For the fiscal year ended: December 31, 2004.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Plan Administrator
Habersham Bancorp 401(k) Plan
We have audited the accompanying statements of net assets available for benefits of the Habersham Bancorp 401(k) Plan (the “Plan”) as of December 31, 2004 and 2003, and the related statement of changes in net assets available for benefits for the year ended December 31, 2004 and the supplemental schedule as of December 31, 2004. These financial statements are the responsibility of the Plan’s administrator. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Habersham Bancorp 401(k) Plan as of December 31, 2004 and 2003, and the changes in net assets available for benefits for the year ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America.
Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplementary information included in the accompanying schedule is presented for purposes of additional analysis and is not a required part of the basic financial statements, but is supplementary information required by the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. The supplemental schedule is the responsibility of the Plan’s administrator. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
| | /s/ PORTER KEADLE MOORE, LLP |
Atlanta, Georgia
May 20, 2005
Habersham Bancorp 401(k) Plan
Statements of Net Assets Available for Benefits
December 31, 2004 and 2003
| Assets: | | 2004 | | 2003 | |
| Cash | | $ | - | | | 14,914 | |
| Accounts receivable: | | | | | | | |
| Employer match | | | 6,175 | | | - | |
| Employee deferral | | | 11,906 | | | - | |
| Loan payments | | | 614 | | | - | |
| Total accounts receivable | | | 18,695 | | | - | |
| Investments: | | | | | | | |
| Money market accounts | | | 831,767 | | | 684,989 | |
| Mutual funds | | | 4,602,683 | | | 4,570,769 | |
| Common stock of Habersham Bancorp | | | 930,036 | | | 1,035,878 | |
| Participant loans | | | 70,152 | | | 66,893 | |
| Total investments | | | 6,434,638 | | | 6,358,529 | |
| Total assets | | | 6,453,333 | | | 6,373,443 | |
| Liabilities - excess contributions due to participants | | | - | | | 14,930 | |
| Net assets available for benefits | | $ | 6,453,333 | | | 6,358,513 | |
See accompanying notes to financial statements.
Habersham Bancorp 401(k) Plan
Statement of Changes in Net Assets Available for Benefits
For the Year Ended December 31, 2004
| Additions to net assets attributed to: | | | |
| Contributions: | | | |
| Employer | | $ | 151,457 | |
| Employee | | | 400,843 | |
| Rollover | | | 119,077 | |
| Total contributions | | | 671,377 | |
| Investment income: | | | | |
| Interest | | | 58,948 | |
| Dividends | | | 56,504 | |
| Total investment income | | | 115,452 | |
| Total additions | | | 786,829 | |
| Deductions from net assets attributed to: | | | | |
| Benefit distributions to participants | | | 670,147 | |
| Net decrease in fair value of investments | | | 21,662 | |
| Administrative fees | | | 200 | |
| Total deductions | | | 692,009 | |
| Increase in net assets available for benefits | | | 94,820 | |
| Net assets available for benefits: | | | | |
| Beginning of year | | | 6,358,513 | |
| End of year | | $ | 6,453,333 | |
See accompanying notes to financial statements.
Habersham Bancorp 401(k) Plan
Notes to Financial Statements
(1) | Description of the Plan |
General
The following description of Habersham Bancorp 401(k) Plan (the “Plan”) provides only general information. Participants should refer to the Plan agreement for a more complete description of the Plan’s provisions.
The Plan, which commenced on July 1, 1985, is a defined contribution plan covering all eligible employees of Habersham Bancorp and subsidiaries (the “Company”). Full-time employees become eligible to participate after the attainment of 21 years of age. Enrollment in the Plan is available twice annually on January 1 and July 1. Full-time employees are eligible for Company matching contributions immediately. The Plan is subject to certain provisions of the Employee Retirement Income Security Act of 1974 (ERISA).
Contributions
Participants may contribute from 1% to 50% of their pretax earnings up to a maximum of $13,000 in 2004. Rollover contributions from other qualified plans are permitted. At its discretion, the Company may make matching contributions in an amount not to exceed 100% of each participant’s first 3% of compensation contributed as elective deferrals.
