**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, 2005.
 
 oTRANSITION
        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 ofincorporation
                  ororganization)
              
              (I.R.S.
                  EmployerIdentification
                  Number)
 
 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
 
 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
  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. o
 
 Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, or a non-accelerated filer (as defined in Exchange Act
        Rule
        12b-2):     Large accelerated filer o Accelerated filer o Non-accelerated filer x
 
 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
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              75
  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.
 
 1,709,544 
        Shares of Common Stock, $1.00 par value--$38,122,881 as of June
        30, 2005 (based upon market value of $22.30 /share as of that
        date).
  Indicate
        the number of shares outstanding of each of the issuer's classes of common
        stock, as of March 15, 2006.
 
 Common
        Stock, $1.00 par value--2,930,240 shares
  DOCUMENTS
        INCORPORATED BY REFERENCE
 
 (1) Portions
        of
        the Company's Annual Report to Shareholders for the year ended December 31,
        2005
        (the "Annual Report") are incorporated by reference into Part II.
 
 (2) Portions
        of
        the Company's Proxy Statement relating to the 2006 Annual Meeting of
        Shareholders (the "Proxy Statement") are incorporated by reference into Part
        III.
 
 PART
        I
 
 Item
                  1.
              BUSINESS.
 
 **Business
        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"). 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. 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.
 
 Prior
        to
        December 2002, the Company conducted mortgage banking operations through
        BancMortgage Financial Corp. (“BancMortgage”). BancMortgage was organized as a
        wholly-owned non-bank subsidiary of Habersham Bank in 1996. In December 2002,
        the Company sold BancMortgage to the existing management of
        BancMortgage.
 
 On
        July
        25, 2005, the Company consummated an agreement to acquire all of the outstanding
        shares of Liberty Bank & Trust (“Liberty”) for $3.6 million in cash plus
        certain acquisition costs totaling $194,000. Additionally, the purchase price
        could include approximately $789,000 of contingent cash consideration that will
        be
        released from escrow only upon the lapse of the expiration period and resolution
        of the contingencies. The cash proceeds to consummate the purchase were obtained
        from cash dividends paid to the Company by its bank subsidiary, HabershamBank.
        Liberty was a commercial bank based in Toccoa, (Stephens County), Georgia
        and
        had total assets of $23.2 million, including total loans of $15 million and
        total investments of $3.3 million. Additionally, Liberty had $20 million
        in
        deposits. The
        Company accounted for the transaction using the purchase method and
        accordingly,the purchase price was allocated to assets and liabilities acquired
        based upon their fair values at the date of the acquisition. The excess of
        the
        purchase price over the fair value of the net assets acquired (goodwill)
        was
        approximately $1.1 million, none of which will be deductible for income tax
        purposes. Operations of Liberty are included in the Company’s consolidated
        statements of earnings since the effective date of the
        acquisition.
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 **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 and Stephens 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 and Stephens 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 with
        numerous other insurance agencies offering property, casualty and life
        insurance.
 
 See
“Risk
        Factors - Competition from Other Financial Institutions May Adversely Affect
        our
        Profitability.”
 
 **Employees**
 
 As
        of
        December 31, 2005, the Company had 162 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.
  **Supervision
        & Regulation**
 
 Both
        the
        Company and the Bank are subject to extensive state and federal banking regulations
        that impose restrictions on and provide for general regulatory oversight of
        their
        operations. These laws generally are intended to protect depositors and not
        shareholders. The following discussion describes the material elements of
        the regulatory
        framework that applies to us.
 
 **The
        Company**
 
 Because
        it owns all of the capital stock of the Bank, the Company is a bank holding
        company under the federal Bank Holding Company Act of 1956 (the “BHC Act”). As a
        result, we are primarily subject to the supervision, examination and reporting
        requirements of the BHC Act and the regulations of the Board of Governors
        of the
        Federal Reserve System (the “Federal Reserve”). 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.
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  *Acquisitions
        of Banks.* The
        BHC
        Act requires every bank holding company to obtain the Federal Reserve’s prior
        approval 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 BHC Act provides that the Federal Reserve may not approve any of these
        transactions if it would result in or tend to create a monopoly or,
        substantially lessen competition or otherwise function as a restraint of
        trade,
        unless the anti-competitive 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 is also required to consider
        the
        financial and managerial resources and future prospects of the bank holding
        companies and banks concerned. The Federal Reserve’s consideration of financial
        resources generally focuses on capital adequacy, which is discussed
        below.
 
 Under
        the
        BHC Act, if we are adequately capitalized and adequately managed, we may
        purchase a bank located outside of Georgia. However, the laws of the other
        state
        may impose restrictions on the acquisition of a bank that has only been in
        existence for a limited amount of time or that would result in specified
        concentrations of deposits. For example, Georgia law prohibits a bank holding
        company from acquiring control of a bank until the target bank has been
        incorporated for more than three years. Because the Bank has been chartered
        for
        more than three years, this restriction would not limit our ability to
        sell.
 
 *Change
        in Bank Control.* Subject
        to various exceptions, the BHC Act and the Change in Bank Control Act, together
        with related regulations, require Federal Reserve approval prior to any person
        or company acquiring “control” of a 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 a bank holding company. Control is
        rebuttably presumed to exist if a person or company acquires 10% 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.
 
 The
        regulations provide a procedure for challenging any rebuttable presumption
        of
        control.
 
 *Permitted
        Activities* .
        A bank
        holding company is generally permitted under the BHC Act to engage in, or
        acquire direct or indirect control of more than 5% of the voting shares of
        any
        company engaged in, the following activities:
 
 ·
              banking
                  or managing or controlling banks;
                  and
 
 ·
              any
                  activity that the Federal Reserve determines to be so closely related
                  to
                  banking as to be a proper incident to the business of
                  banking.
 
 Activities
        that the Federal Reserve has found to be so closely related to banking as
        to be
        a proper incident to the business of banking include:
  ·
              factoring
                  accounts receivable;
  ·
              making,
                  acquiring, brokering or servicing loans and usual related
                  activities;
  ·
              leasing
                  personal or real property;
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  ·
              operating
                  a non-bank depository institution, such as a savings
                  association;
  ·
              trust
                  company functions;
  ·
              financial
                  and investment advisory activities;
  ·
              conducting
                  discount securities brokerage
                  activities;
  ·
              underwriting
                  and dealing in government obligations and money market
                  instruments;
  ·
              providing
                  specified management consulting and counseling
                  activities;
  ·
              performing
                  selected data processing services and support
                  services;
  ·
              acting
                  as agent or broker in selling credit life insurance and other types
                  of
                  insurance in connection with credit transactions;
                  and
  ·
              performing
                  selected insurance underwriting
                  activities.
 
 The
        Federal Reserve may order a bank holding company or its subsidiaries to
        terminate any of these activities or to terminate its ownership or control
        of
        any subsidiary when it has reasonable cause to believe that the bank holding
        company’s continued ownership, activity or control constitutes a serious risk to
        the financial safety, soundness, or stability of it or any of its bank
        subsidiaries.
 
 In
        addition to the permissible bank holding company activities listed above,
        a bank
        holding company may qualify and elect to become a financial holding company
        under the Gramm-Leach-Bliley Financial Services Modernization Act of 1999.
        A
        financial holding company may engage in additional activities that are financial
        in nature or incidental or complementary to financial activity. The BHC Act
        expressly lists the following activities as financial in nature:
 
 ·
              lending,
                  trust and other banking activities;
  ·
              insuring,
                  guaranteeing, or indemnifying against loss or harm, or providing
                  and
                  issuing annuities, and acting as principal, agent, or broker for
                  these
                  purposes, in any state;
  ·
              providing
                  financial, investment, or advisory
                  services;
  ·
              issuing
                  or selling instruments representing interests in pools of assets
                  permissible for a bank to hold
                  directly;
  ·
              underwriting,
                  dealing in or making a market in
                  securities;
  ·
              other
                  activities that the Federal Reserve may determine to be so closely
                  related
                  to banking or managing or controlling banks as to be a proper incident
                  to
                  managing or controlling banks;
  ·
              foreign
                  activities permitted outside of the United States if the Federal
                  Reserve
                  has determined them to be usual in connection with banking operations
                  abroad;
  ·
              merchant
                  banking through securities or insurance affiliates;
                  and
  ·
              insurance
                  company portfolio investments.
 
 To
        qualify to become a financial holding company, the Bank and any other depository
        institution subsidiary of the Company is required to be well capitalized
        and
        well managed and have a Community Reinvestment Act rating of at least
“satisfactory.” Additionally, we would be required to file an election with the
        Federal Reserve to become a financial holding company and provide the Federal
        Reserve with 30 days’ written notice prior to engaging in a permitted financial
        activity. While we 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 Institution.* Under
        Federal Reserve 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 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 its deposits and various other obligations are
        repaid
        in full. In the unlikely event of our bankruptcy, any commitment by us to
        a
        federal bank regulatory agency to maintain the capital of the Bank will be
        assumed by the bankruptcy trustee and entitled to a priority of
        payment.
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  **The
        Bank**
 
 The
        Bank
        is subject to extensive state and federal banking regulations that impose
        restrictions on and provide for general regulatory oversight of our operations.
        These laws are generally intended to protect depositors and not shareholders.
        The following discussion describes the material elements of the regulatory
        framework that applies to us.
 
 Since
        the
        Bank is a commercial bank chartered under the laws of the State of Georgia,
        it
        is primarily subject to the supervision, examination and reporting requirements
        of the FDIC and 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 have the power to prevent the continuance or development of unsafe
        or
        unsound banking practices or other violations of law. Additionally, the Bank’s
        deposits are insured by the FDIC to the maximum extent provided by law. The
        Bank
        is also subject to numerous state and federal statutes and regulations that
        affect its business, activities and operations.
 
 *Branching.* Under
        current Georgia law, the Bank may open branch offices throughout Georgia
        with
        the prior approval of the GDBF. In addition, with prior regulatory approval,
        the
        Bank 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
        by merging with banks in other states if allowed by the target states’ laws.
        Georgia law, with limited exceptions, currently permits branching across
        state
        lines 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 is 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 its home state
        has
        also elected to opt-in. Consequently, until Georgia changes its election,
        the
        only way we 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 (the “FDIC
        Improvement Act”) established 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 federal banking agencies have specified by regulation the relevant
        capital level for each category. 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.
 
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  An
        institution that is categorized as undercapitalized, significantly
        undercapitalized, or critically undercapitalized is required to submit an
        acceptable capital restoration plan to its appropriate federal regulator.
        A bank
        holding company must guarantee that a subsidiary depository institution meets
        its capital restoration plan, subject to various limitations. The controlling
        holding company’s obligation to fund a capital restoration plan is limited to
        the lesser of 5% of an undercapitalized subsidiary’s assets at the time it
        became undercapitalized or the amount required to meet regulatory capital
        requirements. An undercapitalized institution is also generally prohibited
        from
        increasing its average total assets, making acquisitions, establishing any
        branches or engaging in any new line of business, except under an accepted
        capital restoration plan or with FDIC approval. The regulations also establish
        procedures for downgrading an institution to a lower capital category based
        on
        supervisory factors other than capital.
 
 *FDIC
        Insurance Assessments.* The FDIC
        has adopted a risk-based assessment system for insured depository institutions
        that takes into account the risks attributable to different categories and
        concentrations of assets and liabilities. The system assigns an institution
        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 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. Assessments range from 0 to 27 cents
        per
        $100 of deposits, depending on the institution’s capital group and supervisory
        subgroup. In addition, the FDIC imposes assessments to help pay off the $780
        million in annual interest payments on the $8 billion Financing Corporation
        bonds issued in the late 1980s as part of the government rescue of the thrift
        industry. This assessment rate is adjusted quarterly and is set at $1.32
        cents
        per $100 of deposits for the first quarter of 2006.
 
 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.
 
 *Community
        Reinvestment Act.* The
        Community Reinvestment Act requires that, in connection with examinations
        of
        financial institutions within their respective jurisdictions, the Federal
        Reserve, the FDIC or the OCC 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.
 
 *Other
        Regulations.* Interest
        and other charges collected or contracted for by the Bank are subject to
        state
        usury laws and federal laws concerning interest rates. For example, under
        the
        Servicemembers Civil Relief Act, which amended the Soldiers’ and Sailors’ Civil
        Relief Act of 1940, a lender is generally prohibited from charging an annual
        interest rate in excess of 6% on any obligation of a borrower who is on active
        duty with the United States military.
 
 The
        Bank’s loan operations are also subject to federal laws applicable to credit
        transactions, such as:
 
 ·
              the
                  Federal Truth-In-Lending Act, governing disclosures of credit terms
                  to
                  consumer borrowers;
 
 ·
              the
                  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;
 
 ·
              the
                  Equal Credit Opportunity Act, prohibiting discrimination on the
                  basis of
                  race, creed or other prohibited factors in extending
                  credit;
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  ·
              the
                  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 identify theft protections,
                  and certain
                  credit and other disclosures;
 
 ·
              the
                  Fair Debt Collection Act, governing the manner in which consumer
                  debts may
                  be collected by collection agencies;
                  and
 
 ·
              the
                  rules and regulations of the various federal agencies charged with
                  the
                  responsibility of implementing these federal
                  laws.
 
 The
        deposit operations of the Bank are subject to:
 
 ·
              the
                  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;
                  and
 
 ·
              the
                  Electronic Funds Transfer Act and Regulation E issued by the Federal
                  Reserve to implement that act, which govern automatic deposits
                  to and
                  withdrawals from deposit accounts and customers’ rights and liabilities
                  arising from the use of automated teller machines and other electronic
                  banking services.
 
