UNITED STATES
                     SECURITIES AND EXCHANGE COMMISSION
                          Washington, D. C. 20549

                                FORM 10-QSB



                 Quarterly Report Under Section 13 or 15(d)
                   of the Securities Exchange Act of 1934


For the quarter ended                        Commission File No.  0-16761  
  September 30, 1996

                         HIGHLANDS BANKSHARES, INC.


         West Virginia                                       55-0650793    
(State or Other Jurisdiction of                           (I.R.S. Employer 
 Incorporation or Organization)                         Identification No.)


                               P. O. Box 929
                      Petersburg, West Virginia  26847

                               (304) 257-4111
            (Registrant's Telephone Number, Including Area Code)


     Indicate by check mark whether the registrant (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 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 requirement for the past 90 days.  Yes ..X. No ....


     State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.

         Class                           Outstanding at September 30, 1996 
Common Stock, par value - $5                     514,066 shares    


                         HIGHLANDS BANKSHARES, INC.


                                   INDEX

                                                                      Page

PART I    FINANCIAL INFORMATION                                         2

Item 1.   Financial Statements

          Consolidated Statements of Income - Nine Months Ended
          September 30, 1996 and 1995                                   2

          Consolidated Statements of Income - Three Months Ended
          September 30, 1996 and 1995                                   3

          Consolidated Balance Sheets - September 30, 1996 and
          December 31, 1995                                             4

          Consolidated Statements of Cash Flows - Nine Months Ended
          September 30, 1996 and 1995                                   5

          Consolidated Statements of Changes in Stockholders' Equity -
          Nine Months Ended September 30, 1996 and 1995                 6

          Notes to Consolidated Financial Statements                    7


Item 2.   Management's Discussion and Analysis of
          Financial Condition and Results of Operations                 9


PART II   OTHER INFORMATION                                            19

Item 1.   Legal Proceedings                                            19

Item 2.   Changes in Securities                                        19

Item 3.   Defaults upon Senior Securities                              19

Item 4.   Submission of Matters to a Vote of Security Holders          19

Item 5.   Other Information                                            19

Item 6.   Exhibit and Reports on Form 8K                               19


          SIGNATURES                                                   21

<PAGE> 2

Part I Financial Information
Item 1 Financial Statements

                         HIGHLANDS BANKSHARES, INC.
                     CONSOLIDATED STATEMENTS OF INCOME
                         (In Thousands of Dollars)

                                                      Nine Months Ended
                                                         September 30,
                                                       1996         1995

Interest Income
  Interest and fees on loans                        $   8,240    $   7,446
  Interest on federal funds sold                          234          264
  Interest on time deposits                                38           19
  Interest and dividends on investment securities
    Taxable                                             1,856        1,509
    Nontaxable                                            170          139

  Total Interest Income                                10,538        9,377

Interest Expense
  Interest on time deposits over $100,000                 905          711
  Interest on other deposits                            4,397        3,806

  Total Interest on Deposits                            5,302        4,517
  Interest on borrowed money                                6             

  Total Interest Expense                                5,308        4,517

Net Interest Income                                     5,230        4,860

Provision for Loan Losses                                 105           90

Net Interest Income after Loan Losses                   5,125        4,770

Noninterest Income
  Service charges                                         174          149
  Other                                                   272          263
  Investment security losses                               (2)          (8)

  Total Noninterest Income                                444          404

Noninterest Expense
  Salaries and employee benefits                        1,829        1,636
  Occupancy expense                                       189          135
  Equipment expense                                       261          139
  Data processing expense                                 286          273
  FDIC expense                                              4          146
  Other                                                   761          709

  Total Noninterest Expense                             3,330        3,038

Income before Income Taxes                              2,239        2,136

Provision for Income Taxes                                696          722

Net Income                                          $   1,543    $   1,414

Per Share Data

  Net Income                                        $    3.00    $    2.75

  Cash Dividends                                    $     .54    $     .48

Weighted Average Common Shares Outstanding            514,066      514,066

      The accompanying notes are an integral part of these statements.

<PAGE> 3

                         HIGHLANDS BANKSHARES, INC.
                     CONSOLIDATED STATEMENTS OF INCOME
                         (In Thousands of Dollars)


                                                      Three Months Ended
                                                         September 30,
                                                       1996         1995

Interest Income
  Interest and fees on loans                        $   2,817   $    2,606
  Interest on federal funds sold                           58           93
  Interest on time deposits                                12            5
  Interest and dividends on investment securities
    Taxable                                               668          512
    Nontaxable                                             56           45

  Total Interest Income                                 3,611        3,261

Interest Expense
  Interest on time deposits over $100,000                 318          274
  Interest on other deposits                            1,472        1,383

  Total Interest on Deposits                            1,790        1,657
  Interest on borrowed money                                2             

  Total Interest Expense                                1,792        1,657

Net Interest Income                                     1,819        1,604

Provision for Loan Losses                                  45           30

Net Interest Income after Loan Losses                   1,774        1,574

Noninterest Income
  Service charges                                          66           50
  Other income                                             95           74
  Investment security gains (losses)                        6           (5)

  Total Noninterest Income                                167          119

Noninterest Expense
  Salaries and employee benefits                          623          553
  Occupancy expense                                        83           40
  Equipment expense                                       125           55
  Data processing                                          98           93
  FDIC expense (refund)                                     1           (8)
  Other                                                   264          247

  Total Noninterest Expense                             1,194          980

Income before Income Taxes                                747          713

Provision for Income Taxes                                214          248

Net Income                                          $     533   $      465

Per Share Data

  Net Income                                        $    1.04   $      .90

  Cash Dividends                                    $     .18   $      .16

Weighted Average Common Shares Outstanding            514,066      514,066

      The accompanying notes are an integral part of these statements.

