UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D. C. 20549

                                    FORM 10-Q

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


For the quarter ended                         Commission File No.   0-16761
  March 31, 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 March 31, 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 - Three Months
         Ended March 31, 2000 and 1999                                   2

         Consolidated Balance Sheets - March 31, 2000 and
         December 31, 1999                                               3

         Consolidated Statements of Changes in Stockholders'
         Equity - Three Months Ended March 31, 2000 and 1999             4

         Consolidated Statements of Cash Flows - Three
         Months Ended March 31, 2000 and 1999                            5

         Notes to Consolidated Financial Statements                      6


Item 2.  Management's Discussion and Analysis of
         Financial Condition and Results of Operations                   8


PART II  OTHER INFORMATION                                              17

Item 1.  Legal Proceedings                                              17

Item 2.  Changes in Securities                                          17

Item 3.  Defaults upon Senior Securities                                17

Item 4.  Submission of Matters to a Vote of Security Holders            17

Item 5.  Other Information                                              17

Item 6.  Exhibit and Reports on Form 8K                                 17


         SIGNATURES                                                     19


<PAGE> 2

Part I  Financial Information
Item 1. Financial Statements

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

                                                         Three Months Ended
                                                               March 31,
                                                          2000        1999
                                                        --------    ------
Interest Income
   Interest and fees on loans                           $  3,633    $ 3,284
   Interest on federal funds sold                             61        129
   Interest on time deposits                                  32         45
   Interest and dividends on investment securities
     Taxable                                                 412        448
     Nontaxable                                               42         42
                                                         -------     ------

   Total Interest Income                                   4,180      3,948
                                                         -------     ------

Interest Expense
   Interest on time deposits over $100,000                   405        372
   Interest on other deposits                              1,520      1,499
   Interest on borrowed money                                 35         35
                                                         -------     ------

   Total Interest Expense                                  1,960      1,906
                                                         -------     ------

Net Interest Income                                        2,220      2,042

Provision for Loan Losses                                    120         60
                                                         -------     ------

Net Interest Income After Loan Losses                      2,100      1,982
                                                         -------     ------

Noninterest Income
   Service charges                                           142         81
   Other                                                     137         81
                                                         -------     ------

   Total Noninterest Income                                  279        162
                                                         -------     ------

Noninterest Expense
   Salaries and employee benefits                            874        757
   Occupancy expense                                          73         67
   Equipment expense                                         136        109
   Data processing                                           130        111
   Other                                                     358        334
                                                         -------     ------

   Total Noninterest Expense                               1,571      1,378
                                                         -------     ------

Income Before Income Taxes                                   808        766

Provision for Income Taxes                                   270        261
                                                         -------     ------

Net Income                                              $    538    $   505
                                                         =======     ======

Per Share Data

   Net Income                                           $   1.07    $  1.01
                                                         ======      ======

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

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 BALANCE SHEETS
                            (In Thousands of Dollars)

                                                      March 31,  December 31,
                                                        2000         1999
                                                      --------     ------
     ASSETS

Cash and due from banks - noninterest bearing         $  5,043    $  7,312
Time deposits in other banks                             3,461       2,436
Federal funds sold                                       5,296       2,703
Securities held to maturity (note 2)                     3,019       3,176
Securities available for sale (note 3)                  26,030      25,893
Other investments (note 4)                                 746         746
Loans, net of unearned interest (note 5)               167,629     166,614
   Less allowance for loan losses (note 6)              (1,389)     (1,318)
                                                       -------     -------

   Net Loans                                           166,240     165,296

Bank premises and equipment                              5,721       5,691
Interest receivable                                      1,644       1,628
Investments in insurance contracts                       4,707       4,662
Other assets                                               960         938
                                                       -------     -------

   Total Assets                                       $222,867    $220,481
                                                       =======     =======

     LIABILITIES

Deposits:
   Noninterest bearing
     Demand deposits                                  $ 21,209    $ 21,085
   Interest bearing
     Money market and checking                          18,871      18,102
     Money market savings                               12,995      13,391
     Savings                                            21,582      21,330
     Time deposits over $100,000                        29,091      28,529
     All other time deposits                            90,258      89,908
                                                       -------     -------

   Total Deposits                                      194,006     192,345

Borrowed money                                           2,480       2,568
Accrued expenses and other liabilities                   1,826       1,344
                                                       -------     -------

   Total Liabilities                                   198,312     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                                       21,450      21,067
Accumulated other comprehensive loss                      (298)       (246)
                                                       -------     -------

                                                        25,548      25,217
Treasury stock (at cost, 44,866 shares in 2000 and
   1999)                                                  (993)       (993)

   Total Stockholders' Equity                           24,555      24,224
                                                       -------     -------

   Total Liabilities and Stockholders' Equity         $222,867    $220,481
                                                       =======     =======

       The accompanying notes are an integral part of these statements.