 Capital
        Adequacy
 
 The
        Company and the Bank are required to comply with the capital adequacy standards
        established by the Federal Reserve, in the case of the Company, and the FDIC,
        in
        the case of the Bank. The Federal Reserve has established a risk-based and
        a
        leverage measure of capital adequacy for bank holding companies. So long
        as the
        Company’s consolidated total assets are less than $500 million, under the
        Federal Reserve’s capital guidelines adopted on February 27, 2006, our capital
        adequacy will be 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 the FDIC, which are substantially similar to those adopted by
        the
        Federal Reserve 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 capital consists of two components: Tier 1 Capital and Tier 2 Capital.
        Tier 1 Capital generally consists of common stock, minority interests in
        the
        equity accounts of consolidated depository institution subsidiaries,
        noncumulative perpetual preferred stock in consolidated non-depository
        subsidiaries and a limited amount of qualifying cumulative perpetual preferred
        stock, less goodwill and other specified intangible assets. Tier 1 Capital
        must
        equal at least 4% of risk-weighted assets. Tier 2 Capital generally consists
        of
        subordinated debt, other preferred stock and 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, 2005, the Bank’s ratio of total capital to
        risk-weighted assets was 13.49% and the ratio of Tier 1 Capital to
        risk-weighted assets was 12.37%.
 
 In
        addition, the Federal Reserve has 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’s
        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, 2005, our leverage ratio was
        10.30%. 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.
 
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  Failure
        to meet capital guidelines could subject a bank or 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, significant additional restrictions can be imposed on FDIC-insured
        depository institutions that fail to meet applicable capital
        requirements.
 
 **Payment
        of Dividends**
 
 The
        Company is a legal entity separate and distinct from the Bank. The principal
        sources of the Company’s cash flow, including cash flow to pay dividends to its
        shareholders, are dividends that the Bank pays to the Company as its sole
        shareholder. Statutory and regulatory limitations apply to the Bank’s payment of
        dividends to the Company as well as to the Company’s payment of dividends to its
        shareholders.
 
 A
        federal
        banking regulator may require, after notice and a hearing, that the Bank
        stop or
        refrain from engaging in any practice it considers unsafe or unsound. The
        federal banking agencies 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 FDIC Improvement Act, 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 of current operating
        earnings. See “The Bank—Prompt Corrective Action.”
 
 The
        GDBF
        also regulates the Bank’s dividend payments and must approve dividend payments
        that would exceed 50% of the Bank’s net income for the prior year. Our payment
        of dividends may also be affected or limited by other factors, such as the
        requirement to maintain adequate capital above regulatory
        guidelines.
 
 At
        December 31, 2005, the Bank could pay cash dividends without prior regulatory
        approval.
 
 **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;
  ·
              loans
                  or extensions of credit made by a bank 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.
 
 The
        total
        amount of 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. The Bank must also comply with other provisions
        designed to avoid the taking of low-quality assets.
  Page
            9 of
            75
  The
        Company and the Bank are also subject to the provisions of Section 23B of
        the
        Federal Reserve Act, which, among other things, prohibit an institution from
        engaging in the above transactions with affiliates unless the transactions
        are
        on terms substantially the same, or at least as favorable to the institution
        or
        its subsidiaries, as those prevailing at the time for comparable transactions
        with nonaffiliated companies.
 
 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.
 
 **Privacy**
 
 Financial
        institutions are required to disclose their policies for collecting and
        protecting confidential information. Customers generally may prevent financial
        institutions from sharing nonpublic personal financial information with
        nonaffiliated third parties except under narrow circumstances, such as the
        processing of transactions requested by the consumer or when the financial
        institution is jointly sponsoring a product or service with a nonaffiliated
        third party. Additionally, financial institutions generally may not disclose
        consumer account numbers to any nonaffiliated third party for use in
        telemarketing, direct mail marketing or other marketing to
        consumers.
 
 **Anti-Terrorism
        and Money Laundering Legislation**
 
 The
        Bank
        is subject to the Uniting and Strengthening America by Providing Appropriate
        Tools Required to Intercept and Obstruct Terrorism Act of 2001 ( the
        “ USA PATRIOT  Act”),
        as
        it amended the Bank Secrecy Act and the rules and regulations of the Office
        of
        Foreign Assets Control (the “OFAC”). These statutes and related rules and
        regulations impose requirements and limitations on specific financial transactions and account
        relationships, intended to guard against money laundering and terrorism
        financing. The
        Bank has established a
        customer identification program pursuant to Section
        326 of the USA PATRIOT Act and the Bank Secrecy Act, and otherwise has
        implemented policies and procedures to comply with the foregoing
        rules.
 
 **Federal
        Deposit Insurance Reform**
  On
        February 8, 2006, President Bush signed the Federal Deposit Insurance Reform
        Act
        of 2005 (“FDIRA”). The FDIC must adopt rules implementing the various provisions
        of FDIRA by November 5, 2006.
 
 Among
        other things, FDIRA changes the Federal deposit insurance system
        by:
  ·
              raising
                  the coverage level for retirement accounts to
                  $250,000;
  ·
              indexing
                  deposit insurance coverage levels for inflation beginning in
                  2012;
  ·
              prohibiting
                  undercapitalized financial institutions from accepting employee
                  benefit
                  plan deposits;
  ·
              merging
                  the Bank Insurance Fund and Savings Association Insurance Fund
                  into a new
                  Deposit Insurance Fund (“DIF”); and
  ·
              providing
                  credits to financial institutions that capitalized the FDIC prior
                  to 1996
                  to offset future assessment
                  premiums.
  Page
            10 of
            75
 
 FDIRA
        also authorizes the FDIC to revise the current risk-based assessment system,
        subject to notice and comment, and caps the amount of the DIF at 1.50% of
        domestic deposits. The FDIC must issue cash dividends, awarded on a historical
        basis, for the amount of the DIF over the 1.50% ratio. Additionally, if the
        DIF
        exceeds 1.35% of domestic deposits at year-end, the FDIC must issue cash
        dividends, awarded on a historical basis, for half of the amount of the
        excess.
  **Proposed
        Legislation and Regulatory Action**
 
 New
        regulations and statutes are regularly proposed that contain wide-ranging
        potential changes to 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**
 
 Our
        earnings are affected by domestic economic conditions and the monetary and
        fiscal policies of the United States government and its agencies. The Federal
        Reserve has, and is 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 Federal Reserve affects 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.
        We
        cannot predict the nature or impact of future changes in monetary and fiscal
        policies.
 Item
                    1A.
                RISK
                    FACTORS
  An
        investment in the Company’s common stock involves a high degree of risk.
        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.
   **An
        economic downturn, especially one affecting our market areas, could adversely
        affect our financial condition, results of operations or cash flows.**
  Our
        success depends upon the growth in population, income levels, deposits and
        housing starts in our primary market areas. If the communities in which we
        operate do not grow, or if prevailing economic conditions locally or nationally
        are unfavorable, our business may not succeed. Unpredictable economic conditions
        may have an adverse effect on the quality of our loan portfolio and our
        financial performance. Economic recession over a prolonged period or other
        economic problems in our market areas could have a material adverse impact
        on
        the quality of the loan portfolio and the demand for our products and services.
        Future adverse changes in the economies in our market areas may have a material
        adverse effect on our financial condition, results of operations or cash
        flows.
        Further, the banking industry in Georgia is affected by general economic
        conditions such as inflation, recession, unemployment and other factors beyond
        our control. As a community bank, we are less able to spread the risk of
        unfavorable local economic conditions than larger or more regional banks.
        Moreover, we cannot give any assurance that we will benefit from any market
        growth or favorable economic conditions in our primary market areas even
        if they
        do occur.
   **If
        the value of real estate in our core market were to decline materially, a
        significant portion of our loan portfolio could become under-collateralized,
        which could have a material adverse effect on our business, financial condition
        and results of operations.**
  Page
            11 of
            75
  At
        December 31, 2005, approximately 90.55% of our
        loans had real estate as a primary or secondary component of collateral.
        The
        real estate collateral in each case provides an alternate source of repayment
        in
        the event of default by the borrower and may deteriorate in value during
        the
        time the credit is extended. If we are required to liquidate the collateral
        securing a loan to satisfy the debt during a period of reduced real estate
        values, our earnings and capital could be adversely affected. With most of
        our
        loans secured by commercial and residential real estate, a decline in local
        economic conditions could adversely affect the values of our real estate
        collateral. Consequently, a decline in local economic conditions in northern
        Georgia may have a greater effect on our earnings and capital than on the
        earnings and capital of larger financial institutions whose real estate loan
        portfolios are geographically diverse.
   **Opening
        new offices may not result in increased assets or revenues for
        us.**
  The
        investment necessary for branch expansion may negatively impact our efficiency
        ratio. There is a risk that we will be unable to manage our growth, as the
        process of opening new branches may divert our time and resources. There
        is also
        risk that we may fail to open any additional branches, and a risk that, if
        we do
        open these branches, they may not be profitable which would negatively impact
        our results of operations.
   **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. Our market areas are served principally by community and regional
        banks.
  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. We may face a
        competitive disadvantage as a result of our smaller size and lack of geographic
        diversification, and we have no assurance that our competitive strategy will
        be
        successful.
   **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 of Habersham Bank, consisting of our Chief Executive Officer,
        David Stovall, and our President, Edward D. Ariail. 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 operations 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 and
        profitability.
   **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
        46.84% of our fully diluted outstanding common stock as of December 31, 2005.
        As
        a result of their ownership, the directors and executive officers will have
        the
        ability, if they voted their shares in concert, to influence the outcome
        of all
        matters submitted to our shareholders for approval, including the election
        of
        directors.
  Page
            12 of
            75
  **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. Our underwriting and credit monitoring
        procedures and credit policies, including the establishment and review of
        the
        allowance for loan losses, may not prevent unexpected losses that could
        materially adversely affect our results of operations.
  
 **If
        our allowance for loan losses is not sufficient to cover actual loan losses,
        our
        earnings could decrease.**
 
 Our
        loan
        customers may not repay their loans according to the terms of these loans,
        and
        the collateral securing the payment of these loans may be insufficient to
        assure
        repayment. 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 classifications, 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
        our
        loan losses, and adjustments may be necessary to allow for different economic
        conditions or adverse developments in our loan portfolio. Material additions
        to
        our allowance would materially decrease our net income. Our allowance for
        loan
        losses was $3,944,525, or 1.23% of loans, as of December 31,
        2005.
  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 future 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 regulatory agencies could have a negative effect on our
        operating results.
   **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. 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.
  
 **Even
        though our common stock is currently traded on the Nasdaq National Market,
        it
        has substantially less liquidity than the average stock quoted on a national
        securities exchange.**
 
 The
        trading volume in our common stock on the Nasdaq National Market is relatively
        low when compared with larger companies listed on the Nasdaq National Market
        or
        stock exchanges. We cannot say with any certainty that a more active and
        liquid
        trading market for our common stock will develop. Because of this, it may
        be
        more difficult for you to sell a substantial number of shares for the same
        price
        at which you could sell a smaller number of shares, and you may not be able
        to
        sell your shares at all.
  Page
            13 of
            75
  We
        cannot
        predict the effect, if any, that future sales of our common stock in the
        market,
        or the 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.
  
 **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 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. 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
        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
        may
        engage in new branch expansion in the future. 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
                  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;
  •
              we
                  may not be able 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;
  •
              we
                  may enter into new markets where we lack experience; and
  •
              we
                  may introduce new products and services with which we have no prior
                  experience into our business.
   **Additional
        growth may require us to raise additional capital in the future, but that
        capital may not be available when it is needed, which could adversely affect
        our
        financial condition and results of operations.**
  Page
            14 of
            75
  We
        are
        required by federal and state regulatory authorities to maintain adequate
        levels
        of capital to support our operations. We anticipate that our current capital
        resources will satisfy our capital requirements for the foreseeable future.
        We
        may at some point, however, need to raise additional capital to support our
        continued growth.
  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. If we cannot raise
        additional capital when needed, our ability to further expand our operations
        could be materially impaired.
   **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. Our compliance with the
        Federal Reserve Board, FDIC and Department 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.
   **Changes
        in monetary policies may have an adverse effect on our business, financial
        condition and results of operations.**
  Our
        financial condition and results of operations are affected by credit policies
        of
        monetary authorities, particularly the Federal Reserve Board. Actions by
        monetary and fiscal authorities, could have an adverse effect on our deposit
        levels, loan demand or business and earnings.
   **As
        a community bank, we have different lending risks than larger banks.**
  We
        provide services to our local communities. Our ability to diversify our economic
        risks is limited by our own local markets and economies. We lend primarily
        to
        small to medium-sized businesses, and, to a lesser extent, individuals which
        may
        expose us to greater lending risks than those of banks lending to larger,
        better-capitalized businesses with longer operating histories.
  We
        manage
        our credit exposure through careful monitoring of loan applicants and loan
        concentrations in particular industries, and through loan approval and review
        procedures. We have established an evaluation process designed to determine
        the
        adequacy of our allowance for loan losses. The classification of loans and
        the
        establishment of the allowance for loan losses is an estimate based on
        experience, judgment and expectations regarding our borrowers, the economies
        in
        which we and our borrowers operate, as well as the judgment of our regulators.
        We cannot be certain that our loan loss reserves will be sufficient to absorb
        future loan losses or prevent a material adverse effect on our business,
        financial condition, or results of operations.
 
