SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
HIGHLANDS BANKSHARES, INC.
(Exact name of registrant as specified in its charter)
Commission File Number: 0-27622
Virginia 54-1796693
(State of incorporation or organization) (I.R.S. Employer Identification No.)
P.O. Box 1128
Abingdon, Virginia 24212
(Address of principal executive offices) (Zip Code)
(540) 628-9181
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 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.
(1) YES__X__ NO_____
(2) YES__X__ NO_____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock: 1,219,468
<PAGE>
Highlands Bankshares, Inc.
FORM 10-Q
For the Quarter Ended June 30, 1996
INDEX
<TABLE>
PART I. FINANCIAL INFORMATION REFERENCE
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<CAPTION>
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets
June 30, 1996 and 1995.................................................................3
Consolidated Statement of Income
for the Six Months Ended
June 30, 1996 and 1995.................................................................4
Consolidated Statement of Cash Flows
for the Six Months Ended
June 30, 1996 and 1995.................................................................5
Consolidated Statement of Changes in Stockholders' Equity
for the Six Months Ended
June 30, 1996 and 1995.................................................................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.......................................7-9
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PART II. OTHER INFORMATION
<TABLE>
<CAPTION>
<S> <C>
Item 1. Legal Proceedings................................................................................9
Item 2. Changes in Securities............................................................................9
Item 3. Defaults Upon Senior Securities..................................................................9
Item 4. Submission of Matters to a Vote of
Security Holders....................................................................9-10
Item 5. Other Information...............................................................................10
Item 6. Exhibits and Reports on Form 8-K................................................................10
SIGNATURES.......................................................................................................11
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<PAGE>
PART I. ITEM 1. - FINANCIAL INFORMATION
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
June 30, June 30,
1996 1995
---- ----
(Amounts in thousands)
ASSETS
<S> <C> <C>
Cash and due from banks $ 7,226 $ 6,366
Federal funds sold 3 3,285
Investment securities available for sale
(Amortized cost; $36,491 June 30, 1996;
$28,653 June 30, 1995) 36,126 28,298
Loans, net of allowance for credit losses
$886 June 30, 1996; $894 June 30, 1995 130,390 102,425
Bank premises and equipment 4,303 3,515
Interest receivable 1,296 964
Other assets 817 727
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Total Assets $180,161 $145,580
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LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits, non-interest bearing $ 22,500 $ 17,974
Deposits, interest bearing 140,641 113,817
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Total Deposits 163,141 131,791
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Short-term borrowings 1,240 1,000
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Interest, taxes and other liabilities 1,409 1,014
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Long-term borrowings 1,000 -0-
Total Liabilities 166,790 133,805
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STOCKHOLDERS' EQUITY
Common stock, $2.50 par value; 10,000,000
shares authorized; 1,219,468 issued and
outstanding 3,049 3,043
Surplus 5,160 5,120
Undivided profits 5,403 3,846
Unrealized gains (losses) on securities
available for sale, net of deferred taxes (241) (234)
-------- -------
Total Stockholders' Equity 13,371 11,775
-------- --------
Total Liabilities and Stockholders' Equity $180,161 $145,580
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</TABLE>
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<PAGE>
PART I. ITEM 1. - FINANCIAL INFORMATION
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
June 30, June 30,
1996 1995
---- ----
(Amounts in thousands, except per share data)
Interest Income
<S> <C> <C>
Interest and fees on loans $ 5,634 $ 4,479
Interest on securities available for sale:
Taxable 1,048 861
Exempt from taxable income 15 12
Interest on federal funds sold 131 60
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Total Interest Income 6,828 5,412
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Interest Expense
Interest on deposits 3,679 2,733
Interest on short-term borrowings 17 43
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Total Interest Expense 3,696 2,776
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Net Interest Income 3,132 2,636
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Provision for loan losses 135 76
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Net Interest Income After Provision Loan Losses 2,997 2,560
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Non-Interest Income
Securities gains (losses), net 23 -
Service charges on deposit accounts 207 172
Other fee income 22 50
Other operating income 61 13
-------- --------
Total Non-Interest Income 313 235
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Non-Interest Expense
Salaries and employee benefits 1,178 863
Occupancy expense of bank premises 433 344
Other operating expenses 548 572
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Total Non-Interest Expense 2,159 1,779
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Income Before Applicable Income Taxes 1,151 1,016
Income tax expense 377 351
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Net Income 774 665
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Net Income Per Share (Weighted Average Basis) $ .64 $ .55
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</TABLE>
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<PAGE>
