UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D. C. 20549

                                    FORM 10-Q

                  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, 2000

                           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, 2000
----------------------------------------    ---------------------------------
Common Stock, par value - $5                            501,898 shares


<PAGE> 1

                           HIGHLANDS BANKSHARES, INC.

                                      INDEX

                                                                         Page

PART I   FINANCIAL INFORMATION                                            2

Item 1.  Financial Statements

         Consolidated Statements of Income - Nine Months Ended
         September 30, 2000 and 1999                                      2

         Consolidated Statements of Income - Three Months Ended
         September 30, 2000 and 1999                                      3

         Consolidated Balance Sheets - September 30, 2000 and
         December 31, 1999                                                4

         Consolidated Statements of Changes in Stockholders' Equity -
         Nine Months Ended September 30, 2000 and 1999                    5

         Consolidated Statements of Cash Flows - Nine Months Ended
         September 30, 2000 and 1999                                      6

         Notes to Consolidated Financial Statements                       7


Item 2.  Management's Discussion and Analysis of
         Financial Condition and Results of Operations                   10


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,
                                                          2000        1999
                                                       ----------  -------

Interest Income

   Interest and fees on loans                           $11,561     $10,096
   Interest on federal funds sold                           214         354
   Interest on time deposits                                137         158
   Interest and dividends on investment securities
     Taxable                                              1,245       1,347
     Nontaxable                                             128         129
                                                         ------      ------

   Total Interest Income                                 13,285      12,084
                                                         ------      ------

Interest Expense

   Interest on time deposits over $100,000                1,330       1,130
   Interest on other deposits                             4,878       4,508
   Interest on borrowed money                               141         104
                                                         ------      ------

   Total Interest Expense                                 6,349       5,742
                                                         ------      ------

Net Interest Income                                       6,936       6,342

Provision for Loan Losses                                   310         220
                                                         ------      ------

Net Interest Income after Loan Losses                     6,626       6,122
                                                         ------      ------

Noninterest Income

   Service charges                                          439         272
   Other                                                    392         324
   Investment security gains                                              4
                                                         ------      ------

   Total Noninterest Income                                 831         600
                                                         ------      ------

Noninterest Expense

   Salaries and employee benefits                         2,671       2,352
   Occupancy expense                                        223         201
   Equipment expense                                        424         321
   Data processing expense                                  373         345
   Other                                                  1,173       1,041
                                                         ------      ------

   Total Noninterest Expense                              4,864       4,260
                                                         ------      ------

Income before Income Taxes                                2,593       2,462

Provision for Income Taxes                                  939         841
                                                         ------      ------

Net Income                                              $ 1,654     $ 1,621
                                                         ======      ======

Per Share Data

   Net Income                                           $   3.30    $   3.23
                                                         =======     =======

   Cash Dividends                                       $    .93    $    .87
                                                         =======     =======

Weighted Average Common Shares Outstanding               501,898     501,898
                                                         =======     =======



       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,
                                                          2000        1999

Interest Income

   Interest and fees on loans                           $ 4,144     $ 3,471
   Interest on federal funds sold                            83          85
   Interest on time deposits                                 52          48
   Interest and dividends on investment securities
     Taxable                                                413         443
     Nontaxable                                              45          43
                                                         ------      ------

   Total Interest Income                                  4,737       4,090
                                                         ------      ------

Interest Expense

   Interest on time deposits over $100,000                  491         390
   Interest on other deposits                             1,742       1,482
   Interest on borrowed money                                73          36
                                                         ------      ------

   Total Interest Expense                                 2,306       1,908
                                                         ------      ------

Net Interest Income                                       2,431       2,182

Provision for Loan Losses                                    90          85
                                                         ------      ------

Net Interest Income after Loan Losses                     2,341       2,097
                                                         ------      ------

Noninterest Income

   Service charges                                          154         101
   Other income                                             130         123
   Investment security gains                                              1
                                                         ------      ------

   Total Noninterest Income                                 284         225
                                                         ------      ------

Noninterest Expense

   Salaries and employee benefits                           908         813
   Occupancy expense                                         74          64
   Equipment expense                                        144         106
   Data processing                                          122         124
   Other                                                    406         350
                                                         ------      ------

   Total Noninterest Expense                              1,654       1,457
                                                         ------      ------

Income before Income Taxes                                  971         865

Provision for Income Taxes                                  356         285
                                                         ------      ------

