SECURITIES AND EXCHANGE COMMISSION
                          Washington, D. C. 20549

                                FORM 10-KSB

      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                            EXCHANGE ACT OF 1934

For fiscal year ended December 31, 1996    Commission file number:  0-16761

                         Highlands Bankshares, Inc.
               (Exact name of registrant as specified in its charter)

         West Virginia                         55-0650743
   (State or other jurisdiction of                   (I.R.S. Employer
    incorporation or organization)                  Identification No.)

              P. O. Box 929, Petersburg, West Virginia  26847
                 (Address of principal executive offices) (Zip Code)

       Issuer's telephone number including area code:  (304) 257-4111

        Securities registered pursuant to Section 12(b) of the Act:
                                    None

        Securities registered pursuant to Section 12(g) of the Act:

                           Common Stock - $5 Par

   Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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 requirements for the past 90 days.
Yes ..X.  No ....

   Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [X]

   Issuer's revenues for its most recent fiscal year:  $14,775,000          

   State the aggregate market value of the voting stock held by non-
affiliates computed by reference to the price at which the stock was sold,
or the average bid and asked prices of such stock, as of a specified date
within the past 60 days: As of March 1, 1997 - most recent bid price $41.00
                                               most recent ask price $44.00

   State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:  As of March 1, 1997 -
514,066

                    DOCUMENTS INCORPORATED BY REFERENCE:

   Proxy Statement of Highlands Bankshares, Inc. filed via Form DEF 14A on
March 17, 1997.


                         LOCATION OF EXHIBIT INDEX

   The index of exhibits is contained in Part IV herein on page 44.

   TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT  YES         NO   X  

<PAGE> 2

                             FORM 10-KSB INDEX


                                                                    Page
Part I

Item  1.  Description of Business                                     3
             General
             Services Offered by the Banks
             Employees
             Competition
             Regulation and Supervision

Item  2.  Description of Properties                                   4

Item  3.  Legal Proceedings                                           5

Item  4.  Results of Votes of Security Holders                        5


Part II

Item  5.  Market for Registrant's Common Equity and
             Related Stockholder Matters                              5

Item  6.  Management's Discussion and Analysis of Financial
             Condition and Results of Operation                       6

Item  7.  Financial Statements                                       22

Item  8.  Changes in and Disagreement with Accountants on
             Accounting and Financial Disclosure                     44


Part III

Item  9.  Directors and Executive Officers                           44

Item 10.  Executive Compensation                                     44

Item 11.  Security Ownership of Certain Beneficial
             Owners and Management                                   44

Item 12.  Certain Relationships and Related Transactions             44


Part IV

Item 13.  Exhibits and Reports on Form 8-K                           44

Signatures                                                           46

<PAGE> 3

Part I

Item 1.   Description of Business

     General

     Highlands Bankshares, Inc. (Highlands), incorporated under the laws of
West Virginia in 1985, is a multi-bank holding company subject to the
provisions of the Bank Holding Company Act of 1956, as amended, and owns
100% of the outstanding stock of its subsidiary banks, The Grant County
Bank and Capon Valley Bank (hereinafter referred to as the banks) and its
life insurance subsidiary, HBI Life Insurance Company (HBI Life).  Capon
Valley Bank became a member of Highlands effective July 1, 1987, in a
combination accounted for as a pooling of interests.

     The Grant County Bank was chartered on May 20, 1902, and Capon Valley
Bank was chartered on July 1, 1918.  Both are state banks chartered under
the laws of the State of West Virginia.  HBI Life was chartered in April
1988 under the laws of the State of Arizona.

     Services Offered by the Banks

     The banks offer all services normally offered by a full service
commercial bank, including commercial and individual demand and time
deposit accounts, commercial and individual loans, and drive-in banking
services.  No material portion of the banks' deposits have been obtained
from a single or small group of customers and the loss of the deposits of
any one customer or of a small group of customers would not have a material
adverse effect on the business of the banks.  Credit life accident and
health insurance are sold to customers of the subsidiary banks through HBI
Life Insurance Company.

     Employees

     As of December 31, 1996, The Grant County Bank had 44 full time
equivalent employees and Capon Valley Bank had 33 full time equivalent
employees.  No person is employed by Highlands or HBI Life on a full time
basis.

     Competition

     The banks' primary trade area is generally defined as Grant County,
Hardy County, Mineral County and the northern part of Pendleton County. 
This area includes the cities of Petersburg, Moorefield and Keyser and
several rural towns.  The banks compete with three state chartered banks
and two national banks.  No financial institution has been chartered in the
area within the last five years although branches of state and nationally
chartered banks have located in this area within this time period. 
Competition for new loans and deposits in the banks' service area is quite
intense and all competition has been forced to pay rates on deposits which
exceed the national averages.

     The banks' secondary trade area includes portions of Hampshire County
in West Virginia and Frederick County in Virginia.  In addition, the banks
compete with money market mutual funds and investment brokerage firms for
deposits in their service area.

     Regulation and Supervision

     Highlands is subject to the periodic reporting requirements of the
Securities Exchange Act of 1934.  These include, but are not limited to,
the filing of annual, quarterly and other current reports with the
Securities and Exchange Commission.

<PAGE> 4

     Regulation and Supervision (Continued)

     Highlands, as a bank holding company, is subject to the provisions of
the Bank Holding Company Act of 1956, as amended (the "Act").  It is
registered as such and is supervised by the Federal Reserve Board.  The Act
requires Highlands to secure the prior approval of the Federal Reserve
Board before Highlands acquires ownership or control of more than five
percent of the voting shares, or substantially all of the assets of any
institution, including another bank.

     As a bank holding company, Highlands is required to file with the
Federal Reserve Board an annual report and such additional information as
it may require pursuant to the Act.  The Federal Reserve Board may also
conduct examinations of Highlands and any or all of its subsidiaries. 
Under Section 106 of the 1970 Amendments to the Act and the regulations of
the Federal Reserve Board, a bank holding company and its subsidiaries are
prohibited from engaging in certain tie-in arrangements in connection with
an extension of credit, provision of credit, sale, or lease of property or
furnishing of services.

     Federal Reserve regulations permit bank holding companies to engage in
nonbanking activities closely related to banking or to managing or
controlling banks.  These activities include the making or servicing of
loans, performing certain data processing services, and certain leasing and
insurance agency activities.  HBI Life acts as reinsurer of the credit life
insurance coverage sold by the banks to bank customers.  Approval of the
Federal Reserve Board is necessary to engage in any of these activities or
to acquire corporations engaging in these activities.

     The operations of the banks are subject to federal and state statutes
which apply to state chartered banks.  Bank operations are also subject to
the regulations of the Federal Deposit Insurance Corporation (the "FDIC"),
which insures the banks' deposits.  In addition, the Capon Valley Bank is a
member of the Federal Reserve Bank System and is subject to the regulations
of the Federal Reserve Bank Board.

     The supervisory authorities regularly examine such areas as reserves,
loans, investments, management practices, and other aspects of the banks'
operations.  These examinations are designed primarily for the protection
of depositors.  In addition to these regular examinations, the banks must
furnish the various regulatory authorities quarterly reports containing a
full and accurate statement of its affairs.

     The operations of the insurance subsidiary are subject to the
oversight and review of State of Arizona Department of Insurance.

Item 2.   Description of Properties

     The Grant County Bank's main office is located on Main Street in
Petersburg, West Virginia.  In September 1995, the Bank completed its
modernization of the existing facility which included an additional 6,000
square feet of operating space and new, state-of-the-art drive-up
facilities.  An automatic teller machine has been added to allow customers
greater flexibility in their banking transactions.  The Bank recently
opened a full service branch in Mineral County to serve the Keyser area. 
This facility is owned by the Bank and features state-of-the-art drive-up
facilities and an automatic teller machine.  The Bank also has a branch in
Riverton, West Virginia which provides banking services in northwest
Pendleton County.  The Riverton branch building has an annual lease while
the main and Keyser office facilities are owned by the Bank.

     Capon Valley Bank has its main office in Wardensville, West Virginia
and a branch office located in Moorefield, West Virginia.  In April 1995,
Capon completed the expansion of its Moorefield facilities which have
provided for additional drive-up capabilities and additional lobby and
operating areas.  Both facilities are owned by the Bank and considered
adequate for current operations.

<PAGE> 5

Item 3.   Legal Proceedings

     Management is not aware of any material pending or threatened
litigation in which Highlands or its subsidiaries may be involved as a
defendant.  In the normal course of business the banks periodically must
initiate suits against borrowers as a final course of action in collecting
past due loans.


Item 4.   Results of Votes of Security Holders

      Highlands has not submitted any matters to the vote of security
holders for the quarter ending December 31, 1996.


Part II

Item 5.   Market for Registrant's Common Equity and Related Stockholder
          Matters

     The Company had approximately 840 stockholders of record as of March
1, 1997.  The Company's stock is not traded on any national or regional
stock exchange although brokers in Cumberland, Maryland, Winchester and
Harrisonburg, Virginia may occasionally initiate or be a participant in a
trade.  Terms of an exchange between individual parties may not be known to
the Company.  The following outlines the dividends paid and market prices
of the Company's stock based on prices disclosed to management.  Such
prices may not include retail mark-ups, mark-downs or commissions.

                              Dividends             Market Price Range
         1996                 Per Share           High              Low

       First Quarter            $ .18           $ 39.88           $ 38.00
       Second Quarter             .18             40.50             38.00
       Third Quarter              .18             40.50             39.00
       Fourth Quarter             .40             42.00             40.50

         1995

       First Quarter            $ .16           $ 40.25           $ 39.00
       Second Quarter             .16             40.00             39.50
       Third Quarter              .16             41.25             37.00
       Fourth Quarter             .35             41.00             38.50

         1994

       First Quarter            $ .14           $ 34.00           $ 28.50
       Second Quarter             .14             34.00             34.00
       Third Quarter              .14             39.63             33.00
       Fourth Quarter             .30             39.88             37.50

<PAGE> 6

Item 6.   Management's Discussion and Analysis of Financial Condition and
          Results of Operations

Overview

     The net income of the Company increased 8.67% in 1996 compared to 1995
operations.  Increased levels of loans outstanding (funded by equivalent
increases in deposits) were primarily responsible for the increase.  The
increases of nine percent in average earning assets and eight percent in
average deposits is reflective of a good local economy and expanding branch
locations.  The new Keyser facility was open only a month in 1996 but has
already garnered loans and deposits exceeding expectations.  Year end
stockholders equity increased 7.25% over 1995 year end amounts as a result
of retained earnings from operations.  The following outlines returns on
equity and average assets for the period 1994 - 1996:

                                         1996       1995        1994

          Return on average equity       9.99%      10.15%      11.05%
          Return on average assets       1.15%       1.16%       1.22%

     A complete five year summary of operations appears as Table I on page
18.

     The Company's yield on loans increased to 9.52% in 1996 from 9.30% in
1995.  The increase was the result of slight increases in market conditions
(primarily in the first part of the year) and a steady loan demand.  The
increase of 7.55% in average loans outstanding for 1996 follows an increase
of 7.31% in 1995 and is reflective of controlled growth in lending without
incurring undue risk.  Management believes loan growth will continue in
1997 as Grant's new location in Keyser and Capon's new branch in Baker are
expected to generate loans in these service areas.  Additionally, general
economic conditions are expected to remain stable in the service areas. 
The Company showed a 76.15% average loan/average deposit ratio for 1996
which is down slightly from the prior year's figure of 77.35%.  This
statistic is still well above the Company's peer group levels and
demonstrates the ability of the Company to serve the local community.

