 2007:

	2008		2007
Accruing loans 90 days past due	$	802,267		41,594
Nonaccrual loans		56,055,277		18,326,924
Total nonperforming loans	$	56,857,544		18,368,518

The following summarizes nonaccrual loans at December 31, 2008 and 2007:

	Number of loans		2008		Number of loans		2007
Real Estate – construction & development loans		50	$	52,442,846		30	$	17,898,772
Real Estate – residential loans		11		313,004		5		170,794
Real Estate – commercial		4		2,689,491		2		219,297
Commercial loans		4		459,389		1		25,350
Consumer loans		23		150,547		4		12,711
Total nonaccrual loans		92	$	56,055,277		42	$	18,326,924

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 loss 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 amount 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 December 31, 2008 and 2007, the Company had outstanding loan commitments approximating $64,825,000 and $73,283,000, respectively, and standby letters of credit approximating $1,761,000 and $5,499,000, respectively. 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 to the financial instrument failed completely to perform according to the terms of the contract and the collateral proved to be of no value is equal to the face amount of the financial instrument.

(8) Premises and Equipment

Premises and equipment are summarized as follows:

	2008		2007
Land	$	5,121,361		5,121,361
Buildings		17,171,787		12,612,790
Leasehold improvements		148,637		148,637
Construction in progress		-		663,046
Furniture and equipment		7,771,007		7,455,704
Total		30,212,792		26,001,538
Less accumulated depreciation		10,733,399		9,919,945
Premises and equipment, net	$	19,479,393		16,081,593

The Company has entered into operating lease agreements for property.  Approximate minimum rentals under such leases are as follows:

2009	$	617,303
2010		530,358
2011		355,563
2012		63,830
	$	1,567,054

Rental and lease expense was $730,117 in 2008, $530,297 in 2007 and $460,625 in 2006.

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(9) Other Real Estate

The following summarizes other real estate at December 31, 2008 and 2007:

	2008				2007
	Number of Properties		Carrying Amount		Number of Properties		Carrying Amount
Commercial properties		41	$	15,714,994		22	$	6,324,444
Residential properties		2		673,250		1		33,844
Vacant lots		266		10,785,430		39		4,500,483
Residential construction properties		1		163,200		2		639,500
		310	$	27,336,874		64	$	11,498,271

The following is a summary of the changes in other real estate for the years ended December 31, 2008 and 2007:

	2008						2007
	Number of Properties			Carrying Amount			Number of Properties			Carrying Amount
Balance at the beginning of the year		64		$	11,498,271			6		$	537,975
Foreclosed properties		260			17,852,732			64			11,200,792
Capitalized completion costs		-			1,759,558			-			435,179
Sales of properties		(14	)		(3,322,071	)		(6	)		(533,675	)
Write-downs		-			(451,616	)		-			(142,000	)
Balance at the end of the year		310		$	27,336,874			64		$	11,498,271

Carrying values for foreclosed properties are based on independent appraisals performed by local credentialed appraisers at the date of foreclosure adjusted for estimated disposal costs and quick sale concessions, which is management’s best estimate of fair value.  While management uses available information to record foreclosed properties at fair value, future write-downs may be necessary based on changes in economic conditions and other factors.

(10) Deposits and Short-Term Borrowings

At December 31, 2008, the scheduled maturities of time deposits are as follows:

2009	$	189,639,960
2010		39,724,396
2011		9,500,392
2012		2,856,872
2013		683,505
Total	$	242,405,125

Short-term borrowings of $760,468 and $766,608 at December 31, 2008 and 2007, respectively, consist of a U.S. Treasury, tax and loan deposit note.

At December 31, 2008 and 2007, the Bank held approximately $30.1 million and $13.0 million, respectively in certificates of deposit obtained through the efforts of third party brokers. The daily average balance of such deposits totaled approximately $21.2 million and $5.9 million in 2008 and 2007, respectively.  The weighted average yield during 2008 was 2.97% while the weighted average rate at December 31, 2008 was 3.98%.  The weighted average yield during 2007 was 4.64% while the weighted average rate at December 31, 2007, was 4.87%.  The deposits at December 31, 2008 have maturity dates ranging from April 2009 to August 2010.