 **Our
        recent results may not be indicative of our future results, and may not provide
        guidance to assess the risk of an investment in our common
        stock.**
  Page
            15 of
            75
  We
        may
        not be able to sustain our historical rate of growth or may not even be able
        to
        grow our business at all. In the future, we may not have the benefit of several
        recently favorable factors, such as a generally increasing interest rate
        environment, a strong residential mortgage market or the ability to find
        suitable expansion opportunities. Various factors, such as economic conditions,
        regulatory and legislative considerations and competition, may also impede
        or
        prohibit our ability to expand our market presence. If we experience a
        significant decrease in our historical rate of growth, our results of operations
        and financial condition may be adversely affected due to a high percentage
        of
        our operating costs being fixed expenses.
   **Natural
        disasters could negatively affect our local economies or disrupt our operations,
        which could have an adverse effect on our business or results of
        operations.**
  The
        economy of northern Georgia 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.
   Item
                  1B.
              UNRESOLVED
                  STAFF COMMENTS
  None
  Item
                  2.
              PROPERTIES
 
 The
        Company's principal office 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 seven 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 217 East Main Street, Warrenton, Georgia; its Braselton
        Office is located at 6322 Grand Hickory Drive, Braselton, Georgia; and its
        two
        Toccoa Offices are located at 27 North Big A Road and 1150 South Big A Road.
        Each office has a 24-hour teller machine. Habersham Bank owns its office
        properties without encumbrance, with the exception of the Warrenton Office,
        which is leased on a month to month basis.
 
 Advantage
        Insurers, Inc.’s principal office is located at 282 Historic Highway 441,
        Cornelia, Georgia, and the telephone number of that office is (706)
        778-2277.
 
 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
 
 None.
  Page
            16 of
            75
 
 PART
        II
  Item
                  5.
              MARKET
                  FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
                  ISSUER
                  PURCHASES OF EQUITY SECURITIES
 
 The
        common stock of Habersham Bancorp is traded on the Nasdaq Stock Market
        ("Nasdaq") under the symbol HABC. At December 31, 2005, Habersham Bancorp
        had
        approximately 481 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 2006.
 
 **2006**
              
              **High**
              
              **Low**
              
              **Dividends**First
                  quarter(through
                  March 20, 2006)
              
              $
              25.50
              
              $
              21.91
              
              $
              0.09**2005:**
              
              
              **High**
              
              
              **Low**
              
              
              **Dividend**Fourth
                  Quarter
              
              $
              24.18
              
              $
              21.50
              
              $
              .08Third
                  Quarter
              
              
              23.60
              
              
              20.75
              
              
              .08Second
                  Quarter
              
              
              24.00
              
              
              20.11
              
              
              .08First
                  Quarter
              
              
              23.00
              
              
              20.42
              
              
              .08**2004:**
              
              
              **High**
              
              
              **Low**
              
              
              **Dividend**Fourth
                  Quarter
              
              $
              21.85
              
              $
              19.75
              
              $
              .07Third
                  Quarter
              
              
              23.70
              
              
              19.69
              
              
              .07Second
                  Quarter
              
              
              28.71
              
              
              23.22
              
              
              1.07First
                  Quarter
              
              
              25.93
              
              
              24.00
              
              
              .07
 
 The
        approval of the Georgia Department of Banking and Finance is required if
        dividends declared by the Bank to the Company in any year will exceed 50%
        of the
        net earnings of the Bank for the previous calendar year .
        As of December 31, 2005, the Bank could declare dividends to the Company
        up to
        approximately $2,240,000 without regulatory approval.
 
 The
        Company did not repurchase any of its outstanding common stock during the
        fourth
        quarter of 2005 or issue any of its equity securities without registration
        under
        the Securities Act of 1933, as amended, during 2005.
 Page
              17 of
              75
  Item
                    6.
                SELECTED
                    FINANCIAL DATA
 
 SELECTED
        FINANCIAL DATA
 (In
        thousands, except share and per share data)
 
 **For
                  the years ended December 31****2005**
              
              **2004**
              
              **2003**
              
              **2002**
              
              **2001****SUMMARY
                  OF OPERATIONS**Interest
                  income
              
              $
              25,936
              
              $
              20,743
              
              $
              22,593
              
              $
              27,137
              
              $
              34,510Interest
                  expense
              
              
              8,600
              
              
              6,791
              
              
              8,122
              
              
              12,041
              
              
              20,403Provision
                  for loan losses
              
              
              330
              
              
              483
              
              
              950
              
              
              1,307
              
              
              1,463Other
                  income
              
              
              3,651
              
              
              4,431
              
              
              3,490
              
              
              3,620
              
              
              2,861Other
                  expense
              
              
              15,195
              
              
              14,777
              
              
              14,000
              
              
              12,857
              
              
              12,322Income
                  from continuing operations
              
              
              3,813
              
              
              2,343
              
              
              2,296
              
              
              3,447
              
              
              2,375Income
                  (loss) from discontinued operations
              
              
              -
              
              
              -
              
              
              -
              
              
              2,337
              
              
              3,109Cumulative
                  effect of change in accounting principle
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (162
              )Net
                  earnings
              
              $
              3,813
              
              $
              2,343
              
              $
              2,296
              
              $
              5,784
              
              $
              5,322**PER
                  SHARE AMOUNTS**Earnings
                  from continuing operations - diluted
              
              $
              1.30
              
              $
              .80
              
              $
              .79
              
              $
              1.22
              
              $
              .87Earnings
                  (loss) from discontinued operations - diluted
              
              
              -
              
              
              -
              
              
              -
              
              
              .83
              
              
              1.14Cumulative
                  effect of change in accounting principle - diluted
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (.06
              )Net
                  earnings per common share-diluted
              
              $
              1.30
              
              $
              .80
              
              $
              .79
              
              $
              2.05
              
              $
              1.95Dividends
              
              $
              .32
              
              $
              1.28
              
              $
              1.18
              
              $
              .24
              
              $
              .24Weighted
                  average number of common and common equivalentshares
                  outstanding
              
              
              2,938,698
              
              
              2,939,951
              
              
              2,895,113
              
              
              2,815,972
              
              
              2,729,291**AT
                  DECEMBER 31**Total
                  assets
              
              $
              478,431
              
              $
              385,933
              
              $
              374,978
              
              $
              429,411
              
              $
              546,503Earning
                  assets
              
              
              435,091
              
              
              355,093
              
              
              342,664
              
              
              395,047
              
              
              503,562Loans,
                  net
              
              
              316,773
              
              
              277,137
              
              
              261,818
              
              
              303,813
              
              
              440,527Deposits
              
              
              372,762
              
              
              292,957
              
              
              279,600
              
              
              336,526
              
              
              336,360Long-term
                  debt
              
              
              42,300
              
              
              36,000
              
              
              30,000
              
              
              30,000
              
              
              35,775Stockholders’
                  equity
              
              $
              50,257
              
              $
              48,006
              
              $
              49,229
              
              $
              50,315
              
              $
              43,600**RATIOS**Return
                  on average assets
              
              
              .91
              %
              
              .62
              %
              
              .58
              %
              
              1.32
              %
              
              1.22
              %Return
                  on average equity
              
              
              7.76
              %
              
              4.86
              %
              
              4.44
              %
              
              12.14
              %
              
              12.80
              %Dividend
                  payout ratio
              
              
              24.63
              %
              
              160.00
              %
              
              149.37
              %
              
              11.70
              %
              
              12.25
              %Average
                  equity to average assets ratio
              
              
              11.77
              %
              
              12.66
              %
              
              13.24
              %
              
              10.88
              %
              
              9.55
              %
  Balance
        sheet amounts have not been adjusted to reflect discontinued operations.
  Page
            18 of
            75
  Item
                  7.
              MANAGEMENT'S
                  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
   **ORGANIZATION**
 
 Habersham
        Bancorp (the “Company”) owns all of the outstanding stock of Habersham Bank
        ("Habersham Bank") and The Advantage Group, Inc. Habersham Bank owns all
        of the
        outstanding stock of Advantage Insurers, Inc. (“Advantage Insurers”). Advantage
        Insurers, which began operations on March 31, 1997, offers a full line of
        property, casualty and life insurance products. The Advantage Group, Inc.
        and
        Advantage Insurers do not comprise a significant portion of the financial
        position, results of operations, or cash flows of the Company 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 and
        Stephens counties in Georgia. The Company’s primary source of revenue is
        interest income on loans to businesses and individuals in its market
        area.
 
 
 **EXECUTIVE
        SUMMARY**
 
 Net
        earnings for 2005 were $3,813,471, representing an increase of 62.74% from
        2004.
        Diluted earnings per share were $1.30, up $.50 per share from 2004, and return
        on average equity was 7.76% as compared to 4.86% for 2004. Year-to-date
        net earnings were impacted by growth in the loan portfolio and the improvement
        in the net interest margin of Habersham Bank. Habersham Bank’s balance sheet and
        earnings increased during 2005 as a result of the merger on July 25, 2005
        of
        Liberty Bank & Trust (“Liberty”) located in Toccoa, Georgia. The Liberty
        merger added two additional offices for Habersham Bank in the city of Toccoa
        and
        Stephens County, Georgia and approximately
        $23 million in
        assets, primarily loans, to the balance sheet. Additional income and expenses
        related to the operation of the Toccoa branches are reflected in the third
        and
        fourth quarter’s earnings.
 
 Total
        assets of $478 million at December 31, 2005, reflect an increase of $92 million
        or 23.83% from $386 million at December 31, 2004. Management reported that
        the
        increase is due primarily to increases in cash and due from banks, and federal
        funds sold of approximately $43.3 million, in addition to increases in the
        loan
        portfolio of Habersham Bank of approximately $39.9 million. Growth in Habersham
        Bank’s loan portfolio was divided between internally generated growth of
        approximately $25.2 million and the addition of approximately $14.4 million
        from
        the merger with Liberty. An increase in deposit balances at December 31,
        2005,
        resulted in a short-term investment in Federal Funds Sold of $36.3
        million.
 
 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.
        Increases on loan yields reflect the response of the Bank to the steady
        increases in the prime rate during 2005. The net interest margin of the Company
        was 4.55% in 2005 compared to 4.00% in 2004. The increase in the net interest
        margin is primarily due to the variable rate loan portfolio responding quicker
        to increases in the prime interest lending rate than the deposit portfolio.
        The
        majority of the variable rate loan portfolio is a daily adjustable rate product
        tied to the prime rate and can adjust immediately to prime rate increases
        while
        interest bearing deposits are primarily adjusted at maturity. Maintaining
        a
        profitable net interest margin (net interest income divided by average earning
        assets) continued to be the focus of management during 2005.
 
 Net
        interest income for 2005 increased approximately $3,384,000 during 2005
        primarily as a result of rates tied to prime in the variable rate loan portfolio
        adjusting to increases in the prime rate during the year. An increase
        in  Habersham
        Bank’s net loan growth of $39.6 million also impacted interest income. Loan
        growth, primarily in the real estate lending portfolio of approximately $40.3
        million was slightly offset by decreases in the commercial and consumer lending
        portfolios of approximately $239,000 and $156,000, respectively. Balances
        in the
        deposit portfolio increased approximately $79.8 million when compared to
        December 31, 2004. Noninterest bearing deposits increased approximately $48.4
        million and interest earning accounts increased approximately $31.4 million.
        The
        increase in deposits was the result of new branch locations in Toccoa, which
        added approximately $18.7 million to Habersham Bank’s deposit portfolios and
        growth in branch market areas added approximately $61.1
        million.
  Page
            19 of
            75
  Management
        has developed a strategy for asset growth and expansion of its financial
        services through branching into selective growth markets in North Georgia.
        At
        the end of business on July 25, 2005, Habersham Bank completed its merger
        with
        Liberty Bank & Trust in Toccoa, GA (Stephens County). During the last two
        years, Habersham Bank has expanded into several markets upon the completion
        of a
        branch office in Braselton, Georgia (Gwinnett County) and the opening of
        a
        branch in Hickory Flat, Georgia (Cherokee County). Gwinnett and Cherokee
        Counties are considered to be some of the fastest growing counties in
        Georgia.
 
 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.
 
 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
        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 Company’s 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.
 
 Certain
        economic factors could have a material impact on the loan loss allowance
        determination and its adequacy. The depth and duration of 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 90.55% of the total loan portfolio. While
        there is a risk that the value of the real estate securing the loans in the
        portfolio could decrease during an economic recession, 21.09% of the real
        estate
        securing the loan portfolio is 1 - 4 family residential properties which
        are
        generally not as affected by downturns in the economy. The Company also has
        concentrations in mortgages for agribusiness purposes in the poultry industry
        and in commercial loans for the travel accommodation industry. See
“Nonperforming Assets and Past Due Loans.”
  Page
            20 of
            75
  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, 2005 was $7.2 million, which does not pose a significant risk
        to
        the Company.
 
 The
        Company is not aware of any large loan relationships that if defaulted would
        have a significant impact on the allowance for loan losses.
 
 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.
 
 
 **RESULTS
        OF OPERATIONS**
 
 Habersham
        Bancorp’s net earnings were $3,813,471, $2,343,273 and $2,295,962, for the years
        ended December 31, 2005, 2004 and 2003, respectively, with related diluted
        earnings per common and common equivalent share of, $1.30, $.80 and $.79,
        respectively, representing an increase of 62.50% from 2005 to 2004, and an
        increase of 1.27% from 2003 to 2004.
 
 Net
        earnings represents a return on average equity of 7.76%, 4.86% and 4.44%
        in
        2005, 2004 and 2003, respectively.
 
 The
        average balance of the total loan portfolio for 2005 when compared to 2004
        increased approximately $25.7 million due to increases in average balances
        of
        internally generated loans of approximately $14.3 million and the average
        loan
        balances of approximately $11.4 million generated from the addition of Liberty’s
        loan portfolio. The average balance of the deposit portfolio during 2005
        increased approximately $31.1 million when compared to 2004. This increase
        in
        average deposits resulted from the addition of approximately $18.4 million
        in
        Liberty’s deposit portfolio and growth in the deposit portfolios at other branch
        offices of approximately $12.7 million. Average interest bearing and noninterest
        bearing deposit balances increased approximately $19.3 million and $11.8
        million, respectively, when compared to average deposit balances in
        2004.
 
