**U.S.
      SECURITIES AND EXCHANGE COMMISSION**





**WASHINGTON,
      D. C. 20549**





**FORM
      10-Q**





****x
            QUARTERLY
              REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
              1934For
                the quarterly period ended September 30, 2005o
            TRANSITION
              REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
              1934For
                the transition period from _____ to
                _____




Commission
      file number 0-13153








HABERSHAM
      BANCORP





(Exact
      name of registrant as specified in its charter)





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





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




(706)
      778-1000


(Issuer’s
      telephone number, including area code)







(Former
      name, former address and former fiscal year,


if
      changed since last report)





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


Yes
            x
            No
            o




Indicate
      by check mark whether the registrant is an accelerated filer (as defined in
      Rule
      12b-2 of the Exchange Act). Yes
              o
              No
              x





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


Yes
            o
            No
            x




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





2,903,692
      shares, common stock, $1.00 par value, as of October 31, 2005




1


Item.
              1
            Financial
                Statements





HABERSHAM
      BANCORP AND SUBSIDIARIES


CONDENSED
      CONSOLIDATED BALANCE SHEETS (unaudited)


(dollars
      in thousands)




ASSETS
                
                September
                    30, 2005
                
                DECEMBER
                    31, 2004Cash
                    and due from banks
                
                $
                11,264
                
                $
                9,559Federal
                    funds sold
                
                
                6,587
                
                
                -Total
                    cash and cash equivalents
                
                
                17,851
                
                
                9,559Investment
                    securities available for sale (amortized cost of $74,022 at September
                    30,
                    2005 and $70,366 at December 31, 2004)
                
                
                73,247
                
                
                70,313Investment
                    securities held to maturity (estimated fair value of $3,557 at
                    September
                    30, 2005 and $4,371 at December 31, 2004)
                
                
                3,396
                
                
                4,111Other
                    investments
                
                
                3,375
                
                
                2,469Loans
                    held for sale
                
                
                935
                
                
                1,062Loans
                
                
                324,066
                
                
                280,772Less
                    allowance for loan losses
                
                
                (3,980
                )
                
                (3,635
                )Loans,
                    net
                
                
                320,086
                
                
                277,137Goodwill
                
                
                2,761
                
                
                2,489Other
                    assets
                
                
                22,809
                
                
                18,793TOTAL
                    ASSETS
                
                $
                444,460
                
                $
                385,933LIABILITIESNoninterest-bearing
                    deposits
                
                $
                58,336
                
                $
                44,316Interest-bearing
                    deposits
                
                
                276,406
                
                
                248,641Total
                    deposits
                
                
                334,742
                
                
                292,957Short-term
                    borrowings
                
                
                788
                
                
                786Federal
                    funds purchased and securities sold
                    under repurchase agreements
                
                
                12,967
                
                
                4,835Federal
                    Home Loan Bank Advances
                
                
                42,300
                
                
                36,000Other
                    liabilities
                
                
                3,938
                
                
                3,349TOTAL
                    LIABILITIES
                
                
                394,735
                
                
                337,927STOCKOLDERS’
                    EQUITYCommon
                    Stock, $1.00 par value, 10,000,000 shares authorized; 2,903,692
                    shares
                    issued and outstanding at September 30, 2005 and 2,900,192 shares
                    issued
                    and outstanding at December 31, 2004
                
                
                2,904
                
                
                2,900Additional
                    paid-in capital
                
                
                14,609
                
                
                14,561Retained
                    earnings
                
                
                32,699
                
                
                30,661Accumulated
                    other comprehensive(loss)income
                
                
                (487
                )
                
                (116
                )TOTAL
                    STOCKHOLDERS’ EQUITY
                
                
                49,725
                
                
                48,006TOTAL
                    LIABILITIES AND STOCKHOLDERS’EQUITY
                
                $
                444,460
                
                $
                385,933





See
      notes
      to unaudited condensed consolidated financial statements.


