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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2002
[_] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from ____________ to _____________
Commission file number: 0-27622
HIGHLANDS BANKSHARES, INC.
(Exact Name of Registrant as Specified in its Charter)
Virginia 54-1796693
State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
P.O. Box 1128
Abingdon, Virginia 24212-1128
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (276) 628-9181
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the
preceding 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 _____
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of August 1, 2002.
2,644,658 shares of common stock, par value $1.25 per share
Highlands Bankshares, Inc.
FORM 10-Q
For the Quarter Ended June 30, 2002
INDEX
PART I. FINANCIAL INFORMATION REFERENCE
Item 1. Financial Statements
Consolidated Balance Sheets
June 30, 2002 (Unaudited) and December 31, 2001 (Audited)............... 3
Consolidated Statements of Income (Unaudited)
for the Three and Six Months Ended
June 30, 2002 and 2001.................................................. 4
Consolidated Statements of Cash Flows (Unaudited)
for the Six Months Ended
June 30, 2002 and 2001.................................................. 5
Consolidated Statements of Changes in
Stockholders' Equity (Unaudited) for the Six
Months Ended June 30, 2002 and 2001..................................... 6
Notes to Consolidated Financial Statements (Unaudited)....................... 7-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................................................. 8-10
Item 3. Quantitative and Qualitative Disclosures about Market Risk.............. 10-11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................................... 11
Item 2. Changes in Securities and Use of Proceeds............................... 11
Item 3. Defaults Upon Senior Securities......................................... 11
Item 4. Submission of Matters to a Vote of
Security Holders........................................................ 11
Item 5. Other Information....................................................... 11
Item 6. Exhibits and Reports on Form 8-K........................................ 11
SIGNATURES........................................................................... 12
Part 1. Item 1. -- Financial Information
Consolidated Balance Sheets
(in thousands)
(Unaudited) (Audited)
June 30, December 31,
ASSETS 2002 2001
Cash and due from banks $ 10,336 $ 10,921
Federal funds sold 4,908 1,320
--------- ----------
Total Cash and Cash Equivalents 15,244 $ 12,241
Investment Securities available for sale 93,933 98,299
(amortized cost $95,216 as of June 30, 2002,
$99,934 as of December 31, 2001)
Other Investments 2,182 1,971
Loans (net of allowance for loan losses of $3,765
June 30, 2002, $3,418 December 31, 2001) 331,951 322,042
Premises and Equipment, net 12,927 12,900
Interest Receivable 2,845 2,904
Other Assets 10,402 3,388
--------- ----------
Total Assets $ 469,484 $ 453,745
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest bearing $ 56,412 $ 50,248
Interest bearing 340,182 341,845
--------- ----------
Total Deposits $ 396,594 $ 392,093
--------- ----------
Interest, taxes and other liabilities 2,468 $ 3,217
Other short term borrowings 19,142 13,000
Long-term debt 14,247 10,483
Capital Securities 7,500 7,500
--------- ----------
43,357 $ 34,200
--------- ----------
Total Liabilities $ 439,951 $ 426,293
--------- ----------
STOCKHOLDERS' EQUITY
Common Stock (2,644,658 and 2,637,544 shares issued and outstanding, respectively) $ 3,306 $ 3,304
Additional paid-in capital 6,088 6,063
Retained Earnings 19,545 17,863
Accumulated other comprehensive income 594 222
--------- ----------
Total Stockholders' Equity $ 29,533 $ 27,452
--------- ----------
Total Liabilities and Stockholders' Equity $ 469,484 $ 453,745
========= ==========
See accompanying notes to Consolidated Financial Statements
Part 1. ITEM 1. - FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF INCOME
unaudited
(In thousands, except per share data) Quarter Ended Quarter Ended Six Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
INTEREST INCOME 2002 2001 2002 2001
---- ---- ---- ----
Loans receivable and fees on loans $ 6,549 $ 6,865 $ 13,159 $ 13,753
Securities available for sale
Taxable 890 973 1,826 2,089
Exempt from taxable income 308 279 596 484