<PAGE> 4

<TABLE>

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

                                                               Accumulated
                                                                 Other
                                  Common            Retained  Comprehensive    Treasury
                                   Stock   Surplus  Earnings     Income          Stock     Total

<S>                                 <C>      <C>      <C>        <C>             <C>        <C>


Balances, December 31, 1998     $  2,734 $   1,662 $  19,324    $  119        $  (993) $ 22,846
   Comprehensive Income
   Net income                                            505                                505
   Net change in unrealized
     depreciation on investment
     securities available for
     sale, net of taxes                                            (81)                     (81)
                                                                                           -----

   Total Comprehensive Income                                                               424
   Dividends paid                                       (146)                              (146)
                                 ------    ------     ------     ------         ------    ------

   Balances, March 31, 1999     $  2,734 $   1,662 $  19,683    $   38        $  (993) $ 23,124

                                                               Accumulated
                                                                 Other
                                  Common            Retained  Comprehensive    Treasury
                                   Stock   Surplus  Earnings     Loss            Stock     Total

Balances, December 31, 1999     $  2,734 $   1,662 $  21,067    $ (246)       $  (993) $ 24,224
   Comprehensive Income
   Net income                                            538                                538
   Net change in unrealized
     depreciation on investment
     securities available for
     sale, net of taxes                                            (52)                     (52)
                                                                                          ------

   Total Comprehensive Income                                                               486
   Dividends paid                                       (155)                              (155)
                                ------   ------     ------       ------         ------   ------

   Balances, March 31, 2000     $  2,734 $   1,662 $  21,450    $ (298)       $  (993) $ 24,555

       The accompanying notes are an integral part of these statements.

</TABLE>


<PAGE> 5

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

                                                         Three Months Ended
                                                              March 31,
                                                          2000        1999
                                                        --------    ------
Cash Flows from Operating Activities:
   Net income                                           $    538    $   505
   Adjustments to reconcile net income to net
     cash provided by operating activities:
       Depreciation                                          116         89
       Income from insurance contracts                       (45)       (15)
       Net amortization                                       12         48
       Provision for loan losses                             120         60
       Increase in interest receivable                       (16)       (85)
       Decrease in other assets                                9         33
       Increase in accrued expenses                          482        351
                                                         -------     ------

   Net Cash Provided by Operating Activities               1,216        986
                                                         -------     ------

Cash Flows from Investing Activities:
   Net change in federal funds sold                       (2,593)      (483)
   Proceeds from maturities of securities available
     for sale                                              2,286      3,672
   Proceeds from maturities of securities held to
     maturity                                                158
   Purchase of securities available for sale              (2,519)    (3,124)
   Net change in time deposits in other banks             (1,025)      (241)
   Net change in loans                                    (1,064)    (1,636)
   Purchase of property and equipment                       (146)       (43)
                                                         -------     ------

   Net Cash Used in Investing Activities                  (4,903)    (1,855)
                                                         -------     ------

Cash Flows from Financing Activities:

   Net increase in deposits                                1,661      1,775
   Dividends paid in cash                                   (155)      (146)
   Other borrowed money                                                 307
   Repayment of borrowed money                               (88)       (41)
                                                         -------     ------

   Net Cash Provided by Financing Activities               1,418      1,895
                                                         -------     ------

Net Increase (Decrease) in Cash and Cash Equivalents      (2,269)     1,026

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

Cash and Cash Equivalents, End of Period                $  5,043    $ 6,138
                                                         =======     ======

Supplemental Disclosures:
   Cash Paid For:
     Income taxes                                       $      4    $    18
     Interest                                              1,871      1,885

       The accompanying notes are an integral part of these statements.


<PAGE> 6

                           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 March 31, 2000,  and the results of operations  for the
          three month periods ended March 31, 2000 and 1999.  The notes included
          herein  should  be read in  conjunction  with the  notes to  financial
          statements  included  in the 1999  annual  report to  stockholders  of
          Highlands Bankshares, Inc.