 The
        increase in earnings for the year ended December 31, 2005, when compared
        to the
        year ended December 31, 2004, was primarily due to the increase in net interest
        income. Net earnings was impacted by a net decrease in noninterest income
        of
        approximately $779,000 and increases in noninterest expense of approximately
        $418,000. Increases in other income, trust service fees and income
        from company-owned life insurance of approximately $344,000, $38,000 and
        $14,000, respectively, were offset by decreases in noninterest income relating
        to the sale of land and the common stock investments of approximately $879,000
        and $199,000, respectively. Mortgage origination income decreased approximately
        $21,000 as a result of the slowing of the secondary mortgage market. A net
        loss
        of $5,654 occurred on securities sales for 2005 compared to a net gain of
        $51,816 for 2004.
 
 The
        increase in earnings from continuing operations for the year ended December
        31,
        2004, when compared to the year ended December 31, 2003, was primarily due
        to
        increases in noninterest income relating to sales of land and common stock
        investments of $879,000 and $199,000, respectively. Mortgage origination
        income
        increased approximately $194,000 during 2004. These increases were partially
        offset by decreases during 2004 in trust fees, deposit fees and other service
        charges of approximately $239,000, $93,000 and $34,000, respectively. Increases
        in noninterest expense also impacted earnings from continuing operations
        during
        2004 with approximately $652,000 and $306,000 in additional salaries and
        employee benefits as well as occupancy expense, respectively, related to
        a full
        year of operating branches located in Braselton and Hickory
        Flat.
  Page
            21 of
            75
  **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.
 
 2005
              
              2004
              
              2003Net
                  interest income
              
              $
              17,335,931
              
              $
              13,951,914
              
              $
              14,471,143
 
 Net
        interest income for 2005 increased approximately $3,384,000 when compared
        to
        2004 and decreased approximately $519,000 when compared to 2003. Fluctuations
        occurring in interest rates and balances in the loan, securities and deposit
        portfolios directly impacted net interest income. Other borrowings are also
        impacted by rate movements and balances. Net interest income is impacted
        by
        interest income from loans, investment securities and federal funds sold
        offset
        by interest paid on deposits and borrowings. The weighted average yield on
        loans
        was 7.62%, 6.52% and 6.94%, for the years ended December 31, 2005, 2004 and
        2003, respectively. The weighted average yield on investment securities was
        4.20%, 4.17% and 4.15%, for the years ended December 31, 2005, 2004 and 2003,
        respectively. Average yields on federal funds sold were 2.86%, 1.20% and
        1.50%
        for the years ended 2005, 2004 and 2003, respectively. Increases in the loan
        yields reflect the adjustments in pricing as the Federal Reserve raised the
        prime interest rate during 2005.
 
 Average
        balances in Habersham Bank’s loan portfolio increased during 2005, reversing a
        downward trend occurring during 2004. Habersham Bank increased its loan
        production in commercial and residential real estate secured loans during
        2005
        totaling approximately $39.9 million. The merger with Liberty added loans
        to the
        commercial, residential real estate mortgage and consumer portfolios totaling
        $6.6 million, $3.5 million and $1.3 million, respectively.
 
 Average
        balances in Habersham Bank’s loan portfolio trended  downward
        during 2004, primarily due to the maturities and payoffs of construction
        loans
        generated by BMFC totaling approximately $15.7 million in 2004. Habersham
        Bank
        has been able to replace these balances with increases in other loan categories.
        At December 31, 2005, approximately $625,000 of BMFC loans remained in Habersham
        Bank’s loan portfolio. During 2004, interest rates were declining as the prime
        interest rate decreased. Average investment securities balances increased
        during
        2004, as Habersham Bank was able to invest additional cash received from
        the
        maturities and payoffs of the BMFC loans.
 
 During
        2005, interest income increased approximately $5.2 million when compared
        to
        2004. Increases in interest income resulted from interest on loans, investments
        and in federal funds sold totaling approximately $4.9 million, $170,000 and
        $139,000, respectively. The increase in interest income from loans resulted
        from
        the impact of rising interest rates and increases in loan balances. Interest
        income from investment securities and federal funds sold increased primarily
        due
        to increases in balances in these investments.
 
 During
        2004, interest income decreased approximately $1.8 million when compared
        to
        2003. The decrease in interest income from loans was approximately $2.1 million
        primarily due to decreases in the average yield on loans from 6.94% in 2003
        to
        6.52% in 2004 and a decrease in the volume of loans in 2004 compared to 2003.
        This decrease was partially offset by increases in interest income from
        investment securities of approximately $306,000 as a result of increases
        in
        average investment balances and in the average yield on investment securities
        from 4.15% during 2003 to 4.17% during 2004.
 
 Interest
        expense for 2005 increased approximately $1.8 million when compared to 2004
        primarily as a result of increases within the deposit portfolios at Habersham
        Bank and increases in borrowing activity. The average interest-bearing deposit
        portfolios of certificates of deposit, Money Market & NOW accounts and
        savings increased approximately $13.6 million, $4.7 million and $1.0 million,
        respectively. During 2005, average rates on certificates of deposit, Money
        Market & NOW accounts and savings increased to 3.13%, 1.02% and .50%,
        respectively, during 2005 from 2.59%, .66% and .25%, respectively, in
        2004.
 
 Page
            22 of
            75
  Interest
        expense for 2004 decreased approximately $1.3 million when compared to 2003
        as a
        result of average interest-bearing deposit balances in 2004 decreasing
        approximately $15 million. At the same time, the weighted average interest
        rate
        paid on interest-bearing deposits decreased from 2.45% in 2003 to 1.97% in
        2004.
        The decrease in average balances was primarily due to maturities of certificates
        of deposit of approximately $23 million, offset by increases in average balances
        of Money Market and NOW accounts as well as increases in regular savings
        average
        balances of approximately $7.2 million and $780,000, respectively.
 
 The
        net
        interest margin of the Company was 4.55% in 2005, 4.00% in 2004 and 4.05%
        in
        2003. The net interest margin of the Company was maintained due to close
        management of yields earned on loans and investment securities and on rates
        paid
        for deposits and borrowings.
 
 
 **CONSOLIDATED
        AVERAGE BALANCES, INTEREST INCOME AND EXPENSE, AND AVERAGE YIELDS EARNED
        AND
        RATES PAID**
 
 Average
        balances in the loan portfolio increased approximately $25.7 million when
        compared to 2004 average balances. At December 31, 2005, the mix of the loan
        portfolio had changed from the loan balance mix at December 31, 2004 with
        increases in the commercial and residential real estate portfolio of
        approximately $40.3 million offset by decreases in the commercial and consumer
        portfolios of approximately $239,000 and $156,000, respectively.
 
 The
        increase in the commercial and residential real estate portfolio was primarily
        in commercial and residential construction lending of approximately $35.1
        million and in commercial real estate mortgages of approximately $3.8 million.
        Increases in the residential real estate mortgage portfolio also totaled
        approximately $1.4 million.
 
 Average
        balances in the loan portfolio declined approximately $14.1 million over
        2004 as
        compared to 2003. The mix of the loan portfolio changed during 2004 with
        decreases in real estate and consumer lending portfolios of approximately
        $49
        million and $2.5 million, respectively, offset by increases in the commercial
        lending and home equity line of credit portfolio of approximately $32.2 million
        and $5.2 million, respectively. The consumer lending portfolio decreased
        as
        customers moved from fixed rate installment loans to home equity lines of
        credit.
 
 Average
        balances of investment securities increased approximately $3.6 million or
        4.75%
        in 2005 over 2004. The increase in investment securities was a result of
        purchases of approximately $18.2 million offset by proceeds from maturities,
        sales and calls of investment securities of approximately $16.7 million.
        Average
        federal funds sold increased approximately $3.0 million or 92.78% in 2005
        over
        2004. Weighted average interest yields on investment securities increased
        to
        4.20% during 2005 from 4.17% during 2004.
 
 An
        increase of approximately $6.9 million in the average balances of investment
        securities in 2004 over 2003 resulted from increases in U.S. treasuries and
        U.S.
        government agency bonds of approximately $7.8 million offset by decreases
        in
        municipal bonds of approximately $887,000. Weighted average interest yields
        on
        investment securities increased to 4.17% during 2004 from 4.15% during
        2003.
 
 The
        average balances in the deposit portfolio during 2005 increased approximately
        $31.1 million during 2005. Increases within the average noninterest bearing
        deposit balances totaled approximately $11.8 million and within the average
        interest-bearing deposit balances totaled approximately $19.3 million. The
        average interest-bearing deposit portfolios of certificates of deposit, Money
        Market accounts, NOW accounts and savings increased approximately $13.6 million,
        $4.7 million and $1.0 million, respectively. Average rates on certificates
        of
        deposit, Money market accounts, NOW accounts and savings also increased
        approximately to 3.13%, 1.02% and .50%, respectively, during 2005. The increase
        in noninterest-bearing deposit balances had a positive impact upon the net
        interest margin at December 31, 2005.
 
 Page
            23 of
            75
  The
        average balances in the deposit portfolio during 2004 decreased approximately
        $10.9 million. Decreases in interest-bearing accounts of approximately $15
        million were offset by increases in noninterest-bearing accounts of
        approximately $4.1 million. This increase in noninterest-bearing accounts
        allowed Habersham Bank not to aggressively pursue certificates of deposit
        as
        they matured, resulting in decreases in the certificate of deposit portfolio.
        The average interest rate paid on deposits declined to 1.97% in 2004 from
        2.45%
        in 2003.
 
 The
        following table 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 not reported on a
        tax-equivalent basis. This information is presented for the years ended December
        31, 2005, 2004 and 2003.
  Page
            24 of
            75
  **CONSOLIDATED
        AVERAGE BALANCES, INTEREST INCOME AND EXPENSE, AND AVERAGE YIELDS EARNED
        AND
        RATES PAID, CONTINUED**
 2005
              
              2004Average
                Balance
              
              Income/
                (Expense)
              
              Average
                Yield/Cost
              
              Average
                Balance
              
              Income/
                (Expense)
              
              Average
                Yield/CostInterest-earning
                  assets:Loans,
                  net (1)
              
              $
              293,713,144
              
              
              22,371,900
              
              
              7.62
              %
              $
              268,041,043
              
              $
              17,472,126
              
              
              6.52
              %Investment
                  securities (2):Taxable
              
              
              61,236,097
              
              
              2,530,007
              
              
              4.13
              %
              
              59,403,527
              
              
              2,415,647
              
              
              4.07
              %Tax
                  exempt
              
              
              18,280,795
              
              
              807,397
              
              
              4.42
              %
              
              16,507,276
              
              
              751,363
              
              
              4.55
              %Federal
                  funds sold
              
              
              6,206,271
              
              
              177,491
              
              
              2.86
              %
              
              3,219,333
              
              
              38,648
              
              
              1.20
              %Loans
                  held for sale
              
              
              1,270,199
              
              
              49,474
              
              
              3.89
              %
              
              1,282,460
              
              
              65,635
              
              
              5.12
              %Total
                  interest-earning assets
              
              
              380,706,506
              
              
              25,936,269
              
              
              6.81
              %
              
              348,453,639
              
              
              20,743,419
              
              
              5.95
              %Noninterest-earning
                  assets
              
              
              36,714,390
              
              
              
              
              
              
              
              
              31,920,862Total
                  assets
              
              $
              417,420,896
              
              
              
              
              
              
              
              $
              380,374,501Interest-bearing
                  liabilities:Money
                  Market and NOW
              
              $
              69,479,318
              
              
              (710,963
              )
              
              1.02
              %
              $
              64,767,791
              
              
              (425,621
              )
              
              0.66
              %Savings
                  accounts
              
              
              11,057,316
              
              
              (
                  54,899
              )
              
              .50
              %
              
              10,079,223
              
              
              (24,528
              )
              
              0.24
              %Certificates
                  of deposit
              
              
              179,465,367
              
              
              (5,617,424
              )
              
              3.13
              %
              
              165,829,698
              
              
              (4,301,470
              )
              
              2.59
              %Total
                  deposits
              
              
              260,002,001
              
              
              (6,383,286
              )
              
              2.46
              %
              
              240,676,712
              
              
              (4,751,619
              )
              
              1.97
              %Short-term
                  and other borrowings
              
              
              49,097,093
              
              
              (2,217,052
              )
              
              4.52
              %
              
              44,661,916
              
              
              (2,039,886
              )
              
              4.57
              %Total
                  interest-bearing liabilities
              
              
              309,099,094
              
              
              (8,600,338
              )
              
              2.78
              %
              
              285,338,628
              
              
              (6,791,505
              )
              
              2.38
              %Noninterest-
                  bearing deposits
              
              
              55,581,576
              
              
              
              
              
              
              
              
              43,795,027Other
                    noninterest-bearing liabilities
              
              
              3,600,161
              
              
              
              
              
              
              
              
              3,074,133Total
                  liabilities
              
              
              368,280,831
              
              
              
              
              
              
              
              
              332,207,788Stockholders'
                  equity
              
              
              49,140,065
              
              
              
              
              
              
              
              
              48,166,713Total
                  liabilities and stockholders' equity
              
              $
              417,420,896
              
              
              
              
              
              
              
              $
              380,374,501Net
                  interest income
              
              
              
              
              $
              17,335,931
              
              
              
              
              
              
              
              $
              13,951,914Net
                  interest margin
              
              
              
              
              
              
              
              
              4.55
              %
              
              
              
              
              
              
              
              4.00
              %Interest
                  rate spread
              
              
              
              
              
              
              
              
              4.03
              %
              
              
              
              
              
              
              
