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 Quarter Ended                               Commission File No. 0-16761
  June 30, 1997

                         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 June 30, 1997 
Common Stock, par value - $5                         501,898 shares      



                         HIGHLANDS BANKSHARES, INC.
                                 
                                   INDEX


                                                                     Page

PART I    FINANCIAL INFORMATION                                        2

Item 1.   Financial Statements

          Consolidated Statements of Income - Six Months
          Ended June 30, 1997 and 1996                                 2

          Consolidated Statements of Income - Three Months
          Ended June 30, 1997 and 1996                                 3

          Consolidated Balance Sheets - June 30, 1997 and
          December 31, 1996                                            4

          Consolidated Statements of Cash Flows - Six Months
          Ended June 30, 1997 and 1996                                 5

          Consolidated Statements of Changes in Stockholders'
          Equity - Six Months Ended June 30, 1997 and 1996             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.   Exhibits and Reports on Form 8K                             19


          SIGNATURES                                                  23

<PAGE> 2

Part I  Financial Information
Item 1  Financial Statements

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

                                                        Six Months Ended
                                                            June 30,
                                                       1997         1996
Interest Income
  Interest and fees on loans                        $   5,968    $   5,423
  Interest on federal funds sold                          122          176
  Interest on time deposits                                19           26
  Interest and dividends on investment securities
    Taxable                                             1,186        1,188
    Nontaxable                                             95          114

  Total Interest Income                                 7,390        6,927

Interest Expense
  Interest on time deposits over $100,000                 661          587
  Interest on other deposits                            2,936        2,925
  Interest on borrowed money                               37            4

  Total Interest Expense                                3,634        3,516

Net Interest Income                                     3,756        3,411

Provision for Loan Losses                                  90           60

Net Interest Income After Provision for Loan Losses     3,666        3,351

Noninterest Income
  Service charges                                         140          108
  Other                                                   180          177
  Gain (loss) on security transactions                      7           (8)

  Total Noninterest Income                                327          277

Noninterest Expense
  Salaries and employee benefits                        1,415        1,206
  Occupancy expense                                       119          106
  Equipment expense                                       219          136
  Data processing                                         217          188
  Other                                                   579          500

Total Noninterest Expense                               2,549        2,136

Income Before Income Taxes                              1,444        1,492

Provision for Income Taxes                                481          482

Net Income                                          $     963    $   1,010

Per Share Data

  Net Income                                        $    1.90    $    1.96

  Cash Dividends                                    $     .50    $     .36

Weighted Average Common Shares Outstanding            506,723      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 Except Per Share Amounts)

                                                       Three Months Ended
                                                            June 30,
                                                       1997         1996
Interest Income
  Interest and fees on loans                        $   3,033    $   2,738
  Interest on federal funds sold                           77           87
  Interest on time deposits                                 9           13
  Interest and dividends on investment securities
    Taxable                                               595          633
    Nontaxable                                             46           56

  Total Interest Income                                 3,760        3,527

Interest Expense
  Interest on time deposits over $100,000                 339          287
  Interest on other deposits                            1,500        1,476
  Interest on borrowed money                               25            2

  Total Interest Expense                                1,864        1,765

Net Interest Income                                     1,896        1,762

Provision for Loan Losses                                  45           30

Net Interest Income After Provision for Loan Losses     1,851        1,732

Noninterest Income
  Service charges                                          69           55
  Other income                                            104           91
  Investment security gains (losses)                        2           (4)

  Total Noninterest Income                                175          142

Noninterest Expense
  Salaries and employee benefits                          724          608
  Occupancy expense                                        58           48
  Equipment expense                                       106           69
  Data processing expense                                 109           96
  Other                                                   295          260

  Total Noninterest Expense                             1,292        1,081

Income Before Income Taxes                                734          793

Provision for Income Taxes                                251          248

Net Income                                          $     483    $     545

Per Share Data

  Net Income                                        $     .96    $    1.06

  Cash Dividends                                    $     .25    $     .18

Weighted Average Common Shares Outstanding            501,898      514,066

      The accompanying notes are an integral part of these statements.