<PAGE> 4

                         HIGHLANDS BANKSHARES, INC.
                        CONSOLIDATED BALANCE SHEETS
                         (In Thousands of Dollars)

                                                September 30, December 31,
                                                    1996          1995
   ASSETS

Cash and due from banks                           $   3,393    $   3,287
Federal funds sold                                    3,593        6,016
Time deposits in other banks                            929          995
Securities held to maturity (note 2)                 10,038        9,807
Securities available for sale (note 3)               34,213       29,040
Other investments                                       639          552
Loans, net of unearned interest (note 4)            119,936      113,935
  Less allowance for loan losses (note 5)            (1,265)      (1,319)

  Net Loans                                         118,671      112,616

Bank premises and equipment                           3,487        3,338
Construction in progress                                280
Interest receivable                                   1,478        1,303
Deferred income tax benefit                             420          242
Other assets                                            535          688

  Total Assets                                    $ 177,676    $ 167,884

    LIABILITIES

Deposits:
  Noninterest bearing
    Demand deposits                               $  15,396    $  14,134
  Interest bearing
    Money market and checking                        14,690       14,819
    Money market savings                             12,584       14,578
    Savings                                          17,894       16,989
    Time deposits over $100,000                      20,609       15,841
    All other time deposits                          75,102       71,352

  Total Deposits                                    156,275      147,713

Borrowed money                                          146          157
Accrued expenses and other liabilities                1,430        1,152

  Total Liabilities                                 157,851      149,022

  STOCKHOLDERS' EQUITY

Common stock ($5 par value, 1,000,000 shares
  authorized, 546,764 shares issued)                  2,734        2,734
Surplus                                               1,662        1,662
Retained earnings                                    16,214       14,949
Net unrealized gain (loss) on securities
  available for sale                                   (291)          11

                                                     20,319       19,356
Treasury stock (at cost, 32,698 shares)                (494)        (494)


  Total Stockholders' Equity                         19,825       18,862

  Total Liabilities and Stockholders' Equity      $ 177,676    $ 167,884

      The accompanying notes are an integral part of these statements.

<PAGE> 5

                         HIGHLANDS BANKSHARES, INC.
                   CONSOLIDATED STATEMENTS OF CASH FLOWS
                         (In Thousands of Dollars)

                                                       Nine Months Ended
                                                         September 30,
                                                       1996         1995

Cash Flows from Operating Activities:
  Net income                                        $   1,543    $   1,414
  Adjustments to reconcile net income to net
    cash provided by operating activities:
      Investment securities losses                          2            8
      Depreciation                                        166          115
      Net amortization                                     65          135
      Provision for loan losses                           105           90
      Increase in interest receivable                    (175)         (34)
      Decrease in other assets                            136           54
      Increase in accrued expenses                        278          266

  Net Cash Provided by Operating Activities             2,120        2,048

Cash Flows from Investing Activities:
  Proceeds from sale of securities
    available for sale                                  1,260
  Proceeds from maturities of securities
    available for sale                                 10,479       10,375
  Proceeds from maturities of securities
    held to maturity                                    1,977          886
  Net change in time deposits in other banks               73         (100)
  Purchase of securities available for sale           (19,124)      (8,435)
  Purchase of securities held to maturity                (620)      (1,502)
  Net change in loans to customers                     (6,160)      (8,051)
  Net change in federal funds sold                      2,423         (915)
  Purchase of property and equipment                     (315)        (279)
  Construction in progress payments                      (280)      (1,487)

  Net Cash Consumed by Investing Activities           (10,287)      (9,508)

Cash Flows from Financing Activities:
  Net increase in deposits                              8,562        7,582
  Other borrowed money                                    (11)         160
  Payment of dividends                                   (278)        (248)

  Net Cash Provided by Financing Activities             8,273        7,494

Net Increase in Cash and Cash Equivalents                 106           34

Cash and Cash Equivalents, Beginning of Period          3,287        3,327

Cash and Cash Equivalents, End of Period            $   3,393    $   3,361

Supplementary Disclosures:
  Cash paid for:
    Income taxes                                    $     698    $     760
    Interest expense                                    5,277        4,330

      The accompanying notes are an integral part of these statements.