Net Interest Margin

     1996 compared to 1995

     The Company's net interest margin on a tax equivalent basis was
$7,209,000 for 1996, an increase of 8.39% over amounts for 1995.  Increases
in rates on earning assets (15 basis points higher) were offset by higher
rates paid on certificates of deposit (39 basis points higher).  Greater
earnings were the result of volume increases, mostly in the area of loan
growth.  Rates on contracts entered into in 1995 are primarily responsible
for the above average cost of funds.  Rates paid on recent certificates of
deposit have been lower as the rates paid on deposits in the local
community have declined to rates more in line with state and national
averages.  The above average cost of funds should begin to decline in late
1997 as older certificates mature and are replaced with rates more
reflective of current market conditions.

     The deposit growth of 9.25% in 1996 provided funding for loan and
security growth.  The deposit growth, lower levels of federal funds sold
and lower interest bearing deposits in other banks provided the funding for
a 18.30% increase in average investment securities.  Tax equivalent yields
increased on an overall basis by 15 basis points as lower yielding
investments matured and were reinvested at higher rates.  The majority of
the Company's investments are categorized as available for sale. 
Management's investment philosophy has been to invest in only high quality
investments and to keep maturities relatively short.  Excluding mortgage
backed securities (which amortize over the obligation's life), eighty
percent of all fixed rate securities will mature within the next five
years.

<PAGE> 7

Net Interest Margin (Continued)

     1996 compared to 1995 (Continued)

     Federal funds sold declined in 1996 as rates declined by 31 basis
points.  Federal Reserve monetary policy dictates the yields of federal
funds sold and 1996 saw only limited changes in their policies.  Federal
funds sold generally comprise three to five percent of average earning
assets and are used to provide short-term liquidity in the asset/liability
management.

     Interest bearing deposits increased 8.46% in 1996, mainly in the areas
of time deposits.  The rate declines for demand and savings accounts
continued with a 21 and 31 basis point decline, respectively.  Rates on
time deposits increased 39 basis points and reflects high rates paid on new
certificates issued in 1995.  The overall cost of deposits increased by 26
basis points which was slightly higher than the increase in the overall
yield on earning assets of 15 basis points.  The higher level of earning
assets than interest bearing liabilities tempers this slight difference in
rates earned and paid.  The results were a net interest margin of 4.32% for
1996 which is quite near the 1995 margin of 4.34%.

     1995 compared to 1994

     The Company's net interest margin on a tax equivalent basis was
$6,651,000 for 1995, a decline of 1.63% when compared to 1994 results. 
Increases in the rates paid on deposits were the result of an intensive
campaign to retain existing customers and attract new certificates of
deposit within the local service area.  The Company's yield on loans of
9.30% was an increase over 1994 operations of 9.12%.  An increase of 7.31%
in average loans outstanding was the major factor in the 9.56% growth in
loan interest income.  Loan growth was constant throughout the year as the
local economy was able to support a good loan demand.

     The Company's average investments in securities declined 10.93% in
1995 over 1994 levels of investment.  A higher return on investments (6.26%
in 1995 compared to 5.67% in 1994) was the result of investment decisions
made in 1994 and early 1995 when market rates were substantially higher. 
Yields on federal funds increased substantially due to changes desired by
the Federal Reserve as part of its monetary policy.

     Interest bearing liabilities saw a slight decline in the cost of
demand deposits and a small increase in the cost of savings deposits in
1995.  Average balances in both of these deposit classifications fell
within 1995 as depositors switched to longer term certificates.  This
switch and the new money which resulted from a certificate promotion helped
to increase average time deposits outstanding by 9.69% in 1995 over 1994
balances.

Provision and Allowance for Loan Losses

     The Company's allowance for loan losses (the allowance against which
future losses will be charged) declined $62,000 at December 31, 1996
compared to December 31, 1995 balances.  At December 31, 1996, the
allowance as a percentage of loans outstanding totaled 1.01% compared to
1.16% at December 31, 1995 and 1.37% at December 31, 1994.  The Company had
net charge-offs of $197,000 in 1996 compared to $255,000 in 1995 and
$520,000 in 1994.  The provision for loan losses of $135,000 for 1996 was a
slight increase over 1995's provision of $120,000 but substantially less
than the 1994 provision of $240,000.

     The improvement in the status of loans 90 days or more delinquent and
improvements in net charge-offs are the primary reasons that a lower
allowance for loan losses is warranted as of December 31, 1996.  Management
does not anticipate substantial changes in the allowance in the near future
as the quality of the current loan portfolio is quite good and the quality
of the new loan applications is also very good.  See page 9 for a listing
of loans by type and pages 11 and 12 for an analysis of the activity in the
allowance and the composition of the allowance at each year end.

<PAGE> 8

Noninterest Income

     1996 compared to 1995

     Service charge income increased 23.50% in 1996 compared to 1995 due to
increases in the levels of deposits and a full year of operating under a
new fee structure implemented in 1995.  The new fee structure allows the
Company to be competitive with other institutions yet still lower its
operating costs for these services.  Insurance commission income was
virtually unchanged ($162,000 in 1996 compared to $160,000 in 1995) and has
been steady for the last three years.  Other operating income declined
8.10%, the result of a bond loss recovery of $40,000 recognized in 1995
that was not repeated in 1996.  Losses on security transactions increased
by $20,000 as the Company disposed of some underperforming investments to
reinvest the proceeds in higher yield obligations.

     1995 compared to 1994

     Service charge income increased by 8.32% in 1995 compared to 1994 due
to an increase in the level of deposit accounts and an increase in certain
rates.  Insurance commission income was unchanged at $160,000 as sales of
new policies remained at prior levels.  Other operating income increased
56.38% due primarily to a $40,000 recovery dealing with a failed investment
that had been charged to operations in 1991.  Other reasons for the
increase include higher fees from loan servicing activities and larger
gains on the sale of foreclosed real estate.  The losses on security
transactions declined from $26,500 in 1994 to $9,000 in 1995 due to a lower
volume of early payoffs on mortgage pools.  The Company rarely sells
investment securities and gains/losses on security transactions arise
mainly from early mortgage pool paydowns.

Noninterest Expenses

     1996 compared to 1995

     Noninterest expenses rose 9.03% in 1996 when compared with 1995
operations.  Salaries and benefits rose 11.99% due to merit and
inflationary raises, changes in the employees' benefit packages and an
increase in the number of full time equivalent employees.  Part of the
increase was due to salaries paid new employees for the Keyser branch
during their training period.  Occupancy and equipment expenses rose 43.67%
in 1996 as the Company incurred additional costs in the expansion of
facilities at Petersburg and Moorefield.  In addition, the Moorefield
facility suffered flood damages in September of 1996 which was responsible
for about forty percent of the 1996 increase.  FDIC insurance expenses
declined to almost zero in 1996 as insurance rates were virtually
eliminated in the second half of 1995.  Data processing expense rose 5.61%
due to expanded volume and rate increases.  Other noninterest expense
increased 6.45% due to inflation and asset growth.  The overall noninterest
expense as a percentage of average assets was 2.61% for 1996 which is
approximately the same as in prior years.

     1995 compared to 1994

     Noninterest expenses rose 3.44% in 1995 when compared with 1994
operations.  Salaries and benefits rose 11.35% due to merit and
inflationary raises, changes in the employees' benefit packages and an
increase in the number of full time equivalent employees.  Occupancy and
equipment expenses rose 7.94% in 1995 as the Company incurred additional
costs in the expansion of facilities at Petersburg and Moorefield.  FDIC
insurance expenses declined 47.80% as insurance rates were reduced to
almost zero in the second half of 1995.  Data processing expense rose 6.15%
due to expanded volume and rate increases.  Other noninterest expense
increased .81% due to inflation but were limited by lower insurance costs. 
The overall noninterest expense as a percentage of average assets was 2.62%
for 1995 which is approximately the same as in prior years.

<PAGE> 9

Financial Condition

     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, Hampshire,
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.

     Loans outstanding at December 31, 1996 increased 9.36% from amounts
outstanding at December 31, 1995.  The increase was spread evenly over all
types of lending and was not concentrated in any one geographical or
business sector.  The loan to deposit ratio of 79.30% at December 31, 1996
was an increase over the level of 77.13% at December 31, 1995 and 76.75% at
December 31, 1994.

     The following table summarizes the Company's loan portfolio, net of
unearned income:

                                                 At December 31,
                                          1996        1995        1994
                                             (Dollars in Thousands)
     Real Estate:
       Mortgage                         $   70,829  $  65,971   $  60,783
       Construction                          2,158      2,622       1,182
     Commercial                             25,104     20,749      19,462
     Installment                            28,693     26,740      24,727

                                           126,784    116,082     106,154
     Less unearned discount                 (2,184)    (2,147)     (2,112)

                                           124,600    113,935     104,042
     Allowance for loan losses              (1,257)    (1,319)     (1,454)

       Loans, net                       $  123,343  $ 112,616   $ 102,588


     The following table shows the maturity of loans outstanding (in
thousands of dollars) as of December 31, 1996, 1995 and 1994.

       Maturity Range                     1996        1995        1994


     Predetermined Rates:
       0 - 12 months                    $  45,402   $  57,049   $  32,729
       13 - 60 months                      68,879      49,973      62,496
       More than 60 months                 10,319       6,818       8,651
     Variable Rates                              
     Nonaccrual Loans                                      95         166

       Total Loans                      $ 124,600   $ 113,935   $ 104,042

<PAGE> 10

     The following table shows the Company's loan maturity distribution
(in thousands of dollars) as of December 31, 1996:

                                             Maturity Range
                              Less Than      1-5       Over
          Loan Type             1 Year      Years     5 Years      Total

     Commercial and
       Agricultural Loans    $  19,943   $   4,037   $   1,124   $  25,104
     Real Estate -
       mortgage                 17,414      48,550       7,853      73,817
     Real Estate -
       construction              2,158                               2,158
     Consumer - installment      5,121      16,942       1,459      23,522

       Total                 $  44,636   $  69,529   $  10,436   $ 124,601

     Loans with predetermined
       rates                 $  44,309   $  66,322   $  10,436   $ 121,067
     Loans with variable or
       adjustable rates          1,069       2,464                   3,533

       Total                 $  45,378   $  68,786   $  10,436   $ 124,600

     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 discontinued.  Loans which reach nonaccrual
status may not be restored to accrual status until all delinquent principal
and interest has been paid or the loan becomes both well secured and in the
process of collection.  Restructured loans are loans with respect to which
a borrower has been granted a concession on the interest rate or the
original repayment terms because of financial difficulties.  Loans
classified for regulatory purposes as loss, doubtful, substandard, or
special mention do not represent or result from trends or uncertainties
which management reasonably expects will materially impact future operating
results, liquidity, or capital resources, or represent material credits
about which management is aware of any information which causes management
to have serious doubts as to the ability of such borrowers to comply with
the loan repayment terms.

     Nonperforming loans are listed in the table below.  The decrease in
nonperforming loans reflects the increased efforts of management to reduce
problem loans.  Real estate acquired through foreclosure was $160,000 at
December 31, 1996, $269,000 at December 31, 1995 and $296,000 at December
31, 1994.  All foreclosed property held at December 31, 1996 was in the
Company's primary service area.  The Company's practice is to value real
estate acquired through foreclosure at the lower of (i) an independent
current appraisal or market analysis less anticipated costs of disposal, or
(ii) the existing loan balance.  The Company is actively marketing all
foreclosed real estate and does not anticipate material write-downs in
value before disposition.

     Management has continued its efforts to reduce delinquencies through
greater efforts in the early stages of the delinquency.  The result has
been a decline in all delinquent loans of 64.75% in 1996 over 1995 amounts.
Management does not anticipate any material increase in nonperforming
assets in 1997.