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(11) Federal Funds Purchased and Securities Sold Under Repurchase Agreements

Certain information related to the Company’s securities sold under repurchase agreements is summarized as follows:

	2008			2007
Balance at year-end	$	16,383,982			26,183,807
Maximum outstanding during the year		42,720,547			34,867,414
Average outstanding during the year		24,175,635			14,213,048
Weighted average interest rate during the year		3.57	%		4.30	%
Weighted average interest rate at end of year		3.79	%		3.87	%

All securities sold under repurchase agreements are held by independent trustees.Securities sold under repurchase agreements at December 31, 2008 and 2007 are collateralized by investment securities with aggregate carrying values of approximately $19,264,000 and $13,724,000, respectively.

At December 31, 2008 and 2007, the Company had additional line of credit commitments available as shown below:

	2008		2007
	Total Available		Total Available
Federal discount window	$	24,630,000		-
Federal funds line		10,000,000		30,000,000
Retail repurchase agreement		921,000		-
Retail repurchase agreement  (subject to available securities)		3,950,000		2,650,000

At December 31, 2008, the Company had pledged certain investment securities for the Federal Funds line and the retail repurchase agreements.  At December 31, 2007, the Company had pledged certain investment securities for the retail repurchase agreements.  No amounts were outstanding on the above commitments at December 31, 2008 or 2007.

At December 31, 2008, the Company has pledged against the Federal Discount Window, certain investment securities totaling approximately $696,000 and certain qualifying loans with an outstanding balance of $22,985,000.

(12) FHLB Advances

At December 31, 2008, the Company had available line of credit commitments with the Federal Home Loan Bank (FHLB) totaling approximately $38,211,000, of which the following was outstanding at December 31, 2008:

Advance date	Amount		Interest Rate			Maturity Date	Rate	Call Feature
March 30, 2000	$	10,000,000		6.02	%	March 30, 2010	Fixed	Callable each year
January 12, 2001		10,000,000		4.93	%	January 12, 2011	Fixed	Callable each year
May 21, 2004		3,000,000		2.40	%	May 21, 2009	Floating	No call provision
August 26, 2004		3,000,000		2.40	%	August 26, 2009	Floating	No call provision
May 19, 2008		4,000,000		2.91	%	May 19, 2009	Fixed	No call provision
May 22, 2008		3,000,000		3.26	%	May 22, 2013	Fixed	No call provision
September 13, 2006		5,000,000		2.00	%	September 14, 2009	Floating	No call provision
	$	38,000,000

At December 31, 2008, the Company has pledged against FHLB advances, certain investment securities, all stock of the FHLB totaling approximately $2,634,000, cash totaling $1,955,000 and certain qualifying first mortgage loans with an outstanding balance of $49,493,000.

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At December 31, 2007, the Company had available line of credit commitments with the Federal Home Loan Bank (FHLB) totaling approximately $38,221,000, of which the following was outstanding at December 31, 2007:

Advance date	Amount		Interest Rate			Maturity Date	Rate	Call Feature
March 30, 2000	$	10,000,000		6.02	%	March 30, 2010	Fixed	Callable each year
January 12, 2001		10,000,000		4.93	%	January 12, 2011	Fixed	Callable each year
May 21, 2004		3,000,000		5.21	%	May 21, 2009	Floating	No call provision
August 26, 2004		3,000,000		5.26	%	August 26, 2009	Floating	No call provision
May 17, 2005		4,000,000		4.18	%	May 19, 2008	Fixed	No call provision
May 22, 2006		3,000,000		5.46	%	May 22, 2008	Fixed	No call provision
September 13, 2006		5,000,000		5.06	%	September 14, 2009	Floating	No call provision
	$	38,000,000

At December 31, 2007, the Company has pledged against FHLB advances, certain investment securities, all stock of the FHLB, cash totaling $500,000 and certain qualifying first mortgage loans with an outstanding balance of $25,704,000.

(13) Derivative Instruments and Hedging Activities

The Company maintains an overall interest rate risk-management strategy that incorporates the limited use of derivative instruments to minimize fluctuations in earnings that are caused by interest rate volatility.  The goal is to manage interest rate sensitivity by modifying the repricing or maturity characteristics of certain balance sheet assets and liabilities so the net interest margin is not, on a material basis, adversely affected by movements in interest rates.  As a result of interest rate fluctuations, hedged assets and liabilities will appreciate or depreciate in fair value.  The effect of this unrealized appreciation or depreciation will generally be offset by earnings or loss on the derivative instruments that are linked to the hedged assets and liabilities.  The Company views this strategy as a prudent management of interest rate sensitivity, such that earnings are not exposed to undue risk presented by changes in interest rates.