<PAGE> 6

                         HIGHLANDS BANKSHARES, INC.
         CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                         (In Thousands of Dollars)


                                                       Nine Months Ended
                                                         September 30,
                                                       1996         1995

Balance, beginning of period                        $  18,862    $  16,776

Net income for period                                   1,543        1,414
Cash dividends                                           (278)        (248)
Change in unrealized gain (loss) on securities
  available for sale                                     (302)         577

Balance, end of period                              $  19,825    $  18,519


      The accompanying notes are an integral part of these statements.

<PAGE> 7

                         HIGHLANDS BANKSHARES, INC.
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1     ACCOUNTING PRINCIPLES:

               The consolidated financial statements conform to generally
           accepted accounting principles and to general industry
           practices.  In the opinion of management, the accompanying
           unaudited consolidated financial statements contain all
           adjustments (consisting of only normal recurring accruals)
           necessary to present fairly the financial position as of
           September 30, 1996, and the results of operations for the nine
           and three month periods ended September 30, 1996 and 1995.  The
           notes included herein should be read in conjunction with the
           notes to financial statements included in the 1995 annual report
           to stockholders of Highlands Bankshares, Inc.


NOTE 2     SECURITIES HELD TO MATURITY:

               The amortized cost and market value of securities held to
           maturity as of September 30, 1996 and December 31, 1995, are as
           follows:

                                             1996               1995
                                      Amortized Market   Amortized Market
                                        Cost     Value     Cost     Value

          US Treasury securities
            and obligations of
            US Government
            corporations
            and agencies               $ 5,818  $ 5,832   $ 5,743  $ 5,836
          Obligations of states
            and political
            subdivisions                 4,220    4,202     4,064    4,144

            Total                      $10,038  $10,034   $ 9,807  $ 9,980


NOTE 3    SECURITIES AVAILABLE FOR SALE:

            The amortized cost and market value of securities available for
          sale as of September 30, 1996 and December 31, 1995, are as
          follows:

                                             1996               1995
                                      Amortized Market   Amortized Market
                                        Cost     Value     Cost     Value

          US Treasury securities
            and obligations
            of US Government
            corporations and
            agencies                   $33,268  $33,047   $27,405  $27,633
          Obligations of states


            and political
            subdivisions                                      200      200
          Other investments              1,408    1,166     1,417    1,207

            Total                      $34,676  $34,213   $29,022  $29,040

<PAGE> 8

                         HIGHLANDS BANKSHARES, INC.
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 4     LOANS OUTSTANDING:

               A summary of loans outstanding as of September 30, 1996 and
           December 31, 1995, is as follows:

                                                       1996         1995

          Commercial                                $  23,104    $  20,749
          Real estate  - construction                   1,769        2,622
                       - mortgages                     68,533       65,971
          Consumer installment                         28,721       26,740

            Total                                     122,127      116,082
          Unearned interest                            (2,191)      (2,147)

            Net loans outstanding                   $ 119,936    $ 113,935


NOTE 5     ALLOWANCE FOR LOAN LOSSES:

               A summary of transactions in the allowance for loan losses
           for the nine months ended September 30, 1996 and 1995, follows:

                                                       1996         1995

          Balance, beginning of period              $   1,319    $   1,454
          Provisions charged to operating expenses        105           90
          Loan recoveries                                 101          104
          Loan charge-offs                               (260)        (301)

          Balance, end of period                    $   1,265    $   1,347

<PAGE> 9

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


Overview

     Year to Date Operations

     The Company's nine month income of $1,543,000 represents a 9.12%
increase in total earnings and earnings per share compared to 1995
operations.  Earnings represented an annualized return on equity of 10.64%
for the first nine months of 1996 compared to 10.68% for the same period in
1995.  The annualized return on average assets was 1.19% in the first nine
months of 1996 compared with  1.20% in the first nine months of 1995.

     The tax equivalent net interest income increased by $390,000 in 1996
to $5,322,000.  A 9.67% increase in the level of net earning assets and a
stable spread in the returns on earning assets and rates paid on deposits
were responsible for the increase.  The higher level of earning assets was
funded primarily by increases in the level of time deposits.

     The provision for loan losses increased from $90,000 to $105,000 due
primarily to increases in the level of loans outstanding.  Noninterest
income increased 9.90% due primarily to increases in service charges. 
Noninterest expenses increased 9.61% due primarily to increases in
personnel and occupancy expenses.  Income taxes declined as a result of
state income tax refunds received in the third quarter of 1996 for the
years of 1992 to 1995.  The refunds were the result of corrections of the
amounts excludable by the state of West Virginia and totaled $45,000.

     Quarter Ending September 30 Operations

     Net income for the quarter ending September 30, 1996 increased 14.62%
when compared to the prior year operations.  Increases in the net interest
margin after credit losses totaled 12.71% for 1996 while other income
increased 40.34% from the prior year.  Offsetting these earnings increases
were increases in noninterest expenses of 21.84%.  These increases reflect
a charge to operations in the third quarter of 1996 of $75,000 for losses
as the result of Hurricane Fran.  Also the third quarter reflects a refund
of state income and franchise taxes resulting from corrections of previous
filings.

