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 Quarter Ended                             Commission File No.   0-16761
                                                                  ---------
 June 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 June 30, 2000
------------------------------------------       ----------------------------
Common Stock, par value - $5                               501,898 shares


<PAGE> 1


                           HIGHLANDS BANKSHARES, INC.

                                      INDEX

                                                                        Page

PART I   FINANCIAL INFORMATION

Item 1.  Financial Statements

         Consolidated Statements of Income - Six Months
         Ended June 30, 2000 and 1999                                     2

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

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

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

         Consolidated Statements of Cash Flows - Six Months
         Ended June 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

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                                                      21


<PAGE> 2


Part I  Financial Information
Item 1  Financial Statements

                           HIGHLANDS BANKSHARES, INC.
                        CONSOLIDATED STATEMENTS OF INCOME
               (In Thousands of Dollars Except Per Share Amounts)

                                                          Six Months Ended
                                                              June 30,

                                                          2000        1999
                                                       ----------  -------
Interest Income

   Interest and fees on loans                           $  7,417    $ 6,625
   Interest on federal funds sold                            131        269
   Interest on time deposits                                  85        110
   Interest and dividends on investment securities
     Taxable                                                 832        904
     Nontaxable                                               83         86
                                                         -------     ------

   Total Interest Income                                   8,548      7,994
                                                         -------     ------

Interest Expense

   Interest on time deposits over $100,000                   839        740
   Interest on other deposits                              3,136      3,026
   Interest on borrowed money                                 68         68
                                                         -------     ------

   Total Interest Expense                                  4,043      3,834
                                                         -------     ------

Net Interest Income                                        4,505      4,160

Provision for Loan Losses                                    220        135
                                                         -------     ------

Net Interest Income After Provision for Loan Losses        4,285      4,025
                                                         -------     ------

Noninterest Income

   Service charges                                           285        171
   Other                                                     262        201
   Investment security gains                                              3
                                                         -------     ------

   Total Noninterest Income                                  547        375
                                                         -------     ------

Noninterest Expense

   Salaries and employee benefits                          1,763      1,539
   Occupancy expense                                         149        137
   Equipment expense                                         280        215
   Data processing                                           251        221
   Other                                                     767        691
                                                         -------     ------

Total Noninterest Expense                                  3,210      2,803
                                                         -------     ------

Income Before Income Taxes                                 1,622      1,597

Provision for Income Taxes                                   583        556
                                                         -------     ------

Net Income                                              $  1,039    $ 1,041
                                                         =======     ======

Per Share Data

   Net Income                                           $   2.07    $  2.07
                                                         =======     ======

   Cash Dividends                                       $    .62    $   .58
                                                         =======     ======

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 Except Per Share Amounts)

                                                         Three Months Ended
                                                              June 30,
                                                          2000        1999
                                                       ----------  -------
Interest Income

   Interest and fees on loans                           $  3,784    $ 3,341
   Interest on federal funds sold                             70        140
   Interest on time deposits                                  53         65
   Interest and dividends on investment securities
     Taxable                                                 420        456
     Nontaxable                                               41         44
                                                         -------     ------

   Total Interest Income                                   4,368      4,046
                                                         -------     ------

Interest Expense

   Interest on time deposits over $100,000                   434        368
   Interest on other deposits                              1,616      1,527
   Interest on borrowed money                                 33         33
                                                         -------     ------

   Total Interest Expense                                  2,083      1,928
                                                         -------     ------

Net Interest Income                                        2,285      2,118

Provision for Loan Losses                                    100         75
                                                         -------     ------

Net Interest Income After Provision for Loan Losses        2,185      2,043
                                                         -------     ------

Noninterest Income

   Service charges                                           143         90
   Other income                                              125        120
   Investment security gains                                              3
                                                         -------     ------

   Total Noninterest Income                                  268        213
                                                         -------     ------

Noninterest Expense

   Salaries and employee benefits                            889        782
   Occupancy expense                                          76         70
   Equipment expense                                         144        106
   Data processing expense                                   121        110
   Other                                                     409        357
                                                         -------     ------