2




HABERSHAM
      BANCORP AND SUBSIDIARIES


CONDENSED
      CONSOLIDATED STATEMENTS OF EARNINGS


(Unaudited)
      For the Three- and Nine-Month Periods Ended September 30, 2005 and 2004


(dollars
      in thousands, except per share amounts)





Three
                Months ended
            
            Nine
                Months endedSeptember
                30,
            
            September
                30,2005
            
            2004
            
            2005
            
            2004INTEREST
                INCOMEInterest
                and fees on loans
            
            $
            6,037
            
            $
            4,455
            
            $
            15,833
            
            $
            12,964Taxable
                investment securities
            
            
            602
            
            
            574
            
            
            1,774
            
            
            1,733Tax
                exempt investment securities
            
            
            211
            
            
            189
            
            
            603
            
            
            559Federal
                funds sold
            
            
            18
            
            
            5
            
            
            135
            
            
            12Other
            
            
            34
            
            
            26
            
            
            113
            
            
            83TOTAL
                INTEREST INCOME
            
            
            6,902
            
            
            5,249
            
            
            18,458
            
            
            15,351INTEREST
                EXPENSETime
                deposits, $100,000 and over
            
            
            527
            
            
            399
            
            
            1,385
            
            
            1,194Other
                deposits
            
            
            1,135
            
            
            799
            
            
            3,032
            
            
            2,316Short-term
                and other borrowings, primarilyFHLB
                advances
            
            
            586
            
            
            523
            
            
            1,632
            
            
            1,502TOTAL
                INTEREST EXPENSE
            
            
            2,248
            
            
            1,721
            
            
            6,049
            
            
            5,012NET
                INTEREST INCOME
            
            
            4,654
            
            
            3,528
            
            
            12,409
            
            
            10,339Provision
                for loan losses
            
            
            90
            
            
            120
            
            
            330
            
            
            403NET
                INTEREST INCOME AFTER PROVISION
                FOR LOAN LOSSES
            
            
            4,564
            
            
            3,408
            
            
            12,079
            
            
            9,936NONINTEREST
                INCOMEMortgage
                origination income
            
            
            371
            
            
            286
            
            
            755
            
            
            750Service
                charges on deposits
            
            
            189
            
            
            184
            
            
            502
            
            
            530Other
                service charges and commissions
            
            
            42
            
            
            44
            
            
            118
            
            
            132Investment
                securities (losses) gains, net
            
            
            42
            
            
            9
            
            
            12
            
            
            47Gain
                on sale of other investments
            
            
            -
            
            
            -
            
            
            -
            
            
            18Gain
                on sale of land
            
            
            -
            
            
            -
            
            
            -
            
            
            879Other
                income
            
            
            428
            
            
            376
            
            
            1,226
            
            
            1,083Total
                noninterest income
            
            
            1,072
            
            
            899
            
            
            2,613
            
            
            3,439NONINTEREST
                EXPENSESalary
                and employee benefits
            
            
            2,224
            
            
            2,057
            
            
            6,185
            
            
            6,244Occupancy
            
            
            482
            
            
            472
            
            
            1,421
            
            
            1,390Computer
                services
            
            
            103
            
            
            112
            
            
            314
            
            
            322General
                and administrative expense
            
            
            1,100
            
            
            978
            
            
            2,901
            
            
            3,179Total
                noninterest expense
            
            
            3,909
            
            
            3,619
            
            
            10,821
            
            
            11,135EARNINGS
                BEFORE INCOME TAXES
            
            
            1,727
            
            
            688
            
            
            3,871
            
            
            2,240Income
                tax expense
            
            
            550
            
            
            152
            
            
            1,137
            
            
            543NET
                EARNINGS
            
            $
            1,177
            
            $
            536
            
            $
            2,734
            
            $
            1,697NET
                EARNINGS PER COMMON SHARE - BASIC
            
            $
            .41
            
            $
            .19
            
            $
            .94
            
            $
            .59NET
                EARNINGS PER COMMON SHARE - DILUTED
            
            $
            .40
            
            $
            .18
            
            $
            .93
            
            $
            .58WEIGHTED
                AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
            
            
            2,903,018
            
            
            2,895,190
            
            
            2,901,892
            
            
            2,885,981WEIGHTED
                AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES
                OUTSTANDING
            
            
            2,937,987
            
            
            2,935,908
            
            
            2,936,452
            
            
            2,943,609DIVIDENDS
                PER COMMON SHARE
            
            $
            .08
            
            $
            .07
            
            $
            .24
            
            $
            1.21




See
      notes
      to unaudited condensed consolidated financial statements.