Derivative instruments that are used as part of the Company’s interest rate risk-management strategy include interest rate swap contracts.  Interest rate swaps generally involve the exchange of fixed and variable-rate interest payments between two parties, based on a common notional principal amount and maturity date.

By using derivative instruments, the Company is exposed to credit and market risk.  If the counterparty fails to perform, credit risk is equal to the extent of the fair value gain in a derivative.  When the fair value of a derivative contract is positive, this generally indicates that the counterparty owes the Company, and, therefore, creates a repayment risk for the Company.  When the fair value of a derivative contract is negative, the Company owes the counterparty and, therefore, it has no repayment risk.  The Company minimizes the credit risk in derivative instruments by entering into transactions with high-quality counterparties that are reviewed periodically.

The Company’s derivative activities are monitored by its asset/liability management function as part of that group’s oversight of asset/liability and treasury functions.  This group is responsible for implementing various hedging strategies that are developed through its analysis of data from financial simulation models and other internal and industry sources.  The resulting hedging strategies are then incorporated into the overall interest-rate risk management.

During 2004, Habersham Bank entered into two interest rate swap agreements with a regional bank to partially offset the interest rate risk associated with variable rate FHLB borrowings.  Each FHLB loan amount is $3 million with quarterly adjustable rates set at 23 basis points above the three-month LIBOR.  The three-month LIBOR rate at December 31, 2008 was 1.42%. The first swap contract was entered into during the second quarter of 2004 and is for a 4.5% fixed rate on a $3 million notional amount.  The swap matures on May 21, 2009.  The second swap contract was entered into during the third quarter of 2004 and is for a 4.05% fixed rate on a $3 million notional amount. The swap matures on August 26, 2009.

The swaps are being accounted for as cash flow hedges at December 31, 2008 and 2007.  The fair values are included in other comprehensive income, net of taxes.  Habersham Bank recorded liabilities at December 2008 and 2007 of approximately $95,000 and $33,000, respectively, to reflect the fair value of the swaps.

The hedges were designed to be highly effective as all terms of the swaps are matched to the FHLB advances.    The Company utilizes the long-haul methodology to measure the effectiveness of the hedges.  Because of the matching terms of the advances and the interest rate swaps, with the exception of the prepayment ability, the hedges would continue to be highly effective as long as the FHLB advances continued to be outstanding.  On a quarterly basis, the company ensures the debt remains outstanding and that the credit risk of the swap counterparty has not diminished.  If the debt is outstanding and there has been no change in the credit risk of the swap counterparty, the hedge is deemed to remain effective.  Any changes in the fair value of the swaps are recorded on the balance sheet and accounted for in accumulated other comprehensive income, net of tax.  If the debt were no longer outstanding, or there was a credit risk problem (default) with the swap counterparty, the hedge would no longer be deemed effective and the fair value of the swaps would be reclassified from accumulated other comprehensive income to current earnings.  No hedge ineffectiveness from these cash flow hedges was recognized in the consolidated statement of earnings for the years ending December 31, 2008, 2007 and 2006.

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(14) Income Taxes

Income tax benefit (expense) for the years ended December 31, 2008, 2007 and 2006 are as follows:

	2008		2007			2006
Current:
Federal	$	2,235,459		(718,442	)		(1,943,753	)
State		752,493		-			(278,726	)
Total current		2,987,952		(718,442	)		(2,222,479	)
Deferred:
Federal		4,344,687		(270,476	)		(160,719	)
State		506,028		(31,502	)		(28,467	)
Total deferred		4,850,715		(301,978	)		(189,186	)
Total	$	7,838,667		(1,020,420	)		(2,411,665	)

The provision for income taxes is different than that computed by applying the Federal statutory rate of 34% to earnings before income taxes as indicated by the following:

	2008			2007			2006
Income benefit (tax) on earnings before income taxes at statutory rate	$	7,713,916			(1,346,324	)		(2,619,555	)
Differences resulting from:
Goodwill impairment		(1,206,925	)		-			-
Tax-exempt income		339,547			394,833			338,217
Earnings on cash surrender value of life insurance		135,142			62,281			58,519
Nondeductible interest expense		(46,081	)		(64,088	)		(44,288	)
State income tax, net of Federal tax effect		830,624			(20,791	)		(202,747	)
Other		72,444			(46,331	)		58,189
	$	7,838,667			(1,020,420	)		(2,411,665	)