<PAGE> 11

     The following table summarizes the nonperforming loans:

                                                   At December 31,
                                            1996        1995        1994
                                               (Dollars in Thousands)

     Loans accounted for on a
       nonaccrual basis                  $       0   $     95    $    166

     Loans contractually past due 90
       days or more as to interest
       or principal payments (not
       included in nonaccrual loans
       above)
         Commercial                             63        487         378
         Real estate                           208        479         486
         Installments                          110        115         187

       Total Delinquent Loans                  381      1,081       1,051

       Total Nonperforming Loans         $     381   $  1,176    $  1,217

     As of December 31, 1996, the Company did not have any potential
problem loans as defined in Guide 3 that would require disclosure.

Allowance for Loan Losses

     Management has analyzed the potential risk of loss on the Company's
loan portfolio given the loan balances and the value of the underlying
collateral and has recognized losses where appropriate.  Nonperforming
loans are closely monitored on an ongoing basis as part of the Company's
loan review process.  Management reviews the loan loss allowance at the end
of each quarter.  Based primarily on the Company's loan classification
system, which classifies problem credits as substandard, doubtful or loss,
additional provisions for losses are made monthly.  The ratio of the
allowance for loan losses to total loans outstanding was 1.01% at December
31, 1996 compared to 1.16% at December 31, 1995 and 1.37% at December 31,
1994.  At December 31, 1996, the ratio of the allowance for loan losses to
nonperforming loans was 329.92% compared to 112.16% at December 31, 1995
and 119.47% at December 31, 1994.

     The following table summarizes changes in the allowance for loan
losses:
                                              Year Ending December 31,
                                             1996       1995       1994
                                              (In Thousands of Dollars)

     Balance at beginning of period        $  1,319   $  1,454   $  1,734

     Loan Losses:
       Commercial and agricultural               92        129        394
       Real estate - mortgage                    59         95        131
       Installment loans to individuals         186        156        187

       Total loan losses                        337        380        712
       
     Recoveries:
       Commercial and agricultural                9         12         34
       Real estate - mortgage                    15         11         42
       Installment loans to individuals         116        102        116

       Total recoveries                         140        125        192

       Net loan losses                          197        255        520

     Additions charged to operations            135        120        240

     Balance at end of period              $  1,257   $  1,319   $  1,454

<PAGE> 12

     The Company has allocated the allowance according to the amounts
deemed to be reasonably necessary to provide for the possibility of losses
incurred within each of the above categories of loans.  The allocation of
the allowance as shown in the table below should not be interpreted as an
indication that loan losses in future years will occur in the same
proportions or that the allocation indicates future loan loss trends. 
Furthermore, the portion allocated to each loan category is not the total
amount available for future losses that might occur within such categories
since the total allowance is a general allowance applicable to the entire
portfolio.

     The following table shows the balance and percentage of the Company's
allowance for loan losses allocated to each major category of loans:

<TABLE>

<CAPTION>
                                                    At December 31,
                              1996                       1995                       1994
                                                   
                                      Percent                    Percent                    Percent
                                        of                         of                         of
                                       Loans                      Loans                      Loans
                             Percent    in              Percent    in              Percent    in
                               of    Category             of    Category             of    Category
                             Allow-  to Total           Allow-  to Total           Allow-  to Total
                     Amount   ance     Loans    Amount   ance     Loans    Amount   ance     Loans
                                                 (Dollars in Thousands)

     <S>               <C>      <C>     <C>       <C>      <C>      <C>      <C>      <C>      <C>
     Commercial    $   314      25%     18%   $   325      25%      18%  $   429      30%      18%
     Real estate
       mortgage        440      35       59       463      35       60       507      35       60
     Installment       314      25       23       368      28       22       352      24       22
     Unallocated       189      15                163      12                166      11         

                   $ 1,257      100%    100%  $ 1,319     100%     100%  $ 1,454     100%     100%
</TABLE>

     For each period presented, the provision for loan losses charged to
operations is based on management's judgment after taking into
consideration all factors connected with the collectibility of the existing
portfolio.  Management evaluates the loan portfolio in light of economic
conditions, changes in the nature and value of the portfolio, industry
standards and other relevant factors.  Specific factors considered by
management in determining the amounts charged to operations include
internally generated loan review reports, previous loan loss experience
with the borrower, the status of past due interest and principal payments
on the loan, the quality of financial information supplied by the borrower
and the general financial condition of the borrower.

     Loan losses in 1996 were spread over all loan types with no
individual loss constituting a significant portion of the total.  In
contrast to 1996 and 1995, 1994 had a single credit loss that was
significant and tended to skew loss information for that year.  Recoveries
are quite unpredictable and 1996 showed a higher recovery rate than the
prior year.  The net credit losses of $197,000 were within management
expectations and management does not believe credit losses will be a
significant problem in the near future.

     The provision for loan losses totaled $135,000 for the year ended
December 31, 1996, $120,000 for 1995 and $240,000 for 1994.  In the opinion
of management, the provision charged to operations over this three year
period has been sufficient to absorb the net loan losses.

<PAGE> 13

Securities

     The Company's securities portfolio serves several purposes.  Portions
of the portfolio are used to secure certain public and trust deposits.  The
remaining portfolio is held as investments or used to assist the Company in
liquidity and asset liability management.  During 1996, total securities
increased to $42.3 million or 23.62% of total assets at December 31, 1996,
while total securities were $39.4 million or 23.47% of total assets at
December 31, 1995.

     The securities portfolio consists of two components, securities held
to maturity and securities available for sale.  Securities are classified
as held to maturity when management has the intent and the Company has the
ability at the time of purchase to hold the securities to maturity.  Held
to maturity securities are carried at cost, adjusted for amortization of
premiums and accretion of discounts.  Securities to be held for indefinite
periods of time are classified as available for sale and accounted for at
market value.  Securities available for sale include securities that may be
sold in response to changes in market interest rates, changes in the
security's prepayment risk, increases in loan demand, general liquidity
needs and other similar factors.  The Company's purchases of securities
have generally been limited to securities of high credit quality with short
to medium term maturities.

     With the adoption of Statement of Financial Accounting Standards No.
115 (SFAS No. 115) on January 1, 1994, the Company now segregates those
securities available for sale from those held to maturity.  These
securities are valued at their market value with any difference in market
value and amortized cost shown as an adjustment in stockholders' equity. 
Changes within the year in market values are reflected as changes in
stockholders' equity, net of the deferred tax effect.  As of December 31,
1996, the cost of the securities available for sale exceeded their market
value by $240,000 ($151,200 after tax considerations).

     The following table summarizes the carrying value of the Company's
securities at the dates indicated:
<TABLE>

<CAPTION>
                                       Held to Maturity                  Available for Sale
                                        Carrying Value                     Carrying Value
                                         December 31,                       December 31,
                                  1996       1995       1994         1996       1995        1994
                                    (Dollars in Thousands)             (Dollars in Thousands)
     <S>                             <C>        <C>        <C>          <C>        <C>         <C>                    
     U.S. treasuries, agencies
       and corporations         $  4,200   $  5,107   $  5,349     $ 18,304   $ 14,312   $  21,555
     Obligations of states and
       political subdivisions      3,818      4,064      3,863                     200
     Mortgage-backed
       securities                    541        636        248       13,807     13,321       5,122

       Total Debt Securities       8,559      9,807      9,460       32,111     27,833      26,677

     Other securities                                                   946      1,207       1,322

       Total                    $  8,559   $  9,807   $  9,460     $ 33,057   $ 29,040   $  27,999

</TABLE>

<PAGE> 14

     The carrying amount and estimated market value of debt securities (in
thousands of dollars) at December 31, 1996 by contractual maturity are
shown below.  Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.

     Securities Held to Maturity        Carrying      Market      Average
                                         Amount        Value       Yield

     Due in one year or less          $ 3,320,657   $ 3,339,584      6.37%
     Due after one year
       through five years               2,341,175     2,350,639      5.47
     Due after five years
       through ten years                1,670,607     1,654,335      5.06
     Due after ten years                  686,190       730,318      6.58
     Mortgage-backed securities           540,327       545,233      7.10

       Total                          $ 8,558,956   $ 8,620,109      5.91%


     Securities Available for Sale      Amortized     Market      Average
                                          Cost         Value       Yield

     Due in one year or less          $ 3,763,083   $ 3,780,709      6.88%
     Due after one year
       through five years              11,902,008    11,973,480      6.87
     Due after five years
       through ten years                2,605,281     2,550,106      7.06
     Mortgage-backed securities        13,890,315    13,806,852      6.51

       Total                          $32,160,687   $32,111,147      6.73%


     Yields on tax exempt securities are stated at tax equivalent yields.

     Management has generally kept the maturities of investments
relatively short providing for  flexibility in investing.  Such a
philosophy allows the Company to better match deposit maturities with
investment maturities and thus react more quickly to interest rate changes.

Deposits and Short-Term Borrowings

     The Company's predominant source of funds is local deposits.  The
Company's deposit base is comprised of demand deposits, savings and money
market accounts and other time deposits.  The Company's deposits are
provided by individuals and businesses located within the communities
served.

     The average balance of interest bearing deposits increased by 8.46%
in 1996 over average levels in 1995.  The average rate paid on deposits
increased to 5.15% in 1996 from 4.89% in 1995 and 4.15% in 1994.  The
majority of the Company's deposits are higher yielding time deposits as
most of its customers are individuals who seek higher yields than savings
accounts or don't wish to accept the risks of the stock market.

<PAGE> 15

     The Company does not actively solicit large certificates of deposit
(those more than $100,000) due to the unstable nature of these deposits. 
Increases in 1996 are the result of the higher than average rates offered
by the Company.  A summary of the maturity of large deposits is as follows:

                                                    December 31,
         Maturity Range                      1996       1995       1994
                                              (In Thousands of Dollars)

     Three months or less                  $  4,832   $  2,567   $  3,353
     Four to twelve months                   11,360      6,699      7,073
     One year to five years                   4,667      6,575      2,807

       Total                               $ 20,859   $ 15,841   $ 13,233
         
Capital Resources

     The assessment of capital adequacy depends on a number of factors
such as asset quality, liquidity, earnings performance and changing
competitive conditions and economic forces.  The Company seeks to maintain
a strong capital base to support its growth and expansion activities, to
provide stability to current operations and to promote public confidence.

     The Company's capital position continues to exceed regulatory
minimums.  The primary indicators relied on by the Federal Reserve Board
and other bank regulators in measuring strength of capital position are the
Tier 1 Capital, Total Capital and Leverage ratios.  Tier 1 Capital consists
of common stockholders' equity.  Total Capital consists of Tier 1 Capital
and a portion of the allowance for loan losses.  Risk-based capital ratios
are calculated with reference to risk-weighted assets which consist of both
on and off-balance sheet risks.

     The following table shows risk-based capital ratios and stockholders'
equity to total assets:  
                                              Regulatory   December 31,
                                                Minimum   1996      1995

     Capital Ratios
       Risk-based capital to risk-weighted assets
         Tier 1                                  4.00%    18.85%    19.02%
         Total                                   8.00%    18.82%    19.16%
       Stockholders' equity to total assets      3.00%    11.58%    11.72%

     The capital management function is an ongoing process.  Central to
this process is internal equity generation accomplished by earnings
retention.  During 1996, 1995 and 1994, total stockholders' equity
increased by $1,367,000, $2,086,000 and $935,000, respectively, as a result
of earnings retention and changes in the unrealized gains (losses) on
securities available for sale.  The return on average equity was 9.99% in
1996 compared to 10.15% for 1995 and 11.05% for 1994.  Total cash dividends
declared represent 24% of net income for 1996 compared to 23% of net income
for 1995 and 20% for 1994.  Book value per share was $39.35 at December 31,
1996 compared to $36.69 at December 31, 1995 and $32.63 at December 31,
1994.

     The Company's principal source of cash income is dividend payments
from the Banks.  Certain limitations exist under applicable law and
regulation by regulatory agencies regarding dividend payments to a parent
by its subsidiaries.  As of December 31, 1996, the Banks had $2,692,000 of
retained earnings available for distribution to the Company as dividends
without prior regulatory approval.