Net Income                                              $   615     $   580
                                                         ======      ======

Per Share Data

   Net Income                                           $   1.23    $   1.16
                                                         =======     =======

   Cash Dividends                                       $    .31    $    .29
                                                         =======     =======

Weighted Average Common Shares Outstanding               501,898     501,898
                                                         =======     =======


       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,
                                                        2000        1999
                                                    --------------------
     ASSETS

Cash and due from banks - noninterest bearing         $  5,922    $  7,312
Time deposits in other banks                             2,195       2,436
Federal funds sold                                       5,563       2,703
Securities held to maturity (note 2)                     2,796       3,176
Securities available for sale (note 3)                  25,738      25,893
Other investments                                          763         746
Loans, net of unearned interest (note 4)               184,301     166,614
   Less allowance for loan losses (note 5)              (1,556)     (1,318)
Bank premises and equipment                              6,534       5,691
Interest receivable                                      1,936       1,628
Investment in insurance contracts (note 6)               4,800       4,662
Other assets                                             1,005         938
                                                       -------     -------

   Total Assets                                       $239,997    $220,481
                                                       =======     =======

     LIABILITIES

Deposits:
   Noninterest bearing

     Demand deposits                                  $ 24,692    $ 21,085
   Interest bearing
     Money market and checking                          16,059      18,102
     Money market savings                               11,411      13,391
     Savings                                            23,750      21,330
     Time deposits over $100,000                        32,754      28,529
     All other time deposits                            99,086      89,908
                                                       -------     -------

   Total Deposits                                      207,752     192,345

Borrowed money                                           4,644       2,568
Accrued expenses and other liabilities                   2,052       1,344
                                                       -------     -------

   Total Liabilities                                   214,448     196,257
                                                       -------     -------

   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                                       22,254      21,067
Accumulated other comprehensive loss                      (108)       (246)
                                                       -------     -------

                                                        26,542      25,217

Treasury stock (at cost, 44,866 shares in
   2000 and 1999)                                         (993)       (993)
                                                       -------     -------

   Total Stockholders' Equity                           25,549      24,224
                                                       -------     -------

   Total Liabilities and Stockholders' Equity         $239,997    $220,481
                                                       =======     =======

       The accompanying notes are an integral part of these statements.


<PAGE> 5

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

                                                     Accumulated
                                                        Other
                          Common          Retained Comprehensive Treasury
                          Stock   Surplus Earnings Income (Loss)  Stock  Total

Balance, December 31,
 1999                    $2,734  $1,662  $21,067     $ (246)   $ (993) $24,224
   Comprehensive Income
   Net Income                               1,654                         1,654
   Net change in unrealized
     appreciation on
     investment securities
     available for sale,
     net of taxes                                        138                138
                                                                          -----

    Total Comprehensive
      Income Dividends                                                    1,792
      paid                                   (467)                         (467)
                           -----    -----    -----     -----    -----     -----

    Balances, September 30,
      2000                $2,734   $1,662  $22,254   $ (108)   $ (993)  $25,549
                           =====    =====   ======    =====     =====    ======



                                                   Accumulated
                                                      Other
                          Common         Retained Comprehensive Treasury
                          Stock  Surplus Earnings  Income (Loss) Stock   Total

Balance, December 31,
 1998                     $2,734 $1,662  $19,324     $  119    $ (993)  $22,846
   Comprehensive Income
   Net Income                              1,621                          1,621
   Net change in
     unrealized appreciation
     (depreciation) on
     investment securities
     available for sale,
     net of taxes                                     (304)                (304)
                                                                          -----

   Total Comprehensive
     Income Dividends                                                     1,317
     paid                                   (437)                          (437)
                           -----  -----    -----     -----     -----     -----

   Balances, September 30,
     1999                 $2,734 $1,662  $20,508   $ (185)    $ (993)   $23,726
                           =====  =====   ======    =====      =====     ======


       The accompanying notes are an integral part of these statements.