Net Interest Income

     Year to Date Operations

     The Company's net interest income on a tax equivalent basis was 4.28%
($5,322,000) in the first nine months of 1996 compared to 4.35%
($4,932,000) in the first nine months of 1995.  The moderate increase was
the result of a 9.67% increase in average earning assets and a relatively
stable interest spread.  Increased yields from loans of all types and a
7.15% increase in the level of average loans outstanding were responsible
for the increase in income on loans.  Rising market yields and a 17.65%
increase in average taxable investments were responsible for the increased
income on investments.  Demand deposit and savings rates declined two basis
points while the level of these deposits remained stable in the first nine
months of the year.  A 14.90% increase in the level of time deposits and a
 .50% increase in the rate paid on these deposits were responsible for an
overall 25.26% increase in interest expense on time deposits in the first
nine months of 1996.

<PAGE> 10

Item 2    Management's Discussion and Analysis of Financial Condition and
          Results of Operations (Continued)


Net Interest Income

     Year to Date Operations (Continued)

     The third quarter net interest margin improved slightly over the first
two quarters of the year.  This combination of rate and volume increases
has provided the largest net interest income contribution in Company
history.  Management believes that a slight reduction in the cost of
deposits and stable returns on earning assets should be seen in the next
twelve months and this should allow for continued improvement in the net
interest margins.  The Company has traditionally paid a slightly higher
rate on deposits than larger money center banks as a means of maintaining
its core deposits.  Should the Federal Reserve Bank take actions to raise
interest rates in late 1996 or early 1997, management believes its
asset/liability management policies are flexible enough to maintain an
acceptable net interest margin during such periods.

     Quarter Ending September 30 Operations

     The Company's net interest income on a tax equivalent basis was 4.38%
($1,850,000) for the quarter ending September 30, 1996 compared to 4.22%
($1,628,000) for the same period in 1995.  Increased income from loans was
the result of increases in both volume and yields as market rates rose in
early 1996.  Increases in investment yields also contributed to an overall
increase in the yield on earning assets.  Interest rates paid on savings
and demand deposits declined modestly while rates paid on time deposits was
virtually unchanged.  Assuming no dramatic changes in the Federal Reserve
Bank's targets for interest rates, management believes it will maintain or
increase the present level of the net interest margin into the foreseeable
future.

     A complete yield analysis is shown as Table I on page 17.

Noninterest Income

     Year to Date Operations

     Noninterest income increased 9.90% on the strength of higher service
charges on deposit accounts (an increase of 16.78% in income) and greater
other fee income (an increase of 3.42%).  The increase in service charges
is the result of a rate change at one of the subsidiary institutions while
the growth in assets is responsible for the increase in other income. 
Losses on the sale of securities was insignificant in both periods.

     Quarter Ending September 30 Operations

     Noninterest income increased 40.34% in 1996 as a result of higher
service charge income, higher fees for other services and a small gain
instead of a small loss on the sale of securities.  Noninterest income has
traditionally not been a major source of revenue for the Company but has
been increasing lately with asset growth and changes in the rates charged
for services.
     
<PAGE> 11

Item 2    Management's Discussion and Analysis of Financial Condition and
          Results of Operations (Continued)


Noninterest Expenses

     Year to Date Operations

     Overall, noninterest expenses rose 9.61% for the first nine months of
1996 when compared to the same period of 1995.  Personnel expenses
increased 11.80% due to merit and inflationary raises. Equipment, occupancy
and data processing expenses increased 34.55% during the nine month period. 
Two significant occurrences affected the comparability of 1996 and 1995. 
In 1995, it was determined that the Company had paid for duplicate billings
of $28,000 for certain equipment maintenance contracts and the refund of
this overbilling reduced expenses in 1995 by this amount.  In September of
1996, the Company's Moorefield facilities were flooded as a result of
Hurricane Fran and this resulted in uninsured losses totaling $75,000. 
Excluding these two unusual items, facility expenses increased by 14.96% as
a result of new operating facilities and general asset growth.  The FDIC
insurance expense declined by 97.26% as the insurance fund reduced the cost
of insurance coverage to virtually zero as of June 1, 1995.  Other
noninterest expenses increased by 7.33% as a result of overall asset growth
and expanded customer services.  Exclusive of nonrecurring items cited
above, noninterest expenses rose 11.34% in 1996 compared to 1995. 
Management views these increases as acceptable in light of a 9.67% increase
in average earning assets and the costs of expanding and modernizing its
facilities in Petersburg and Moorefield.

     Quarter Ending September 30 Operations

     Overall, noninterest expenses increased 21.84% for the quarter ending
September 30, 1996 compared to 1995.  Exclusive of the flood losses cited
earlier, noninterest expenses increased 14.18% in 1996 as the result of
higher salaries and benefits, higher occupancy/equipment costs and general
asset growth.  Management believes that noninterest costs will continue to
rise in future quarters as two new branches are opened to serve customers
in Keyser and Baker, West Virginia.  While these facilities should
contribute to earnings growth in future periods, operating costs for these
new facilities will cause total noninterest expenses to increase in the
near future.  Management will accept these higher costs in return for the
long-term growth potential these locations provide.