<PAGE> 4

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

                                                 June 30,   December 31,
                                                   1997         1996
    ASSETS

Cash and due from banks - noninterest bearing   $   4,690    $   3,195
Time deposits in other banks                          567          834
Federal funds sold                                  6,093        2,494
Securities held to maturity (note 2)                7,502        8,559
Securities available for sale (note 3)             32,160       33,056
Other investments                                     715          639
Loans, net of unearned interest (note 4)          131,103      124,600
  Less allowance for loan losses (note 5)          (1,290)      (1,257)

  Net Loans                                       129,813      123,343

Bank premises and equipment                         4,895        4,526
Interest receivable                                 1,536        1,362
Deferred income tax benefits                          305          275
Other assets                                          502          564

  Total Assets                                  $ 188,778    $ 178,847

    LIABILITIES

Deposits:
  Noninterest bearing
    Demand deposits                             $  15,257    $  15,416
  Interest bearing
    Money market and checking                      15,436       14,132
    Money market savings                           13,488       12,975
    Savings                                        19,433       17,994
    Time deposits over $100,000                    21,362       20,859
    All other time deposits                        79,326       75,733

  Total Deposits                                  164,302      157,109

Borrowed money                                      2,633          142
Accrued expenses and other liabilities              1,422        1,367

  Total Liabilities                               168,357      158,618

  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                                  17,188       16,478
Net unrealized loss on securities
  available for sale                                 (170)        (151)

                                                   21,414       20,723
Treasury stock (at cost, 44,866 shares in
  1997 and 32,698 shares in 1996)                    (993)        (494)

  Total Stockholders' Equity                       20,421       20,229

  Total Liabilities and Stockholders' Equity    $ 188,778    $ 178,847

      The accompanying notes are an integral part of these statements.

<PAGE> 5

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

                                                        Six Months Ended
                                                            June 30,
                                                       1997         1996
Cash Flows from Operating Activities:
  Net income                                         $    963    $   1,010
  Adjustments to reconcile net income to net
    cash provided by operating activities:
      (Gain) loss on securities transactions               (7)           8
      Depreciation                                        191          110
      Net securities amortization (accretion)              (5)          66
      Provision for loan losses                            90           60
      Increase in interest receivable                    (175)        (230)
      Decrease in other assets                             44           60
      Increase in accrued expenses                         55          197

  Net Cash Provided by Operating Activities             1,156        1,281

Cash Flows from Investing Activities:
  Proceeds from sale of securities
    available for sale                                                 762
  Proceeds from maturities of securities
    available for sale                                  4,484        7,637
  Proceeds from maturities of securities
    held to maturity                                      932        1,400
  Purchase of securities held to maturity                             (500)
  Purchase of other investments                           (76)
  Net change in time deposits in other banks              267           78
  Purchase of securities available for sale            (3,481)     (16,344)
  Net change in loans                                  (6,559)      (1,048)
  Purchase of property and equipment                     (561)        (188)
  Net change in federal funds sold                     (3,599)        (704)

  Net Cash Consumed by Investing Activities            (8,593)      (8,907)

Cash Flows from Financing Activities:
  Net increase in deposits                              7,193        7,367
  Dividends paid in cash                                 (253)        (185)
  Purchase of treasury stock                             (499)
  Other borrowed money                                  2,491           58

  Net Cash Provided by Financing Activities             8,932        7,240

Net Increase (Decrease) in Cash
  and Cash Equivalents                                  1,495         (386)

Cash and Cash Equivalents, Beginning of Period          3,195        3,287

Cash and Cash Equivalents, End of Period             $  4,690    $   2,901

Supplemental Disclosures:
  Cash Paid For:
    Income taxes                                     $    421    $     440
    Interest                                            3,695        3,535
                                                                          
      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)



                                                        Six Months Ended
                                                            June 30,
                                                       1997         1996

Balance, beginning of period                        $  20,723    $  18,862

Net income for period                                     963        1,010
Cash dividends                                           (253)        (185)
Change in unrealized loss on securities
  available for sale                                      (19)        (338)

Balance, end of period                              $  21,414    $  19,349



      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 June
           30, 1997, and the results of operations for the six month
           periods ended June 30, 1997 and 1996.  The notes included herein
           should be read in conjunction with the notes to financial
           statements included in the 1996 annual report to stockholders of
           Highlands Bankshares, Inc.

               The Company does not expect the anticipated adoption of any
           newly issued accounting standards to have a material impact on
           future operations or financial position.