<PAGE> 6

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

                                                         Nine Months Ended
                                                           September 30,
                                                         2000        1999
                                                      ----------  -------
Cash Flows from Operating Activities:
   Net income                                        $   1,654    $   1,621
   Adjustments to reconcile net income to net
     cash provided by operating activities:
       Investment securities gains                                       (4)
       Depreciation                                        352          268
       Income from insurance contracts                    (138)         (97)
       Net security amortization                            32          131
       Provision for loan losses                           310          220
       Increase in interest receivable                    (308)        (118)
       (Increase) Decrease in other assets                (147)          46
       Increase in accrued expenses                        708          141
                                                      --------     --------

   Net Cash Provided by Operating Activities             2,463        2,208
                                                      --------     --------

Cash Flows from Investing Activities:
   Net change in federal funds sold                     (2,860)       5,963
   Proceeds from maturities of securities
     available for sale                                  5,743       12,444
   Proceeds from maturities of securities
     held to maturity                                      386          268
   Purchase of other investments                           (17)         (15)
   Net change in time deposits in other banks              241         (112)
   Purchase of securities available for sale            (5,408)      (9,845)
   Net change in loans to customers                    (17,759)     (12,334)
   Purchase of property and equipment                   (1,206)        (915)
   Proceeds from sale of property and equipment             11
   Investment in insurance contracts                                 (2,398)
                                                      --------     --------

   Net Cash Consumed by Investing Activities           (20,869)      (6,944)
                                                      --------     --------

Cash Flows from Financing Activities:
   Net increase in deposits                             15,407        4,936
   Increase in other borrowed money                      2,076          248
   Payment of dividends                                   (467)        (437)
                                                      --------     --------

   Net Cash Provided by Financing Activities            17,016        4,747
                                                      --------     --------

Net Increase (Decrease) in Cash and Cash Equivalents    (1,390)          11

Cash and Cash Equivalents, Beginning of Period           7,312        5,112
                                                      --------     --------

Cash and Cash Equivalents, End of Period             $   5,922    $   5,123
                                                      ========     ========

Supplementary Disclosures:
   Cash paid for:
     Income taxes                                    $     808    $     877
     Interest expense                                    6,063        5,738

       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, 2000,  and the results of operations  for
          the nine and three month  periods  ended  September 30, 2000 and 1999.
          The notes included herein should be read in conjunction with the notes
          to  financial  statements  included  in  the  1999  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, 2000 and December 31, 1999, are as follows:

                                            2000               1999
                                       Amortized Market    Amortized Market
                                         Cost     Value      Cost     Value
                                      ---------- -------  ---------- ------

          US Treasury securities and
            obligations of US government
            corporations and agencies   $   155  $   154    $  340  $   340
          Obligations of states and
            political subdivisions        2,641    2,630     2,836    2,836
                                         ------   ------     -----   ------

            Total                       $ 2,796  $ 2,784    $3,176  $ 3,176
                                         ======   ======     =====   ======


NOTE 3    SECURITIES AVAILABLE FOR SALE:

             The  amortized  cost and market value of  securities  available for
          sale as of September 30, 2000 and December 31, 1999, are as follows:

                                             2000               1999
                                       Amortized Market   Amortized  Market
                                         Cost     Value      Cost     Value
                                      ---------- -------  ---------- ------

          US Treasury securities and
            obligations of US government
            corporations and agencies   $24,295  $24,154    $25,350 $25,008
          Obligations of states and
            political subdivisions        1,036    1,035       255      243
          Other investments                 579      549       679      642
                                         ------   ------     -----   ------

            Total                       $25,910  $25,738    $26,284 $25,893
                                         ======   ======     ======  ======


<PAGE> 8

                           HIGHLANDS BANKSHARES, INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 4    LOANS OUTSTANDING:

             A  summary  of  loans  outstanding  as of  September  30,  2000 and
          December 31, 1999, is as follows:

                                                        2000       1999

          Commercial                                  $35,008    $ 31,567
          Real estate- construction                     3,292       3,296
                     - mortgages                      100,363      93,391
          Consumer installment                         46,386      39,994
                                                       ------     -------

            Total                                     185,049     168,248
          Unearned interest                              (748)     (1,634)
                                                       ------     -------

            Net loans outstanding                     $184,301   $166,614
                                                       =======    =======


NOTE 5    ALLOWANCE FOR LOAN LOSSES:

             A summary of  transactions in the allowance for loan losses for the
          nine months ended September 30, 2000 and 1999, follows:

                                                        2000       1999

          Balance, beginning of period                $ 1,318    $  1,356
          Allowance relating to loans
            acquired in purchase                           88
          Provisions charged to operating expenses        310         220
          Loan recoveries                                  84          71
          Loan charge-offs                               (244)       (340)
                                                       ------     -------

          Balance, end of period                      $ 1,556    $  1,307
                                                       ======     =======


NOTE 6    INVESTMENT IN INSURANCE CONTRACTS:

             Investments  in  insurance  contracts  consist  of  single  premium
          insurance  contracts  which have the dual purposes of providing a rate
          of return to the Company which approximately equals the rate of return
          on one year  Treasury  obligations  and providing  life  insurance and
          retirement  benefits  to  employees.   The  carrying  value  of  these
          investments  was  $4,800,000 at September  30, 2000 and  $4,662,000 at
          December 31, 1999.