   Total Noninterest Expense                               1,639      1,425
                                                         -------     ------

Income Before Income Taxes                                   814        831

Provision for Income Taxes                                   313        295
                                                         -------     ------

Net Income                                              $    501    $   536
                                                         =======     ======

Per Share Data

   Net Income                                           $   1.00    $  1.07
                                                         =======     ======

   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)

                                                      June 30,   December 31,
                                                        2000         1999
                                                    ------------ --------
     ASSETS

Cash and due from banks - noninterest bearing         $  5,451    $  7,312
Time deposits in other banks                             3,431       2,436
Federal funds sold                                       5,038       2,703
Securities held to maturity (note 2)                     2,956       3,176
Securities available for sale (note 3)                  25,589      25,893
Other investments                                          763         746
Loans, net of unearned interest (note 4)               173,649     166,614
   Less allowance for loan losses (note 5)              (1,459)     (1,318)
Bank premises and equipment                              5,755       5,691
Interest receivable                                      1,753       1,628
Investment in insurance contracts (note 6)               4,752       4,662
Other assets                                               906         938
                                                       -------     -------

   Total Assets                                       $228,584    $220,481
                                                       =======     =======

     LIABILITIES

Deposits:
   Noninterest bearing

     Demand deposits                                  $ 22,143    $ 21,085
   Interest bearing
     Money market and checking                          18,438      18,102
     Money market savings                               12,200      13,391
     Savings                                            21,667      21,330
     Time deposits over $100,000                        30,739      28,529
     All other time deposits                            92,364      89,908
                                                       -------     -------

   Total Deposits                                      197,551     192,345

Borrowed money                                           4,435       2,568
Accrued expenses and other liabilities                   1,684       1,344
                                                       -------     -------

   Total Liabilities                                   203,670     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                                       21,795      21,067
Accumulated other comprehensive loss                      (284)       (246)
                                                       -------     -------

                                                        25,907      25,217

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

   Total Stockholders' Equity                           24,914      24,224
                                                       -------     -------

   Total Liabilities and Stockholders' Equity         $228,584    $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         Treasury   Retained Comprehensive
                        Stock   Surplus  Stock    Earnings  Income(Loss) Total

Balance,
   December 31, 1999    $2,734  $ 1,662 $  (993)  $   21,067  $  (246)  $24,224

   Comprehensive Income

   Net Income                                          1,039              1,039
   Net change in unrealized
     depreciation on
     investment securities
     available for sale,
     net of taxes                                                 (38)      (38)
                         -----   ------   ------      ------   ------    ------

   Total Comprehensive Income                                             1,001
   Dividends paid                                      (311)               (311)
                         -----   ------   ------     ------    ------    ------

   Balances,
     June 30, 2000      $2,734  $ 1,662 $  (993) $   21,795   $  (284)  $24,914
                         =====   ======  ======   =========    ======    ======

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

Balance,
   December 31, 1998    $2,734  $ 1,662 $  (993)  $   19,324   $  119   $22,846

   Comprehensive Income

   Net Income                                          1,041              1,041
   Net change in unrealized
     depreciation on
     investment securities
     available for sale,
     net of taxes                                                (259)     (259)
                         -----   ------  ------       ------   ------    ------

   Total Comprehensive
     Income                                                                 782
   Dividends paid                                      (290)               (290)
                         -----   ------  ------      ------    ------    ------

   Balances,
     June 30, 1999      $2,734  $ 1,662 $  (993) $   20,075   $  (140)  $23,338
                         =====   ======  ======   =========    ======    ======


       The accompanying notes are an integral part of these statements.


