HABERSHAM BANCORP - 10-Q Quarterly Report

U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2005

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

For the transition period from _____ to _____

Commission file number 0-13153

HABERSHAM BANCORP

(Exact name of registrant as specified in its charter)

	Georgia		58-1563165
	(State or other jurisdiction of		(I.R.S. Employer
	incorporation or organization)		Identification No.)

	Highway 441 N. P.O. Box 1980, Cornelia, Georgia		30531
	(Address of principal executive offices)		(Zip code)

(706) 778-1000

(Issuer’s telephone number, including area code)

(Former name, former address and former fiscal year,

if changed since last report)

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

Yes x No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

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

2,901,692 shares, common stock, $1.00 par value, as of April 30, 2005

Item. 1 Financial Statements

HABERSHAM BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

(dollars in thousands)

ASSETS	MARCH 31, 2005			DECEMBER 31, 2004

Cash and due from banks	$	9,666		$	9,559
Federal funds sold		10,468			-
Total cash and cash equivalents		20,134			9,559

Investment securities available for sale (cost of $73,188 at March 31, 2005 and $70,366 at December 31, 2004)		72,251			70,313
Investment securities held to maturity (estimated fair value of $4,035 at March 31, 2005 and $4,371 at December 31, 2004)		3,827			4,111
Other investments		3,092			2,469

Loans held for sale		1,210			1,062

Loans		273,882			280,772
Less allowance for loan losses		(3,759	)		(3,635	)
Loans, net		270,123			277,137

Goodwill		2,489			2,489
Other assets		22,210			18,793
TOTAL ASSETS	$	395,336		$	385,933

LIABILITIES
Noninterest-bearing deposits	$	49,349		$	44,316
Interest-bearing deposits		249,148			248,641
Total deposits		298,497			292,957

Short-term borrowings		795			786

Federal funds purchased and securities sold under repurchase agreements		8,637			4,835
Federal Home Loan Bank Advances		36,000			36,000
Other liabilities		3,395			3,349
TOTAL LIABILITIES		347,324			337,927

STOCKOLDERS’ EQUITY
Common Stock, $1.00 par value, 10,000,000 shares authorized; 2,901,692 shares issued at March 31, 2005 and 2,900,192 shares issued at December 31, 2004		2,901			2,900
Additional paid-in capital		14,577			14,561
Retained earnings		31,135			30,661
Accumulated other comprehensive (loss) income		(601	)		(116	)
TOTAL STOCKHOLDERS’ EQUITY		48,012			48,006

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	395,336		$	385,933

See notes to unaudited condensed consolidated financial statements.

HABERSHAM BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(Uaudited) For the Three-Month Periods Ended March 31, 2005 and 2004

(dollars in thousands, except per share amounts)

	2005			2004
INTEREST INCOME
Loan interest and fees on loans	$	4,692		$	4,235
Taxable investment securities		591			601
Tax exempt securities		193			188
Federal funds sold		49			4
Other		38			32
TOTAL INTEREST INCOME		5,563			5,060

INTEREST EXPENSE
Time deposits, $100,000 and over		385			417
Other deposits		931			803
Short-term and other borrowings, primarily FHLB advances		537			447
TOTAL INTEREST EXPENSE		1,853			1,667

NET INTEREST INCOME		3,710			3,393
Provision for loan losses		120			162

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		3,590			3,231

NONINTEREST INCOME
Mortgage origination income		232			185
Service charges on deposits		152			171
Other service charges and commissions		39			43
Investment securities (losses) gains, net		(17	)		31
Gain on sale of other investments		-			18
Other income		401			350
Total noninterest income		807			798

NONINTEREST EXPENSE
Salary and employee benefits		1,944			2,054
Occupancy		464			434
Computer services		93			100
General and administrative expense		923			1,018
Total noninterest expense		3,424			3,606

EARNINGS BEFORE INCOME TAXES		973			423
Income tax expense		267			64
NET EARNINGS		706			359

NET EARNINGS PER COMMON SHARE - BASIC	$	.24		$	.13
NET EARNINGS PER COMMON SHARE - DILUTED	$	.24		$	.12

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING		2,900,942			2,872,234
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING		2,932,234			2,939,885

Dividends per share	$	.08		$	.07

See notes to unaudited condensed consolidated financial statements.

