SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, ~~2008~~2009.

o TRANSITION REPORT PURSUANT TO 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 Identification Number)		(I.R.S. Employer incorporation or organization)

282 Historic Highway 441 North, P. O. Box 1980, Cornelia, Georgia	30531
(Address of principal executive offices)	(Zip Code)

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

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

Securities registered pursuant to Section 12(g) of the Exchange Act:

Common Stock, $1.00 par value

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

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

Yes o No x

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

Yes o No x

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

Yes x No o

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Indicate by check mark ifwhether ~~disclosure~~the ofregistrant ~~delinquent~~has ~~filers~~submitted ~~pursuant~~electronically toand ~~Item~~posted ~~405~~on ~~of Regulation~~its ~~S-K~~corporate isWeb ~~not~~site, ~~contained~~if ~~herein~~any, ~~and~~every ~~will~~Interactive ~~not~~Data File required to be ~~contained,~~submitted and posted pursuant to ~~the~~Rule 405 ~~best~~ of ~~registrant's~~Regulation ~~knowledge,~~S-T induring ~~definitive~~the ~~proxy~~preceding or12 ~~information~~months ~~statements incorporated~~(or byfor ~~reference~~such inshorter ~~Part~~period ~~III~~that ofthe ~~this~~registrant ~~Form~~was ~~10-K~~required orto ~~any~~submit ~~amendment~~and topost ~~this Form~~such ~~10-K~~files).

Yes o No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

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

Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller reporting company x ~~(do not check if a smaller reporting company)~~

(do not check if a smaller reporting company)

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

Yes o No x

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked prices of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.

1,~~570~~612,~~374~~733 Shares of Common Stock, $1.00 par value--$115,~~699~~031,~~286~~727 as of June 30, ~~2008~~2009 (based upon market value of $73.4512 /share as of that date).

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of March 10 22, ~~2009~~2010.

Common Stock, $1.00 par value--2,818,593 shares

DOCUMENTS INCORPORATED BY REFERENCE

(1) Portions of the Company's Annual Report to Shareholders for the year ended December 31, ~~2008~~ 2009 (the “Annual Report”) are incorporated by reference into Part II.

(2) Portions of the “ Company's Proxy Statement relating to the 2010 Annual ~~Report~~Meeting of Shareholders (the “Proxy Statement”) are incorporated by reference into Part IIIII.

(2) Portions of the Company's Proxy Statement relating to the 2009 Annual Meeting of Shareholders (the “Proxy Statement”) are incorporated by reference into Part III.

PART I

Item 1. BUSINESS.

History of the Company

Habersham Bancorp (the "Company"), a Georgia corporation, was organized on March 9, 1984. Effective December 31, 1984, the Company acquired all of the outstanding shares of common stock of Habersham Bank ("Habersham Bank" or the "Bank"). As a result of this transaction, the former shareholders of Habersham Bank became shareholders of the Company, and Habersham Bank became the wholly-owned subsidiary of the Company. Habersham Bank has one subsidiary, Advantage Insurers, Inc., a property, casualty and life insurance agency organized in 1997 which was sold December 30, 2009.

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Effective June 30, 1995, the Company acquired Security Bancorp, Inc. and its subsidiary bank, Security State Bank. The Company consolidated the charters of Security State Bank and Habersham Bank in 1999. The Company acquired Liberty Bank & Trust on July 25, 2005 and subsequently merged that bank with and into Habersham Bank.

Business of the Bank

Habersham Bank is a financial institution organized under the laws of the State of Georgia in 1904. Habersham Bank operates a full-service commercial banking business based in Habersham, White, Cherokee, Warren, ~~Gwinnett,~~ Stephens, Forsyth and Hall Counties, Georgia, providing such customary banking services as checking and savings accounts, various types of time deposits, safe deposit facilities and individual retirement accounts. It also makes secured and unsecured loans and provides other financial services to its customers. Habersham Bank has a full-time trust officer on staff and offers a full spectrum of trust services, including trust administration, asset management services, estate and will probate and administration, and other services in the area of personal trusts.

Competition

The banking industry is highly competitive. During the past several years, legislation and regulatory changes, together with competition from unregulated entities, has resulted in the elimination of many traditional distinctions between commercial banks, thrift institutions and other providers of financial services. Consequently, competition among financial institutions of all types is virtually unlimited with respect to legal ability and authority to provide most financial services.

Habersham Bank's primary market area consists of Habersham, White, Cherokee, Warren, ~~Gwinnett,~~ Stephens, Forsyth and Hall Counties, Georgia. Habersham Bank competes principally for all types of loans, deposits and other financial services with large regional banks and other community banks located in its primary market area. To a lesser extent, Habersham Bank competes for loans with insurance companies, regulated small loan companies, credit unions, and certain governmental agencies.

The Company and its non-bank subsidiary, Advantage Insurers, also ~~compete~~competed with numerous other insurance agencies offering property, casualty and life insurance. Advantage Insurers was sold December 30, 2009.

See “Risk Factors – Competition from Other Financial Institutions May Adversely Affect our Profitability.”

Employees

As of December 31, ~~2008~~2009, the Company had ~~161~~104 full-time equivalent employees. Neither the Company nor any of its subsidiaries is a party to any collective bargaining agreement. In the opinion of management, the Company and its subsidiaries enjoy satisfactory relations with their respective employees.

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SUPERVISION AND REGULATION

~~Both~~We ~~the Company and the Bank~~ are subject to extensive state and federal banking ~~laws and~~ regulations that impose restrictions on and provide for general regulatory oversight of ~~their~~our operations. These laws ~~and~~generally ~~regulations~~ are ~~generally~~ intended to protect depositors and not shareholders. Legislation and regulations authorized by legislation influence, among other things:

· how, when, and where we may expand geographically;

into what product or service market we may enter;

how we must manage our assets; and

under what circumstances money may or must flow between the parent bank holding company and the subsidiary bank.

Set forth below is an explanation of the major pieces of legislation affecting our industry and how that legislation affects our actions. The following summary is qualified by reference to the statutory and regulatory provisions discussed. Changes in applicable laws or regulations may have a material effect on our business and prospects, and legislative changes and the policies of various regulatory authorities may significantly affect our operations. We cannot predict the effect that fiscal or monetary policies, or new federal or state legislation may have on our business and earnings in the future.

Habersham Bancorp

Because ~~the~~ ~~Company~~we ~~owns~~own all of the capital stock of ~~the~~Habersham Bank, itwe isare a bank holding company under the federal Bank Holding Company Act of 1956, as amended (the “Bank Holding Company Act”). As a result, we are primarily subject to the supervision, examination, and reporting requirements of the Bank Holding Company Act and the regulations of the Board of Governors of the Federal Reserve System (the “Federal Reserve ~~Board~~”). As a bank holding company located in Georgia, the ~~Georgia Department of Banking and Finance (the “~~GDBF”) also regulates and monitors all significant aspects of our operations.

Acquisitions of Banks. The Bank Holding Company Act requires every bank holding company to obtain the ~~Federal Reserve Board’s~~ prior approval of the Federal Reserve before:

acquiring direct or indirect ownership or control of any voting shares of any bank if, after the acquisition, the bank holding company will directly or indirectly own or control more than 5% of the bank’s voting shares;

acquiring all or substantially all of the assets of any bank; or

merging or consolidating with any other bank holding company.

Additionally, the Bank Holding Company Act provides that the Federal Reserve ~~Board~~ may not approve any of these transactions if it would result in or tend to create a monopoly, substantially lessen competition, or otherwise function as a restraint of trade, unless the anticompetitive effects of the proposed transaction are clearly outweighed by the public interest in meeting the convenience and needs of the community to be served. The Federal Reserve ~~Board~~ is also required to consider the financial and managerial resources and future prospects of the bank holding companies and banks concerned and the convenience and needs of the community to be served. The Federal Reserve ~~Board’s~~ consideration of financial resources generally focuses on capital adequacy, which is discussed below.

~~Page~~Under 4the Bank Holding Company Act, if we are adequately capitalized and adequately managed, we or any other bank holding company located in Georgia may purchase a bank located outside of 56 Georgia. Conversely, an adequately capitalized and adequately managed bank holding company located outside of Georgia may purchase a bank located inside of Georgia. In each case, however, restrictions may be placed on the acquisition of a bank that has only been in existence for a limited amount of time or will result in specified concentrations of deposits. Currently, Georgia law prohibits acquisitions of banks that have been chartered for less than three years. Because the Bank has been chartered for more than three years, this restriction would not limit our ability to sell.

~~Under~~Page ~~the Bank~~4 ~~Holding Company Act, if adequately capitalized and adequately managed, the Company or any other bank holding company located in Georgia may purchase a bank located outside~~ of Georgia. Conversely, an adequately capitalized and adequately managed bank holding company located outside of Georgia may purchase a bank located inside Georgia. In each case, however, restrictions may be placed on the acquisition of a bank that has only been in existence for a limited amount of time or will result in specified concentrations of deposits. Currently, Georgia law prohibits the acquisition of a bank that has been chartered for less than three years.57

Change in Bank Control. Subject to various exceptions, the Bank Holding Company Act and the Change in Bank Control Act, together with related regulations, require Federal Reserve ~~Board~~ approval prior to any person or company acquiring “control” of athe bank holding company. Control is conclusively presumed to exist if an individual or company acquires 25% or more of any class of voting securities of the bank holding company. Control is also rebuttably presumed to exist, ~~although rebuttable,~~ if a person or company acquires 1510% or more, but less than 25%, of any class of voting securities and either:

· the bank holding company has registered securities under Section 12 of the Securities ~~Exchange~~ Act of 1934; or

no other person owns a greater percentage of that class of voting securities immediately after the transaction.

Our common stock is registered under Section 12 of the Securities Exchange Act of 1934. The regulations provide a procedure for challenging ~~the~~ rebuttable ~~presumption~~presumptions of control.

Permitted Activities. The Bank Holding Company Act has generally prohibited a bank holding company from engaging in activities other than banking or managing or controlling banks or other permissible subsidiaries and from acquiring or retaining direct or indirect control of any company engaged in any activities other than those determined by the Federal Reserve to be closely related to banking or managing or controlling banks as to be a proper incident thereto. Provisions of the Gramm-Leach-Bliley Act have expanded the permissible activities of a bank holding company that qualifies as a financial holding company. Under the regulations implementing the Gramm-Leach-Bliley Act, a financial holding company may engage in additional activities that are financial in nature or incidental or complementary to financial activity. Those activities include, among other activities, certain insurance and securities activities.

To qualify to become a financial holding company, the Bank and any other depository institution subsidiary of the Company must be well capitalized and well managed and must have a Community Reinvestment Act rating of at least “satisfactory.” Additionally, the Company must file an election with the Federal Reserve ~~Board~~ to become a financial holding company and must provide the Federal Reserve ~~Board~~ with 30 days’ written notice prior to engaging in a permitted financial activity. The ~~While the~~ Company ~~currently~~does ~~meets~~not meet the qualification standards applicable to financial holding companies, ~~we have not elected to become a financial holding company~~ at this time.

Support of Subsidiary Institutions. Under Federal Reserve ~~Board~~ policy, we are expected to act as a source of financial strength ~~for~~ ~~the Bank~~ and to commit resources to support the Bank. This support may be required at times when, without this Federal Reserve ~~Board~~ policy, we might not be inclined to provide it. In addition, any capital loans made by us to ~~the~~ Bank will be repaid only after ~~the~~its ~~Bank’s~~ deposits and various other obligations are repaid in full. In the event of our bankruptcy, any commitment ~~that~~ we would give to a federal banking regulator to maintain the capital of the Bank ~~will~~would be assumed by the bankruptcy trustee and entitled to a priority of payment.

~~Page~~Current 5Restrictions ~~of 56~~on Activities. On March 10, 2010, the Federal Reserve advised the Company that prior approval would be required before the Company:

Incurs any indebtedness;

Distributes interest or principal on trust preferred securities;

Declares or pays any dividends;

Redeems any corporate stock; or

Makes any other payment representing a reduction in capital except for normal operating expenses.

Page 5 of 57

Habersham Bank

Because the Bank is a commercial bank chartered under the laws of the State of Georgia, it iswe are primarily subject to the supervision, examination, and reporting requirements of the FDIC and the Georgia Department of Banking & Finance (the “GDBF”). The FDIC and the GDBF regularly examine the Bank’s operations and have the authority to approve or disapprove mergers, the establishment of branches, and similar corporate actions. Both regulatory agencies ~~also~~ have the power to prevent the continuance or development of unsafe or unsound banking practices or other violations of law. ~~The~~Additionally, ~~Bank~~our isdeposits are insured by the FDIC to the maximum extent provided by law. We are also subject to numerous state and federal statutes and regulations that affect ~~the~~our ~~Bank’s~~ business, activities, and operations.

Branching. Under current Georgia law, ~~the Bank~~we may open branch offices throughout Georgia with the prior approval of ~~its primary~~the ~~bank regulator~~GDBF. In addition, with prior regulatory approval, ~~the~~ ~~Bank~~we may acquire branches of existing banks located in Georgia. The Bank and any other national or state-chartered bank generally may branch across state lines byonly ~~merging with banks in other states~~ if allowed by the ~~target~~ applicable states’ laws. Georgia’s law, ~~subject~~with to limited exceptions, currently permits branching across state lines only through interstate mergers.

Under the Federal Deposit Insurance Act, states may “opt-in” and allow out-of-state banks to branch into their state by establishing a new start-up branch in the state. Currently, Georgia has not opted-in to this provision. Therefore, interstate merger is the only method through which a bank located outside of Georgia may branch into Georgia. This provides a limited barrier of entry into the Georgia banking market, which protects us from an important segment of potential competition. However, because Georgia has elected not to opt-in, our ability to establish a new start-up branch in another state may be limited. Many states that have elected to opt-in have done so on a reciprocal basis, meaning that an out-of-state bank may establish a new start-up branch only if their home state has also elected to opt-in. Consequently, until Georgia changes its election, the only way ~~the~~we ~~Bank~~ will be able to branch into states that have elected to opt-in on a reciprocal basis will be through interstate merger.

Prompt Corrective Action. The Federal Deposit Insurance Corporation Improvement Act of 1991 establishes a system of prompt corrective action to resolve the problems of undercapitalized financial institutions. Under this system, the federal banking regulators have established five capital categories~~, well~~ ~~capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized,~~ in which all institutions are placed.: ~~The~~Well ~~federal~~Capitalized, ~~banking~~Adequately ~~agencies~~Capitalized, ~~have~~Undercapitalized, ~~also~~Significantly ~~specified~~Undercapitalized ~~by regulation~~and ~~the~~Critically ~~relevant capital levels for each of the other categories~~Undercapitalized.

~~Federal~~ As a bank’s capital condition deteriorates, federal banking regulators are required to take various mandatory supervisory actions and are authorized to take other discretionary actions with respect to institutions in the three undercapitalized categories. The severity of the action depends upon the capital category in which the institution is placed. Generally, subject to a narrow exception, the banking regulator must appoint a receiver or conservator for an institution that is critically undercapitalized. The other capital categories are well capitalized, adequately capitalized, and undercapitalized. As of ~~December~~ December 31, ~~2008~~2009, the Bank ~~qualified~~was ~~for~~considered ~~the~~significantly ~~well-capitalized category~~undercapitalized.

A “well-capitalized” bank is one that ~~significantly~~ exceeds all of its required capital requirements, which include maintaining a total risk-based capital ratio of at least 10%, a tier 1 risk-based capital ratio of at least 6%, and a tier 1 leverage ratio of at least 5%. Generally, a classification as well capitalized will place a bank outside of the regulatory zone for purposes of prompt corrective action. However, a well-capitalized bank may be reclassified as “adequately capitalized” based on criteria other than capital, if the federal regulator determines that a bank is in an unsafe or unsound condition, or is engaged in unsafe or unsound practices ~~and~~or has not adequately corrected ~~the~~ a prior deficiency.

Page 6 of 56 57

~~FDIC~~An ~~Insurance Assessments. The~~“adequately ~~FDIC~~capitalized” isbank anmeets ~~independent~~the ~~agency~~required minimum level for each relevant capital measure, including a total risk-based capital ratio of ~~the~~at ~~United States~~least ~~government~~8%, ~~that~~a ~~uses~~tier ~~the~~1 ~~Deposit~~risk-based ~~Insurance~~capital ~~Fund~~ratio toof ~~protect~~at ~~against~~least ~~the loss~~4% and a tier 1 leverage ratio of ~~insured~~at least 4%. A bank that is adequately capitalized is prohibited from directly or indirectly accepting, renewing or rolling over any brokered deposits, ifabsent anapplying for and receiving a waiver from the FDIC. Institutions that are not well-~~insured~~capitalized ~~bank~~are oralso ~~savings~~prohibited, ~~association~~except ~~fails. The~~in ~~FDIC~~very ~~must~~limited ~~maintain~~circumstances where the ~~Deposit~~FDIC ~~Insurance~~permits ~~Fund~~use ~~within~~of a ~~range~~higher ~~between~~local ~~1.15 percent~~market ~~and~~rate, ~~1.50~~from ~~percent~~paying yields for deposits in excess of ~~all~~75 ~~insured~~basis points above a national average rate for deposits of comparable maturity, as calculated by the FDIC. In addition, an adequately capitalized bank may be forced to comply with certain operating restrictions similar to those placed on undercapitalized banks.

~~The~~An ~~FDIC has~~“undercapitalized” ~~adopted~~bank afails ~~risk-based~~to ~~assessment~~meet ~~system~~the required minimum level for ~~insured~~any ~~depository~~relevant ~~institutions that~~capital ~~accounts~~measure. A ~~for~~bank that reaches the ~~risks~~undercapitalized ~~attributable~~level is likely subject to ~~different~~a ~~categories~~consent order and ~~concentrations~~ ofother ~~assets~~formal ~~and~~supervisory ~~liabilities~~sanctions. ~~The~~An ~~system~~undercapitalized isbank ~~designed~~must ~~to assess~~submit ~~higher~~a ~~rates~~capital onrestoration ~~those~~plan ~~institutions~~to ~~that~~regulatory ~~pose~~authorities; ~~greater~~be ~~risks~~closely tomonitored ~~the~~by ~~Deposit Insurance~~regulatory ~~Fund. The~~authorities ~~FDIC~~regarding ~~places~~its ~~each~~capital ~~institution~~restoration inplan, ~~one~~financial ofcondition ~~four~~and ~~risk categories~~operational ~~using~~restrictions; arestrict ~~two-step~~asset ~~process~~growth ~~based~~in ~~first~~accordance onwith ~~capital~~an ~~ratios~~approved ~~(the~~ capital ~~group~~ ~~assignment)~~restoration plan; and ~~then~~obtain onprior ~~other~~regulatory ~~relevant~~approval ~~information~~for ~~(the~~acquisitions, ~~supervisory~~branching ~~group assignment). Within~~and ~~the~~new ~~lowest~~lines ~~risk~~of ~~category~~business. In addition, ~~Risk~~an ~~Category~~undercapitalized I,bank ~~rates vary~~becomes ~~based~~subject onto ~~each~~additional ~~institution’s~~discretionary ~~CAMELS~~safeguards ~~component~~that ~~ratings,~~may ~~certain~~be ~~financial ratios,~~imposed ~~and~~by ~~long-term~~its ~~debt~~regulatory ~~issuer ratings~~authorities, ifwhich ~~any.~~may:

~~Capital group~~· ~~assignments~~prohibit ~~are made quarterly and an institution is assigned to one of three~~ capital categories: (1) well capitalized, (2) adequately capitalized, or (3) undercapitalized. These three categories are substantially similar to the prompt corrective action categories described above, with the “undercapitalized” category including institutions that are undercapitalized, significantly undercapitalized, and critically undercapitalized for prompt corrective action purposes. The FDIC also assigns an institution to one of three supervisory subgroups based on a supervisory evaluation that the institution’s primary federal banking regulator provides to the FDIC and information that the FDIC determines to be relevant to the institution’s financial condition and the risk posed to the deposit insurance funds.distributions;

~~For~~· ~~2008, assessments~~prohibit ~~ranged~~payment ~~from 5 to 43 cents per $100~~ of ~~deposits,~~management ~~depending~~fees onto ~~the institution’s risk category. Institutions in the lowest risk category, Risk Category I, were charged~~ a ~~rate~~controlling ~~between 5 and 7 cents per $100 of deposits. Risk Categories II, III, and IV were charged 10 basis points, 28 basis points and 43 basis points, respectively.~~person;

~~Because the~~· ~~Deposit~~require Insurance Fund reserve fell below 1.15 percent as of June 30, 2008, and was expected to remain below 1.15 percent, the Federal Deposit Insurance Reform Act of 2005 required the FDIC to establish and implement a capital restoration plan ~~to restore the reserve ratio to no less than 1.15 percent~~ within ~~five years,~~45 ~~absent~~days ~~extraordinary~~of ~~circumstances.~~becoming undercapitalized;

~~On December~~· ~~16,~~restrict ~~2008,~~or ~~the~~prohibit ~~FDIC~~asset ~~adopted~~growth, asor ~~part~~require ~~of its restoration plan,~~ a ~~uniform increase~~bank to the assessment rates by 7 basis points (annualized) for the first quarter 2009 assessments. As a result, institutions in Risk Category I will be charged a rate between 12 and 14 cents per $100 of deposits. Risk Categories II, III, and IV will be charged 17 basis points, 35 basis points, and 50 basis points, respectively.shrink;

~~On February~~· ~~27,~~require ~~2009,~~prior ~~the~~approval ~~FDIC~~by ~~amended~~the ~~its~~primary ~~restoration~~federal ~~plan~~regulator ~~to extend the period~~ for ~~restoration to seven years and further revised the risk-based assessment system. Starting with the second quarter of 2009~~acquisitions, ~~institutions~~branching ~~in Risk Category I will have a base assessment rate between 12~~ and 16new ~~cents~~lines ~~per $100~~ of deposits. Risk Categories II, III, and IV will have base assessment rates of 22 basis points, 32 basis points, and 45 basis points, respectively. These base assessments will be subject to adjustments based on each institution’s unsecured debt, secured liabilities, and use of brokered deposits. As a result of these adjustments, institutions in Risk Category I will be charged rate between 7 and 24 cents per $100 of deposits. Risk Categories II, III, and IV will be charged between 17 and 43 basis points, 27 and 58 basis points, and 40 and 77.5 basis points, respectively.business;

~~Page~~· 7require sale of 56 securities, or, if grounds for conservatorship or receivership exist, direct the bank to merge or be acquired;

~~Under~~· ~~an interim~~restrict ~~rule~~affiliate adopted on February 27, 2009, the FDIC will impose an emergency special assessment of 20 basis points as of June 30, 2009, and may impose additional emergency special assessments of up to 10 basis points thereafter if the reserve ratio is estimated to fall to a level that the FDIC believes would adequately affect public confidence or to a level that shall be close to zero or negative at the end of a calendar quarter.transactions;

~~The~~· ~~FDIC may,~~restrict ~~without~~or ~~further~~prohibit ~~notice-and-comment~~all ~~rulemaking,~~activities ~~adopt rates~~ that are ~~higher or~~determined ~~lower~~to ~~than~~pose ~~the~~an ~~stated~~excessive ~~base~~risk ~~assessment rates, provided that the FDIC cannot (i) increase or decrease the total rates from one quarter~~ to the ~~next by more than three basis points, or (ii) deviate by more than three basis points from the stated assessment rates.~~bank;

require the institution to elect new directors, dismiss directors or senior executive officer or employ qualified senior executive officers to improve management;

prohibit the acceptance of deposits from correspondent banks;

require prior approval of capital distributions by holding companies;

require holding company divestiture of the bank, bank divestiture of subsidiaries, and/or holding company divestiture of other affiliates;

require the bank to take any other action the federal regulator determines will “better achieve” prompt corrective action objectives;

prohibit material transactions outside the usual course of business;

prohibit amending the bylaws/charter of the bank;

prohibit any material changes in accounting methods; and

prohibit golden parachute payments, excessive compensation and bonuses.

A “significantly undercapitalized” bank, in addition to being subject to the restrictions applicable to undercapitalized institutions, is subject to additional restrictions on the compensation it is able to pay to its senior executive officers. See “—Regulatory Order” for specific requirements imposed on the Bank by its regulatory authorities.

Page 7 of 57

A “critically undercapitalized” bank, in addition to being subject to the restrictions applicable to undercapitalized and significantly institutions, is further prohibited from doing any of the following without the prior written approval of the FDIC:

entering into any material transaction other than in the ordinary course of business;

extending credit for any highly leveraged transaction;

amending the institution’s charter or bylaws, except to the extent necessary to carry out any other requirement of any law, regulation or order;

making any material change in accounting methods;

engaging in certain types of transactions with affiliates;

paying excessive compensation or bonuses;

paying interest on new or renewed liabilities at a rate that would increase the institution’s weighted average cost of funds to a level significantly exceeding the prevailing rates of its competitors;

making any principal or interest payment on subordinated debt 60 days or more after becoming critically undercapitalized;

In addition, the FDIC may impose additional restrictions on critically undercapitalized institutions consistent with the intent of the prompt corrective action regulations. Once an institution has become critically undercapitalized, the FDIC will, subject to certain narrow exceptions such as a material capital remediation, initiate the resolution of the institution.

Regulatory Order. On June 24, 2009, the Bank entered into an Order to Cease and Desist (the “Order”) with the GDBF. The Regional Director of the FDIC acknowledged the Order, which became effective 10 days after issuance. The Order is based on the findings of the Department during an on-site examination conducted as of September 22, 2008.

Under the terms of the Order, the Bank is required to prepare and submit written plans and/or reports to the regulators that address the following items: maintaining sufficient capital at the Bank; improving the Bank’s liquidity position and funds management practices; reducing adversely classified items; reviewing and revising as necessary the Bank’s allowance for loan and lease losses policy; continuing to improve loan underwriting, loan administration, and portfolio management; reducing concentrations of credit; and revising and implementing a profitability plan and comprehensive budget to improve and sustain the Bank’s earnings. While the Order remains in place, the Bank may not pay cash dividends or bonuses without the prior written consent of its regulators. The Bank’s management team and Board of Directors have taken aggressive steps to address the requirements of the Order and the findings of the on-site examination, including but not limited to submitting a capital plan; reporting and maintaining the Bank’s liquidity position; reducing classified assets and concentrations; and reviewing and revising where appropriate the Bank’s policies and procedures in the areas identified above.

The text of the Order is incorporated herein by reference as Exhibit 10.24.

FDIC Insurance Assessments. The Bank’s deposits are insured by the Deposit Insurance Fund (the “DIF”) of the FDIC up to the amount permitted by law. The Bank is thus subject to FDIC deposit insurance premium assessments. The FDIC uses a risk-based assessment system that assigns insured depository institutions to one of four risk categories based on three primary sources of information – supervisory risk ratings for all institutions, financial ratios for most institutions, and long-term debt issuer ratings for large institutions that have such ratings. In February 2009, the FDIC issued new risk based assessment rates that took effect April 1, 2009. For insured depository institutions in the lowest risk category, the annual assessment rate ranges from 7 to 77.5 cents for every $100 of domestic deposits. For institutions assigned to higher risk categories, the new assessment rates range from 17 to 43 cents per $100 of domestic deposits. These ranges reflect a possible downward adjustment for unsecured debt outstanding and possible upward adjustments for secured liabilities and, in the case of institutions outside the lowest risk category, brokered deposits.

The FDIC’s assessment rates are intended to result in a reserve ratio of at least 1.15%. By December 31, 2009, the ratio had fallen well below this floor. The FDIC is required to return the DIF to its statutorily mandated minimum reserve ratio of 1.15 percent within eight years, and has undertaken several initiatives to satisfy this requirement.

Page 8 of 57

On September 30, 2009, the FDIC collected a one-time special assessment of five basis points of an institution’s assets minus tier 1 capital as of June 30, 2009. The amount of the special assessment could not exceed ten basis points times the institution’s assessment base for the second quarter 2009. In addition, on November 12, 2009, the FDIC adopted a rule that required nearly all FDIC-insured depository institutions to prepay their DIF assessments for the fourth quarter of 2009 and for the next three years. The FDIC has indicated that the prepayment of DIF assessments will be in lieu of additional special assessments, although there can be no guarantee that continued pressures on the DIF will not result in additional special assessments being collected by the FDIC in the future.

The FDIC also collects a deposit-based assessment from insured financial institutions on behalf of The Financing Corporation (“FICO”). The funds from these assessments are used to service debt issued by FICO in its capacity as a financial vehicle for the Federal Savings & Loan Insurance Corporation. The FICO assessment rate is set quarterly and in 2009 ranged from 1.14 cents to 1.02 cents per $100 of assessable deposits. These assessments will continue until the debt matures in 2017 through 2019.