At December 31, 2008 and 2007, the significant components of the Company’s net deferred tax assets and liabilities are as follows:

	2008			2007
Deferred tax assets:
Allowance for loan losses	$	4,619,048			811,147
Other real estate		1,052,100			193,872
Deferred compensation		440,158			386,674
Furniture, fixtures and equipment due to difference in depreciation methods		90,376			157,921
Unearned credit life premiums		8,116			6,329
Unrealized loss on investment securities available for sale		(131,963	)		123,777
Unrealized loss on derivatives		32,461			11,260
Loan discount		11,456			29,824
Other		233,604			17,616
		6,355,356			1,738,420
Deferred tax liabilities:
Core deposit intangible		(155,100	)		(178,660	)
Deferred loan fees		(13,244	)		(10,651	)
Prepaid expenses		(221,110	)		(199,383	)
		(389,454	)		(388,694	)
Net deferred tax asset	$	5,965,902			1,349,726

The net deferred tax asset is included in other assets in the consolidated balance sheets.

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(15) Preferred Stock

On December 29, 2008, the Company amended its Amended and Restated Articles of Incorporation to authorize the issuance of up to 10,000,000 shares of Preferred Stock.  The individual terms of the issuances are established by the Company’s Board of Directors.  

The Company approved the issuance of up to 10,000 shares of Series A Preferred Stock to Fieldale Farms, Inc., a Georgia based poultry company.  The Company’s Chairman of the Board of Directors is affiliated with Fieldale Farms, Inc.  The Series A Preferred Stock is nonvoting except as permitted by law: will receive a 6% per annum non-cumulative dividend, payable quarterly; has a liquidation preference of $1,000 per share; and may be redeemed by the Company at any time, subject to any required regulatory or third party approvals.  The Company did not pay any underwriting or placement fees or commissions with respect to the sale, and it relied on the exemption from registration provided by Rule 506 under the Securities Act of 1933, as amended, for the offer and sale of the securities.  On December 31, 2008, the Company issued 3,000 shares of the Series A Preferred Stock for aggregate cash proceeds of $3 million.   The Company incurred $22,238 in issuance costs associated with the preferred stock offering.

(16) Regulatory Matters

The Company and the Bank are subject to various regulatory capital requirements administered by the Federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of the Company’s and the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s and the Bank’s capital amounts and the Bank’s classifications under the regulatory framework for prompt corrective action are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). Management believes, as of December 31, 2008 and 2007, that the Company and the Bank meet all capital adequacy requirements to which they are subject.

As of December 31, 2008, the most recent notifications from both the Federal Deposit Insurance Corporation and the Federal Reserve Bank of Atlanta categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the Bank’s capital categories.

The Company’s and the Bank’s actual capital amounts and ratios as of December 31, 2008 and 2007 are as follows (dollars in thousands):

	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2008:
Total Capital (to Risk-Weighted Assets):
Company	$	44,428		11.60	%		30,643		8	%		N/A		N/A
Bank	$	40,320		10.61	%		30,408		8	%		38,010		10	%
Tier I Capital (to Risk-Weighted Assets):
Company	$	39,591		10.34	%		15,321		4	%		N/A		N/A
Bank	$	35,483		9.33	%		15,204		4	%		22,806		6	%
Tier I Capital (to Average Assets):
Company	$	39,591		7.94	%		19,943		4	%		N/A		N/A
Bank	$	35,483		7.14	%		19,872		4	%		24,840		5	%

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	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2007:
Total Capital (to Risk-Weighted Assets):
Company	$	52,542		12.90	%		32,589		8	%		N/A		N/A
Bank	$	49,322		12.13	%		32,521		8	%		40,651		10	%
Tier I Capital (to Risk-Weighted Assets):
Company	$	50,405		12.37	%		16,295		4	%		N/A		N/A
Bank	$	47,185		11.61	%		16,260		4	%		24,391		6	%
Tier I Capital (to Average Assets):
Company	$	50,405		9.99	%		20,192		4	%		N/A		N/A
Bank	$	47,185		9.38	%		20,131		4	%		25,164		5	%

The Department of Banking and Finance requires prior approval for a bank to pay dividends in excess of 50% of the preceding year’s earnings. Based on this limitation, the Bank is not permitted to pay cash dividends in 2009.