3




HABERSHAM
      BANCORP AND SUBSIDIARIES


CONDENSED
      CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


(Unaudited)
      For the Three- and Nine-Month Periods Ended September 30, 2005 and 2004


(dollars
      in thousands)




Three
                  Months ended
              
              Nine
                  Months endedSeptember
                  30,
              
              September
                  30,2005
              
              2004
              
              2005
              
              2004NET
                  EARNINGS
              
              $
              1,177
              
              $
              536
              
              $
              2,734
              
              $
              1,697OTHER
                  COMPREHENSIVE INCOME (LOSS), NET OF TAX:Unrealized
                  holding (losses) gains on investment securities available for sale
                  arising
                  during the period
              
              
              (456
              )
              
              1,819
              
              
              (710
              )
              
              (107
              )Unrealized
                  holding gains (losses) on derivative financial instruments classified
                  as
                  cash flow hedges, arising during period
              
              
              101
              
              
              (106
              )
              
              160
              
              
              (147
              )Reclassification
                  adjustment for (gains) losses on investment
                  securities available for sale
              
              
              (42
              )
              
              (9
              )
              
              (12
              )
              
              (47
              )Total
                  other comprehensive income (loss), before tax
              
              
              (397
              )
              
              1,704
              
              
              (562
              )
              
              (301
              )INCOME
                  TAXES RELATED TO OTHER COMPREHENSIVE INCOME:Unrealized
                  holding (losses) gains on investmentsecurities available for sale arising during the period
              
              
              155
              
              
              (619
              )
              
              241
              
              
              36Unrealized
                  holding gains (losses) on derivativefinancial
                  instruments classified as cash flowhedges,
                  arising during period
              
              
              (34
              )
              
              36
              
              
              (54
              )
              
              50Reclassification
                  adjustment for (gains) losses on investment securities available
                  for sale
              
              
              14
              
              
              3
              
              
              4
              
              
              16Total
                  income taxes related to other comprehensiveincome
                  (loss)
              
              
              135
              
              
              (580
              )
              
              191
              
              
              102Total
                  other comprehensive (loss) income,net
                  of tax
              
              
              (262
              )
              
              1,124
              
              
              (371
              )
              
              (199
              )Total
                  comprehensive income
              
              $
              915
              
              $
              1,660
              
              $
              2,363
              
              $
              1,498


See
      notes
      to unaudited condensed consolidated financial statements.


4




HABERSHAM
      BANCORP AND SUBSIDIARIES


CONSOLIDATED
      STATEMENTS OF CASH FLOWS


(Unaudited)
      For the Nine-Month Periods Ended September 30, 2005 and 2004


(dollars
      in thousands)


2005
              
              2004CASH
                  FLOWS PROVIDED BY OPERATING ACTIVITIES,
                net
                  of effects of purchase acquisition:
              
              $
              3,123
              
              $
              3,617CASH
                  FLOWS FROM INVESTING ACTIVITIES,
                net
                  of effects of purchase acquisition:Cash
                  acquired of $4,631,073 in excess of cash paid for the purchase
                  acquisition
                  of Liberty
              
              
              801
              
              
              -Investment
                  securities available for sale:Proceeds
                  from maturity
              
              
              8,269
              
              
              9,669Proceeds
                  from sales and calls
              
              
              3,343
              
              
              11,251Purchases
              
              
              (11,953
              )
              
              (15,767
              )Investment
                  securities held to maturity:Proceeds
                  from maturity
              
              
              134
              
              
              647Proceeds
                  from calls
              
              
              275
              
              
              -Other
                  investments:Proceeds
                  from sales
              
              
              450
              
              
              295Purchases
                  of other investments
              
              
              (1,356
              )
              
              (550
              )Net
                  increase in loans
              
              
              (31,080
              )
              
              (14,789
              )Proceeds
                  from sale of land
              
              
              -
              
              
              945Proceeds
                  from sale of premises and equipment
              
              
              14
              
              
              -Purchases
                  of premises and equipment
              
              
              (934
              )
              
              (809
              )Proceeds
                  from sale of other real estate
              
              
              835
              
              
              1,225Net
                  additions to other real estate
              
              
              (1
              )
              
              (120
              )Net
                  cash used by investing activities
              
              
              (31,203
              )
              
              (8,003
              )CASH
                  FLOWS FROM FINANCING ACTIVITIES,
                net
                  of effects of purchase acquisition:Net
                  increase in deposits
              
              
              22,583
              
              
              23,743Net
                  increase in short-term borrowings
              
              
              1
              
              
              188Net
                  increase in federal funds purchased and securities sold under repurchase
                  agreements
              
              
              8,132
              
              
              (7,265
              )Proceeds
                  from FHLB advances
              
              
              16,300
              
              
              11,000Repayment
                  of FHLB advances
              
              
              (10,000
              )
              
              (5,000
              )Issuance
                  of common stock
              
              
              52
              
              
              288Cash
                  dividends paid
              
              
              (696
              )
              
              (3,498
              )Net
                  cash provided by financing activities
              