The FDIC may, without further notice-and-comment rulemaking, adopt rates that are higher or lower than the stated base assessment rates, provided that the FDIC cannot (i) increase or decrease the total rates from one quarter to the next by more than three basis points, or (ii) deviate by more than three basis points from the stated assessment rates. The FDIC has proposed maintaining current assessment rates through December 31, 2010, followed by a uniform increase in risk-based assessment rates of three basis points effective January 1, 2011.

The FDIC may terminate its insurance of deposits if it finds that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order, or condition imposed by the FDIC.

FDIC Temporary Liquidity Guarantee Program. On October 14, 2008, the FDIC announced that its Board of Directors, under the authority to prevent “systemic risk” in the U.S. banking system, approved the Temporary Liquidity Guarantee Program (“TLGP”). The purpose of the TLGP is to strengthen confidence and encourage liquidity in the banking system. The TLGP is composed of two components, the Debt Guarantee Program and the Transaction Account Guarantee Program, and institutions had the opportunity, prior to December 5, 2008, to opt-out of either or both components of the TLGP.

The Debt Guarantee Program.: Under the ~~TLGP~~Temporary Liquidity Guarantee Program, the FDIC is permitted to guarantee certain newly issued senior unsecured debt issued by participating financial institutions. The annualized fee that the FDIC will assess to guarantee the senior unsecured debt varies by the length of maturity of the debt. For debt with a maturity of 180 days or less (excluding overnight debt), the fee is 50 basis points; for debt with a maturity between 181 days and 364 days, the fee is 75 basis points, and for debt with a maturity of 365 days or longer, the fee is 100 basis points. The Bank did not opt-out of the Debt Guarantee component of the TLGP.

The Transaction Account Guarantee Program. : Under the TLGP, the FDIC is permitted to fully insure non-interest bearing deposit accounts held at participating FDIC-insured institutions, regardless of dollar amount. The temporary guarantee ~~will~~was ~~expire~~originally atset ~~the~~to ~~end~~expire ofon June 30, 2009, but was subsequently extended to June 30, 2010. For the eligible ~~non~~ noninterest-~~interest-~~bearing transaction deposit accounts (including accounts swept from a ~~non-interest~~noninterest bearing transaction account into an ~~non-interest~~noninterest bearing savings deposit account), a 10 basis point annual rate surcharge will be applied to ~~non~~ noninterest-bearing transaction deposit amounts over $250,000. Institutions will not be assessed on amounts that are otherwise insured. The Bank ~~did~~chose not to opt-out of the Transaction Account Guarantee component of the TLGP.

~~Allowance~~Page ~~for Loan~~9 ~~and Lease Losses. The Allowance for Loan and Lease Losses (the “ALLL”) represents one~~ of the most significant estimates in the Bank’s financial statements and regulatory reports. Because of its significance, the Bank has developed a system by which it develops, maintains, and documents a comprehensive, systematic, and consistently applied process for determining the amounts of the ALLL and the provision for loan and lease losses. The Interagency Policy Statement on the Allowance for Loan and Lease Losses, issued on December 13, 2006 encourages all banks to ensure controls are in place to consistently determine the ALLL in accordance with GAAP, the bank’s stated policies and procedures, management’s best judgment, and relevant supervisory guidance. Consistent with supervisory guidance, the Bank maintains a prudent and conservative, but not excessive, ALLL, that is at a level that is appropriate to cover estimated credit losses on individually evaluated loans determined to be impaired as well as estimated credit losses inherent in the remainder of the loan and lease portfolio. The Bank’s estimate of credit losses reflects consideration of all significant factors that affect the collectability of the portfolio as of the evaluation date. See “Management’s Discussion and Analysis – Critical Accounting Policies.”57

~~Page~~Community 8Reinvestment Act. The Community Reinvestment Act requires that, in connection with examinations of 56 financial institutions within their respective jurisdictions, the federal banking regulators shall evaluate the record of each financial institution in meeting the credit needs of its local community, including low and moderate-income neighborhoods. These facts are also considered in evaluating mergers, acquisitions and applications to open a branch or facility. Failure to adequately meet these criteria could impose additional requirements and limitations on the Bank. Additionally, we must publicly disclose the terms of various Community Reinvestment Act-related agreements.

Allowance for Loan and Lease Losses. The Allowance for Loan and Lease Losses (the “ALLL”) represents one of the most significant estimates in the Bank’s financial statements and regulatory reports. Because of its significance, the Bank has developed a system by which it develops, maintains and documents a comprehensive, systematic and consistently applied process for determining the amounts of the ALLL and the provision for loan and lease losses. The Interagency Policy Statement on the Allowance for Loan and Lease Losses, issued on December 13, 2006, encourages all banks to ensure controls are in place to consistently determine the ALLL in accordance with GAAP, the Bank’s stated policies and procedures, management’s best judgment and relevant supervisory guidance. Consistent with supervisory guidance, the Bank maintains a prudent and conservative, but not excessive, ALLL, that is at a level that is appropriate to cover estimated credit losses on individually evaluated loans determined to be impaired as well as estimated credit losses inherent in the remainder of the loan and lease portfolio. The Bank’s estimate of credit losses reflects consideration of all significant factors that affect the collectability of the portfolio as of the evaluation date.

Commercial Real Estate Lending. The Bank’s lending operations may be subject to enhanced scrutiny by federal banking regulators based on its concentration of commercial real estate loans. On December 6, 2006, the federal banking regulators issued final guidance to remind financial institutions of the risk posed by commercial real estate (“CRE”) lending concentrations. CRE loans generally include land development, construction loans, and loans secured by multifamily property, and nonfarm, nonresidential real property where the primary source of repayment is derived from rental income associated with the property. The guidance prescribes the following guidelines for its examiners to help identify institutions that are potentially exposed to significant CRE risk and may warrant greater supervisory scrutiny:

total reported loans for construction, land development and other land represent 100% or more of the institution’s total capital, or

total commercial real estate loans represent 300% or more of the institution’s total capital, and the outstanding balance of the institution’s commercial real estate loan portfolio has increased by 50% or more.

~~Community~~Other ~~Reinvestment Act~~Regulations. ~~The~~Interest ~~Community Reinvestment~~and ~~Act~~other ~~requires~~charges ~~that,~~collected inor ~~connection~~contracted ~~with~~for ~~examinations~~by ~~of financial institutions within their respective jurisdictions,~~ the ~~federal~~Bank ~~banking~~are ~~agencies shall~~subject ~~evaluate~~to ~~the~~state ~~record~~usury oflaws ~~each~~and ~~financial~~federal ~~institution~~laws inconcerning ~~meeting~~interest ~~the credit needs of its local community, including low- and moderate-income neighborhoods~~rates. ~~These~~Our ~~facts~~loan ~~are~~operations ~~also~~will ~~considered~~be insubject ~~evaluating mergers, acquisitions, and applications~~ to ~~open~~federal alaws ~~branch~~applicable ~~or facility. Failure~~ to ~~adequately~~credit ~~meet these criteria could impose additional requirements and limitations on the Bank. Additionally~~transactions, ~~the~~such ~~Bank~~as ~~must publicly disclose~~ the ~~terms of various Community Reinvestment Act-related agreements.~~:

~~Other Regulations. Interest~~· ~~and~~Federal ~~other~~Truth-In-Lending ~~charges~~Act, ~~collected~~governing ~~or contracted~~disclosures ~~for~~of bycredit ~~the~~terms ~~Bank are subject~~ to ~~state~~consumer ~~usury laws and federal laws concerning interest rates. The Bank’s loan operations are also subject to federal laws applicable to credit transactions, such as the:~~borrowers;

· Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers;

Home Mortgage Disclosure Act of 1975, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves;

· Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed, or other prohibited factors in extending credit;

Page 10 of 57

Fair Credit Reporting Act of 1978, as amended by the Fair and Accurate Credit Transactions Act, governing the use and provision of information to credit reporting agencies, certain identity theft protections, and certain credit and other disclosures;

Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies;

· Soldiers’ and Sailors’ Civil Relief Act of 1940, as amended by the Servicemembers’ Civil Relief Act, governing the repayment terms of, and property rights underlying, secured obligations of persons currently on active duty with the United States military;

· Talent Amendment in the 2007 Defense Authorization Act, establishing a 36% annual percentage rate ceiling, which includes a variety of charges including late fees, for ~~certain types of~~ consumer loans to military service members and their dependents; and

· ~~rules~~Rules and regulations of the various federal ~~agencies~~banking regulators charged with the responsibility of implementing these federal laws.

~~Page~~The 9Bank’s ~~of 56~~deposit operations are subject to federal laws applicable to depository accounts, such as the:

~~The Bank’s~~· ~~deposit~~Truth-In-Savings ~~operations~~Act, ~~are~~requiring ~~subject~~certain todisclosures ~~federal~~of ~~laws~~consumer ~~applicable~~deposit ~~to depository~~ accounts~~, such as the following~~:

Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records;

· ~~Truth-In-Savings~~Electronic Funds Transfer Act and Regulation E issued by the Federal Reserve to implement that act, ~~requiring~~which ~~certain~~govern ~~disclosures~~automatic ~~for~~deposits ~~consumer~~to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services; and

· ~~Electronic~~Rules ~~Funds Transfer Act~~ and ~~Regulation~~regulations Eof ~~issued by~~ the ~~Federal~~various ~~Reserve~~federal ~~Board~~banking toregulators ~~implement~~charged ~~that~~with ~~act, which govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from~~ the ~~use~~responsibility of ~~automated~~implementing ~~teller~~these ~~machines~~federal ~~and other electronic banking services; and~~laws.

· rules and regulations of the various federal agencies charged with the responsibility of implementing these federal laws.

Capital Adequacy

~~The Company~~We ~~and the Bank~~ are required to comply with the capital adequacy standards established by the Federal Reserve ~~Board, in the case of the Company, and the FDIC in the case of the Bank~~. The Federal Reserve ~~Board~~ has established a risk-based and a leverage measure of capital adequacy for ~~bank holding~~member ~~companies. Because~~banks the Company’s consolidated total assets are less than $500 million, under the Federal Reserve Board’s capital guidelines, our capital adequacy is measured on a bank-only basis, as opposed to a consolidated basis. The Bank is also subject to risk-based and ~~leverage~~ ~~capital requirements adopted by its primary regulator, which are substantially similar to those adopted by the Federal Reserve Board for~~ bank holding companies.

The risk-based capital standards are designed to make regulatory capital requirements more sensitive to differences in risk profiles among banks and bank holding companies, to account for off-balance-sheet exposure, and to minimize disincentives for holding liquid assets. Assets and off-balance-sheet items, such as letters of credit and unfunded loan commitments, are assigned to broad risk categories, each with appropriate risk weights. The resulting capital ratios represent capital as a percentage of total risk-weighted assets and off-balance-sheet items.

The minimum guideline for the ratio of total capital to risk-weighted assets, ~~is 8%. Total~~and ~~capital~~classification ~~consists~~as ofadequately ~~two~~capitalized, ~~components: Tier~~is ~~1 Capital and Tier 2 Capital~~8%. ~~Tier~~A 1bank ~~Capital~~that ~~generally~~fails ~~consists~~to ~~of common~~meet ~~stockholders’ equity, minority interests in~~ the ~~equity~~required ~~accounts~~minimum ~~of consolidated~~guidelines ~~subsidiaries,~~is ~~qualifying~~classified ~~noncumulative~~as ~~perpetual~~undercapitalized ~~preferred stock,~~ and asubject ~~limited~~to ~~amount~~operating ~~of qualifying cumulative perpetual preferred stock, less goodwill~~ and ~~other~~managerial ~~specified intangible assets~~restrictions. ~~Tier~~A 1bank, ~~Capital must equal at least 4% of risk-weighted assets. Tier 2 Capital generally consists of subordinated debt~~however, ~~other~~that ~~preferred~~exceeds ~~stock~~its ~~and hybrid~~ capital, requirements and maintains a ~~limited~~ ~~amount of loan loss reserves. The total amount of Tier 2 Capital is limited to 100% of Tier 1 Capital. At December 31, 2008 our~~ ratio of total capital to risk-weighted assets ~~was~~of 10~~.61~~% ~~and~~is ~~our~~classified ~~ratio~~as ~~of Tier~~well ~~1 Capital to risk-weighted assets was 9~~capitalized.~~33%.~~

~~In addition,~~Total ~~the~~capital ~~Federal~~consists ~~Reserve~~of ~~Board~~two ~~has~~components: Tier ~~established~~1 ~~minimum~~Capital ~~leverage~~and ~~ratio guidelines~~Tier ~~for~~2 ~~bank holding companies~~Capital. ~~These~~Tier ~~guidelines~~1 ~~provide~~Capital ~~for~~generally ~~a minimum~~consists ~~ratio~~ of ~~Tier~~common 1shareholders’ ~~Capital to average assets~~equity, ~~less~~minority ~~goodwill~~interests ~~and~~in ~~other specified~~the ~~intangible~~equity ~~assets,~~accounts of 3%consolidated ~~for~~subsidiaries, ~~bank~~qualifying ~~holding~~noncumulative ~~companies~~perpetual ~~that~~preferred ~~meet specified~~stock ~~criteria,~~and ~~including~~a ~~having~~limited ~~the~~amount ~~highest~~of ~~regulatory~~qualifying ~~rating~~cumulative ~~and implementing~~perpetual ~~the~~preferred ~~Federal~~stock, ~~Reserve~~less ~~Board’s~~goodwill ~~risk-based~~and ~~capital~~other ~~measure~~specified ~~for~~intangible ~~market risk~~assets. ~~All~~To ~~other~~be ~~bank~~adequately ~~holding~~capitalized, ~~companies~~Tier 1 ~~generally~~Capital ~~are~~must ~~required~~equal ~~to maintain a leverage ratio of~~ at least 4%~~. At~~ ~~December~~of ~~31,~~risk-weighted ~~2008, our leverage ratio was 7~~assets.~~14%.~~ ~~The~~Tier ~~guidelines~~2 ~~also~~Capital ~~provide~~generally ~~that~~consists ~~bank holding~~of ~~companies~~subordinated ~~experiencing~~debt, ~~internal~~other ~~growth~~preferred orstock ~~making~~and ~~acquisitions~~hybrid ~~will be expected to maintain strong~~ capital, ~~positions~~and ~~substantially~~a ~~above~~limited ~~the~~amount ~~minimum supervisory~~of ~~levels~~loan ~~without~~loss ~~reliance on intangible assets~~reserves. The ~~Federal Reserve~~total ~~Board~~amount ~~considers~~of ~~the~~Tier ~~leverage~~2 ~~ratio~~Capital ~~and~~is ~~other~~limited ~~indicators~~to 100% of ~~capital strength~~Tier in1 ~~evaluating proposals for expansion or new activities~~Capital.

Page 1011 of 56 57

~~Failure to~~The ~~meet~~Bank’s ratio of total capital ~~guidelines~~to ~~could~~risk-weighted ~~subject~~assets aand ~~bank~~ratio orof ~~bank~~Tier ~~holding~~1 ~~company~~Capital to ~~a variety~~risk-weighted ofassets ~~enforcement~~were ~~remedies~~5.69% and 4.41%, ~~including~~respectively, ~~issuance~~as of aDecember 31, ~~capital~~2009. As ~~directive,~~a ~~the termination~~result of ~~deposit~~our ~~insurance~~regulatory bycapital ~~the FDIC~~ratios, awe ~~prohibition~~were onconsidered ~~accepting brokered~~"significantly ~~deposits,~~undercapitalized” ~~and~~by ~~certain~~our ~~other~~bank ~~restrictions~~regulatory authorities on ~~its~~December 31, ~~business~~2009. As described above, ~~significant~~an ~~additional~~adequately ~~restrictions~~capitalized ~~can~~bank beis ~~imposed~~subject to certain restrictions on ~~FDIC-insured~~ ~~depository~~its ~~institutions~~operations ~~that~~and ~~fail~~an toundercapitalized, ~~meet~~significantly ~~applicable~~undercapitalized ~~capital requirements. See~~or ~~“Prompt~~critically ~~Corrective~~undercapitalized ~~Action”~~bank ~~above~~is subject to extensive operational restrictions.

The Federal Reserve has similarly established minimum leverage ratio guidelines for bank holding companies. These guidelines provide for a minimum ratio of Tier 1 Capital to average assets, less goodwill and other specified intangible assets, of 3% for bank holding companies that meet specified criteria, including having the highest regulatory rating and implementing the Federal Reserve risk-based capital measure for market risk. All other bank holding companies generally are required to maintain a leverage ratio of at least 4%. At December 31, 2009, our leverage ratio was 3.08%. The guidelines also provide that bank holding companies experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels without reliance on intangible assets. The Federal Reserve considers the leverage ratio and other indicators of capital strength in evaluating proposals for expansion or new activities.

Failure to meet capital guidelines can subject a bank and a bank holding company to a variety of enforcement remedies, including issuance of a capital directive, the termination of deposit insurance by the FDIC, a prohibition on accepting brokered deposits and certain other restrictions on its business. As described above and elsewhere throughout this report, significant additional restrictions can be imposed on FDIC-insured depository institutions that fail to meet applicable capital requirements. See, “Supervision and Regulation – Habersham Bank – Prompt Corrective Action,” above, for a summary of the restrictions to which we would become subject should our capital condition deteriorate significantly.

Payment of Dividends

The Company is a legal entity separate and distinct from the Bank. ~~The principal~~ ~~source~~It ~~of the Company’s cash flow, including cash flow to pay dividends to its shareholders,~~ is ~~dividends that~~ the ~~Bank~~policy ~~pays~~of to the ~~Company~~Federal ~~as the~~Reserve ~~Bank’s~~that ~~sole~~bank ~~shareholder. Statutory~~holding ~~and~~companies ~~regulatory~~should ~~limitations apply~~pay tocash ~~the Bank’s payment of~~ dividends toon ~~the~~common ~~Company~~stock asonly ~~well~~out ~~as to the Company’s payment~~ of ~~dividends~~net toincome ~~its~~available ~~shareholders.~~over ~~If, in~~ the ~~opinion~~past ofyear ~~the federal~~and ~~banking~~only ~~regulator,~~if the ~~Bank~~prospective ~~were~~earnings ~~engaged~~retention inrate oris ~~about~~consistent towith ~~engage~~the inorganization's ~~an unsafe~~expected orfuture ~~unsound~~needs ~~practice,~~and ~~the federal~~financial ~~banking~~condition. ~~regulator could require~~Additionally, ~~after~~ ~~notice and~~ a ~~hearing~~March 10, ~~that~~2010 ~~the~~letter ~~Bank stop or refrain~~ from ~~engaging in~~ the ~~practice. The~~ ~~federal~~Federal ~~banking~~Reserve ~~agencies~~states ~~have indicated~~ that ~~paying dividends that deplete a depository institution’s capital base to an inadequate level would be an unsafe and unsound banking practice. Under~~ the ~~Federal~~Company ~~Deposit Insurance Corporation Improvement Act of 1991, a depository institution~~ may not pay any dividend if payment would cause it to become undercapitalized or if it already is undercapitalized. Moreover, the federal agencies have issued policy statements that provide that bank holding companies and insured banks should generally only pay dividends ~~out~~without ofprior ~~current~~Federal ~~operating~~Reserve ~~earnings~~approval.

The principal sources of our cash flow, including cash flow to pay dividends to our shareholders, are dividends that we receive from the Bank . Statutory and regulatory limitations apply to the payment of dividends by a subsidiary bank to its bank holding company. The Bank is required to obtain prior approval of the GDBF if the total of all dividends declared by the Bank in any year will exceed 50% of the Bank’s net income for the prior year. ~~The~~Our payment of dividends ~~by the Company and the Bank~~ may also be affected by other factors, such as the requirement to maintain adequate capital above regulatory guidelines. AtIn ~~December~~addition, 31administrative agreements with or actions taken by our primary regulators may impose additional restrictions on our ability to pay dividends. Based on the foregoing, ~~2008~~and under the terms of the Order, the Bank could not pay cash dividends without prior regulatory approval. Any future determination relating to dividend policy will be made at the discretion of our board of directors and will depend on the statutory and regulatory factors mentioned above.

If, in the opinion of the federal banking regulator, the Bank was engaged in or about to engage in unsafe or unsound practice, the federal banking regulator could require, after notice and a hearing, that we stop or refrain from engaging in the practice it considers unsafe or unsound. The federal banking regulators have indicated that paying dividends that deplete a depository institution’s capital base to an inadequate level would be an unsafe and unsound banking practice. Under the Federal Deposit Insurance Corporation Improvement Act of 1991, a depository institution may not pay any dividend if payment would cause it to become undercapitalized or if it already is undercapitalized. Moreover, the federal banking regulators have issued policy statements that provide that bank holding companies and insured banks should generally only pay dividends out of current operating earnings.

Page 12 of 57

Restrictions on Transactions with Affiliates

The Company and the Bank are subject to the provisions of Section 23A of the Federal Reserve Act. Section 23A places limits on the amount of:

a bank’s loans or extensions of credit to affiliates;

a bank’s investment in affiliates;

· assets a bank may purchase from affiliates, except for real and personal property exempted by the Federal Reserve ~~Board~~;

loans or extensions of credit to third parties collateralized by the securities or obligations of affiliates; and

· a bank’s guarantee, acceptance, or letter of credit issued on behalf of an affiliate.

~~Page~~The 11total amount of 56 the above transactions is limited in amount, as to any one affiliate, to 10% of a bank’s capital and surplus and, as to all affiliates combined, to 20% of a bank’s capital and surplus. In addition to the limitation on the amount of these transactions, each of the above transactions must also meet specified collateral requirements. We must also comply with other provisions designed to avoid the taking of low-quality assets.

~~The~~We ~~total amount~~are ofsubject to the ~~above~~provisions ~~transactions~~of isSection ~~limited~~23B inof ~~amount,~~the asFederal toReserve ~~any~~Act ~~one affiliate~~which, to ~~10%~~among ofother ~~a bank’s capital and surplus and~~things, asprohibit toan ~~all~~institution ~~affiliates~~from ~~combined,~~engaging ~~to 20%~~in ofthe aabove ~~bank’s~~transactions ~~capital~~with ~~and~~affiliates ~~surplus. In~~unless ~~addition to~~ the ~~limitation~~transactions are on ~~the~~ ~~amount~~terms ofsubstantially ~~these~~the ~~transactions~~same, ~~each~~or ofat ~~the~~least ~~above~~as ~~transactions~~favorable ~~must~~to ~~also~~the ~~meet specified~~institution ~~collateral~~or ~~requirements. The~~its ~~Bank~~subsidiaries, ~~must~~as ~~also~~those ~~comply~~prevailing ~~with other~~at ~~provisions~~the ~~designed~~time tofor ~~avoid~~comparable ~~taking~~transactions ~~low-quality~~with ~~assets~~nonaffiliated companies.

~~The Company~~We ~~and the Bank~~ are ~~also~~ subject to ~~the~~restrictions ~~provisions~~on ofextensions ~~Section 23B~~ of ~~the Federal~~credit ~~Reserve~~to ~~Act~~our ~~which~~executive officers, ~~among other things~~directors, ~~prohibit~~principal anshareholders ~~institution~~and ~~from engaging~~their inrelated ~~the~~interests. These ~~above~~extensions ~~transactions~~of ~~with~~credit ~~affiliates~~(1) ~~unless~~must ~~the~~be ~~transactions~~made ~~are~~ on ~~terms~~ substantially the same terms, orincluding atinterest ~~least~~rates asand ~~favorable to the institution or its subsidiaries~~collateral, as those prevailing at the time for comparable transactions with ~~nonaffiliated~~third ~~companies~~parties and (2) must not involve more than the normal risk of repayment or present other unfavorable features.

The Bank is also subject to restrictions on extensions of credit to its executive officers, directors, principal shareholders, and their related interests. These extensions of credit (1) must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with third parties, and (2) must not involve more than the normal risk of repayment or present other unfavorable features.

Proposed Legislation and Regulatory Action

New regulations and statutes are regularly proposed that contain wide-ranging proposals for altering the structures, regulations, and competitive relationships of financial institutions operating and doing business in the United States. We cannot predict whether or in what form any proposed regulation or statute will be adopted or the extent to which our business may be affected by any new regulation or statute.

Effect of Governmental Monetary Policies

The Bank’s earnings are affected by domestic economic conditions and the monetary and fiscal policies of the United States government and its agencies. The Federal Reserve ~~Board~~Bank’s monetary policies have had, and are likely to continue to have, an important impact on the operating results of commercial banks through its power to implement national monetary policy in order, among other things, to curb inflation or combat a recession. The monetary policies of the Federal Reserve Board affect the levels of bank loans, investments and deposits through its control over the issuance of United States government securities, its regulation of the discount rate applicable to member banks, and its influence over reserve requirements to which member banks are subject. ~~Neither~~We ~~the~~cannot ~~Company~~predict ~~nor~~ the ~~Bank can predict the~~ nature or impact of future changes in monetary and fiscal policies.

Page 13 of 57

Item 1A. RISK FACTORS

An investment in the Company’s common stock involves a high degree of risk. If any of the following risks other risks, which have not been identified of which we may believe are immaterial or unlikely, actually occur, our business, financial condition and results of operations could be harmed. In such a case, the trading price of our common stock could decline, and you may lose all or part of your investment. The risks discussed below also include forward-looking statements, and our actual results may differ substantially from those discussed in these forward-looking statements.

Investors should consider carefully the risks described below and the other information in this report before deciding to invest in the Company’s common stock.

~~Page~~Our 12independent ~~of 56~~registered public accounting firm’s report discloses a going concern issue for the Company.

Our financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future. However, due to our financial results, the substantial uncertainty throughout the U.S. banking industry and other matters discussed in this report, our independent public accountants have expressed in their opinion on our Consolidated Financial Statements included in this report that a substantial doubt exists regarding the Company’s ability to continue as a going concern. Management’s plans in addressing the issues that raise substantial doubt regarding the Bank’s ability to continue as a going concern are addressed in Note 3 of the Notes to Consolidated Financial Statements. See “—We are subject to heightened regulatory scrutiny and are currently under a regulatory order that imposes additional requirements and restrictions on our business” below and “Supervision and Regulation—Prompt Corrective Action” for a discussion of the regulatory restrictions and requirements to which we are currently subject.

We are subject to heightened regulatory scrutiny and the Bank is currently under a consent order that imposes additional requirements and restrictions on our business.

We are primarily regulated by the Federal Reserve, the FDIC and the GDBF. Our compliance with Federal Reserve, FDIC and GDBF regulations is costly and may limit our growth and restrict certain of our activities, including payment of dividends, mergers and acquisitions, investments, loans and interest rates charged, interest rates paid on deposits and locations of offices. We are also subject to capital requirements of our regulators.

Based on the results of our September 22, 2008 regulatory examination, particularly with respect to our levels of capital and classified assets, the GDBF and FDIC have required the Bank to enter into a Cease and Desist Order. The order includes provisions requiring reductions in classified assets, improvements in liquidity and funds management practices, maintenance of an appropriate allowance for loan losses and specified capital ratios, dividend and bonus restrictions, amendments to our policies and frequent progress reports to regulatory authorities, as well as other provisions to help us improve our financial condition and profitability. Under the order, the Bank must achieve and maintain total risk-based capital at or above 10% of total risk-weighted assets, and Tier 1 capital at or above 8% of total assets. If we do not comply with the terms of this order, we could face additional regulatory sanctions or civil money penalties. See “Supervision and Regulation—Regulatory Order” for a further description of the order.

Page 14 of 57

In addition, we are currently classified as "significantly undercapitalized" for regulatory capital purposes. As a result, we are subject to enhanced regulatory supervision, both under the order described above and under FDIC regulations. For example, we must obtain regulatory approval to add or replace directors or executive officers; obtain prior regulatory approval for new business lines, acquisitions, branch purchases and other significant transactions; submit a capital restoration plan for regulatory review; and comply with regulatory limitations on the amount of severance or “golden parachute” payments we are permitted to make. We are also unable to accept, renew or roll over brokered deposits absent a waiver from the FDIC. This limits our access to funding sources and could adversely affect our liquidity and net interest margin. As of December 31, 2009, we had approximately $48.9 million in out of market deposits, including brokered deposits, which represented approximately 12.53% of our total deposits. If we are unable to continue to attract deposits and maintain sufficient liquidity, our ability to meet our obligations, including the payout of deposit accounts would be adversely affected. If our liquidity becomes severely impaired and we are unable to meet our financial obligations, including the payout of deposit accounts, or if our capital levels become unacceptable to our banking regulators, the Bank could be placed into receivership and you could lose the entire amount of your investment.