HABERSHAM BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited) For the Three-Month Periods Ended March 31, 2005 and 2004

(dollars in thousands)

	2005			2004

NET EARNINGS	$	706		$	359

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Unrealized holding (losses) gains on investment securities available for sale arising during the period		(901	)		812

Unrealized holding gains (losses) on derivative financial instruments classified as cash flow hedges, arising during the period		149			-

Reclassification adjustment for (gains) losses on investment securities available for sale		17			(31	)

Total other comprehensive income (loss), before tax		(735	)		781

INCOME TAXES RELATED TO OTHER COMPREHENSIVE INCOME:
Unrealized holding (losses) gains on investment securities available for sale arising during the period		306			(276	)

Unrealized holding gains (losses) on derivative financial instruments classified as cash flow hedges, arising during the period		(50	)		-

Reclassification adjustment for (gains) losses on investment securities available for sale		(6	)		10

Total income taxes related to other comprehensive income (loss)		250			(266	)

Total other comprehensive (loss) income, net of tax		(485	)		515

Total comprehensive (loss) income	$	221		$	874

See notes to unaudited condensed consolidated financial statements.

HABERSHAM BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) For the Three-Month Periods Ended March 31, 2005 and 2004

(dollars in thousands)

	2005			2004

CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:	$	205		$	2,025

CASH FLOWS FROM INVESTING ACTIVITIES:
Investment securities available for sale:
Proceeds from maturity		1,982			2,716
Proceeds from sale and call		468			5,368
Purchases		(5,371	)		(5,127	)
Investment securities held to maturity:
Proceeds from maturity		11			110
Proceeds from call		275			-
Other investments:
Proceeds from sale		-			45
Purchases		(623	)		-
Net (increase) decrease in loans		4,366			5,965
Purchases of premises and equipment		(185	)		(233	)
Proceeds from sale of other real estate		310			186
Net cash provided by investing activities		1,233			9,030

CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease)in deposits		5,540			(1,735	)
Net increase (decrease) in short-term borrowings		9			(6	)
Net (decrease) increase in federal funds purchased and securities sold under repurchase agreements		3,802			(4,204	)
Issuance of common stock		18			77
Cash dividends paid		(232	)		(201	)
Net cash provided by (used in) financing activities		9,137			(6,069	)

Increase (decrease) in cash and cash equivalents		10,575			(4,986	)

CASH AND CASH EQUIVALENTS: BEGINNING OF PERIOD		9,559			8,381
CASH AND CASH EQUIVALENTS: END OF PERIOD	$	20,134		$	13,367

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Other real estate acquired through loan foreclosures	$	2,528		$	611
Change in components of other comprehensive income		(485	)		515

See notes to unaudited condensed consolidated financial statements.

HABERSHAM BANCORP AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

1.	Basis of Presentation

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

The condensed consolidated financial statements included herein should be read in conjunction with the Company's 2004 consolidated financial statements and notes thereto, included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2004.

2.	Accounting Policies

Reference is made to the accounting policies of the Company described in the notes to the consolidated financial statements contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2004. The Company has consistently followed those policies in preparing this report.

3.	Other Comprehensive Income

Other comprehensive income for the Company consists of items recorded directly in equity under Statement of Financial Accounting Standards (“SFAS”) No. 115, “Accounting for Certain Investments in Debt and Equity Securities” in addition to the net of tax fair value of cash flow hedges. Investment securities classified as available for sale are carried at fair value with the related unrealized gain or loss, net of deferred income taxes included as a separate component of stockholders’ equity. At March 31, 2005, fair value of the available for sale investment securities decreased approximately $884,000 when compared to the fair value at December 31, 2004. The corresponding equity component of unrealized gain and loss on available for sale securities, net of tax, also decreased approximately $584,000. These changes were the results of movements in the bond market as it responds to interest rate changes in the market. At March 31, 2005, fair value of the cash flow hedges increased approximately $149,000 when compared to the fair value at December 31, 2004. The corresponding equity component of unrealized holding gains on derivative financial instruments classified as cash flow hedges, net of tax, also increased approximately $99,000.

4.	Net Earnings Per Share

Basic net earnings per share is based on the weighted average number of common shares outstanding during the period. Diluted net earnings per share includes the effect of potential common shares outstanding during the period. The average market price during the period is used to compute equivalent shares.