NOTE 2    SECURITIES HELD TO MATURITY:

             The amortized cost and market value of securities  held to maturity
          as of March 31, 2000 and December 31, 1999, are as follows:

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

          US Treasury securities and
            obligations of US Government
            corporations and agencies     $  282   $   283  $   340   $   340
          Obligations of states and
            political subdivisions         2,737     2,714    2,836     2,836
                                          ------    ------    -----    ------

            Total                         $3,019   $ 2,997  $ 3,176   $ 3,176
                                          ======    ======    =====    ======


NOTE 3    SECURITIES AVAILABLE FOR SALE:

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

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

          US Treasury securities and
            obligations of US Government
            corporations and agencies    $25,581   $25,158  $25,350   $25,008
          Obligations of states and
            political subdivisions           255       245      255       243
          Other investments                  665       627      679       642
                                          ------    ------    -----    ------

            Total                        $26,501   $26,030  $26,284   $25,893
                                          ======   ======    ======   ======

<PAGE> 7

                           HIGHLANDS BANKSHARES, INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4    OTHER INVESTMENTS:

             Other  investments  totaling  $746,000  include  investments in the
          Federal  Home  Loan  Bank  and  other   governmental   entities  whose
          transferability is restricted.

NOTE 5    LOANS OUTSTANDING:

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

                                                        2000         1999
                                                        ----         ----

          Commercial                                  $ 31,134    $ 31,567
          Real estate - construction                     2,719       3,296
                      - mortgages                       94,674      93,391
          Consumer installment                          40,419      39,994
                                                       -------     -------

            Total                                      168,946     168,248
          Unearned interest                             (1,317)     (1,634)
                                                       -------     -------

            Net loans outstanding                     $167,629    $166,614
                                                       =======     =======


NOTE 6    ALLOWANCE FOR LOAN LOSSES:

             A summary of  transactions in the allowance for loan losses for the
          three months ended March 31, 2000 and 1999, follows:

                                                        2000         1999
                                                        ----         ----

          Balance, beginning of period                $  1,318    $  1,356
          Provisions charged to operating expenses         120          60
          Loan recoveries                                   38          31
          Loan charge-offs                                 (87)       (144)
                                                       -------     -------

            Balance, end of period                    $  1,389    $  1,303
                                                       =======     =======

<PAGE> 8

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


Overview

    The  Company's  net income was  $538,000  in the first  quarter of 2000,  an
increase of 6.53% compared to the first quarter of 1999. Earnings per share were
$1.07 for the first  quarter  of 2000  compared  to $1.01 per share for the same
quarter in 1999. The Company's  annualized return on average equity was 8.82% in
the first  quarter  of 2000  compared  to 8.79% for the first  quarter  of 1999.
Return on average assets was .98% for 2000 and .95% for 1999.

    The increase in earnings per share for the first  quarter was due  primarily
to an 8.72% increase in net interest  income.  Growth in average  earning assets
(3.74%) and interest bearing  liabilities  (3.76%) within the last twelve months
and an improved net interest  spread were  responsible  for this  increase.  The
increase in the tax equivalent net interest income was 8.61% for the period. The
provision  for loan losses of $120,000 was an increase  over 1999 of $60,000 and
is reflective of a higher level of loans outstanding and management's  desire to
increase the reserve should recent Federal Reserve Bank actions result in higher
loan losses.  Noninterest  income increased 72.22% due to increased rates on and
volume of overdraft  fees and higher  income from  insurance  operations.  Other
noninterest  expenses increased 14.01%,  mainly the result of operating expenses
at the new branch in Moorefield.

Net Interest Income

    The Company's net interest income on a tax equivalent basis was 4.41% in the
first  quarter  of 2000  compared  to  4.21%  for the  first  quarter  of  1999.
Commercial  rates  increased  from  8.40% in 1999 to 8.49% in 2000 due to rising
market  rates.  The volume of mortgage  and  installment  lending  substantially
increased  in the last  year  due to a  strong  economy  and  additional  branch
locations.  Rates on  installment  loans dropped  seventy-five  basis points and
rates on real estate loans were  unchanged.  The overall decline of eleven basis
points in returns on loans  outstanding was offset by declines in the rates paid
on  deposits  and  borrowed  money  (see  below)  and  increases  in  short-term
investment rates.