NOTE 2     SECURITIES HELD TO MATURITY:

               The amortized cost and fair value of securities held to
           maturity as of June 30, 1997 and December 31, 1996, are as
           follows:

                                        1997                    1996
                                 Amortized   Fair       Amortized   Fair
                                   Cost      Value        Cost      Value

          US Treasury securities
            and obligations of
            US Government
            corporations and
            agencies             $  3,985  $  3,997     $  4,741  $  4,768
          Obligations of states
            and political
            subdivisions            3,517     3,560        3,818     3,852

            Total                $  7,502  $  7,557     $  8,559  $  8,620


NOTE 3     SECURITIES AVAILABLE FOR SALE:

               The amortized cost and fair value of securities available
           for sale as of June 30, 1997 and December 31, 1996, are as
           follows:

                                        1997                    1996
                                 Amortized   Fair       Amortized   Fair
                                   Cost      Value        Cost      Value

          US Treasury securities
            and obligations of
            US Government
            corporations and
            agencies             $ 31,294  $ 31,203     $ 32,161  $ 32,110
          Obligations of states
            and political
            subdivisions
          Other investments         1,137       957        1,136       946

            Total                $ 32,431  $ 32,160     $ 33,297  $ 33,056

<PAGE> 8

                         HIGHLANDS BANKSHARES, INC.
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
      
NOTE 4    LOANS OUTSTANDING:

               A summary of loans outstanding as of June 30, 1997 and
          December 31, 1996, is as follows:

                                                       1997         1996

          Commercial                                $  25,961    $  25,104
          Real estate - construction                    2,331        2,158
                      - mortgages                      75,675       70,829
          Consumer installment                         29,532       28,693

            Total                                     133,499      126,784
          Unearned interest                            (2,396)      (2,184)

            Net loans outstanding                   $ 131,103    $ 124,600


NOTE 5     ALLOWANCE FOR LOAN LOSSES:

               A summary of transactions in the allowance for loan losses
           for the six months ended June 30, 1997 and 1996, follows:

                                                        1997        1996

          Balance, beginning of period                $  1,257   $   1,319
          Provisions charged to operating expenses          90          60
          Loan recoveries                                   93          65
          Loan charge-offs                                (150)       (139)

            Balance, end of period                    $  1,290   $   1,305

<PAGE> 9

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

     Year to Date Operations

     The Company's six month income of $963,000 represents a 4.65% decline
in total earnings and a 3.04% decline in earnings per share compared to
1996 operations.  Earnings represented an annualized return on equity of
9.56% for the first six months of 1997 compared to 10.44% for the same
period in 1996.  The annualized return on average assets was 1.05% in the
first six months of 1997 compared with 1.15% in the first six months of
1996.

     The tax equivalent net interest income increased by $340,000 in 1997
to $3,812,000 as compared to 1996.  A healthy increase in the level of net
earning assets and a modest increase in the net interest  spread were
responsible for the improvement.  The increase in earning assets is
attributable to a 12.26% increase in average loans outstanding, primary
commercial and real estate.  The funding of the asset growth was from
deposits of local customers and funds borrowed from the Federal Home Loan
Bank.

     Noninterest income increased 18.05% in 1997 compared to 1996 due
mainly to an increase in service charge income.  Noninterest expenses
increased 19.34% in 1997 due mainly to the additions of new branches in
Keyser and Baker and the costs associated with their start up.

     Quarter Ending June 30 Operations

     Net income for the quarter ending June 30, 1997 declined 11.38% when
compared to 1996 operations.  Increases in personnel and occupancy expenses
resulting from new branch operations were the primary reason for the
increase.  Offsetting these cost increases were a 23.24% increase in
nonoperating income and a 7.31% increase in the tax equivalent net interest
margin.

Net Interest Income

     Year to Date Operations

     The Company's net interest margin on a tax equivalent basis was
$3,812,000 in the first six months of 1997 compared to $3,472,000 for 1996. 
The 9.79% increase was due to a 6.16% increase in net average earning
assets (earning assets less interest bearing liabilities) between the
periods.  Average loans outstanding grew by 12.26% from 1996 to 1997.  This
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 tri-county area which has
traditionally paid higher rates on deposits than larger statewide financial
institutions.  The deposit increase represents growth in all types of
accounts (except noninterest bearing accounts) and has been obtained from
customers in the immediate service areas.