Income Taxes

     Nine Months and Quarter Ended September 30

     In the third quarter of 1996, the Company received refunds of a
portion of its state income taxes paid for the years of 1992-95.  These
total tax refunds totaled $45,000 and were the result of changes in the
interpretation of the amounts excludable from taxation as defined under
state law.  Excluding these refunds which had the effect of reducing the
current income tax expense, the effective tax rate for all periods was
relatively unchanged.
                     
<PAGE> 12

Item 2    Management's Discussion and Analysis of Financial Condition and
          Results of Operations (Continued)


Loan Portfolio

     The Company is an active residential mortgage and construction lender
and generally extends commercial loans to small and medium sized businesses
within its primary service area.  The Company's commercial lending activity
extends across its primary service areas of Grant, Hardy and northern
Pendleton counties.  Consistent with its focus on providing community-based
financial services, the Company does not attempt to diversify its loan
portfolio geographically by making significant amounts of loans to
borrowers outside of its primary service area.

     The principal economic risk associated with each of the categories of
loans in the Company's portfolio is the creditworthiness of its borrowers. 
Within each category, such risk is increased or decreased depending on
prevailing economic conditions.  The risk associated with the real estate
mortgage loans and installment loans to individuals varies based upon
employment levels, consumer confidence, fluctuations in value of
residential real estate and other conditions that affect the ability of
consumers to repay indebtedness.  The risk associated with commercial,
financial and agricultural loans varies based upon the strength and
activity of the local economies of the Company's market areas.  The risk
associated with real estate construction loans varies based upon the supply
of and demand for the type of real estate under construction.

     Loans outstanding increased $6,001,000 or 5.27% in the first nine
months in 1996.  The majority of this increase has occurred in the third
quarter and reflects strong loan demand throughout the service area. 
Except for construction lending, all types of loans showed increases from
the year end.  The loan to deposit ratio was 76.75% at September 30, 1996
compared to 77.13% at December 31, 1995.  Management believes this current
level of lending activity will result in the greatest amount of earnings
without undue credit risk.  Loan demand is expected to remain satisfactory
in the near future as economic conditions in the local area are stable and
there are no reasons to believe there will be any changes in this within
the next twelve month period.

Asset Quality and Risk Elements

     Nonperforming loans include nonaccrual loans, loans 90 days or more
past due and restructured loans.  Nonaccrual loans are loans on which
interest accruals have been suspended or discontinued permanently. 
Restructured loans are loans on which the original interest rate or
repayment terms have been changed due to financial hardship of the
borrower.  The loans on nonaccrual status at September 30, 1996, consist of
real estate mortgages.  The total of nonaccrual loans was $81,000 at
September 30, 1996 compared to $95,000 at June 30, 1996, March 31, 1996 and
December 31, 1995.  Foregone interest on nonaccrual loans was insignificant
in all periods reported.

     Real estate acquired through foreclosure was $145,000 at September 30,
1996 compared to $260,000 at December 31, 1995.  All foreclosed property
held at September 30, 1996 was in the Company's primary service area.  The
Company's practice is to value real estate acquired through foreclosure at
the lower of (i) an independent current appraisal or market analysis less
anticipated costs of disposal, or (ii) the existing loan balance.  The
Company is actively marketing all foreclosed real estate and does not
anticipate material write-downs in value before disposition.

<PAGE> 13

Item 2    Management's Discussion and Analysis of Financial Condition and
          Results of Operations (Continued)


Asset Quality and Risk Elements (Continued)

     An inherent risk in the lending of money is that the borrower will not
be able to repay the loan under the terms of the original agreement.  The
allowance for loan losses (see subsequent section) provides for this risk
and is reviewed periodically for adequacy.  This review also considers
concentrations of loans in terms of geography, business type or level of
risk.  While lending is geographically diversified within the service area,
the Company does have some concentration of loans in the area of
agriculture (primarily poultry farming), timber and related industries. 
Management recognizes these concentrations and considers them when
structuring its loan portfolio.  As of September 30, 1996, management is
not aware of any significant potential problem loans in which the debtor is
currently meeting their obligations as stated in the loan agreement but
which may change in future periods.

Allowance for Loan Losses

     Management evaluates the loan portfolio in light of national and local
economic changes, changes in the nature and value of the portfolio and
industry standards.  The Company's loan classification system, which rates
existing loans, provides the basis for adjusting the allowance for loan
losses.  Management reviews these classification totals, along with
internally generated loan review reports, past due reports, historical loan
loss experience and individual borrower's financial health to determine the
necessary amount to be provided in the allowance for loan losses. 
Management evaluates nonperforming loans relative to their collateral value
and makes the appropriate adjustments to the allowance when needed.

     The provision for credit losses and changes in the allowance for
credit losses are shown below (in thousands of dollars).