Federal funds sold 20 79 36 176
----------- ------------ ---------- ----------
Total Interest Income $ 7,767 $ 8,196 $ 15,617 $ 16,502
----------- ------------ ---------- ----------
INTEREST EXPENSE
Deposits $ 2,917 $ 4,384 $ 6,085 $ 8,764
Federal funds purchased - - 3 -
Other borrowed funds 634 524 1,202 1,062
----------- ------------ ---------- ----------
Total interest expense $ 3,551 $ 4,908 $ 7,290 $ 9,826
----------- ------------ ---------- ----------
Net interest income $ 4,216 $ 3,288 $ 8,327 $ 6,676
----------- ------------ ---------- ----------
PROVISION FOR LOAN LOSSES $ 575 323 $ 987 753
----------- ------------ ---------- ----------
Net interest income after allowance for loan losses $ 3,641 $ 2,965 $ 7,340 $ 5,923
----------- ------------ ---------- ----------
NON-INTEREST INCOME
Securities gains (losses), net $ 27 $ 107 $ 3 $ 259
Service charges on deposit accounts 681 576 1,190 1,075
Other service charges, commissions and fees 187 167 336 287
Other operating income, rents 27 54 48 74
----------- ------------ ---------- ----------
Total Non-Interest Income $ 922 $ 904 $ 1,577 $ 1,695
----------- ------------ ---------- ----------
NON-INTEREST EXPENSES
Salaries and employee benefits $ 1,817 $ 1,550 $ 3,568 $ 3,059
Occupancy expense of bank premises 148 128 292 269
Furniture and equipment expense 480 391 846 757
Other operating expenses 745 767 1,588 1,487
----------- ------------ ---------- ----------
Total Non-Interest Expenses $ 3,190 $ 2,836 $ 6,294 $ 5,572
----------- ------------ ---------- ----------
Income Before Income Taxes $ 1,373 $ 1,033 $ 2,623 $ 2,046
Income Tax Expense 371 257 703 537
----------- ------------ ---------- ----------
Net Income $ 1,002 $ 776 $ 1,920 $ 1,509
=========== ============ ========== ==========
Basic Earnings Per Common Share Weighted Average $ 0.38 $ 0.29 $ 0.73 $ 0.57
=========== ============ ========== ==========
Earnings Per Common Share - assuming dilution $ 0.36 $ 0.28 $ 0.70 $ 0.56
=========== ============ ========== ==========
See accompanying notes to Consolidated Financial Statements
Part 1. ITEM 1. - FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
unaudited
(In thousands)
Accumulated
Additional Other Total
Common Stock Paid-in Retained Comprehensive Stockholders'
-------------------
Shares Par Value Capital Earnings Income Equity
-------- --------- ----------- --------- ------------- -------------
Balance, December 31, 2000 2,637 $ 3,296 $ 5,952 $ 14,773 $ 162 $ 24,183
Comprehensive income:
Net income - - - 1,509 - 1,509
Change in unrealized gain
(loss) on securities available
for sale, net of deferred income tax expense of $32 - - - - (35) (35)
Less: reclassification adjustment - - - - 97 97
--------
Total comprehensive income - - - - - 1,571
--------
Common stock issued for
stock options exercised, net 2 3 37 - - 40
Cash dividend - - - (211) - (211)
------- ------- --------- -------- ------ --------
Balance, June 30, 2001 2,639 3,299 5,989 16,071 224 $ 25,583
------- ------- --------- -------- ------ --------
Balance, December 31, 2001 2,644 $ 3,304 $ 6,063 $ 17,863 $ 222 $ 27,452
Comprehensive income:
Net income 0 1,920 1,920
Change in unrealized gain
(loss) on securities available
for sale, net of deferred
income tax expense of $192 338 338
Less: reclassification adjustment 34 34
------ --------
Total comprehensive income $ 2,292
--------
Common stock issued for:
stock options exercised, net 1 12 13
stock issued through Dividend Reinvestment Plan 1 1 13 14
Cash dividend (238) (238)
Balance, June 30th, 2002 2,645 $ 3,306 $ 6,088 $ 19,545 $ 594 $ 29,533
------- --------- -------- ------ --------
See accompanying notes to Consolidated Financial Statements
Part 1. ITEM 1. - FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
unaudited
(In thousands)
Six months Six months
ended June 30, ended June 30,
2002 2001
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,920 $ 1,509
Adjustments to reconcile net income to net cash
provided by operating activities:
Allowances for loan losses 987 753
Depreciation and amortization 482 416
Net realized (gains) losses on available for sale securities (3) (259)
Net amortization on securities 78 (28)
Amortization of Capital Issue costs 5 5
(Increase) decrease in interest receivable 59 (31)
(Increase) decrease in other assets (7,264) (385)
Decrease in interest, taxes and other
liabilities (749) (518)
-----------------------------------