<PAGE> 9

                           HIGHLANDS BANKSHARES, INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 7     STATE INCOME TAX AUDIT:

             In the second  quarter of 2000,  the Company was selected for audit
          by the state of West  Virginia  for the years  ended 1997 - 1999.  The
          audit  covered  the areas of sales  and use  taxes,  income  taxes and
          franchise taxes.  Management has received the auditor's report showing
          sales and uses tax deficiencies of $21,000 and has charged this amount
          to  operations  in the quarter  ending June 30,  2000.  The income and
          franchise tax proposed  assessments  total  $100,000 and stem from the
          agent's  reclassification of certain loans from West Virginia resident
          home  mortgages  to  commercial  and/or  nonresident  home  mortgages.
          Management  believes that West Virginia state law is unclear as to the
          definition of residential  mortgages and has discussed the matter with
          state  officials.  Management  accrued and charged to  operations  its
          estimate of the correct  liability of $69,000 in the second quarter of
          2000.  This estimate of liability  will be adjusted when the matter is
          settled, hopefully, by the end of the year.

NOTE 8     BUSINESS COMBINATIONS:

              On May 3, 2000,  The Grant County Bank ("Grant") and The Stockmans
           Bank of Harman  ("Stockmans")  entered into an agreement  and plan of
           merger whereby Grant would purchase the remaining shares of Stockmans
           not already owned by Highlands Bankshares,  Inc. The agreement called
           for cash to be paid for outstanding shares and was accounted for as a
           purchase under generally accepted accounting principles. Closing took
           place on July 26, 2000 and Grant paid  stockholders  $7,850 per share
           for each of the 229 shares not owned by Highlands. The total purchase
           cost of  $1,798,000  was  funded  with  short-term  investments.  The
           purchase   increased  total  assets  and  deposits  by  approximately
           $9,000,000.  Immediately  subsequent  to the closing,  Stockmans  was
           merged into the  operations  of Grant and will operate as a branch of
           Grant.

              Proforma  financial   information  reported  as  if  the  separate
           entities had been  combined for the nine months ended  September  30,
           2000 and 1999 follows:

           Proforma Revenues
              Highlands                               $14,116    $ 12,684
              Stockmans                                   466         610
                                                       ------     -------

                Combined                               14,582      13,294
                Per Share Amounts                       29.05      26.49

           Proforma Net Income
              Highlands                                 1,654       1,621
              Stockmans                                    37          68
                                                       ------     -------

                Combined                                1,691       1,689
                Per Share Amounts                        3.37       3.36


<PAGE> 10


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

Overview

    Year to Date Operations

    On July 26, 2000, the Grant County Bank closed its purchase of the Stockmans
Bank of Harman ("Stockmans"). Stockmans operated a single office in Harman, West
Virginia which is located  approximately 30 miles from Grant's main office.  The
purchase  price  for the  91.60%  of the  stock  not  previously  controlled  by
Highlands  was  $1,797,650.  The purchase  added  approximately  $5.7 million in
loans,  $2.2 million in securities,  $1.6 million in federal funds sold and $1.0
million in cash and other assets. Additional liabilities totaled $2.0 million in
savings  accounts,  $4.4 million in certificates of deposits and $2.4 million in
noninterest  bearing  deposits and  liabilities.  Stockmans began operating as a
branch of Grant immediately subsequent to the purchase.

    The  Company's  nine month income of  $1,654,000  was an increase of $33,000
over 1999 amounts and represents a 2.04% increase in net income and earnings per
share compared to 1999 operations.  Earnings represented an annualized return on
equity of 8.90% for the first nine months of 2000 compared to 9.31% for the same
period in 1999.  The  annualized  return on average assets was .97% in the first
nine months of 2000 compared with 1.01% in the first nine months of 1999.