<PAGE> 16

Liquidity and Interest Rate Sensitivity

     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, the Federal Reserve Bank
of Richmond and the Federal Home Loan Bank of Pittsburgh.  In the past,
growth in deposits and proceeds from the maturity of investment securities
have been sufficient to fund the net increase in loans.

     In the year ending December 31, 1996, cash and due from banks
declined $91,000 as cash provided by operations and financing activities
was slightly exceeded by cash used in investing activities.  Cash provided
by operations consists primarily of earnings from operations and noncash
expenses such as the provision for loan losses, deferred income taxes and
depreciation.  The investing activities saw an increase in net loans of
$10,700,000 and a net increase in securities of $3,000,000.  New equipment
and building expenditures totaled $1,500,000 for 1996.  The decline in
federal funds sold of $3,500,000 and increased deposits of $9,400,000 were
the major sources of funding for loan and securities growth.  The dividends
paid of $500,000 is an increase of 13 percent over 1995 amounts.

     For the year end December 31, 1995, cash and equivalents declined
$40,000 which was relatively insignificant.  Net income plus depreciation,
amortization, the provision for loan losses and deferred tax expenses were
the major source of cash.  Changes in other balance sheet accounts were
insignificant.  The cash generated by operations plus the increase in
deposits of $12,100,000 were the primary sources of funds for increases in
loans of $10,300,000 and federal funds sold of $1,400,000.  Expansion of
the Petersburg and Moorefield locations absorbed $1,800,000 for building
and equipment and dividends paid to shareholders totaled $400,000 (an
increase of 15% over the prior year).  The balance of funds generated were
invested in new securities for an increase totaling $1,100,000.

     The Company is not aware of any trends, events or uncertainties that
will have or that are reasonably likely to have a material effect on the
Company's liquidity, capital resources or operations.  The Company is not
aware of any proposals from any regulatory authority which, if implemented,
would have such an effect.

     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 December 31, 1996, the Company had a negative gap position.  This
liability sensitive position typically produces a favorable contribution to
earnings during periods of decreasing rates and an unfavorable contribution
to earnings during a period of increasing rates.  Although the financial
markets were in a relatively stable rate environment for 1996, certificates
of deposit entered into in early 1995 caused an increase in overall
interest expense.  The Company expects a decline in the overall cost of
money in 1997 unless market conditions change substantially.

<PAGE> 17

     With the largest amount of interest sensitive assets and liabilities
repricing within three years, the Company monitors these areas 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
periodically review its cumulative position of interest sensitive assets
and liabilities.

     The majority of the Company's commercial and real estate loans are
made with repricing frequencies of three months to three years.  For this
reason, 86% of all loans will reprice within three years of December 31,
1996.  Installment loans generally have a fixed rate of interest but have
limited amortization periods.  These loans have an average life to maturity
of less than two years.  Management believes that its philosophy of
generally requiring loan repricing within a three year period to be the
most prudent approach to asset/liability management.

     In the area of investments, the Company employs a management
technique known as "laddering" to minimize interest rate exposures and
provide a constant flow of maturities subject to repricing at current
market rates.  To assist in the management of investments, the Company
employs an independent investment counsel that assists in planning and risk
diversification.  The Company utilizes many forms of investment with a
significant use of mortgage-backed securities issued by federally chartered
institutions.  The Company does not employ the use of derivatives in its
approach to controlling market risk.  Although the majority of its
investments are classified as available for sale, the Company rarely sells
securities except in unusual circumstances.

     Table IV (page 21) shows the maturity of liabilities and assets in
future periods.  Table III (page 20) shows the effects of rate and volume
changes on the net interest margin for the past three year period.

Effects of Inflation

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

     The Company's reported earnings results have been affected by
inflation, but isolating the effect is difficult.  The different types of
income and expense are affected in various ways.  Interest rates are
affected by inflation, but the timing and magnitude of the changes may not
coincide with changes in the consumer price index.  Management actively
monitors interest rate sensitivity, as illustrated by the Gap Analysis
(Table IV, page 21) 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 (including the Company) that file electronically with
the Commission.  That address is (http: //www.sec.gov)

<PAGE> 18
TABLE I

<TABLE>

                                       SUMMARY OF OPERATIONS
                                    (Dollar amounts in thousands)
<CAPTION>
         
                                      -- -- --- -- --YearsEnding December31, -- --- -- --- -
                                             (In Thousands Except for Share Amounts)
                                   1996          1995          1994          1993          1992

<S>                                   <C>           <C>           <C>           <C>           <C>      
Total Interest Income           $  14,182     $  12,758     $  11,726     $  12,038     $  12,605
Total Interest Expense             (7,103)       (6,219)       (5,082)        5,360         6,483

Net Interest Income                 7,079         6,539         6,644         6,678         6,122
Provision for Loan Losses             135           120           240           390           780

Net Interest Income after
  Provision for Loan Losses         6,944         6,419         6,404         6,288         5,342
Other Income                          592           581           467           700           505
Other Expenses                      4,570         4,191         4,052         3,830         3,511

Income before Income Taxes          2,966         2,809         2,819         3,158         2,336
Income Tax Expense                    953           956           944         1,068           751

  Net Income                    $   2,013     $   1,853     $   1,875     $   2,090     $   1,585


Net Income Per Share            $    3.92     $    3.60     $    3.65     $    4.06     $    3.07
Dividends Per Share             $     .94     $     .83     $     .72     $     .63     $     .55

Total Assets at Year End        $ 178,847     $ 167,884     $ 153,361     $ 150,964     $ 146,371


Return on Average Assets             1.15%         1.16%         1.22%         1.40%         1.11%
Return on Average Equity             9.99%        10.15%        11.05%        13.93%        11.79%
Dividend Payout Ratio               24.00%        23.03%        19.74%        15.50%        17.94%
Year End Equity to Assets Ratio     11.31%        11.24%        10.94%        10.49%         9.70%

</TABLE>

<PAGE> 19
TABLE II


              NET INTEREST MARGIN AND AVERAGE BALANCE ANALYSIS
                       (Dollar amounts in thousands)


                                                     1996
                                                    Income/      Yield/
EARNING ASSETS                      Average         Expense       Rate 

Loans 3                          $  116,864      $   11,135        9.52

Investment securities:
  Taxable 4                          40,270           2,491        6.19
  Nontaxable 1,4                      4,146             354        8.53

  Total Investment
    Securities                       44,416           2,845        6.41

Interest bearing deposits
  in banks                              898              48        5.35

Federal funds sold                    5,192             284        5.47

  Total Earning Assets              167,370          14,312        8.55

Allowance for loan losses            (1,288)               
Nonearnings assets                    9,280                

  Total Assets                   $  175,362                

INTEREST-BEARING LIABILITIES

Deposits:
  Demand                         $   26,701      $      778        2.91
  Savings                            17,535             620        3.54
  Time deposits                      93,482           5,695        6.09
Other borrowed money                    148              10        6.75

  Total Interest Bearing
    Liabilities                     137,866           7,103        5.15

Noninterest bearing deposits         15,600                
Other liabilities                     1,751                

  Total Liabilities                 155,217                

  Stockholders' Equity               20,145                

  Total Liabilities and Equity   $  175,362                

  Net Interest Earnings                          $    7,209

  Net Yield on Interest Earning Assets                             4.32%


1 Yields are computed on a taxable equivalent basis using a 37% income tax
  rate.
2 Average balances are based on daily balances.
3 Includes loans in nonaccrual status.
4 Average balances for securities available for sale are based on amortized
  carrying values and do not reflect changes in market values.

<PAGE> 19 (Continued
TABLE II (Continued)


              NET INTEREST MARGIN AND AVERAGE BALANCE ANALYSIS
                       (Dollar amounts in thousands)


                                                     1995
                                                    Income/      Yield/
EARNING ASSETS                      Average         Expense       Rate 

Loans 3                          $  108,659      $   10,115        9.30

Investment securities:
  Taxable 4                          34,069           2,047        6.00
  Nontaxable 1,4                      3,475             302        8.69

  Total Investment
    Securities                       37,544           2,349        6.26

Interest bearing deposits
  in banks                              587              29        4.94

Federal funds sold                    6,524             377        5.78

  Total Earning Assets              153,314          12,870        8.40

Allowance for loan losses            (1,384)               
Nonearnings assets                    7,986                

  Total Assets                   $  159,916                
       
Deposits:
  Demand                         $   27,913      $      870        3.12
  Savings                            16,674             642        3.85
  Time deposits                      82,477           4,704        5.70
Other borrowed money                     49               3        6.12

  Total Interest Bearing
    Liabilities                     127,113           6,219        4.89

Noninterest bearing deposits         13,356                
Other liabilities                     1,187                

  Total Liabilities                 141,656                

  Stockholders' Equity               18,260                

  Total Liabilities and Equity   $  159,916                

  Net Interest Earnings                          $    6,651

                                                                   4.34%

1 Yields are computed on a taxable equivalent basis using a 37% income tax
  rate.
2 Average balances are based on daily balances.
3 Includes loans in nonaccrual status.
4 Average balances for securities available for sale are based on amortized
  carrying values and do not reflect changes in market values.

<PAGE> 19 (Continued)
TABLE II (Continued)


              NET INTEREST MARGIN AND AVERAGE BALANCE ANALYSIS
                       (Dollar amounts in thousands)


                                                     1994
                                                    Income/      Yield/
EARNING ASSETS                      Average         Expense       Rate 

Loans 3                          $  101,253      $    9,232        9.12%

Investment securities:
  Taxable 4                          38,651           2,089        5.40
  Nontaxable 1,4                      3,854             319        8.27

  Total Investment
    Securities                       42,505           2,408        5.67

Interest bearing deposits
  in banks                              431              19        4.40

Federal funds sold                    4,339             184        4.24

  Total Earning Assets              148,528          11,843        7.97

Allowance for loan losses            (1,651)               
Nonearnings assets                    6,988                

  Total Assets                   $  153,865                
  
Deposits:
  Demand                         $   29,871      $      942        3.15
  Savings                            17,374             640        3.68
  Time deposits                      75,190           3,500        4.65
Other borrowed money                                                

  Total Interest Bearing
    Liabilities                     122,435           5,082        4.15

Noninterest bearing deposits         12,886                
Other liabilities                     1,582                

  Total Liabilities                 136,903                

  Stockholders' Equity               16,962                

  Total Liabilities and Equity   $  153,865                

  Net Interest Earnings                          $    6,761

                                                                   4.57%

1 Yields are computed on a taxable equivalent basis using a 37% income tax
  rate.
2 Average balances are based on daily balances.
3 Includes loans in nonaccrual status.
4 Average balances for securities available for sale are based on amortized
  carrying values and do not reflect changes in market values.

<PAGE> 20
TABLE III

<TABLE>
                        EFFECT OF RATE-VOLUME CHANGES ON NET INTEREST INCOME
                                (On a fully taxable equivalent basis)
                                      (In thousands of dollars)
<CAPTION>
         
                              1996 Compared to 1995                   1995 Compared to 1994
                               Increase (Decrease)                      Increase (Decrease)

                           Due to Change in:     Total             Due to Change in:     Total
                          Average    Average   Increase           Average    Average   Increase
                          Volume      Rate    (Decrease)          Volume      Rate    (Decrease)

<S>                           <C>        <C>        <C>               <C>        <C>        <C>   
Interest Income:

  Loans 2                 $   763    $   257    $ 1,020           $   687    $   196    $   883

  Investment Securities:
   Taxable                    372         72        444              (231)       189        (42)
   Nontaxable                  58         (6)        52               (32)        15        (17)

  Total Investment
   Securities                 430         66        496              (263)       204        (59)

  Interest bearing deposits
   in banks                    15          4         19                 7          3         10
  Federal funds sold          (77)       (16)       (93)               93        100        193

  Total Interest Income     1,131        311      1,442               524        503      1,027
          
Interest Expense:

  Deposits:
   Demand                     (38)       (54)       (92)              (62)       (10)       (72)
   Savings                     33        (55)       (22)              (26)        28          2
   All other time
     deposits                 627        364        991               339        865      1,204
  Other borrowed money          6          1          7                 3                     3

  Total Interest Expense      628        256        884               254        883      1,137

  Net Interest Income     $   503    $    55    $   558           $   270    $  (380)   $  (110)
<F1>
1 Changes in volume are calculated based on difference in average balance
    multiplied by the prior year average rate.  Rate change differences are
    the difference in the volume changes and the actual dollar amount of
    interest income or expense changes.