<PAGE> 6


                           HIGHLANDS BANKSHARES, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                            (In Thousands of Dollars)

                                                          Six Months Ended
                                                              June 30,

                                                          2000        1999
                                                       ----------  -------
Cash Flows from Operating Activities:

   Net income                                           $  1,039    $ 1,041
   Adjustments to reconcile net income to net
     cash provided by operating activities:
       Investment security gains                                         (3)
       Depreciation                                          232        178
       Net securities amortization                            23         92
       Provision for loan losses                             220        135
       Income from insurance investments                     (90)       (53)
       Increase in interest receivable                      (125)      (130)
       Decrease in other assets                               54          5
       Increase in accrued expenses                          340         77
                                                         -------     ------

   Net Cash Provided by Operating Activities               1,693      1,342
                                                         -------     ------

Cash Flows from Investing Activities:

   Net change in time deposits in other banks               (995)    (1,685)
   Net change in federal funds sold                       (2,335)     4,430
   Proceeds from maturities of securities
     available for sale                                    3,239      7,034
   Proceeds from maturities of securities
     held to maturity                                        224         50
   Purchase of securities available for sale              (3,022)    (8,846)
   Purchase of other investments                             (17)       (15)
   Net change in loans                                    (7,114)    (5,506)
   Proceeds from sale of property and equipment               11
   Purchase of property and equipment                       (307)      (596)
   Investment in insurance contracts                                 (2,397)
                                                         -------     ------

   Net Cash Consumed by Investing Activities             (10,316)    (7,531)
                                                         -------     ------

Cash Flows from Financing Activities:

   Net increase in deposits                                5,206      5,427
   Dividends paid in cash                                   (311)      (290)
   Repayment of borrowed money                              (133)       (83)
   Advances of borrowed money                              2,000        307
                                                         -------     ------

   Net Cash Provided by Financing Activities               6,762      5,361
                                                         -------     ------

Net Decrease in Cash and Cash Equivalents                 (1,861)      (828)

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

Cash and Cash Equivalents, End of Period                $  5,451    $ 4,284
                                                         =======     ======

Supplemental Disclosures:
   Cash Paid For:

     Income taxes                                       $    502    $   622
     Interest                                              3,985      3,834
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, 2000,  and the results of  operations  for the
          six month  periods  ended June 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.

             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, 2000 and December 31, 1999, are as follows:

                                           2000                1999

                                   Amortized   Fair     Amortized    Fair
                                     Cost      Value       Cost      Value

          US Treasury securities and
            obligations of US
            Government corporations

            and agencies            $   216  $   216      $  340   $   340
          Obligations of states and
            political subdivisions    2,740    2,713       2,836     2,836
                                     ------   ------       -----    ------

            Total                   $ 2,956  $ 2,929      $3,176   $ 3,176
                                     ======   ======       =====    ======


NOTE 3    SECURITIES AVAILABLE FOR SALE:

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

                                           2000                1999

                                  Amortized    Fair    Amortized      Fair
                                     Cost      Value       Cost      Value

          US Treasury securities and
            obligations of US
            Government corporations

            and agencies            $25,119  $24,720      $25,350  $25,008
          Obligations of states and
            political subdivisions      255      245         255       243
          Other investments             664      624         679       642
                                     ------   ------       -----    ------

            Total                   $26,038  $25,589      $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 June 30, 2000 and December 31,
          1999, is as follows:

                                                        2000         1999
                                                        ----         ----

          Commercial                                  $ 33,620    $ 31,567
          Real estate- construction                      3,878       3,296
                     - mortgages                        95,026      93,391
          Consumer installment                          42,136      39,994
                                                       -------     -------

            Total                                      174,660     168,248
          Unearned interest                             (1,011)     (1,634)
                                                       -------     -------

            Net loans outstanding                     $173,649    $166,614
                                                       =======     =======


NOTE 5    ALLOWANCE FOR LOAN LOSSES:

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

                                                        2000         1999
                                                        ----         ----

          Balance, beginning of period                $  1,318    $  1,356
          Provisions charged to operating expenses         220         135
          Loan recoveries                                   60          50
          Loan charge-offs                                (139)       (215)
                                                       -------     -------

            Balance, end of period                    $  1,459    $  1,326
                                                       =======     =======


NOTE 6    INVESTMENT IN INSURANCE CONTRACTS:

             Investment  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 $4,752,000 at June 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 on the
          definition of resident mortgages and has arranged a meeting with state
          officials  to discuss  the matter.  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, in the third quarter of 2000.