(17) Employee Benefit and Stock Option Plans

The Company has a contributory profit sharing plan under Internal Revenue Code Section 401(k) – (the 401(k) Plan). The 401(k) Plan covers substantially all employees. Employees may contribute up to 15% of their annual salaries not to exceed the amount allowed by the IRS. At its discretion, the Company may make matching contributions in an amount not to exceed 100% of each participant’s first 3% of compensation contributed. The Company’s contributions to the plan totaled $180,844 in 2008, $220,162 in 2007 and, $196,760 in 2006.

During 1998, the Bank’s board of directors approved the Director’s Retirement Plan (the Plan), a noncontributory retirement plan. Amounts earned on the life insurance policies purchased by the Bank over the rate, as defined in the Plan, to be retained for the benefit of the Bank are to be deferred and paid to the directors upon retirement. As of December 31, 2008 and 2007, the cash surrender values of the life insurance policies totaled $5,227,186 and $5,029,954, respectively, and are included in cash surrender values of life insurance in the balance sheet.

During 2006, the Bank’s board of directors approved a Senior Executive Retirement Plan (“SERP”) for five of the Bank’s key employees to be funded by the purchase of bank-owned life insurance.  The SERP, a noncontributory retirement plan, provides amounts earned on the life insurance policies purchased by the Bank over the rate, as defined in the Plan, to be retained for the benefit of the Bank are to be deferred and paid to the employees upon retirement.  During 2007, the Bank purchased the life insurance policies under this SERP which became effective January 1, 2008.  As of December 31, 2008 and 2007, the cash surrender values of the life insurance policies totaled $4,708,902 and $4,508,657, respectively and is included in cash surrender values of life insurance in the balance sheet.

The Company has an Incentive Stock Option Plan that provides that officers and certain employees of the Company may be granted options to purchase shares of common stock of the Company at an amount equal to the fair market value of the stock at the date of grant. The options, which may be exercised immediately, expire five years from the date of grant.

The Company’s Outside Directors Stock Option Plan provides that outside directors of Habersham Bancorp and its subsidiaries may be granted options to purchase shares of common stock of the Company at an amount equal to the fair market value of the stock at the date of grant. The options are fully vested on the date of grant, exercisable six months from the date of grant, and expire ten years from the date of grant. Shares reserved for future grants under this plan are approximately 203,675 at December 31, 2008 and 2007.

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The following table summarizes information about stock options outstanding at December 31, 2008:

Number Outstanding and Exercisable at December 31, 2008		Weighted Average Remaining Contractual Life in Years		Weighted Average Exercise Price
	71,250		2.4	$	20.60
	103,500		3.4		22.95
	174,750		3.0		21.99

A summary of the status of the Company’s stock option plans and changes during 2008, 2007 and 2006 is presented below:

	2008					2007					2006
	Shares			Weighted Avg. Exercise Price		Shares			Weighted Avg. Exercise Price		Shares			Weighted Avg. Exercise Price
Outstanding at beginning of the year		230,750		$	22.56		298,250		$	21.49		367,750		$	20.98
Granted		-			-		-			-		-			-
Exercised		-			-		-			-		(63,000	)		18.27
Terminated and expired		(56,000	)		24.34		(67,500	)		17.82		(6,500	)		23.54
Outstanding and exercisable at end of year		174,750			21.99		230,750			22.56		298,250			21.49

There were no options exercised during 2008 and 2007.  There was no intrinsic value of exercisable options at December 31, 2008 and 2007 based on a market price of $2.40 and $15.61, respectively.  The total intrinsic value of options exercised in 2006 was $311,228.

(18) Other Expenses

Items comprising other expenses for the years ended December 31, 2008, 2007 and 2006 are as follows:

	2008		2007		2006
Legal and other outside services	$	1,326,610		1,198,210		1,089,565
Advertising and public relations		599,926		721,683		678,622
Office supplies		486,689		535,841		514,175
Other		1,605,230		1,584,604		1,476,703
Total	$	4,018,455		4,040,338		3,759,065

Outside services include charges for FDIC insurance, legal and professional services, insurance, director fees, and State of Georgia Department of Banking fees.