Vesting
Participants are immediately vested in their voluntary contributions to the Plan. Participants vest in the Company’s contributions according to the following schedule:
| Years of Service | | Percentage |
| Less than 1 | | 0% |
| 1 | | 0% |
| 2 | | 25% |
| 3 | | 50% |
| 4 | | 75% |
| More than 4 | | 100% |
Participants automatically become 100% vested upon death or disability while still an active employee of the Company. Upon termination of employment, amounts not vested will be forfeited with such forfeitures reducing the Company’s future matching contributions. Forfeitures of $19,150 were used to reduce the Company’s contributions during 2004. Forfeitures of $21,876 were available at December 31, 2004, to reduce the Company’s future contributions.
Payment of Benefits
Upon retirement, a participant is entitled to receive 100% of his vested account balance in a lump-sum distribution or periodic payments over a predetermined period. Upon the death of a participant, the designated beneficiary is entitled to receive 100% of the participant’s account in a lump-sum distribution or periodic payments over a predetermined period. In addition, disabled participants are entitled to 100% of their account balance. Plan participants who are terminated for reasons other than retirement, death or disability are entitled to receive only the vested portion of their account. The Plan also allows for certain hardship withdrawals prior to termination of employment.
Habersham Bancorp 401(k) Plan
Notes to Financial Statements, continued
(1) | Description of the Plan, continued |
Participant Loans
Participants may borrow from their fund accounts a minimum of $1,000 up to a maximum of $50,000 or 50% of their vested account balance, whichever is less. The loans are secured by the balance in the participant’s account and bear interest at rates that range from 5% to 7.5%, which are commensurate with local prevailing rates as determined quarterly by the Plan administrator.
Administrative Expenses
Significant costs of administering the Plan are paid by the Company. These costs include legal, administrative and accounting fees.
Plan Termination
Although it has not expressed any intent to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. The participants affected by the termination or discontinuance of contributions will immediately become 100% vested in their accounts.
(2) | Summary of Significant Accounting Policies |
Basis of Accounting
The accompanying financial statements have been prepared on the accrual basis of accounting and present the net assets available for benefits and changes in those assets of the Plan. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of net assets available for benefits and changes therein, and disclosure of contingent assets and liabilities. Accordingly, actual results may differ from those estimates.
Investment Valuation
The Plan’s investments are stated at fair value. The Company’s stock trades on the NASDAQ exchange, and the value of Habersham Bancorp stock is based on a quoted market price. Investments in mutual funds are valued at fair value based on quoted market prices of the underlying fund securities. Participant loans are stated at cost, which approximates fair value.
The Plan provides for investments in various investment securities, which are exposed to various risks such as interest rate, credit and overall market volatility risks. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the amounts reported in the statements of net assets available for benefits.
The net gain/(loss) from investment activity includes realized and unrealized gains and losses from investment activity as well as earnings on investments. Unrealized gains/(losses) are calculated as the difference between the current value of securities as of the end of the plan year and either the current value at the end of the preceding year or the actual cost if such investments were purchased during the current year. Realized gains or losses on sales of investments are calculated as the difference between sales proceeds and the current value of investments at the beginning of the year or the actual cost if such investments were purchased during the year. Earnings on investments include interest and dividends received on the Company’s common stock and mutual fund shares.
Securities transactions are recorded on the trade date. Dividend income is recorded on the ex-dividend date.