The reconciliation of the amounts used in the computation of both basic net earnings per share and diluted net earnings per share for the three-month periods ended March 31, 2005 and 2004, is as follows:

	Three Months ended
	March 31,
	2005		2004

Net earnings	$	706,076	$	359,052

Weighted average common shares outstanding		2,900,942		2,872,234

Shares issued from assumed exercise of common stock equivalents		31,292		67,651

Weighted average number of common and common equivalent shares outstanding		2,932,234		2,939,885
Basic	$	.24	$	.13

Diluted	$	.24	$	.12

5.	Stock Option Plans

On April 16, 2005, at the annual meeting, the shareholders approved adoption of the Habersham Bancorp 2005 Stock Option Plan (the “Stock Option Plan”). The Board of Directors has reserved 400,000 shares of common stock for issuance under awards that may be made to eligible officers and employees of the Company and its affiliates. Stock options granted under this plan may be incentive stock options or nonqualified stock options. The exercise price on incentive stock options granted under the Stock Option Plan may not be less than the fair market value of the common stock on the date of the grant. The term of an incentive stock option generally may not exceed ten years from the date of grant.

On April 16, 2005, at the annual meeting, the shareholders approved adoption of the Habersham Bancorp Outside Directors Stock Option Plan (the “Directors Plan”). The Board of Directors had previously adopted a stock options plan, also named the Habersham Bancorp Outside Directors Stock Option Plan, with an effective date of January 21, 1995. The 1995 Plan expired on January 20, 2005. The Directors Plan is meant to supersede in its entirety the 1995 Directors Plan. The Board of Directors has reserved 350,000 shares of common stock for issuance under awards made to directors of the Company and its affiliates who are not employed by the Company or any of its affiliates. The options will be exercisable at a price equal to the fair market value of the Company’s common stock as of the date of grant. All options granted under the Directors Plan will be immediately vested but may not be exercised until six months following the date of grant. Each option remains exercisable until the earlier of: (1) the fifth anniversary of the date on which it was granted; (2) the date the optionee ceases to be a director of either the Company or any affiliate, except as a result of death; or (3) the first anniversary of the optionee’s date of death.

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

HABERSHAM BANCORP AND SUBSIDIARIES

Organization

Habersham Bancorp (the “Company”) owns all of the outstanding stock of Habersham Bank ("Habersham Bank") and The Advantage Group, Inc. The Advantage Group, Inc., a non-bank subsidiary providing marketing and advertising services, ceased operation September 30, 2001. Habersham Bank owns all of the outstanding stock of Advantage Insurers, Inc. (“Advantage Insurers”). Advantage Insurers offers a full line of property, casualty, and life insurance products. 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 operations of banks in rural and suburban communities in Habersham, White, Cherokee, Warren, and Gwinnett counties in Georgia. The Company’s primary source of revenue is providing loans to businesses and individuals in its market area.

Executive Summary

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.

Earnings for the first quarter of 2005 were primarily impacted by increases on loan yields moving in response to prime rate increases. Revenue growth of 8.74% and a reduction in noninterest expenses during the first quarter of 2005 when compared to first quarter 2004 resulted in an improved overhead efficiency ratio.

Total assets increased approximately $9 million during the first quarter of 2005. Increases in the total deposit portfolio, primarily in noninterest bearing deposits, and in other borrowings of approximately $6 million and $4 million, respectively, combined with decreases in the loan portfolio resulted in excess cash held in federal funds sold at the end of the first quarter of 2005. The decreases in the loan portfolio occurred toward the end of March and did not significantly impact interest income for the first quarter. The interest rate margin improved for the first quarter of 2005 when compared to the first quarter of 2004 as result of the items discussed above.

Decreases in personnel costs and other operating expenses of approximately 5.05% for the first quarter of 2005 over the first quarter of 2004 were the result of expense control measures for 2005.

Forward Looking Statements

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

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

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

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.

Material Changes in Financial Condition

The Company’s total assets increased $9 million, to $395 million at March 31, 2005 from $386 million at December 31, 2004.

Increases in federal funds sold, investment securities and other investments, and other real estate of approximately $10 million, $2.3 million and $2.2 million, respectively, were offset by decreases in the loan portfolio of approximately $6.9 million. These increases were funded by increases in the deposit portfolio and in short-term borrowings of approximately $5.5 million and $3.8 million, respectively.