(19)  Fair Value Measurements and Disclosures

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

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

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Fair Value Hierarchy

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

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

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

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

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

Cash and Cash Equivalents

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

Investment Securities Available for Sale

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

Investment Securities Held to Maturity

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

Other Investments

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

Loans and Mortgage Loans Held for Sale

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

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

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

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Other Real Estate

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

Cash Surrender Value of Life Insurance

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

Derivative Instruments and Hedging Activities

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

Deposits

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

Federal Funds Purchased and Retail Repurchase Agreements

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

FHLB Advances

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

Commitments to Extend Credit and Standby Letters of Credit

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

Assets Recorded at Fair Value on a Recurring Basis

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

	Total			Level 1		Level 2			Level 3
Investment securities  available for sale	$	97,277,891			8,411,357		88,866,534			-
Interest rate swap		(95,473	)		-		(95,473	)		-
Total net assets at fair value	$	97,182,418			8,411,357		88,771,061			-

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Assets Recorded at Fair Value on a Nonrecurring Basis

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

	Total		Level 1		Level 2		Level 3
Other real estate	$	27,336,874		-		27,336,874		-
Loans		58,660,423		-		58,660,423		-
	$	85,997,297		-		85,997,297		-

The carrying amount and estimated fair values of the Company’s assets and liabilities which are required to be either disclosed or recorded at fair value at December 31, 2008 and 2007 are as follows:

	2008				2007
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Assets:
Cash and cash equivalents	$	14,259,976		14,259,976		22,385,227		22,385,227
Investment securities available for sale		97,277,891		97,277,891		89,890,102		89,890,102
Investment securities held to maturity		1,025,435		1,052,829		2,689,198		2,751,684
Other investments		3,334,124		3,334,124		3,408,924		3,408,924
Loans held for sale		-		-		1,865,850		1,879,102
Loans, net		310,606,916		311,010,207		348,250,843		349,180,116
Cash surrender value of  life insurance		9,936,088		9,936,088		9,538,611		9,538,611
Liabilities:
Deposits	$	392,887,664		396,813,058		390,266,638		392,776,117
Short-term borrowings		760,468		760,468		766,608		766,608
Federal funds purchased and securities sold under repurchase agreements		16,383,982		16,383,982		26,183,807		26,183,807
FHLB advances		38,000,000		39,280,490		38,000,000		38,794,791
Interest rate swaps		95,473		95,473		33,117		33,117

Limitations

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

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

(20) Related Party Transactions

In the ordinary course of business, the Company extends loans to its directors, executive officers, and principal stockholders and their affiliates at terms and rates comparable to those prevailing at the time for comparable transactions with other customers. In the opinion of management, these loans do not involve more than the normal credit risk nor present other unfavorable features. An analysis of the activity during 2008 of loans to executive officers, directors, and principal stockholders is as follows:

Balance, January 1	$	11,537,924
Amounts advanced		8,670,585
Repayments		(9,202,178	)
Balance, December 31	$	11,006,331

Deposits from related parties totaled approximately $13,404,000 and $22,252,000 at December 31, 2008 and 2007, respectively.

Habersham Bank began construction of a new branch in Flowery Branch, Georgia during 2007 and was completed in 2008.  The lowest bid in a competitive bid process for the design and construction of the new branch was submitted by Lusk Construction, Inc., of which one of the Company’s directors is president.  The design and construction costs paid to Lusk Construction during 2008 and 2007 totaled approximately $3,405,000 and $645,000, respectively.  As a result of the bidding process, management believes the terms of the construction contract were no less favorable to the Company than could be obtained from an independent third party.