Additionally, we are prohibited from paying rates in excess of 75 basis points above the local market average on deposits of comparable maturity. Effective January 1, 2010, financial institutions that are not well capitalized are prohibited, except in very limited circumstances where the FDIC permits use of a higher local market rate, from paying yields for deposits in excess of 75 basis points above a new national average rate for deposits of comparable maturity, as calculated by the FDIC. This national rate may be lower than the prevailing rates in our local market, and although the FDIC has permitted us to use the local market rate, the FDIC could revoke this determination in the future. If restrictions on the rates we are able to pay on deposit accounts negatively impacts our ability to compete for deposits in our market area, we may be unable to attract or maintain core deposits, and our liquidity and ability to support demand for loans could be adversely affected.

The company is also subject to regulatory restrictions on its operations. The Federal Reserve has notified the Company in a letter dated March 10, 2010 that the Company must obtain Federal Reserve approval before incurring indebtedness, paying interest or dividends on trust preferred securities, declaring or paying any dividends, redeeming corporate stock, or making other payments representing a reduction in capital outside of normal operating expenses.

The laws and regulations applicable to the banking industry could change at any time, and we cannot predict the effects of these changes on our business and profitability. Because government regulation greatly affects the business and financial results of all commercial banks, our cost of compliance could adversely affect our ability to operate profitably.

Declines in real estate values have adversely affected our credit quality and profitability.

During 2008 and 2009, confidence in the credit market for residential housing finance significantly eroded, which resulted in a reduction in financing available to buyers of new homes and borrowers wishing to refinance existing financing terms. The tightening of credit for residential housing led to lower demand for residential housing and more foreclosures, and has reduced the absorption rate for new and existing properties. In turn, this tightening of credit has caused market prices to fall as some property owners, including lenders who acquired property by foreclosure, have accepted lower prices to reduce their exposure to these real estate assets, which has reduced the market values for comparable real estate.

Page 15 of 57

The declines in values and the increased level of marketing required to sell properties has reduced or eliminated the potential profits to many of the builders and developers of properties to whom we have extended loans. As a result, some of these borrowers have been unable to repay their loans in accordance with their terms, which has led to an increase in our past due and non-performing loans. If these housing trends continue or exacerbate, the Company expects that it will continue to experience increased delinquencies and credit losses. In addition, declining real estate and other asset values may reduce the available equity associated with these assets, which, in turn, would limit the ability of borrowers to use such equity to support borrowings.

Moreover, if the current recession continues, the Company may be required to further increase our loan loss provision, and may experience significantly higher delinquencies and credit losses. An increase in our loan loss provision or increased credit losses would reduce earnings and adversely affect the Company’s financial condition. Furthermore, to the extent that real estate collateral is obtained through foreclosure, the costs of holding and marketing the real estate collateral, as well as the ultimate values obtained from disposition, could reduce the Company’s earnings and adversely affect the Company’s financial condition. The Company’s business volume and growth is affected by the rate of growth and demand for housing in specific geographic markets, and most of its loans are secured by real estate located in northern Georgia, which is continuing to experience high rates of foreclosures and declining real estate prices and property values.

The Company’s business volume and growth is affected by the rate of growth and demand for housing in specific geographic markets, and most of its loans are secured by real estate located in northern Georgia, which is continuing to experience high rates of foreclosures and declining real estate prices and property values.

Based on the activity discussed above, the Company’s future rate of growth, if any, could be significantly less than its historical levels and its assets may in fact shrink, depending on the duration and extent of the current disruption in the housing and mortgage markets.

Page 13 of 56

We make and hold in our portfolio a significant number of land acquisition and development and construction loans, which pose more credit risk than other types of loans typically made by financial institutions.

We offer land acquisition and development, and construction loans for builders and developers. As of December 31, ~~2008~~2009, approximately $~~148~~107.7 million, or 4638.89%, of our total loan portfolio represented loans for which the related property is neither presold nor preleased. These land acquisition and development, and construction loans are considered more risky than other types of loans. The primary credit risks associated with land acquisition and development and construction lending are underwriting, project risks, and market risks. Project risks include cost overruns, borrower credit risk, project completion risk, general contractor credit risk, and environmental and other hazard risks. Market risks are risks associated with the sale of the completed residential units. They include affordability risk, which means the risk that borrowers cannot obtain affordable financing, product design risk, and risks posed by competing projects. There can be no assurance that losses in our land acquisition and development and construction loan portfolio will not exceed our reserves, which could adversely impact our earnings. Given the current environment, the non-performing loans in our land acquisition and development and construction portfolio could increase substantially in ~~2009~~2010, and these non-performing loans could result in a material level of charge-offs, which will negatively impact our capital and earnings.

Ongoing deterioration in the housing market and the homebuilding industry may lead to increased losses and further worsening of delinquencies and non-performing assets in our loan portfolios. Consequently, our results of operations may be adversely impacted.

There has been substantial industry concern and publicity over asset quality among financial institutions due in large part to issues related to subprime mortgage lending, declining real estate values and general economic concerns. As of December 31, ~~2008~~2009, our non-performing assets had increased significantly to $84110.2 4 million, or 2535.06%, of our loan portfolio plus other real estate owned. Furthermore, the housing and the residential mortgage markets recently have experienced a variety of difficulties and changed economic conditions. If market conditions continue to deteriorate, they may lead to additional valuation adjustments on our loan portfolios and real estate owned as we continue to reassess the market value of our loan portfolio, the losses associated with the loans in default, and the net realizable value of real estate owned.

Page 16 of 57

The homebuilding industry has experienced a significant and sustained decline in demand for new homes and an oversupply of new and existing homes available for sale in various markets, including some of the markets in which we lend. Our customers who are builders and developers face greater difficulty in selling their homes in markets where these trends are more pronounced. Consequently, we are facing increased delinquencies and non-performing assets as these builders and developers are forced to default on their loans with us. We do not know when the housing market will improve, and accordingly, additional downgrades, provisions for loan losses, and charge-offs related to our loan portfolio may occur.

Weakness in the economy and in the real estate market, including specific weakness within our geographic footprint, has adversely affected us and may continue to adversely affect us.

Declines in the U.S. economy and our local real estate markets contributed to our ~~increasing~~ significant provisions for loan losses during ~~2008~~2009, and may result in additional loan losses and loss provisions for ~~2009~~2010. These factors could result in further increases in loan loss provisions, and additional delinquencies, charge-offs, or both in future periods, any of which may adversely affect our financial condition and results of operations. If the strength of the U.S. economy in general and the strength of the local economies in which we conduct operations continue to decline, this could result in, among other things, further deterioration in credit quality or a reduced demand for credit, including a resultant adverse effect on our loan portfolio and additional increases to our allowance for loan and lease losses.

Page 14 of 56

In addition, deterioration of the U.S. economy may adversely impact our banking business more generally. Economic declines may be accompanied by a decrease in demand for consumer or commercial credit and declining real estate and other asset values. Declining real estate and other asset values may reduce the ability of borrowers to use such equity to support borrowings. Delinquencies, foreclosures and losses generally increase during economic slowdowns or recessions. Additionally, our servicing costs, collection costs, and credit losses may also increase in periods of economic slowdown or recessions. Effects of the current real estate slowdown have not been limited to those directly involved in the real estate construction industry (such as builders and developers). Rather, it has impacted a number of related businesses such as building materials suppliers, equipment leasing firms, and real estate attorneys, among others, and the current recession has negatively impacted businesses of all types. All of these affected businesses have banking relationships, and when their businesses suffer from an economic slowdown or recession, the banking relationship suffers as well.

The amount of “other real estate owned” (“OREO”) increased significantly in 2008 and 2009 and may continue to increase, resulting in additional losses and expenses that will negatively affect our operations.

At December 31, ~~2007~~2009, we had a total of $1137.58 million of OREO, and at December 31, 2008, we had a total of $27.3 million of OREO, reflecting a $1510.85 million increase, or ~~138~~38.40%, from ~~2007~~2008 to ~~2008~~2009. This increase in OREO is due, among other things, to the continued deterioration of the residential real estate market and the tightening of the credit market. As the amount of OREO increases, our losses, and the costs and expenses to maintain the real estate likewise increase. Due to the on-going economic crisis, the amount of OREO may continue to increase throughout ~~2009~~2010. Any additional increase in losses, and maintenance costs and expenses due to OREO may have material adverse effects on our business, financial condition, and results of operations. Such effects may be particularly pronounced in a market of reduced real estate values and excess inventory, which may make the disposition of OREO properties more difficult, increase maintenance costs and expenses, and reduce our ultimate realization from any OREO sales.

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We could suffer loan losses from a decline in credit quality.

We could sustain losses if borrowers, guarantors, and related parties fail to perform in accordance with the terms of their loans. We have adopted underwriting and credit monitoring procedures and policies, including the establishment and review of the allowance for credit losses that we believe are appropriate to minimize this risk by assessing the likelihood of nonperformance, tracking loan performance and diversifying our credit portfolio. These policies and procedures, however, may not prevent unexpected losses that could materially adversely affect our results of operations.

~~Our~~ If our allowance for loan losses ~~may~~is not besufficient ~~adequate~~ to cover actual loan losses, ~~which may require us to take a charge to~~ our earnings ~~and~~could ~~adversely impact our financial condition and results of operations~~decrease.

~~We maintain~~Our ansuccess ~~allowance~~depends ~~for~~to ~~estimated~~a ~~loan~~significant ~~losses~~extent ~~that~~upon ~~we believe is adequate for absorbing any probable losses in our loan portfolio. Management determines~~ the ~~allowance for loan losses based upon an analysis of general market conditions, credit~~ quality of our ~~loan portfolio~~assets, ~~and~~particularly ~~performance of our customers relative to their financial obligations to us~~loans. ~~The~~ ~~amount of~~In ~~future~~originating losses is susceptible to changes in economic, operating, and other conditions, including changes in interest rates, that may be beyond our control. These future losses may exceed the allowance for estimated loan losses. Although management believes that the allowance for estimated loan losses is adequate to absorb any probable losses on existing loans ~~that may become uncollectible~~, there ~~can~~is bea nosubstantial ~~assurance~~likelihood that ~~the allowance~~we will ~~prove~~experience ~~sufficient~~credit ~~to cover actual loan~~ losses ~~in the future~~. ~~Significant~~ ~~increases~~The torisk ~~the~~of ~~provision~~loss ~~for~~will ~~loan~~vary ~~losses~~with, ~~may~~among ~~be necessary~~other ifthings, ~~material adverse changes in~~ general economic conditions, ~~occur or~~ the ~~performance~~type of ~~our~~ loan ~~portfolio deteriorates. Additionally~~, ~~federal~~ ~~banking~~the ~~regulators,~~creditworthiness ~~as an integral part~~ of ~~their~~the ~~supervisory~~borrower ~~function, periodically~~over ~~review~~ the ~~allowance~~term ~~for~~of ~~estimated~~the loan ~~losses. If~~and, ~~these regulatory~~in ~~agencies require us to increase~~ the ~~allowance~~case ~~for~~of ~~estimated~~a collateralized loan ~~losses~~, itthe ~~would~~quality ~~have~~of athe ~~negative~~collateral ~~effect~~for onthe ~~our results of operations and financial condition~~loan.

~~Page~~Our 15loan customers may not repay their loans according to the terms of 56 these loans, and the collateral securing the payment of these loans may be insufficient to assure repayment. As a result, we may experience significant loan losses, which could have a material adverse effect on our operating results. Management makes various assumptions and judgments about the collectibility of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of our loans. We maintain an allowance for loan losses in an attempt to cover any loan losses that may occur. In determining the size of the allowance, we rely on an analysis of our loan portfolio based on historical loss experience, volume and types of loans, trends in classification, volume and trends in delinquencies and non-accruals, national and local economic conditions, and other pertinent information.

If our assumptions are wrong, our current allowance may not be sufficient to cover future loan losses, and we may need to make adjustments to allow for different economic conditions or adverse developments in our loan portfolio. Material additions to our allowance would materially decrease our net income. In view of the difficult real estate market, we maintained our allowance at $12.2 million at December 31, 2008 and $12.1 million at December 31, 2009. Although charge-off activity may periodically decrease our allowance, we may also make additions to our allowance in 2010 in response to continued credit deterioration. However, given current and future market conditions, we can make no assurance that our allowance will be adequate to cover future loan losses.

In addition, federal and state regulators periodically review our allowance for loan losses and may require us to increase our provision for loan losses or recognize further loan charge-offs, based on judgments different than those of our management. Any increase in our allowance for loan losses or loan charge-offs as required by these regulators could have a negative effect on our operating results.

The deterioration in the residential mortgage market may continue to spread to commercial credits, which may result in greater losses and non-performing assets, adversely affecting our business operations.

The losses that were initially associated with subprime residential mortgages rapidly spread into the residential mortgage market generally. If the losses in the residential mortgage market continue to spread to commercial credits, then we may be forced to take greater losses or retain more non-performing assets. Our business operations and financial results could be adversely affected if we continue to experience losses from our commercial loan portfolio.

Page 18 of 57

We will realize additional future losses if the proceeds we receive upon liquidation of non-performing assets are less than the fair value of such assets.

Non-performing assets are recorded on our financial statements at fair value, as required under GAAP, unless these assets have been specifically identified for liquidation, in which case they are recorded at the lower of cost or estimated net realizable value. In current market conditions, we are likely to realize additional future losses if the proceeds we receive upon dispositions of non-performing assets are less than the recorded fair value of such assets.

Our use of appraisals in deciding whether to make a loan on or secured by real property or how to value such loan in the future may not accurately describe the net value of the real property collateral that we can realize.

In considering whether to make a loan secured by real property, we generally require an appraisal of the property. However, an appraisal is only an estimate of the value of the property at the time the appraisal is made, and, as real estate values in our market area have experienced changes in value in relatively short periods of time, this estimate might not accurately describe the net value of the real property collateral after the loan has been closed. If the appraisal does not reflect the amount that may be obtained upon any sale or foreclosure of the property, we may not realize an amount equal to the indebtedness secured by the property. The valuation of the property may negatively impact the continuing value of such loan and could adversely affect our operating results and financial condition.

Our profitability is vulnerable to interest rate fluctuations.

Our profitability depends substantially upon our net interest income. Net interest income is the difference between the interest earned on assets, such as loans and investment securities, and the interest paid for liabilities, such as savings and time deposits and out-of-market certificates of deposit. Market interest rates for loans, investments, and deposits are highly sensitive to many factors beyond our control. Recently, interest rate spreads have generally narrowed due to changing market conditions, policies of various government and regulatory authorities, and competitive pricing pressures, and we cannot predict whether these rate spreads will narrow even further. This narrowing of interest rate spreads could adversely affect our financial condition and results of operations.

At December 31, ~~2008~~2009 we were in a liability sensitive position, which generally means that changes in interest rates affect our interest paid on liabilities ~~quicker~~ more quickly than our interest earned on assets because the rates paid on our liabilities reset sooner than rates earned on our assets. Accordingly, we anticipate that any interest rate increases by the Federal Reserve throughout ~~2009~~2010 will have a negative ~~affect~~effect on our net interest income over the short term until the interest rates earned on our assets reset.

In addition, we cannot predict whether interest rates will continue to remain at present levels. Changes in interest rates may cause significant changes, up or down, in our net interest income. Depending on our portfolio of loans and investments, our results of operations may be adversely affected by changes in interest rates.

~~The FDIC~~We ~~Deposit~~may ~~Insurance~~be ~~assessments that we are~~ required to pay ~~may~~significantly ~~materially increase~~higher inFDIC ~~the~~premiums ~~future,~~or ~~which~~remit ~~would~~special ~~have~~assessments anthat ~~adverse~~could ~~effect~~adversely onaffect our earnings.

AsMarket ~~an insured~~developments ~~depository~~have ~~institution,~~significantly wedepleted ~~are required to pay quarterly deposit insurance premium assessments to~~ the FDIC~~. These~~’s ~~assessments~~Deposit ~~are required~~Insurance toFund ~~ensure~~(“DIF”) ~~that~~and ~~FDIC~~reduced ~~deposit~~its ~~insurance reserve~~ ratio isof atreserves ~~least~~to ~~1.15% of~~ insured deposits. ~~Under~~ ~~the~~The ~~Federal Deposit Insurance Act, the~~ FDIC,’s ~~absent~~assessment ~~extraordinary~~rates ~~circumstances,~~are ~~must~~intended ~~establish~~to ~~and~~result ~~implement~~in a ~~plan to restore the deposit insurance~~ reserve ratio toof at least 1.15%. By ~~of insured deposits~~December 31, ~~over a five-year period~~2009, ~~when~~ the ~~reserve~~ ratio ~~falls~~had fallen well below 1this floor.~~15%.~~ The ~~recent~~ ~~failures~~FDIC ofis ~~several~~required ~~financial~~to ~~institutions~~return ~~have significantly increased~~ the ~~Deposit~~DIF ~~Insurance~~to ~~Fund’s~~its ~~loss~~statutorily ~~provisions,~~mandated ~~resulting~~minimum ~~in a decline in the~~ reserve ratio~~. The~~ ~~FDIC expects a higher rate~~ of ~~insured~~1.15 ~~institution failures~~percent inwithin ~~the~~eight ~~next few~~ years, ~~which~~and ~~may~~has ~~result~~undertaken inseveral ainitiatives ~~continued~~to ~~decline~~satisfy inthis ~~the reserve ratio~~requirement.

~~Beginning on~~Page ~~January~~19 1, 2009, there was a uniform seven basis points (annualized) increase to the assessments that banks pay for deposit insurance. The increased assessment rates range from 12 to 50 basis points (annualized) for the first quarter 2009 assessment, which will be owed on June 30, 2009. Beginning on April 1, 2009, the FDIC will modify the risk-based assessments to account for each institution’s unsecured debt, secured liabilities and use of brokered deposits. Assessment rates will range from 7 to 77.5 basis points (annualized) starting with the second quarter 2009 assessments, which will be owed on September 30, 2009. In addition, the FDIC has adopted an interim rule to impose an emergency assessment of 20 basis points as of June 30, 2009, which will be owed on September 30, 2009. The FDIC may also impose additional emergency special assessments of up to 10 basis points thereafter if the reserve ratio is estimated to fall to a level that the FDIC believes would adequately affect public confidence or to a level that shall be close to zero or negative at the end of a calendar quarter.57

~~Page~~On 16September 30, 2009, the FDIC collected a one-time special assessment of 56 five basis points of an institution’s assets minus tier 1 capital as of June 30, 2009. The amount of the special assessment could not exceed ten basis points times the institution’s assessment base for the second quarter 2009. In addition, on November 12, 2009, the FDIC adopted a final rule that required nearly all FDIC-insured depository institutions to prepay their DIF assessments for the fourth quarter of 2009 and for the next three years. There can be no guarantee that continued pressures on the DIF will not result in additional special assessments being collected by the FDIC in the future. If we are required to pay significantly higher premiums or additional special assessments in the future, our earnings could be adversely affected. A further downgrade in our regulatory condition could also cause our assessment to materially increase.

~~Due~~We ~~to the~~have ~~recent~~suspended ~~increases~~dividends inon ~~the~~our ~~assessment~~common ~~rates,~~stock and ~~the~~may ~~potential for additional increases, we will~~ be ~~required~~unable to pay ~~additional~~future ~~amounts to the Deposit Insurance Fund throughout 2009, which could have an adverse effect on our earnings~~dividends. If the deposit insurance premium assessment rate applicable to us increases again, either because of our risk classification, because of emergency assessments, or because of another uniform increase, our earnings could be further adversely impacted.

~~The Company’s~~We ~~ability~~have tosuspended ~~pay~~dividend ~~dividends~~payment ison ~~limited~~our common stock and wemake ~~may~~no beassurances ~~unable~~that towe will pay ~~future~~ any dividends in the future. As Any future determination relating to dividend policy will be made at the discretion of our Board of Directors and will depend on a ~~result~~number of factors, including our future earnings, capital ~~appreciation~~requirements, iffinancial ~~any~~condition, future prospects, regulatory restrictions, and other factors that our Board of Directors may deem relevant. In addition, our ability to pay dividends is restricted by federal policies and regulations. It is the policy of the Federal Reserve Board that bank holding companies should pay cash dividends on common stock ~~may~~only beout ~~your~~of ~~sole~~net ~~opportunity~~income ~~for~~available ~~gains~~over onthe ~~your~~past ~~investment~~year ~~for~~and only if the ~~foreseeable~~ prospective earnings retention is consistent with the organization’s expected future needs and financial condition. We are also precluded from declaring or paying any dividends without prior Federal Reserve approval under the terms of a March 12, 2010 letter from the Federal Reserve. Further, our principal source of funds to pay dividends is cash dividends that we receive from the Bank, and GDBF regulations and the terms of the order prohibit the Bank from paying dividends without prior regulatory approval. See Item 5—”Market for Registrant’s Common Equity and Related Shareholder Matters and Issuer Purchases of Equity Securities.”

We have suspended dividend payment on our common stock and make no assurances that we will pay any dividends in the future. Any future determination relating to dividend policy will be made at the discretion of our Board of Directors and will depend on a number of factors, including our future earnings, capital requirements, financial condition, future prospects, regulatory restrictions, and other factors that our Board of Directors may deem relevant. The holders of our common stock are entitled to receive dividends when, and if declared by our Board of Directors out of funds legally available for that purpose. As part of our consideration to pay cash dividends, we intend to retain adequate funds from future earnings to support the development and growth of our business. In addition, our ability to pay dividends is restricted by federal policies and regulations. It is the policy of the Federal Reserve Board that bank holding companies should pay cash dividends on common stock only out of net income available over the past year and only if prospective earnings retention is consistent with the organization’s expected future needs and financial condition. Further, our principal source of funds to pay dividends is cash dividends that we receive from the Bank, and Georgia Department of Banking and Finance regulations prohibit the Bank from paying dividends in 2009. See Item 5—“Market for Registrant’s Common Equity and Related Shareholder Matters and Issuer Purchases of Equity Securities.”

Competition from other financial institutions may adversely affect our profitability.

The banking business is highly competitive, and we experience strong competition from many other financial institutions. We compete with commercial banks, credit unions, savings and loan associations, mortgage banking firms, consumer finance companies, securities brokerage firms, insurance companies, money market funds, and other financial institutions, which operate in our primary market areas and elsewhere.

We compete with these institutions both in attracting deposits and in making loans. In addition, we have to attract our customer base from other existing financial institutions and from new residents. Many of our competitors are well established and much larger financial institutions. While we believe we can and do successfully compete with these other financial institutions in our markets, we may face a competitive disadvantage as a result of our smaller size and lack of geographic diversification, as well as restrictions on the deposit interest rates we can pay.

Although we compete by concentrating our marketing efforts in our primary market area with local advertisements, personal contacts, and greater flexibility in working with local customers, we can give no assurance that this strategy will be successful.

Page 20 of 57

The impact of the current economic downturn on the performance of other financial institutions in our geographic area, actions taken by our competitors to address the current economic downturn, and the public perception of and confidence in the economy generally, and the banking industry specifically, could negatively impact our performance and operations.

All financial institutions are subject to the same risks resulting from a weakening economy such as increased charge-offs and levels of past due loans and nonperforming assets. As troubled institutions in our market area continue to dispose of problem assets, the already excess inventory of residential homes and land lots will continue to negatively affect home values and increase the time it takes us or our borrowers to sell existing inventory. Additionally, the perception that smaller, community banking institutions are risky institutions for purposes of regulatory compliance or safeguarding deposits may cause depositors, nonetheless to move their funds to larger institutions. If our depositors should move their funds based on events happening at other financial institutions, our operating results would suffer.

~~Page~~In 17addition, reputation risk, or the risk to our business from negative publicity, is inherent in our business. Negative publicity can result from the actual or alleged conduct of 56 financial institutions, generally, or the Company or Bank, specifically, in any number of activities, including leasing practices, corporate governance, and actions taken by government regulators in response to those activities. Negative publicity can adversely affect our ability to keep and attract customers and can expose us to litigation and regulatory action, any of which could negatively affect our business operations or financial results.

Negative publicity about financial institutions, generally, or about the Company or Bank, specifically, could damage the Company’s reputation and adversely impact its business operations and financial results.

Reputation risk, or the risk to our business from negative publicity, is inherent in our business. Negative publicity can result from the actual or alleged conduct of financial institutions, generally, or the Company or Bank, specifically, in any number of activities, including leasing practices, corporate governance, and actions taken by government regulators in response to those activities. Negative publicity can adversely affect our ability to keep and attract customers and can expose us to litigation and regulatory action, any of which could negatively affect our business operations or financial results.

We are subject to liquidity risk in our operations.

Liquidity risk is the possibility of being unable, at a reasonable cost and within acceptable risk tolerances, to pay obligations as they come due, to capitalize on growth opportunities as they arise, or to pay regular dividends because of an inability to liquidate assets or obtain adequate funding on a timely basis. Liquidity is required to fund various obligations, including credit obligations to borrowers, mortgage originations, withdrawals by depositors, repayment of debt, dividends to shareholders, operating expenses, and capital expenditures. Liquidity is derived primarily from retail deposit growth and retention, principal and interest payments on loans and investment securities, net cash provided from operations, and access to other funding sources. Our access to funding sources in amounts adequate to finance our activities could be impaired by factors that affect us specifically or the financial services industry in general. ~~Factors that could detrimentally affect our access to liquidity sources include a decrease in the level of our business activity due to a market downturn or adverse regulatory action against us.~~ Our ability to borrow could also be impaired by factors that are not specific to us, such as a severe disruption in the financial markets or negative views and expectations about the prospects for the financial services industry as a whole, given the recent turmoil faced by banking organizations in the domestic and worldwide credit markets. As a result of our present regulatory capital status, our access to additional borrowed funds is currently limited, and, to the extent such funds may be available to us, we may be required to pay above market rates for additional borrowed funds, which may adversely affect our results of operations.

In the past, we have relied to some extent on the use of brokered deposits to provide liquidity and support our lending activities. As of December 31, 2009, we had approximately $10.1 million in brokered deposits, which represented approximately 2.58% of our total deposits. We intend to continue to utilize our core, in-market deposits as our primary source of liquidity and to reduce or even eliminate our use of brokered deposits over time. However, should we require additional liquidity in the future while we are prohibited from renewing, rolling over, or funding additional brokered deposits as a result of regulatory restrictions, we may become subject to acute liquidity stress unless we are able to improve our regulatory status to remove this restriction and regain access to brokered funds, replace maturing brokered deposits with core deposits or other non-brokered funding or otherwise reduce our liquidity needs.

If we are unable to meet our liquidity needs as a result of competition in the marketplace, regulatory restrictions to which we are subject, or for any other reason, our operations could be materially adversely affected. If our liquidity position should become critically inadequate, our ability to continue as a going concern could be threatened.

Page 21 of 57

Adverse market conditions and future losses may require us to raise additional capital to support our operations, but that capital may not be available when it is needed, which could adversely affect our financial condition and results of operations.

We are required by federal and state regulatory authorities to maintain adequate levels of capital to support our operations. Our ability to raise additional capital, if needed, will depend on conditions in the capital markets at that time, which are outside our control, and on our financial performance. Accordingly, we cannot assure you of our ability to raise additional capital, if needed, on terms acceptable to us or at all. If we cannot raise additional capital when needed, our ~~ability~~financial performance could be materially impaired and we could become subject to further ~~expand~~regulatory restriction on our operations, which could bein ~~materially~~turn ~~impaired~~decrease significantly or eliminate the value of our securities.

Page 18 of 56

Our business strategy includes the continuation of growth plans, and our financial condition and results of operations could be negatively affected if we fail to grow or fail to manage our growth effectively.

We intend to continue pursuing a growth strategy for our business. Our prospects must be considered in light of the risks, expenses, and difficulties frequently encountered by companies in growth stages of development. We cannot assure you we will be able to expand our market presence in our existing markets or successfully enter new markets or that any such expansion will not adversely affect our results of operations. Failure to manage our growth effectively could have a material adverse effect on our business, financial condition, results of operations, or future prospects, and could adversely affect our ability to successfully implement our business strategy. Also, if our growth occurs more slowly than anticipated or declines, our results of operations could be materially adversely affected.

Our ability to grow successfully will depend on a variety of factors including the continued availability of desirable business opportunities, the competitive responses from other financial institutions in our market areas and our ability to manage our growth. While we believe we have the management resources and internal systems in place to manage our future growth, there can be no assurance that growth opportunities will be available or growth will be managed successfully.

Our plans for future expansion depend, in some instances, on factors beyond our control, and an unsuccessful attempt to achieve growth could have a material adverse effect on our business, financial condition, results of operations, and future prospects.

We expect to continue to engage in new branch expansion. We may also seek to acquire other financial institutions, or parts of those institutions, though we have no present plans in that regard. Expansion involves a number of risks, including the following:

• the time and costs of evaluating new markets, hiring experienced local management, and opening new offices;

• the time lags between these activities and the generation of sufficient assets and deposits to support the costs of the expansion;

• our potential inability to finance an acquisition without diluting the interests of our existing shareholders;

• the diversion of our management’s attention to the negotiation of a transaction may detract from their business productivity;

• entering into new markets where we may lack experience; and

• introducing into our business new products and services with which we have no prior experience.