During the first quarter of 2005, decreases in the real estate and consumer loan portfolios totaled approximately $9.4 million and $500,000, respectively, offset by increases in the commercial loan portfolio of approximately $3 million. The decrease in the real estate portfolio primarily resulted from pay-offs of several large loans and the foreclosure of one loan secured by commercial real estate for approximately $2.5 million.

Purchases of investment securities during the first quarter of 2005 totaled approximately $5.4 million, offset by maturities and calls of approximately $2.7 million. Other investments increased approximately $600,000 with the purchase of stock in Peach State Bank and Trust, a de novo bank located Gainesville, GA.

The increase in other real estate primarily was the result of the foreclosure of a commercial real estate loan of approximately $2.5 million during the first quarter of 2005 offset by sales of approximately $310,000.

The deposit portfolio increase of approximately $5.5 million occurred primarily in the non-interest bearing deposit portfolio for approximately $5 million of the increase with the remainder occurring in the NOW and money market deposit accounts.

Borrowings increased approximately $3.8 million during the first quarter of 2005 primarily in the repurchase sweep portfolio.

Material Changes in Results of Operations

Total interest income for the first quarter of 2005 increased $503,000 or 9.94% when compared to the first quarter of 2004 primarily due to increases in loan interest and fees on loans. This increase is primarily the result of the average loan portfolio for the first quarter of 2005 increasing approximately $19 million or 7.45% when compared to average loan portfolio for the first quarter of 2004. The average yield on loans increased during the first quarter of 2005 to 6.82% compared to an average yield of 6.51% for the first quarter of 2004. Interest income from federal funds sold increased approximately $45,000 for the first quarter of 2005 when compared to the first quarter of 2004 primarily due to increases in the average balances of approximately $5 million. Average yields on federal funds sold increased to 2.33% for the first quarter of 2005 when compared to .91% for the first quarter of 2004.

Total interest expense for the first quarter of 2005 increased $186,000 or 11.16%, when compared to the first quarter of 2004. Two factors impact interest expense: average balances of deposit and borrowing portfolios and average rates paid on each. Average deposit balances increased approximately $24.5 million when comparing first quarter of 2005 to first quarter 2004. The increase of $24.5 million includes approximately $5.4 million in non-interest bearing balances in regular demand deposit accounts. The average rate paid on the deposit portfolios for the first quarter of 2005 increased to 2.08% from 2.04% when compared to first quarter of 2004. Average borrowing balances increased approximately $3.2 million when comparing first quarter of 2005 to first quarter of 2004. Average interest rates paid on borrowings was 4.83% for the first quarter of 2005 compared to 4.55% for the first quarter of 2004.

Net interest income increased approximately $317,000 or 9.34%, for the first quarter of 2005 as compared to the first quarter of 2004 as a result of the items discussed above.

The net interest margin of the Company, net interest income divided by average earning-assets, was 4.13% for the first quarter of 2005 compared to 3.96% for the first quarter of 2004.

Noninterest income increased $9,000 or 1.13% for the first quarter of 2005 over the same period in 2004. The mortgage origination income increase was primarily due to an increase in the average volume of activity in the mortgage held for sale portfolio when comparing first quarter of 2005 to first quarter 2004. Increases in other income occurred in the cash surrender value for key man insurance, Master Money Card income and safe deposit box rent of approximately $28,000, $11,000 and $11,000, respectively. Decreases occurring in service charges on deposits and other service charges of approximately $19,000 and $4,000 resulted from lower average balances in NSF checks presented for payment and in overdraft balances when comparing first quarter 2005 to first quarter 2004.

Noninterest expense decreased $182,000 or 5.05% for the first quarter of 2005 over the same period in 2004. These decreases were primarily due to decreases in salary and employee benefits and general and administrative expenses of approximately $110,000 and $95,000, respectively, due to a decrease in the total number of employees. Expense control has been a major focus during the first quarter of 2005 resulting in lower general and administrative costs.

Income tax expense for the three months ended March 31, 2005 and 2004 was $267,000 and $64,000, respectively. The effective tax rate for the first quarter of 2005 and 2004 was 27.44% and 15.13%, respectively. Tax-exempt income on investment securities in municipal bonds was 19.87% of pre-tax income for the first quarter of 2005 when compared to 44.40% for the first quarter of 2004.