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(21) Condensed Financial Statements of Habersham Bancorp (Parent Only)

The parent company only condensed financial statements are presented below:

CONDENSED BALANCE SHEETS

December 31, 2008 and 2007

Assets
	2008		2007
Cash	$	1,352,342		242,296
Investment in subsidiaries		37,890,470		50,969,192
Other investments		599,990		599,990
Equipment, net		34,228		76,080
Other assets		2,283,550		2,420,597
Total assets	$	42,160,580		54,308,155
Liabilities and Stockholders’ Equity
Liabilities consisting of accounts payable	$	162,567		125,980
Stockholders’ equity:
Preferred stock		2,977,762		-
Common stock		2,818,593		2,818,593
Additional paid-in capital		13,490,587		13,490,587
Retained earnings		22,517,920		38,135,126
Accumulated other comprehensive income (loss)		193,151		(262,131	)
Total stockholders’ equity		41,998,013		54,182,175
Total liabilities and stockholders’ equity	$	42,160,580		54,308,155

CONDENSED STATEMENTS OF OPERATIONS

For the Years Ended December 31, 2008, 2007 and 2006

	2008			2007			2006
Income:
Dividends from bank	$	2,100,000			5,300,000			1,500,000
Management fees from subsidiaries		672,000			672,000			668,666
Other income		605			5,306			10,000
Total income		2,772,605			5,977,306			2,178,666
Expenses:
General and administrative		2,286,450			2,296,202			2,070,585
Earnings before income taxes and equity in undistributed earnings of subsidiaries		486,155			3,681,104			108,081
Income tax benefit		635,290			608,353			524,445
Earnings before equity in undistributed earnings of subsidiaries		1,121,445			4,289,457			632,526
(Distributions in excess of earnings) equity in undistributed earnings of subsidiaries		(15,970,766	)		(1,350,100	)		4,660,383
Net (loss) earnings	$	(14,849,321	)		2,939,357			5,292,909

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CONDENSED STATEMENTS OF CASH FLOWS

For the Years Ended December 31, 2008, 2007 and 2006

	2008			2007			2006
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) earnings	$	(14,849,321	)		2,939,357			5,292,909
Adjustments to reconcile net (loss) earnings to net cash provided by operating activities:
Depreciation		43,045			47,708			47,289
Gain on sale of equipment		-			(5,306	)		(10,000	)
Decrease (Increase) in other assets		137,047			(105,224	)		(97,665	)
Increase in other liabilities		36,587			52,076			59,433
Distributions in excess of earnings (equity in undistributed earnings) of subsidiaries		15,970,766			1,350,100			(4,660,383	)
Net cash provided by operating activities		1,338,124			4,278,711			631,583
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital infusion to Habersham Bank		(2,500,000	)		-			-
Purchase of equipment		(1,192	)		(45,705	)		(45,703	)
Proceeds from sale of equipment		-			34,860			10,000
Net cash used in investing activities		(2,501,192	)		(10,845	)		(35,703	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of preferred stock		3,000,000			-			-
Preferred stock issuance costs		(22,238	)		-			-
Payment of cash dividends		(704,648	)		(2,581,731	)		(1,060,172	)
Common stock repurchase		-			(2,190,000	)		-
Proceeds from issuance of common stock upon exercise of stock options		-			-			770,485
Net cash provided by (used in) financing activities		2,273,114			(4,771,731	)		(289,687	)
Increase (decrease) in cash		1,110,046			(503,865	)		306,193
Cash at beginning of year		242,296			746,161			439,968
Cash at end of year	$	1,352,342			242,296			746,161

(22) Quarterly Financial Data (Unaudited)

The supplemental quarterly financial data for the years ended December 31, 2008 and 2007 is summarized as follows:

	Quarter Ended
	March 31, 2008		June 30, 2008			September 30, 2008			December 31, 2008
Interest income	$	7,603,340		6,834,602			6,211,641			5,484,999
Interest expense		4,000,369		3,558,306			3,342,040			3,387,331
Net interest income		3,602,971		3,276,296			2,869,601			2,097,668
Provision for loan losses		423,000		654,000			6,293,000			8,650,862
Net earnings		58,942		(375,160	)		(4,291,332	)		(10,241,771	)
Net earnings per share – basic		.02		(.13	)		(1.52	)		(3.63	)
Net earnings per share – diluted		.02		(.13	)		(1.52	)		(3.63	)
	March 31, 2007		June 30, 2007			September 30, 2007			December 31, 2007
Interest income	$	9,037,996		9,351,395			9,295,267			8,690,880
Interest expense		3,980,126		4,118,754			4,396,180			4,351,844
Net interest income		5,057,870		5,232,641			4,899,087			4,339,036
Provision for loan losses		-		-			80,000			595,225
Net earnings		984,455		1,034,329			854,776			65,797
Net earnings per share – basic		.33		.35			.29			.02
Net earnings per share – diluted		.33		.35			.29			.02

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