2 Nonaccrual loans have been included in average asset balances.

</TABLE>

<PAGE> 21
TABLE IV

<TABLE>
                                 INTEREST RATE SENSITIVITY ANALYSIS
                                      (In thousands of dollars)
                                          DECEMBER 31, 1996

<CAPTION>
                                                                             More than
                                                                              5 Years
                               1 - 90    91 - 365      1 to 3     3 to 5    orWithout
                                Days       Days         Years      Years     Maturity      Total
<S>                                <C>         <C>         <C>         <C>         <C>         <C>   
EARNINGS ASSETS

  Loans                      $  14,786   $  36,562   $  55,528   $   9,784   $   7,941   $ 124,601
  Fed funds sold                 2,494                                                       2,494
  Securities                     4,629       6,072      15,530       8,860       7,164      42,255
  Interest bearing time
    deposits                       134         400         300                                 834

  Total                         22,043      43,034      71,358      18,644      15,105     170,184

INTEREST BEARING LIABILITIES

  Transaction accounts          14,132                                                      14,132
  Money market accounts         12,975                                                      12,975
  Savings accounts              17,994                                                      17,994
  Time deposits more than
    $100,000                     4,832      11,360       2,853       1,814                  20,859
  Time deposits less than
    $100,000                    13,868      41,923      14,088       5,854                  75,733
  Other borrowed money               4          13          37          43          45         142

  Total                         63,805      53,296      16,978       7,711          45     141,835

Discrete interest
  sensitivity GAP              (41,762)    (10,262)     54,380      10,933      15,060      28,349

Cumulative interest
  sensitivity GAP              (41,762)    (52,024)      2,356      13,289      28,349

Ratio of cumulative
  interest sensitive
  assets to cumulative
  interest sensitive
  liabilities                    34.55%      55.57%     101.76%     109.37%     120.00%

</TABLE>
Assumes all transaction, money market and savings deposit accounts reprice
within 90 days.

<PAGE> 22

Item 7.   Financial Statements

         

                       Index to Financial Statements


                                                                    Page

Consolidated Balance Sheets as of December 31, 1996 and 1995         23

Consolidated Statements of Income for the Years Ended
   December 31, 1996, 1995 and 1994                                  24

Consolidated Statements of Changes in Stockholders' Equity for
   the Years Ended December 31, 1996, 1995 and 1994                  25

Consolidated Statements of Cash Flows for the Years Ended
   December 31, 1996, 1995 and 1994                                  26

Notes to Consolidated Financial Statements                      27 - 42

Independent Auditors' Report                                         43

<PAGE> 23

CONSOLIDATED BALANCE SHEETS                                                 
     
HIGHLANDS BANKSHARES, INC.
                                                        December 31,
ASSETS                                               1996           1995

Cash and due from banks
  (notes 2, 3 and 14)                           $  3,195,822   $  3,286,864
Interest bearing deposits in banks                   833,626        994,583
Federal funds sold                                 2,494,077      6,016,352
Securities held to maturity (note 4)               8,558,956      9,807,434
Securities available for sale (note 4)            33,056,700     29,040,278
Other investments                                    638,850        552,450

Loans (notes 5, 12, 13 and 14)                   124,600,872    113,935,453
  Less allowance for loan losses (note 6)         (1,257,454)    (1,319,099)

  Net Loans                                      123,343,418    112,616,354

Bank premises and equipment (note 7)               4,525,538      3,338,007
Interest receivable                                1,361,433      1,302,613
Deferred income tax benefits (note 9)                275,337        241,983
Other assets                                         563,621        687,564

  Total Assets                                  $178,847,378   $167,884,482

LIABILITIES

Deposits:
  Noninterest bearing
     Demand deposits                            $ 15,416,012   $ 14,133,641
  Interest bearing 
     Money market and interest checking           14,131,971     14,819,063
     Money market savings                         12,974,842     14,577,754
     Savings accounts                             17,993,883     16,988,718
     Certificates of deposit over $100,000        20,859,000     15,841,254
     All other time deposits                      75,733,399     71,352,282

  Total Deposits                                 157,109,107    147,712,712

Borrowed money                                       141,616        157,460
Accrued expenses and other liabilities             1,367,198      1,152,279

  Total Liabilities                              158,617,921    149,022,451

STOCKHOLDERS' EQUITY

Common stock, $5 par value, 1,000,000
  shares authorized, 546,764 shares issued         2,733,820      2,733,820
Surplus                                            1,661,987      1,661,987
Retained earnings (note 12)                       16,478,655     14,948,757
Net unrealized gains (losses) on
  securities available for sale                     (151,192)        11,280

                                                  20,723,270     19,355,844
Treasury stock (at cost, 32,698 shares)             (493,813)      (493,813)

  Total Stockholders' Equity                      20,229,457     18,862,031

  Total Liabilities and
     Stockholders' Equity                       $178,847,378   $167,884,482

              The accompanying notes are an integral part of this statement.

<PAGE> 24

CONSOLIDATED STATEMENTS OF INCOME

HIGHLANDS BANKSHARES, INC.


                                         Years Ended December 31,
                                      1996         1995          1994

INTEREST INCOME:
  Loans, including fees             $11,134,887  $10,115,016  $ 9,231,928
  Federal funds sold                    284,286      377,367      183,777
  Interest bearing deposits              48,357       29,131       19,962
  Investment securities -
    taxable                           2,491,490    2,047,061    2,088,759
  Investment securities -
    nontaxable                          223,795      189,953      201,364

  Total Interest Income              14,182,815   12,758,528   11,725,790
INTEREST EXPENSE:
  Time deposits over $100,000         1,246,000      975,298      640,412
  Other deposits                      5,847,251    5,240,768    4,441,272

  Total Interest on Deposits          7,093,251    6,216,066    5,081,684

  Borrowed money                          9,921        3,176             
  Total Interest Expense              7,103,172    6,219,242    5,081,684

NET INTEREST INCOME                   7,079,643    6,539,286    6,644,106

PROVISION FOR LOAN LOSSES (note 6)      135,000      120,000      240,000

Net Interest Income after Provision
  for Loan Losses                     6,944,643    6,419,286    6,404,106

NONINTEREST INCOME:
  Service charges                       252,689      204,614      188,890
  Insurance commissions and sales       162,306      160,316      160,519
  Other operating income                206,398      224,583      143,613
  Loss on security transactions
    (note 4)                            (29,503)      (9,185)     (26,502)

  Total Noninterest Income              591,890      580,328      466,520

NONINTEREST EXPENSES:
  Salaries and benefits (note 10)     2,477,928    2,212,677    1,987,215
  Occupancy expense                     270,678      172,406      149,093
  Equipment expense                     328,372      244,554      237,213
  FDIC insurance                          3,500      159,729      305,998
  Data processing expense               388,753      368,101      346,770
  Other operating expenses            1,100,304    1,033,581    1,025,230

  Total Noninterest Expenses          4,569,535    4,191,048    4,051,519

  Income before Income Tax Expense    2,966,998    2,808,566    2,819,107
INCOME TAX EXPENSE (note 9)             953,874      956,085      944,101

NET INCOME                          $ 2,013,124  $ 1,852,481  $ 1,875,006

Net Income Per Share                $      3.92  $      3.60  $      3.65

Cash Dividends Paid Per Share       $       .94  $       .83  $       .72

Weighted Average Shares
    Outstanding                         514,066      514,066      514,066

       The accompanying notes are an integral part of this statement.

<PAGE> 25

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

HIGHLANDS BANKSHARES, INC.

<TABLE>

<CAPTION>
                                                                  Net
                                                              Unrealized       
                                                            Gain (Loss) on     
                                                              Securities       
                       Capital                  Retained       Available   Treasury
                        Stock      Surplus      Earnings       for Sale      Stock       Total

<S>                         <C>          <C>           <C>          <C>          <C>           <C>        
BALANCE
  DECEMBER 31, 1993  $2,733,820   $1,661,987   $12,018,069   $  (78,530)  $ (493,813)  $15,841,533

  Cumulative effect
    of change in
    accounting for
    securities
    available for
    sale, net of
    tax effect
    of $71,000                                                  122,000                    122,000
  Net income                                     1,875,006                               1,875,006
  Cash dividends                                  (370,128)                               (370,128)
  Change in unrealized
    loss on securities
    available for
    sale, net of tax
    effect of
    $406,612                                                   (692,339)                  (692,339)

BALANCE
  DECEMBER 31, 1994   2,733,820    1,661,987    13,522,947     (648,869)    (493,813)   16,776,072

  Net income                                     1,852,481                               1,852,481
  Cash dividends                                  (426,671)                               (426,671)
  Change in unrealized
    gain on securities
    available for sale,
    net of tax effect
    of $387,706                                                 660,149                    660,149


BALANCE
  DECEMBER 31, 1995   2,733,820    1,661,987    14,948,757       11,280     (493,813)   18,862,031
  Net income                                     2,013,124                               2,013,124
  Cash dividends                                  (483,226)                               (483,226)
  Change in unrealized
    loss on securities
    available for sale,
    net of tax effect
    of $95,420                                                 (162,472)                  (162,472)

BALANCE
  DECEMBER 31, 1996  $2,733,820   $1,661,987   $16,478,655   $ (151,192)  $ (493,813)  $20,229,457


                   The accompanying notes are an integral part of this statement.

</TABLE>

<PAGE> 26

CONSOLIDATED STATEMENTS OF CASH FLOWS

HIGHLANDS BANKSHARES, INC.

<TABLE>

<CAPTION>
                                                              Years Ended December31,
                                                        1996            1995            1994

<S>                                                         <C>             <C>             <C>         
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                       $  2,013,124    $  1,852,481    $  1,875,006
  Adjustments to reconcile net income to
    net cash provided by operating activities:
      Loss on equipment                                  26,339
      Loss on sale of securities                         29,503           9,185          26,502
      Depreciation                                      262,757         198,517         160,855
      Amortization of security premiums                  66,023         167,260         232,076
      Provision for loan losses                         135,000         120,000         240,000
      Deferred income taxes                              62,065          89,518          66,699
      Change in other assets  and liabilities:
        Interest receivable                             (58,820)            386          29,608
        Other assets                                    (49,593)        (12,921)         56,243
        Accrued expenses                                239,230         130,256         (84,444)

  Net Cash Provided by Operating Activities           2,725,628       2,554,682       2,602,545

CASH FLOWS FROM INVESTING ACTIVITIES:
  Proceeds from maturity of
    securities held to maturity                       3,736,267       2,018,760      13,296,750
  Purchases of securities held to maturity             (620,600)     (2,859,702)     (4,368,004)
  Proceeds from maturities of securities
    available for sale                               12,028,403      12,612,466       6,736,161
  Proceeds from sales of securities
    available for sale                                1,511,173                         800,500
  Purchases of securities available for sale        (19,863,779)    (12,307,206)    (12,521,979)
  Net change in deposits in other banks                 160,957        (601,942)         99,000
  Net increase in loans                             (10,712,064)    (10,308,759)     (6,218,672)
  Change in federal funds sold                        3,522,275      (1,391,007)     (1,655,345)
  Purchase of property and equipment                 (1,476,627)     (1,836,894)       (120,311)
  Construction in progress payments                                                    (502,773)
  Proceeds from sale of foreclosed real estate                          199,141         164,000
  Net Cash Used in Investing Activities             (11,713,995)    (14,475,143)     (4,290,673)

CASH FLOWS FROM FINANCING ACTIVITIES:
  Net change in time deposits                         9,398,863      12,080,569        (537,098)
  Net change in other deposit accounts                   (2,468)         69,059       2,081,331
  Net change in borrowed money                          (15,844)        157,460
  Dividends paid in cash                               (483,226)       (426,671)       (370,128)
  Net Cash Provided by Financing Activities           8,897,325      11,880,417       1,174,105

CASH AND CASH EQUIVALENTS:
  Net decrease in cash and due from banks               (91,042)        (40,044)       (514,023)
  Cash and due from banks, beginning of year          3,286,864       3,326,908       3,840,931

  Cash and Due from Banks, End of Year             $  3,195,822    $  3,286,864    $  3,326,908
Supplemental Disclosures:
  Cash paid for:
    Interest expense                               $  6,993,122    $  6,040,215    $  5,125,310
    Income taxes                                        940,000         908,608         939,280

</TABLE>
    
              The accompanying notes are an integral part of this statement.