    The tax equivalent net interest income  increased by $593,000 in 2000 as the
result of an increased level of income earning assets,  namely loans. Returns on
loans  increased  ten basis  points,  yields  on fed funds and cash  equivalents
increased  by 114 basis  points and yields on  investments  increased  by twelve
basis  points.  An increase of 29 basis  points in the overall cost of funds was
the result of higher costs of all types of borrowings.  The net interest  margin
was 4.44% of average  earning  assets for the first nine months of 2000 compared
to 4.28% for the same  period in 1999.  Good loan demand and  adequate  rates on
loans are the reason for the earnings improvement.

    Noninterest  income  increased 38.50% in 2000 compared to 1999 due mainly to
an increase in income from service  charges and returns earned on investments in
insurance  contracts.  Noninterest  expenses  increased  14.18%  in 2000  due to
earning  asset  growth  and costs  relating  to the  opening  of a new branch in
Moorefield in the fall of 1999 that had a full nine months of operating expenses
in 2000.

    A state tax audit relating to the income and franchise taxes for 1997 - 1999
was conducted in the second quarter of 2000, resulting in an after tax charge to
earnings of $58,000.

    Quarter Ending September 30 Operations

    Overall net income and earnings per share for the quarter  ending  September
30, 2000  increased  6.03% to $615,000 when compared to 1999 income of $580,000.
Increases  in the net  interest  margin and  noninterest  income  were offset by
increases in operating expenses during the period.


<PAGE> 11


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


Net Interest Income

    Year to Date Operations

    The Company's net interest  income on a tax equivalent  basis was $7,011,000
in the first nine months of 2000 compared to $6,418,000  for 1999.  Contributing
to the  margin  increase  was  higher  yields on loans and a 5.46%  increase  in
average earning assets. The increase was also positively affected by an increase
in the yield on short-term  investments that was  substantially  larger than the
increase in the cost of short-term  deposits.  Average loans outstanding grew by
13.25%  from  1999 to 2000.  About 18% of the  asset  growth  and 6% of the loan
growth is  attributable  to the purchase of the Stockmans Bank in July. The loan
growth  reflects good local  economic  conditions,  moderate  interest rates and
expanded banking facilities.  The overall costs of funds reflects the high level
of  competition  for  deposits  in  the  Company's   service  areas  which  have
traditionally  paid higher  rates on deposits  than larger  statewide  financial
institutions. The deposit increase of 3.65% represents growth in certificates of
deposits  and  deposits  acquired in the  acquisition  of  Stockmans.  Stockmans
deposits accounted for about 33% of the average deposit increase.

    Loans  outstanding  at September 30, 2000  increased  14.87% over amounts at
September 30, 1999 and 14.15% on annualized  basis since  December 31, 1999. The
increase in loans has been the result of opening branches in new market areas, a
concerted  effort to increase  lending in existing  markets and the  purchase of
Stockmans  Bank which  accounted  for one third of the loan  growth  between the
periods. Loan growth has been funded by deposit growth and declines in the level
of federal funds sold and cash.  The 6.41%  increase in the tax  equivalent  net
interest margin for the third quarter of 2000 over the second quarter of 2000 is
the  result of growth in earning  assets.  Barring  any  dramatic  increases  in
interest  rates by the Federal  Reserve Bank,  the Company  anticipates  its net
interest margin remaining stable or increasing  slightly as changes in the rates
paid on deposits are matched  against  increases in returns on  investments  and
loans.

    Quarter Ending September 30 Operations

    The Company's net interest  income on a tax  equivalent  basis of $2,457,000
was 4.48% of average  earning assets for the quarter  ending  September 30, 2000
compared to net interest income of $2,207,000  (4.38% of average earning assets)
for the same  period in 1999.  Increased  income  from  loans was the  result of
increases in volume and rate increases as the level of average loans outstanding
and market rates rose in the period.  Yields on  investment  securities  rose 30
basis points and yields on  short-term  investments  increased  162 basis points
from 1999 to 2000.  Tempering  the  increase in the net  interest  margin was an
increase in rates paid on interest  bearing  liabilities and borrowed money from
4.45% in 1999 to 5.00% in 2000.  The increase was the result of increased  costs
on all types of deposit  accounts as the fed adjusted  interest  rates upward in
2000.  The Company  expects  future  deposit  rates to remain stable or increase
slightly in the last  quarter of 2000 as higher  market  conditions  seen in the
last twelve months have a greater impact on the cost of time deposits.