              
              36,372
              
              
              19,456Net
                  increase in cash and cash equivalents
              
              
              8,292
              
              
              15,070CASH
                  AND CASH EQUIVALENTS: BEGINNING OF PERIOD
              
              
              9,559
              
              
              8,381CASH
                  AND CASH EQUIVALENTS: END OF PERIOD
              
              $
              17,851
              
              $
              23,451SUPPLEMENTAL
                  DISCLOSURES OF CASH FLOW INFORMATION:Other
                  real estate acquired through loan foreclosures
              
              $
              2,933
              
              $
              676Loans
                  granted to facilitate the sale of other real estate
              
              
              500
              
              
              191Change
                  in components of other comprehensive income
              
              
              (371
              )
              
              (199
              )


5




CONSOLIDATED
      STATEMENTS OF CASH FLOWS, consolidated





The
      Company purchased all of the capital stock of Liberty Bank and Trust (Toccoa,
      Georgia) for $3,829,989, including certain acquisition costs of $194,184.


In
      conjunction with the acquisition, assets were acquired and liabilities were
      assumed as follows:





Fair
                value of assets acquired
            
            $
            23,891,175Liabilities
                assumed
            
            
            20,061,186$
            3,829,989





See
      notes
      to unaudited condensed consolidated financial statements.





HABERSHAM
      BANCORP AND SUBSIDIARIES


Notes
      to
      Unaudited Condensed Consolidated Financial Statements





1.
            Basis
                of Presentation





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





The
      condensed consolidated financial statements included herein should be read
      in
      conjunction with the Company's 2004 consolidated financial statements and notes
      thereto, included in the Company's Annual Report on Form 10-K for the fiscal
      year ended December 31, 2004. Certain amounts in 2004 have been reclassified
      to
      conform to the 2005 presentation.





2.
            Accounting
                Policies





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





3.
            Other
                Comprehensive Income





Other
      comprehensive income for the Company consists of items recorded directly in
      equity under Statement of Financial Accounting Standards (“SFAS”) No. 115,
“Accounting for Certain Investments in Debt and Equity Securities” in addition
      to the net of tax fair value of cash flow hedges. Investment securities
      classified as available for sale are carried at fair value with the related
      unrealized gain or loss, net of deferred income taxes included as a separate
      component of stockholders’ equity. At September 30, 2005, fair value of the
      available for sale investment securities decreased approximately $722,000 when
      compared to the fair value at December 31, 2004. The corresponding equity
      component of unrealized gain and loss on available for sale securities, net
      of
      tax, also decreased approximately $477,000. These changes were the results
      of
      movements in the bond market as it responds to interest rate changes in the
      market. At September 30, 2005, fair value of the cash flow hedges increased
      approximately $160,000 when compared to the fair value at December 31, 2004.
      The
      corresponding equity component of unrealized holding gains on derivative
      financial instruments classified as cash flow hedges, net of tax, also increased
      approximately $106,000.


6




4.
            Net
                Earnings Per Share





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





The
      reconciliation of the amounts used in the computation of both basic net earnings
      per share and diluted net earnings per share for the three- and nine-month
      periods ended September 30, 2005 and 2004, is as follows:




Three
                Months ended
            
            Nine
                Months endedSeptember
                30,
            
            September
                30,2005
            
            2004
            
            2005
            
            2004Net
                earnings
            
            $
            1,176,956
            
            $
            535,402
            
            $
            2,734,406
            
            $
            1,696,784Weighted
                average common shares outstanding
            
            
            2,903,018
            
            
            2,895,190
            
            
            2,901,892
            
            
            2,885,981Shares
                issued from assumed exercise of common stock equivalents
            
            
            34,969
            
            
            40,718
            
            
            34,560
            
            
            57,628Weighted
                  average number of common and common equivalent shares outstanding
            
            
            2,937,987
            
            
            2,935,908
            
            
            2,936,452
            
            
            2,943,609Earnings
                per share:Basic
            
            $
            .41
            
            $
            .19
            
            $
            .94
            
            $
            .59Diluted
            
            $
            .40
            
            $
            .18
            
            $
            .93
            
            $
            .58








5.
            Business
                Combination




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,
      Habersham Bank. 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. Operations of Liberty are included in the consolidated statements
      of earnings since its acquisition.





6.
            Stock
                Option Plans





On
      April
      16, 2005, at the annual meeting, the shareholders approved adoption of the
      Habersham Bancorp 2005 Stock Option Plan (the “Stock Option Plan”). The Board of
      Directors has reserved 400,000 shares of common stock for issuance under awards
      that may be made to eligible officers and employees of the Company and its
      affiliates.


7


Stock
      options granted under this plan may be incentive stock options or nonqualified
      stock options. The exercise price on incentive stock options granted under
      the
      Stock Option Plan may not be less than the fair market value of the common
      stock
      on the date of the grant. The term of an incentive stock option generally may
      not exceed ten years from the date of grant.