Net Cash Provided by Operating Activities $ (4,485) $ 1,462
-----------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Securities available for sale:
Proceeds from sale of securities $ 8,694 $ 6,218
Proceeds from maturities of debt securities 11,046 13,231
Purchase of securities (15,042) (19,510)
Net increase in loans (10,896) (17,100)
Premises and equipment expenditures (510) (893)
-----------------------------------
Net Cash Used in Investing Activities $ (6,708) $ (18,054)
-----------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in certificates of deposit $ (13,949) $ 16,253
Net increase in demand, savings and other deposits 18,450 7,206
Net increase (decrease) in short-term borrowings 6,142 3,000
Net increase (decrease) in long-term debt 3,764 (3,092)
Cash dividends paid (238) (211)
Proceeds from issuance of common stock 27 40
-----------------------------------
Net Cash Provided by Financing Activities $ 14,196 $ 23,196
-----------------------------------
Net increase (decrease) in cash and cash equivalents $ 3,003 $ 6,604
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 12,241 15,292
-----------------------------------
CASH AND CASH EQUIVALENTS AT END OF QUARTER $ 15,244 $ 21,896
===================================
SUPPLEMENTAL DISCLOSURE OF NON-CASH
TRANSACTIONS:
Unrealized gain (loss) in value of securities available for
sale (net of tax effects of $192 and $32, at
June 30, 2002 and June 30, 2001, respectively.) $ 372 $ 62
===================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest $ 8,479 $ 10,261
===================================
Income taxes $ 830 $ 650
===================================
See accompanying notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
(Unaudited)
(in thousands)
Note 1. - General
The consolidated financial statements conform to United States generally
accepted accounting principles and to industry practices. The accompanying
consolidated financial statements are unaudited. The consolidated balance sheet
as of December 31, 2001 has been extracted from the audited financial statements
included in the Company's Annual Report on Form 10-K for the year ended December
31, 2001. In the opinion of management, all adjustments necessary for a fair
presentation of the consolidated financial statements have been included. All
such adjustments are of normal and recurring nature. The notes included herein
should be read in conjunction with the notes to consolidated financial
statements included in the Company's 2001 Annual Report on Form 10-K for the
year ended December 31, 2001.
Note 2. - Allowance for Loan Losses
A summary of transactions in the consolidated allowance for loan losses for the
six months ended June 30, follows:
In Thousands
2002 2001
-------- --------
Balance, January 1 $ 3,418 $ 2,950
Provision 987 753
Recoveries 99 116
Charge-offs (739) (660)
-------- --------
Balance, June 30 $ 3,765 $ 3,159
-------- --------
Note 3. - Income Taxes
Income tax expense for the six months ended June 30 is different than the amount
computed by applying the statutory corporate federal income tax rate of 34% to
income before taxes. The reasons for this difference are as follows:
In Thousands
2002 2001
-------- --------
Tax expense at statutory rate $ 892 $ 696
Increase (reduction) in taxes from
Tax-exempt interest (203) (165)
Other, net 14 6
-------- --------
Provision for income taxes $ 703 $ 537
-------- --------
Note 4. - Capital Requirements
Regulators of the corporation and its subsidiaries have implemented risk-based
capital guidelines which require the maintenance of certain minimum capital as a
percent of assets and certain off-balance sheet
items adjusted for predefined credit risk factors. The regulatory minimum for
Tier 1 and combined Tier 1 and Tier 2 capital ratios were 4.0% and 8.0%,
respectively. Tier 1 capital includes tangible common shareholder's equity
reduced by goodwill and certain other intangibles. Tier 2 capital includes
portions of the allowance for loan losses, not to exceed Tier 1 capital. In
addition to the risk-based guidelines, a minimum leverage ratio (Tier 1 capital
as a percentage of average total consolidated assets) of 4.0% is required. This
minimum may be increased by at least 1.0% or 2.0% for entities with higher
levels of risk or that are experiencing or anticipating significant growth. The
following table contains the capital ratios for the Corporation and its
subsidiary as of June 30, 2002.