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  calls for
          cash to be paid for outstanding  shares and will be 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  will  be  funded  with  short-term   investments
          currently  held as federal funds and  short-term  borrowings  from the
          Federal Home Loan Bank.  The purchase will  increase  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.


<PAGE> 10


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 $1,039,000  was a decrease of $2,000 over
1999 amounts and represents a .19% decrease in net income and earnings per share
compared to 1999 operations. Earnings represented an annualized return on equity
of 8.46% for the first six months of 2000  compared to 9.02% for the same period
in 1999.  The  annualized  return on  average  assets  was .93% in the first six
months of 2000 compared with .97% in the first six months of 1999.

    The tax equivalent net interest income  increased by $343,000 in 2000 as the
result of an increased level of income earning assets. Returns on loans declined
three basis  points,  yields on fed funds and cash  equivalents  increased by 85
basis  points and yields on  investments  increased  by four  basis  points.  An
increase of fifteen  basis points in the overall cost of funds was the result of
higher costs of  transaction  and saving  accounts and borrowed  money.  The net
interest  margin was 4.41% of average earning assets for the first six months of
2000 compared to 4.24% for the same period in 1999.

    Noninterest  income  increased 45.87% 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  14.52%  in 2000  due to
earning  asset  growth  and costs  relating  to the  opening  of a new branch in
Moorefield in October of 1999.

    Quarter Ending June 30 Operations

    Overall net income and  earnings  per share for the quarter  ending June 30,
2000  declined  6.53% to $501,000  when  compared  to 1999  income of  $536,000.
Increases  in the net  interest  margin and  noninterest  income  were offset by
increases  in operating  expenses  during the period.  In addition,  a state tax
audit was  conducted  in the second  quarter of 2000,  resulting in an after tax
charge to earnings of $58,000.

Net Interest Income

    Year to Date Operations

    The Company's net interest  income on a tax equivalent  basis was $4,554,000
in the first six  months of 2000  compared  to  $4,211,000  for 1999.  The 8.16%
increase was due to an increase in the yield on short-term  investments that was
substantially larger than the increase in the cost of short-term deposits.  Also
contributing  to the margin  increase  was a 3.85%  increase in average  earning
assets.  Average loans outstanding grew by 12.40% from 1999 to 2000. 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 Company's service areas which have traditionally
paid higher rates on deposits than larger statewide financial institutions.  The
deposit increase of 2.18% represents  growth in certificates of deposits and has
been obtained from customers in the immediate service areas.

    Loans outstanding at June 30, 2000 increased 12.96% over amounts at June 30,
1999 and 8.44% on  annualized  basis since  December 31,  1999.  The increase in
loans  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 by deposit  growth and  declines  in the level of federal  funds sold and
security  investments.  The 2.85%  increase in the tax  equivalent  net interest
margin  for the  second  quarter  of 2000 over the first  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.


<PAGE> 11


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


Net Interest Income (Continued)

    Quarter Ending June 30 Operations

    The Company's net interest  income on a tax  equivalent  basis of $2,309,000
was 4.41% of  average  earning  assets  for the  quarter  ending  June 30,  2000
compared to net interest income of $2,144,000  (4.26% of average earning assets)
for the same  period in 1999.  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 remained virtually unchanged.  Yields on investment  securities
rose twelve basis points and yields on short-term investments increased 76 basis
points from 1999 to 2000.  Tempering the increase in the net interest margin was
an increase in rates paid on interest bearing  liabilities from 4.39% in 1999 to
4.72% in 2000.  The increase  was the result of increased  costs on all types of
deposit  accounts.  The Company expects future deposit rates to remain stable or
increase slightly in the second half 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.