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





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








HABERSHAM
      BANCORP AND SUBSIDIARIES





Organization





Habersham
      Bancorp (the “Company”) owns all of the outstanding stock of Habersham Bank
      ("Habersham Bank"). Habersham Bank owns all of the outstanding stock of
      Advantage Insurers, Inc. (“Advantage Insurers”) which offers a full line of
      property, casualty, and life insurance products. Advantage Insurers does not
      comprise a significant portion of the financial position, results of operations,
      or cash flows of the Company and as a result, management’s discussion and
      analysis, which follows relates primarily to Habersham Bank.




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





Executive
      Summary




Habersham
      Bank’s balance sheet and earnings increased during the third quarter of 2005 as
      a result of the merger on July 25, 2005 of Liberty Bank & Trust (“Liberty”)
      located in Toccoa, Georgia, of growth in Habersham Bank’s loan portfolio and of
      an increasing prime rate. 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 since the acquisition date related to the
      operation of the Toccoa branches are reflected in the third quarter’s earnings
      quarter ended September 30, 2005.





The
      Company’s primary source of income is interest income from loans and investment
      securities. Its profitability depends largely on net interest income, which
      is
      the difference between the interest received on interest-earning assets and
      the
      interest paid on deposits, borrowings, and other interest-bearing liabilities.
      Earnings
      for the first nine months of 2005 increased to $2.7 million from $1.7 million
      for the same period in 2004 and were primarily impacted by loan growth and
      increases on loan yields moving in response to prime rate increases. Revenue
      growth of 12.14% and a reduction in noninterest expenses during the first nine
      months of 2005 when compared to the first nine months of 2004 resulted in an
      improved overhead efficiency ratio.


8




Total
      assets increased approximately $58.5 million during the first nine months of
      2005. Increases in the loan portfolio and in federal funds sold were funded
      by
      increases in the total deposit portfolio and in other borrowings of
      approximately $41.8 million and $14.4 million, respectively.





Net
      interest income improved for the first nine months of 2005 when compared to
      the
      first nine months of 2004 as result of the items discussed above.





Noninterest
      expenses of salary and employee benefits, computer services, and general and
      administrative expense for the first nine months of 2005 decreased approximately
      3.54% as compared to the first nine months of 2004 as a result of expense
      control measures for 2005.




Forward
      Looking Statements





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





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


9




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




Material
      Changes in Financial Condition





The
      Company’s total assets increased $58 million, to $444 million at September
      30, 2005 from $386 million at December 31, 2004. During the third quarter of
      2005, Habersham Bancorp completed the purchase of Liberty Bank & Trust
      (“Liberty”) located in Toccoa, GA. Subsequently, Liberty’s assets of
      approximately $23 million were merged with Habersham Bank. The remainder of
      the
      increase is due to increases in Habersham Bank’s loan portfolio and in Federal
      Funds Sold of approximately $29 and $6.6 million, respectively. Deposit growth
      of approximately $41.8 million resulted from the addition of Liberty’s deposit
      portfolio and increases in Habersham Bank’s deposit portfolio of approximately
      $20 million and $21.8 million, respectively. The interest bearing and
      noninterest bearing portfolio increased approximately $27.8 million and $14.0
      million, respectively.




Borrowings,
      in the form of securities sold under repurchase agreements and FHLB advances,
      increased during the first nine months of 2005 approximately $14.4 million.





During
      the first nine months of 2005, growth in loans consisted primarily in real
      estate secured loans secured by commercial and residential properties of
      approximately $44.8 million offset by decreases in the residential real estate
      loan portfolio of approximately $2.8 million.





Habersham
      Bank’s purchases of investment securities during the first nine months of 2005
      totaled approximately $12 million, offset by sales of approximately $2.7 million
      and maturities and calls of approximately $9.3 million. Liberty’s investment
      securities added approximately $3 million to the investment securities
      portfolio. Other investments increased approximately $906,000 as a result of
      an
      investment of approximately $600,000 in Peach State Bank and Trust, a de novo
      bank located in Gainesville, GA made during the second quarter of 2005 and
      a net
      increase in FHLB stock of approximately $306,000.





Increases
      in other real estate primarily were the result of the foreclosure of a
      commercial real estate loan of approximately $2.5 million and the foreclosure
      of
      residential real estate loans for approximately $.5 million offset by sales
      of
      approximately $1.4 million.