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


<PAGE> 12


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


Noninterest Income

    Year to Date Operations

    Noninterest income for the period ending September 30, 2000 increased 39.43%
from amounts at  September  30, 1999.  An increase in service  charge  income of
$167,000 was the result of increased  rates on NSF returned checks and increased
volume of returns.  Income from investments in insurance  contracts entered into
in  1998  and  June of 1999  increased  by  $49,000  in  2000  compared  to 1999
operations due to a complete nine months of investment income.

    Quarter Ending September 30 Operations

    Noninterest  interest  income for the  quarter  ending  September  30,  2000
increased 26.78% as the result of items discussed in the preceding paragraph.

Noninterest Expenses

    Year to Date Operations

    Overall,  noninterest  expense  increased 14.18% in the first nine months of
2000 when  compared to the same  period in 1999.  Personnel  expenses  increased
13.56% as the result of asset growth,  new branches in Moorefield and Harman and
additional  officer   compensation  funded  through  life  insurance  contracts.
Occupancy  and  equipment  expenses  increased  23.95%  as the  result of higher
depreciation  on equipment  acquired as part of the year 2000 readiness  program
and additional  facilities placed in service. Data processing expenses increased
8.12% as a result of general asset growth.  Other noninterest expenses increased
by 12.68% due to asset  growth and  expenses  relating to a state use tax audit.
The Company's annualized  noninterest  expenses,  reduced by noninterest income,
were 2.37% of average assets for the nine months ended September 30, 2000 versus
2.28% for the nine months  ended  September  30, 1999.  The overall  increase in
noninterest  expenses of 14.18% is higher than the  increase in assets of 10.50%
but is in line with management's expectations.

    Quarter Ending September 30 Operations

    Overall,  noninterest  expenses  increased  13.52%  for the  quarter  ending
September  30, 2000  compared to the quarter  ending  September  30,  1999.  The
reasons  for  the  quarterly  increase  are the  same  as for  the  year-to-date
increases and the percentage  increases for the quarters are relatively the same
as  the  year-to-date  increases.  Annualized  noninterest  expense  reduced  by
noninterest income for the quarter ended September 30, 2000 was 2.31% of average
assets compared to 2.27% for the quarter ended September 30, 1999.


<PAGE> 13

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,  Mineral,  Randolph,  northern
Pendleton and  southeastern  Hampshire  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  $17,687,000 or 10.62% in the first nine months
of 2000. Of this  increase,  approximately  one third was due to the purchase of
the  Stockmans  Bank.  Increases  in all types of loans were noted.  The loan to
deposit  ratio was 88.71% at September  30, 2000  compared to 86.62% at December
31, 1999.  Management believes this level of lending activity is satisfactory to
generate adequate earnings without undue credit risk. Loan demand is expected to
remain  satisfactory  in the near future with any growth a function of local and
national economic conditions.

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.  Nonaccrual  loans  totaled  $166,000  at
September  30,  2000  compared  to  $184,000  at June 30,  2000 and  $194,000 at
December 31, 1999.

    Real estate acquired through  foreclosure was $109,000 at September 30, 2000
and $121,000 at December 31, 1999. All foreclosed property held at September 30,
2000 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.

    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, 2000,
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.


<PAGE> 14

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


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  additional  provision  for loan losses in 2000 is due to a  substantial
increase in loans  outstanding  and an increase in loans  delinquent  90 days or
more.  The  increase in  delinquent  loans is the result of three or four loans,
including a large loan  acquired in the purchase of Stockmans  Bank,  failing to
meet the terms of their contracts.

    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,
                                       2000    1999       2000     1999

    Balance, beginning of period     $ 1,459  $ 1,326    $ 1,318  $ 1,356
    Allowance relating to loans
      acquired in purchase of branch      88                  88
    Net charge-offs (recoveries)
      Charge-offs                        105      125        244      340
      Recoveries                         (24)     (21)       (84)     (71)
                                      ------   ------     ------   ------

    Total net charge-offs *               81      104        160      269
    Provision for credit losses           90       85        310      220
                                      ------   ------     ------   ------

      Balance, End of Period         $ 1,556  $ 1,307    $ 1,556  $ 1,307
                                      ======   ======     ======   ======

   * Components of net charge-offs:
      Real estate mortgages          $    32  $    46    $    62  $    46
      Commercial                           4       13         21       88
      Installment                         33       45         65      135
      Credit card                         12                  12
                                      ------   ------     ------

      Total                          $    81  $   104    $   160  $   269
                                      ======   ======     ======   ======

    The allowance for credit losses of $1,556,000 at September 30, 2000,  was up
$97,000 from its level at June 30, 2000,  and up $238,000 from December 31, 1999
levels.  The  allowance  was  equal  to .84%,  .83%  and .79% of total  loans at
September 30, 2000, June 30, 2000 and December 31, 1999, respectively.