    For the first  quarter of 2000,  the Company saw an overall  decline of five
basis points in the yields on  investment  securities  compared to 1999 results.
The slight decline is reflective of lower rates on taxable investments purchased
three and four years ago and recent  reinvestments  of  maturities  at  slightly
higher  rates.  Average  investments  in  securities  has declined over the last
twelve months as maturities were used to fund loan demand. Interest rates earned
on federal funds sold and interest bearing deposits increased  ninety-five basis
points as rates in the overall  market  increased  in 1999 and early  2000.  The
sharp decrease in the average balance of federal funds outstanding  reflects the
Company's strong loan demand and a slower rate of deposit growth.

    Interest rates paid on transaction and savings amounts  increased a combined
twenty  basis  points due to higher rates  resulting  from Federal  Reserve Bank
action.  With market rates low on  transaction  accounts,  customers  have moved
additional savings to instruments yielding higher rates, i.e. time deposits. The
average  balance in time  deposits grew 4.94% in 2000 compared to 1999 and was a
source of funding for the loan growth discussed  earlier. A nineteen point basis
point drop in rates paid on time deposits  between 1999 and 2000 reflects  older
certificates  maturing  and  renewing  at  rates  in line  with  current  market
conditions.


<PAGE> 9

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


Net Interest Income (Continued)

    Within 1999,  the Company  borrowed  amounts from the FHLB at fixed rates of
interest and loaned these monies to customers on a fixed rate basis. The Company
anticipates  continuing to use this approach as a mechanism to provide long-term
financing  to  customers  and limit  market  rate  risk.  The cost of this money
increased eighteen basis points due to rate increases implemented by the Federal
Reserve Bank.

    A complete yield analysis is shown as Table I on page 15.

Noninterest Income

    Noninterest income for 2000 increased  substantially from 1999. Increases in
service  charge income of 75.31% was due to volume  increases and an increase in
rates charged on  overdrafts.  Increased  income from  insurance  operations and
income  from   additional   investments  in  insurance   contracts  were  mainly
responsible for a 69.14% increase in other noninterest income.

Noninterest Expenses

    Overall  noninterest  expense  increased  14.01%  in 2000 as the  result  of
operating  expense  increases at Grant County Bank's new Moorefield Branch which
opened in October 1999. Personnel expense increases of 15.46% were the result of
a 11.11%  increase in full time  equivalent  employees  and a 3.92%  increase in
average wages.  Expenses for occupancy,  equipment and data processing  expenses
increased 18.12% due to costs of upgrading data processing  equipment and higher
depreciation on 1999 equipment acquistions. Other noninterest expenses increased
due to asset growth and additional  branch  locations.  The overall  increase in
nonoperating  expense  of 14.01% is in line with  management  estimates  for the
first quarter of the year.

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 and northern Pendleton
counties.  Consistent  with its  focus on  providing  community-based  financial
services,  the  Company  does  not  attempt  to  diversify  its  loan  portfolio
geographically  by making  significant  amounts of loans to borrowers outside of
its primary service area.

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


<PAGE> 10


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


Loan Portfolio (Continued)

    Loans outstanding  increased $1,015,000 or .61% in the first quarter in 2000
compared  to levels at  December  31,  1999.  The first  quarter  of any year is
traditionally  slow as farming  and  logging  operations  are limited by weather
conditions  and retail  borrowing in the first  quarter is put on hold until the
spring.  A 1.37% rise in mortgage loans was primarily  responsible for the first
quarter increase and modest gains in consumer lending and declines in commercial
lending were also experienced. The loan to deposit ratio was 86.40% at March 31,
2000 compared to 86.62% at December 31, 1999.  Loan demand is expected to remain
satisfactory in the near future barring any significant  tightening of credit by
the Federal Reserve Bank.

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 $214,000 at March
31, 2000 compared to $194,000 in nonaccrual loans at December 31, 1999.

    Real estate acquired through  foreclosure was $121,000 at March 31, 2000 and
$121,000 at December 31, 1999. All foreclosed property held 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 March  31,  2000,
management is not aware of any significant  potential problem loans in which the
debtor is currently  meeting their  obligations  as stated in the loan agreement
but which may change in future periods.