                                        Quarter Ended    Nine Months Ended
                                        September 30,      September 30,
                                        1996     1995      1996     1995

     Balance, beginning of period     $ 1,305  $ 1,445    $ 1,319  $ 1,454
     Net charge-offs (recoveries)
       Charge-offs                        121      156        260      301
       Recoveries                         (36)     (28)      (101)    (104)

     Total net charge-offs *               85      128        159      197
     Provision for credit losses           45       30        105       90

       Balance, End of Period         $ 1,265  $ 1,347    $ 1,265  $ 1,347

   * Components of net charge-offs:
     Rest estate  - construction            6       (9)        (1)       8
                  - mortgages                       30         20       48
     Commercial                            39       63         44       96
     Installment                           40       44         96       45

     Total                            $    85  $   128    $   159  $   197

<PAGE> 14

Item 2    Management's Discussion and Analysis of Financial Condition and
          Results of Operations (Continued)


Allowance for Loan Losses (Continued)

     The allowance for credit losses of $1,265,000 at September 30, 1996,
was down $40,000 from its level at June 30, 1996, and down $54,000 from
December 31, 1995 levels.  The allowance was equal to 1.05%, 1.14%, and
1.16% of total loans at September 30, 1996, June 30, 1996 and December 31,
1995, respectively.  The Company believes that its allowance must be viewed
in its entirety and, therefore, is available for potential credit losses in
its entire portfolio, including loans, credit-related commitments and other
financial instruments.  In the opinion of management, the allowance, when
taken as a whole, is adequate to absorb reasonably estimated credit losses
inherent in the Company's portfolio.

     On January 1, 1995, the Company adopted SFAS 114, "Accounting by
Creditors for Impairment of a Loan" as amended by SFAS 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosure." 
SFAS 114 requires the creation of a valuation allowance for impaired loans. 
Under SFAS 114, a loan is impaired when, based on current information and
events, it is probable that a creditor will be unable to collect all
amounts due according to the loan's contractual terms.  At September 30,
1996, the Company had only an insignificant amount of loans that would be
considered impaired under SFAS 114.

Securities

     The Company's securities portfolio serves numerous purposes.  Portions
of the portfolio may secure certain public and trust deposits.  The
remaining portions are held as investments or used to assist the Company in
liquidity and asset/liability management.  Total securities at September
30, 1996 were $44,890,000 compared to $39,399,000 at December 31, 1995. 
Securities as percentage of total assets were 25.27% at September 30, 1996
compared to 23.47% at December 31, 1995.  The increase in securities is a
result of good deposit growth and increased yields offered on low risk
investments.

     The securities portfolio consists of two components, securities held
to maturity and securities available for sale.  Securities are classified
as held to maturity when management has the intent and the Company has the
ability at the time of purchase to hold the securities to maturity.  Held
to maturity securities are carried at cost, adjusted for amortization of
premiums and accretion of discounts.   Securities to be held for indefinite
periods of time are classified as available for sale and accounted for at
market value.  Securities available for sale include securities that may be
sold in response to changes in market interest rates, changes in the
security's prepayment risk, increases in loan demand, general liquidity
needs and other similar factors.   Changes within the year in market values
are reflected as changes in stockholders' equity, net of the deferred tax
effect.  As of September 30, 1996, the cost of the securities available for
sale exceeded their market value by $463,000 ($291,000 after tax
considerations).  The Company's recent purchases of all securities have
generally been limited to securities of high credit quality with short to
medium term maturities.

Deposits

     The Company's main source of funds remains deposits received from
individuals, governmental entities and businesses located within the
Company's service area.  Deposit accounts include demand deposits, savings,
money market and certificates of deposit.
 
<PAGE> 15

Item 2    Management's Discussion and Analysis of Financial Condition and
          Results of Operations (Continued)


Deposits (Continued)

     Total deposits increased 5.80% between December 31, 1995 and September
30, 1996, primarily in the area of time deposit accounts.  The cost of
funds for the first nine months of 1996 was 5.15% compared to 4.80% for the
same period in 1995.  The yields on demand and savings deposits declined
modestly between the periods while yields on time deposits increased by 50
basis points.  The majority of the Company's deposits are time deposits
which are attractive to persons seeking high yields on their deposits but
without the need for liquidity.  The Company has not actively pursued
deposits in excess of $100,000 due to the volatile nature of these
relationships although it has seen a substantial increase in large
certificates throughout 1996.

Capital

     The Company seeks to maintain a strong capital base to expand
facilities, promote public confidence, support current operations and grow
at a manageable level.  As of September 30, 1996, the Company's total risk
based capital ratio was 20.55% which is far above the regulatory minimum of
8.0%.  The ratio of total capital to total assets was 11.16% at September
30, 1996 which exceeds that of the Company's peers.  Earnings have been
satisfactory to allow an increase in dividends in 1996 over those levels
experienced in 1995.

Liquidity

     Liquidity is the ability to meet present and future financial
obligations through either the sale or maturity of existing assets or the
acquisition of additional funds through liability management.  Liquid
assets include cash, interest bearing deposits with banks, federal funds
sold, investments and loans maturing within one year.  The Company's
ability to obtain deposits and purchase funds at favorable rates determines
its liquidity exposure.  As a result of the Company's management of liquid
assets and the ability to generate liquidity through liability funding,
management believes that the Company maintains overall liquidity sufficient
to satisfy its depositors' requirements and meet its customers' credit
needs.