<PAGE> 27

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

HIGHLANDS BANKSHARES, INC.


NOTE 1    NATURE OF OPERATIONS:

          Highlands Bankshares, Inc. (the "Company") is a bank holding
          company and operates under a charter issued by the state of West
          Virginia.  The Company owns all of the outstanding stock of The
          Grant County Bank, the Capon Valley Bank and HBI Life Insurance
          Company, Inc. which operate under charters issued in West
          Virginia and Arizona.  State chartered banks are subject to
          regulation by the West Virginia Division of Banking, Federal
          Reserve Bank and the Federal Deposit Insurance Corporation while
          the insurance company is regulated by the Arizona Department of
          Insurance.  The Banks provide services to customers located
          mainly in Grant, Hardy, Hampshire, Mineral and Pendleton counties
          of West Virginia, including the towns of Petersburg, Keyser,
          Moorefield and Wardensville through five branch offices.  The
          insurance company sells life and accident coverage exclusively
          through the Company's subsidiary banks.


NOTE 2    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

          The accounting and reporting policies of Highlands Bankshares,
          Inc.  ("Company") and its subsidiaries conform to generally
          accepted accounting principles and to accepted practice within
          the banking industry.

          (a)  Principles of Consolidation

               The consolidated financial statements include the accounts
               of The Grant County Bank, the Capon Valley Bank and HBI Life
               Insurance Company. All significant intercompany accounts and
               transactions have been eliminated.

          (b)  Use of Estimates in the Preparation of Financial Statements

               In preparing the financial statements, management is
               required to make estimates and assumptions that affect the
               reported amounts in those statements; actual results could
               differ significantly from those estimates.  A material
               estimate that is particularly susceptible to significant
               changes is the determination of the allowance for loan
               losses, which is sensitive to changes in local economic
               conditions.

          (c)  Cash and Cash Equivalents

               Cash and cash equivalents include cash on hand and
               noninterest bearing funds at correspondent institutions.

<PAGE> 28

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
 
HIGHLANDS BANKSHARES, INC.


NOTE 2     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

           (d) Securities

               Effective January 1, 1994, the Company adopted Statement of
               Financial Accounting Standards (SFAS) No. 115, "Accounting
               for Certain Investments in Debt and Equity Securities."  The
               adoption of this statement as of January 1, 1994, increased
               stockholders' equity by $122,000 (net of income tax effect
               of $71,000).  Changes subsequent to the adoption of this
               statement are shown as a separate item on the statement of
               stockholders' equity.  Securities that the Company has both
               the positive intent and ability to hold to maturity (at time
               of purchase) are classified as held to maturity securities. 
               All other securities are classified as available for sale. 
               Securities held to maturity are carried at historical cost
               and adjusted for amortization of premiums and accretion of
               discounts, using the effective interest method.  Securities
               available for sale are carried at fair value with any
               valuation adjustments reported, net of deferred taxes, as a
               separate component of stockholders' equity.  Also included
               in securities available for sale are marketable equity
               securities.

               Other investments consist of investments in the Federal Home
               Loan Bank of Pittsburgh and the Federal Reserve Bank of
               Richmond.  Such investments are required as members of these
               institutions and these investments cannot be sold without a
               change in the members' borrowing or service levels.

               Interest and dividends on securities and amortization of
               premiums and discounts on securities are reported as
               interest income using the effective interest method.  Gains
               (losses) realized on sales and calls of securities are
               determined using the specific identification method.

           (e) Loans

               Loans are carried on the balance sheet net of any unearned
               interest and the allowance for loan losses.  Interest income
               on loans is determined using the effective interest method
               on the daily amount of principal outstanding except where
               serious doubt exists as to collectibility of the loan, in
               which case the accrual of income is discontinued.

           (f) Allowance For Loan Losses

               The allowance for loan losses is based upon management's
               knowledge and review of the loan portfolio.  Estimation of
               an adequate allowance for loan losses involves the exercise
               of judgement, the use of assumptions with respect to present
               economic conditions and knowledge of the environment in
               which the Banks operate.  Among the factors considered in
               determining the level of the allowance are the changes in
               composition of the loan portfolio, the amount of delinquent
               and nonaccrual loans, past loan loss experience and the
               value of collateral securing the loans.

<PAGE> 29

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
 
HIGHLANDS BANKSHARES, INC.

NOTE 2     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

           (g) Impaired Loans

               On January 1, 1995, the Company adopted Statement of
               Financial Accounting Standards No. 114, "Accounting by
               Creditors for Impairment of a Loan" (SFAS 114), as amended
               by SFAS 118, "Accounting by Creditors for Impairment of a
               Loan - Income Recognition and Disclosures," collectively
               SFAS 114.  SFAS 114 requires that impaired loans within the
               scope of the statements be presented in the financial
               statements at the present value of expected future cash
               flows or at the fair value of the loan's collateral.  A
               valuation allowance is required to the extent that such
               measurement is less than the recorded investment.  Under
               this standard a loan is considered impaired based on current
               information and events, if it is probable that the Company
               will be unable to collect the scheduled payments of
               principal and interest when due under the contractual terms
               of the loan agreement.  Charge-offs for impaired loans occur
               when the loan, or portion of the loan is determined to be
               uncollectible, as is the case for all loans.  The effect of
               the adoption of SFAS 114 was not material to the Company's
               consolidated financial statements as of and for the years
               ended December 31, 1996 or 1995.

           (h) Bank Premises and Equipment

               Bank premises and equipment are stated at cost less
               accumulated depreciation.  Depreciation is charged to income
               over the estimated useful lives of the assets using a
               combination of the straight-line and accelerated methods. 
               The ranges of the useful lives of bank premises and
               equipment are as follows:

                    Buildings and Improvements   15 - 40 years
                    Furniture and fixtures       6 - 15 years

               Maintenance, repairs, renewals, and minor improvements are
               charged to operations as incurred.  Gains and losses on
               routine dispositions are reflected in other income or
               expense.

           (i) Income Taxes

               Amounts provided for income tax expense are based on income
               reported for financial statement purposes rather than
               amounts currently payable under federal and state tax laws. 
               Deferred taxes, which arise principally from differences
               between the period in which certain income and expenses are
               recognized for financial accounting purposes and the period
               in which they affect taxable income, are included in the
               amounts provided for income taxes.

           (j) Earnings Per Share

               Earnings per share are based on the weighted average number
               of shares outstanding.

           (k) Foreclosed Real Estate
           
               The components of foreclosed real estate are adjusted to the
               lower of cost or fair value less estimated costs of
               disposal.  The current year provision for a valuation
               allowance has been recorded as an expense to current
               operations.


NOTE 3     CASH AND DUE FROM BANKS:

           The Banks are required to maintain average reserve balances
           based on a percentage of deposits.  The Banks have generally met
           this requirement through average cash on hand and balances with
           their correspondent institutions.

<PAGE> 30

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
 
HIGHLANDS BANKSHARES, INC.


NOTE 4     SECURITIES:

           The carrying amount and estimated fair value of securities are
           as follows:

                            Carrying   Unrealized Unrealized    Fair
                             Amount       Gains     Losses      Value
          Held to Maturity

          December 31, 1996

          U. S. Treasuries
            and Agencies  $ 4,200,310   $ 23,351   $    855   $ 4,222,806
          Mortgage-backed     540,327      4,906                  545,233
          State and
            municipals      3,818,319     62,493     28,742     3,852,070

          Total Securities
            Held to
            Maturity      $ 8,558,956   $ 90,750   $ 29,597   $ 8,620,109

          December 31, 1995

          U. S. Treasuries
            and Agencies  $ 5,107,789   $ 81,015   $  1,173   $ 5,187,631
          Mortgage-backed     635,866     12,561         96       648,331
          State and
            municipals      4,063,779    103,113     22,846     4,144,046

          Total Securities
            Held to
            Maturity      $ 9,807,434   $196,689   $ 24,115   $ 9,980,008


          Available for Sale

          December 31, 1996

          U. S. Treasuries
            and Agencies  $18,270,372   $100,114   $ 66,191   $18,304,295
          Mortgage-backed  13,890,315     61,810    145,273    13,806,852
          Marketable
            equities        1,136,002               190,449       945,553

          Total Securities
            Available
            for Sale      $33,296,689   $161,924   $401,913   $33,056,700

          December 31, 1995

          U. S. Treasuries
            and Agencies  $14,190,987   $145,182   $ 23,819   $14,312,350
          Mortgage-backed  13,214,572    124,129     17,904    13,320,797
          State and
            municipals        200,000                             200,000
          Marketable
            equities        1,416,816               209,685     1,207,131

          Total Securities
            Available
            for Sale      $29,022,375   $269,311   $251,408   $29,040,278

<PAGE> 31

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
 
HIGHLANDS BANKSHARES, INC.


NOTE 4    SECURITIES (CONTINUED):

          The carrying amount and fair value of debt securities at December
          31, 1996, by contractual maturity, are shown below.  Expected
          maturities will differ from contractual maturities because
          borrowers may have the right to call or prepay obligations with
          or without call or prepayment penalties.

          Securities Held to Maturity            Carrying        Fair
                                                  Amount         Value

          Due in one year or less              $ 3,320,657    $ 3,339,584
          Due after one year
            through five years                   2,341,175      2,350,639
          Due after five years
            through ten years                    1,670,607      1,654,335
          Due after ten years                      686,190        730,318
          Mortgage-backed securities               540,327        545,233

            Total Held to Maturity             $ 8,558,956    $ 8,620,109


          Securities Available for Sale          Carrying        Fair
                                                  Amount         Value

          Due in one year or less              $ 3,763,083    $ 3,780,709
          Due after one year
            through five years                  11,902,008     11,973,480
          Due after five years
            through ten years                    2,605,281      2,550,106
          Mortgage-backed securities            13,890,315     13,806,852

          Total Fixed Rate Securities           32,160,687     32,111,147
          Equities                               1,136,002        945,553

            Total Available for Sale           $33,296,689    $33,056,700

          The carrying amount (which approximates market value) of
          securities pledged by the banks to primarily secure deposits
          amounted to $7,051,868 at December 31, 1996 and $5,913,000 at
          December 31, 1995.

          There were no holdings totaling more than 10% of stockholders'
          equity with any issuer as of December 31, 1996 and 1995.

          Gains and losses recognized in 1996 are primarily from securities
          available for sale.  All gains or losses in 1995 and 1994 are
          from calls or early payoffs of securities designated as held to
          maturity.  Realized gains or losses for the years ending December
          31 are as follows:

                                             1996       1995       1994

          Gains                            $  2,386   $    813   $  2,000
          Losses                            (31,889)    (9,998)   (28,502)


            Total                          $(29,503)  $ (9,185)  $(26,502)

<PAGE> 32

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
 
HIGHLANDS BANKSHARES, INC.