<PAGE> 10

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

      Year to Date Operations (Continued)

      Loans outstanding at June 30, 1997 increased 14.09% over amounts at
June 30, 1996 and 10.44% on annualized basis since December 31, 1996.  The
loan increase has been the result of opening branches in new market areas
and a concerted effort to increase lending in existing markets.  Loan
growth has been funded primarily by deposit growth with a slight decline in
the level of security investments since December 31, 1996.  The 1.80%
increase in the tax equivalent net interest margin for the second quarter
of 1997 over the first quarter of 1997 is the result of stable costs of
funds on all types of deposit accounts and an annualized growth in earning
assets of 13.07%.  Barring any future  increases in interest rates by the
Federal Reserve Bank, the Company anticipates its net interest margin
remaining stable or increasing slightly as rates paid on deposits are
expected to remain stable or decline slightly over the next twelve months
and returns on and the levels of earning assets are expected to increase
modestly during this period.

      Quarter Ending June 30 Operations

      The Company's net interest income on a tax equivalent basis was 4.34%
of earning assets ($1,923,000) for the quarter ending June 30, 1997
compared to 4.29% ($1,792,000) for the same period in 1996.  Increased
income from loans was the result of increases in volume as the level of
average loans outstanding rose in the period and market rates stayed
relatively stable.  Yields on investment securities and short term
investments fluctuated only slightly from 1996 operations.  Helping improve
the net interest margin was a decrease in rates paid on interest bearing
liabilities from 5.11% in 1996 to 5.00% in 1997.  The decline was the
result of stable rates on a national level and historically low rates on
savings and transaction accounts.  The Company expects future deposit rates
to remain stable or decline slightly in the second half of 1997 as local
rates move towards those of state and national competition.

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

Noninterest Income

      Year to Date Operations

      Noninterest income for the quarter ending June 30, 1997 increased
18.05% from amounts at June 30, 1996.  An increase in service charge income
of 29.63% was the result of a new fee structure on deposit accounts. 
Additionally, the prior year saw a small loss of $8,000 on security
transactions while the current year saw a gain of $7,000 on such
transactions.

      Quarter Ending June 30 Operations

      Noninterest interest income for the quarter ending June 30, 1997
increased 23.24% as the result of higher service charges (explained above)
and a small gain (compared to a small loss in the prior year) on the sale
of investments.

<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 expense increased 19.34% in the first six months
of 1997 when compared to the same period in 1996.  Personnel expenses
increased 17.33% as the result of an increase in the equivalent number of
employees.  Occupancy and equipment expenses increased 39.67% as the result
of new branch locations and expanded facilities in other areas.  Data
processing expenses increased by 15.43% as a result of asset growth,
additional phone lines at branch locations and a higher fee agreement with
the service provider.  Other noninterest expenses increased by 15.80% due
to asset growth and expansion.  While the increase in noninterest expenses
of 19.34% is higher than the 7.40% increase in assets, the increase
reflects management's willingness to invest in new site locations and
expand its geographical area of operations.  Most new branch locations take
one to three years to attain profitability and management feels this
timetable will be true for the two locations that have been added within
the last eight months.

      Quarter Ending June 30 Operations

      Overall, noninterest expenses increased 19.52% for the quarter ending
June 30, 1997 compared to the quarter ending June 30, 1996.  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.

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, 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 $6,503,000 or 5.22% in the first six
months in 1997.  The bulk of this increase was in real estate mortgage
loans with smaller increases in other types of loans.  The loan to deposit
ratio was 79.79% at June 30, 1997 compared to 79.31% at December 31, 1996. 
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.

<PAGE> 12

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

      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 Company had no nonperforming loans at June 30, 1997, March
31, 1997 or December 31, 1996.

      Real estate acquired through foreclosure was $95,000 at June 30, 1997
compared to $160,000 at December 31, 1996.  All foreclosed property held at
June 30, 1997 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 June 30, 1997, 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.