If we fail to retain our key employees, our growth and profitability could be adversely affected.

Our success is, and is expected to remain, highly dependent on our executive management team, consisting of our Chief Executive Officer, David D. Stovall~~; our President~~, ~~Edward D. Ariail;~~ and our Chief Operating Officer, Bonnie Bowling. This is particularly true because, as a community bank, we depend on our management team’s ties to the community to generate business for us. Our growth will continue to place significant demands on our management, and the loss of any such person’s services may have an adverse effect upon our ~~growth~~financial condition and ~~profitability~~results of operations.

Page 19 of 56

Our directors and executive officers own a significant portion of our common stock and can influence stockholder decisions.

Our directors and executive officers, as a group, beneficially owned approximately 48 44.69% of our fully diluted outstanding common stock as of December 31, ~~2008~~ 2009. As a result of their ownership, the directors and executive officers will have the ability, if they voted their shares in concert, to influence significantly the outcome of all matters submitted to our ~~stockholders~~shareholders for approval, including the election of directors.

~~Even though~~Environmental ~~our~~liability ~~common~~associated ~~stock~~with islending ~~currently~~activities ~~traded~~could onresult ~~the~~in ~~Nasdaq Global Market, it has substantially less liquidity than the average stock quoted on a national securities exchange~~losses.

~~The trading~~In ~~volume~~the incourse of our ~~common~~business, ~~stock~~we may foreclose on ~~the~~and ~~Nasdaq~~take ~~Global~~title ~~Market~~to isproperties ~~relatively~~securing ~~low when~~our ~~compared~~loans. If ~~with~~hazardous ~~larger~~substances ~~companies~~are ~~listed~~discovered on ~~the~~any ~~Nasdaq~~of ~~Global~~these ~~Market~~properties, we may be liable to governmental entities or ~~other stock~~third ~~exchanges. We~~parties ~~cannot~~for ~~say~~the ~~with~~costs ~~any~~of ~~certainty~~remediation ~~that~~of athe ~~more~~hazard, ~~active~~ as well as for personal injury and ~~liquid~~property ~~trading~~damage. Many ~~market~~environmental ~~for~~laws ~~our~~can ~~common~~impose ~~stock~~liability ~~will~~regardless ~~develop~~of whether we knew of, or were responsible for, the contamination. ~~Because~~ In addition, if we arrange for the disposal of ~~this~~hazardous or toxic substances at another site, itwe may be ~~more~~liable ~~difficult~~ for ~~you~~the tocosts ~~sell~~of acleaning up and removing those substances from the site, even if we neither own nor operate the disposal site. Environmental laws may require us to incur substantial ~~number~~expenses ofand ~~shares for~~may materially limit the ~~same~~use ~~price~~of atproperties ~~which~~that ~~you~~we ~~could~~acquire through foreclosure, reduce their value, or limit our ability to sell athem ~~smaller~~in ~~number~~the event of ~~shares~~a default on the loans they secure. In addition, ~~and~~future ~~you may~~laws ~~not~~or bemore ~~able~~stringent interpretations or enforcement policies with respect to ~~sell~~existing ~~your~~laws ~~shares~~may atincrease ~~all~~our exposure to environmental liability.

WePage ~~cannot predict~~22 ~~the effect, if any, that future sales~~ of our common stock in the market, or their availability of shares of common stock for sale in the market, will have on the market price of our common stock. As a result, sales of substantial amounts of our common stock in the market, or the potential for such sales, could cause the price of our common stock to decline or impair our future ability to raise capital through sales of our common stock.57

Confidential customer information transmitted through the Bank’s online banking service is vulnerable to security breaches and computer viruses, which could expose the Bank to litigation and adversely affect its reputation and ability to generate deposits.

The Bank provides its customers with the ability to bank online. The secure transmission of confidential information over the Internet is a critical element of online banking. The Bank’s network could be vulnerable to unauthorized access, computer viruses, phishing schemes, and other security problems. The Bank may be required to spend significant capital and other resources to protect against the threat of security breaches and computer viruses, or to alleviate problems caused by security breaches or viruses. To the extent that the Bank’s activities or the activities of its clients involve the storage and transmission of confidential information, security breaches and viruses could expose the Bank to claims, litigation and other possible liabilities. Any inability to prevent security breaches or computer viruses could also cause existing clients to lose confidence in the Bank’s systems and could adversely affect its reputation and its ability to generate deposits.

We are subject to extensive regulation that could limit or restrict our activities and impose financial requirements or limitations on the conduct of our business, which limitations or restrictions could adversely affect our profitability.

As a bank holding company, we are primarily regulated by the Board of Governors of the ~~Federal~~ ~~Reserve System (“~~Federal Reserve ~~Board”)~~. Our subsidiary bank is primarily regulated by the ~~Federal Deposit Insurance Corporation (the “~~FDIC”) and the ~~Georgia Department of Banking and Finance~~GDBF. Our compliance with Federal Reserve Board, FDIC, and ~~Department~~GDBF ~~of Banking and Finance~~ regulations is costly and may limit our growth and restrict certain of our activities, including payment of dividends, mergers and acquisitions, investments, loans and interest rates charged, interest rates paid on deposits and locations of offices. We are also subject to capital requirements of our regulators.

The laws and regulations applicable to the banking industry could change at any time, and we cannot predict the effects of these changes on our business and profitability. Because government regulation greatly affects the business and financial results of all commercial banks and bank holding companies, our cost of compliance could adversely affect our ability to operate profitably.

The rules and regulations promulgated by the SEC that currently apply to us, together with related exchange rules and regulations, have increased the scope, complexity and cost of our corporate governance, reporting, and disclosure practices. Additional legislation or regulations, or amendments to current legislation or regulations, related to corporate governance, reporting, and disclosure may cause us to experience greater compliance costs.

Natural disasters or other adverse weather events could negatively affect our local economies or disrupt our operations, which could have an adverse effect on our business or results of operations.

Georgia’s economy is affected, from time to time, by tornadoes and other natural disasters. We cannot predict whether, or to what extent, damage caused by these events will affect our operations, our customers, or the economies in our banking markets. However, weather events could cause a decline in loan originations, destruction or decline in the value of properties securing our loans, or an increase in the risks of delinquencies, foreclosures, and loan losses.

Page 20 of 56

Item 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

Page 23 of 57

Item 2. PROPERTIES

The Company's principal office ~~(as well as that of Advantage Insurers, Inc.)~~is located at Habersham Bank's Central Habersham office, 282 Historic Highway 441, Cornelia, Georgia. The telephone number of that office is (706) 778-1000.

Habersham Bank's North Habersham (main) office is located at 1151 Washington Street, Clarkesville, Georgia. The telephone number of that office is (706) 778-1000. Habersham Bank also has ~~twelve~~nine full-service branch offices. Its Central Habersham office is located at 282 Historic Highway 441, Cornelia, Georgia; its South Habersham office is located at 186 441 By-Pass, Baldwin, Georgia; its Cleveland Office is located at 575 South Main Street, Cleveland, Georgia; its Canton Office is located at 1925 Marietta Highway, Canton, Georgia; its ~~Hickory Flat Office is located at 6782 Hickory Flat Highway, Canton, Georgia; its~~ Warrenton Office is located at 189 Legion Drive, Warrenton, Georgia; its ~~Braselton Office is located at 6322 Grand Hickory Drive, Braselton, Georgia; its~~ Toccoa Office is located at 27 North Big A Road; its ~~Eastanollee Office is located at 370 Wal-Mart Way, Eastanollee, Georgia; its~~ Cumming Office is located at 2740 Nuckolls Road, Cumming, Georgia and its Flowery Branch Office is located at 5977 Sprout Springs Road, Flowery Branch, Georgia. Each office has a 24-hour teller machine, with the exception of the Warrenton Office. Habersham Bank owns its office properties without encumbrance~~, with the exception of the Eastanollee Office, which is leased~~.

Item 3. LEGAL PROCEEDINGS

The Company is not a party to, nor is any of its property the subject of, any material pending legal proceedings, other than ordinary routine litigation incidental to its business, and no such proceedings are known to be contemplated by governmental authorities.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

~~A special meeting of shareholders was held December 17, 2008 at the Company’s Central Office at 282 Historic Highway 441 North, Cornelia, Georgia 30531~~None.

No election of directors took place at this meeting.

The following matters were voted on at the meeting as was previously identified in the proxy material forwarded to each shareholder:

Proposal to approve a proposed amendment to the Company’s Articles of Incorporation authorizing a class of 10,000,000 shares of preferred stock, no par value, as set forth in Appendix A to the Proxy statement.

Votes were cast as follows:

For: 1,869,354 Against: 57,233 Abstain: 2,751 Broker Non-votes: 0

Proposal to authorize management of the Company to adjourn the meeting to another time and date in order to allow the Board of Directors to solicit additional proxies or attendance at the meeting.

Votes were cast as follows:

For: 1,871,645 Against: 55,473 Abstain: 2,210 Broker Non-votes: 0

Page 21 of 56

PART II

Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The common stock of Habersham Bancorp is traded on the ~~Nasdaq~~Over-the-Counter ~~Global~~Bulletin ~~Market ("Nasdaq")~~Board under the symbol HABC. Prior to December 24, 2009, it was traded on the Nasdaq Stock Market under the same symbol. At December 31, ~~2008~~2009 Habersham Bancorp had approximately ~~497~~486 shareholders of record. The following table sets forth the high and low sale prices and the cash dividends paid on the Company's common stock on a quarterly basis for the past two fiscal years and a portion of the first quarter of ~~2009~~2010. ~~The Company suspended dividends~~ ~~on its common stock on November 19, 2008.~~

2009	High		Low		Dividend
2010	High		Low		Dividend
First quarter (through March 5, 2009)		4.74		2.66		.00
First quarter (through)
2008	High		Low		Dividend
March 15, 2010		1.75		.75		-
Fourth quarter	$	7.00	$	2.35	$	-
Third quarter		7.09		5.52		0.05
Second quarter		14.20		7.08		0.10
First quarter		15.60		13.28		0.10
2007	High		Low		Dividend
Fourth quarter	$	17.01	$	12.82	$	0.60
Third quarter		20.00		15.65		0.10
Second quarter		23.97		19.58		0.10
First quarter		24.50		22.00		0.10

Cash dividends on Habersham Bank’s common stock may be declared and paid only out of its retained earnings, and dividends may not be distributed at any time when the Bank’s paid-in capital and appropriated earnings do not, in combinations, equal at least 20% of its capital stock account. In addition, the GDBF’s rules and regulations require prior approval before cash dividends may be declared and paid if: (i) the Bank’s ratio of equity capital to adjusted total assets is less than 6%; (ii) the aggregate amount of dividends declared or anticipated to be declared in that calendar year exceeds 50% of the Bank’s net earnings, after taxes but before dividends, for the previous calendar year, or (iii) the percentage of the Bank’s loans classified as adverse as to repayment or recovery by the GDBF at the most recent examination of the Bank exceeds 80% of the Bank’s equity as reflected at such examination. As of December 31, 2008 the Bank could not declare dividends without regulatory approval. See “Risk Factors – The Company’s ability to pay dividends is limited and we may be unable to pay future dividends. As a result, capital appreciation, if any, of our common stock may be your sole opportunity for gain on your investments for the foreseeable future.”

2009	High		Low		Dividend

Fourth quarter		3.50		.75		-
Third quarter		3.79		2.63		-
Second quarter		4.89		3.05		-
First quarter		4.74		2.66		-

Page 2224 of 56 57

Other than the issuance of $3.0 million of Series A Preferred Stock as previously reported in the Company’s current report on Form 8-K filed on January 5, 2009, the Company did not issue any of its equity securities without registration under the Securities Act of 1933, as amended, during 2008.

2008	High		Low		Dividend

Fourth quarter	$	7.00	$	2.35	$	-
Third quarter		7.09		5.52		0.05
Second quarter		14.20		7.08		0.10
First quarter		15.60		13.28		0.10

The Company suspended dividends on its common stock on November 19, 2008. Any future determination relating to dividend policy will be made at the discretion of our Board of Directors and will depend on a number of factors, including our future earnings, capital requirements, financial condition, future prospects, regulatory restrictions, and other factors that our Board of Directors may deem relevant. In addition, our ability to pay dividends is restricted by federal policies and regulations. It is the policy of the Federal Reserve Board that bank holding companies should pay cash dividends on common stock only out of net income available over the past year and if prospective earning retention is consistent with the organization’s expected future needs and financial condition. We are also precluded from declaring or paying dividends without prior Federal Reserve approval under the terms of a March 10, 2010 letter from the Federal Reserve.

Cash dividends on Habersham Bank’s common stock, which would be paid to the Company and could serve as a source of funds for cash dividends to the Company's shareholders, may be declared and paid only out of its retained earnings, and dividends may not be distributed at any time when the Bank’s paid-in capital and appropriated earnings do not, in combinations, equal at least 20% of its capital stock account. In addition, the GDBF’s rules and regulations require prior approval before cash dividends may be declared and paid if: (i) the Bank’s ratio of equity capital to adjusted total assets is less than 6%; (ii) the aggregate amount of dividends declared or anticipated to be declared in that calendar year exceeds 50% of the Bank’s net earnings, after taxes but before dividends, for the previous calendar year, or (iii) the percentage of the Bank’s loans classified as adverse as to repayment or recovery by the GDBF at the most recent examination of the Bank exceeds 80% of the Bank’s equity as reflected at such examination. As of December 31, 2009, the Bank could not declare dividends without regulatory approval. See “Risk Factors – The Company has suspended dividends on the common stock and may be unable to pay future dividends” and “Supervision and Regulation – Payment of Dividends.”

See Item 12—Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” for a table presenting information on equity securities subject to future issuance under the Company’s equity compensation plans.

Item 6. SELECTED FINANCIAL DATA

SELECTED FINANCIAL DATA

(In thousands, except share and per share data)

	For the years ended December 31,
	2008			2007			2006			2005			2004
	2009			2008			2007			2006			2005
SUMMARY OF OPERATIONS
Interest income	$	2620,~~135~~386		$	3626,~~376~~135		$	3436,~~460~~376		$	2534,~~936~~460		$	2025,~~743~~936
Interest expense		1411,~~288~~748			1614,~~847~~336			1316,~~218~~878			813,~~600~~218			68,~~791~~600
Provision for loan losses		1613,~~021~~476			~~675~~16,021			-675			~~330~~-			~~483~~330
Other income		4,~~117~~153			34,~~779~~117			3,~~656~~779			3,~~448~~656			43,~~431~~448
Other expense		2221,~~630~~633			1822,~~672~~630			1718,~~194~~672			1417,~~991~~194			14,~~777~~991
Net (loss) earnings		(1426,~~849~~128	)		2(14,~~939~~849	)		52,~~293~~939			35,~~813~~293			23,~~343~~813
PER SHARE AMOUNTS
Net (loss) earnings per common share-diluted	$	(59.2734	)	$	1(5.0027	)	$	1.7700		$	1.3077		$	01.8030
Dividends	$	~~0.25~~-		$	0.9025		$	0.3690		$	0.3236		$	10.2832
Weighted average number of common and common equivalent shares outstanding		2,~~218~~818,593			2,~~952~~818,~~528~~593			2,~~983~~952,~~048~~528			2,~~938~~983,~~698~~048			2,~~939~~938,~~951~~698
AT DECEMBER 31
Total assets	$	~~494~~456,~~869~~019		$	~~514~~494,~~219~~869		$	~~555~~514,~~738~~219		$	~~478~~555,~~431~~738		$	~~385~~478,~~933~~431
Earning assets		~~412~~343,~~864~~119			~~450~~412,~~294~~864			~~502~~450,~~035~~294			~~435~~502,~~091~~035			~~355~~435,~~093~~091
Loans, net		~~310~~264,~~607~~889			~~348~~310,~~251~~607			~~342~~348,~~816~~251			~~316~~342,~~773~~816			~~277~~316,~~137~~773
Deposits		~~392~~390,~~888~~161			~~390~~392,~~267~~888			~~450~~390,~~629~~267			~~372~~450,~~762~~629			~~292~~372,~~957~~762
Long-term debt		38,000			38,000			38,000			4238,~~300~~000			3642,~~000~~300
Stockholders’ equity		4117,~~998~~075			5441,~~182~~998			5554,~~564~~182			5055,~~257~~564			4850,~~006~~257
RATIOS
Return on average assets		(25.9524	)%		(2.5995	)%		1.1359	%		1.9113	%		.6291	%
Return on average equity		(3172.2187	)%		5(31.2321	)%		105.0623	%		710.7606	%		47.8676	%
Dividend payout ratio	NM			NM	~~87.83~~	%		2087.0383	%		2420.6303	%		~~160~~24.0063	%
Average equity to average assets ratio		97.4419	%		119.2444	%		11.2524	%		11.7725	%		1211.6677	%

NM – not meaningful in a loss year

Page 2325 of 56 57

Item 7. MANAGEMENT'’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ORGANIZATION

~~Habersham Bancorp~~The ~~(the “~~Company”) owns all of the outstanding stock of Habersham Bank ~~(“Habersham~~ ~~Bank”)~~ and The Advantage Group, Inc. Habersham Bank ~~owns~~ owned all of the outstanding stock of Advantage Insurers, Inc. (“Advantage Insurers”), which was sold on December 30, 2009. Advantage Insurers ~~offers~~offered 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 and as a result management’s discussion and analysis, which follows, relates primarily to Habersham Bank.

The Company’s continuing primary business is the operation of banks in rural and suburban communities in Habersham, White, Cherokee, Warren, ~~Gwinnett,~~ Stephens, Forsyth and Hall counties in Georgia. Habersham Bank’s main office is located in Cornelia, Georgia, and it has 119 branch offices, with its most recent branch office having been opened in Flowery Branch (Hall County), Georgia in the fourth quarter of 2008. The Company’s primary source of revenue is interest income on loans to businesses and individuals in its market area.

EXECUTIVE SUMMARY

Year Ended December 31, ~~2008~~ 2009

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

Net loss for the year ended December 31, ~~2008~~2009 was $1426.81 million or $59.2734 per diluted share, a decrease of $1711.83 million or ~~605~~75.1996% when compared to net ~~earnings~~loss of $214.98 million or $15.0027 per diluted share for the year ended December 31, ~~2007~~ 2008. The decrease resulted primarily from an income tax expense related to the establishment of a deferred tax asset valuation allowance totaling approximately $12.0 million and a decrease in net interest income, ~~increased~~of approximately $3.2 million offset by decreases in provisions for loan losses of approximately $2.5 million and ain ~~goodwill~~other ~~impairment~~noninterest ~~charge~~expense of approximately $7927,000.7 Noninterest ~~million,~~income ~~$15.3~~also ~~million~~increased ~~and~~approximately $~~3.5 million~~29, ~~respectively~~000.

The decrease in net interest income was attributable to increases in the number and balances of loans on nonaccrual status and the number and balances of variable rate loans repricing at lower rates and a smaller net interest margin. Interest income for the year ended December 31, ~~2008~~2009 was approximately $2620.14 million, representing a decrease of approximately 2821.1599%, when compared to ~~2007~~2008. The decrease resulted from: 1) the effect of the ~~falling~~ fallen prime interest rate on outstanding variable rate loans totaling approximately $~~245~~214.43 million, 2) average loan balances decreasing approximately $1630.24 million when compared to ~~2007~~2008, and 3) nonaccrual loans increasing approximately $3715.7 8 million. Interest expense for the year ended December 31, ~~2008~~ 2009 was approximately $1411.37 million, representing a decrease of approximately $2.6 million when compared to ~~2007~~2008. This decrease resulted from declining rates paid on deposit and borrowing balances during ~~2008~~2009. The net interest margin for the year ended December 31, ~~2008~~2009 was 2.7916%, a decrease from 4 2.4179% for the year ended December 31, ~~2007~~2008. In addition, increases in interest costs outpaced increases in interest earned as variable rate interest loans repriced at lower interest rates more quickly than the rates paid on deposit balances as each responded to decreases in the interest rates set by the Federal Reserve Bank.

Net interest income before provision for loan loss for the year ended December 31, ~~2008~~ 2009, decreased approximately $73.72 million or 3926.3479% when compared to ~~2007~~2008 as a result of the items discussed above. Declines in the U.S. economy and our local real estate markets contributed to our ~~increase~~continuing inexpense of the provision for loan losses. As delinquencies and foreclosures ~~increased~~continued during 2009, Habersham Bank recorded provisions to its allowance for loan losses of approximately $1613.0 5 million for ~~2008~~2009.

~~Page~~For 24the fourth quarter ended December 31, 2009, the Company recognized a net loss of 56 $16.9 million, including a provision for loan losses of $3.0 million and expenses, losses on sales and write downs of other real estate of $3.0 million. The provision and other real estate expenses related to the continued deterioration in real estate values in our market area. Additionally, during the fourth quarter of 2009, the Company performed an assessment of the Company’s deferred income tax asset accounts. As a result of this assessment, the Company established a valuation allowance of $12.7 million to be recorded against all of the Company’s deferred tax assets, which was recorded as a tax expense.

~~During the~~At ~~fourth~~December ~~quarter~~31, ~~of 2008~~2009, ~~the~~Habersham ~~Company~~Bank’s ~~engaged~~other anreal ~~independent~~estate ~~business valuation~~portfolio ~~firm~~totaled toapproximately ~~perform~~$37.8 million, an ~~assessment~~increase of ~~the~~approximately ~~Company’s goodwill~~$10. ~~The~~5 ~~assessment~~million ~~concluded~~when ~~that~~compared ~~the~~to ~~Company~~December ~~had~~31, ~~an impairment of its goodwill~~2008. ~~The~~This ~~fair~~increase ~~value~~resulted ~~was~~in ~~determined~~higher ~~based~~legal onand ~~two~~professional ~~different approaches,~~services ~~the~~expenses ~~market~~for ~~approach~~2009 ~~and~~in ~~the~~foreclosure ~~income~~and ~~approach~~maintenance costs. The ~~Based~~other onreal ~~the assessment,~~estate ~~the~~properties ~~Company~~are ~~concluded~~primarily ~~that~~located ~~all~~in of the ~~goodwill~~metro ~~was~~Atlanta ~~impaired~~area and ~~a non-cash impairment charge of $3.5 million was recorded to operations during~~ the ~~fourth~~ ~~quarter~~surrounding ~~of 2008~~counties.

~~At December~~Page ~~31,~~26 ~~2008, Habersham Bank’s other real estate portfolio totaled approximately $27.3 million, an increase~~ of approximately $15.8 million when compared to December 31, 2007. This increase resulted in higher legal and professional services expenses for 2008 in foreclosure and maintenance costs. The other real estate properties are primarily located in the metro Atlanta area and the surrounding counties.57

The Company’s total assets decreased $1938.38 million, or 37.7685%, to $~~494~~456.90 million at December 31, ~~2008~~2009 when compared to $~~514~~494.29 million at December 31, ~~2007~~ 2008. Decreases in loans, ~~cash~~investment ~~and~~securities, ~~cash~~other ~~equivalents,~~assets and inpremises ~~goodwill~~ and equipment of approximately $3945.57 million, $823.17 million, $6.3 million and $31.58 million, respectively, were offset by increases in ~~other~~cash ~~real estate, other assets (income tax receivable~~ and ~~deferred~~cash ~~tax~~equivalents ~~accounts,~~of ~~accrued~~approximately ~~interest receivable, company owned life insurance, etc~~$28.),2 ~~investment~~million ~~securities~~ and ~~premises~~other ~~and~~real ~~equipment~~estate of approximately $1510.~~8 million, $7.~~5 million~~, $5~~.~~7 million and $3.4 million, respectively.~~

The Company’s total liabilities (deposits, borrowings and other liabilities) at December 31, ~~2008~~2009 decreased approximately $713.29 million or 13.5608% to $~~452~~438.9 at December 31, ~~2008~~2009 from $~~460~~452.09 million at December 31, ~~2007~~ 2008. Decreases in other borrowings, oftotal ~~approximately~~deposit ~~$9.8 million~~account ~~were~~balances ~~offset~~and ~~by increases~~ in ~~deposits~~other ofliabilities totaled approximately $210.63 million, $2.7 million and $900,000, respectively. A decrease in total stockholders’ equity of approximately $1224.29 million resulted from the year-to-date loss of approximately $1426.81 million and dividend payments of approximately $~~705~~211,000, offset by the sale of preferred stock and an increase in accumulated other comprehensive income of approximately $31.0 million and $432,000, respectively.

The following discussion sets forth the major factors that affect the Company’s results of operations and financial condition. These comments should be read in conjunction with the consolidated financial statements and related notes. As described elsewhere in this Report, the Bank is currently operating under heightened regulatory scrutiny and has entered into a Cease and Desist Order with the GDBF.

This discussion contains forward-looking statements involving risks and uncertainties. Results may differ significantly from those discussed in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, risks involving the potential adverse effect of changes in U.S., state and local economic and real estate market conditions, unexpected changes in interest rates and the current interest rate environment, difficulties in expanding into new market areas, loan losses and the adequacy of the Company’s loan loss allowance, changes in regulation and legislation, competition and other risks identified in ~~the~~this ~~Company’s~~ Annual Report on Form 10-K for the year ended December 31, ~~2008~~2009 and its other filings with the Securities and Exchange Commission.

CRITICAL ACCOUNTING ESTIMATES

In reviewing and understanding financial information for the Company, you are encouraged to read and understand the significant accounting policies which are used in preparing the consolidated financial statements of the Company. These policies are described in Note 2 to the consolidated financial statements which are presented elsewhere in this annual report. Of these policies, management believes that the accounting for the allowance for loan losses is the most critical. This is because of the subjective nature of the estimates used in establishing the allowance and the effect these estimates have on the Company’s earnings. Because the allowance is replenished by means of a provision for loan losses that is charged as an expense against net earnings, the estimation of the allowance affects the Company’s earnings directly. 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 on the estimate of losses. As described further below, under “Allowance for Loan Losses,” 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.

~~Page~~Certain 25economic factors could have a material impact on the loan loss allowance determination and its adequacy. The depth and duration of 56 any economic recession would have an impact on the credit risk associated with the loan portfolio. Another factor that can impact the determination is a consideration of concentrations in collateral which secure the loan portfolio. The Company’s loan portfolio is secured primarily by commercial and residential real estate, with such loans comprising approximately 90.61% of the total loan portfolio at December 31, 2009.

~~Certain economic~~The ~~factors~~commercial ~~could~~and ~~have~~residential areal ~~material~~estate ~~impact~~loan onportfolio ~~the~~is ~~loan~~segregated ~~loss~~into ~~allowance determination~~construction and ~~its~~land ~~adequacy. The~~development, ~~depth~~loans secured by 1-4 family residential properties, and ~~duration~~commercial ofproperties ~~any economic~~and ~~recession~~other ~~would~~land ~~have~~loans antotaling ~~impact~~approximately on$107.7 ~~the~~million, ~~credit~~$71.5 ~~risk~~million, ~~associated~~$71.1 ~~with~~million ~~the loan~~and ~~portfolio~~$736,000, respectively. ~~Another~~The ~~factor~~construction, ~~that~~land ~~can~~development ~~impact~~and other land loan portfolios have been the ~~determination~~hardest ishit ~~a consideration~~by ofthe ~~concentrations~~downturn in ~~collateral~~the ~~which~~economy ~~secure~~resulting ~~the~~in ~~loan portfolio~~increases in nonperforming assets. ~~The~~ Habersham ~~Company’s~~Bank ~~loan~~held ~~portfolio~~concentrations isof ~~secured~~loans ~~primarily~~totaling ~~by commercial~~100% or more of Tier 1 Capital to borrowers in land and ~~residential~~subdivision development , real estate, ~~with~~lessors ~~such~~(amortized ~~loans~~non-owner ~~comprising~~occupied), ~~approximately 90%~~raw ofland ~~the~~and ~~total~~non-residential ~~loan~~building ~~portfolio~~construction (non-owner occupied) at December 31, 2009 and 2008. See “Loans.”