NOTE 5    LOANS:

          Loans outstanding as of December 31 are summarized as follows:

                                                  1996           1995

          Commercial                          $ 25,103,784   $ 20,749,203
          Real estate construction               2,158,000      2,622,000
          Real estate mortgages                 70,829,083     65,970,630
          Consumer installment                  28,693,887     26,740,410

            Total Loans                        126,784,754    116,082,243
            Unearned interest                   (2,183,882)    (2,146,790)

            Net Loans                         $124,600,872   $113,935,453


          Loans 90 days or more past due as of December 31 are as follows:

                                         1996         1995         1994

          Commercial                 $   63,000   $  487,000   $  378,000
          Real estate                   208,000      479,000      486,000
          Installments                  110,000      115,000      187,000

            Total                    $  381,000   $1,081,000   $1,051,000

            Above as a percentage
              of net loans                  .31%         .95%        1.01%


NOTE 6    ALLOWANCE FOR LOAN LOSSES:

          A summary of changes in the allowance for loan losses for the
          years ended December 31 is shown in the following schedule:

                                        1996         1995         1994

          Balance at beginning
            of year                  $1,319,099   $1,454,307   $1,734,041
          Provision charged to
            operating expenses          135,000      120,000      240,000
          Loan recoveries               140,289      124,501      192,222
          Loans charged off            (336,934)    (379,709)    (711,956)

            Balance at end of year   $1,257,454   $1,319,099   $1,454,307

            Percentage of outstanding
              loans                        1.01%        1.16%        1.37%

<PAGE> 33

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
 
HIGHLANDS BANKSHARES, INC.


NOTE 7    BANK PREMISES AND EQUIPMENT:

          Bank premises and equipment as of December 31 are summarized as
          follows:
                                                  1996           1995

          Land                                 $   553,652    $   359,826
          Buildings and improvements             4,232,937      3,560,558
          Furniture and equipment                2,446,961      1,866,452

          Total cost                             7,233,550      5,786,836
            Less - accumulated depreciation     (2,708,012)    (2,448,829)

            Net Book Value                     $ 4,525,538    $ 3,338,007

          Provisions for depreciation of $262,757 in 1996, $198,517 in 1995
          and $160,855 in 1994, were charged to operations.


NOTE 8    DEPOSITS:

          At December 31, 1996, the scheduled maturities of certificates of
          deposit are as follows:

                  1997                           $71,913,101
                  1998                            12,710,021
                  1999                             4,219,762
                  2000                             5,190,341
                  2001 and thereafter              2,559,174

                  Total                          $96,592,399


NOTE 9    INCOME TAX EXPENSE:

          The components of income tax expense for the years ended December
          31 are summarized as follows:

                                             1996      1995       1994

          Current expense
            Federal                         $829,724  $751,593   $770,254
            State                             62,085   114,974    107,148

            Total current expense            891,809   866,567    877,402

          Deferred expense
            Federal                           56,940    82,260     60,474
            State                              5,125     7,258      6,225

            Total deferred expense            62,065    89,518     66,699

            Income tax expense              $953,874  $956,085   $944,101

          Income benefits relating to
            losses on security transactions
            are as follows:                 $(10,916) $ (3,398)  $ (9,944)

<PAGE> 34

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
 
HIGHLANDS BANKSHARES, INC.


NOTE 9    INCOME TAX EXPENSE (CONTINUED):
          The deferred tax effects of temporary differences for the years
          ended December 31 are as follows:

                                             1996       1995      1994

          Tax effect of temporary differences:
            Provision for loan losses       $  2,492 $  60,187  $ 103,687
            Sale of loans                     11,105    12,128    (32,622)
            Pension expense                  (13,587)   (2,053)    10,966
            Depreciation                      41,825    14,363
            Miscellaneous                     20,230     4,893    (15,332)

            Net decrease in deferred
              income tax benefit            $ 62,065 $  89,518  $  66,699


          The net deferred tax assets arising from temporary differences as
          of December 31 are summarized as follows:

                                                      1996        1995

          Deferred Tax Assets:
            Provision for loan losses               $ 231,530   $ 234,022
            Insurance commissions                      34,350      37,968
            Sale of loans                              38,640      49,746
            Unrealized loss on securities
              available for sale                       88,797
            Other                                      20,635      22,067

            Total Assets                              413,952     343,803

          Deferred Tax Liabilities:
            Pension prepaids                           53,474      67,060
            Unrealized gain on securities
              available for sale                                    6,623
            Accretion income                           28,272      13,774
            Accelerated depreciation                   56,869      14,363

            Total Liabilities                         138,615     101,820

            Net Tax Asset                           $ 275,337   $ 241,983

<PAGE> 35

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
 
HIGHLANDS BANKSHARES, INC.


NOTE 9    INCOME TAX EXPENSE (CONTINUED):

        The following table summarizes the difference between income tax
        expense and the amount computed by applying the federal statutory
        income tax rate of 34 percent for the years ended December 31:

                                            1996       1995       1994

          Amounts at federal statutory
            rates                        $1,008,779  $ 954,912  $ 958,497
          (Reductions) additions
            resulting from:
              Tax-exempt income             (77,900)   (54,343)   (59,428)
              Partially exempt income       (39,771)   (35,739)   (29,771)
              State income taxes, net        69,538     86,179     72,451
              Other                          (6,772)     5,076      2,352

              Income tax expense         $  953,874  $ 956,085  $ 944,101


NOTE 10   EMPLOYEE BENEFITS:

          The Company's two subsidiary banks each have separate retirement
          and profit sharing plans which cover substantially all full time
          employees at each bank.  The Capon Valley Bank has a defined
          contribution pension plan that is funded with insurance contracts
          and various other investments and contains Code Section 401(k)
          feature with limited matching of employee deferred IRA's.

          The Grant County Bank is a member of the West Virginia Bankers'
          Association Retirement Plan.  Benefits under the plan are based
          on compensation and years of service with 100% vesting after
          seven years of service.  The Plan's assets are in excess of the
          projected benefit obligations and thus the Bank was not able to
          make contributions to the Plan in 1996, 1995 or 1994.  The
          amounts of the prepaid expense and the net pension expense
          reflected in operations are insignificant.  In addition, The
          Grant County Bank also maintains a profit sharing plan covering
          substantially all employees to which contributions are made at
          the discretion of the Board of Directors.

          The Company has established an employee stock ownership plan
          which will provide stock ownership to all employees of the
          Company.  The Plan provides total vesting upon the attainment of
          seven years of service.  Contributions to the plan are made at
          the discretion of the Board of Directors and are allocated based
          on the compensation of each employee relative to total
          compensation paid by the Company.  All shares held by the Plan
          will be considered outstanding in the computation of earnings per
          share.  Shares of Company stock when distributed will have
          restrictions on transferability.

          Deferred compensation expenses for the above benefits charged to
          operations totaled $206,893 in 1996, $139,371 in 1995 and $78,321
          in 1994.

<PAGE> 36

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
 
HIGHLANDS BANKSHARES, INC.


NOTE 11   RESTRICTIONS ON DIVIDENDS OF SUBSIDIARY BANKS:

          The principal source of funds of Highlands Bankshares, Inc. is
          dividends paid by subsidiary banks.  The various regulatory
          authorities impose restrictions on dividends paid by a state
          bank.  A state bank cannot pay dividends (without the consent of
          state banking authorities) in excess of the total net profits of
          the current year and the combined retained profits of the
          previous two years.  As of January 1, 1997, the banks could pay
          dividends to the Company of approximately $2,692,407 without
          permission of the regulatory authorities.


NOTE 12   TRANSACTIONS WITH RELATED PARTIES:

          During the year, officers and directors (and companies controlled
          by them) were customers of and had transactions with the
          subsidiary Banks in the normal course of business.  These
          transactions were made on substantially the same terms as those
          prevailing for other customers and did not involve any abnormal
          risk.  The aggregate amount of loans to related parties of
          $1,373,185 at December 31, 1995, was increased $853,489 by new
          loans and reduced $783,422 by payments, resulting in an ending
          balance of $1,443,252 at December 31, 1996.


NOTE 13   COMMITMENTS AND GUARANTEES:

          The Banks make commitments to extend credit in the normal course
          of business and issues standby letters of credit to meet the
          financing needs of its customers.  The amount of the commitments
          represents the Banks' exposure to credit loss that is not
          included in the balance sheet.  As of the balance sheet dates,
          the Banks had outstanding the following commitments:

                                                   1996          1995

               Commitments to extend credit     $ 5,743,000   $ 4,131,000
               Standby letters of credit            677,000       658,000

          The Banks use the same credit policies in making commitments and
          issuing letters of credit as it does for the loans reflected in
          the balance sheet.

          Commitments to extend credit are agreements to lend to a customer
          as long as there is no violation of any condition established in
          the contract.  Commitments generally have fixed expiration dates
          or other termination clauses and may require payment of a fee. 
          Since many of the commitments are expected to expire without
          being drawn upon, the total commitment amounts do not necessarily
          represent future cash requirements.  The Banks evaluate each
          customer's creditworthiness on a case-by-case basis.  The amount
          of collateral obtained, if deemed necessary by the Banks upon
          extension of credit, is based on management's credit evaluation
          of the borrower.  Collateral held varies but may include accounts
          receivable, inventory, property, plant and equipment.

<PAGE> 37

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
 
HIGHLANDS BANKSHARES, INC.


NOTE 14   CONCENTRATIONS OF CREDIT:

          The Banks grant commercial, residential real estate and consumer
          loans to customers located primarily in the eastern portion of
          the State of West Virginia.  Although the Banks have a
          diversified loan portfolio, a substantial portion of its debtors'
          ability to honor their contracts is dependent upon the
          agribusiness economic sector.  Collateral required by the Banks
          is determined on an individual basis depending on the purpose of
          the loan and the financial condition of the borrower.  The
          ultimate collectibility of the loan portfolios is susceptible to
          changes in local economic conditions.  Approximately 59% of the
          loan portfolio is secured by real estate.  See note 5 for a
          complete breakdown of loans by type.

          The Bank has cash deposited in and federal funds sold to other
          commercial banks totaling $3,511,000 and $7,200,000 at December
          31, 1996 and 1995, respectively.


NOTE 15   DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:

          The fair value of the Company's assets and liabilities is
          influenced heavily by market conditions.  Fair value applies to
          both assets and liabilities, either on or off the balance sheet. 
          Fair value is defined as the amount at which a financial
          instrument could be exchanged in a current transaction between
          willing parties, other than in a forced or liquidation sale.

          The following methods and assumptions were used to estimate the
          fair value of each class of financial instruments for which it is
          practicable to estimate that value:

          Cash, Due from Banks and Money Market Investments

          The carrying amount of cash, due from bank balances, interest
          bearing deposits and federal funds sold is a reasonable estimate
          of fair value.

          Securities

          Fair values of securities are based on quoted market prices or
          dealer quotes.  If a quoted market price is not available, fair
          value is estimated using quoted market prices for similar
          securities.

          Loans

          The fair value of loans is estimated by discounting the future
          cash flows using the current rates at which similar loans would
          be made to borrowers with similar credit ratings and for the same
          remaining maturities, taking into consideration the credit risk
          in various loan categories.

          Deposits
          
          The fair value of demand, interest checking, regular savings and
          money market deposits is the amount payable on demand at the
          reporting date.  The fair value of fixed maturity certificates of
          deposit is estimated using the rates currently offered for
          deposits of similar remaining maturities.

<PAGE> 38

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
 
HIGHLANDS BANKSHARES, INC.


NOTE 15   DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
          (CONTINUED):

          Interest Payable and Receivable

          The carrying value of amounts of interest receivable and payable
          is a reasonable estimate of fair value.