PART I. ITEM 1. - FINANCIAL INFORMATION
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Six Months Six Months
Ended June Ended June
30, 1996 30, 1995
-------- --------
(Amounts in thousands)
Cash Flows From Operating Activities:
<S> <C> <C>
Net income $ 774 $ 665
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 135 76
Provision for deferred taxes (167) 442
Deferred compensation expense 31 1
Depreciation 115 71
Securities (gains) losses (23) -0-
Net amortization on securities 59 30
(Increase)decrease in interest receivable (228) (158)
(Increase)decrease in other assets 215 (5)
Increase (decrease) in interest, taxes
and other liabilities 5 149
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Net Cash Provided by Operating Activities 916 1,271
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Cash Flows From Investing Activities:
Securities available for sale:
Proceeds from sale of securities 4,569 1,314
Proceeds from maturities of debt securities 3,319 2,296
Purchase of securities (12,160) (3,764)
Net (increase) decrease in federal funds sold 5,532 (3,285)
Net increase in loans (17,555) (9,523)
Premises and equipment expenditures (72) (981)
----------- ----------
Net Cash Used in Investing Activities (16,367) (13,943)
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Cash Flows From Financing Activities:
Net increase in certificates of deposit 8,258 14,051
Net increase in demand, savings and other deposits 7,556 426
Proceeds from issuance of common stock 5 5
Maturity of short-term borrowings 1,240 673
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Net Cash Provided by Financing Activities 17,059 15,155
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Net Increase in Cash and Cash Equivalents 1,608 2,483
Cash and Cash Equivalents at Beginning of Year 5,618 3,883
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Cash and Cash Equivalents at End of Quarter $ 7,226 $ 6,366
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</TABLE>
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<PAGE>
PART I. ITEM 1. - FINANCIAL INFORMATION
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<CAPTION>
Unrealized Gain
(Loss) Securities
Undivided Available for
(Amounts in thousands) Common Stock Surplus Profits Sale
<S> <C> <C> <C> <C>
Balance, 01/01/95 $3,038 $5,116 $3,181 $(1,092)
Net income - - 665 -
Proceeds from sale of stock 5 4 - -
Stock options outstanding - - - -
Unrealized gains (losses) - - - 858
Balance, 06/30/95 $3,043 $5,120 $3,846 $(234)
------ ------ ------ ------
Balance, 01/01/96 $3,044 $5,120 $4,629 $ 18
Net Income - - 774 -
Proceeds from sale of stock 5 - - -
Stock options outstanding - 40 - -
Unrealized gains (losses) - - - (259)
Balance, 06/30/96 $3,049 $5,160 $5,403 $(241)
------ ------ ------ ------
</TABLE>
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<PAGE>
PART I. ITEM 2. - FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Highlands Bankshares, Inc., the "Company", was formed December 31, 1995 to
operate as a one-bank holding company. The Company acquired 100% of the common
stock of Highlands Union Bank, the "Bank", through this corporate restructure.
Therefore, all of the comparative material contained within this document is
made between Highlands Bankshares, Inc., at June 30, 1996, and Highlands Union
Bank, at June 30, 1995. The following discussion and analysis is provided to
address information about the Company's financial condition and results of
operations which 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 period ended June 30, 1996 reflected net income of
$774 thousand, an increase of 16.39% over net income reported for the
corresponding period in 1995. Operating results of the Company when measured as
a percentage of average equity reveals a decrease in returns on average equity
from 11.72% for the six-month period in 1995 to 11.42% for the corresponding
period in 1996. This decrease is the result of a $701 thousand average net
unrealized loss on available for sale securities offset to stockholders' equity
as of June 30, 1995 compared to a $71 thousand average net unrealized loss on
available for sale securities for the 1996 period. Return on average assets at
.90% also reflects a decrease from .98% for the same period in 1995. This
decrease on return on average assets is primarily due to the absorption of
additional operating costs associated with the opening of a new branch office in
December of 1995. Earnings per common share were $.64, increasing from $.55 for
the same period in 1995.
Net interest income for the six months ended June 30, 1996 increased 18.82%,
approximately $496 thousand over the comparable 1995 period. Average
interest-earning assets increased approximately $32.0 million from June 30, 1995
to the current period while average interest-bearing liabilities increased $29.2
million during the same comparative period. The yield on average
interest-earning assets increased 14 basis points to 8.28% in 1996 as compared
to 8.14% in 1995. The yield on average interest-bearing liabilities increased 24
basis points to 5.49% in 1996 as compared to 5.25% in 1995. This increase in
yield on interest-bearing liabilities is necessary to maintain depositors in
order to continue funding its large loan demand.
The second quarter provision for possible loan losses totaled $135 thousand, a
$59 thousand increase from the corresponding period in 1995. The Company
continually monitors the loan portfolio for signs of credit weakness or
developing collection problems. Levels for each period are determined after
evaluating the loan portfolio and determining the level necessary to absorb
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<PAGE>
current charge-offs and maintain the reserve at adequate levels. Net charge-offs
in the second quarter of 1996 were $157 thousand compared with $18 thousand in
1995. Net charge-offs were 12.04% of total loans for the quarter ended June 30,
1996 as compared to .02% for the 1995 quarter end. Loan loss reserves decreased
0.89% to $886 thousand at June 30, 1996. Reserves as of June 30, 1996 represent
.67% of total loans versus .87% for the 1995 period.