Total
      borrowings increased approximately $14.4 million during the first nine months
      of
      2005. Increases in the repurchase sweep portfolio of approximately $4.3 million,
      in repurchase agreements of approximately $4.4 million and in Federal Home
      Loan
      Bank advances of approximately $16.3 million, were offset by repayments of
      Federal Home Loan Bank borrowings of approximately $10 million and repayment
      of
      Federal Funds Purchased of approximately $547,000.


10




Material
      Changes in Results of Operations





Total
      interest income for the third quarter of 2005 increased $1.7 million or 31.49%
      when compared to the third quarter of 2004 primarily due to increases in loan
      interest and fees on loans. Total interest income for the first nine months
      of
      2005 increased $3.1 million or 20.24% when compared to the first nine months
      of
      2004. Interest income on loans increased $1.6 million or 35.51% for the third
      quarter and increased $2.9 million or 22.13% for the first nine months of 2005.
      This increase is primarily the result of the average loan portfolio for the
      first nine months of 2005 increasing approximately $22.5 million or 8.49% when
      compared to the average loan portfolio for the first nine months of 2004. The
      average yield on loans increased during the first nine months of 2005 to 7.34%
      compared to an average yield of 6.51% for the first nine months of 2004.
      Interest income from federal funds sold increased approximately $123,000 for
      the
      first nine months of 2005 when compared to the first nine months of 2004
      primarily due to increases in the average balance in federal funds sold of
      approximately $3.8 million. Average yields on federal funds sold increased
      to
      2.70% for the first nine months of 2005 when compared to .53% for the first
      nine
      months of 2004.





Total
      interest expense for the third quarter of 2005 increased $527,000 or 30.62%,
      when compared to the third quarter of 2004. Total interest expense for the
      first
      nine months of 2005 increased $1.0 million or 20.69% when compared to the first
      nine months of 2004. Two factors impact interest expense: average balances
      of
      deposit and borrowing portfolios and average rates paid on each. Average
      interest bearing deposit balances increased approximately $19.2 million when
      comparing the first nine months of 2005 to the first nine months of 2004.
      Average noninterest bearing deposits also increased $12.9 million for the first
      nine months of 2005 when compared to the first nine months of 2004. The average
      rate paid on the deposit portfolios for the first nine months of 2005 increased
      to 2.29% from 1.97% when compared to the first nine months of 2004. Average
      borrowing balances increased approximately $2.2 millon, when comparing the
      first
      nine months of 2005 to the first nine months of 2004. Average interest rates
      paid on borrowings was 4.58% for the first nine months of 2005 compared to
      4.46%
      for the first nine months of 2004.





Net
      interest income increased approximately $1.1 million or 31.92% for the third
      quarter of 2005 as compared to the third quarter of 2004 and increased
      approximately $2.1 million or 20.02% for the first nine months of 2005 as
      compared to the first nine months of 2004, as a result of the items discussed
      above.




The
      net
      interest margin of the Company, net interest income divided by average earning
      assets, was 4.45% for the first nine months of 2005 compared to 3.98% for the
      first nine months of 2004.





Noninterest
      income increased $173,000 or 19.24% for the third quarter of 2005 over the
      same
      period in 2004. Increases in noninterest income for the third quarter of 2005
      resulted from mortgage origination income, other income and gains on sales
      of
      investment securities of approximately $85,000, $52,000 and $33,000. Increases
      in other income for the third quarter resulted from earnings on the cash
      surrender value of life insurance and in safe deposit box rental income of
      approximately $35,000 and $17,000, respectively. Noninterest income decreased
      $826,000 or 24.02% for the first nine months of 2005 over the same period in
      2004. Noninterest income for the first nine months of 2004 included
      approximately $879,000 in gain on the sale of a portion of Habersham Bank’s land
      at the Cornelia Office. Increases in other income for the first nine months
      of
      2005 primarily resulted from increases in rental income, data processing service
      income and earnings on cash surrender value of life insurance of approximately
      $122,000, $10,000 and $8,000, respectively. Rental income is received from
      leases of space in bank properties and from other real estate properties being
      managed by Habersham Bank. Service charges on deposits and other service charges
      decreased approximately $28,000 and $14,000 and were a result of fewer NSF
      checks presented for payment and fewer overdraft balances when comparing the
      first nine months of 2005 to the first nine months of 2004.