<PAGE> 11

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


Allowance for Loan Losses

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

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

                                                            Quarter Ended
                                                               March 31,
                                                           ---------------
                                                          2000         1999
                                                        --------     ------

    Balance, beginning of period                         $ 1,318    $ 1,356
    Net charge-offs (recoveries)
      Charge-offs                                            (87)      (144)
      Recoveries                                              38         31
                                                          ------     ------

    Total net charge-offs *                                  (49)      (113)
    Provision for credit losses                              120         60
                                                          ------     ------

      Balance, End of Period                             $ 1,389    $ 1,303
                                                          ======     ======

   * Components of net charge-offs:
      Real estate                                            (30)
      Commercial                                             (11)       (72)
      Installment                                             (8)       (41)
                                                              ----       ---

      Total                                              $   (49)   $  (113)
                                                          ======     ======

    The allowance  for credit  losses of  $1,389,000  at March 31, 2000,  was up
$71,000  from  its  level at  December  31,  1999.  The  increase  was due to an
increased  provision  for loan  losses  and  moderate  net  credit  losses.  The
allowance  was equal to .83% and .79% of total  loans  outstanding  at March 31,
2000  and  December  31,  1999,  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> 12


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


Securities

     The Company's securities portfolio serves several purposes. Portions of the
portfolio secure certain public and trust deposits while the remaining  portions
are held as  investments  or used to assist the Company in  liquidity  and asset
liability  management.  Total securities and other investments at March 31, 2000
were $29,795,000  compared to $29,815,000 at December 31, 1999. Total securities
and other  investments  as a percentage of total assets were 13.37% at March 31,
2000  compared  to 13.52% at  December  31,  1999.  The  negligible  decline  in
securities  is due to  good  loan  demand  and  unenticing  investment  security
returns.

     The  securities  portfolio  consists  of  three  components,  specifically,
securities   held  to  maturity,   securities   available  for  sale  and  other
investments.  Securities are classified as held to maturity when  management has
the intent and the  Company  has the ability at the time of purchase to hold the
securities  to  maturity.  Held to  maturity  securities  are  carried  at cost,
adjusted for amortization of premiums and accretion of discounts.  Securities to
be held for indefinite  periods of time are classified as available for sale and
accounted for at market value.  Securities available for sale include securities
that may be sold in response to changes in market interest rates, changes in the
security's  prepayment risk,  increases in loan demand,  general liquidity needs
and other similar factors. Other investments include restricted securities whose
ownership is required for participation 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 net of the deferred tax
effect are reflected as changes in accumulated other comprehensive income. As of
March 31, 2000,  the cost of the  securities  available for sale exceeded  their
market value by $471,000 ($298,000 after tax considerations).

Deposits

     The  Company's  main source of funds is  customer  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 .86% between December 31, 1999 and March 31, 2000.
The cost of funds for the first quarter of 2000 was 4.54%  compared to 4.58% for
the same quarter in 1999.  With the exception of time deposits,  the cost of all
types of liabilities  increased 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.

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 March 31, 2000,  the Company's  total risk based capital ratio was
17.43%  which is far above the  regulatory  minimum of 8.0%.  The ratio of total
capital to total  assets was 11.02% at March 31,  2000 which is in line with the
Company's peer group.


<PAGE> 13


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


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 liability liquidity.  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 quite limited. In the past, growth in
deposits  and  proceeds  from the maturity of  investment  securities  have been
sufficient to fund the net increase in loans.

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 March 31, 2000 the Company had a negative gap position through the first
twelve  months.   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.


<PAGE> 14


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


Effects of Inflation (Continued)

     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 16) 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> 15
TABLE I

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

                          Three Months Ended          Three Months Ended
                            March 31, 2000              March 31, 1999
                         --------------------        -----------------

                      Average    Income/           Average    Income/
                      Balance 2  Expense  Rates    Balance 2  Expense  Rates

Interest Income
   Loans
     Commercial       $30,895  $   656    8.49%   $29,989   $  630     8.40%
     Consumer          38,581      976   10.12     31,614      859    10.87
     Real estate       96,864    2,001    8.26     86,896    1,795     8.26
                       ------   ------   -----     ------    -----   ------

   Total Loans        166,340    3,633    8.74    148,499    3,284     8.85

   Federal funds sold   4,372       61    5.58     11,557      129     4.46
   Interest bearing
     deposits           2,353       32    5.44      3,649       45     4.93
   Investments
     Taxable           27,299      412    6.04     29,226      448     6.13
     Tax exempt 1       3,138       67    8.54      3,242       67     8.27
                        -----    ------   -----     ------    -----   ------