              3.57
              %
 Page
              25 of
              75
  **CONSOLIDATED
        AVERAGE BALANCES, INTEREST INCOME AND EXPENSE, AND AVERAGE YIELDS EARNED
        AND
        RATES PAID, CONTINUED**
 2003Average
                Balance
              
              Income/
                (Expense)
              
              Average
                Yield/CostInterest-earning
                  assets:Loans,
                  net (1)
              
              $
              282,142,667
              
              $
              19,579,912
              
              
              6.94
              %Investment
                  securities (2):Taxable
              
              
              51,563,715
              
              
              2,040,625
              
              
              3.96
              %Tax
                  exempt
              
              
              17,394,027
              
              
              820,122
              
              
              4.71
              %Federal
                  funds sold
              
              
              3,639,083
              
              
              54,593
              
              
              1.50
              %Loans
                  held for sale
              
              
              2,523,729
              
              
              97,558
              
              
              3.87
              %Total
                  interest-earning assets
              
              
              357,263,221
              
              
              22,592,810
              
              
              6.32
              %Noninterest-earning
                  assets
              
              
              33,023,404Total
                  assets
              
              $
              390,286,625Interest-bearing
                  liabilities:Money
                  Market and NOW
              
              $
              57,534,840
              
              
              (355,015
              )
              
              .62
              %Savings
                  accounts
              
              
              9,298,757
              
              
              (41,537
              )
              
              .45
              %Certificates
                  of deposit
              
              
              188,858,305
              
              
              (5,856,071
              )
              
              3.10
              %Total
                  deposits
              
              
              255,691,902
              
              
              (6,252,623
              )
              
              2.45
              %Short-term
                  and other borrowings
              
              
              39,724,975
              
              
              (1,869,044
              )
              
              4.70
              %Total
                  interest-bearing liabilities
              
              
              295,416,877
              
              
              (8,121,667
              )
              
              2.75
              %Noninterest-bearing
                  deposits
              
              
              39,691,635Other
                  noninterest-bearing liabilities
              
              
              3,513,987Total
                  liabilities
              
              
              338,622,499Stockholders'
                  equity
              
              
              51,664,126Total
                  liabilities and stockholders' equity
              
              $
              390,286,625Net
                  interest income
              
              
              
              
              $
              14,471,143Net
                  interest margin
              
              
              
              
              
              
              
              
              4.05
              %Interest
                  rate spread
              
              
              
              
              
              
              
              
              3.57
              %
 
 (1)
              Interest
                  earnings on nonaccrual loans are included in the foregoing analysis
                  to the
                  extent that such interest earnings had been recorded during 2005,
                  2004 and
                  2003. Income includes loan fees of $1,869,748, $1,393,790 and $1,277,034
                  for 2005, 2004 and 2003, 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 shareholders'
                  equity.
  Page
            26 of
            75
  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:
 
 2005
                  vs. 2004
                Increase
                (Decrease)
                Due
                  to
              
              2004
                  vs. 2003
                Increase
                (Decrease)
                Due
                  toAverage
                Volume
                  (1)
              
              Average
                Rate
                  (1)
              
              Net
              
              Average
                Volume
                  (1)
              
              Average
                Rate
                  (1)
              
              NetInterest
                  Income:Loans
              
              $
              1,673,821
              
              $
              3,225,953
              
              $
              4,899,774
              
              $
              (978,653
              )
              $
              (1,129,133
              )
              $
              (2,107,786
              )Investment
                  securities:Taxable
              
              
              47,586
              
              
              66,774
              
              
              114,360
              
              
              310,456
              
              
              64,566
              
              
              375,022Tax
                  exempt
              
              
              80,695
              
              
              (24,661
              )
              
              56,034
              
              
              (41,766
              )
              
              (26,993
              )
              
              (68,759
              )Federal
                  funds sold
              
              
              35,843
              
              
              103,000
              
              
              138,843
              
              
              (6,296
              )
              
              (9,649
              )
              
              (15,945
              )Loans
                  held for sale
              
              
              (628
              )
              
              (15,533
              )
              
              (16,161
              )
              
              (48,037
              )
              
              16,114
              
              
              (31,923
              )Total
                  interest-earning assets
              
              $
              1,837,317
              
              $
              3,355,533
              
              $
              5,192,850
              
              $
              (764,296
              )
              $
              (1,085,095
              )
              $
              (1,849,391
              )Interest
                  Expense:Money
                  Market and NOW
              
              $
              31,096
              
              $
              254,246
              
              $
              285,342
              
              $
              44,844
              
              $
              25,762
              
              $
              70,606Savings
                  accounts
              
              
              2,347
              
              
              28,024
              
              
              30,371
              
              
              3,512
              
              
              (20,521
              )
              
              (17,009
              )Certificates
                  of deposit
              
              
              353,164
              
              
              962,790
              
              
              1,315,954
              
              
              (713,887
              )
              
              (840,714
              )
              
              (1,554,601
              )Short-term
                  and other borrowings
              
              
              202,688
              
              
              (25,522
              )
              
              177,166
              
              
              232,036
              
              
              (61,194
              )
              $
              170,842Total
                  interest-bearing liabilities
              
              $
              589,295
              
              $
              1,219,538
              
              $
              1,808,833
              
              $
              (433,495
              )
              $
              (896,667
              )
              $
              (1,330,162
              )Change
                  in net interest income
              
              $
              1,248,022
              
              $
              2,135,995
              
              $
              3,384,017
              
              $
              (330,801
              )
              $
              (188,428
              )
              $
              (519,229
              )
 
 1)
              The
                  changesin
                  interest income and/or expense not due solely to rate or volume
                  have been
                  allocated to the rate component.
  Page
            27 of
            75
  **NONINTEREST
        INCOME AND NONINTEREST EXPENSE**
 
 Noninterest
        income decreased approximately $779,000 during 2005. Noninterest income for
        2004
        included gains recorded on the sale of land and investments in common stock
        of
        Georgia Community Life Insurance Company and Southeast Bankcard Association
        Inc.
        of approximately $879,000 and $199,000, respectively. Without the gains reported
        in 2004, noninterest income during 2005 increased approximately $299,000.
        Increases occurred primarily in other income, trust service fees and income
        from
        company-owned life insurance of approximately $344,000, $38,000 and $14,000,
        respectively were offset by decreases in mortgage origination income of
        approximately $21,000 as a result of the slowing of the secondary mortgage
        market and a decrease in service charges on deposit accounts and in other
        service charges of approximately $33,000. The majority of the increase of
        $344,000 in other income resulted from the additional rental income received
        from the other real property of approximately $185,000, an increase in data
        processing income of approximately $20,000, an increase in safe deposit box
        rent
        of approximately $14,000 and an increase of approximately $7,000 from twelve
        months of rental income from the Waleska property. A net loss of $5,654 occurred
        on securities sales for 2005 compared to a net gain of $51,816 for
        2004.
 
 Noninterest
        income increased approximately $941,000 during 2004 primarily due to gains
        recorded on the sale of land and investments in common stock of Georgia
        Community Life Insurance Co and Southeast Bankcard Association Inc. of
        approximately $879,000 and $199,000, respectively. Mortgage origination income
        increased approximately $194,000 during 2004 reflecting increased activity
        generated by Habersham Mortgage. These increases were offset somewhat by
        decreases during 2004 in trust fees, deposit fees and other service charges
        of
        approximately $239,000, $93,000 and $34,000, respectively. The Trust Department
        is no longer serving as trustee for several large accounts which resulted
        in
        lower trust income.
 
 Noninterest
        expense in 2005 increased approximately $418,000 or 2.83% as compared to
        2004.
        Increases in salaries and employee benefits, occupancy expenses, other operating
        expenses and computer expenses, totaled approximately $212,000, $95,000,
        $80,000
        and $30,000, respectively. These increases were primarily due to the Liberty
        merger which occurred July 25, 2005. The merger increased the number of
        employees with additional salary and benefit expenses, additional occupancy
        and
        data processing expenses.
 
 Noninterest
        expense in 2004 increased approximately $777,000 or 5.54% as  compared
        to 2003.  The
        majority of the increase is directly attributable to expenses related to
        the
        Braselton and Hickory Flat offices for salaries and employee benefits as
        well as
        occupancy expenses for the full year. The Braselton Office opened during
        the
        fourth quarter of 2003 and the Hickory Flat Office opened during the first
        quarter of 2004.
 
 
 **INCOME
        TAX EXPENSE**
 
 Income
        tax expense for the periods ended December 31, 2005, 2004 and 2003 was
        approximately $1,649,000, $780,000 and $715,000, respectively. The effective
        tax
        rate for the periods ended December 31, 2005, 2004 and 2003 was 30.19%, 24.97%
        and 23.76%, respectively. Tax-exempt income on investment securities in
        municipal bonds for the period ended December 31, 2005, 2004 and 2003 was
        14.78%, 24.06% and 27.23% of pre-tax income, respectively. Income tax expense
        for the years ended December 31, 2005, 2004 and 2003 is more fully explained
        in
        note 13 to
        the
        consolidated financial statements.
  Page
            28 of
            75
  **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
        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. See “Critical Accounting
        Estimates.”
 
 The
        allowance for loan losses methodology is based on a loan classification system.
        For purposes of determining the required allowance for loan losses and resulting
        periodic provisions, the Company identifies problem loans in its portfolio
        and
        segregates the remainder of the loan portfolio into broad segments, such
        as
        commercial, commercial real estate, residential mortgage and consumer. The
        Company provides for a general allowance for losses inherent in the portfolio
        for each of the above categories. The general allowance is calculated based
        on
        estimates of inherent losses which probably exist as of the evaluation date.
        Loss percentages used for non-problem loans in the portfolio are based on
        historical loss factors. The general allowance for losses on problem loans
        is
        based on a review and evaluation of these loans, taking into consideration
        financial condition and strengths of the borrower, related collateral, cash
        flows available for debt repayment, and known and expected economic conditions.
        General loss percentages for the problem loans are determined based upon
        historical loss experience and regulatory requirements.
 
 For
        loans
        considered impaired, specific allowances are provided in the event that the
        specific collateral analysis on each problem loan indicates that the liquidation
        of the collateral would not result in repayment of these loans if the loan
        is
        collateral dependent or if the present value of expected future cash flows
        on
        the loan are less than the balance. In addition to these allocated allowances,
        the Company has established an unallocated allowance of approximately $179,000
        at December 31, 2005. The basis for the unallocated allowance is due to a
        number
        of qualitative factors, such as concentrations of credit and changes in the
        outlook for local and regional economic conditions.
 
 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, 2005, 2004,
        2003,
        2002 and 2001 is as follows:
 
 2005
              
              2004
              
              2003
              
              2002
              
              2001Amount
              
              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 loansCommercial,
                  financial and agricultural
              
              $
              69,844
              
              
              5.2
              %
              $
              366,110
              
              
              5.9
              %
              $
              411,359
              
              
              5.5
              %
              $
              372,075
              
              
              5.6
              %
              $
              859,875
              
              
              7.3
              %Real
                  estate
              
              
              2,714,789
              
              
              90.5
              %
              
              2,564,713
              
              
              89.1
              %
              
              2,315,343
              
              
              88.3
              %
              
              2,214,516
              
              
              87.5
              %
              
              1,968,745
              
              
              84.8
              %Installment
                  loans to individuals
              
              
              981,002
              
              
              4.3
              %
              
              629,068
              
              
              5.0
              %
              
              618,639
              
              
              6.2
              %
              
              724,794
              
              
              6.9
              %
              
              598,657
              
              
              7.9
              %Unallocated
              
              
              178,890
              
              
              -
              
              
              74,752
              
              
              -
              
              
              297,761
              
              
              -
              
              
              221,924
              
              
              -
              
              
              174,600
              
              
              -Total
              
              $
              3,944,525
              
              
              100.0
              %
              $
              3,634,643
              
              
              100.0
              %
              $
              3,643,102
              
              
              100.0
              %
              $
              3,533,309
              
              
              100.0
              %
              $
              3,601,877
              
              
              100.0
              %
 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
          provision for loan losses was $330,000 in 2005 as compared to $482,500
          in 2004.
          A decrease in the provision for loan losses expense was determined to be
          appropriate due to the decrease in net charge-offs for 2005. Net charge-offs
          totaled approximately $235,000 compared to $491,000 in 2004.
 Page
            29 of
            75
  Management
        is 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.
 
 The
        following table summarizes, for each of the years in the five year period
        ended
        December 31, 2005, selected information related to the allowance for loan losses.
 