The ~~commercial~~ ~~and~~Bank ~~residential real estate loan portfolio is segregated into construction and land development~~will, ~~loans~~from ~~secured~~time byto ~~commercial properties~~time, ~~1-4 family~~make ~~residential~~unsecured ~~properties, and other land~~ loans ~~totaling approximately $148~~.1 The ~~million,~~risk ~~$82.0~~to ~~million,~~the ~~$60.8~~Bank ~~million~~is ~~and~~greater ~~$1.2~~for ~~million,~~unsecured ~~respectively.~~loans ~~The construction,~~as ~~land~~the ~~development~~ultimate ~~and~~repayment ~~other~~of ~~land~~the loan ~~portfolios~~is ~~have~~only ~~been~~dependent ~~the hardest~~on ~~hit by~~ the ~~downturn~~borrower’s inability ~~the~~to ~~economy resulting in increases in nonperforming assets~~pay. ~~Habersham~~ The ~~Bank~~balance ~~held concentrations~~ of unsecured loans ~~totaling~~at ~~100%~~December or31, ~~more~~2009 ofand ~~Tier~~2008 1was ~~Capital~~$12.6 tomillion ~~borrowers in land~~ and ~~subdivision~~ ~~development~~$14.2 ~~and real estate lessors (amortized non-owner occupied) at December 31~~million, ~~2008 and 2007~~respectively. ~~See “Loans.”~~

The Company will, from time to time, make unsecured loans. The risk to the Company is greater for unsecured loans as the ultimate repayment of the loan is only dependent on the borrower’s ability to pay. The balance of unsecured loans at December 31, 2008 and 2007 was $14.2 million and $11.9 million, respectively.

Refer to the section entitled “Allowance for Loan Losses” for an additional discussion of the key assumptions and methods used in determining the allowance for loan losses, as well as inherent risks in estimating the allowance.

Page 27 of 57

Refer to Note12 to the consolidated financial statements for further discussion of the assumptions and methods used in determining the carrying values for other real estate, estimated disposal costs and quick sale concessions.

Refer to Note 17 to the consolidated financial statements for further discussion of the assumptions and methods used in determining the valuation of the deferred tax asset, as well as inherent risks in estimating the valuation account.

RESULTS OF OPERATIONS

Habersham Bancorp experienced a net loss of $26.1 million for the year ended December 31, 2009, or diluted loss of $9.34 per share, representing a decrease of 75.96% from 2008. Habersham Bancorp experienced a net loss of $14.8 million for the year ended December 31, 2008, or diluted loss of $5.27 per share, representing a decrease of 605.19% from 2007. For the ~~years~~year ended December 31, 2007 ~~and 2006~~, net earnings were $2.9 million ~~and $5.3 million~~, ~~respectively,~~ with related diluted earnings per common and common equivalent share of, $1.00 ~~and $1~~.~~77, respectively, representing a decrease of 44.50% from 2006 to 2007.~~

For the year ended December 31, 2009, the net loss represented a loss on average equity of 72.87%. For the year ended December 31, 2008, the net loss represented a loss on average equity of 31.21%. For the ~~years~~year ended December 31, 2007 ~~and 2006~~, net earnings represented a return on average equity of 5.23% ~~and 10~~.~~06% in 2007 and 2006, respectively.~~

The ~~decrease~~ increase in net ~~earnings~~loss for the year ended December 31, ~~2008~~2009, when compared to the year ended December 31, ~~2007~~2008, was primarily due to aan ~~decrease~~income intax ~~net interest~~expense ~~income~~related to the establishment of a deferred tax asset valuation allowance totaling approximately $712.7 million orand ~~39.3%~~a ~~and~~decrease in ~~increases~~net ~~in noninterest~~interest ~~expense~~income of approximately $43.02 million oroffset ~~21.20%~~by ~~and~~a decrease in ~~the~~ provision for loan losses ofexpense ~~$15.3~~and ~~million~~in orother ~~2272.6%~~noninterest ~~when~~expenses ~~compared~~of toapproximately ~~2007~~$2.5 million and $927,000, respectively. The provision for loan ~~loss~~losses decreased ~~was~~as ~~increased~~a inresult ~~order~~of adjustments to ~~maintain~~the ~~an adequate~~ allowance for loan ~~losses~~ loss calculation. The decrease in ~~Interest~~interest income includes the loss of interest income of approximately $23.47 million on nonaccrual loans during ~~2008. The~~ ~~increase~~2009, ~~in noninterest expense is primarily attributable to~~ a ~~$3.5~~decrease ~~million goodwill impairment expense. Additional factors include: increases~~ in ~~other~~loan ~~real~~balances ~~estate~~of ~~expenses, occupancy expense, telephone and leased equipment expense totaling~~ approximately $145.28 million~~, $251,000,~~ ~~$40,000~~ and ~~$47,000,~~a ~~respectively,~~smaller ~~when~~net ~~compared~~interest ~~to 2007 expenses~~margin.

~~Page~~The 26decrease in net earnings for the year ended December 31, 2008, when compared to the year ended December 31, 2007, was primarily due to a decrease in net interest income of 56 approximately $7.7 million or 39.5% and in increases in noninterest expense of approximately $4.0 million or 21.20% and in the provision for loan losses of $15.3 million or 2272.6% when compared to 2007. The provision for loan loss was increased in order to maintain an adequate allowance for loan losses. The decrease in interest income includes the loss of interest income of approximately $2.4 million on nonaccrual loans during 2008. The increase in noninterest expense is primarily attributable to a $3.5 million goodwill impairment expense. Additional factors include: increases in other real estate expenses, occupancy expense, telephone and leased equipment expense totaling approximately $1.2 million, $251,000, $40,000 and $47,000, respectively, when compared to 2007 expenses.

Goodwill was determined to be impaired primarily due to the decrease in the valuation of the Company’s common stock based on market trading prices versus its much higher tangible book value. Therefore, a $3.5 million goodwill impairment charge was taken during the fourth quarter of 2008.

Net earnings for the year ended December 31, 2007 were $2.9 million or $1.00 per diluted share, a decrease of 44.5% when compared to $5.3 million or $1.77 per diluted share for the year ended December 31, 2006. The decrease was attributable primarily to an increase in nonaccrual loans, which reduced interest income and increased expenses related to the provision for loan losses. During 2007, nonaccrual loans increased by $17.8 million, or 3549.1%, and net interest income decreased by $1.7 million, or approximately 8.1%. The increase in nonaccrual loans resulted principally from a decline in the 1-4 family real estate market in both construction lending and new mortgages. To maintain an adequate allowance for loan losses, the Company increased the provision for loan losses to $675,225 during 2007. In addition, increases in interest costs outpaced increases in interest earned as variable rate interest loans repriced at lower interest rates more quickly than the rates paid on deposit balances as each responded to decreases in the interest rates set by the Federal Reserve Bank. Increases in noninterest expense, which includes salaries and employee benefits, occupancy expenses, computer expenses, telephone expense, etc. of approximately $1.5 million resulted primarily from the staffing and operation of the Cumming office, which began operation in January 2007.

NET INTEREST INCOME

Net interest income is the largest single source of income for the Company. Management strives to attain a level of earning asset growth while providing a net yield on earning assets that will cover overhead and other costs and provide a reasonable return to our stockholders.

	2008	2007	2006
	2009	2008	2007
Net interest income	$ ~~11.~~8.6 million	$ 1911.58 million	$ 2119.25 million

Net interest income for ~~2008~~2009 decreased approximately $73.72 million or 3926.379% when compared to ~~2007,~~2008 ~~which~~and ~~had~~ decreased approximately $17.7 million or 839.073% when compared to ~~2006~~2007. Net interest income is affected by interest income from loans, investment securities and federal funds sold offset by interest paid on deposits and borrowings. The following table compares the weighted average tax equivalent yields for loans, investment securities and federal funds sold and the weighted average rates for deposits and borrowings for ~~2008~~2009, ~~2007~~ 2008 and ~~2006~~2007.

	2008			2007			2006
	2009			2008			2007
Interest yields earned:	Yields			Yields			Yields
Loans		65.3225	%		86.9132	%		98.0191	%
Investment securities		54.1676	%		5.3216	%		5.0832	%
Federal funds sold		2.2925	%		42.9329	%		4.8993	%
Loans held for sale		54.6811	%		5.5868	%		45.7258	%
Interest rates paid:	Rates			Rates			Rates
Deposits		32.3969	%		43.1539	%		34.5415	%
Borrowings		3.9151	%		53.0091	%		45.7100	%

Page 2728 of 56 57

Yields and rates reflect adjustments in pricing as the Federal Reserve moves the prime interest rate.

During ~~2008~~ 2009, average balances in interest earning assets decreased approximately $1428.1 9 million or 36.0855% when compared to 2008. During the same ~~time~~ period, average balances in interest bearing liabilities increased approximately $1610.93 million or 4 2.2951%, when compared to 2008. During ~~2007~~2008, average balances in interest earning assets ~~increased~~decreased approximately $2314.81 million or 53.4908%, inwhen ~~the aggregate~~compared to 2007. During the same time period, average balances in interest bearing liabilities increased approximately $3616.49 million or 10 4.1629%.

During 2009, interest income decreased approximately $5.7 million when compared to 2008. Decreases in loan interest income, in investment security income and in federal funds sold income were approximately $5.2 million, $434,000, and $68,000, respectively. Loss of interest income on nonaccrual loans totaled approximately $3.7 million during 2009. Loan yields decreased by 107 basis points when comparing yields for 2009 to yields for 2008, as variable rate loans repriced in response to the decreasing prime rate.

During 2008, interest income decreased approximately $10.2 million when compared to 2007. Decreases in loan interest income and federal funds sold of approximately $10.3 million and $176,000, respectively, were offset by increases in investment securities income of approximately $190,000. Loss of interest income on nonaccrual loans totaled approximately $2.4 million during 2008. Loan yields decreased by 259 basis points when comparing yields for 2008 to yields for 2007, as variable rate loans repriced in response to the decreasing prime rate.

~~During 2007,~~Interest ~~interest~~expense ~~income~~for ~~increased~~2009 decreased approximately $12.96 million, or 18.05%, when compared to ~~2006~~ 2008. ~~Increases~~ Interest inexpense ~~interest~~for ~~income~~deposits ~~resulting from the loan portfolio~~ and ~~investment~~borrowings ~~securities~~decreased ~~totaling~~ approximately $1.78 million and $~~343~~788,000, respectively,. Average ~~were~~interest ~~offset~~rate bypaid ~~decreases~~on indeposit ~~federal~~balances ~~funds~~was ~~sold~~2.69% ~~income~~for 2009 compared to 3.40% for 2008. Increases in average certificate of deposit balances totaling approximately $~~170,000~~42. ~~Interest~~0 ~~income~~million ~~from~~were ~~loans~~offset ~~was~~by ~~net~~decreases ~~of interest~~in ~~losses~~average onsavings, ~~nonaccrual~~money ~~loans~~market ~~totaling~~and NOW accounts of approximately $~~616,000 during 2007~~16. ~~Loan~~5 ~~yields~~million, ~~also~~as ~~decreased~~depositors bymoved 10into ~~basis~~higher ~~points~~yielding ~~when~~accounts. Average ~~comparing yields~~borrowing balances for ~~2007~~2009 todecreased ~~yields~~approximately ~~for~~$15.2 ~~2006,~~million aswhen ~~variable~~compared ~~rate~~to ~~loans~~2008, ~~repriced~~primarily in ~~response to~~securities ~~the~~sold ~~decreasing~~under ~~prime~~repurchase ~~rate~~agreements.

Interest expense for 2008 decreased approximately $2.65 million, or 15.1906%, when compared to 2007. Interest expense for deposits and borrowings decreased approximately $2.43 million and $202,000, respectively. Average interest ~~rates~~rate paid on deposit balances was 3.3940% for 2008 compared to 4.15% for 2007. Increases in average certificate of deposit balances totaling approximately $16.9 million were offset by decreases in average savings, money market and NOW accounts of approximately $10.0 million, as depositors moved into higher yielding accounts. Average borrowing balances for 2008 increased approximately $10.0 million when compared to 2007, primarily in securities sold under repurchase agreements.

~~Interest expense~~The ~~for~~tax ~~2007~~equivalent ~~increased~~net ~~approximately~~interest ~~$3.6~~margin ~~million,~~was ~~or 27~~2.4616% ~~when~~in ~~compared to~~2009, ~~2006~~2. ~~Interest~~79% ~~expense~~in ~~for~~2008 ~~deposits~~ and ~~borrowings increased approximately $3~~4.141% ~~million~~in ~~and $557,000, respectively~~2007. ~~Increases~~The ~~in the~~net ~~average~~interest ~~balances~~margin ofdecreased ~~time~~due ~~deposits~~to ~~of approximately $30.1 million were offset by~~ decreases in ~~average~~loan ~~balances~~yields inand the ~~interest~~loss ~~bearing demand and savings deposits totaling approximately $1.2 million and $1.0 million, respectively. Increases in average short-term and other borrowings balances~~ of ~~approximately $8.5~~interest ~~million~~on ~~primarily~~nonaccrual ~~resulted from an increase in securities sold under repurchase agreements~~loans.

~~The~~Page ~~tax equivalent~~29 ~~net interest margin~~ of the Company was 2.79% in 2008, 4.41% in 2007 and 5.03% in 2006. The net interest margin of the Company decreased due to decreases in loan yields, increases in deposit and short-term borrowing rates and the loss of interest on nonaccrual loans.57

Page 28 of 56

CONSOLIDATED AVERAGE BALANCES, INTEREST INCOME AND EXPENSE, AND AVERAGE YIELDS EARNED AND RATES PAID

Average balances in the total loan portfolio decreased approximately $1630.24 million, or 4 9.590% at December 31, ~~2008~~2009 from ~~2007~~2008 average balances. ~~The~~Decreases ~~total~~in ~~loan portfolio~~the ~~decreased~~average ~~approximately~~balances ~~$27.6 million during 2008. Decreases~~ in ~~the~~ real estate construction and land development ~~portfolios~~ loans, commercial real estate loans, commercial ~~real~~loans, ~~estate~~consumer ~~portfolios~~loans and ~~consumer lending~~1-4 ~~totaling~~family residential loans totaled approximately $2745.8 million, $35.71 million, $12.35 million, $2.2 million and $~~581~~1.1 million,~~000,~~ respectively, and were offset by ~~increases~~an increase in the ~~residential~~nonaccrual ~~mortgage~~ loan portfolio of approximately $526.6 million. The decrease in the real estate construction and land development portfolios is net of approximately $1722.8 3 million of foreclosures of loans as result of the decline in the real estate market for both construction lending and acquisition and development of residential properties.

Average balances in the total loan portfolio ~~increased~~decreased approximately $2216.92 million, or 6 4.9159% at December 31, ~~2007~~2008 from ~~2006~~2007 average balances. The total loan portfolio ~~increased~~decreased approximately $427.16 million during ~~2007~~ 2008. ~~Increases~~ Decreases in the ~~commercial~~real estate construction and land development portfolios, commercial loans, commercial real estate ~~secured lending~~ portfolios ~~totaled~~and consumer lending totaling approximately $427.8 million, $3.7 million, $1.3 million and $~~336~~581,000, respectively, were offset by aan ~~decrease~~increase in the ~~consumer~~residential ~~lending~~mortgage portfolio of approximately $~~872,000~~5. 6 million. The decrease in the real estate ~~secured~~construction ~~lending~~and ~~portfolio increase~~land development portfolios is net of approximately $1117.08 million of foreclosures of ~~construction~~ loans ~~secured by 1-4 family residential properties~~ as a result of the decline in the real estate market for both construction lending and acquisition and development of residential properties.

Average balances of investment securities decreased approximately $4.8 million, or 4.87%, from year-end 2008 to 2009. Purchases of investment securities totaled approximately $33.5 million during 2009, offset by sales and calls and maturities of investment securities of approximately $42.9 million and $14.2 million, respectively. Purchases of U.S. government-sponsored enterprises and mortgage back securities totaled approximately $8.8 million and $24.7 million, respectively.

Average balances of investment securities increased approximately $4.2 million, or 4.43%, from year-end 2007 to 2008. Purchases of investment securities totaled approximately $62 million during 2008, offset by sales and calls and maturities of investment securities of approximately $47.6 million and $9.7 million, respectively. Purchases of U.S. government-sponsored enterprises and tax-exempt state and political subdivisions securities totaled approximately $60.2 million and $1.8 million, respectively.

Average balances ofin ~~investment~~the ~~securities~~total interest bearing deposit portfolio increased approximately $425.35 million, or 4 7.7233%, ~~from~~during ~~year-end~~2009. Increases ~~2006~~in toaverage ~~2007. Purchases~~account ofbalances ~~investment~~in ~~securities totaled~~time deposits of approximately $1442.90 million ~~during~~were ~~2007~~ offset by ~~maturities,~~decreases ~~sales~~in average account balances in savings and ~~calls~~ ofmoney ~~investment~~market ~~securities~~and ofin interest bearing demand accounts totaling approximately $75.23 million and $411.12 million, respectively. Deposit ~~Purchases~~balances ofmoved ~~U.S.~~from ~~government-sponsored~~lower ~~enterprises~~interest ~~and~~rates ~~tax-exempt state~~in ~~and~~money ~~political~~market ~~subdivisions~~and ~~securities~~savings ~~totaled~~accounts ~~approximately~~to ~~$8.9~~higher ~~million and~~yields ~~$5.9~~in ~~million,~~time ~~respectively~~deposit accounts.

Average balances in the total deposit portfolio increased approximately $3.2 million, or .84% during 2008. Average account balances in time deposits increased approximately $17.0 million. Decreases in average account balances in noninterest bearing accounts, savings and interest bearing demand deposits totaled approximately $3.8 million, $8.6 million and $1.4 million, respectively. Deposit balances moved from lower interest rates in money market and savings accounts to higher yields in time deposit accounts.

~~Average balances~~The infollowing ~~the~~table ~~total~~sets ~~deposit~~forth ~~portfolio~~the ~~increased~~consolidated ~~approximately~~average ~~$18.9~~balance ~~million, or~~sheets ~~5.18%~~for ~~during~~the ~~2007. Average~~Company, ~~account~~average ~~balances~~rates inearned ~~time~~on ~~deposits increased~~interest-earning ~~approximately~~assets, ~~$30.1~~average ~~million. Decreases~~rates inpaid ~~account~~on ~~balances in noninterest~~ interest-bearing ~~accounts~~liabilities, interest ~~bearing~~income ~~demand deposits~~ and ininterest ~~savings totaled~~expense ~~approximately~~for ~~$9.0~~each ~~million,~~category ~~$1.2~~of ~~million~~interest-earning assets and ~~$1.0~~interest-bearing ~~million~~liabilities, ~~respectively~~and net interest margin. ~~Deposit~~ Yields ~~balances~~on ~~moved~~non-taxable ~~from~~instruments ~~lower~~are ~~interest~~reported ~~rates~~on ina ~~money~~tax-equivalent ~~market~~basis. This ~~and~~information ~~savings accounts~~is topresented ~~higher~~for ~~yields~~the inyears ~~time~~ended ~~deposit~~December ~~accounts~~31, 2009, 2008 and 2007.

~~The following~~Page ~~table~~30 sets forth the consolidated average balance sheets for the Company, average rates earned on interest-earning assets, average rates paid on interest-bearing liabilities, interest income and interest expense for each category of interest-earning assets and interest-bearing liabilities, and net interest margin. Yields on non-taxable instruments are reported on a tax-equivalent basis. This information is presented for the years ended December 31, 2008, 2007 and 2006.57

Page 29 of 56

CONSOLIDATED AVERAGE BALANCES, INTEREST INCOME AND EXPENSE, AND AVERAGE YIELDS EARNED AND RATES PAID

	2008								2007
	2009								2008
	Average Balance		Income/ (Expense)			Average Yield/ Cost			Average Balance		Income/ (Expense)			Average Yield/ Cost
Interest-earning assets:
Loans, net (1)	$	~~338~~307,~~026~~599,~~055~~869	$	2116,~~360~~157,~~453~~230			65.3225	%	$	~~354~~338,~~273~~026,~~983~~055	$	3121,~~578~~360,~~826~~453			86.9132	%
Investment securities (2):
Taxable		7680,~~663~~505,~~491~~800		3,~~716~~635,~~692~~974			4.8552	%		6776,~~679~~663,~~357~~491		3,~~322~~716,~~931~~692			4.9185	%
Tax exempt		2213,~~154~~504,~~481~~275		~~906~~553,~~024~~212			6.2421	%		2622,~~944~~154,~~544~~481		1906,~~110,046~~024			6.24	%
Federal funds sold		411,~~165~~144,~~253~~976		9527,~~542~~726			2.2925	%		54,~~515~~165,~~521~~253		~~271~~95,~~871~~542			4.93	%
Loans held for sale		~~983~~295,~~884~~403		5512,~~871~~129			54.6811	%		1983,~~647,006~~884		9155,~~864~~871			5.58	%
Total interest-earning assets		~~441~~413,~~993~~050,~~164~~323		2620,~~134~~386,~~582~~271			65.0200	%		~~456~~441,~~060~~993,~~411~~164		3626,~~375~~134,~~538~~582			86.1002	%
Noninterest-earning assets		6285,~~205~~525,~~657~~135								4362,~~047~~205,~~263~~657
Total assets	$	~~504~~498,~~198~~575,~~821~~458							$	~~499~~504,~~107~~198,~~674~~821
Interest-bearing liabilities:
Money market and NOW	$	8378,~~975~~685,~~857~~428		(~~924~~426,~~060~~357	)		1.1054	%	$	8583,~~395~~975,~~092~~857		(1924,~~636,616~~060	)		1.9210	%
Savings accounts		5140,~~737~~523,~~301~~758		(1562,~~257,566~~857	)		21.4339	%		6051,~~330~~737,~~900~~301		(21,~~512~~257,~~417~~566	)		42.1643	%
Certificates of deposit		~~211~~253,~~884~~864,~~695~~495		(9,~~599~~040,~~784~~085	)		43.5356	%		~~194~~211,~~897~~884,~~350~~695		(9,~~988~~647,~~885~~552	)		54.1355	%
Total deposits		~~347~~373,~~597~~073,~~853~~681		(1110,~~781~~029,~~410~~299	)		32.3969	%		~~340~~347,~~623~~597,~~342~~853		(1411,~~137~~829,~~918~~178	)		43.1540	%
Short-term and other borrowings		6449,~~172~~020,~~407~~041		(21,~~506~~718,~~636~~676	)		3.9151	%		5464,~~190~~172,~~150~~407		(2,~~708~~506,~~986~~636	)		53.0091	%
Total interest-bearing liabilities		~~411~~422,~~770~~093,~~260~~722		(1411,~~288~~747,~~046~~975	)		32.4778	%		~~394~~411,~~813~~770,~~492~~260		(1614,~~846~~335,~~904~~814	)		43.2748	%
Noninterest- bearing deposits		3837,~~732~~414,~~731~~436								4238,~~484~~732,~~417~~731
Other noninterest-bearing liabilities		63,~~112~~209,~~510~~777								56,~~686~~112,~~245~~510
Total liabilities		~~456~~462,~~615~~717,~~501~~935								~~442~~456,~~984~~615,~~154~~501
Stockholders’ equity		4735,~~583~~857,~~320~~523								5647,~~123~~583,~~520~~320
Total liabilities and stockholders’ equity	$	~~504~~498,~~198~~575,~~821~~458							$	~~499~~504,~~107~~198,~~674~~821
Net interest income			$	118,~~846~~638,~~536~~296							$	1911,~~528~~798,~~634~~768
Net interest margin							2.7916	%							42.4179	%
Interest rate spread							2.5522	%							32.8354	%

Page 3031 of 56 57

CONSOLIDATED AVERAGE BALANCES, INTEREST INCOME AND EXPENSE, AND AVERAGE YIELDS EARNED AND RATES PAID, continued

	2006
	2007
	Average Balance		Income/ (Expense)			Average Yield/ Cost
Interest-earning assets:
Loans, net (1)	$	~~331~~354,~~363~~273,~~746~~983	$	2931,~~854~~578,~~762~~826			98.0191	%
Investment securities (2):
Taxable		67,~~479~~679,~~130~~357		3,~~107~~322,~~325~~931			4.6091	%
Tax exempt		2226,~~882~~944,~~099~~544		~~982~~1,~~884~~110,046			6.5124	%
Federal funds sold		95,~~036~~515,~~945~~521		~~442~~271,~~118~~871			4.8993	%
Loans held for sale		1,~~545~~647,~~039~~006		7291,~~949~~864			45.7258	%
Total interest-earning assets		~~432~~456,~~306~~060,~~959~~411		3436,~~460~~375,~~038~~538			8.0910	%
Noninterest-earning assets		3543,~~179~~047,~~810~~263
Total assets	$	~~467~~499,~~486~~107,~~769~~674
Interest-bearing liabilities:
Money market and NOW	$	8685,~~590~~395,~~932~~092		(1,~~533~~636,~~639~~616	)		1.7792	%
Savings accounts		6160,~~332~~330,~~587~~900		(2,~~351~~512,~~977~~417	)		34.8316	%
Certificates of deposit		~~164~~194,~~822~~897,~~662~~350		(710,~~180~~020,~~212~~238	)		45.3614	%
Total deposits		~~312~~340,~~746~~623,~~181~~342		(1114,~~065~~169,~~828~~271	)		34.5415	%
Short-term and other borrowings		4554,~~652~~190,~~371~~150		(2,~~151~~708,~~831~~986	)		45.7100	%
Total interest-bearing liabilities		~~358~~394,~~398~~813,~~552~~492		(1316,~~217~~878,~~659~~257	)		34.6927	%
Noninterest- bearing deposits		5142,~~482~~484,~~129~~417
Other noninterest-bearing Liabilities		5,001,319
Other noninterest-bearing liabilities		5,686,245
Total liabilities		~~414~~442,~~882~~984,~~000~~154
Stockholders’ equity		5256,~~604~~123,~~769~~520
Total liabilities and stockholders’ equity	$	~~467~~499,~~486~~107,~~769~~674
Net interest income			$	2119,~~242~~497,~~379~~281
Net interest margin							54.0341	%
Interest rate spread							43.4083	%

(1) Interest earnings on nonaccrual loans are included in the foregoing analysis to the extent that such interest earnings had been recorded during ~~2008~~2009, ~~2007~~2008 and ~~2006~~2007. Income includes loan fees of $1,~~208~~018,~~229~~055, $1,~~459~~208,~~325~~229 and $21,~~037~~459,~~032~~325 for ~~2008~~2009, ~~2007~~2008 and ~~2006~~2007, respectively.

(2)	Average yields for available for sale securities are computed using the historical cost balances. Such yields do not give effect to changes in fair value that are reflected as a component of stockholders’ equity.

Page 3132 of 56 57

The following table sets forth a summary of the changes in interest income and interest expense resulting from changes in volume and rates for the periods indicated:

2008 vs. 2007

2007 vs. 2006

2009 vs. 2008

2008 vs. 2007

Increase (Decrease)

Due to

Average

Volume (1)

Rate (1)

Net

Volume (1)

Rate (1)

Net

Interest Income:

Loans

(1,~~448~~922,~~287~~683

)

(83,~~770~~216,~~087~~010

)

(105,~~218~~138,~~374~~693

)

2(1,~~064~~448,~~212~~287

)

(~~340~~8,~~148~~770,086

)

1(10,~~724~~218,~~064~~373

)

Investment securities:

Taxable

~~441~~186,~~104~~277

(47266,~~343~~995

)

~~393~~(80,~~761~~718

)

18441,~~389~~104

~~197~~(47,~~217~~343

)

~~215~~393,~~606~~761

Tax exempt

(~~298~~502,~~900~~923

)

94150,~~878~~111

(~~204~~352,~~022~~812

)

~~264~~(298,~~465~~900

)

~~(137~~94,~~303~~878

)

~~127~~(204,~~162~~022

)

Federal funds sold

~~(66~~160,~~557~~100

)

(~~109~~227,~~772~~916

)

(~~176~~67,~~329~~816

)

(~~172~~66,~~198~~557

)

1(109,~~951~~772

)

(~~170~~176,~~247~~329

)

Loans held for sale

(3639,~~987~~096

)

~~994~~(4,646

)

(3543,~~993~~742

)

4(36,~~813~~987

)

~~14,102~~994

18(35,~~915~~993

)

Total interest-earning assets

(12,~~409~~118,~~627~~325

)

(83,~~831~~565,~~330~~456

)

(105,~~240~~683,~~957~~781

)

2(1,~~179~~409,~~681~~627

)

(~~264~~8,~~181~~831,329

)

1(10,~~915~~240,~~500~~956

)

Interest Expense:

Money market and NOW

(2758,~~200~~215

)

(~~685~~439,~~356~~488

)

(~~712~~497,~~556~~703

)

(2127,~~166~~200

)

~~124~~(685,~~143~~356

)

~~102~~(712,~~977~~556

)

Savings accounts

(~~357~~272,~~871~~565

)

(~~896~~422,~~980~~144

)

(1694,~~254,851~~709

)

(38357,~~365~~871

)

~~198~~(896,~~805~~980

)

~~160~~(1,~~440~~254,851

)

Certificates of deposit

~~870~~1,~~636~~911,428

(12,~~259~~518,~~737~~895

)

(~~389~~607,~~101~~467

)

1873,~~311,256~~369

(1,~~497~~246,~~417~~055

)

2(372,~~808,673~~686

)

Short-term and other borrowings

~~499~~(591,~~017~~866

)

(~~701~~196,~~367~~094

)

(~~202~~787,~~350~~960

)

~~402~~499,~~129~~016

~~155~~(701,~~026~~367

)

~~557~~(202,~~155~~350

)

Total interest-bearing liabilities

~~984~~988,~~582~~782

(3,~~543~~576,~~440~~621

)

(2,~~558~~587,~~858~~839

)

1987,~~653,854~~315

1(3,~~975~~529,~~391~~757

)

3(2,~~629~~542,~~245~~443

)

Change in net interest income

(23,~~394~~107,~~209~~107

)

(511,~~287,890~~165

)

(73,~~682~~095,~~099~~942

)

~~525~~(2,~~827~~396,941

)

(25,~~239~~301,572

)

(17,~~713~~698,~~745~~513

)

(1)	The changes in interest income and/or expense not due solely to rate or volume have been allocated to the rate component.