Habersham Bancorp 401(k) Plan
Notes to Financial Statements, continued
The following table represents investments at December 31, 2004 and 2003:
| | | 2004 | | 2003 | |
| Money Market accounts: | | | | | |
| Money Market Fund | | $ | 831,767 | | | - | |
| Accessor U.S. Government Money Market Fund | | | - | | | 95,844 | |
| Federated Prime Obligations Fund | | | - | | | 589,145 | |
| | | | 831,767 | | | 684,989 | |
| Mutual funds: | | | | | | | |
| Accessor Aggressive Growth Allocation Fund | | | - | | | 210 | |
| Accessor Balanced Allocation Fund | | | - | | | 276 | |
| Accessor Growth Fund | | | - | | | 739,137 | |
| Accessor Intermediate Fixed-Income Fund | | | - | | | 329,514 | |
| Accessor International Equity Fund | | | - | | | 182,795 | |
| Accessor Short-Intermediate Fixed Income Fund | | | - | | | 86,843 | |
| Accessor Value Fund | | | - | | | 327,213 | |
| Federated Capital Appreciation Fund | | | - | | | 294,959 | |
| Federated GNMA Fund | | | - | | | 306,261 | |
| Federated Kaufmann Fund | | | - | | | 793,419 | |
| Federated Maximum Capital Fund | | | - | | | 435,010 | |
| Federated Stock Trust Fund | | | - | | | 550,461 | |
| Fidelity Advisor Equity Growth Fund | | | - | | | 436,956 | |
| Goldman Sachs International Equity Fund | | | - | | | 54,599 | |
| North Track Funds PSE Tech 100 Index Fund | | | - | | | 33,116 | |
| Blackrock Core Total Return | | | 656,705 | | | - | |
| Federated Government Income | | | 367,931 | | | - | |
| Investment Company of America | | | 1,097,622 | | | - | |
| Smith Barney Short-Term | | | 694,387 | | | - | |
| Smith Barney Large | | | 889,229 | | | - | |
| Goldman Sachs Growth | | | 429,349 | | | - | |
| Van Kampen Equity and Income | | | 90,631 | | | - | |
| Oppenheimer Capital | | | 94,580 | | | - | |
| AllianceBerstein Global | | | 87,749 | | | - | |
| MFS New Discover | | | 83,359 | | | - | |
| Salomon Brother Small Cap | | | 64,456 | | | - | |
| Smith Barney S&P 500 | | | 38,850 | | | - | |
| AIM Balanced Fund | | | 7,835 | | | - | |
| | | | 4,602,683 | | | 4,570,769 | |
| Common Stock: | | | | | | | |
| Habersham Bancorp common stock | | | 930,036 | | | 1,035,878 | |
| Participant loans | | | 70,152 | | | 66,893 | |
| Total investments | | $ | 6,434,638 | | | 6,358,529 | |
Habersham Bancorp 401(k) Plan
Notes to Financial Statements, continued
(3) | Investments, continued |
During 2004, the Plan’s investments (including investments bought, sold, and held during the year) depreciated in value by $21,662 as detailed below:
| Net Change in Investments at Fair Value as Determined by Quoted Market Price: | | | |
| Mutual Funds | | $ | 84,180 | |
| Common Stock | | | (105,842 | ) |
| Net change in fair value | | $ | (21,662 | ) |
Single investments representing more than 5% of the Plan’s net assets as of December 31, 2004 and 2003, are separately identified.
| | | 2004 | | 2003 | |
| Money Market Accounts: | | | | | |
| Federated Prime Obligations Fund | | $ | - | | | 589,145 | |
| Money Market Fund | | | 831,767 | | | - | |
| Mutual Funds: | | | | | | | |
| Accessor Growth Fund | | | - | | | 739,137 | |
| Accessor Intermediate Fixed-Income Portfolio | | | - | | | 329,514 | |
| Accessor Value & Income Portfolio | | | - | | | 327,213 | |
| Federated Kaufmann Fund | | | - | | | 793,419 | |
| Federated Maximum Capital Fund | | | - | | | 435,010 | |
| Federated Stock Trust Fund | | | - | | | 550,461 | |
| Fidelity Advisor Equity Growth Fund | | | - | | | 436,956 | |
| Blackrock Core Total Return | | | 656,705 | | | - | |
| Federated Government Income | | | 367,931 | | | - | |
| Investment Company of America | | | 1,097,622 | | | - | |
| Smith Barney Short-Term | | | 694,387 | | | - | |
| Smith Barney Large | | | 889,229 | | | - | |
| Goldman Sachs Growth | | | 429,349 | | | - | |
| Common Stock - Habersham Bancorp | | | 930,036 | | | 1,035,878 | |
The Plan received a determination letter for the prototype plan upon which it is modeled dated September 18, 2001, which the Internal Revenue Service (IRS) stated that the Plan as then designed was in compliance with the applicable requirements of the Internal Revenue Code (IRC). Although the Plan has been amended since receiving the determination letter, the Plan administrator and the Plan’s tax counsel believe that the Plan is designed and is currently being operated in compliance with the applicable requirements of the IRS. Therefore, no provision for income taxes has been included in the Plan’s financial statements.
(5) | Party-In-Interest Transactions |
The Plan received cash dividends of $56,504 on its investment in Habersham Bancorp common stock during 2004. In addition, the Plan received accounting services from Federated during 2004. Federated was also the issuer of several of the Plan’s investments.