 **2005**
              
              **2004**
              
              **2003**
              
              **2002**
              
              **2001**Balance
                  of allowance for loan losses at beginning of period
              
              $
              3,634,643
              
              $
              3,643,102
              
              $
              3,533,309
              
              $
              3,601,877
              
              $
              3,189,187Liberty
                  Bank and Trust allowance
              
              
              215,079
              
              
              -
              
              
              -
              
              
              -
              
              
              -Charge-offs:Commercial,
                  financial andagricultural
              
              
              (44,799
              )
              
              (145,422
              )
              
              (329,905
              )
              
              (372,583
              )
              
              (481,978
              )Real
                  estate
              
              
              (113,310
              )
              
              (427,365
              )
              
              (137,861
              )
              
              (470,433
              )
              
              (283,163
              )Installment
                  loans to individuals
              
              
              (273,935
              )
              
              (228,331
              )
              
              (660,230
              )
              
              (670,977
              )
              
              (444,584
              )Other
              
              
              (12,307
              )
              
              (11,074
              )
              
              (20,279
              )
              
              (33,729
              )
              
              (47,415
              )Total
                  charge-offs
              
              
              (444,351
              )
              
              (812,192
              )
              
              (1,148,275
              )
              
              (1,547,722
              )
              
              (1,257,140
              )Recoveries:Commercial,
                  financial andagricultural
              
              
              29,952
              
              
              56,558
              
              
              130,864
              
              
              25,759
              
              
              63,451Real
                  estate
              
              
              45,409
              
              
              143,308
              
              
              45,581
              
              
              25,244
              
              
              24,720Installment
                  loans to individuals
              
              
              131,120
              
              
              114,624
              
              
              125,179
              
              
              112,017
              
              
              105,671Other
              
              
              2,673
              
              
              6,743
              
              
              6,444
              
              
              9,134
              
              
              12,988Total
                  recoveries
              
              
              209,154
              
              
              321,233
              
              
              308,068
              
              
              172,154
              
              
              206,830Net
                  charge-offs
              
              
              (235,197
              )
              
              (490,959
              )
              
              (840,207
              )
              
              (1,375,568
              )
              
              (1,050,310
              )Provision
                  for loan losses
              
              
              330,000
              
              
              482,500
              
              
              950,000
              
              
              1,307,000
              
              
              1,463,000Balance
                  of allowance for loanlosses
                  at end of period
              
              $
              3,944,525
              
              $
              3,634,643
              
              $
              3,643,102
              
              $
              3,533,309
              
              $
              3,601,877Average
                  amount of loans
              
              $
              293,713,144
              
              $
              268,041,043
              
              $
              282,142,667
              
              $
              306,940,750
              
              $
              333,320,432Ratio
                  of net charge-offs duringthe
                  period to average loans outstanding during the period
              
              
              .08
              %
              
              .18
              %
              
              .30
              %
              
              .45
              %
              
              .32
              %Ratio
                  of allowance to total year-end loans
              
              
              1.23
              %
              
              1.29
              %
              
              1.37
              %
              
              1.15
              %
              
              1.11
              %
 
 During
        2005, charge-offs of consumer loans, real estate secured loans and commercial
        loans which totaled approximately $286,000, $113,000 and $45,000, were offset
        by
        recoveries of $134,000, $45,000 and $30,000, respectively. During
        2004, charge-offs of real estate secured loans, consumer loans and commercial
        loans which totaled approximately $427,000, $239,000 and $145,000, were offset
        by recoveries of $143,000, $121,000 and $57,000, respectively. The
        number and the average balance of charge-offs during 2005 and 2004 by category
        follows:
 
 2005
              
              2004Category
              
              Number
                  Average Charge-off
              
              Number
                  Average Charge-offReal
                  estate
              
              
              5
              
              $
              22,662
              
              
              15
              
              $
              28,466Consumer
              
              
              74
              
              
              3,868
              
              
              55
              
              
              4,345Commercial
              
              
              4
              
              
              11,200
              
              
              10
              
              
              14,500
 
 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.
 
 Management
        believes that 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
            30 of
            75
 
 **LOANS**
 
 The
        amount of loans outstanding at December 31 for each of the last five years
        is
        set forth in the following table according to type of loan and is net of
        unamortized loan origination fees and unamortized discount on SBA loans sold.
        The Company had no foreign loans at December 31 in any of the last five
        years.
 
 **2005**
              
              **2004**
              
              **2003**
              
              **2002**
              
              **2001**Commercial,
                  financialand
                  agricultural
              
              $
              16,465,079
              
              $
              16,673,310
              
              $
              14,651,171
              
              $
              17,070,602
              
              $
              23,921,875Real
                  estate - construction
              
              
              120,872,011
              
              
              79,683,839
              
              
              50,134,674
              
              
              106,759,853
              
              
              119,663,535Real
                  estate - mortgage
              
              
              169,645,585
              
              
              170,504,085
              
              
              184,348,892
              
              
              162,281,200
              
              
              156,022,201Installment
                  loans to individuals
              
              
              13,751,608
              
              
              13,927,123
              
              
              16,355,654
              
              
              21,294,151
              
              
              25,531,911Total
              
              $
              320,734,283
              
              $
              280,788,357
              
              $
              265,490,391
              
              $
              307,405,806
              
              $
              325,139,522
 
 
 Loans
        increased approximately $39.9 million or 14.21% at December 31, 2005 as compared
        to December 31, 2004. Increases in real estate construction lending totaling
        approximately $41.2 million were offset by maturity and payoffs in real estate
        mortgages, consumer and commercial loans.
 
 Loans
        increased approximately $15.3 million or 5.76% at December 31, 2004 as compared
        to December 31, 2003. Increases in real estate construction and commercial
        lending totaling approximately $31.5 million were offset by maturity and
        payoffs
        of real estate mortgages and consumer loans.
 
 The
        following table sets forth the maturities and sensitivities to changes in
        interest rates of loans at December 31, 2005.
 
 LOAN
                  MATURITY:
              
              **DUE
                  IN**
                **ONE
                  YEAR**
              
              **DUE
                  AFTER**
                **ONE
                  THROUGH**
                **FIVE
                  YEARS**
              
              **DUE
                  AFTER**
                **FIVE
                  YEARS**
              
              **TOTAL**Commercial,
                  financial and agricultural
              
              $
              13,018,184
              
              $
              3,398,456
              
              $
              48,439
              
              $
              16,465,079Real
                  estate - construction .
              
              
              120,056,061
              
              
              815,950
              
              
              -
              
              
              120,872,011Real
                  estate - mortgage
              
              
              141,747,549
              
              
              27,263,147
              
              
              634,889
              
              
              169,645,585Installment
                  loans to individuals
              
              
              6,385,491
              
              
              7,303,660
              
              
              62,457
              
              
              13,751,608TOTAL
              
              $
              281,207,285
              
              $
              38,781,213
              
              $
              745,785
              
              $
              320,734,283LOAN
                  INTEREST RATE SENSITIVITY:Loans
                  with:Predetermined
                  interest rates .
              
              $
              57,102,402
              
              $
              38,781,213
              
              $
              745,785
              
              $
              96,629,400Floating
                  or adjustable interest rates
              
              
              224,104,883
              
              
              -
              
              
              -
              
              
              224,104,883TOTAL
              
              $
              281,207,285
              
              $
              38,781,213
              
              $
              745,785
              
              $
              320,734,283
  Page
            31 of
            75
  **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.
  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:**
              
              **2005**
              
              **2004**
              
              **2003**
              
              **2002**
              
              **2001**Accruing
                  loans 90 days past due
              
              $
              799,128
              
              $
              381,670
              
              $
              503,954
              
              $
              2,178,898
              
              $
              3,031,122Nonaccrual
                  loans
              
              
              363,003
              
              
              3,252,464
              
              
              2,299,796
              
              
              2,115,485
              
              
              2,097,964Restructured
                  loans
              
              
              130,613
              
              
              119,031
              
              
              26,217
              
              
              492,064
              
              
              689,510Other
                  real estate owned
              
              
              2,773,662
              
              
              1,289,880
              
              
              2,634,673
              
              
              3,197,020
              
              
              4,685,704Total
                  nonperforming assets
              
              $
              4,066,406
              
              $
              5,043,045
              
              $
              5,464,640
              
              $
              7,983,467
              
              $
              10,504,300**RATIOS:**Nonperforming
                  loans (excluding restructured loans) to total loans
              
              
              .36
              %
              
              1.29
              %
              
              1.06
              %
              
              1.40
              %
              
              1.58
              %Nonperforming
                  assets to total loans plus other real estate owned
              
              
              1.27
              %
              
              1.79
              %
              
              2.04
              %
              
              2.57
              %
              
              3.18
              %Allowance
                  to nonperforming loans
              
              
              305.13
              %
              
              96.84
              %
              
              128.73
              %
              
              73.82
              %
              
              61.90
              %
 
 Nonperforming
        assets decreased approximately $977,000 or 19.37% from December 31, 2004
        to
        December 31, 2005. The decrease was primarily due to decreases in nonaccrual
        loans of approximately $2,889,000 offset by increases in other real estate
        owed,
        accruing loans 90 days past due and restructured loans of approximately
        $1,484,000, $417,000 and $12,000, respectively.
 
 Nonperforming
        assets decreased approximately $422,000 or 7.72% from December 31, 2003 to
        December 31, 2004. The decrease was primarily due to decreases in other real
        estate owned and accruing loans 90 days past due of approximately $1,345,000
        and
        $122,000, respectively, offset by increases in nonaccrual and restructured
        loans
        of approximately $953,000 and $93,000, respectively.
 
 Loans
        classified as 90 days past due increased approximately $417,000 from December
        31, 2004 to December 31, 2005. The decrease is the net result of the following
        changes:
 
 Balance
                  at December 31, 2004
              
              $
              381,670New
                  loans classified to 90 days past due status
              
              
              1,990,73090
                  days past due loans charged-off
              
              
              (68,317
              )Payments
                  received
              
              
              (1,504,955
              )Balance
                  at December 31, 2005
              
              $
              799,128
  The
        following summarizes accruing loans 90 days past due at December 31, 2005:
  Balance
                  at December 31, 2005
              
              Number
              
              TypeReal
                  estate secured loans
              
              
              6
              
              $
              633,988Consumer
                  loans
              
              
              5
              
              
              165,140Total
                  accruing loans 90 days past due
              
              
              11
              
              $
              799,128
  Page
            32 of
            75
  The
        Company had impaired loans of $363,003 and $3,252,464 at December 31, 2005
        and
        2004, respectively. Impaired loans consist of loans on nonaccrual status.
        The
        increase is the net result of the following changes:
 
 Balance
                  at December 31, 2004
              
              $
              3,252,464Advances
              
              
              78,502Loans
                  reclassified to non-accrual status
              
              
              896,312Payments
                  received on non-accrual loans
              
              
              (145,301
              )Nonaccrual
                  loans charged-off
              
              
              (243,647
              )Nonaccrual
                  loans reclassified to other real estate
              
              
              (2,862,922
              )Nonaccrual
                  loan reclassified back to accrual status
              
              
              (612,405
              )Balance
                  at December 31, 2005
              
              $
              363,003
  The
        decrease in loans on nonaccrual status during 2005 was primarily due to the
        foreclosure of one loan collateralized by multi-family residential property
        of
        approximately $2,471,000 during the first quarter of 2005. At December 31,
        2005,
        non-accrual loans consisted of twelve loans secured by residential real estate
        and four consumer loans totaling approximately $296,001 and $67,002,
        respectively.
 
 The
        increase in loans on nonaccrual status during 2004 was primarily due to the
        movement of one loan collateralized by multi-family residential property
        of
        approximately $2,471,000 to nonaccrual status during December 2004. Other
        additions to loans on nonaccrual status consisted of loans secured by
        residential properties, consumer loans and commercial loans totaling
        approximately $939,000, $132,000 and $29,000, respectively.
 
 During
        2005, one loan was added to the restructured loan listing for approximately
        $20,000, offset by payments received of approximately $8,000.
 
 Restructured
        loans increased during 2004 due to the restructuring of two loans secured
        by
        residential real estate of approximately $119,000, offset by one loan of
        approximately $26,000 which was paid off.
 
 The
        Company’s other real estate consists of eight properties totaling approximately
        $2,774,000 at December 2005 and eleven properties totaling approximately
        $1,290,000 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 $2,471,000 and eight loans collateralized
        by
        residential real estate totaling approximately $556,000 offset by the sale
        of
        thirteen properties totaling approximately $1.5 million. At December 31,
        2005,
        the Company’s other real estate consisted of the following:
  Number
                  of Properties
              
              AmountMulti-family
                  residential
              
              
              1
              
              $
              2,470,498Commercial
                  properties
              
              
              2
              
              
              157,1081-4
                  Family residential properties
              
              
              4
              
              
              118,056Lot
              
              
              1
              
              
              28,000$
              2,773,662
 
 The
        multi-family resident property has an appraised value of approximately $2.6
        million and is being actively marketed. During 2005, Habersham Bank managed
        the
        property with rental income offsetting the maintenance expenses.
 
 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 sales efforts.
  Page
            33 of
            75
  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 and restructured loans in accordance with their
        original terms totaled $73,603, $271,446 and $217,088 in 2005, 2004 and 2003,
        respectively, compared with interest income recognized of $37,569, $169,648
        and
        $113,450, respectively.
 
 At
        December 31, 2005, the Company had no significant loans which management
        designated as potential problem loans which have not been disclosed above
        as
        nonaccrual or past due loans.
 
 Habersham
        Bank held a concentration in mortgages for agribusiness purposes in the poultry
        industry which totaled approximately $4.4 million and $5.9 million at December
        31, 2005 and 2004, or approximately 1.39% and 2.13% of total net loans at
        December 31, 2005 and 2004, respectively. These mortgages for agribusiness
        purposes are primarily secured by real estate consisting of residences, poultry
        houses and equipment. None of the mortgages are considered individually
        significant. Habersham Bank also held a concentration in commercial loans
        for
        the travel accommodation industry which total approximately $14.8 million
        and
        $22 million, or approximately 4.62% and 7.94% of total net loans at December
        31,
        2005 and 2004, respectively. These loans are primarily secured by commercial
        real estate.
 
 
 **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, 2005
        approximately $73.1 million of investment securities were classified as
        available for sale. Approximately $985,000 of net unrealized loss, net of
        income
        taxes, was included in shareholders' equity related to available for sale
        investment securities.
 
 The
        following table sets forth the carrying amounts of investment securities
        at
        December 31, 2005, 2004 and 2003.
 