   Total Earning
     Assets 1         203,502    4,205    8.27    196,173    3,973     8.10

Interest Expense
   Demand deposits     30,543      204    2.67     30,135      181     2.40
   Savings             21,091      146    2.77     20,744      138     2.66
   Time deposits      118,536    1,575    5.31    112,960    1,552     5.50
   Other borrowed
     money              2,497       35    5.61      2,576       35     5.43
                     --------  --------  -------- --------   -----   ------

   Total Interest
     Bearing
     Liabilities     $172,667    1,960    4.54   $166,415    1,906     4.58

   Net Interest Margin         $ 2,245                      $2,067
                                ======                       =====

   Net Yield on Interest
     Earning Assets 1                     4.41%                        4.21%

   1 Yields are on a taxable equivalent basis.
   2 Includes loans in nonaccrual status.


<PAGE> 16
TABLE II

                           HIGHLANDS BANKSHARES, INC.
                       INTEREST RATE SENSITIVITY ANALYSIS
                                 MARCH 31, 2000
                            (In Thousands of Dollars)

                                                           More than
                                                            5 Years
                        1 - 90  91 - 365  1 to 3   3 to 5  or Without
                         Days     Days     Years    Years   Maturity    Total

EARNINGS ASSETS

   Loans                $23,817  $66,973  $39,811  $22,136  $14,892    $167,629
   Fed funds sold         5,296                                           5,296
   Securities             4,020    5,955   14,318    1,574    3,928      29,795
   Time deposits in
     other banks          1,809      600    1,052                         3,461
                          -----   ------  ------   ------    ------      ------

   Total                 34,942   73,528   55,181   23,710   18,820     206,181

INTEREST BEARING LIABILITIES

   Transaction accounts  18,871                                          18,871
   Money market savings  12,995                                          12,995
   Savings accounts      21,582                                          21,582
   Time deposits more
     than $100,000        6,572    9,502    9,620    3,397               29,091
   Time deposits less
     than $100,000       15,235   41,427   26,267    7,250       79      90,258
   Other borrowed money      45      138      398      406    1,493       2,480
                          -----   ------   ------   ------   ------      ------

   Total                 75,300   51,067   36,285   11,053    1,572     175,277

Rate sensitivity GAP    (40,358)  22,461   18,896   12,657   17,248      30,904

Cumulative GAP          (40,358)          (17,897)     999   13,656      30,904

Ratio of cummulative
   interest sensitive
   assets to cummulative
   interest sensitive
   liabilities            46.40%   85.84%  100.61%  107.86%  117.63%


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


<PAGE> 17


Part II Other Information

Item 1. Legal Proceedings -               Not Applicable

Item 2. Changes in Securities -           Not Applicable

Item 3. Defaults Upon Senior Securities - Not Applicable

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

Item 5. Other Information -               Not Applicable

Item 6. Exhibits and Reports on 8-K -    (a)  Exhibits

                                              3 (i) Articles of  Incorporation
                                                    of Highlands Bankshares,
                                                    Inc. are incorporated   by
                                                    reference to Appendix C  to
                                                    Highlands Bankshares, Inc.'s
                                                    Form S-4 filed October 20,
                                                    1986; amended on December 8,
                                                    1997 and incorporated in
                                                    1997 Form 10-KSB.

                                              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;
                                                    amended on December 8, 1997
                                                    and incorporated  in 1997
                                                    Form 10-KSB.

                                              27    Financial  Data  Schedule
                                                    attached.

                                         (b)  Reports on Form 8-K filed during
                                              the three months ended March 31,
                                              2000

                                              None


<PAGE> 18


                                  EXHIBIT INDEX

Exhibit

 Index                                                            Page Number

  27       Financial Data Schedule for the quarter ending
           March 31, 2000                                             20




<PAGE> 19


                                    Signature

    Pursuant to the  requirements  of the  Securities  Exchange Act of 1934, the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

                                       HIGHLANDS BANKSHARES, INC.



                                       LESLIE A. BARR

                                       Leslie A. Barr
                                       President

                                       CLARENCE E. PORTER

                                       Clarence E. Porter
                                       Secretary/Treasurer

Date        May 9, 2000