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Table of Contents
 
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 September 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
(State or Other Jurisdiction of
Incorporation or Organization)
  
54-1796693
(I.R.S. Employer
Identification No.)
 
P.O. Box 1128
Abingdon, Virginia
(Address of Principal Executive Offices)
  
24212-1128
(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 October 10, 2002.
 
2,647,057 shares of common stock, par value $1.25 per share
 

Table of Contents
 
HIGHLANDS BANKSHARES, INC.
 
FORM 10-Q
For the Quarter Ended September 30, 2002
 
INDEX
 
    
Reference
PART I.  FINANCIAL INFORMATION
     
Item 1.
   
Financial Statements
     
       
3
       
4
       
5
       
6
       
7
Item 2.
      
9-11
Item 3.
      
11-12
Item 4.
      
12
PART II.  OTHER INFORMATION
     
Item 1.
      
13
Item 2.
      
13
Item 3.
      
13
Item 4.
      
13
Item 5.
      
13
Item 6.
      
13
  
S-1-5

2

Table of Contents
 
PART 1.    ITEM 1.—FINANCIAL INFORMATION
 
CONSOLIDATED BALANCE SHEETS
(in thousands)
 
    
September 30,
2002
   
December 31,
2001
ASSETS
              
Cash and due from banks
   
$
11,584
   
$
10,921
Federal funds sold
   
 
7,967
   
 
1,320
    
  
Total Cash and Cash Equivalents
   
$
19,551
   
$
12,241
    
  
Investment Securities available for sale
   
 
101,219
   
 
98,299
(amortized cost $99,352 as of September 30, 2002, $99,934 as of December 31, 2001)
              
Other Investments
   
 
2,182
   
 
1,971
Loans (net of allowance for loan losses of $3,838 September 30, 2002, $3,418 December 31, 2001)
   
 
331,690
   
 
322,042
Premises and Equipment, net
   
 
12,787
   
 
12,900
Interest Receivable
   
 
2,853
   
 
2,904
Other Assets
   
 
10,719
   
 
3,388
    
  
Total Assets
   
$
481,001
   
$
453,745
    
  
LIABILITIES AND STOCKHOLDERS’ EQUITY
              
Deposits
              
Noninterest bearing
   
$
58,765
   
$
50,248
Interest bearing
   
 
347,389
   
 
341,845
    
  
Total Deposits
   
$
406,154
   
$
392,093
    
  
Interest, taxes and other liabilities
   
$
2,629
   
$
3,217
Other short term borrowings
   
 
19,142
   
 
13,000
Long-term debt
   
 
14,235
   
 
10,483
Capital Securities
   
 
7,500
   
 
7,500
    
  
    
$
43,506
   
$
34,200
    
  
Total Liabilities
   
$
449,660
   
$
426,293
    
  
STOCKHOLDERS’ EQUITY
              
Common Stock (2,647,057 and 2,643,597 shares issued and outstanding, respectively)
   
$
3,309
   
$
3,304
Additional paid-in capital
   
 
6,142
   
 
6,063
Retained Earnings
   
 
20,657
   
 
17,863
Accumulated other comprehensive income
   
 
1,233
   
 
222
    
  
Total Stockholders’ Equity
   
$
31,341
   
$
27,452
    
  
Total Liabilities and Stockholders’ Equity
   
$
481,001
   
$
453,745
    
  
 
See accompanying notes to Consolidated Financial Statements and Accountants Report

Table of Contents
 
PART 1.    ITEM 1.—FINANCIAL INFORMATION
 
CONSOLIDATED STATEMENTS OF INCOME
 
    
Quarter Ended September 30,
2002
   
Quarter Ended
September 30,
2001
     
Nine Months Ended
September 30,
2002
     
Nine Months Ended
September 30,
2001
    
(In thousands, except per share data)
INTEREST INCOME
                                
Loans receivable and fees on loans
   
$
6,510
   
$
6,928
     
$
19,669
     
$
20,681
Securities available for sale
                                
Taxable
   
 
747
   
 
972
     
 
2,573
     
 
3,061
Exempt from taxable income
   
 
446
   
 
265
     
 
1,042
     
 
749
Federal funds sold
   
 
32
   
 
79
     
 
68
     
 
255
    
  
    