11




Noninterest
      expense increased $290,000 or 8.01% for the three months ended September 30,
      2005 over the same period in 2004 as a result of the additional expense related
      to the two new offices in Toccoa. The increase is reflected primarily in salary
      and employee benefits, general and administrative expenses and in occupancy
      expenses of approximately $167,000, $122,000 and $10,000, respectively. Noninterest
      expense decreased $314,000 or 2.82% for the first nine months of 2005 over
      the
      same period in 2004. The decrease is reflected in salary and employee benefits;
      general and administrative expenses; and in computer services of approximately
      $59,000, $278,000 and $8,000, respectively, offset by increases in occupancy
      expense of approximately $31,000. The salary and employee benefits reduction
      is
      the result of fewer employees during the first seven months of 2005 offset
      by
      the addition of the Toccoa staffing. Expense control has been a major focus
      during the first nine months of 2005 resulting in lower general and
      administrative costs.





Income
      tax expense for the three months ended September 30, 2005 and 2004 was $550,000
      and $152,000, respectively. Income tax expense for the first nine months ended
      September 30, 2005 and 2004 was $1.1 million and $543,000, respectively. The
      effective tax rate for the third quarter of 2005 and 2004 was 31.85% and 22.09%,
      respectively. The effective tax rate for the nine months ended September 30,
      2005 and 2004 was 29.37% and 24.24%, respectively. Tax-exempt income on
      investment securities in municipal bonds was 15.58% of pre-tax income for the
      first nine months of 2005 when compared to 24.96% for the first nine months
      of
      2004.







Asset
      Quality





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




The
      risk
      associated with lending varies with the creditworthiness of the borrower, the
      type of loan (consumer, commercial, or real estate) and its maturity. Cash
      flows adequate to support a repayment schedule are an element considered for
      all
      loans. Real estate loans are impacted by market conditions regarding the value
      of the underlying property used as collateral. Commercial loans are also
      impacted by the
      management of the business as well as economic conditions. The Company also
      makes unsecured loans from time to time. The risk to the Company is greater
      for
      unsecured loans as the ultimate repayment of the loan is only dependent on
      the
      borrower’s ability to pay. The balance of unsecured loans at September 30, 2005
      was $7.5 million which does not pose a significant risk to the Company.




A
      provision for loan losses in the amount of $90,000 was charged to expense for
      the quarter ended September 20, 2005 compared to $120,000 for the quarter ended
      September 30, 2004. A provision for loan losses in the amount of $330,000 was
      charged to expense for the first nine months of 2005 compared to $403,000 for
      the first nine months of 2004. At September 30, 2005, changes occurring in
      the
      mix of loans resulting in a lower risk profile and the adequacy of the allowance
      for loan losses resulted in a decrease in the provision for loan losses expense
      during the third quarter of 2005.


12




The
      net
      charge-offs for the first nine months of 2005 totaled $199,779 compared to
      net
      charge-offs of $410,553 for the first nine months of 2004. During the first
      nine
      months of 2005, charge-offs of real estate, commercial and consumer loans
      totaled $75,472, $44,798 and $215,333, respectively, offset by recoveries of
      real estate, commercial and consumer loans of $39,830, $15,202, and $80,792,
      respectively. At September 30, 2005 and December 31, 2004, the ratio of the
      allowance for loan losses to total loans was 1.23% and 1.29%, respectively.





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




September
                  30, 2005
              
              December
                  31, 2004Accruing
                loans 90 days past due
              
              $
              224,837
              
              $
              381,670Non-accrual
                loans
              
              
              452,094
              
              
              3,252,464Other
                real estate
              
              
              2,858,131
              
              
              1,289,880Restructured
                loans
              
              
              132,957
              
              
              119,031Total
                  non-performing assets
              
              $
              3,668,019
              
              $
              5,043,045


Nonperforming
      assets decreased approximately $1,375,000 or 27.27% from December 31, 2004
      to
      September 30, 2005. The decrease was principally a result of stronger credit
      quality control procedures relating to non-accrual loans and 90 days past due
      loans.





Loans
      classified as 90 days past due decreased approximately $157,000 from December
      31, 2004 to September 30, 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
            
            
            1,191,60290
              days past due loans charged-off
            
            
            (47,901
            )Payments
              received
            
            
            (1,300,534
            )Balance
              at September 30, 2005
            
            $
            224,837




The
      following summarized accruing loans 90 days past due:





Real
              estate secured loans (6 loans)
            
            $
            178,898Consumer
              loans (8 loans)
            
            
            45,939Total
                accruing loans 90 days past due
            
            $
            224,837




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





Balance
              at December 31, 2004
            
            $
            3,252,464Loans
              reclassified to non-accrual status in 2005
            
            
            782,152Payments
              received on non-accrual loans during 2005
            
            
            (110,516
            )Non-accrual
              loans charged-off during 2005
            
            
            (175,398
            )Non-accrual
              loans reclassified to other real estate
            
            
            (2,793,380
            )Non-accrual
              loans reclassified to accrual status in 2005
            
            
            (503,228
            )Balance
              at September 30, 2005
            
            $
            452,094


13




Additions
      to loans on non-accrual status consisted of fourteen real estate secured loans
      totaling approximately $646,000, two commercial loans totaling approximately
      $24,000 and eleven consumer loans totaling approximately $112,000. The interest
      income recognized on such loans for the nine-month periods ended September
      30,
      2005 and 2004 was not material.