Asset Quality

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

The risk associated with lending varies with the creditworthiness of the borrower, the type of loan (consumer, commercial, or real estate) and its maturity. Cash flows adequate to support a repayment schedule are an element considered for all loans. Real estate loans are impacted by market conditions regarding the value of the underlying property used as collateral. Commercial loans are also impacted by the management of the business as well as economic conditions. The Company also makes unsecured loans from time to time. The risk to the Company is greater for unsecured loans as the ultimate repayment of the loan is only dependent on the borrower’s ability to pay. The balance of unsecured loans at March 31, 2005 was $8.4 million which does not pose a significant risk to the Company.

A provision for loan losses in the amount of $120,000 was charged to expense for the quarter ended March 31, 2005 compared to $162,000 for the quarter ended March 31, 2004. A decrease in the provision for loan losses expense was determined to be appropriate due to the decrease in the loan portfolio balances in real estate secured loans. The net recoveries for the first quarter of 2005 totaled approximately $3,919 compared to net charge-offs of $238,000 for the first quarter of 2004. During the first quarter of 2005, charge-offs of commercial and consumer loans totaled approximately $6,314, and $41,201, respectively, offset by recoveries of consumer, commercial, and real estate secured loans of $33,138, $13,348, and $4,949, respectively. At March 31, 2005 and December 31, 2004, the ratio of the allowance for loan losses to total loans was 1.37% and 1.29%, respectively.

Nonperforming assets consist of non-accrual loans, accruing loans 90 days past due, restructured loans and other real estate owned. The following summarizes non-performing assets:

	March 31, 2005		December 31, 2004
Accruing loans 90 days past due	$	540,612	$	381,670
Non-accrual loans		651,159		3,252,464
Other real estate		3,483,590		1,289,880
Restructured loans		137,806		119,031
Total non-performing assets	$	4,813,167	$	5,043,045

Nonperforming assets decreased approximately $230,000 or 4.56% from December 31, 2004 to March 31, 2005.

New loans classified as 90 days past due totaled $536,856 were offset by charge-offs of $14,302 and payments or payoffs of $363,612. Loans past due 90 days consist of nine loans secured by real estate, three commercial loans and twelve consumer loans of approximately $476,000, $30,000 and $35,000, respectively.

Impaired loans consist of loans on non-accrual status. The decrease is the net result of the following changes:

Balance at December 31, 2004	$	3,252,464
Loans reclassified to non-accrual status in 2005		105,968
Payments received on non-accrual loans during 2005		(21,658	)
Non-accrual loans charged-off during 2005		(16,119	)
Non-accrual loans reclassified to other real estate		(2,526,476	)
Non-accrual loans reclassified to accrual status in 2005		(143,020	)
Balance at March 31, 2005	$	651,159

Additions to loans on non-accrual status consisted of three real estate secured loans totaling approximately $95,000 and one commercial loan of approximately $11,000. The interest income recognized on such loans for the three-month periods ended March 31, 2005 and 2004 was not material.

The Company’s other real estate consists of nine properties totaling $3,483,590 at March 31, 2005 and eleven properties totaling $1,289,880 at December 31, 2004. The increase was primarily due to the foreclosure of one commercial loan collateralized by a multi-family residential property totaling approximately $2,470,498 and one loan collateralized by residential real estate totaling $55,000 during the first quarter of 2005 offset by the sale of four properties totaling $309,572. The multi-family residential property has an appraised value of $2.6 million and is being actively marketed.

Our Other Real Estate Owned (“OREO”) procedures provide that a foreclosure appraisal be obtained which provides a fair market value and a disposition (quick sale) value. The disposition value is the valuation used to place the property into OREO. Any difference between the disposition value and the loan balance is recommended for charge off. Once the property is in OREO, the property is listed with a realtor to begin sale efforts.

Liquidity and Capital Resources

Liquidity management involves the matching of the cash flow requirements of customers, either depositors withdrawing funds or borrowers needing loans, and the ability of the Company to meet those requirements.

The Company's liquidity program is designed and intended to provide guidance in funding the credit and investment activities of the Company while at the same time ensuring that the deposit obligations of the Company are met on a timely basis. In order to permit active and timely management of assets and liabilities, these accounts are monitored regularly in regard to volume, mix, and maturity.