<PAGE> 15

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


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,  2000  were
$29,297,000  compared to  $29,815,000  at December  31,  1999.  Securities  as a
percentage  of total assets were 12.21% at September 30, 2000 compared to 13.52%
at December 31, 1999.  The decline in security  investments  reflects  good loan
demand and low investment yields relative to rates paid on deposits.

     The  securities  portfolio  consists  of  three  components,  specifically,
securities   held  to  maturity,   securities   available  for  sale  and  other
investments.  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. Other investments include restricted securities whose
ownership  is required to  participate  in certain  governmental  programs.  The
Company's  recent  purchases of all  securities  have  generally been limited to
securities of high credit quality with short to medium term maturities.  Changes
in the market values of  securities  available for sale are reflected as changes
in  stockholders'  equity,  net of the deferred tax effect.  As of September 30,
2000, the cost of the securities  available for sale exceeded their market value
by $172,000 ($108,000 after tax considerations).

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.

     Total deposits  increased 8.01% between December 31, 1999 and September 30,
2000, in all deposit areas except money market checking and saving accounts.  Of
this increase,  $8.8 million or 57% of the increase was attributable to deposits
acquired in the purchase of Stockmans Bank. The cost of funds for the first nine
months of 2000 was 4.76%  compared  to 4.47%  for the same  period in 1999.  The
costs on all  saving  and  demand  deposits  increased  during the period due to
substantial  increase  in market  yields  in 2000.  When  rates on  certificates
increased in the first six months of 2000, the Company saw a substantial  amount
of money market deposits move into  certificates.  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  but saw a moderate increase in these deposits in the first
nine months of 2000.


<PAGE> 16

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


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, 2000,  the Company's  total risk based capital ratio
was 16.18% which is far above the regulatory minimum of 8.0%. The ratio of total
capital to total assets was 10.65% at September 30, 2000.

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.

     At  September  30,  2000 the  Company  had a negative  gap  position.  This
liability  sensitive position typically produces an unfavorable  contribution to
earnings  during a period  of  increasing  rates.  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 review its positions  regularly and takes actions to reposition itself when
necessary.

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

                           HIGHLANDS BANKSHARES, INC.
                          NET INTEREST MARGIN ANALYSIS
                          (Dollar Amounts in Thousands)

                      Nine Months Ended             Nine Months Ended
                     September 30, 2000            September 30, 1999

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

Rate Related Income
   Loans

     Commercial   $ 32,251  $ 2,102     8.69%   $ 30,088  $  1,930     8.55%
     Consumer       40,853    3,150    10.28%     33,290     2,659    10.65%
     Real Estate    99,324    6,309     8.47%     88,876     5,507     8.26%
                   -------   ------   ------     -------   -------   ------

     Total         172,428   11,561     8.94%    152,254    10,096     8.84%

   Federal funds

     sold            4,654      214     6.13%      9,887       354     4.77%
   Interest bearing
     deposits        3,297      137     5.54%      4,476       158     4.71%
   Investments
     Taxable        27,091    1,245     6.13%     29,959     1,347     5.99%
     Tax exempt 1    3,249      203     8.33%      3,226       205     8.47%
                   -------   ------   ------     -------   -------   ------

   Total Earning

     Assets 1      210,719   13,360     8.45%    199,802    12,160     8.11%
                   -------   ------   ------     -------   -------   ------

Interest Expense

   Demand deposits  30,235      651     2.87%     32,799       596     2.42%
   Savings          21,324      468     2.93%     21,228       434     2.73%
   Time deposits   123,209    5,089     5.51%    114,593     4,608     5.36%
   Other borrowed
     money           3,109      141     6.05%      2,566       104     5.40%
                   -------   ------   ------     -------   -------   ------

   Total Interest
     Bearing

     Liabilities   177,877    6,349     4.76%    171,186     5,742     4.47%
                   -------   ------   ------     -------   -------   ------