<PAGE> 13

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

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

                                       Quarter Ended     Six Months Ended
                                          June 30,            June 30,
     Allowance for credit losses       1997     1996       1997     1996

     Balance, beginning of period     $ 1,287  $ 1,342    $ 1,257  $ 1,319
     Net charge-offs (recoveries)
        Charge-offs                        90       89        150      139
        Recoveries                        (48)     (22)       (93)     (65)

     Total net charge-offs *               42       67         57       74
     Provision for credit losses           45       30         90       60

        Balance, End of Period        $ 1,290  $ 1,305    $ 1,290  $ 1,305

     * Components of net charge-offs:
        Rest estate  - construction   $        $     5    $        $    (7)
                     - mortgages           19       22          7       20
        Commercial                         16        8         16        5
        Installment                         7       32         34       56

        Total                         $    42  $    67    $    57  $    74


     The allowance for credit losses, of $1,290,000 at June 30, 1997, was
up $3,000 from its level at March 31, 1997, and up $33,000 from December
31, 1996 levels.  The allowance was equal to .98%, 1.00% and 1.01% of total
loans at June 30, 1997, March 31, 1997 and December 31, 1996, 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.

<PAGE> 14

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
June 30, 1997 were $40,377,000 compared to $42,254,000 at December 31,
1996.  Securities as percent of total assets were 21.39% at June 30, 1997
compared to 23.63% at December 31, 1996.  The decline in securities is a
result of controlled loan growth, moderate deposit growth and level 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.  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 within the year in market
values are reflected as changes in stockholders' equity, net of the
deferred tax effect.  As of June 30, 1997, the cost of the securities
available for sale exceeded their market value by $271,000 ($170,000 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 4.58% between December 31, 1996 and June 30,
1997, generally in all areas, except noninterest bearing accounts.  The
cost of funds for the first six months of 1997 was 5.00% compared to 5.15%
for the same period in 1996.  The yields on all deposits declined
moderately within the period.  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 and saw only moderate increases in these deposits in the
first half of 1997.

Borrowed Money

      During the first quarter of 1997, the Company borrowed $1,500,000
from the Federal Home Loan Bank (FHLB) at 5.78% per annum.  In addition,
short term borrowings of $1,000,000 were made in late June of 1997 from the
FHLB to help manage short term liquidity requirements.

<PAGE> 15

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 June 30, 1997, the Company's total risk based
capital ratio was 18.84% which is far above the regulatory minimum of 8.0%. 
The ratio of total capital to total assets was 10.82% at June 30, 1997
which exceeds that of the Company's peers.

      For 1997, the Company has adopted a policy of paying uniform
dividends on a quarterly basis.  In prior years, the Company paid a larger
dividend in the fourth quarter of each year than the first three quarters
of the year if profits were adequate.  The Company believes the new policy
will allow shareholders to better anticipate dividends paid and will
eliminate the past practice of delaying any stock sales until after the end
of the year.

      In March of 1997, the Company repurchased 12,168 shares of common
stock from the estate of the Company's largest shareholder.  The shares
will be held as treasury stock and used to fund contributions to an
employee stock ownership plan or for other corporate purposes.  The total
purchase price of this stock was $498,888.

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.

<PAGE> 16

Item 2    Management's Discussion and Analysis of Financial Condition and
          Results of Operations (Continued)
      
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 June 30, 1997 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.

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>
                                      Six Months Ended                   Six Months Ended
                                        June 30, 1997                      June 30, 1996
                               Average     Income/                Average     Income/
                               Balance     Expense     Rates      Balance     Expense     Rates

<S>                           <C>         <C>          <C>       <C>         <C>          <C>            
Rate Related Income
  Loans
    Commercial                $  26,454   $   1,179     8.91%    $  21,565   $   1,009     9.36%
    Consumer                     26,631       1,521    11.42%       25,109       1,432    11.41%
    Real estate                  74,743       3,268     8.74%       67,195       2,982     8.88%

  Total                         127,828       5,968     9.34%      113,869       5,423     9.52%

  Federal funds sold              4,432         122     5.51%        6,642         176     5.30%
  Interest bearing deposits         808          19     4.70%          937          26     5.55%
  Investments
    Taxable                      37,571       1,186     6.31%       38,504       1,188     6.17%
    Tax exempt 1                  3,608         151     8.37%        4,180         175     8.37%

  Total Earning Assets 1        174,247       7,446     8.55%      164,132       6,988     8.52%