 **2005**
              
              **2004**
              
              **2003**Investment
                  securities available for sale:U.S.
                  treasury
              
              $
              22,442,975
              
              $
              14,621,301
              
              $
              14,667,221U.S.
                  government agencies
              
              
              34,365,696
              
              
              41,005,664
              
              
              45,272,660State
                  and political subdivisions
              
              
              15,997,351
              
              
              14,017,690
              
              
              12,194,882Other
                  investments
              
              
              309,210
              
              
              668,830
              
              
              677,868Total
              
              $
              73,115,232
              
              $
              70,313,485
              
              $
              72,812,631Investment
                  securities held to maturity:U.S.
                  government agencies
              
              $
              100,164
              
              $
              144,900
              
              $
              193,008State
                  and political subdivisions
              
              
              3,287,285
              
              
              3,966,141
              
              
              4,666,705Total
              
              $
              3,387,449
              
              $
              4,111,041
              
              $
              4,859,713
  Page
            34 of
            75
  The
        following table sets forth the maturities of debt investment securities at
        carrying value at December 31, 2005 and the related weighted yields.
 
 **MATURING
                  IN****ONE
                  YEAR**
                **OR
                  LESS**
              
              **1-5**
                **YEARS**
              
              **5-10**
                **YEARS**
              
              **AFTER
                  10**
                **YEARS**Investment
                  securities available for sale:Carrying
                  value:U.S.
                  treasury
              
              $
              123,101
              
              $
              3,928,153
              
              $
              12,780,181
              
              $
              5,611,540U.S.
                  government agencies
              
              
              20,073
              
              
              2,011,353
              
              
              2,619,981
              
              
              29,714,289State
                  and political subdivisions
              
              
              -
              
              
              2,189,410
              
              
              5,558,418
              
              
              8,249,523Weighted
                  average yields:U.S.
                  treasury
              
              
              3.07
              %
              
              4.01
              %
              
              4.76
              %
              
              5.18
              %U.S.
                  government agencies
              
              
              4.78
              %
              
              3.67
              %
              
              3.98
              %
              
              4.52
              %State
                  and political subdivisions
              
              
              -
              %
              
              4.06
              %
              
              4.32
              %
              
              4.19
              %Investment
                  securitiesheld
                  to maturity:Carrying
                  value:U.S.
                  government agencies
              
              $
              -
              
              $
              26,696
              
              $
              56,857
              
              $
              16,611State
                  and political subdivisions
              
              
              -
              
              
              1,666,428
              
              
              670,308
              
              
              950,549Weighted
                  average yields:U.S.
                  government agencies
              
              
              -
              %
              
              6.03
              %
              
              8.34
              %
              
              6.92
              %State
                  and political subdivisions
              
              
              -
              %
              
              4.58
              %
              
              4.76
              %
              
              4.82
              %
  No securities were held which represent a combined total for one issuer which
        is in
        excess of 10% of the Company's shareholders’ equity at December 31,
        2005.
  **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. Each FHLB loan amount is $3 million
        with a quarterly adjustable rate set at 23 basis points above the three month
        LIBOR. The first swap contract was entered into during the second quarter
        and is
        for a 4.5% fixed rate on a $3 million notional amount. The swap matures on
        May
        21, 2009. The second swap contract was entered into during the third quarter
        of
        2004 and is for a 4.05% fixed rate on a $3 million notional amount. The swap
        matures on August 26, 2009.
  At
        December 31, 2005 and 2004, the swaps are being accounted for as cash flow
        hedges and the fair values are included in other comprehensive income, net
        of
        taxes. At December 31, 2005, Habersham Bank recorded an asset for approximately
        $80,000 to reflect the fair value of the swaps. At December 31, 2004, Habersham
        Bank recorded a liability for approximately $123,000 to reflect the fair
        value
        of the swaps. No hedge ineffectiveness from these cash flow hedges was
        recognized in the consolidated statement of earnings.
  Refer
        to
        Note 12 of the consolidated financial statements for a more complete description
        of the use of derivatives and hedging activities.
  Page
            35 of
            75
  **DEPOSITS**
 
 Average
        deposits increased approximately $31.1 million and decreased approximately
        $10.9
        million during 2005 and 2004, respectively.
 
 The
        following table sets forth the average amount of deposits and average rate
        paid
        on such deposits for the years ended December 31, 2005, 2004 and 2003.
 
 2005
                AVG.
                  AMT
                OUTSTANDING
              
              AVG
                RATE
              
              2004
                AVG.
                  AMT
                OUTSTANDING
              
              AVG
                RATE
              
              2003
                AVG.
                  AMT
                OUTSTANDING
              
              AVG
                RATEInterest-bearing
                  demand deposits
              
              $
              69,479,318
              
              
              1.02%
              
              $
              64,767,791
              
              
              .66%
              
              $
              57,534,840
              
              
              .62%Saving
                  deposits
              
              
              11,057,316
              
              
              .50%
              
              
              10,079,223
              
              
              .24%
              
              
              9,298,757
              
              
              .45%Noninterest-bearing
                  demand deposits
              
              
              55,581,576
              
              
              n/a
              
              
              43,795,027
              
              
              n/a
              
              
              39,691,635
              
              
              n/aTime
                  deposits
              
              
              179,465,367
              
              
              3.13%
              
              
              165,829,698
              
              
              2.59%
              
              
              188,858,305
              
              
              3.10%Total
                  average deposits
              
              $
              315,583,577
              
              
              
              
              $
              284,471,739
              
              
              
              
              $
              295,383,537
 
 At
        December 31, 2005, time certificates of deposit of $100,000 or more totaled
        $88,428,060. The maturities of all time certificates of deposit over $100,000
        are as follows:
 
 3
                  months or less
              
              $
              8,687,017Over
                  3 but less than 6 months
              
              
              32,918,334Over
                  6 but not more than 12 months
              
              
              27,433,727Over
                  1 year but not more than 5 years
              
              
              19,388,982TOTAL
              
              $
              88,428,060
  **BORROWINGS**
 
 Total
        borrowings increased approximately $9.9 million during 2005 compared to 2004
        primarily due to increases in Federal home Loan Bank advances and in securities
        sold under repurchase agreements of approximately $6.3 million and $3.6 million,
        respectively.
 
 Total
        borrowings decreased approximately $1.3 million during 2004 compared to 2003
        primarily due to decreases in securities sold under repurchase agreements
        of
        approximately $7.5 million offset by increases in Federal Home Loan Bank
        advances of $6 million.
 
 The
        composition of FHLB advances is more fully explained in Note 11 to the
        consolidated financial statements.
 
 At
        December 31, 2005 and 2004, the Company had available repurchase agreement
        line
        of credit commitments with a regional bank totaling $2,736,000 and $10,085,000,
        respectively, of which none was advanced. The Company also had available
        repurchase agreement line of credit commitments with another regional bank
        totaling $180,000 and $1,667,000 at December 31, 2005 and 2004 of which none
        was
        advanced .
  **CAPITAL
        RESOURCES**
  The
        Company is 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 must meet
        specific capital guidelines that involve quantitative measures of the Company’s
        assets, liabilities, and certain off-balance-sheet items as calculated under
        regulatory accounting practices. The Company’s capital amounts and
        classification are also subject to qualitative judgments by the regulators
        about
        components, risk weightings, and other factors.
 
 Quantitative
        measures established by regulations to ensure capital adequacy require the
        Company to maintain minimum amounts and ratios (set forth below in the table)
        of
        total and Tier I capital (as defined in the regulations) to risk-weighted
        assets
        (as defined), and of Tier I capital (as defined) to average assets (as defined).
        Management believes, as of December 31, 2005 and 2004, that the Company meets
        all capital adequacy requirements to which it is subject.
  Page
            36 of
            75
  As
        of
        December 31, 2005, 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 .
 
 The
        Company’s and the Bank’s actual capital amounts and ratios as of December 31,
        2005 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, 2005Total
                  Capital (to risk-weighted assets):Company
              
              $
              50,988
              
              
              14.29
              %
              $
              28,536
              
              
              8
              %
              
              N/A
              
              
              N/AHabersham
                  Bank
              
              
              47,720
              
              
              13.49
              %
              
              28,302
              
              
              8
              %
              $
              35,377
              
              
              10
              %Tier
                  I Capital (to risk-weighted assets):Company
              
              $
              47,043
              
              
              13.19
              %
              $
              14,268
              
              
              4
              %
              
              N/A
              
              
              N/AHabersham
                  Bank
              
              
              43,775
              
              
              12.37
              %
              
              14,151
              
              
              4
              %
              $
              21,226
              
              
              6
              %Tier
                  I Capital (to average assets):Company
              
              $
              47,043
              
              
              10.30
              %
              $
              18,271
              
              
              4
              %
              
              N/A
              
              
              N/AHabersham
                  Bank
              
              
              43,775
              
              
              9.69
              %
              
              18,079
              
              
              4
              %
              $
              22,599
              
              
              5
              %
 
 While
        management believes that the current level of capital is sufficient for the
        current and foreseeable needs of the Company, capital needs are continually
        evaluated by management.
 
 Cash
        dividends were paid at a rate of $.08 per share in March, June, September
        and
        December of 2005.
 
 Cash
        dividends were paid at a rate of $.07 per share in March, June, September
        and
        December of 2004, with a special dividend of $1.00 per share paid in May
        of
        2004. The special dividend was paid in celebration of Habersham Bank’s
        100 th anniversary.
 
 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.
 
 The
        approval of the Georgia Department of Banking and Finance is required if
        dividends declared by the Bank to the Company in any year will exceed 50%
        of the
        net earnings of the Bank for the previous calendar year. As of December 31,
        2005, the Bank could declare dividends to the Company up to approximately
        $2,240,000 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.
  Page
            37 of
            75
  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.
  **INTEREST
        RATE SENSITIVITY ANALYSIS** ****
 
 **INTEREST-EARNING
                  ASSETS:**
              
              **DUE
                    IN THREE****MONTHS**
              
              **DUE
                    AFTER THREE THROUGH****SIX
                  MONTHS**
              
              **DUE
                    AFTER SIX THROUGH****TWELVE
                  MONTHS**
              
              **DUE
                    AFTER ONE THROUGH****FIVE
                  YEARS**
              
              **DUE
                    AFTER FIVE****YEARS**
              
              **TOTAL**Federal
                  Funds Sold
              
              $
              36,320,000
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              36,320,000Investment
                  securities
              
              
              -
              
              
              -
              
              
              143,175
              
              
              9,822,040
              
              
              66,537,466
              
              
              76,502,681Loans
              
              
              235,580,582
              
              
              25,338,231
              
              
              20,288,472
              
              
              38,781,213
              
              
              745,785
              
              
              320,734,283Total
                  interest-earning assets
              
              
              271,900,582
              
              
              25,338,231
              
              
              20,431,647
              
              
              48,603,253
              
              
              67,283,251
              
              
              433,556,964**INTEREST-BEARING
                  LIABILITIES:**Deposits:Money
                  Market and NOW
              
              
              72,307,257
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              72,307,257Savings
              
              
              12,297,543
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              12,297,543Certificates
                  of deposit
              
              
              23,631,441
              
              
              73,364,364
              
              
              48,059,417
              
              
              50,404,336
              
              
              -
              
              
              195,459,558Borrowings
              
              
              22,498,765
              
              
              -
              
              
              5,000,000
              
              
              4,000,000
              
              
              20,000,000
              
              
              51,498,765Total
                  interest-bearing liabilities
              
              
              130,735,006
              
              
              73,364,364
              
              
              53,059,417
              
              
              54,404,336
              
              
              20,000,000
              
              
              331,563,123Excess
                  (deficiency) of interest-earning assetsover
                  interest- bearing liabilities
              
              $
              141,165,576
              
              $
              (48,026,133
              )
              $
              (32,627,770
              )
              $
              (5,801,083
              )
              $
              47,283,251
              
              $
              101,993,841Cumulative
                  gap
              
              $
              141,165,576
              
              $
              93,139,443
              
              $
              60,511,673
              
              $
              54,710,590
              
              $
              101,993,841Ratio
                  of cumulative gap to total cumulative earning- assets
              
              
              51.92
              %
              
              31.33
              %
              
              19.05
              %
              
              14.94
              %
              
              23.52
              %Ratio
                  of interest-earning assets to interest-bearing liabilities
              
              
              207.98
              %
              
              145.63
              %
              
              123.53
              %
              
              117.56
              %
              
              130.76
              %
 
 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, 2005, the Company’s ratio of
        interest-earning assets to interest-bearing liabilities was 123.53%. Efforts
        are
        underway to bring this ratio back into the 80% to 120% range. The interest
        rate
        sensitivity analysis has a positive one-year gap of approximately $60.5 million
        (excess of interest-earning assets to interest-bearing liabilities repricing
        within one year). The Company’s experience has shown that NOW, Money Market, and
        savings deposits of approximately $84.6 million are less sensitive to short
        term
        rate movements.
  Page
            38 of
            75
  **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 in tabular form 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, 2005. 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, 2005.
 