FINANCIAL POSITION
Total loans have increased from $103.3 million at June 30, 1995 to $131.3
million at June 30, 1996. The loan to deposit ratio has decreased from 77.72% at
June 30, 1995 to 79.92% at June 30, 1996. Loan demand continues at a high pace
even 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 $254 thousand at June 30, 1996, or 0.19% of total
loans, compared with $666 thousand, or 0.65% at June 30, 1995.
Securities totaled $36.1 million (market value) at June 30, 1996 which reflects
an increase of $7.8 million or 27.66% from the June 30, 1995 total of $28.3
million. The majority of this increase is in purchases of adjustable rate
securities in order to match the current volatile rate environment. Securities,
as of June 30, 1996, are comprised of U.S. Treasuries, approximately 6.88% of
the total securities portfolio, obligations of the U.S. Government and debt
securities, approximately 87.08% of the total securities portfolio, municipal
issues, approximately 3.68% of the securities portfolio, and equity securities,
approximately 2.35% of the securities portfolio. The Company's entire security
portfolio is classified as available for sale for both 1996 and 1995.
Total stockholders' equity of the Company was $13.4 million at June 30, 1996,
representing an increase of $1.6 million or 13.55% over June 30, 1995. The
fluctuations of market prices on available for sale securities causes the
significant variations of the stockholders' equity.
The Company maintains a significant level of liquidity in the form of cash and
cash balances ($7.2 million at June 30, 1996), overnight investment in Federal
Funds sold ($3 thousand at June 30, 1996) and investment securities available
for sale ($36.1 million). Both cash and Federal Funds Sold are immediately
available for satisfaction of deposit withdrawals, customer credit needs and
operations of the Company. Investment securities available for conversion to
liquid funds in the event of extraordinary needs.
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<PAGE>
HIGHLANDS BANKSHARES, INC.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
None.
Item 2. Changes in Securities
---------------------
(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 Stockholders was held on May 8,
1996.
(b) The following directors were elected to serve a
one-year term to the date of the 1997 Annual Meeting
of Stockholders:
Votes Votes
Director's Name Votes For Against Withheld
--------------- --------- ------- --------
James D. Morefield 836,725 200 2,386
James D. Moore, Jr. 836,925 0 2,386
J. Carter Lambert 836,725 200 2,386
Clydes B. Kiser 836,925 0 2,386
William E. Chaffin 836,725 200 2,386
William J. Singleton 836,925 0 2,386
Verne D. Kendrick 836,725 200 2,386
Charles P. Olinger 836,925 0 2,386
H. Ramsey White, Jr. 836,925 0 2,386
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<PAGE>
(c) N/A
(d) N/A
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) N/A
(b) N/A
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on it's behalf by the
undersigned thereunto duly authorized.
Highlands Bankshares, Inc.
Date: August 12, 1996 /s/ Samuel L. Neese
______________________ ___________________________________
Samuel L. Neese
Executive Vice President &
Chief Executive Officer
(Duly Authorized Officer)
Date: August 12, 1996 /s/ James T. Riffe
______________________ ___________________________________
James T. Riffe
Executive Vice President &
Chief Operations Officer
(Principal Accounting Officer)
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<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1996
<CASH> 7,226
<INT-BEARING-DEPOSITS> 140,641
<FED-FUNDS-SOLD> 3
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 36,126
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 131,276
<ALLOWANCE> 886
<TOTAL-ASSETS> 180,161
<DEPOSITS> 163,141
<SHORT-TERM> 1,240
<LIABILITIES-OTHER> 1,409
<LONG-TERM> 1,000
0
0
<COMMON> 3,049
<OTHER-SE> 10,332
<TOTAL-LIABILITIES-AND-EQUITY> 180,161
<INTEREST-LOAN> 5,634
<INTEREST-INVEST> 1,194
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 6,828
<INTEREST-DEPOSIT> 3,679
<INTEREST-EXPENSE> 3,696
<INTEREST-INCOME-NET> 3,132
<LOAN-LOSSES> 135
<SECURITIES-GAINS> 23
<EXPENSE-OTHER> 2,159
<INCOME-PRETAX> 1,151
<INCOME-PRE-EXTRAORDINARY> 774
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 774
<EPS-PRIMARY> .64
<EPS-DILUTED> .60
<YIELD-ACTUAL> 8.50
<LOANS-NON> 60
<LOANS-PAST> 194
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 908
<CHARGE-OFFS> 166
<RECOVERIES> 9
<ALLOWANCE-CLOSE> 886
<ALLOWANCE-DOMESTIC> 886
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