   Net Interest

     Margin                 $ 7,011                       $  6,418
                             ======                        =======

Net Yield on Interest

   Earning Assets 1                     4.44%                          4.28%
                                      ======                         ======

1  Yields are on a taxable equivalent basis using an assumed tax rate of 37%.

<PAGE> 17 (Continued)
Table I (Continued)

                           HIGHLANDS BANKSHARES, INC.
                          NET INTEREST MARGIN ANALYSIS
                          (Dollar Amounts in Thousands)

                     Three Months Ended            Three Months Ended
                     September 30, 2000            September 30, 1999

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

Rate Related Income
   Loans

     Commercial   $ 33,996  $    757     8.91%   $ 30,532   $    656   8.59%
     Consumer       43,602     1,149    10.54%     35,346        928  10.50%
     Real Estate   102,896     2,238     8.70%     91,242      1,887   8.27%
                   -------   -------   ------     -------    ------- ------

     Total         180,494     4,144     9.18%    157,120      3,471   8.84%

   Federal funds

     sold            4,976        83     6.67%      6,452         85   5.27%
   Interest bearing
     deposits        3,362        52     6.19%      4,495         48   4.27%
   Investments
     Taxable        26,814       413     6.16%     30,498        443   5.81%
     Tax exempt 1    3,533        71     8.04%      3,193         68   8.52%
                   -------   -------   ------     -------    ------- ------

   Total Earning

     Assets 1      219,179     4,763     8.69%    201,758      4,115   8.16%
                   -------  --------   ------     -------    -------  -----

Interest Expense

   Demand deposits  28,487       213     2.99%     32,740        201   2.46%
   Savings          22,090       170     3.08%     21,515        149   2.77%
   Time deposits   129,426     1,850     5.72%    114,636      1,522   5.31%
   Other borrowed
     money           4,356        73     6.70%      2,561         36   5.62%
                   -------   -------   ------     -------    -------  -----

   Total Interest
     Bearing

     Liabilities   184,359     2,306     5.00%    171,452      1,908   4.45%
                   -------   -------   ------    --------    -------  -----

   Net Interest

     Margin                 $  2,457                        $  2,207
                             =======                         =======

Net Yield on Interest

   Earning Assets 1                       4.48%                        4.38%
                                          ====                        =====

1  Yields are on a taxable equivalent basis using an assumed tax rate of 37%.


<PAGE> 18
TABLE II

                           HIGHLANDS BANKSHARES, INC.
                       INTEREST RATE SENSITIVITY ANALYSIS
                               SEPTEMBER 30, 2000
                            (In Thousands of Dollars)

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

EARNINGS ASSETS

   Loans             $ 30,198 $ 77,631 $ 48,470 $ 20,113 $  7,889  $184,301
   Fed funds sold       5,563                                         5,563
   Securities           5,011    9,053    8,783    1,252    5,198    29,297
   Time deposits in
     other banks          515    1,680                                2,195
                      -------  -------  -------  -------  -------   -------

   Total               41,287   88,364   57,253   21,365   13,087   221,356
                       ------  -------  -------  -------  -------   -------



INTEREST BEARING LIABILITIES

   Transaction

     accounts          16,059                                        16,059
   Money market
     accounts          11,411                                        11,411
   Savings accounts    23,750                                        23,750
   Time deposits more
     than $100,000      4,736   11,527   13,143    3,348             32,754
   Time deposits less
     than $100,000     18,183   38,581   34,717    7,489      116    99,086
   Other borrowed
     money              2,270      144      416      411    1,403     4,644
                      -------  -------  -------  -------  -------   -------

   Total               76,409   50,252   48,276   11,248    1,519   187,704
                      -------  -------  -------  -------  -------   -------


Rate sensitivity GAP  (35,122)  38,112    8,977   10,117   11,568

Cumulative GAP        (35,122)   2,990   11,967   22,084   33,652

Ratio of cumulative
   interest sensitive
   assets to cumulative
   interest sensitive
   liabilities          54.03%  102.36%  106.84%  111.86%  117.93%


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


<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 Highlands 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, 2000.

                                              None


<PAGE> 20

                                  EXHIBIT INDEX

Exhibit
 Index                                                            Page Number

  27       Financial Data Schedule for the quarter ending
           September 30, 2000                                          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

                                       JOHN G. VANMETER
                                       John G. VanMeter
                                       Chairman

Date:  November 13, 2000