Noninterest Income

    Year to Date Operations

    Noninterest income for the period ending June 30, 2000 increased 45.87% from
amounts at June 30, 1999.  An increase in service  charge income of $114,000 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 $45,000 in 2000 compared to 1999 operations.

    Quarter Ending June 30 Operations

    Noninterest  interest  income for the quarter ending June 30, 2000 increased
25.82% as the result of items discussed in the preceding paragraph.

Noninterest Expenses

    Year to Date Operations

    Overall,  noninterest  expense  increased  14.52% in the first six months of
2000 when  compared to the same  period in 1999.  Personnel  expenses  increased
14.56% as the result of asset growth,  a new branch in Moorefield and additional
officer  compensation  funded  through life insurance  contracts.  Occupancy and
equipment  expenses  increased  21.88% as the result of higher  depreciation  on
equipment acquired as part of the year 2000 readiness  program.  Data processing
expenses  increased  13.58%  as a  result  of  changes  in the  data  processing
contract. Other noninterest expenses increased by 11.00% due to asset growth and
expenses  relating to a state use tax audit. The overall increase in noninterest
expenses  of 14.52% is higher  than the  increase  in assets but is in line with
management's expectations.

    Quarter Ending June 30 Operations

    Overall,  noninterest  expenses increased 15.02% for the quarter ending June
30,  2000  compared to the quarter  ending  June 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.  The Company recognized an expense for use taxes in the
second  quarter of 2000 of $21,000  as the result of an audit  conducted  by the
state of West Virginia.


<PAGE> 12


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


Income Taxes

    Year to Date Operations

    Net income taxes as a percentage of pretax income  increased  from 34.82% in
1999 to  35.94%  in 2000.  The  increase  was the  result of the state tax audit
discussed in the footnotes.  Absent this adjustment, the income tax expense as a
percentage of pretax income would have been 33.14%.

    Quarter Ending June 30 Operations

    Net income taxes as a percentage of pretax income  increased  from 35.50% in
1999 to 38.45% in 2000.  The  increase  was the  result of the state tax  audit.
Absent this adjustment,  the income tax expense as a percentage of pretax income
would have been 33.66%.

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  $7,035,000 or 4.22% in the first six months in
2000. Loan increases in all types of loans were noted. The loan to deposit ratio
was 87.90% at June 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 $184,000 at June
30, 2000  compared to  $214,000 at March 31, 2000 and  $194,000 at December  31,
1999.


<PAGE> 13


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


Asset Quality and Risk Elements (Continued)

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

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 rapid increase
in loans  outstanding  and the prospects of slightly larger credit losses if the
actions of the Federal Reserve Bank slow down the expanding economy.

    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        2000     1999         2000     1999
    ---------------------------      -------- -------      -------  ------

    Balance, beginning of period     $ 1,389  $ 1,303    $ 1,318  $ 1,356
    Net charge-offs (recoveries)
      Charge-offs                        (52)     (71)      (139)    (215)
      Recoveries                          22       19         60       50
                                      ------   ------     ------   ------

    Total net charge-offs *              (30)     (52)       (79)    (165)
    Provision for credit losses          100       75        220      135
                                      ------   ------     ------   ------

      Balance, End of Period         $ 1,459  $ 1,326    $ 1,459  $ 1,326
                                      ======   ======     ======   ======


<PAGE> 14


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


Allowance for Loan Losses (Continued)

                                       Quarter Ended     Six Months Ended
                                         June 30,             June 30,
                                    ------------------ ---------------
                                       2000    1999       2000     1999
                                       ----    ----       ----     ----
   * Components of net charge-offs:
      Real estate                    $        $          $   (30)  $
      Commercial                          (6)      (3)       (17)     (75)
      Installment                        (24)     (49)       (32)     (90)
                                      ------   ------     ------   ------

      Total                          $   (30) $   (52)   $   (79) $  (165)
                                      ======   ======     ======   ======


    The  allowance  for credit  losses of  $1,459,000  at June 30, 2000,  was up
$70,000 from its level at March 31, 2000, and up $141,000 from December 31, 1999
levels.  The allowance  was equal to .84%,  .83% and .79% of total loans at June
30, 2000, March 31, 2000 and December 31, 1999, respectively.