Entity Tier 1 Combined Capital Leverage
- ------ ------ ---------------- --------
Highlands Bankshares, Inc ..... 11.51% 12.71% 7.75%
Highlands Union Bank .......... 9.78% 11.00% 6.54%
Note 5 - Capital Securities
The Company completed a $7.5 million dollar capital issue on January 23, 1998.
These trust preferred debt securities were issued by Highlands Capital Trust, a
wholly owned subsidiary of Highlands Bankshares, Inc. These securities were
issued at a 9.25% fixed rate with a 30 year term and a 10 year call provision at
the Company's discretion. This capital was raised to meet current and future
opportunities of the Company.
Note 6 - Earnings Per Share
The number of shares used for the computation of diluted earnings per share
includes stock options outstanding. The total number of shares for diluted
earnings per share at June 30, 2002 and 2001 were 2,752,068 and 2,718,082,
respectively.
Note 7 - Dividend Reinvestment and Optional Cash Purchase Plan
On March 1, 2002 the Company initiated a Dividend Reinvestment and Stock
Purchase Plan for its current shareholders. This plan will enable shareholders
to reinvest their cash dividends to purchase additional shares of the Company's
common stock. Shareholders also have the option to make additional cash
purchases of stock from $100 to $5,000 per quarter. The plan will attempt to
purchase the stock for this plan in the open market; if it cannot fully
subscribe with open market purchases then it will purchase the remaining
necessary shares from the 50,000 shares allocated to the plan. For the March
quarter end, the Plan received $92,038.91 in dividends reinvested and optional
cash purchases from plan participants. The Plan purchased 3,048 shares of the
Company's common stock in the open market at $25.50 per share and 561.369 shares
of the Company's common stock from the 50,000 shares reserved for the plan at
$25.50 per share.
PART 1. ITEM 2.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion and analysis is provided to address information about
the Company's financial condition and results of operations that is not
otherwise apparent from the consolidated financial statements incorporated by
reference or included in this report. Reference should be made to those
statements for an understanding of the following discussion and analysis.
Results of Operations
Results of operations for the three and six-month periods ended June 30, 2002
reflected net income of $1.00 million and $1.92 million, respectively, an
increase of 29.12% and 27.30% over net income for the corresponding periods in
2001. This increase is due primarily to the increase in the Bank's net interest
margin. During the last year the Bank has been in a liability sensitive position
with its GAP. This means that the Bank's interest-bearing liabilities have been
repricing faster than its interest-earning assets. With the Federal Open Market
Committee cutting rates eleven times this has significantly improved the Bank's
core earning potential. Operating results of the Company when measured as a
percentage of average equity reveals an increase of return on average equity for
the six-month period from 12.12% in 2001 to 13.54% for the corresponding period
in 2002.
Return on average assets at 0.83% reflects an increase of 13.70% over the
comparable 2001 period.
Net interest income for the three-months and six-months ended June 30, 2002
increased 28.22% and 24.73%, respectively, or approximately $928 thousand and
$1.65 million over the comparable 2001 periods. Average interest-earning assets
increased approximately $44.29 million from June 30, 2001 to the current period
while average interest-bearing liabilities increased $35.18 million during the
same comparative period. The tax-equivalent yield on average interest-earning
assets was 7.31% in 2002 representing a decrease of 112 basis points over the
yield of 8.43% in 2001. The yield on average interest-bearing liabilities
decreased 188 basis points to 3.87% in 2002 as compared to 5.75% in 2001.
Non-interest income for the six months ended June 30, 2002 decreased $118
thousand over the comparable 2001 period.
The first three-month's and six-month's provision for possible loan losses
totaled $575 thousand and $987 thousand, respectively, a $252 thousand and $234
thousand increase from the corresponding periods in 2001. The Company
continually monitors the loan portfolio for signs of credit weaknesses or
developing collection problems. Levels for each period are determined after
evaluating the loan portfolio and determining the level necessary to absorb
current charge-offs and maintain the reserve at adequate levels. Net charge-offs
through the second quarter of 2002 were $640 thousand compared with $544
thousand in 2001. Year-to-date net charge-offs were .19% and .18% of total loans
for the periods ended June 30, 2002 and June 30, 2001. Loan loss reserves
increased 19.22% to $3.76 million at June 30, 2002 from the comparable 2001
period. Reserves as of June 30, 2002 represent 1.12% of total loans versus 1.02%
for the 2001 period.