Interest Expense
  Demand deposits                27,622         377     2.73%       27,059         390     2.88%
  Savings                        18,370         322     3.51%       17,426         308     3.53%
  Time deposits                  98,158       2,898     5.90%       91,781       2,814     6.13%
  Other borrowed money            1,274          37     5.81%          152           4     5.26%

  Total Interest Bearing
    Liabilities                 145,424       3,634     5.00%      136,418       3,516     5.15%

  Net Interest Margin                     $   3,812                          $   3,472


  Net Yield on Interest Earning
    Assets 1                                            4.38%                              4.23%


1 On a taxable equivalent basis based on a 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
                                        June 30, 1997                      June 30, 1996
                               Average     Income/                Average     Income/
                               Balance     Expense     Rates      Balance     Expense     Rates

<S>                           <C>         <C>          <C>       <C>         <C>          <C>   
Rate Related Income
  Loans
    Commercial                $  26,899   $     596     8.86%    $  21,904   $     512     9.34%
    Consumer                     26,839         765    11.40%       25,740         735    11.42%
    Real estate                  76,082       1,672     8.79%       66,963       1,491     8.91%

  Total                         129,820       3,033     9.35%      114,607       2,738     9.56%

  Federal funds sold              5,480          77     5.62%        6,606          87     5.27%
  Interest bearing deposits         810           9     4.44%          906          13     5.74%
  Investments
    Taxable                      37,414         595     6.36%       40,535         633     6.25%
    Tax exempt 1                  3,525          73     8.28%        4,162          86     8.27%

  Total Earning Assets 1        177,049       3,787     8.56%      166,816       3,557     8.53%

Interest Expense
  Demand deposits                28,845         195     2.70%       27,008         192     2.84%
  Savings                        18,599         164     3.53%       17,772         155     3.49%
  Time deposits                  99,700       1,480     5.94%       93,341       1,416     6.07%
  Other borrowed money            1,726          25     5.79%          150           2     5.33%

  Total Interest Bearing
    Liabilities                 148,870       1,864     5.00%      138,271       1,765     5.11%

  Net Interest Margin                     $   1,923                          $   1,792

  Net Yield on Interest Earning
    Assets 1                                            4.34%                              4.29%

1 On a taxable equivalent basis based on a tax rate of 34%.
</TABLE>

<PAGE> 18
TABLE II

<TABLE>
                                     HIGHLANDS BANKSHARES, INC.
                                 INTEREST RATE SENSITIVITY ANALYSIS
                                            JUNE 30, 1997
                                      (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                     $  17,527   $  39,551   $  47,286   $   9,914   $  16,825   $ 131,103
  Fed funds sold                6,093                                                       6,093
  Securities                    4,469       8,361      15,284       6,586       5,677      40,377
  Time deposits in other
    banks                         267         200         100                                 567

  Total                        28,356      48,112      62,670      16,500      22,502     178,140


INTEREST BEARING LIABILITIES

  Transaction accounts         15,436                                                      15,436
  Money market savings         13,488                                                      13,488
  Savings accounts             19,433                                                      19,433
  Time deposits more
    than $100,000               4,694      11,979       3,440       1,149         100      21,362
  Time deposits less
    than $100,000              18,874      37,237      18,775       4,440                  79,326
  Other borrowed money          2,504          13          39          44          33       2,633

  Total                        74,429      49,229      22,254       5,633         133     151,678

Rate sensitivity GAP          (46,073)     (1,117)     40,416      10,867      22,369      26,462

Cumulative GAP                (46,073)    (47,190)     (6,774)      4,093      26,462

Gap as a % of rate
  sensitive assets             (25.86%)    (26.49%)     (3.80%)      2.30%      14.85%

Assumes all transaction, money market and savings 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 -             On April 8, 1997, the
                                            stockholders held their annual
                                            meeting.  The following item
                                            was approved by the
                                            shareholders by the required
                                            majority:

                                            1) Election of the Board of
                                               Directors as proposed in the
                                               proxy material without any
                                               additions or exceptions.

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 six months
                                                 ended June 30, 1997.

                                                 None

<PAGE> 20
      
                               EXHIBIT INDEX


Exhibit
 Index                                                          Page Number

   27     Financial Data Schedule for the quarter ending
          June 30, 1997                                             21

<PAGE> 23
      

                                 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 A. VANMETER
                                        John A. VanMeter
                                        Chairman

      

Date August 12, 1997