The Company’s liquidity position depends primarily upon the liquidity of its assets relative to its need to respond to short-term demand for funds caused by withdrawals from deposit accounts and loan funding commitments. Primary sources of liquidity are scheduled repayments on the Company’s loans and interest on and maturities of its investment securities. Sales of investment securities available for sale represent another source of liquidity to the Company. The Company may also utilize its cash and due from banks and federal funds sold to meet liquidity requirements as needed.

The Company also has the ability, on a short-term basis, to purchase federal funds from other financial institutions up to $25,000,000. At March 31, 2005, the Company had no federal funds purchased. Presently, the Company has made arrangements with commercial banks for short-term advances up to $9,140,000 under a repurchase agreement line of credit of which none was advanced at March 31, 2005. The Company has approximately $ 8.6 million outstanding in commercial sweep accounts at March 31, 2005. In addition, the Company has a total available line of $230,833,000, subject to available collateral, from the Federal Home Loan Bank. The Company has $36 million in advances on this line at March 31, 2005.

Habersham Bank's liquidity policy requires that the ratio of cash and certain short-term investments to net withdrawable deposit accounts be at least 20%. The Bank’s liquidity ratios at March 31, 2005 and 2004 were 27.89% and 35.95%, respectively.

At March 31, 2005 Habersham Bancorp and Habersham Bank were required to have minimum Tier 1 and total capital ratios of 4% and 8%, respectively. Additionally, the Company and the Bank are required to maintain a leverage ratio (Tier 1 capital to average assets) of at least 4%. The Company’s and the Bank’s ratios at March 31, 2005 follow:

	Habersham		Habersham
	Bank		Bancorp
Tier 1		13.96%		14.80%
Total Capital		15.18%		16.01%
Leverage		10.96%		11.65%

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

As of March 31, 2005, there were no substantial changes in the composition of the Company’s market-sensitive assets and liabilities or their related market values from that reported as of December 31, 2004. The foregoing disclosures related to the market risk of the Company should be read in conjunction with the Company’s audited consolidated financial statements, related notes and management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 2004 included in the Company’s 2004 Annual Report on Form 10K.

Item 4. CONTROLS AND PROCEDURES

As of the end of the period covered by this report, the Company’s management, including the Company’s Executive Officer and Chief Financial Officer, reviewed and evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company, (including its consolidated subsidiaries) that is required to be included in the Company’s periodic filings with the Securities and Exchange Commission.

There have not been any changes in the Company’s internal control over financial reporting or, to the Company’s knowledge, in other factors, during the fiscal quarter to which this report relates that could significantly affect those internal controls subsequent to the date management carried out its evaluation, and there have been no corrective actions with respect to significant deficiencies or material weaknesses.

PART II

OTHER INFORMATION

Item 1. Legal proceedings.

None

Item 2. Changes in securities, use of proceeds and issuer purchases of equity securities.

Issuer Purchases of Equity Securities

The following table sets forth information regarding the Company's purchases of its common stock on a monthly basis during the first quarter of 2005.

Period	Total Number of Shares Purchased	Average Price Paid Per Share	Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs ¹	Maximum Number (or Appropriate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
January 1 through January 31, 2005	0	0	0	0
February 1 through February 28, 2005	0	0	0	0
March 1 through March 31, 2005	0	0	0	0
Total	0	0	0	0

The Company does not have a publicly announced stock repurchase plan and did not otherwise repurchase any of its shares of common stock during the period covered by this report. The Company did not terminate an existing stock repurchase plan during the period covered by this report.

Item 3. Defaults upon senior securities.

None

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

None

Item 5. Other information.

None

Item 6. Exhibits

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

10.1* Habersham Bancorp 2005 Stock Option Plan (incorporated by reference to Appendix A to the Registrant’s Definitive Proxy Statement on Schedule 14A for its 2005 Annual Meeting of Shareholders).

10.2 Habersham Bancorp Outside Directors Stock Option Plan (incorporated by reference to Appendix B to the Registrant’s Definitive Proxy Statement on Schedule 14A for its 2005 Annual Meeting of Shareholders).

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

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

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

*Indicates a management compensatory plan or agreement.

SIGNATURES

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

HABERSHAM BANCORP

(Registrant)

Date May 16, 2005	/S/ Annette Banks
	Chief Financial Officer
	(for the Registrant and as the
	Registrant’s principal financial and
	accounting officer)