Financial Position
Total loans have increased from $308.45 million at June 30, 2001 to $335.72
million at June 30, 2002. For the six-month period ended June 30, 2002, total
loans have increased by $10.26 million. The loan to deposit ratio has increased
from 83.42% at June 30, 2001 and 83.01% at December 31, 2001 to 84.65% at June
30, 2002. The majority of the Company's loan growth for the first six months of
2002 has primarily been in real estate secured loans. This group of loans has
grown $14.35 million or 6.75% from December 31, 2001. During this same time
period consumer loans have decreased by $5.89 million or 8.77%. Loan demand
continues at a moderate pace even during a period of economic uncertainty and
within a competitive market area.
Non-performing assets are comprised of loans on non-accrual status and loans
contractually past due 90 days or more and still accruing interest.
Non-performing assets were $3.05 million at June 30, 2002 or 0.99% of total
loans, compared with $1.69 million or 0.55% at June 30, 2001 and $2.06 million
or 0.63% at December 31, 2001. This increase in non-performing loans, at June
30, 2002, can be attributed in large part to a decrease in the economic
conditions within the Company's primary market areas. The downturn in the
economy has resulted in a number of plant layoffs and downsizing that have
contributed to this increase in non-performing assets.
Securities totaled approximately $96.12 million (market value) at June 30, 2002
that reflects a decrease of $4.37 million or -4.44% from the December 31, 2001
total of $98.30 million. Securities, as of June 30, 2002 are comprised of
Mortgage Backed Securities (approximately 57.56% of the total), municipal issues
(approximately 28.01% of the securities portfolio), Collateralized Mortgage
Obligations (CMO's) (approximately 1.33% of the securities portfolio), Corporate
Bonds (approximately 2.31% of the total), SBA backed securities (approximately
0.46% of the total), Asset-Backed securities (approximately 1.05% of the total)
and equity securities (approximately 9.28% of the securities portfolio). The
Company's entire security portfolio is classified as available for sale for both
2002 and 2001. Other investments include the Bank's holdings of Federal Reserve,
Federal Home Loan Bank and Community Bankers' Bank stock. These investments
(carrying value of $2.18 million) are considered to be restricted as the Company
is required to hold these investments and the only market for these investments
is the issuing agency.
In June of 2002, the Company purchased $7.00 million of Bank Owned Life
Insurance covering the lives of selected officers as well as the Directors of
the Corporation. The earnings related to the insurance policies will be used to
offset future employee benefit costs.
Total stockholders' equity of the Company was $29.53 million at June 30, 2002,
representing an increase of $3.95 million or 15.44% over June 30, 2001. Total
stockholders' equity at December 31, 2001 was $27.45 million. The Company
maintains a significant level of liquidity in the form of cash and cash
equivalents ($15.24 million at June 30, 2002) and investment securities
available for sale ($93.93 million). Cash and cash equivalents are immediately
available for satisfaction of deposit withdrawals, customer credit needs, and
operations of the Company. Investment securities available for sale represent a
secondary level of liquidity available for conversion to liquid funds in the
event of extraordinary needs.
Forward-Looking Information
Certain statements in this Section and elsewhere in this report are
forward-looking in nature and relate to trends and events that may affect the
Company's future financial position and operating results. Such statements are
made pursuant to the safe harbor provisions of the Private Securities Litigation
Reform
Act of 1995. The terms "expect", "anticipate", "intend" and "project" and
similar words or expressions are intended to identify forward-looking
statements. These statements speak only as of the date of this report. The
statements are based on current expectations, are inherently uncertain, are
subject to risks, and should be viewed with caution. Actual results and
experience may differ materially from the forward-looking statements as a result
of many factors, including fluctuations in interest rates, changes in economic
conditions in the markets served by the Company, increasing competition, and
other unanticipated events and conditions. It is not possible to foresee or
identify all such factors. The Company makes no commitment to update any
forward-looking statement or to disclose any facts, events, or circumstances
after the date hereof that may affect the accuracy of any forward-looking
statement.
PART 1. ITEM 3.
Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk (IRR) and Asset Liability Management
The Company's profitability is dependent to a large extent upon its net interest
income (NII), which is the difference between its interest income on
interest-bearing assets, such as loans and investments, and its interest expense
on interest-bearing liabilities, such as deposits and borrowings. The Company,
like other financial institutions, is subject to interest rate risk to the
degree that its interest-earning assets reprice differently than its
interest-bearing liabilities. The Company manages its mix of assets and
liabilities with the goals of limiting its exposure to interest rate risk,
ensuring adequate liquidity, and coordinating its sources and uses of funds.