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, 2000 were $29,308,000
compared to  $29,815,000  at December 31, 1999.  Securities  as a percentage  of
total  assets were 12.82% at June 30,  2000  compared to 13.52% at December  31,
1999.  The level of  securities  relative to total  assets has  remained  steady
throughout 2000.

     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 consist of investments in insurance
products  which are  designed  to  provide a rate of return  similar to one year
Treasury  obligations.  These products may provide additional  employee benefits
based on their annualized performance. Other investments also 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 June 30, 2000, the cost of the  securities  available for sale exceeded their
market value by $451,000 ($284,000 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.


<PAGE> 15


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


Deposits (Continued)

     Total deposits increased 2.71% between December 31, 1999 and June 30, 2000,
in all deposit areas except money market savings accounts. The cost of funds for
the first six months of 2000 was 4.63%  compared to 4.48% for the same period in
1999. The costs on all saving and demand  deposits  increased  during the period
while costs on certificates  remained  unchanged.  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 moderate  increases in these deposits in the first
half of 2000.

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, 2000,  the  Company's  total risk based capital ratio was
17.00%  which is far above the  regulatory  minimum of 8.0%.  The ratio of total
capital to total assets was 10.90% at June 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.


<PAGE> 16


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


Interest Rate Sensitivity (Continued)

     At June 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.

Subsequent Event

     As discussed in the footnotes to the financial statements, The Grant County
Bank  purchased the stock of the  Stockmans  Bank of Harman on July 26, 2000 and
immediately  merged  it into  Grant  to be  operated  as a branch  of the  Bank.
Stockmans  operates a single  location in Harman,  West  Virginia.  Stockmans is
located in Randolph  County,  West  Virginia  which is about  thirty  miles from
Grant's main branch.  The addition  will increase  total  deposits and assets by
about $9 million  dollars.  The  current  loan/deposit  ratio for this branch is
below the Company's target and immediate  efforts will be made to expand lending
in this locality.  Management  believes the acquisition  will be only marginally
profitable  until loans  outstanding can be increased and overhead costs brought
into line with costs experienced at other branches.

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)

                               Six Months Ended         Six Months Ended
                                 June 30, 2000           June 30, 1999
                              ------------------         ---------------
                            Average   Income/         Average    Income/
                            Balance   Expense Rates   Balance    Expense  Rates

Interest Income
   Loans

     Commercial            $ 31,379 $ 1,345  8.57%  $ 29,866 $   1,274  8.53%
     Consumer                39,479   2,001 10.14%    32,262     1,731 10.73%
     Real estate             97,537   4,071  8.35%    87,694     3,620  8.26%
                            -------  --------------    -------  --------------

   Total                    168,395   7,417  8.81%   149,822     6,625  8.84%

   Federal funds sold         4,493     131  5.83%    11,604       269  4.64%
   Interest bearing
     deposits                 3,265      85  5.21%     4,467       110  4.93%
   Investments
     Taxable                 27,229     832  6.11%    29,689       904  6.09%
     Tax exempt 1             3,106     132  8.50%     3,242       137  8.45%
                            ------- -------  ----    -------  --------  ----

   Total Earning Assets 1   206,488   8,597  8.33%   198,824     8,045  8.09%

Interest Expense

   Demand deposits          31,109       438  2.82%    32,828       395  2.41%
   Savings                  20,941       298  2.85%    21,085       285  2.70%
   Time deposits           120,101     3,239  5.39%   114,572     3,086  5.39%
   Other borrowed money      2,485        68  5.47%     2,568        68  5.30%
                           -------  --------  ----    -------  --------  ----

   Total Interest Bearing

     Liabilities           174,636     4,043  4.63%   171,053     3,834  4.48%
                           -------  --------  ----    -------  --------  ----