The
      Company’s other real estate consists of eight properties totaling $2,858,131 at
      September 30, 2005 and eleven properties totaling $1,289,880 at December 31,
      2004. The increase was primarily due to the foreclosure of one commercial loan
      collateralized by a multi-family residential property totaling approximately
      $2,470,000 and seven loans collateralized by residential real estate totaling
      approximately $459,000 during the first nine months of 2005 offset by the sale
      of eleven properties totaling approximately $1,361,000. The multi-family
      residential property has an appraised value of $2.6 million and is being
      actively marketed.





The
      Company’s 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.




Liquidity
      and Capital Resources





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





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




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





The
      Company also has the ability, on a short-term basis, to purchase federal funds
      from other financial institutions up to $30,000,000. At September 30, 2005,
      the
      Company had no federal funds purchased. Presently, the Company has made
      arrangements with commercial banks for short-term advances under a repurchase
      agreement line of credit of which $4.4 million was advanced at September 30,
      2005. The Company has approximately $8,567,000 outstanding in commercial sweep
      accounts at September 30, 2005. In addition, the Company has a total available
      line of $230,833,000, subject to available collateral, from the Federal Home
      Loan Bank. The Company has $42,300,000 in advances on this line at September
      30,
      2005.





Habersham
      Bank's liquidity policy requires that the ratio of cash and certain short-term
      investments to net withdrawable deposit accounts be at least 20%. The Bank’s
      liquidity ratios at September 30, 2005 and 2004 were 20.01% and 28.72%,
      respectively.


14




At
      September 30, 2005 Habersham Bancorp and Habersham Bank were required to have
      minimum Tier 1 and total capital ratios of 4% and 8%, respectively.
      Additionally, the Company and the Bank are required to maintain a leverage
      ratio
      (Tier 1 capital to average
      assets) of at least 4%. The Company’s and the Bank’s ratios at September
      30, 2005 follow:




Habersham
            
            HabershamBank
            
            BancorpTier
                1
            
            
            12.27
            %
            
            13.02
            %Total
                Capital
            
            
            13.41
            %
            
            14.14
            %Leverage
            
            
            10.21
            %
            
            10.92
            %





Item
              3.
            Quantitative
                and Qualitative Disclosures About Market Risk.





As
      of
      September 30, 2005, there were no substantial changes in the composition of
      the
      Company’s market-sensitive assets and liabilities or their related market values
      from that reported as of December 31, 2004. The foregoing disclosures related
      to
      the market risk of the Company should be read in conjunction with the Company’s
      audited consolidated financial statements, related notes and management’s
      discussion and analysis of financial condition and results of operations for
      the
      year ended December 31, 2004 included in the Company’s 2004 Annual Report on
      Form 10K.




Item
              4.
            CONTROLS
                AND PROCEDURES





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







PART
      II





OTHER
      INFORMATION





Item
              1.
            Legal
                proceedings.


None





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





Issuer
      Purchases of Equity Securities


15




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





Period
            
            Total
                Number of Shares Purchased
            
            Average
                Price Paid Per Share
            
            Total
                Number of Shares (or Units) Purchased as Part of Publicly Announced
                Plans
                or Programs1
            
            Maximum
                Number (or Appropriate Dollar Value) of Shares (or Units) that May
                Yet Be
                Purchased Under the Plans or ProgramsJuly
                1 through
              July
                31, 2005
            
            0
            
            0
            
            0
            
            0August
                1 through
              August
                31, 2005
            
            0
            
            0
            
            0
            
            0September
                1 through
              September
                30, 2005
            
            0
            
            0
            
            0
            
            0Total
            
            0
            
            0
            
            0
            
            0








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




Item
              3.
            Defaults
                upon senior securities.


None





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


None




Item
              5.
            Other
                information.


None




Item
              6.
            Exhibits





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





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





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




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


16




SIGNATURES





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





HABERSHAM
      BANCORP


(Registrant)








Date
                November 14, 2005
            /S/
                Annette BanksChief
                Financial Officer
                (for
                  the Registrant and as the Registrant’s
                  principal financial and accounting
                  officer)




17