NONINTEREST INCOME AND NONINTEREST EXPENSE

In ~~2008~~2009, noninterest income increased approximately $~~338~~29,000, or 8.9570% when compared to ~~2007~~ 2008.

	2008			2007		Increase/ (Decrease)
	2009			2008		Increase/ (Decrease)
Mortgage origination income	$	~~402~~123,~~275~~503			~~774~~402,~~490~~275		(~~372~~278,~~215~~772	)
Service charges on deposit accounts		1,~~081~~067,~~228~~407			~~988~~1,~~256~~081,228		92(13,~~972~~821	)
Other service charges and commissions		~~264~~256,~~526~~941			~~254~~264,~~240~~526		10(7,~~286~~585	)
Securities gains (losses), net		~~362~~513,~~769~~468			4362,~~900~~769		~~357~~150,~~869~~699
Gain (loss) on sale of premises and equipment		(7,576	)		7,545		(15,121	)
Gain on sale of subsidiary – Advantage Insurers, Inc.		297,476			-		297,476
Income from life insurance		397,477			190,084		207,393
Gain on sale and impairment of other investments, net		19,998			-		19,998
Trust service fees		481,730			410,069		71,661
Income from life insurance		346,326			397,477		(51,151	)
Other income		1,134,373			1,148,957		(14,584	)
Trust service fees		444,435			481,730		(37,295	)
	$	4,116,802			3,778,541		338,261
Other income		1,083,685			1,134,373		(50,688	)
	$	4,153,239			4,124,378		28,861

Noninterest income increased primarily due to increases occurring in a gain from the sale of an insurance subsidiary (Advantage Insurers, Inc.), net security gains and a gain on the sale and impairment of other investments totaling approximately $297,000, $151,000 and $20,000, respectively, offset by decreases in mortgage origination income and in service charges on deposit accounts of approximately $279,000 and $21,000, respectively. The security gains were a result of sales and calls of investment securities as the securities market reacted to the lower interest rate environment. Mortgage origination activity was down in 2009 as a result of the decline in the 1-4 family residential market, which reduced income for 2009 when compared to 2008.

Page 33 of 57

In 2008, noninterest income increased approximately $353,000, or 9.37% when compared to 2007.

	2008		2007		Increase/ (Decrease)
Mortgage origination income	$	402,275		774,490		(372,215	)
Service charges on deposit accounts		1,081,228		988,256		92,972
Other service charges and commissions		264,526		254,240		10,286
Securities gains (losses), net		362,769		4,900		357,869
Gain (loss) on sale of premises and equipment		-		-		-
Income from life insurance		397,477		190,084		207,393
Trust service fees		481,730		410,069		71,661
Other income		1,134,373		1,148,957		(14,584	)
	$	4,124,378		3,770,996		353,382

Noninterest income increased primarily due to increases occurring in net security gains, income from company-owned life insurance and service charges on deposit accounts, offset by decreases in mortgage origination income. The security gains were a result of sales and calls of investment securities as the securities market reacted to the lower interest rate environment. Mortgage origination activity was down in 2008 as a result of the decline in the 1-4 family residential market, which reduced income for 2008 when compared to 2007.

~~Page~~In 322009, ~~of 56~~noninterest expense decreased approximately $927,000 or 4.10% when compared to 2008.

In 2007, noninterest income increased approximately $123,000, or 3.36% when compared to 2006.

	2009		2008		Increase/ (Decrease)

Salaries and employee benefits	$	7,347,450		9,473,561		(2,126,111	)
Goodwill impairment		-		3,549,780		(3,549,780	)
Occupancy expenses		2,784,629		2,652,590		132,039
Losses on sales, write-downs and other expenses on other real estate		4,562,957		1,363,928		3,199,029
Computer services		686,788		608,457		78,331
Loss on disposal of premises and equipment, net		244,930		7,576		237,354
Telephone		498,735		493,476		5,259
Leased equipment expense		481,014		470,217		10,797
Other expense		5,056,555		3,970,687		1,085,868
	$	21,663,058		22,590,272		(927,214	)

	2007		2006			Increase/ (Decrease)
Mortgage origination income	$	774,490		785,147			(10,657	)
Service charges on deposit accounts		988,256		902,238			86,018
Other service charges and commissions		254,240		265,653			(11,413	)
Securities gains (losses), net		4,900		(13,216	)		18,116
Gain (loss) on sale of premises and equipment		7,545		83,555			(76,010	)
Income from life insurance		190,084		172,116			17,968
Trust service fees		410,069		314,139			95,930
Other income		1,148,957		1,146,118			2,839
	$	3,778,541		3,655,750			122,791

Exclusive of the goodwill impairment charge of $3.5 million taken in 2008, noninterest expense increased approximately $1 million for the period ending December 31, 2009. Other real estate expense (legal fees, write downs and losses on sales of ORE) increased due to the increasing number of properties held in other real estate. Additional expenses in occupancy, loss on disposal of premises, telephone and leased equipment resulted from the closing of one branch office (Eastanollee) and the sale of another branch office (Hickory Flat). Increases occurring in other expense include FDIC insurance, legal and professional expenses and insurance (bond and property). These increases were offset by a reduction in salaries and employee benefits resulting from the elimination of any bonus or incentive programs, the reduction of personnel, the elimination of overtime and the reduction in office hours.

~~Noninterest income~~Page ~~increased~~34 ~~primarily from increases in trust services fees, service charges on deposit accounts and income from bank-owned life insurance. These increases were offset by decreases in gain on sale~~ of ~~premises and equipment, other service charges and mortgage origination income. Net security gains in 2007 totaled approximately $5,000 compared to a net loss of approximately $13,000 for 2006.~~57

~~An overdraft~~In ~~protection product and a business development plan for the Trust Department~~2008, ~~each~~noninterest ~~introduced~~expense inincreased ~~2006,~~approximately ~~continued~~$4.0 tomillion ~~generate~~or ~~additional NSF fees and trust fees in 2007~~21. ~~Income~~24% ~~from~~when ~~bank-owned~~compared ~~life~~to ~~insurance increased with the addition of a Senior Executive Retirement Plan (“SERP”) funded by the purchase of bank-owned life insurance during~~ 2007.

In 2008, noninterest expense increased approximately $4.0 million or 21.20% when compared to 2007.

	2008		2007			Increase/ (Decrease)
Salaries and employee benefits	$	9,473,561		10,544,056			(1,070,495	)
Goodwill impairment		3,549,780		-			3,549,780
Occupancy expenses		2,652,590		2,401,145			251,445
Losses on sales, write-downs and other expenses on other real estate		1,363,928		177,733			1,186,195
Computer services		608,457		632,601			(24,144	)
Loss on disposal of premises and equipment, net		7,576		(7,545	)		15,121
Telephone		493,476		453,464			40,012
Leased equipment expense		470,217		422,836			47,381
Other expense		3,970,687		4,008,985			(38,298	)
	$	22,590,272		18,633,275			3,956,997

	2008		2007		Increase/ (Decrease)
Salaries and employee benefits	$	9,473,561		10,544,056		(1,070,495	)
Goodwill impairment		3,549,780		-		3,549,780
Occupancy expenses		2,652,590		2,401,145		251,445
Losses on sales, write-downs and other expenses on other real estate		1,363,928		177,733		1,186,195
Computer services		608,457		632,601		(24,144	)
Telephone		493,476		453,464		40,012
Leased equipment expense		470,217		422,836		47,381
Other expense		4,018,455		4,040,338		(21,883	)
	$	22,630,464		18,672,173		3,958,291

Page 33 of 56

Noninterest expense increased primarily from a goodwill impairment expense and increased expenses associated with other real estate as the number of these properties increased. These increases were offset by a reduction in salaries and employee benefits resulting from a decision not to provide for any bonus or incentive programs, the reduction of personnel when possible, the elimination of overtime and the reduction in office hours.

In 2007, noninterest expense increased approximately $1.5 million or 8.6% when compared to 2006.

	2007		2006		Increase/ (Decrease)
Salaries and employee benefits	$	10,544,056		9,779,789		764,267
Occupancy expenses		2,401,145		2,209,495		191,650
Losses on sales, write-downs and other expenses on other real estate		177,733		71,374		106,359
Computer services		632,601		553,849		78,752
Telephone		453,464		444,214		9,250
Leased equipment expense		422,836		375,769		47,067
Other expense		4,040,338		3,759,065		281,273
	$	18,672,173		17,193,555		1,478,618

The major sources of the increase in noninterest expense in 2007 was in salaries and employee benefits, occupancy expenses, computer expenses and telephone expenses primarily due to the staffing and operation of the Cumming office, which began operation in January 2007.

INCOME TAX EXPENSE

Income tax expense for the period ended December 31, 2009 was approximately $3.8 million and income tax benefit for the period ended December 31, 2008 was approximately $7.8 million, and income tax expense for the ~~periods~~period ended December 31, 2007 ~~and 2006~~ was approximately $1.0 ~~and $2~~million.4 The effective tax rate is not meaningful for the year ended December 31, ~~respectively~~2009 due to the valuation allowance recorded on the Company’s deferred tax assets. The effective tax rate for the periods ended December 31, 2008, ~~2007~~ and ~~2006~~2007 ~~was~~were (34.5%), and 25.77% ~~and 31.30%~~, respectively. Tax-exempt income on municipal bonds and loans for the periods ended December 31, ~~2008~~2009, ~~2007~~2008 and ~~2006~~2007 was 34.9950%, 283.0399% and 12 28.7603% of pre-tax income, respectively. Income tax ~~expense~~ for the years ended December 31, ~~2008~~2009, ~~2007~~2008 and ~~2006~~2007 is more fully explained in Note 14 17 to the consolidated financial statements.

ALLOWANCE FOR LOAN LOSSES

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 monthly based on a review of all significant loans, with particular emphasis on impaired, nonaccruing, past due and other loans that management believes require special attention. The determination of the allowance for loan losses is subjective and is based on the consideration of a number of factors and assumptions. As such, the accounting policy followed in the determination of the allowance is considered a critical accounting policy. See “Critical Accounting Estimates.”

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

~~Page~~For 34loans considered impaired, specific allowances are provided in the event that the specific collateral analysis on each problem loan indicates that the liquidation of 56 the collateral would not result in repayment of these loans if the loan is collateral dependent or if the present value of expected future cash flows on the loan is less than the balance. In addition to these allocated allowances, at any point in time, the Company may have an unallocated component of the allowance. Unallocated portions of the allowance are due to a number of quantitative and qualitative factors, such as improvement in the condition of impaired loans and credit concentrations. The level of the unallocated portion of the allowance serves as a prime indicator to management for the need of additional provisions for loan loss as management prospectively accounts for this critical accounting estimate.

~~For~~Page ~~loans considered~~35 ~~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 allowances, at any point in time, the Company may have an unallocated component of the allowance. Unallocated portions of the allowance are due to a number of quantitative and qualitative factors, such as improvement in the condition of impaired loans and credit concentrations. The level of the unallocated portion of the allowance serves as a prime indicator to management for the need of additional provisions for loan loss as management prospectively accounts for this critical accounting estimate.57

The allowance for loan losses allocation is based on subjective judgment and estimates and, therefore, is not necessarily indicative of the specific amounts or loan categories in which charge-offs may ultimately occur. The allocation of the allowance for loan losses by loan category at December 31, 2009, 2008, 2007, 2006~~, 2005~~ and ~~2004~~2005 is as follows:

	2008					2007					2006					2005					2004
	2009					2008					2007					2006					2005
	Amount		Percent of Loans to Total Loans			Amount		Percent of Loans to Total Loans			Amount		Percent of Loans to Total Loans			Amount		Percent of Loans to Total Loans			Amount		Percent of Loans to Total Loans
Commercial, financial and agricultural	$	~~670~~460,~~653~~174		54.2196	%	$	65670,~~151~~653		5.8021	%	$	~~217~~65,~~535~~151		45.6080	%	$	69217,~~844~~535		54.2060	%	$	~~366~~69,~~110~~844		5.9020	%
Real estate		1011,~~933~~357,~~344~~876		90.1361	%		110,~~734~~933,~~310~~344		8990.7013	%		21,~~090~~734,~~590~~310		9089.6070	%		2,~~714~~090,~~789~~590		90.5060	%		2,~~564~~714,~~713~~789		8990.1050	%
Installment loans to individuals		~~461~~285,~~556~~367		4.6643	%		~~322~~461,~~676~~556		4.5066	%		~~299~~322,~~478~~676		4.8050	%		~~981~~299,~~002~~478		4.3080	%		~~629~~981,~~068~~002		54.0030	%
Unallocated		~~102~~2,~~092~~653		-			14102,~~711~~092		-			~~837~~14,~~186~~711		-			~~178~~837,~~890~~186		-			74178,~~752~~890		-
Total	$	12,~~167~~106,~~645~~070		100.00	%	$	212,~~136~~167,~~848~~645		100.00	%	$	32,~~444~~136,~~789~~848		100.00	%	$	3,~~944~~444,~~525~~789		100.00	%	$	3,~~634~~944,~~643~~525		100.00	%

Page 35 of 56

The Company’s provision for loan losses is intended to create an adequate allowance for losses in the loan portfolio at the end of each reporting period.

The following table summarizes, for each of the years in the five year period ended December 31, ~~2008~~2009, selected information related to the allowance for loan losses.

	2008			2007			2006			2005			2004
	2009			2008			2007			2006			2005
Balance of allowance for loan losses at beginning of period	$	212,~~136~~167,~~848~~645		$	32,~~444~~136,~~789~~848		$	3,~~944~~444,~~525~~789		$	3,~~634~~944,~~643~~525		$	3,~~643~~634,~~102~~643
Acquired bank allowance		-			-			-			~~215,079~~-			-215,079
Charge-offs:
Commercial, financial and agricultural		(~~240~~1,~~429~~100,033	)		(89240,~~474~~429	)		(~~254~~89,~~672~~474	)		(44254,~~799~~672	)		(~~145~~44,~~422~~799	)
Real estate		(512,~~406~~090,~~563~~669	)		(15,~~744~~406,~~773~~563	)		(~~180~~1,~~191~~744,773	)		(~~113~~180,~~310~~191	)		(~~427~~113,~~365~~310	)
Installment loans to individuals		(~~392~~692,~~107~~756	)		(~~262~~392,~~191~~107	)		(~~251~~262,~~983~~191	)		(~~273~~251,~~935~~983	)		(~~228~~273,~~331~~935	)
Other		(6,~~014~~350	)		(196,~~563~~014	)		(1519,~~780~~563	)		(1215,~~307~~780	)		(1112,~~074~~307	)
Total charge-offs		(613,~~045~~889,~~113~~808	)		(26,~~116~~045,~~001~~113	)		(~~702~~2,~~626~~116,001	)		(~~444~~702,~~351~~626	)		(~~812~~444,~~192~~351	)
Recoveries:
Commercial, financial and agricultural		5,~~351~~048			25,~~663~~351			342,~~030~~663			2934,~~952~~030			5629,~~558~~952
Real estate		1229,~~048~~971			501,~~085~~048			1850,~~595~~085			4518,~~409~~595			~~143~~45,~~308~~409
Installment loans to individuals		48117,~~509~~214			7648,~~975~~509			~~146~~76,~~841~~975			~~131~~146,~~120~~841			~~114~~131,~~624~~120
Other		~~140~~-			~~3,112~~140			3,~~424~~112			23,~~673~~424			62,~~743~~673
Total recoveries		55352,~~048~~233			~~132~~55,~~835~~048			~~202~~132,~~890~~835			~~209~~202,~~154~~890			~~321~~209,~~233~~154
Net charge-offs		(513,~~990~~537,~~065~~575	)		(15,~~983~~990,~~166~~065	)		(~~499~~1,~~736~~983,166	)		(~~235~~499,~~197~~736	)		(~~490~~235,~~959~~197	)
Provision for loan losses		1613,~~020~~476,~~862~~000			~~675~~16,~~225~~020,862			-675,225			~~330,000~~-			~~482~~330,~~500~~000
Balance of allowance for loan losses at end of period	$	12,~~167~~106,~~645~~070		$	212,~~136~~167,~~848~~645		$	32,~~444~~136,~~789~~848		$	3,~~944~~444,~~525~~789		$	3,~~634~~944,~~643~~525
Average amount of loans	$	~~338~~307,~~026~~599,~~055~~869		$	~~354~~338,~~273~~026,~~983~~055		$	~~331~~354,~~363~~273,~~746~~983		$	~~297~~331,~~566~~363,~~778~~746		$	~~271~~297,~~736~~566,~~598~~778
Ratio of net charge-offs during the period to average loans outstanding during the period		14.7740	%		01.5677	%		0.1556	%		0.0815	%		0.1808	%
Ratio of allowance to total year-end loans		34.7737	%		03.6177	%		0.9961	%		10.2399	%		1.2923	%

~~The number~~Page ~~and~~36 ~~the average balance~~ of ~~charge-offs during 2008 and 2007 by category follow:~~57

			2008				2007
			Average				Average
Category	Number		Charge-off		Number		Charge-off
Real estate		28		193,092		25		69,791
Consumer		78		5,104		82		3,436
Commercial		9		26,714		5		17,895

The number and the average balance of charge-offs during 2009, 2008 and 2007 by category follow:

The risk associated with loans 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.

			2009				2008				2007
			Average				Average				Average
Category	Number		Charge-off		Number		Charge-off		Number		Charge-off

Real estate		77		157,022		28		193,092		25		69,791
Consumer		101		6,922		78		5,104		82		3,436
Commercial		25		44,001		9		26,714		5		17,895

The risk associated with loans varies with the creditworthiness of the borrower, the type of loan (consumer, commercial or real estate) and its maturity. Cash flow 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 impacted by the management of the business as well as economic conditions also.

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.

Page 36 of 56

LOANS

The total loan portfolio for 2009 decreased approximately $45.8 million when compared to 2008. During 2009, decreases occurred in the real estate secured lending, commercial lending and consumer lending portfolios totaling approximately $40 million, $3.1 million and $2.8, respectively. The average yields on the total loan portfolio for 2009 and 2008 were 5.25% and 6.32%, respectively.

The total loan portfolio for 2008 decreased approximately $27.6 million when compared to 2007. During 2008, decreases occurred in the real estate secured lending, commercial lending and consumer lending portfolios totaling approximately $23.3 million, $3.7 million and $581,000, respectively. The average yields on the total loan portfolio for 2008 and 2007 were 6.32% and 8.91%, respectively.

The total loan portfolio for 2007 when compared to 2006 increased approximately $4.1 million. During 2007, increases in the commercial lending and real estate secured lending portfolios of approximately $4.6 million and $336,000, respectively, were offset by decreases in the consumer lending portfolio of approximately $872,000 during 2007. The average yields on the total loan portfolio for 2007 and 2006 were 8.91% and 9.01%, respectively.

The amount of loans (net of unearned loan origination fees) outstanding at December 31 for each of the last five years is set forth in the following table according to type of loan. The Company had no foreign loans at December 31 in any of the last five years.

	2008		2007		2006		2005		2004
	2009		2008		2007		2006		2005
Commercial, financial and agricultural	$	1613,~~808~~763,~~412~~667	$	2016,~~496~~808,~~648~~412	$	1520,~~833~~496,~~001~~648	$	1615,~~465~~833,~~079~~001	$	16,~~673~~465,~~310~~079
Real estate- construction		~~148~~107,~~110~~717,~~567~~807		~~175~~148,~~904~~110,~~135~~567		~~152~~175,~~752~~904,~~981~~135		~~120~~152,~~872~~752,~~011~~981		79120,~~683~~872,~~839~~011
Real estate - mortgage		~~142~~143,~~827~~274,~~328~~966		~~138~~142,~~373~~827,~~167~~328		~~161~~138,~~188~~373,~~518~~167		~~169~~161,~~645~~188,~~585~~518		~~170~~169,~~504~~645,~~085~~585
Installment loans		1512,~~049~~246,~~635~~338		15,~~630~~049,~~412~~635		1615,~~502~~630,~~794~~412		1316,~~751~~502,~~608~~794		13,~~927~~751,~~123~~608
Total	$	~~322~~277,~~795~~002,~~942~~778	$	~~350~~322,~~404~~795,~~362~~942	$	~~346~~350,~~277~~404,~~294~~362	$	~~320~~346,~~734~~277,~~283~~294	$	~~280~~320,~~788~~734,~~357~~283

~~The following~~Page ~~table~~37 ~~sets forth the maturities and sensitivities to changes in interest rates~~ of ~~loans at December 31, 2008.~~57

			DUE AFTER
	DUE IN		ONE THROUGH		DUE AFTER
	ONE YEAR		FIVE YEARS		FIVE YEARS		TOTAL
LOAN MATURITY:
Commercial, financial and agricultural	$	13,847,936		2,913,923		46,553		16,808,412
Real estate - construction		146,353,264		1,691,988		65,315		148,110,567
Real estate		99,674,927		42,416,646		770,643		142,862,216
Installment loan to individuals		8,580,908		6,444,277		24,450		15,049,635
TOTAL	$	268,457,035		53,466,834		906,961		322,830,830
LOAN INTEREST RATE SENSITIVITY
Loans with:
Predetermined interest rates	$	38,141,260		53,466,834		906,961		92,515,055
Floating or adjustable interest rates		230,315,775		-		-		230,315,775
TOTAL	$	268,457,035		53,466,834		906,961		322,830,830

The following table sets forth the maturities and sensitivities to changes in interest rates of loans at December 31, 2009.

			DUE AFTER ONE
	DUE IN		THROUGH		DUE AFTER
	ONE YEAR		FIVE YEARS		FIVE YEARS		TOTAL
LOAN MATURITY:
Commercial, financial and agricultural	$	11,885,482		1,832,940		45,245		13,763,667
Real estate - construction		106,981,082		736,725		-		107,717,807
Real estate		119,028,542		23,912,006		342,211		143,282,759
Installment loan to individuals		7,033,117		5,146,492		66,729		12,246,338
TOTAL	$	244,928,223		31,628,163		454,185		277,010,571
LOAN INTEREST RATE SENSITIVITY:
Loans with:
Predetermined interest rates	$	39,976,779		31,628,163		454,185		72,059,127
Floating or adjustable interest rates		204,951,444		-		-		204,951,444
TOTAL	$	244,928,223		31,628,163		454,185		277,010,571

NONPERFORMING ASSETS AND PAST DUE LOANS

Nonperforming assets consist of nonaccrual loans, accruing loans 90 days past due, restructured loans, and other real estate owned. Accrual of interest is discontinued when either principal or interest becomes 90 days past due, unless the loan is both well secured and in the process of collection, or when in management’s opinion, reasonable doubt exists as to the full collection of interest or principal. Income on such loans is then recognized only to the extent that cash is received and where the future collection of principal is probable.

Page 37 of 56

The following table sets forth the totals of nonperforming assets, selected ratios, and accruing loans past due 90 days or more at December 31 for each of the last five years.

NONPERFORMING ASSETS	~~2008~~2009			~~2007~~2008			~~2006~~2007			~~2005~~2006			~~2004~~2005
Accruing loans 90 days past due	$	~~802,267~~-		$	41802,~~594~~267		$	3741,~~585~~594		$	~~799~~37,~~128~~585		$	~~381~~799,~~670~~128
Nonaccrual loans		5671,~~055~~812,~~277~~703			1856,~~326~~055,~~924~~277			~~502~~18,~~233~~326,924			~~363~~502,~~003~~233			3363,~~252,464~~003
Restructured loans		-728,345			-			~~52,560~~-			~~130~~52,~~613~~560			~~119~~130,~~031~~613
Other real estate owned		2737,~~336~~833,~~874~~328			1127,~~498~~336,~~271~~874			~~537~~11,~~975~~498,271			2537,~~773,662~~975			12,~~289~~773,~~880~~662
Total nonperforming assets	$	84110,~~194~~374,~~418~~376		$	2984,~~866~~194,~~789~~418		$	129,~~130~~866,~~353~~789		$	41,~~066~~130,~~406~~353		$	54,~~043~~066,~~045~~406
RATIOS
Nonperforming loans (excluding restructured loans) to net loans		1827.3111	%		518.2731	%		5.1627	%		.3616	%		1.2936	%
Nonperforming assets to net loans plus other real estate owned		2436.9146	%		824.3091	%		8.3330	%		1.2733	%		1.7927	%
Allowance to nonperforming loans		2116.4086	%		1121.6340	%		~~581~~11.5263	%		~~305~~581.1352	%		96305.8413	%

Nonperforming assets increased approximately $5426.32 million or ~~181~~31.9011% from December 31, ~~2007~~ 2008 to December 31, ~~2008~~2009. Increases occurred as the decline in the 1-4 family real estate market in both construction lending and new mortgages continued during 2008. The result of this activity is reflected in the increases in nonaccrual loans, other real estate and ~~accruing~~restructured loans ~~90 days past due~~ totaling approximately $3715.78 million, $1510.85 million and $~~761~~728,000, respectively, offset by decreases in accruing loans 90 days past due of approximately $802,000. The effects of the real estate market decline are visible in the loan portfolio as loans move from 90 days past due, to nonaccrual status, to foreclosure and finally to other real estate. See the discussion that follows within this section for a description of the assets that comprised this increase.

~~Loans classified~~Page as38 ~~90 days past due increased $760,673 or 1828.80% from December 31, 2007 to December 31, 2008. The increase is the net result~~ of ~~the following changes:~~57

	2008			2007
Balance at beginning of period	$	41,594		$	37,585
New loans classified to 90 days past due status		1,530,199			508,121
Payments received		(742,346	)		(67,492	)
Charged-off		(27,180	)		(436,620	)
Balance at end of period	$	802,267		$	41,594
The following summarizes accruing loans 90 days past due by type at December 31, 2008 and 2007:
Real estate secured construction loans	$	25,526		$	-
Residential loans		771,866			41,594
Consumer loans		4,875			-
Total accruing loans 90 days past due	$	802,267		$	41,594

Loans classified as 90 days past due decreased $802,000 from December 31, 2008 to December 31, 2009. The increase is the net result of the following changes:

Page 38 of 56

	December 31,
	2009			2008

Balance at beginning of period	$	802,267		$	41,594
New loans classified to 90 days past due status		2,036,381			1,530,199
Reclassified to nonaccrual status		(1,357,157	)		-
Payments received		(704,751	)		(742,346	)
Forebearance & modification agreements		(771,865	)		-
Charged-off		(4,875	)		(27,180	)
Balance at December 31, 2009	$	-		$	802,267

~~Impaired loans~~The ~~include~~following ~~loans~~summarizes onaccruing ~~nonaccrual~~loans ~~status. Loans~~90 ~~classified~~days ~~as nonaccrual~~past ~~increased~~due ~~$37.7~~by ~~million~~type orat ~~205.86% from~~ December 31, ~~2007~~2009 toand ~~December 31,~~ 2008.:

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

	December 31,
	2009		2008

Real estate secured construction loans	$	-	$	25,526
Residential loans		-		771,866
Real estate – commercial property		-		-
Commercial loans		-		-
Home lines		-		-
Consumer loans		-		4,875
Total accruing loans 90 days past due	$	-	$	802,267

	Number		2008		Number		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

Impaired loans include loans on nonaccrual status. Loans classified as nonaccrual increased $15.8 million or 28.11% from December 31, 2008 to December 31, 2009.