Habersham Bancorp 401(k) Plan
Notes to Financial Statements, continued
(6) | Reconciliation of Financial Statements to Form 5500 |
Differences exist between the financial statement amounts and the Form 5500. These differences are due to the excess contributions due to participants being recorded in 2003 for financial statement purposes and in 2004 for the Form 5500. The following is a reconciliation of net assets available for benefits at December 31, 2003, from the financial statements to Form 5500:
| Net assets available for benefits per the financial statements | | $ | 6,358,513 | |
| Excess contributions due to participants | | | 14,930 | |
| Net assets available for benefits per the Form 5500 | | $ | 6,373,443 | |
The following is a reconciliation of the increase in net assets available for benefits per the financial statements to the Form 5500 for the year ended December 31, 2004:
| Increase in net assets available for benefits per the financial statements | | $ | 94,820 | |
| Excess contributions due to participants | | | (14,930 | ) |
| Increase in net assets available for benefits per Form 5500 | | $ | 79,890 | |
On October 1, 2004, the Company changed the Plan’s trustee and third party administrator. Upon the change, the Company adopted a new plan document provided by the new administrator. The new plan document, which was retroactive to the beginning of the Plan year, January 1, 2004, changed the eligible age requirement from 16 to 21 and allowed all full-time employees to receive immediate company matching contributions rather than the previous one-year waiting period. In addition, the Plan name changed from Habersham Bancorp Savings Investment Plan to Habersham Bancorp 401(k) Plan. All other provisions of the new plan document are the same as the previous plan document. The adoption of the new plan document did not affect the net assets of the Plan.
(8) | Prohibited Transactions |
When the Plan changed its trustee (see note 7) there was a 55 day period in which neither trustee would accept deposits, therefore, the Plan sponsor was unable to deposit approximately $35,000 of participant deferrals within the required timeframe as stated by the United States Department of Labor (DOL). When the period ended, the sponsor immediately deposited the funds to the Plan. The DOL considers late deposits to be prohibited transactions. The Plan sponsor will file Form 5330 and pay applicable excise tax. The excise tax payments will be made from the Plan sponsor's assets and not from assets of the Plan.
Habersham Bancorp 401(k) Plan
Schedule H, Line 4i - Schedule of Assets Held for Investment Purposes
December 31, 2004
EIN: 58-1563165 PN 001
| (a) | | (b) Identity of issuer, borrower, lessor or similar party | | (c) Description of investment, including maturity date, rate of interest, collateral, par or maturity value | | (d) Cost | | (e) Current Value |
| | | | | | | | | |
| | | Money Market Fund | | Cash | | N/A | $ | 831,767 |
| | | Mutual funds: | | | | | | |
| | | Blackrock Core Total Return | | 67,354 mutual fund shares | | N/A | | 656,705 |
| | | Federated Government Income | | 40,881 mutual fund shares | | N/A | | 367,931 |
| | | Investment Company of America | | 35,695 mutual fund shares | | N/A | | 1,097,622 |
| | | Smith Barney Short-Term | | 165,330 mutual fund shares | | N/A | | 694,387 |
| | | Smith Barney Large | | 40,660 mutual fund shares | | N/A | | 889,229 |
| | | Goldman Sachs Growth | | 19,786 mutual fund shares | | N/A | | 429,349 |
| | | Van Kampen Equity and Income | | 10,514 mutual fund shares | | N/A | | 90,631 |
| | | Oppenheimer Capital | | 2,295 mutual fund shares | | N/A | | 94,580 |
| | | AllianceBerstein Global | | 1,539 mutual fund shares | | N/A | | 87,749 |
| | | MFS New Discover | | 5,083 mutual fund shares | | N/A | | 83,359 |
| | | Salomon Brother Small Cap | | 4,158 mutual fund shares | | N/A | | 64,456 |
| | | Smith Barney S&P 500 | | 3,164 mutual fund shares | | N/A | | 38,850 |
| | | AIM Balanced Fund | | 310 mutual fund shares | | N/A | | 7,835 |
| | | | | | | | | |
| | | Common Stock: | | | | | | |
| * | | Habersham Bancorp common stock | | 45,147 common stock shares | | N/A | | 930,036 |
| | | | | | | | | |
| | | Participant loans | | Interest rates ranging from 5% to 7.5% with maturities through April 2018 | | - | | 70,152 |
* - Habersham Bancorp is a party-in-interest to the Plan.
N/A - Value is not applicable due to investment being participant directed
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