   Net Interest Margin             $   4,554                  $   4,211
                                    ========                   ========


   Net Yield on Interest Earning

     Assets 1                                 4.41%                      4.24%
                                              ====                       ====

1  On a taxable equivalent basis based on a 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
                              June 30, 2000              June 30, 1999
                          -------------------         ------------------
                         Average   Income/         Average  Income/
                         Balance   Expense Rates   Balance  Expense    Rates

Interest Income
   Loans

     Commercial           $ 31,862  $  689  8.65%  $ 29,743  $    644   8.66%
     Consumer               40,376   1,025 10.15%    32,910       872  10.60%
     Real estate            98,212   2,070  8.43%    88,491     1,825   8.25%
                           ------- -------  ----    -------   -------   ----

   Total                   170,450   3,784  8.88%   151,144     3,341   8.84%

   Federal funds sold        4,614      70  6.07%    11,650       140   4.81%
   Interest bearing
     deposits                4,177      53  5.08%     5,285        65   4.92%
   Investments
     Taxable                27,158     420  6.19%    30,151       456   6.05%
     Tax exempt 1            3,074      65  8.46%     3,242        70   8.64%
                           ------- -------  ----    -------   -------   ----

   Total Earning Assets 1  209,473   4,392  8.39%   201,472     4,072   8.08%

Interest Expense

   Demand deposits        31,674       234  2.96%    35,521       214   2.41%
   Savings                20,790       152  2.92%    21,425       147   2.74%
   Time deposits         121,666     1,664  5.47%   116,184     1,534   5.28%
   Other borrowed money    2,473        33  5.34%     2,559        33   5.16%
                         -------   -------  ----    -------   -------   ----

   Total Interest Bearing

     Liabilities         176,603     2,083  4.72%   175,689     1,928   4.39%
                         -------   -------  ----    -------   -------   ----

   Net Interest Margin            $  2,309                   $  2,144
                                   =======                    =======


   Net Yield on Interest Earning

     Assets 1                               4.41%                       4.26%
                                            ====                        ====

1  On a taxable equivalent basis based on a tax rate of 37%.


<PAGE> 18
TABLE II

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

                                                           More than
                                                            5 Years
                        1 - 90  91 - 365  1 to 3   3 to 5    or no
                         Days     Days     Years    Years  Maturity  Total

EARNINGS ASSETS

   Loans                $30,997  $63,907  $42,768  $21,122  $14,855 $173,649
   Fed funds sold         5,038                                       5,038
   Securities             5,729    7,437   11,141    2,020   2,981   29,308
   Time deposits in other
     banks                1,779    1,652                              3,431
                         ------   ------   ------   ------   -----   ------

   Total                 43,543   72,996   53,909   23,142   17,836 211,426
                         ------   ------   ------   ------   ------ -------


INTEREST BEARING LIABILITIES

   Transaction accounts  18,438                                      18,438
   Money market savings  12,200                                      12,200
   Savings accounts      21,667                                      21,667
   Time deposits more
     than $100,000        3,676   11,092   12,197    3,774           30,739
   Time deposits less
     than $100,000       13,733   42,852   28,306    7,291     182   92,364
   Other borrowed money   2,046      140      403      405   1,441    4,435
                         ------   ------   ------   ------   -----   ------

   Total                 71,760   54,084   40,906   11,470   1,623  179,843
                         ------   ------   ------   ------   -----  -------


Rate sensitivity GAP    (28,217)  18,912   13,003   11,672  16,213

Cumulative GAP          (28,217)  (9,305)   3,698   15,370  31,583

Ratio of cumulative
   interest sensitive assets to
   cumulative interest
   sensitive liabilities  60.68%   92.61%  102.22%  108.62%  117.56%



Assumes all  transaction,  money  market and savings  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 -             On April 11, 2000, 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, 2000.

                                                None


<PAGE> 20


                                  EXHIBIT INDEX

Exhibit

 Index                                                            Page Number

  27       Financial Data Schedule for the quarter ending
           June 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:  August 14, 2000