The ~~increase~~ ~~from~~following ~~2007~~summarizes tononaccrual ~~2008~~loans isat ~~the~~December ~~net~~31, ~~result~~2009 ofand ~~the~~December ~~following changes~~31, 2008:

Balance at December 31, 2007	$	18,326,924
	Number			2009		Number		2008
Loans reclassified to nonaccrual status in 2008		71,643,372
Real Estate – construction & development loans		50		$	59,863,354		50	$	52,442,846
Payments received on nonaccrual loans during 2008		(5,333,364	)
Real Estate – residential loans		23			4,966,478		11		313,004
Nonaccrual loans charged-off during 2008		(5,950,021	)
Real Estate – commercial		8			6,548,962		4		2,689,491
Nonaccrual loans reclassified to other real estate		(17,852,732	)
Commercial loans		3			216,829		4		459,389
Nonaccrual loans reclassified to accrual status in 2008		(4,778,902	)
Consumer loans		11			217,080		23		150,547
Balance at December 31, 2008	$	56,055,277
Total nonaccrual loans		95		$	71,812,703		92	$	56,055,277

~~Additions in~~The increase from 2008 to ~~loans~~2009 onis ~~nonaccrual~~the ~~status~~net ~~consisted~~result of the following changes:

Real Estate – construction & development loans	$	66,490,612
Balance at December 31, 2008	$	56,055,277
Real Estate – residential loans		1,154,699
Loans reclassified to nonaccrual status in 2009		59,277,061
Real Estate – commercial		2,686,691
Advances		609,500
Commercial loans		684,167
Payments received on nonaccrual loans during 2009		(12,380,151	)
Consumer loans		627,203
Nonaccrual loans charged-off during 2009		(11,438,328	)
Total	$	71,643,372
Nonaccrual loans reclassified to other real estate		(19,419,704	)
Nonaccrual loans reclassified to repossessions		(118,500	)
Nonaccrual loans reclassified to accrual status in 2009		(772,452	)
Balance at December 31, 2009	$	71,812,703

~~Accrual of~~Page ~~interest~~39 ~~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 in management’s opinion, when reasonable doubt exists as to the full collection of interest or principal. Interest income that would have been recorded on these nonaccrual and restructured loans in accordance with their original terms totaled $2.8 million, $1.2 million and $26,112 in 2008, 2007 and 2006, respectively, compared with interest income recognized of $349,197, $592,664 and $10,058, respectively.57

~~Page~~Additions 39in 2009 to loans on nonaccrual status consisted of 56 the following:

Other real estate at December 31, 2008 increased approximately $15.8 million or 137.75% when compared to December 31, 2007. The following summarizes other real estate at December 31, 2008 and 2007:

Real Estate – construction & development loans	$	42,612,759
Real Estate – residential loans		6,594,842
Real Estate – commercial		8,819,236
Commercial loans		729,700
Consumer loans		520,524
Total	$	59,277,061

	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

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 in management’s opinion, when reasonable doubt exists as to the full collection of interest or principal. Interest income that would have been recorded on these nonaccrual loans in accordance with their original terms totaled $4.4 million, $2.8 million and $1.2 million in 2009, 2008 and 2007, respectively, compared with interest income recognized of $735,409, $349,197 and $592,664, respectively.

~~The following~~Other isreal aestate ~~summary~~at ofDecember ~~the~~31, ~~changes~~2009 inincreased approximately $10.5 million or 38.40% when compared to December 31, 2008. The following summarizes other real estate ~~for~~at ~~the year ended~~ December 31, 2009 and 2008:

	Number of Properties			Carrying Amount
	2009						2008
Balance at the beginning of the year		64		$	11,498,271
	Number of Properties			Carrying Amount			Number of Properties		Carrying Amount
Foreclosed properties		260			17,852,732
Residential properties – spec houses		33		$	12,412,239			41	$	15,714,994
Capitalized completion costs		-			1,759,558
Commercial properties		13			5,116,878			2		673,250
Sales of properties		(14	)		(3,322,071	)
Vacant lots		223			19,461,935			207		10,785,430
Write-downs		-			(451,616	)
Lot with mobile home		1			51,590			-		-
Balance at the end of the year		310		$	27,336,874
Residential construction properties		2			790,686			1		163,200
		272		$	37,833,328			251	$	27,336,874

The ~~Company’s~~ ~~other~~following ~~real~~is ~~estate increase was primarily due to foreclosures in acquisition and development of residential properties and construction lending portfolios as~~ a ~~result~~summary of the ~~decline~~changes in ~~the~~other real estate ~~market~~ ~~during~~for ~~2008. The foreclosed properties are located in~~ the ~~Metro~~ ~~Atlanta~~year ~~area~~ended and surrounding counties and have appraised values totaling approximately $31.8. Construction efforts are underway to complete houses which were in various stages of construction at foreclosure date. During 2008, twenty 1-4 family residential houses totaling approximately $7.1 million were under construction with appraised values of approximately $8.2 million when completed. In addition, construction efforts are underway to complete a multi-family townhouse development totaling approximately $3.3 million with appraised value of $4.5 million upon completion. At December 31, ~~2008,~~2009 ~~the~~and ~~Company estimates the cost to complete construction properties in other real estate to be approximately $795,000.~~2008:

Our other real estate owned (“OREO”) policies and procedures provide that a foreclosure appraisal be obtained. Our policies require a certified appraiser conducts the appraisal for foreclosed property to obtain a fair market value and a disposition (quick sale) value. To qualify and be approved as an appraiser for Habersham Bank, appraisers must have met the Appraisal Qualifications Board requirements and have not had any disciplinary actions. Additionally, an appraiser must submit to us their resume, license, area of coverage, and samples of their work for review before being approved for appraisal work. At foreclosure, the lesser of the loan balance or the quick sale value is transferred to OREO with any remaining loan balance submitted for charge off. Upon transfer into OREO, the property is listed with a realtor to begin sales efforts.

	2009						2008
	Number of Properties			Carrying Amount			Number of Properties			Carrying Amount
Balance at the beginning of the year		251		$	27,336,874			64		$	11,498,271
Foreclosed properties		56			22,282,074			201			17,852,732
Capitalized completion costs		-			755,597			-			1,759,558
Sales of properties		(35	)		(10,829,862	)		(14	)		(3,322,071	)
Write-downs		-			(1,711,355	)		-			(451,616	)
Balance at the end of the year		272		$	37,833,328			251		$	27,336,874

~~At December~~The ~~31,~~Company’s ~~2008,~~other ~~management~~real estate increase was ~~not~~primarily ~~aware~~due to foreclosures in acquisition and development of ~~any~~residential ~~loans~~properties ~~classified~~and ~~for regulatory~~construction ~~purposes~~lending portfolios as ~~loss,~~a ~~doubtful,~~result ~~substandard~~of orthe ~~special~~decline ~~mention~~in ~~that~~the real estate market during 2008 and 2009. The foreclosed properties are primarily located in the Metro Atlanta area and surrounding counties and have ~~not~~ ~~been~~appraised ~~disclosed~~values ~~which,~~totaling 1)approximately ~~represent~~$47.8 ormillion. Construction ~~result~~efforts ~~from~~are ~~trends~~underway orto ~~uncertainties~~ complete houses which ~~management~~were ~~reasonably~~in ~~expects~~various ~~will~~stages ~~materially~~of ~~impact~~construction ~~future~~at ~~operating results~~foreclosure date. During 2009, ~~liquidity~~eleven or1-4 ~~capital~~family ~~resources,~~residential orhouses 2)totaling ~~represent~~approximately ~~material~~$4.5 ~~credits~~million ~~about which~~were ~~management~~under isconstruction ~~aware~~with appraised values of ~~any~~approximately ~~information~~$6.1 ~~which~~million ~~causes~~when ~~management~~completed. In toaddition, ~~have serious~~construction ~~doubts~~efforts asare underway to ~~the~~complete ~~ability~~a ofmulti-family ~~such~~townhouse ~~borrowers~~development tototaling ~~comply~~approximately $2.9 million with an appraised value of $3.9 million upon completion. At December 31, 2009, the ~~loan repayment~~Company ~~terms~~estimates the cost to complete construction properties in other real estate to be approximately $513,000.

~~Page~~Our 40other real estate owned (“OREO”) policies and procedures provide that a foreclosure appraisal be obtained. Our policies require that a certified appraiser conduct the appraisal for foreclosed property to obtain a fair market value and a disposition (quick sale) value. To qualify and be approved as an appraiser for Habersham Bank, appraisers must have met the Appraisal Qualifications Board requirements and have not had any disciplinary actions. Additionally, an appraiser must submit to us their resume, license, area of 56 coverage, and samples of their work for review before being approved for appraisal work. At foreclosure, the lesser of the loan balance or the quick sale value is transferred to OREO with any remaining loan balance submitted for charge off. Upon transfer into OREO, the property is listed with a realtor to begin sales efforts.

~~Loan concentrations~~Page ~~are~~40 ~~monitored based upon purpose codes as defined by Federal Banking Regulations and by North American Industry Classification System (NAICS) industry codes. Habersham Bank held concentrations~~ of ~~loans based on purpose codes to customers, which totaled 100% or more of Tier 1 Capital at December 31, 2008 and 2007 as follows:~~57

	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

At December 31, 2009, management was not aware of any loans classified for regulatory purposes as loss, doubtful, substandard or special mention that have not been disclosed which, 1) represent or result from trends or uncertainties which management reasonably expects will materially impact future operating results, liquidity or capital resources, or 2) represent material credits about which management is aware of any information which causes management to have serious doubts as to the ability of such borrowers to comply with the loan repayment terms.

Loan concentrations are monitored based upon purpose codes as defined by Federal Banking Regulations and by North American Industry Classification System (NAICS) industry codes. Habersham Bank held concentrations of loans based on purpose codes to customers, which totaled 100% or more of Tier 1 Capital at December 31, 2009 with comparative values disclosed for 2008 and 2007 as follows:

	2009		2008		2007

Real estate lessors (amortized non-owner occupied)	$	65,004,166		69,291,195		73,456,063
Land and subdivision development		52,061,855		77,725,875		100,880,811
Raw land		27,883,898		24,860,071		27,214,139
Non-residential building construction (non-owner occupied)		22,964,330		11,807,466		12,441,853

	$	167,914,249		183,684,607		213,992,866

INVESTMENT SECURITIES

The Company has classified its investment securities as available for sale and held to maturity. The classification of certain investment securities as available for sale is consistent with the Company’s investment philosophy of maintaining flexibility to manage the securities portfolio. At December 31, ~~2008~~2009 approximately $9774.34 million of investment securities were classified as available for sale and approximately $1900,000 ~~million~~ of investment securities were classified as held to maturity. Approximately $~~256~~625,000 of net unrealized ~~loss~~gain, net of income taxes, was included in stockholders’ equity related to available for sale investment securities.

The following table sets forth the carrying amounts of investment securities at December 31, ~~2008~~2009, ~~2007~~2008 and ~~2006~~2007.

2008

2007

2006

2009

2008

2007

Investment securities available for sale:

U.S. government-sponsored enterprises

2716,~~132~~080,~~796~~106

3327,~~567~~132,~~386~~796

3033,~~673~~567,~~849~~386

Mortgage-backed securities

5649,~~412~~510,~~151~~051

2956,~~927~~412,~~360~~151

3129,~~191~~927,~~082~~360

State and political subdivisions

138,~~547~~680,~~583~~896

2613,~~213~~547,~~358~~583

2226,~~937~~213,~~446~~358

Other investments

185,~~361~~920

~~181~~185,~~998~~361

~~180~~181,~~038~~998

Total

9774,~~277~~456,~~891~~973

8997,~~890~~277,~~102~~891

8489,~~982~~890,~~415~~102

Investment securities held to maturity:

Mortgage-backed securities

2617,~~835~~461

4326,~~179~~835

6843,~~124~~179

State and political subdivisions

~~998~~863,~~600~~955

2998,~~646,019~~600

32,~~221~~646,~~198~~019

Total

1881,~~025,435~~416

21,~~689~~025,~~198~~435

32,~~289~~689,~~322~~198

Page 41 of 56 57

The following table sets forth the maturities of debt investment securities at carrying value at December 31, ~~2008~~2009 and the related weighted tax equivalent yields.

	ONE YEAR			1-5			5-10			AFTER 10
	OR LESS			YEARS			YEARS			YEARS
Investment securities available for sale:
U.S. government-sponsored enterprises	$	-		$	~~870~~51,~~975~~857		$	61,~~331~~106,~~439~~201		$	1914,~~930~~922,~~382~~048
Mortgage-backed securities	$	84132,~~269~~323		$	~~962~~623,~~652~~286		$	84,~~393~~016,~~236~~043		$	4644,~~971~~738,~~994~~399
State and political subdivisions	$	-		$	~~491~~1,~~686~~035,508		$	21,~~083~~252,~~695~~513		$	106,~~972~~392,~~202~~875
Weighted average yields:
U.S. government-sponsored enterprises		-			31.2738	%		43.7859	%		54.0077	%
Mortgage-backed securities		32.0791	%		3.6176	%		4.5332	%		54.0259	%
State and political subdivisions		-			43.6741	%		54.3800	%		54.8718	%
Investment securities held to maturity:
Mortgage-backed securities	$	-		$	168,~~994~~795		$	54,~~254~~686		$	43,~~587~~980
State and political subdivisions	$	~~135~~345,000		$	~~544~~399,~~705~~784		$	~~318~~119,~~895~~171		$	-
Weighted average yields:
Mortgage-backed securities		-			78.9505	%		10.5351	%		43.5448	%
State and political subdivisions		64.2944	%		64.4358	%		75.3180	%		-

No securities were held which represent a combined total for one issuer which is in excess of 10% of the Company’s stockholders’ equity at December 31, ~~2008~~2009.

DERIVATIVE INSTRUMENTS

During 2004, Habersham Bank entered into two interest rate swap agreements with Compass Bank to partially offset the interest rate risk associated with variable rate Federal Home Loan Bank (“FHLB”) borrowings. One swap matured on May 21, 2009 and the other swap matured on August 26, 2009.

At December 31, 2008 ~~and 2007~~, the swaps were being accounted for as cash flow hedges and the fair values are included in other comprehensive income, net of taxes. At December 31, 2008, Habersham Bank recorded a liability for approximately $95,000 to reflect the fair value of the swaps. ~~At December 31, 2007, Habersham Bank recorded a liability for approximately $33,000 to reflect the fair value of the swaps.~~ No hedge ineffectiveness from these cash flow hedges was recognized in the consolidated statement of operations.

Refer to Note 1316 of the consolidated financial statements for a more complete description of the use of derivatives and hedging activities.

DEPOSITS

Deposits deceased approximately $2.7 million from December 31, 2008 to December 31, 2009. Decreases in time deposits less than $100,000 and savings account balances totaling approximately $19.7 million and $4.9 million, respectively, were offset by increases in interest bearing deposits (NOW and money market), noninterest bearing deposits and in time deposits greater that $100,000 of approximately $14 million, $5.9 million and $1.9 million, respectively. The ~~deposit~~ ~~portfolio~~average ~~increased~~rates paid on interest bearing deposits for 2009 and 2008 were 2.69% and 3.40%, respectively. The deposit portfolio increased approximately $2.6 million ~~when~~from ~~compared~~December to 31, 2007 to December 31, 2008. Increases in brokered time deposits and other time deposits less than $100,000 totaled approximately $17.1 million and $34.7 million, respectively, and were offset by decreases in interest bearing deposits (NOW, money market and savings), time deposits greater than $100,000 and noninterest bearing deposits of approximately $35.5 million, $13.7 million and $77,000, respectively. The average rates paid on interest bearing deposits for 2008 and 2007 were 3.3940% and 4.15%, respectively.

At December 31, ~~2008~~2009 and ~~2007~~2008, the Bank held approximately $~~30.1~~10 million and $1330.0 1 million, respectively in certificates of deposit obtained through the efforts of third party brokers. The daily average balance of such deposits totaled approximately $2122.25 million and $521.92 million in ~~2008~~2009 and ~~2007~~2008, respectively. The weighted average ~~yield~~rate during ~~2008~~2009 was 24.9776% 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~~2009 have maturity dates ranging from ~~April~~January ~~2009~~2010 to August 2010.

Page 42 of 56 57

~~The deposit~~At ~~portfolio~~December ~~increased~~31, ~~for~~2008 and 2007, the Bank held approximately $1830.1 million ~~after~~and ~~excluding large~~$13.0 ~~short-term~~million, ~~deposits~~respectively ~~from~~in acertificates ~~customer~~of ~~and~~deposit ~~its~~obtained ~~affiliates~~through ~~totaling approximately~~the ~~$78.5~~efforts ~~million~~of ~~held~~third atparty ~~December 31, 2006~~brokers. ~~Increases~~The indaily ~~time deposits,~~average ~~money~~balance ~~market~~of ~~and~~such ~~NOW~~deposits ~~account balances~~ totaled approximately $2721.6 2 million and $105.19 million in 2008 and 2007, respectively,. The ~~were~~weighted ~~offset~~average byrate ~~decreases~~during in2008 ~~noninterest bearing~~was ~~and~~2.97% ~~savings~~while ~~account~~the ~~balances~~weighted ofaverage ~~approximately~~rate ~~$17.5~~at ~~million~~December ~~and $2.1 million~~31, ~~respectively.~~2008 was 3.98%. The weighted average ~~rates~~rate ~~paid~~during on2007 ~~interest~~was ~~bearing~~4.64% ~~deposits~~while ~~for 2007~~the ~~and~~weighted ~~2006~~average ~~were~~rate at December 31, 2007 was 4.1587%. The ~~and~~deposits ~~3.54%~~at December 31, ~~respectively~~2008 have maturity dates ranging from April 2009 to August 2010.

Average deposits increased approximately $324.2 million, or 6.8425%, during 2009 and $183.82 million, or 5.1884%, during 2008 ~~and 2007, respectively~~. The following table sets forth the average amount of interest bearing deposits and average rate paid on such deposits for the years ended December 31, ~~2008~~2009, ~~2007~~2008 and ~~2006~~ 2007.

	2008					2007					2006
	2009					2008					2007
	Avg. Amt Outstanding		Rate			Avg. Amt Outstanding		Rate			Avg. Amt Outstanding		Rate
Interest-bearing demand deposits	$	8378,~~975~~685,~~857~~428		1.1054	%	$	8583,~~395~~975,~~092~~857		1.9210	%	$	8685,~~590~~395,~~932~~092		1.7792	%
Saving deposits		5140,~~737~~523,~~301~~758		21.4339	%		6051,~~330~~737,~~900~~301		42.1643	%		6160,~~332~~330,~~587~~900		34.8316	%
Noninterest-bearing demand deposits		3837,~~732~~414,~~731~~436		n/a			4238,~~484~~732,~~417~~731		n/a			5142,~~482~~484,~~129~~417		n/a
Time deposits		~~211~~253,~~884~~864,~~695~~495		43.5356	%		~~194~~211,~~897~~884,~~350~~695		54.1355	%		~~164~~194,~~822~~897,~~662~~350		45.3614	%
Total average deposits	$	~~386~~410,~~330~~488,~~584~~117				$	~~383~~386,~~107~~330,~~759~~584				$	~~364~~383,~~228~~107,~~310~~759

At December 31, ~~2008~~2009 and ~~2007~~2008, time certificates of deposit of $100,000 or more, totaled $~~102~~104,~~390~~309,~~560~~397 and $~~116~~102,~~043~~390,~~575~~560, respectively. The maturities of all time certificates of deposit over $100,000 at December 31, ~~2008~~2009, were as follows:

3 months or less	$	1421,~~891~~238,~~320~~494
Over 3 but less than 6 months		20,~~180~~356,~~066~~453
Over 6 but not more than 12 months		4746,~~115~~252,~~015~~860
Over 1 year but not more than 5 years		2016,~~204~~461,~~159~~590
Total	$	~~102~~104,~~390~~309,~~560~~397

BORROWINGS

Total borrowings decreased approximately $910.83 million, or 1518.1066%, ~~during~~from December 31, 2008 ~~compared~~ to ~~2007~~December 31, 2009. This decrease was a result of a decline of approximately $145.81 million in securities sold under repurchase agreements, ~~which~~and ~~was~~the ~~offset by~~repayment of a longer term repurchase agreement advance of $5 million.

The composition of FHLB advances is more fully explained in Note 1215 to the consolidated financial statements.

CAPITAL RESOURCES

The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimal 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 financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, 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 classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

~~Page~~Quantitative 43measures established by regulations to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth below in the table) of 56 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).

~~Quantitative measures~~As ~~established~~of byDecember ~~regulations~~31, to2009, ~~ensure~~the ~~capital~~most ~~adequacy~~recent ~~require~~notifications from both the ~~Company~~ FDIC and the ~~Bank~~Federal toReserve ~~maintain~~Bank ~~minimum~~of ~~amounts~~Atlanta ~~and~~categorized ~~ratios~~the ~~(set~~Bank ~~forth~~as ~~below~~undercapitalized in under the ~~table)~~regulatory offramework ~~total~~for ~~and~~prompt ~~Tier~~corrective Iaction. Management ~~capital~~believes ~~(as~~that ~~defined~~the inclassifications ~~the~~have ~~regulations)~~subsequently changed to ~~risk-weighted~~ ~~assets~~significantly (undercapitalized as ~~defined)~~of December 31, ~~and~~2009 ofdue ~~Tier~~to Iadjustments to the regulatory capital ~~(as~~ratios ~~defined)~~made subsequent to ~~average assets~~submission ~~(as~~of ~~defined)~~the preliminary capital ratios. ~~Management~~ ~~believes,~~To asbe ofcategorized ~~December~~as 31adequately capitalized, ~~2008~~the ~~and 2007~~Bank must maintain minimum total risk-based, ~~that~~Tier ~~the~~I ~~Company~~risk-based and Tier I leverage ratios as set forth in the ~~Bank~~following ~~meet~~table. ~~all~~Efforts are underway to improve the Bank’s capital ~~adequacy~~ratios ~~requirements~~and ~~to which~~regain ~~they~~the ~~are~~adequate ~~subject~~capitalized category.

AsPage ~~of December~~43 ~~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 following table. There are no conditions or events since that notification that management believes have changed the Bank’s categories.57

The Company’s and the Bank’s actual capital amounts and ratios as of December 31, ~~2008~~ 2009 and ~~2007~~2008 follow (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:
As of December 31, 2009:
Total Capital (to Risk-Weighted Assets):
Company	$	4420,~~428~~314		116.6015	%		3026,~~643~~417		8	%		N/A		N/A
Bank	$	4018,~~320~~794		105.6169	%		3026,~~408~~406		8	%		3833,~~010~~007		10	%
Tier I Capital (to Risk-Weighted Assets):
Company	$	3916,~~591~~088		104.3487	%		1513,~~321~~209		4	%		N/A		N/A
Bank	$	3514,~~483~~570		94.3341	%		1513,~~204~~203		4	%		2219,~~806~~804		6	%
Tier I Capital (to Average Assets):
Company	$	3916,~~591~~088		73.9439	%		1918,~~943~~981		4	%		N/A		N/A
Bank	$	3514,~~483~~570		73.1408	%		1918,~~872~~912		4	%		2423,~~840~~640		5	%
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 company has withdrawn its application for approximately $3.0 to $11.0 million for capital under the U.S. Treasury’s Troubled Asset Relief Program (“TARP”) Capital Purchase Program, but believes its current level of capital is sufficient for the current and foreseeable needs of the Company. The Company received $3.0 million of capital through its issuance of Series A Preferred Stock in a private placement to a single investor on December 31, 2008, and has the ability to issue up to an additional $7.0 million of such stock at any time under the terms of its subscription agreement. The Company does not presently intend to issue the additional shares under this agreement, but retains the ability to do so at any time based on its on-going review of its capital requirements. See Note 15 to the consolidated financial statements for additional information regarding the terms of the Series A Preferred Stock.

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	%

~~Page~~A 44Capital Restoration Plan has been written that addresses the Bank’s commitment to increase its capital position to a level that would be equal or exceed required capital standards. The Plan includes the following: balance sheet shrinkage, sale of 56 other real estate, recommendations of the Capital Sub-Committee regarding potential solutions, including several means of raising capital, potential closure and sale of existing branches and other asset reduction options. The Plan also provides projections for capital levels through 2011.

~~Cash dividends~~On ~~were~~December ~~paid~~29, at2008, athe ~~rate~~Company ofamended ~~$.10~~its ~~per~~Amended ~~share~~and inRestated ~~March~~Articles ~~and~~of ~~June~~Incorporation ofto ~~2008~~authorize ~~and $.05~~the ~~per~~issuance ~~share~~of inup ~~September~~to 10,000,000 shares of ~~2008~~Preferred Stock. On The ~~November~~individual ~~24,~~terms ~~2008,~~of the issuances are established by the Company’s Board of Directors. ~~voted~~The toCompany ~~suspend~~received ~~regular~~$3.0 ~~cash~~million ~~dividends~~of oncapital through its ~~common~~issuance ~~stock for~~of an3,000 ~~indefinite~~shares ~~period. Cash~~of ~~dividends~~Series ~~were~~A ~~paid~~Preferred atStock in a ~~rate~~private ofplacement ~~$.10 per~~to ~~share~~Fieldale inFarms ~~March,~~Corporation ~~June,~~(“Fieldale”) ~~September~~on ~~and~~ December of31, ~~2007. Also~~2008, ~~a special~~and ~~cash~~had ~~dividend~~the ofability ~~$.50~~to ~~was~~issue ~~paid~~up into ~~December~~an ~~2007~~additional $7. ~~Cash dividends~~0 ~~were~~million ~~paid~~of atsuch astock ~~rate~~at ofany ~~$.09~~time ~~per~~under ~~share~~the interms ~~each~~of ~~quarter~~its ~~of 2006~~subscription agreement.

On June 25, 2009, the Company amended its Amended and Restated Articles of Incorporation to authorize 4,000 shares of Series B Convertible Redeemable Preferred Stock, no par value (the “Series B Preferred Stock”). On June 25, 2009, the Company issued 1,000 shares of Series B Preferred Stock to two investors for aggregate cash proceeds of $1 million. Additionally, on June 25, 2009, the Company issued 3,000 shares of Series B Preferred Stock to Fieldale in exchange for the 3,000 shares of Series A Preferred Stock held by Fieldale and the cancellation of the parties’ respective rights and obligations under the Series A Preferred Stock Subscription Agreement, for no additional consideration. As a result, there were no shares of Series A Preferred Stock outstanding and 4,000 shares of Series B Preferred Stock outstanding at December 31, 2009. See Note 18 to the consolidated financial statements for additional information regarding the terms of the Series A and Series B Preferred Stock.

Cash dividends were paid on the common stock at a rate of $.10 per share in March and June of 2008 and $.05 per share in September of 2008. On November 24, 2008, the Board of Directors voted to suspend regular cash dividends on its common stock for an indefinite period. Dividends on the Series A and Series B Preferred Stock were non-cumulative and paid in accordance with their terms for the third and fourth quarters of 2009.

Page 44 of 57

Except as otherwise disclosed in this report, management is not aware of any required regulatory changes or any recommendation by any regulatory authority which will have a material effect on the Company’s liquidity, capital or results of operations.

It is the policy of the Federal Reserve that bank holding companies should pay cash dividends on common stock only out of net earnings available over the past year and only if prospective earnings retention is consistent with the organization’s expected future needs and financial condition. The policy provides that bank holding companies should not maintain a level of cash dividends that undermines the bank holding company’s ability to serve as a source of strength to its banking subsidiaries. Additionally, a March 10, 2010 letter to the Company from the Federal Reserve states that the Company may not pay any dividends without prior Federal Reserve approval. See “Supervision and Regulation – Habersham Bancorp – Current Restrictions on Activities” for additional information regarding regulatory restrictions on our capital activities.

ItFurthermore, is the ~~policy~~ approval of the ~~Federal~~Georgia ~~Reserve~~Department ~~that~~of ~~bank~~Banking ~~holding~~and ~~companies~~Finance ~~should~~is ~~pay~~required ~~cash~~ if dividends ondeclared ~~common~~by ~~stock~~Habersham ~~only~~Bank ~~out~~to ofthe ~~net~~Company ~~earnings~~in ~~available~~any ~~over the past~~ year ~~and~~ ~~only~~will ifexceed ~~prospective~~50% ~~earnings~~of ~~retention is consistent with~~ the ~~organization~~bank’s ~~expected~~ ~~future~~net ~~needs~~earnings ~~and~~for ~~financial~~the ~~condition~~previous calendar year. ~~The~~As ~~policy~~of ~~provides that~~December ~~bank~~31, ~~holding~~2009, ~~companies~~Habersham ~~should~~Bank could not ~~maintain~~declare ~~a level of cash~~ dividends ~~that undermines~~to the ~~bank~~Company ~~holding~~without ~~company’s~~regulatory ~~ability to serve as a source of strength to its banking subsidiaries~~approval.

Furthermore, the approval of the Georgia Department of Banking and Finance is required if dividends declared by Habersham Bank to the Company in any year will exceed 50% of the bank’s net earnings for the previous calendar year. As of December 31, 2008, Habersham Bank could not declare dividends to the Company without regulatory approval.

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 an 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.

