Highlands Bankshares (HBSI) 8-K Results of Operations and Financial Condition

Page 2

Exhibit 99.1

Dear Shareholder,

Please find enclosed Highlands’ dividend payment for the first quarter of 2006.

In an effort to improve communication to you ,the shareholder, and give you a better idea of our ongoing performance, we’ve made some changes in our dividend procedure. The first of these changes is the inclusion of this short informational pamphlet which highlights our financial performance. Our plan is to include a similar communication with each future dividend payment. The second change is that we have moved up our dividend payment dates. Historically, we have paid dividends for a quarter on the last day of the quarter, or, in the case of the fourth quarter, on December 15. The inclusion of added communication with the dividend payment required that, to deliver our shareholders more timely information, we accelerate dividend payments to the middle of the quarter instead of the end of the quarter. Our hope is that these changes will be of benefit to you, our shareholders.

As you can see from the information at the right, your Company completed a successful 2006. Net income for the year increased 18.75% as compared to last year, and for the third consecutive year represented record net income for Highlands Bankshares. Return on Average Equity and Return on Average Assets also increased for the third consecutive year.

Total assets increased 5.85% from December 31, 2005 to December 31, 2006, and the Company continues to maintain a strong capital base.

We would also like to take this opportunity to thank all the employees of the organization for their efforts throughout the year as they are an integral part of our success.

As always, we will strive during 2007 and future periods to continue the success shown in 2006.

Sincerely,

/s/ C.E. Porter

C.E. Porter

President & Chief Executive Officer

The table below provides financial highlights of Highlands Bankshares, Inc. for the past five years:

	Years Ending December 31,
	(dollar amount in thousands, except per share amounts)
Summary of Results of Operations	2006			2005			2004			2003			2002
Total Interest Income	$	23,894		$	19,813		$	17,729		$	18,283		$	18,970
Total Interest Expense		7,909			5,761			4,711			6,338			7,705
Net Interest Income		15,985			14,052			13,018			11,945			11,265
Provision for Loan Losses		682			875			920			1,820			820
Net Interest Income After Provision for Loan Losses		15,303			13,177			12,098			10,125			10,445
Other Income		2,023			1,669			1,597			1,367			1,304
Other Expense		10,420			9,128			8,938			8,247			8,048
Income Before Income Taxes		6,906			5,718			4,757			3,245			3,701
Income Tax Expense		2,391			1,916			1,551			1,012			1,179
Net Income	$	4,515		$	3,802		$	3,206		$	2,233		$	2,522
Per Share of Common Stock
Net Income	$	3.14		$	2.65		$	2.23		$	1.55		$	1.73
Dividends	$	.94		$	.82		$	.63		$	.56		$	.51
Return on Average Assets		1.29	%		1.21	%		1.07	%		.73	%		.89	%
Return on Average Equity		12.67	%		11.53	%		10.36	%		7.60	%		8.87	%

	Balances at December 31,
Selected Balance Sheet Data	2006		2005		2004		2003		2002
Total Assets	$	357,316	$	337,573	$	299,992	$	301,168	$	296,672
Total Shareholders’ Equity		37,076		33,992		31,655		29,549		28,365
Smith Elliott Kearns & Company, LLC, Highlands’ Registered Independent Certified Public Accounts, as of February 14, 2007 had not issued an opinion letter relating to its audit of Highlands’ 2006 results of operations or balance sheet as of December 31, 2006. Therefore, the results of operations for 2006 and asset, liability and capital totals for December 31, 2006 contained in the table above should not be construed as audited results.

Stock transfers and inquiries should be addressed to our transfer agent at:

Registrar & Transfer Company

10 Commerce Drive

Cranford, New Jersey 07016-3572

Telephone: 1-800-368-5948

Inquiries regarding the information contacted herein, or requests for copies of the Company’s SEC filings or Annual Reports to Shareholders should be addressed to:

Highlands Bankshares, Inc.

Attn: Alan Miller

P.O. Box 929 Petersburg, WV 26847

Telephone 304-257-4111