     Additional sources of liquidity available to the Company include, but
are not limited to, loan repayments, the ability to obtain deposits through
the adjustment of interest rates and the purchasing of federal funds.  To
further meet its liquidity needs, the Company also maintains lines of
credit with correspondent financial institutions and the Federal Reserve
Bank of Richmond.  Both subsidiary banks have lines of credit with the
Federal Home Loan Bank of Pittsburgh although utilization has been
insignificant.  In the past, growth in deposits and proceeds from the
maturity of investment securities have been sufficient to fund the net
increase in loans and investment securities.

Interest Rate Sensitivity

     In conjunction with maintaining a satisfactory level of liquidity,
management must also control the degree of interest rate risk assumed on
the balance sheet.  Managing this risk involves regular monitoring of the
interest sensitive assets relative to interest sensitive liabilities over
specific time intervals.
                        
<PAGE> 16

Item 2    Management's Discussion and Analysis of Financial Condition and
          Results of Operations (Continued)


Interest Rate Sensitivity (Continued)

     At September 30, 1996 the Company had a negative gap position.  This
liability sensitive position typically produces an unfavorable contribution
to earnings during a period of increasing rates.  Increases in the volume
of earning assets and an increasing spread on amounts received and charged
have provided an increase in overall interest income for the period.

     With the largest amount of interest sensitive assets and liabilities
repricing within three years, the Company monitors these areas very
closely.  Early withdrawal of deposits, prepayments of loans and loan
delinquencies are some of the factors that could affect actual versus
expected cash flows.  In addition, changes in rates on interest sensitive
assets and liabilities may not be equal, which could result in a change in
net interest margin.  While the Company does not match each of its interest
sensitive assets against specific interest sensitive liabilities, it does
monitor closely the maturities of loans, investments and time deposits to
limit interest rate risk and the financial effect of market rate changes.

Effects of Inflation

   Inflation significantly affects industries having high proportions of
property, plant and equipment or high levels of inventories.  Although the
Company is not significantly affected in these areas, inflation does have
an impact on the growth of assets.  As assets grow rapidly, it becomes
necessary to increase equity capital at proportionate levels to maintain
the appropriate equity to asset ratios.  Traditionally, the Company's
earnings and high capital retention levels have enabled the Company to meet
these needs.

   The Company's reported earnings results have been affected by inflation
but isolating the effect is difficult.  The different types of income and
expense are affected in various ways.  Interest rates are affected by
inflation, but the timing and magnitude of the changes may not coincide
with changes in the consumer price index.  Management actively monitors
interest rate sensitivity, as illustrated by the Gap Analysis (Table II,
page 18) in order to minimize the effects of inflationary trends on
interest rates.  Other areas of noninterest expenses may be more directly
affected by inflation.

Securities and Exchange Commission Web Site

   The Securities and Exchange Commission maintains a Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission,
including Highlands Bankshares, Inc., and the address is
(http://www.sec.gov).

<Page 17>
Table I                              

<TABLE>
                                     HIGHLANDS BANKSHARES, INC.                
                                    NET INTEREST MARGIN ANALYSIS
                                    (Dollar Amounts in Thousands)
<CAPTION>
                                      Nine Months Ended                    Nine Months Ended
                                     September 30, 1996                   September 30, 1995

                               Average     Income/                  Average     Income/
                               Balance     Expense    Rates         Balance     Expense    Rates

<S>                           <C>         <C>         <C>          <C>         <C>         <C>    
Rate Related Income
  Loans
    Commercial                $ 21,843    $  1,528     9.33%       $ 19,385    $  1,311     9.02%
    Consumer                    25,503       2,188    11.44%         23,448       1,944    11.05%
    Real Estate                 67,749       4,524     8.90%         64,577       4,191     8.65%

    Total                      115,095       8,240     9.54%        107,410       7,446     9.24%

  Federal funds sold             5,764         234     5.41%          6,110         264     5.76%
  Interest bearing deposits        927          38     5.47%            459          19     5.52%
  Investments
    Taxable                     39,747       1,856     6.23%         33,784       1,509     5.96%
    Tax exempt (1)               4,174         262     8.37%          3,337         211     8.43%

  Total Earning Assets (1)     165,707      10,630     8.55%        151,100       9,449     8.34%

Interest Expense
  Demand deposits               26,764         583     2.90%         27,791         648     3.11%
  Savings                       17,487         464     3.54%         16,687         472     3.77%
  Time deposits                 93,102       4,255     6.09%         81,032       3,397     5.59%
  Other borrowed money             150           6     5.33%                                 

  Total Interest Bearing
    Liabilities                137,503       5,308     5.15%        125,510       4,517     4.80%

  Net Interest Margin                     $  5,322                             $  4,932

Net Yield on Interest
  Earning Assets (1)                                   4.28%                                4.35%


(1)  Yields are on a taxable equivalent basis using an assumed tax rate of 34%.