 
 **MARKET
                  RISK INFORMATION (in thousands)****Principal/Notional
                  Amount Maturing in:**
              
              **Fair****2006**
              
              **2007**
              
              **2008**
              
              **2009**
              
              **2010**
              
              **Thereafter**
              
              **Total**
              
              **Value****Rate-sensitive
                  assets:**Fixed
                  interest rate loans
              
              $
              57,102
              
              $
              16,025
              
              $
              8,683
              
              $
              5,262
              
              $
              8,811
              
              $
              746
              
              $
              96,629
              
              $
              90,596Average
                  interest rate
              
              
              6.73
              %
              
              7.29
              %
              
              7.44
              %
              
              6.95
              %
              
              6.42
              %
              
              9.59
              %
              
              6.50
              %Variable
                  interest rate loans
              
              
              224,105
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              224,105
              
              
              224,105Average
                  interest rate
              
              
              7.79
              %
              
              -
              %
              
              -
              %
              
              -
              %
              
              -
              %
              
              -
              %
              
              7.79
              %Fixed
                  interest rate securities
              
              
              143
              
              
              1,563
              
              
              2,076
              
              
              1,623
              
              
              7,109
              
              
              63,113
              
              
              75,627
              
              
              75,754Average
                  interest rate
              
              
              3.86
              %
              
              4.02
              %
              
              3.93
              %
              
              3.95
              %
              
              4.08
              %
              
              4.57
              %
              
              4.48
              %Variable
                  interest rate securities
              
              
              71
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              495
              
              
              566
              
              
              566Average
                  interest rate
              
              
              4.53
              %
              
              -
              %
              
              -
              %
              
              -
              %
              
              -
              %
              
              4.30
              %
              
              4.33
              %**Rate-sensitive
                  liabilities**:Savings
                  and interest-bearing deposits
              
              
              84,605
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              84,605
              
              
              84,605Average
                  interest rate
              
              
              .50
              %
              
              -
              %
              
              -
              %
              
              -
              %
              
              -
              %
              
              -
              %
              
              .50
              %Fixed
                  interest rate time deposits
              
              
              144,955
              
              
              24,655
              
              
              9,650
              
              
              12,399
              
              
              3,794
              
              
              7
              
              
              195,460
              
              
              195,815Average
                  interest rate
              
              
              3.49
              %
              
              3.75
              %
              
              3.71
              %
              
              4.25
              %
              
              4.71
              %
              
              3.15
              %
              
              3.61
              %Fixed
                  interest rateBorrowings
              
              
              5,000
              
              
              -
              
              
              4,000
              
              
              -
              
              
              13,000
              
              
              10,000
              
              
              32,000
              
              
              32,642Average
                  interest rate
              
              
              4.32
              %
              
              -
              %
              
              4.18
              %
              
              -
              %
              
              5.52
              %
              
              4.93
              %
              
              4.98
              %Variable
                  interest rate borrowings
              
              
              4,300
              
              
              -
              
              
              -
              
              
              6,000
              
              
              -
              
              
              -
              
              
              10,300
              
              
              10,300Average
                  interest rate
              
              
              4.44
              %
              
              -
              %
              
              -
              %
              
              4.61
              %
              
              -
              %
              
              -
              %
              
              4.54
              %
 
 Equity
        securities of $354,181 are subject to changes in market values.
  Page
            39 of
            75
  **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” above.
 
 
 **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.
 
 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.
 
 The
        Company has the ability, on a short-term basis, to purchase federal funds
        from
        other financial institutions up to $30,000,000. At December 31, 2005, there
        were
        no federal funds purchased from other financial institutions. The Company
        can
        borrow funds from the FHLB, subject to eligible collateral of loans. At December
        31, 2005, our maximum borrowing capacity from the FHLB was $42,610,000 and
        the
        Company had outstanding borrowings of $42,300,000 leaving available unused
        borrowing capacity of $310,000. In addition, the Company has made arrangements
        with commercial banks for short-term advances up to $2,916,000 under repurchase
        agreement lines of credit of which none was advanced at December 31,
        2005.
 
 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.
 
 Habersham
        Bank's liquidity policy requires a minimum ratio of 20% of cash and certain
        short-term investments to net withdrawable deposit accounts. The Bank’s
        liquidity ratios at December 31, 2005 and 2004 were 28.43% and 28.30%,
        respectively.
 
 
 **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, 2005, the Company had outstanding loan commitments approximating $78,272,000
        and standby letters of credit approximating $7,959,000. 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.
  Page
            40 of
            75
  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.
 
 **2006**
              
              **2007**
              
              **2008**
              
              **2009**
              
              **2010**Commitments
                  to fund loans held for sale
              
              $
              407,720
              
              
              -
              
              
              -
              
              
              -
              
              
              -Commitments
                  on lines of credit
              
              
              77,864,058
              
              
              -
              
              
              -
              
              
              -
              
              
              -Standby
                  letters of credit
              
              
              7,959,023
              
              
              -
              
              
              -
              
              
              -
              
              
              -Commitments
                  under lease agreements
              
              
              315,156
              
              
              315,156
              
              
              302,466
              
              
              233,131
              
              
              4,330Deposits
              
              
              322,357,618
              
              
              24,651,471
              
              
              9,649,758
              
              
              12,398,953
              
              
              3,697,115FHLB
                  advances
              
              
              9,300,000
              
              
              -
              
              
              4,000,000
              
              
              6,000,000
              
              
              13,000,000Short-term
                  borrowings
              
              
              775,442
              
              
              -
              
              
              -
              
              
              -
              
              
              -Federal
                  funds purchased and securities sold under repurchased
                  agreements
              
              
              8,423,323
              
              
              -
              
              
              -
              
              
              -
              
              
              -Total
                  commitments and contractual obligations
              
              $
              427,402,340
              
              $
              24,966,627
              
              $
              13,952,224
              
              $
              18,632,084
              
              $
              16,701,445
 
 
 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.
 
 The
        common stock of the Company is traded on the Nasdaq Stock Market (“Nasdaq”)
        under the symbol HABC. At December 31, 2005, the Company had
        approximately 481 shareholders of record. The following table sets forth
        the high and low sales prices, and the cash dividends paid on, the Company’s
        common stock on a quarterly basis for the last two fiscal years.
 
 **2005:**
              
              **High**
              
              **Low**
              
              **Dividend**Fourth
                  Quarter
              
              $
              24.18
              
              $
              21.50
              
              $
              .08Third
                  Quarter
              
              
              23.60
              
              
              20.75
              
              
              .08Second
                  Quarter
              
              
              24.00
              
              
              20.11
              
              
              .08First
                  Quarter
              
              
              23.00
              
              
              20.42
              
              
              .08**2004:**
              
              
              **High**
              
              
              **Low**
              
              
              **Dividend**Fourth
                  Quarter
              
              $
              21.85
              
              $
              19.75
              
              $
              .07Third
                  Quarter
              
              
              23.70
              
              
              19.69
              
              
              .07Second
                  Quarter
              
              
              28.71
              
              
              23.22
              
              
              1.07First
                  Quarter
              
              
              25.93
              
              
              24.00
              
              
              .07
 
 The
        approval of the Georgia Department of Banking and Finance is required if
        dividends declared by the Bank to the Company in any year will exceed 50%
        of the
        net earnings of the Bank for the previous calendar year. As of December 31,
        2005, the Bank could declare dividends to the Company up to approximately
        $2,240,000 without regulatory approval.
  Page
            41 of
            75
  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,
          2005 and 2004, the related consolidated statements of earnings, 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, 2005, the report issued thereon by the Company’s independent
          auditors and quarterly financial data (unaudited) are incorporated herein
          by
          reference to the Company’s 2005 Annual Report to Shareholders and are attached
          as Exhibit 13 hereto.
 
 
 Item
                    9.
                CHANGES
                    IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                    DISCLOSURE
 
 None.
 
 
 Item
                    9A.
                CONTROLS
                    AND PROCEDURES
 
 As
          of the
          end of the period covered by this report, the Company’s management, including
          the Company’s Chief 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 been no significant changes in the Company’s internal
          controls or, to management’s knowledge, in other factors that could
          significantly affect those internal controls during the last fiscal quarter
          of
          2005,  and
          there
          have been no corrective actions with respect to significant deficiencies
          or
          material weaknesses.
 
 
 Item
                    9B.
                OTHER
                    INFORMATION
 
 On
          December 17, 2005, the Compensation Committee set the following annual
          base
          salaries for the following executive officers for 2006:
 David
                    Stovall:
                
                $
                255,006Edward
                    Ariail:
                
                $
                161,404Bonnie
                    Bowling:
                
                $
                155,325Karen
                    Ward:
                
                $
                104,197
 
 PART
          III
 Item
                    10.
                DIRECTORS
                    AND EXECUTIVE OFFICERS OF THE
                    REGISTRANT
 
 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 Proxy Statement under the headings "Election of Directors-Nominees,”
-“Compliance with Section 16(a) of the Exchange Act” and "Executive Officers"
        and is incorporated by reference herein.
  Page
            42 of
            75
 Item
                      l1.
                  EXECUTIVE
                      COMPENSATION
 Additional
          information concerning the compensation of the Company's management appears
          in
          the Proxy Statement under the headings "Executive Compensation" and “Election of
          Directors - Compensation of Directors” and is incorporated by reference
          herein.
 
 Item
                    12.
                SECURITY
                    OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATEDSTOCKHOLDER
                    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, 2005.
 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
              367,750
              $20.98
              316,799Equity
                  compensation plans not approved by security holders
              0
              0
              0Total
              367,750
              $20.98
              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 Proxy Statement under the heading "Ownership of Stock" and is
        incorporated by reference herein.
 
 
 Item
                  13.
              CERTAIN
                  RELATIONSHIPS AND RELATED
                  TRANSACTIONS
 
 Information
        concerning certain relationships and related transactions appears in the
        Proxy
        Statement under the heading "Certain Transactions" and is incorporated by
        reference herein.
 
 
 Item
                  14.
              PRINCIPAL
                  ACCOUNTANT FEES AND SERVICES
 
 Information
        concerning principal accountant fees and services appears in the Proxy Statement
        under the heading “Audit Committee Matters - Audit Fees” and is incorporated
        herein by reference.
 
 Page
            43 of
            75
 
 PART
        IV
 
 Item
                  15.
              EXHIBITS
                  AND FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
                  8-K
 
 (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.
 
 
 
 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
              
              
              Date:
              March
                  29, 2006By:
              Director,
                  President and 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 and Director
              
              March
                  29, 2006/s/
                  David D. Stovall
              
              Director,
                  President and Chief Executive Officer *
              
              March
                  29, 2006/s/
                  Edward D. Ariail
              
              Director,
                  Vice President and Corporate Secretary
              
              March
                  29, 2006/s/
                  Michael C. Martin
              
              Director
              
              March
                  29, 2006/s/
                  James A. Stapleton, Jr.
              
              Director
              
              March
                  29, 2006/s/
                  Calvin R. Wilbanks
              
              Director
              
              March
                  29, 2006/s/
                  Michael L. Owen
              
              Director
              
              March
                  29, 2006/s/
                  Ben F. Cheek, III
              
              Director
              
              March
                  29, 2006/s/
                  Annette Banks
              
              Vice
                  President and Chief Financial Officer **
              
              March
                  29, 2006
 
 *
              Principal
                  executive officer.
 **
              Principal
                  financial and accounting
                  officer.
  Page
            44 of
            75
 
 EXHIBIT
        INDEX
 
 Exhibit
                  No.
              Document3.1
              Amended
                  and restated Articles of Incorporation of Habersham Bancorp, as
                  amended by
                  amendment dated April 16, 1988 (1) and further amended by amendment
                  dated
                  April 15, 2000 (2)3.2
              By-laws
                  of Habersham Bancorp, as amended by resolutions dated January 29,
                  2000
                  (3)10.1*
              Habersham
                  Bancorp 401(k) Summary Plan Description10.2*
              Form
                  of Director Supplemental Retirement Plan Agreement and Split Dollar
                  Endorsement, with summary of terms specific to each director
                  (3)10.3*
              Habersham
                  Bancorp Outside Directors Stock Option Plan (4)10.3(a)*
              Form
                  of option agreement under Habersham Bancorp Outside Directors Stock
                  Option
                  Plan (5)10.4*
              Habersham
                  Bancorp 1996 Incentive Stock Option Plan, (6) as amended by the
                  First
                  Amendment thereto dated January 29, 2000 (7)10.4(a)*
              Form
                  of incentive stock option agreement under Habersham Bancorp 1996
                  Incentive
                  Stock Option Plan (3)10.4(b)*
              Form
                  of non-qualified stock option agreement under Habersham Bancorp
                  1996
                  Incentive Stock Option Plan (3)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)10.6*
              Habersham
                  Bancorp 2005 Stock Option Plan (8)10.6(a)*
              Form
                  of non-qualified stock option award pursuant to the 2005 Stock
                  Option Plan
                  (9)10.6(b)*
              Form
                  of Incentive Stock Option award pursuant to the 2005 Stock Option
                  Plan
                  (10)13.0
              Audited
                  Consolidated financial statements and notes thereto contained in
                  the
                  Habersham Bancorp 2005 Annual Report and quarterly financial data
                  (unaudited)14.0
              Code
                  of Ethics (11)21.0
              Subsidiaries
                  of Habersham Bancorp (11)23.1
              Consent
                  of Porter KeadleMoore, LLP23.2
              Consent
                  of KPMG LLP31.1
              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 18 U.S.C. Section 1350 as adopted Pursuant to Section
                  906 of
                  the Sarbanes-Oxley Act of 2002.99.0
              Report
                  of Independent Registered Public Accounting
                  Firm.
  Page
            45 of
            75
  (1)
              Incorporated
                  herein by reference to Exhibit 3(a) in Amendment No. 1 to Registrant's
                  Registration Statement on Form S-4 (Regis. No.
                  33-57915)
 
 (2)
              Incorporated
                  herein by reference to Exhibit 3.1 to Registrant’s Quarterly Report on
                  Form 10-Q for the quarter ended March 31, 2000 (File No.
                  0-13153)
 
 (3)
              Incorporated
                  here in 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)
 
 (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 1996 Proxy Statement
                  for its Annual Meeting of the Shareholders (File No. 0-13153)
  (7)
              Incorporated
                  herein by reference to Appendix A to the Registrant’s 2000 Proxy Statement
                  for its Annual Meeting of Shareholders filed on Schedule 14A (File
                  No.
                  0-13153)
 
 (8)
              Incorporated
                  herein by reference to Appendix A to the Registrant’s 2005 Proxy Statement
                  for its Annual Meeting of Shareholders (File No.
                  0-13153)
  (9)
              Incorporated
                  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)
 
 (10)
              Incorporated
                  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)
  (11)
              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.
  Page
            46 of
            75