          Off-Balance-Sheet Items

          The carrying amount and estimated fair value of off-balance-sheet
          items were not material at December 31, 1996.

          The estimated fair values of financial instruments as of December
          31 are as follows:

<TABLE>

<CAPTION>
                                                     1996                           1995
                                                         Estimated                      Estimated
                                           Carrying        Fair           Carrying        Fair
                                            Amount         Value           Amount         Value

          <S>                                     <C>           <C>              <C>           <C>
          Financial Assets:
            Cash and due from banks      $  3,195,822  $  3,195,822     $  3,286,864  $  3,286,864
            Interest bearing deposits         833,626       833,626          994,583       994,583
            Federal funds sold              2,494,077     2,494,077        6,016,352     6,016,352
            Securities held to maturity     8,558,956     8,620,109        9,807,434     9,980,008
            Securities available for sale  33,056,700    33,056,700       29,040,278    29,040,278
            Other investments                 638,850       638,850          552,450       552,450
            Loans, net                    123,343,418   123,592,407      112,616,354   112,266,874
            Interest receivable             1,361,433     1,361,433        1,302,613     1,302,613

          Financial Liabilities:
            Demand deposits                60,516,708    60,516,708       60,519,176    60,519,176
            Term deposits                  96,592,399    96,535,118       87,193,536    87,165,364
            Borrowed money                    141,616       141,616          157,460       157,460
            Interest payable                  795,000       795,000          684,520       684,250

</TABLE>

NOTE 16   REGULATORY MATTERS:

          The Company is subject to various regulatory capital requirements
          administered by the federal banking agencies.  Failure to meet
          minimum capital requirements can initiate certain mandatory - and
          possibly additional discretionary - actions by regulators that,
          if undertaken, could have a direct material effect on the
          Company's financial statements.  Under capital adequacy
          guidelines and the regulatory framework for prompt corrective
          action, the Company must meet specific capital guidelines that
          involve quantitative measures of the Company's assets,
          liabilities, and certain off-balance-sheet items as calculated
          under regulatory accounting practices.  The Company's capital
          amounts and classification are also subject to qualitative
          judgments by the regulators about components, risk weightings and
          other factors.

<PAGE> 39

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
 
HIGHLANDS BANKSHARES, INC.


NOTE 16   REGULATORY MATTERS (CONTINUED):
         
          Quantitative measures established by regulation to ensure capital
          adequacy require the Company to maintain minimum amounts and
          ratios (set forth in the table below) of total and Tier I capital
          (as defined in the regulations) to risk-weighted assets (as
          defined), and of Tier I capital (as defined) to average assets
          (as defined).  Management believes, as of December 31, 1996 and
          1995, that the Company meets all capital adequacy requirements to
          which it is subject.

          To be categorized as well capitalized the Company must maintain
          minimum total risk-based, Tier I risk-based, and Tier I leverage
          ratios as set forth in the table.  There are no conditions or
          events that management believes have changed the Company's
          category from a well capitalized status.

          The Company's actual capital ratios are presented in the
          following table:

                                      Actual       Regulatory Requirements 
                                     December      Adequately     Well
                                 1996      1995    Capitalized Capitalized

          Total risk-based
            ratio                18.82%    19.16%      8.00%      10.00%
          Tier 1 risk-based
            ratio                18.85%    19.02%      4.00%       6.00%
          Total assets leverage
            ratio                11.58%    11.72%      3.00%       5.00%

          Capital ratios and amounts are applicable both at the individual
          bank level and on a consolidated basis.  At December 31, 1996,
          both subsidiary banks had capital levels far in excess of minimum
          requirements.  As such, both banks qualified as "well capitalized
          banks" for FDIC insurance purposes and thus were charged the
          minimum rate for insurance coverage.

<PAGE> 40

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
 
HIGHLANDS BANKSHARES, INC.


NOTE 17   PARENT CORPORATION ONLY FINANCIAL STATEMENTS:


                               BALANCE SHEETS

          Assets                                      December 31,
                                                   1996          1995

            Cash                                $    29,819   $    89,117
            Investment in subsidiaries           20,087,421    18,682,887
            Other investments                       100,000       100,000
            Other assets                                652           589
            Income taxes receivable                  11,565        31,176

            Total Assets                        $20,229,457   $18,903,769
         
          Liabilities

            Due to subsidiaries                 $             $    41,738

            Total Liabilities                                      41,738
         
          Stockholders' Equity

            Common stock, par value $5
              per share authorized
              1,000,000 shares; 546,764
              shares issued                       2,733,820     2,733,820
            Surplus                               1,661,987     1,661,987
            Retained earnings                    16,478,655    14,948,757
            Net unrealized gains (losses)
              on securities
              available for sale                   (151,192)       11,280

                                                 20,723,270    19,355,844
            Less treasury stock (32,698
              shares, at cost)                     (493,813)     (493,813)

            Total Stockholders' Equity           20,229,457    18,862,031

            Total Liabilities and Stockholders'
              Equity                            $20,229,457   $18,903,769

<PAGE> 41

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
 
HIGHLANDS BANKSHARES, INC.


NOTE 17   PARENT CORPORATION ONLY FINANCIAL STATEMENTS (CONTINUED):


                 STATEMENTS OF INCOME AND RETAINED EARNINGS

                                          Years Ended December 31,
                                     1996           1995         1994

          Income

            Dividends from
              subsidiaries        $   483,226  $    451,675  $    395,128
            Other dividends               630           630           630

            Total                     483,856       452,305       395,758

          Expenses

            Professional fees          34,478        22,203        22,449
            Advertising                 3,320         3,452         1,588
            Other expenses             18,754        26,189        26,734

            Total                      56,552        51,844        50,771

          Net income before
            income tax benefit
            and undistributed
            income of
            subsidiaries              427,304       400,461       344,987

          Income tax benefit          (18,815)      (20,112)      (19,791)

          Income before
            undistributed income
            of subsidiaries           446,119       420,573       364,778

          Undistributed income of
            subsidiaries            1,567,005     1,431,908     1,510,228

            Net Income              2,013,124     1,852,481     1,875,006

          Retained earnings,
            Beginning of period    14,948,757    13,522,947    12,018,069
            Dividends paid           (483,226)     (426,671)     (370,128)

          Retained Earnings,
            End of Period         $16,478,655  $ 14,948,757  $ 13,522,947

<PAGE> 42

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
 
HIGHLANDS BANKSHARES, INC.


NOTE 17   PARENT CORPORATION ONLY FINANCIAL STATEMENTS (CONTINUED):


                          STATEMENTS OF CASH FLOWS

                                          Years Ended December 31,
                                       1996         1995        1994


          Cash Flows from Operating
           Activities:
            Net income              $ 2,013,124   $1,852,481   $1,875,006
            Adjustments
              Undistributed
                subsidiary income    (1,567,005)  (1,431,908)  (1,510,228)
              Depreciation                  408          391          663
              Increase (decrease)
                in payables             (41,738)      16,901      (55,877)
              (Increase) decrease in
                receivables              19,139      (31,176)       1,171

            Net Cash Provided by
              Operating
              Activities                423,928      406,689      310,735


          Cash Flows from Financing
           Activities:
            Dividends paid             (483,226)    (426,671)    (370,128)

            Net Cash Used in
              Financing
              Activities               (483,226)    (426,671)    (370,128)

          Net Decrease in Cash          (59,298)     (19,982)     (59,393)

          Cash, Beginning of Year        89,117      109,099      168,492

          Cash, End of Year         $    29,819   $   89,117   $  109,099

<PAGE> 43

         
                        INDEPENDENT AUDITORS' REPORT




The Stockholders and Board of Directors
Highlands Bankshares, Inc.
Petersburg, West Virginia


We have audited the accompanying consolidated balance sheets of Highlands
Bankshares, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income, changes in stockholders' equity
and cash flows for each of the years in the three year period ended
December 31, 1996.  These financial statements are the responsibility of
the Company's management.  Our responsibility is to express an opinion on
these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement.  An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation.  We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Highlands
Bankshares, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of
the years in the three year period ended December 31, 1996, in conformity
with generally accepted accounting principles.


                                    S. B. HOOVER & COMPANY, L.L.P.



January 17, 1997
Harrisonburg, Virginia

<PAGE> 44

Item  8.  Changes in and Disagreements with Accountants on Accounting and
          Financial Disclosure

     None

Part III

Item  9.  Directors and Executive Officers

     We are incorporating the Proxy Statement of Highlands Bankshares, Inc.
via Form DEF 14A filed March 17, 1997.

Item 10.  Executive Compensation

     We are incorporating the Proxy Statement of Highlands Bankshares, Inc.
via Form DEF 14A filed March 17, 1997.

Item 11.  Security Ownership of Certain Beneficial Owners and Management

     We are incorporating the Proxy Statement of Highlands Bankshares, Inc.
via Form DEF 14A filed March 17, 1997.

Item 12.  Certain Relationships and Related Transactions

     We are incorporating the Proxy Statement of Highlands Bankshares, Inc.
via Form DEF 14A filed March 17, 1997.

     Most of the directors, partnerships of which they may be general
partners and corporations of which they are officers or directors, maintain
normal banking relationships with the Bank.  Loans made by the Bank to such
persons or other entities were made only in the ordinary course of
business, were made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with other persons, and did not involve more than normal risk
of collectibility or present other unfavorable features.  See Note 12 of
the consolidated financial statements.

     John VanMeter is a partner with the law firm of VanMeter and VanMeter,
which has been retained by the Company as legal counsel and it is
anticipated that the relationship will continue.  Jack H. Walters is a
partner with the law firm of Walters & Krauskopf, which provides legal
counsel to the Company and it is anticipated that the relationship will
continue.

Part IV

Item 13.  Exhibits and Reports on Form 8-K

     a)    Exhibits

          Exhibit No.                 Description

             2           Not applicable

             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.

<PAGE> 45

Item 13.  Exhibits and Reports on Form 8-K (Continued)

     a)   Exhibits (Continued)

          Exhibit No.                 Description


            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.

            4            Not applicable

            9            Not applicable

           10            Not applicable

           11            Not applicable

           12            Not applicable

           16            Not applicable

           18            Not applicable

           21            Subsidiaries of the Small Business Issuer is
                         attached on Page 47

           22            Not applicable

           23            Consent of Certified Public Accountant attached on
                         Page 48

           24            Not applicable

           27            Financial Data Schedule attached

           28            Not applicable


     b)    Reports on Form 8-K

           No reports on Form 8-K were filed in the fourth quarter of 1996.

<PAGE> 46
                                 SIGNATURES


     Pursuant to the requirements of Section 13 or 15(d) 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.


                                 By  LESLIE A. BARR                         
                                     Leslie A. Barr
                                     President, Chief Executive Officer


                                 Date March 24, 1997                     



                                 By  CLARENCE E. PORTER                  
                                     Clarence E. Porter
                                     Secretary/Treasurer,
                                     Chief Financial Officer
                                     and Chief Accounting Officer


                                 Date  March 27, 1997                    

      Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and as of the date indicated.

 Signature                          Title                        Date

LESLIE A. BARR                     President                March 24, 1997 
Leslie A. Barr             & Chief Executive Officer
                                   Director

COURTNEY R. TUSING                 Director                 March 26, 1997
Courtney R. Tusing


                                   Director             
George B. Moomau


CLARENCE E. PORTER            Secretary/Treasurer           March 27, 1997
Clarence E. Porter              Chief Financial
                            and Accounting Officer
                                   Director

                                   Director                     
Harold B. Roby


JOHN G. VANMETER             Chairman of the Board          March 27, 1997
John G. VanMeter                   Director


JACK H. WALTERS                    Director                 March 26, 1997
Jack H. Walters


L KEITH WOLFE                      Director                 March 27, 1997
L. Keith Wolfe