Specific strategies for management of interest rate risk (IRR) on the lending
side of the balance sheet have included the use of ballooning fixed rate loans
and maintaining a significant level of 1, 3 and 5-year adjustable rate
mortgages. On the investment side the Company maintains a significant portion of
its portfolio in adjustable rate securities. These strategies help to reduce the
average maturity of the Company's interest-earning assets.
The Company attempts to control its IRR exposure to protect net interest income
and net earnings from fluctuations in the general level of interest rates. To
measure its exposure to IRR, the Company performs monthly simulations of NII
using financial models that project NII through a range of possible interest
rate environments including rising, declining, flat and most likely rate
scenarios. The result of these simulations indicate the existence and severity
of IRR in each of those rate environments based upon the current balance sheet
position and assumptions as to changes in the volume and mix of interest-earning
assets and interest-bearing liabilities and management's estimate of yields
attainable in those future rate environments and rates which will be paid on
various deposit instruments and borrowings. The Company runs these rate shock
scenarios for twelve and twenty-four month projections out from the current
month of the model.
Over the past 9 months, management has made a concerted effort to shift a
portion of its short-term liablilities to longer-term maturities. This is being
done to help maintain a favorable interest spread once interest rates rise in
the future. The Company has been able to achieve this balance sheet
restructuring in several ways. Beginning in August of 2001, the Company began
offering higher than market rates on its 24 month, 36 month, 48 month and 60
month certificates of deposit accounts and individual retirement accounts. By
doing this the Company was able to shift existing customers' time deposits, as
well as attracting new time deposit customers, to longer term maturities. The
Company has also seen significant increases in its 1-4 family mortgage lending.
The increase in this loan category has been primarily in adjustable rate
mortgages with one and three-year interest rate resets.
The earnings sensitivity measurements completed on a monthly basis indicate that
the performance criteria against which sensitivity is measured, are currently
within the Company's defined policy limits. A more complete discussion of the
overall interest rate risk is included in the Company's Form 10-K annual report
for December 31, 2001.
HIGHLANDS BANKSHARES, INC.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
(a) N/A
(b) N/A
Item 3. Defaults Upon Senior Securities
(a) N/A
(b) N/A
Item 4. Submission of Matters to Vote of Security Holders
(a) The Annual Meeting of Shareholders was held on May 8, 2002.
(b) The following directors were elected to serve a one-year term
from the date of the 2002 Annual Meeting of Shareholders:
Director's Name Votes For Votes Against Votes Withheld
--------------- --------- ------------- --------------
James D. Morefield 1,701,687 0 3,052
James D. Moore, Jr. 1,699,487 2,200 3,052
J. Carter Lambert 1,695,287 6,400 3,052
Clydes B. Kiser 1,701,687 0 3,052
William E. Chaffin 1,701,687 0 3,052
William J. Singleton 1,701,287 400 3,052
E. Craig Kendrick 1,701,687 0 3,052
Charles P. Olinger 1,701,687 0 3,052
H. Ramsey White, Jr. 1,701,687 0 3,052
(c) The agenda for 2002 Annual Meeting of Shareholders' of Highlands
Bankshares, Inc. included one item, that being the election of
nine directors to serve a one year term.
(d) N/A
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
Exhibit 3(i) Articles of Incorporation of the Company, included in
Exhibit 3.1 to the Registrants' Registration Statement
on Form 8-A, Registration Nos. 333-37917 and
333-37917-01, and incorporated herein by reference.
Exhibit 3(ii) Bylaws of the Company, included in Exhibit 3.2 to the
Registrants' Registration Statement on Form S-2,
Registration Nos. 333-37917 and 333-37917-01, and
incorporated herein by reference.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Highlands Bankshares, Inc.
Date: August 8, 2002 /S/ Samuel L. Neese .
--------------------------------------------------------------------
Samuel L. Neese
Executive Vice President &
Chief Executive Officer
(Duly Authorized Officer)
Date: August 8, 2002 /S/ James T. Riffe .
--------------------------------------------------------------------
James T. Riffe
Executive Vice President &
Chief Operations Officer
(Principal Accounting Officer)