</TABLE>

Table I (Continued)                  

<TABLE>
                                      HIGHLANDS BANKSHARES, INC.               
                                     NET INTEREST MARGIN ANALYSIS
                                    (Dollar Amounts in Thousands)
<CAPTION>
                                     Three Months Ended                   Three Months Ended
                                     September 30, 1996                   September 30, 1995

                               Average     Income/                  Average     Income/
                               Balance     Expense    Rates         Balance     Expense    Rates

<S>                           <C>         <C>         <C>          <C>         <C>         <C>  
Rate Related Income
  Loans
    Commercial                $ 22,399    $    519     9.27%       $ 19,303    $    451     9.35%
    Consumer                    26,291         756    11.50%         24,210         680    11.24%
    Real Estate                 68,857       1,542     8.96%         66,885       1,475     8.82%

    Total                      117,547       2,817     9.59%        110,398       2,606     9.44%

  Federal funds sold             4,008          58     5.79%          6,612          93     5.62%
  Interest bearing deposits        907          12     5.29%            491           5     4.07%
  Investments
    Taxable                     42,233         668     6.33%         33,674         512     6.08%
    Tax exempt (1)               4,162          87     8.36%          3,181          69     8.67%

  Total Earning Assets (1)     168,857       3,642     8.63%        154,356       3,285     8.51%

Interest Expense
  Demand deposits               26,174         193     2.95%         26,371         207     3.14%
  Savings                       17,609         156     3.54%         16,337         158     3.87%
  Time deposits                 95,744       1,441     6.02%         85,700       1,292     6.03%
  Other borrowed money             146           2     5.48%                                 

  Total Interest Bearing
    Liabilities                139,673       1,792     5.13%        128,408       1,657     5.16%

  Net Interest Margin                     $  1,850                             $  1,628

Net Yield on Interest
  Earning Assets (1)                                   4.38%                                4.22%


(1)  Yields are on a taxable equivalent basis using an assumed tax rate of 34%.

</TABLE>

<PAGE> 18
TABLE II                             

<TABLE>
                                      HIGHLANDS BANKSHARES, INC.
                                 INTEREST RATE SENSITIVITY ANALYSIS
                                         SEPTEMBER 30, 1996
                                      (In Thousands of Dollars)

<CAPTION>
                        1 - 90    91 - 365    1 to 3     3 to 5    More than
                         Days       Days       Years      Years     5 Years     Total

<S>                    <C>        <C>        <C>        <C>        <C>        <C>  
EARNINGS ASSETS

  Loans                $ 15,373   $ 33,616   $ 55,265   $ 10,618   $  5,064   $119,936
  Fed funds sold          3,593                                                  3,593
  Securities              4,732      4,805     17,837      8,989      8,527     44,890
  Time deposits in
    other banks             229        400        300                              929

  Total                  23,927     38,821     73,402     19,607     13,591    169,348

INTEREST BEARING LIABILITIES

  Transaction accounts   14,690                                                 14,690
  Money market
    accounts             12,584                                                 12,584
  Savings accounts       17,894                                                 17,894
  Time deposits more
    than $100,000         2,365     13,967      2,352      1,925                20,609
  Time deposits less
    than $100,000        13,807     42,720     12,600      5,975                75,102
  Other borrowed money        4         13         37         42         50        146

  Total                  61,344     56,700     14,989      7,942         50    141,025

Discrete interest
  sensitivity gap       (37,417)   (17,879)    58,413     11,665     13,541     28,323

Cumulative interest
  sensitivity gap       (37,417)   (55,296)     3,117     14,782     28,323

Ratio of cumulative  
interest sensitive  
assets to cumulative  
interest sensitive  
liabilities               39.00%     53.15%    102.34%    110.49%    120.08%

Assumes all transaction and money market deposit accounts reprice within 90 days.

</TABLE>

<PAGE> 19

Part II   Other Information

Item 1.   Legal Proceedings -               Not Applicable

Item 2.   Changes in Securities -           Not Applicable

Item 3.   Defaults Upon Senior Securities - Not Applicable

Item 4.   Submission of Matters to a Vote  
          of Security Holders -             Not Applicable

Item 5.   Other Information -               Not Applicable

Item 6.   Exhibits and Reports on 8-K -

          (a)  Exhibits

               3 (i)   Articles of Incorporation of Highlands Bankshares,
                       Inc. are incorporated by reference to Appendix C to
                       Highlands Bankshares, Inc.'s Form S-4 filed October
                       20, 1986.

               3 (ii)  Bylaws of Highlands Bankshares, Inc. are
                       incorporated by reference to Appendix D to Highland
                       Bankshares, Inc.'s Form S-4 filed October 20, 1986.

               27      Financial Data Schedule attached

          (b)  Reports on Form 8-K filed during the nine months ended
               September 30, 1996.

               None

<PAGE> 20

                                  EXHIBIT INDEX


Exhibit
 Index                                                          Page Number

 27      Financial Data Schedule for the quarter ending
         September 30, 1996                                          22


<PAGE> 21

                                 Signature



     Pursuant to the requirements 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.

                                 HIGHLANDS BANKSHARES, INC.



                                 LESLIE A. BARR
                                 Leslie A. Barr
                                 President



                                 CLARENCE. E. PORTER
                                 C. E. Porter
                                 Secretary/Treasurer

                       
Date   November 8, 1996