Page 45 of 56

INTEREST RATE SENSITIVITY ANALYSIS
										DUE AFTER
	DUE IN 3			DUE AFTER 3 THROUGH			DUE AFTER 6 THROUGH			ONE THROUGH			DUE AFTER
	MONTHS			6 MONTHS			12 MONTHS			FIVE YEARS			FIVE YEARS			TOTAL
INTEREST- EARNING ASSETS:
Investment securities	$	44,312			-			433,012			2,119,229			72,741,836			75,338,389
Loans		207,627,630			15,581,940			21,718,652			31,612,442			454,185			276,994,849
Total interest earning assets		207,671,942			15,581,940			22,151,664			33,731,671			73,196,021			352,333,238

Deposits
Money Market and NOW		91,687,330			-			-			-			-			91,687,330
Savings		38,307,417			-			-			-			-			38,307,417
Certificates of deposit		50,130,089			51,345,249			87,158,079			35,962,747			-			224,596,164
Borrowings		16,856,276			7,000,000			-			21,000,000			-			44,856,276
Total interest bearing liabilities		196,981,112			58,345,249			87,158,079			56,962,747			-			399,447,187
Excess (deficiency) of interest-earning assets over interest-bearing liabilities	$	10,690,830			(42,763,309	)		(65,006,415	)		(23,231,076	)		73,196,021			(47,113,949	)
Cumulative Gap	$	10,690,830			(32,072,479	)		(97,078,894	)		(120,309,970	)		(47,113,949	)
Ratio of cumulative gap to total cumulative earning assets		5.15	%		(14.37	)%		(39.56	)%		(43.10	)%		(13.37	)%
Ratio of cumulative earning assets to cumulative interest bearing liabilities		105.43	%		87.44	%		71.65	%		69.88	%		88.21	%

INTEREST RATE SENSITIVITY ANALYSIS
	DUE IN			DUE AFTER			DUE AFTER			DUE AFTER
	3			3 THROUGH			6 THROUGH			ONE THROUGH			DUE AFTER
	MONTHS			6 MONTHS			12 MONTHS			FIVE YEARS			FIVE YEARS			TOTAL
INTEREST- EARNING ASSETS:
Fed funds sold	$	620,036		$	-		$	-		$	-		$	-		$	620,036
Investment securities		-			-			219,269			2,887,013			95,197,044			98,303,326
Loans		244,410,452			10,451,023			13,595,559			53,410,566			906,961			322,774,561
Total earning assets	$	245,030,488		$	10,451,023		$	13,814,828		$	56,297,579		$	96,104,005		$	421,697,923
INTEREST- BEARING LIABILITIES:
Deposits
Money Market and NOW	$	77,638,103		$	-		$	-		$	-		$	-		$	77,638,103
Savings		43,180,202			-			-			-			-			43,180,202
Certificates of deposit		32,181,475			38,714,165			118,744,319			52,765,166			-			242,405,125
Borrowings		12,144,450			7,000,000			8,000,000			23,000,000			5,000,000			55,144,450
Total interest bearing liabilities	$	165,144,230		$	45,714,165		$	126,744,319		$	75,765,166		$	5,000,000		$	418,367,880
Excess (deficiency) of interest-earning assets over interest-bearing liabilities	$	79,886,258		$	(35,263,142	)	$	(112,929,491	)	$	(19,467,587	)	$	91,104,005		$	3,330,043
Cumulative Gap	$	79,886,258		$	44,623,116		$	(68,306,375	)	$	(87,773,962	)	$	3,330,043
Ratio of cumulative gap to total cumulative earning assets		32.60	%		17.47	%		-25.36	%		-26.96	%		0.80	%
Ratio of cumulative earning assets to cumulative interest bearing liabilities		148.37	%		121.16	%		79.77	%		78.76	%		100.79	%

Page 45 of 57

The Company’s strategy is to maintain a ratio of interest sensitive assets to interest sensitive liabilities in the range of 80% to 120% at the less-than one-year-time frame. At December 31, ~~2008~~2009, the Company’s ratio of interest-earning assets to interest-bearing liabilities was 79 71.7765%. The interest rate sensitivity analysis has a negative one-year gap of approximately $~~68.3~~65 million (excess of interest-bearing liabilities repricing over interest-earning assets). The Company’s experience has shown that NOW, money market, and savings deposits of approximately $~~120~~129.89 million are less sensitive to short term rate movements.

MARKET RISK

Market risk reflects the risk of economic loss resulting from adverse changes in market prices and interest rates. The risk of loss can be reflected in either diminished current market values or reduced potential net interest income in future periods.

Market risk arises primarily from interest rate risk inherent in the Company’s lending and deposit taking activities. The structure of the Company’s loan and deposit portfolios is such that a significant decline in the prime rate may adversely impact net market values and interest income. Management seeks to manage this risk through the use of its investment securities portfolio. The composition and size of the investment portfolio is managed so as to reduce the interest rate risk in the deposit and loan portfolios while at the same time maximizing the yield generated from the portfolio. The Company is also subject to equity risk as a result of changes in market values of its equity securities.

The table below presents the contractual balances and the estimated fair value of the Company’s balance sheet fixed rate financial instruments and their expected maturity dates as of December 31, ~~2008~~2009. Variable rate financial instruments are presented at their next rate change date. The expected maturity categories take into consideration historical prepayments experience as well as management’s expectations based on the interest rate environment as of December 31, ~~2008~~2009.

~~Page~~MARKET 46RISK ~~of 56~~INFORMATION (in thousands)

MARKET RISK INFORMATION (in thousands)
	2010			2011			2012			2013			2014			Thereafter			Total			Fair Value
																						Fair
RATE-SENSITIVE ASSETS:
	2009			2010			2011			2012			2013			Thereafter			Total			Value
Fixed interest rate loans		38,756			17,329			3,891			5,392			833			451			66,652			66,848
Rate-sensitive assets:
Average interest rate		3.78	%		7.04	%		7.89	%		6.91	%		7.01	%		6.24	%		6.92	%
Fixed interest rate loans		35,153			31,220			10,528			10,603			703			907			89,114			89,518
Variable interest rate loans		142,196			-			-			-			-			-			142,196			142,196
Average interest rate		75.4066	%		~~6.91~~-	%		~~7.81~~-	%		~~6.63~~-	%		~~6.41~~-	%		~~6.01~~-	%		75.1666	%
Variable interest rate loans		177,605			-			-			-			-			-			177,605			177,605
Fixed interest rate securities		467			9			315			801			942			70,325			72,859			72,880
Average interest rate		54.5411	%		-8.05	%		-4.31	%		-3.49	%		-3.76	%		-4.59	%		54.5457	%
Fixed interest rate securities		219			641			534			411			1,301			94,450			97,556			97,583
Variable interest rate securities		2,293			-			-			-			-			-			2,293			2293
Average interest rate		53.0540	%		~~4.89~~-	%		~~2.88~~-	%		~~5.18~~-	%		~~4.19~~-	%		~~5.07~~-	%		53.0540	%
Variable interest rate securities		562			-			-			-			-			-			562			562
RATE-SENSITIVE LIABILITIES:
Average interest rate		4.85	%		-			-			-			-			-			4.85	%
Savings and interest-bearing deposits		165,565			-			-			-			-			-			165,565			165,618
Rate-sensitive liabilities:
Average interest rate		.64	%		-			-			-			-			-			.64	%
Savings and interest-bearing deposits		120,818			-			-			-			-			-			120,818			120,992
Fixed interest rate time deposits		188,633			24,892			4,148			6,454			469			-			224,596			227,174
Average interest rate		12.0785	%		-3.49	%		-3.88	%		-2.93	%		-2.55	%		-			12.0794	%
Fixed interest rate time deposits		189,640			39,724			9,500			2,857			684			-			242,405			246,156
Fixed interest rate borrowings		23,856			12,500			2,500			6,000			-			-			44,856			45,186
Average interest rate		3.9300	%		4.6123	%		52.2206	%		42.3593	%		~~3.22~~-	%		~~0.00~~-	%		43.0928	%
Fixed interest rate borrowings		16,144			10,000			10,000			-			3,000			5,000			44,144			45,425
Average interest rate		1.98	%		6.02	%		4.93	%		-			3.26	%		3.28	%		3.80	%
Variable interest rate borrowings		11,000			-			-			-			-			-			11,000			11,000
Average interest rate		2.94	%		-			-			-			-			-			2.94	%

INFLATION

The Company’s assets and liabilities are generally monetary in nature. Therefore, interest rates have a greater impact on the Company’s performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or magnitude as the prices of goods and services. See “Interest Rate Sensitivity Analysis” section above.

Page 46 of 57

LIQUIDITY

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 Bank has formed a Liquidity Committee to monitor its current liquidity needs.

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

~~Page~~At 47December 31, 2009 and 2008, the Company had additional line of 56 credit commitments available as shown below:

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

	2009		2008
	Total Available		Total Available
Federal discount window	$	8,672,000		24,630,000
Federal funds line		-		10,000,000
Retail repurchase agreement		-		921,000
Retail repurchase agreement (subject to available securities)		-		3,950,000

	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, 2009, the Company had pledged certain investment securities for the retail repurchase agreements. At December 31, 2008, the Company had pledged certain investment securities for the Federal funds line and the retail repurchase agreements. No amounts were outstanding on the above commitments at December 31, 2009 or 2008.

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.

Loan repayments and maturing investment securities are a relatively predictable source of funds. However, deposit flows, calls of investment securities and prepayment of loans are strongly influenced by interest rates, general and local economic conditions, and competition in the marketplace. These factors reduce the predictability of the timing of these sources of funds.

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.

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

	December 31, 2008			December 31, 2007
	December 31, 2009			December 31, 2008
Liquidity as a percent of deposits		1622.7038	%		1316.6570	%
Liquidity as a percent of total liabilities		1420.7204	%		1114.5372	%

OFF-BALANCE SHEET COMMITMENTS

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 December 31, ~~2008~~2009, the ~~Company~~company had outstanding loan commitments approximating $6433,~~825~~946,000 and standby letters of credit approximating $1,~~761~~570,000. 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 to the financial instrument failed completely to perform according to the term of the contract and the collateral proved to be of no value is equal to the face amount of the financial instrument. The Company’s commitments are funded through internal funding sources of scheduled repayments of loans and sales and maturities of investment securities available for sale or external funding sources through acceptance of deposits from customers or borrowing from other financial institutions.

Page 4847 of 56 57

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.

CONTRACTUAL OBLIGATIONS

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.

	2009		2010		2011		2012		2013		Thereafter
	2010		2011		2012		2013		2014		Thereafter
Commitments on lines of credit	$	6433,~~825~~945,~~000~~887		-		-		-		-		-
Standby letters of credit		1,~~761~~130,~~000~~229		-440,000		-		-		-		-
Deposits		~~340~~354,~~122~~197,~~499~~921		3924,~~724~~891,~~396~~671		94,~~500~~147,~~392~~626		26,~~856~~454,~~872~~416		~~683~~469,~~505~~034		-
FHLB advances		1517,000,000		1012,~~000~~500,000		102,~~000~~500,000		-6,000,000		~~3,000,000~~-		-
Short-term borrowings		~~760~~539,~~468~~541		-		-		-		-		-
Federal funds purchased and securities sold under repurchase agreements		116,~~383~~316,~~982~~735		-		-		-		-		~~5,000,000~~-
Total commitments and contractual obligations	$	~~433~~413,~~852~~130,~~949~~313		4937,~~724~~831,~~396~~671		196,~~500~~647,~~392~~626		212,~~856~~454,~~872~~416		3469,~~683,505~~034		~~5,000,000~~-

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.

Item 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

See “Market Risk” under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated balance sheets of the Company and subsidiaries as of December 31, ~~2008~~ 2009 and ~~2007~~2008, the related consolidated statements of ~~earnings~~operations, changes in stockholders’ equity, comprehensive income, and cash flows and notes to the consolidated financial statements for each of the years in the three year period ended December 31, ~~2008~~2009, the report issued thereon by the Company’s independent auditors and quarterly financial data (unaudited) are incorporated herein by reference to the Company’s ~~2008~~2009 Annual Consolidated ~~Report~~Financial ~~to Shareholders~~ Statements and are attached as Exhibit 13 hereto.

Page 48 of 57

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

Page 49 of 56

Item 9A(T). CONTROLS AND PROCEDURES

Disclosure Controls

As of the end of the period covered by this Annual Report on Form 10-K, our principal executive officer and principal financial officer have evaluated the effectiveness of our “disclosure controls and procedures” (“Disclosure Controls”). Disclosure Controls, as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, such as this Annual Report, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure Controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the ~~CEO~~Chief Executive Officer and ~~CFO~~Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Our management, including the ~~CEO~~Chief Executive Officer and ~~CFO~~ Chief Financial Officer, does not expect that our Disclosure Controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Based upon their controls evaluation, our ~~CEO~~Chief Executive Officer and ~~CFO~~Chief Financial Officer have concluded that our Disclosure Controls are effective at a reasonable assurance level.

Changes in Internal Control over Financial Reporting

Management of the Company ashas evaluated, with the participation of the Company’s Chief Executive Officer and Chief Financial ~~officer~~Officer, changes in the Company’s internal control over financial reporting (as defined in rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the quarter ended December 31, ~~2008~~2009. Based upon that evaluation, management has determined that there have been no changes to the Company’s internal control over financial reporting that occurred since the beginning of the Company’s fourth quarter of ~~2008~~2009 that have materially affected, or are reasonable likely to materially affect, the Company’s internal control over financial reporting.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the ~~Securities~~ Exchange Act ~~of 1934~~. Our internal control over financial reporting is a process designed to provide reasonable assurance that assets are safeguarded against loss from unauthorized use or disposition, transactions are executed in accordance with appropriate management authorization and accounting records are reliable for the preparation of financial statements in accordance with generally accepted accounting principles.

Page 49 of 57

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

~~Page~~Management 50assessed the effectiveness of 56 our internal control over financial reporting as of December 31, 2009. Management based this assessment on criteria for effective internal control over financial reporting described in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management’s assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of its internal control over financial reporting. Management has reviewed the results of its assessment with the Audit Committee of our Board of Directors.

~~Management~~Based ~~assessed~~on ~~the effectiveness of our internal control over financial reporting as of December 31, 2008. Management based~~ this assessment, onmanagement ~~criteria~~believes ~~for~~that ~~effective internal control over financial reporting described in Internal Control—Integrated Framework issued by~~ the ~~Committee~~Company ofmaintained ~~Sponsoring~~effective ~~Organizations of the Treadway Commission. Management’s assessment included an evaluation of the design of our~~ internal control over financial reporting ~~and testing~~as of ~~the~~December ~~operational~~31, ~~effectiveness of its internal control over financial reporting~~2009. ~~Management has reviewed the results of its assessment with the Audit Committee of our Board of Directors.~~

Based on this assessment, management believes that the Company maintained effective internal control over financial reporting as of December 31, 2008.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

Item 9B. OTHER INFORMATION

None

PART III

Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The Company has a Code of Ethics that applies to its senior management, including its Chief Executive Officer, Chief Financial Officer and Comptroller. See Exhibit 14 hereto.

Additional information concerning the Company's directors and executive officers appears in the Company’s Proxy Statement for its ~~2009~~2010 Annual Meeting of Shareholders under the headings "Election of Directors,” -“”Compliance with Section 16(a) of the Exchange Act” and "Executive Officers" and is incorporated by reference herein.

Item l1. EXECUTIVE COMPENSATION

Additional information concerning the compensation of the Company's management appears in the Company’s Proxy Statement for its ~~2009~~2010 Annual Meeting of Shareholders under the headings "Executive Compensation" and “Election of Directors - Compensation of Directors” and is incorporated by reference herein.

Page 5150 of 56 57

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table provides information regarding compensation plans under which equity securities of the Company are authorized for issuance. All data is presented as of December 31, ~~2008~~2009.

Equity Compensation Plan Table
	(a)		(b)		(c)
Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders		~~174~~91,~~750~~500	$	2122.9995		316,799
Equity compensation plans not approved by security holders		0		0		0
Total		~~174~~91,~~750~~500	$	2122.9995		316,799

Additional information concerning beneficial owners of more than 5% of the Company's stock and information concerning the stock owned by the Company's management appears in the Company's Proxy Statement for its 2010 Annual Meeting of Shareholders under the heading "Ownership of Stock" and is incorporated by reference herein.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

Information concerning certain relationships and related transactions appears in the Company’s Proxy Statement for its ~~2009~~2010 Annual Meeting of Shareholders under the heading "Certain Transactions" and is incorporated by reference herein. Information regarding director independence appears in the Company’s Proxy Statement for its ~~2009~~2010 Annual Meeting of Shareholders under the heading “Election of Directors” and is incorporated by reference herein.

Page 51 of 57

Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information concerning principal accountant fees and services appears in the Company’s Proxy Statement for its ~~2009~~2010 Annual Meeting of Shareholders under the heading “Audit Committee Matters – Audit Fees” and is incorporated herein by reference.

Page 52 of 56

PART IV

Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)	See Item 8 for a list of the financial statements filed as a part of this report. No financial statement schedules are applicable as the required information is included in the financial statements in Item 8.

See the attached Exhibit Index, appearing behind the signature page to this report, for the exhibits required by Item 601 of Regulation S-K.

Page 53 of 56

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		HABERSHAM BANCORP (Registrant)
/s/ David D. Stovall	~~/s/ David D. Stovall~~	Date:	March 1329, ~~2009~~2010
By:	Director, President and
By: Director, President and
Chief Executive Officer	~~Chief Executive Officer~~

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Thomas A. Arrendale, III	Chairman of the Board	March 1329, ~~2009~~2010
	and Director
/s/ David D. Stovall	Director, President and	March 1329, ~~2009~~2010
	Chief Executive Officer *
/s/ Edward D. Ariail	Director, Vice President and	March 13, 2009
/s/ Bonnie C. Bowling	Director, Executive Vice
	Corporate Secretary
/s/ Bonnie C. Bowling	Director, Executive Vice	March 13, 2009
	President and Chief Operations Officer
/s/ Michael C. Martin	Director	March 13, 2009
	And Corporate Secretary	March 29, 2010
/s/ James A. Stapleton, Jr.	Director	March 1329, ~~2009~~2010
/s/ Calvin R. Wilbanks	Director	March 1329, ~~2009~~2010
/s/ Michael L. Owen	Director	March 13, 2009
/s/ Ben F. Cheek, III	Director	March 29, 2010
/s/ Ben F. Cheek, III	Director	March 13, 2009
/s/ Annette Banks	Vice President and
/s/ Annette Banks	Vice President and	March 13, 2009
	Chief Financial Officer **	March 29, 2010
	Chief Financial Officer **

* Principal executive officer.

** Principal financial and accounting officer.

Page 5452 of 56 57

EXHIBIT INDEX

Exhibit No.	Document
3.1	Amended and Restated Articles of Incorporation of Habersham Bancorp, as amended (1)
3.2	By-laws of Habersham Bancorp, as amended by resolutions dated January 29, 2000 (1)
3.1(a)	Articles of Amendment to the Amended and Restated Articles of Incorporation of Habersham Bancorp, as filed on June 25, 2009 (2)
10.1*	Subscription Agreement for Series A Preferred Stock between Fieldale Farms, Inc. and Habersham Bancorp dated December 31, 2008.
3.2	By-laws of Habersham Bancorp, as amended by resolutions dated January 29, 2000 (3)
10.2*	Form of Director Supplemental Retirement Plan Agreement and Split Dollar Endorsement, with summary of terms specific to each director (1)
10.1*	Subscription Agreement for Series A Preferred Stock between Fieldale Farms, Inc. and Habersham Bancorp dated December 31, 2008 (1)
10.3*	Habersham Bancorp Outside Directors Stock Option Plan (2)
10.2*	Form of Director Supplemental Retirement Plan Agreement and Split Dollar Endorsement, with summary of terms specific to each director (3)
10.3(a)*	Form of option agreement under Habersham Bancorp Outside Directors Stock Option Plan (3)
10.3*	Habersham Bancorp Outside Directors Stock Option Plan (4)
10.4*	Habersham Bancorp 1996 Incentive Stock Option Plan, (4) as amended by the First Amendment theretodated January 29, 2000 (5)
10.3(a)*	Form of option agreement under Habersham Bancorp Outside Directors Stock Option Plan (5)
10.4(a)*	Form of incentive stock option agreement under Habersham Bancorp 1996 Incentive Stock Option Plan(1)
10.5*	Form of Split Dollar Agreement and Collateral Assignment dated January 1, 1991, with summary of terms applicable to Mr. Ariail and Mr. Stovall (3)
10.4(b)*	Form of non-qualified stock option agreement under Habersham Bancorp 1996 Incentive Stock Option Plan (1)
10.5*	Form of Split Dollar Agreement and Collateral Assignment dated January 1, 1991, with summary of terms applicable to Mr. Ariail and Mr. Stovall (1)
10.6*	Habersham Bancorp 2005 Stock Option Plan (6)
10.6(a)*	Form of non-qualified stock option award pursuant to the 2005 Stock Option Plan (7)
10.6(b)*	Form of Incentive Stock Option award pursuant to the 2005 Stock Option Plan (8)
10.7*	Supplemental Executive Retirement Agreement Dated as of January 1, 2008 between the Company and David D. Stovall (9)
10.8*	Supplemental Executive retirement Agreement dated as of January 1, 2008 between the Bank and Edward D. Ariail (10)
10.9*	Supplemental Executive Retirement Agreement dated as of January 1, 2008 between the Company and Bonnie C. Bowling (11)
13.0	Financial statements and notes thereto contained in the Habersham Bancorp 2008 Annual Report and quarterly financial data (unaudited)
14.0	Code of Ethics (12)

Page 5553 of 56 57

21.0	Subsidiaries of Habersham Bancorp (12)
10.6(b)*	Form of Incentive Stock Option award pursuant to the 2005 Stock Option Plan (8)
23.1	Consent of Porter Keadle Moore, LLP
10.7*	Supplemental Executive Retirement Agreement Dated as of January 1, 2008 between the Company and David D. Stovall (9)
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
10.8*	Supplemental Executive Retirement Agreement dated as of January 1, 2008 between the Bank and Edward D. Ariail (10)
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
10.9*	Supplemental Executive Retirement Agreement dated as of January 1, 2008 between the Company and Bonnie C. Bowling (11)
32.1	Certification Pursuant to Rule 13a-14(b) of the Securities and Exchange Act of 1934 and 18 U.S.C Section 1350 as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
10.10*	Termination and Waiver Agreement dated as of September 8, 2009 between the Company and David D. Stovall (12)
10.11*	Termination and Waiver Agreement dated as of September 8, 2009 between the Company and Bonnie Bowling (13)
10.12*	Termination and Waiver Agreement dated as of September 8, 2009 between the Bank and Edward D. Ariail (14)
10.13*	Termination and Waiver Agreement dated as of September 19, 2009 between the Bank and Edward D. Ariail (15)
10.14*	Termination and Waiver Agreement dated as of September 19 2009 between the Bank and Thomas A. Arrendale, III (16)
10.15*	Termination and Waiver Agreement dated as of September 19, 2009 between the Bank, as successor to Security State Bank and Michael C. Martin (17)
10.16*	Termination and Waiver Agreement dated as of September 19, 2009 between the Bank, as successor to Security State Bank and Michael L. Owen (18)
10.17*	Termination and Waiver Agreement dated as of September 19 2009 between the Bank and James A. Stapleton, Jr. (19)
10.18*	Termination and Waiver Agreement dated as of September 19, 2009 between the Bank and Calvin R. Wilbanks (20)
10.19*	Termination and Waiver Agreement dated as of September 19 2009 between the Bank and David D. Stovall. (21)
10.20*	Termination and Waiver Agreement dated as of September 19, 2009 between the Bank, as successor to Security State Bank and David D. Stovall (22)
10.21	Exchange Agreement dated June 25, 2009 between the Company and Fieldale Farms Corporation (23)
10.22	Stock Purchase Agreement Dated June 25, 2009 between the Company and Thomas A. Arrendale, III (24)
10.23	Stock Purchase Agreement Dated June 25, 2009 between the Company and A&H Real Estate Company, LLC (25)

~~(1) Incorporated here~~Page in54 ~~by reference to Exhibit~~ of ~~the same number in the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004 (File No. 0-13153)~~57

(2) Incorporated herein by reference to Appendix B to the Registrant’s 2005 Proxy Statement for its Annual Meeting of Shareholders (File No. 0-13153)

10.24	Order to Cease and Desist dated June 24, 2009 among the Georgia Department of Banking and Finance, the Regional Directors of the FDIC and the Board of Directors of Habersham Bank (26)

13.0	Financial statements and notes thereto contained in the Habersham Bancorp 2009 Annual Report and quarterly financial data (unaudited)

14.0	Code of Ethics (27)

21.0	Subsidiaries of Habersham Bancorp (27)

23.1	Consent of Porter Keadle Moore, LLP

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

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

32.1	Certification Pursuant to Rule 13a-14(b) of the Securities and Exchange Act of 1934 and 18 U.S.C. Section 1350 as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(31) Incorporated herein by reference to Exhibit ~~10.3~~of tothe same number in the Registrant’s ~~Quarterly~~Annual Report ofon Form 10-Q K for the ~~quarter~~fiscal year ended ~~June~~December 3031, ~~2005~~2008 (File No. 0-13153)

(42) Incorporated herein by reference to ~~Appendix~~Exhibit A4.1 to the Registrant’s ~~1996 Proxy~~Current ~~Statement~~Report ~~for~~of ~~its~~Form ~~Annual~~8-K ~~Meeting~~filed ofon ~~the~~June ~~Shareholders~~30, 2009 (File No. 0-13153)

(53) Incorporated herein by reference to ~~Appendix~~Exhibit Aof tothe same number in the Registrant’s ~~2000~~Annual ~~Proxy~~Report ~~Statement~~on ~~for its~~Form ~~Annual~~10-K ~~Meeting~~for ofthe ~~Shareholders~~fiscal ~~filed~~year onended ~~Schedule~~December ~~14A~~31, 2004 (File No. 0-13153)

(4) Incorporated herein by reference to Appendix B to the Registrant’s 2005 Proxy Statement for its Annual Meeting of Shareholders (File No. 0-13153)

(5) Incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report of Form 10-Q for the quarter ended June 30, 2005 (File No. 0-13153)

(6) Incorporated herein by reference to Appendix A to the Registrant’s 2005 Proxy Statement for its Annual Meeting of Shareholders (File No. 0-13153)

(7) Incorporated herein by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005 (File No. 0-13153)

(8) Incorporated herein by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005 (File No. 0-13153)

~~(9) Incorporated~~Page by55 ~~reference~~of ~~to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on January 11, 2008 (File No. 0-13153)~~57

(109) Incorporated herein by reference to Exhibit 10.21 to the Registrant’s Current Report on Form 8-K filed on January 11, 2008 (File No. 0-13153)

(1110) Incorporated herein by reference to Exhibit 10.32 to the Registrant’s Current Report on Form 8-K filed on January 11, 2008 (File No. 0-13153)

(1211) Incorporated herein by reference to ~~exhibit~~Exhibit of10.3 ~~same~~to ~~number in~~ the Registrant’s ~~Annual~~Current Report on Form 108-K ~~for~~filed ~~the~~on ~~year~~January ~~ended December 31~~11, ~~2003~~2008 (File No. 0-13153)

(12) Incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on September 14, 2009 (File No. 0-13153)

(13) Incorporated herein by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on September 14, 2009 (File No. 0-13153)

(14) Incorporated herein by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on September 14, 2009 (File No. 0-13153)

(15) Incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on September 24, 2009 (File No. 0-13153)

(16) Incorporated herein by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on September 24, 2009 (File No. 0-13153)

(17) Incorporated herein by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on September 24, 2009 (File No. 0-13153)

(18) Incorporated herein by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed on September 24, 2009 (File No. 0-13153)

(19) Incorporated herein y reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K filed on September 24, 2009 (File No. 0-13153)

(20) Incorporated herein by reference to Exhibit 10.6 to the Registrant’s Current Report on Form 8-K filed on September 24, 2009 (File No. 0-13153)

(21) Incorporated herein by reference to Exhibit 10.7 to the Registrant’s Current Report on Form 8-K filed on September 24, 2009 (File No. 0-13153)

(22) Incorporated herein by reference to Exhibit 10.8 to the Registrant’s Current Report on Form 8-K filed on September 24, 2009 (File No. 0-13153)

(23) Incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on June 30, 2009 (File No. 0-13153)

(24) Incorporated herein by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on June 30, 2009 (File No. 0-13153)

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(25) Incorporated herein y reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on June 30, 2009 (File No. 0-13153)

(26) Incorporated herein by reference Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2009.

(27) 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, 2003 (File No. 0-13153)

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

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