    
Total Interest Income
   
$
7,735
   
$
8,244
     
$
23,352
     
$
24,746
    
  
    
    
INTEREST EXPENSE
                                
Deposits
   
$
2,889
   
$
4,206
     
$
8,974
     
$
12,970
Federal funds purchased
   
 
—  
   
$
1
     
 
3
     
 
1
Other borrowed funds
   
 
634
   
 
549
     
 
1,836
     
 
1,611
    
  
    
    
Total interest expense
   
$
3,523
   
$
4,756
     
$
10,813
     
$
14,582
    
  
    
    
Net interest income
   
$
4,212
   
$
3,488
     
$
12,539
     
$
10,164
    
  
    
    
PROVISION FOR LOAN LOSSES
   
$
387
   
$
253
     
$
1,374
     
$
1,006
    
  
    
    
Net interest income after allowance for loan losses
   
$
3,825
   
$
3,235
     
$
11,165
     
$
9,158
    
  
    
    
NON-INTEREST INCOME
                                
Securities gains (losses), net
   
$
14
   
$
150
     
$
17
     
$
409
Service charges on deposit accounts
   
 
709
   
 
555
     
 
1,899
     
 
1,630
Other service charges, commissions and fees
   
 
148
   
 
152
     
 
484
     
 
439
Other operating income, rents
   
 
196
   
 
13
     
 
244
     
 
87
    
  
    
    
Total Non-Interest Income
   
$
1,067
   
$
870
     
$
2,644
     
$
2,565
    
  
    
    
NON-INTEREST EXPENSES
                                
Salaries and employee benefits
   
$
1,767
   
$
1,661
     
$
5,335
     
$
4,720
Occupancy expense of bank premises
   
 
148
   
 
161
     
 
440
     
 
430
Furniture and equipment expense
   
 
491
   
 
343
     
 
1,337
     
 
1,100
Other operating expenses
   
 
1,012
   
 
742
     
 
2,600
     
 
2,229
    
  
    
    
Total Non-Interest Expenses
   
$
3,418
   
$
2,907
     
$
9,712
     
$
8,479
    
  
    
    
Income Before Income Taxes
   
$
1,474
   
$
1,198
     
$
4,097
     
$
3,244
Income Tax Expense
   
 
362
   
 
314
     
 
1,065
     
 
851
    
  
    
    
Net Income
   
$
1,112
   
$
884
     
$
3,032
     
$
2,393
    
  
    
    
Basic Earnings Per Common Share Weighted Average
   
$
0.42
   
$
0.33
     
$
1.15
     
$
0.91
    
  
    
    
Earnings Per Common Share—assuming dilution
   
$
0.40
   
$
0.32
     
$
1.09
     
$
0.87
    
  
    
    
 
See accompanying notes to Consolidated Financial Statements and Accountants Report

Table of Contents
 
PART 1.    ITEM 1.—FINANCIAL INFORMATION
 
CONSOLIDATED STATEMENTS OF INCOME
(In thousands)
 
      
Nine Month Period Ended
September 30, 2002
       
Nine Month Period Ended September 30, 2001
  
CASH FLOWS FROM OPERATING ACTIVITIES:
                      
Net income
     
$
3,032
 
     
$
2,393
 
Adjustments to reconcile net income to net cash provided by operating activities:
                      
Provision for loan losses
     
 
1,374
 
     
 
1,006
 
Depreciation and Amortization
     
 
760
 
     
 
636
 
Net realized (gains) losses on available for sale securities
     
 
(17
)
     
 
(409
)
Net amortization on securities
     
 
118
 
     
 
(15
)
Amortization of Capital Issue costs
     
 
8
 
     
 
8
 
(Increase) decrease in interest receivable
     
 
51
 
     
 
(127
)
Increase in other assets
     
 
(7,906
)
     
 
(431
)
Decrease in interest, taxes and other liabilities
     
 
(588
)
     
 
(312
)
      
    
Net Cash Provided by and (used in) Operating Activities
     
$
(3,168
)
     
$
2,749
 
      
    
CASH FLOWS FROM INVESTING ACTIVITIES:
                      
Securities available for sale: