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<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">CURRENT REPORT</font></div>

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<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Date of Report <font style="DISPLAY: inline; FONT-SIZE: 10pt">(Date of earliest event reported)</font>:&#160;&#160;<font style="DISPLAY: inline; FONT-WEIGHT: bold">October 13, 2010</font></font></div>

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<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 12pt; FONT-FAMILY: Times New Roman">HIGHLANDS BANKSHARES, INC.</font></div>

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<td align="left" valign="top" width="24%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160; </font></td>
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<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">340 West Main Street</font></div>

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<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><font id="TAB1" style="MARGIN-LEFT: 18pt"></font><font style="DISPLAY: inline;" face="Wingdings">o</font>&#160;&#160;&#160;&#160;&#160;&#160;Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)</font></div>

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<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Item 1.01&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;Entry into a Material Definitive Agreement.</font></div>

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<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">On October 13, 2010, Highlands Bankshares, Inc. (the &#8220;Company&#8221;) and its wholly-owned subsidiary, Highlands Union Bank (the &#8220;Bank&#8221;), entered into a written agreement (&#8220;Written Agreement&#8221;) with the Federal Reserve Bank of Richmond (the &#8220;Reserve Bank&#8221;).&#160;&#160;A copy of the Written Agreement is filed as Exhibit 10.1 to this Current Report and is incorporated herein by reference.</font></div>

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<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Under the terms of the Written Agreement, the Bank has agreed to develop and submit to the Reserve Bank for approval within the time periods specified therein written plans or programs to:</font></div>

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<div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">strengthen board oversight of the management and operations of the Bank;</font></div>
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<div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">strengthen credit risk management and administration;</font></div>
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<div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">provide for the effective grading of the Bank&#8217;s loan portfolio;</font></div>
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<div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">summarize the findings of its review of the adequacy of the staffing of its loan review function;</font></div>
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<div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">improve the Bank&#8217;s position with respect to loans, relationships, or other assets in excess of $500,000 that currently are or in the future become past due more than 90 days, on the Bank&#8217;s problem loan list, or adversely classified in any report of examination of the Bank;</font></div>
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<div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">review and revise the Bank&#8217;s methodology for determining the allowance for loan and lease losses (&#8220;ALLL&#8221;) and maintain an adequate ALLL;</font></div>
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<div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">maintain sufficient capital at the Company and the Bank;</font></div>
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<div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">establish a revised written contingency funding plan;</font></div>
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<div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">establish a revised investment policy;</font></div>
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<div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">improve the Bank&#8217;s earnings and overall condition;</font></div>
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<div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">revise the Bank&#8217;s information technology program; and</font></div>
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<div style="MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">establish a disaster recovery and business continuity program.</font></div>
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<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In addition, the Bank has agreed that it will eliminate from its books all assets or portions of assets classified &#8220;loss&#8221; in its report of examination and that it will not extend, renew or restructure any credit that has been criticized by the Reserve Bank absent prior approval by the board of directors consistent with the requirements of the Written Agreement.</font></div>

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<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Further, both the Company and the Bank have agreed to refrain from declaring or paying dividends without prior regulatory approval.&#160;&#160;The Company has agreed that it will not take any other form of payment representing a reduction in Bank&#8217;s capital or make any distributions of interest, principal or other sums on subordinated debentures or trust preferred securities without prior regulatory approval.&#160;&#160;The Company also has agreed not to incur, increase or guarantee any debt or not to purchase or redeem any shares of its stock without prior regulatory approval.</font></div>

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<div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The directors of the Company and the Bank have recognized and unanimously agree with the common goal of financial soundness represented by the Written Agreement and have</font></div>

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f8khighlands.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report
(Date of earliest event reported)
:
October 13, 2010
___________
HIGHLANDS BANKSHARES, INC.
(Exact name of registrant as specified in its charter)
Virginia
(State or other jurisdiction
of incorporation)
0-27622
(Commission File Number)
54-1796693
(IRS Employer
Identification No.)
340 West Main Street
Abingdon, Virginia
(Address of principal executive offices)
24210-1128
(Zip Code)
Registrant's telephone number, including area code:
(276) 628-9181
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 1.01                      Entry into a Material Definitive Agreement.
On October 13, 2010, Highlands Bankshares, Inc. (the "Company") and its wholly-owned subsidiary, Highlands Union Bank (the "Bank"), entered into a written agreement ("Written Agreement") with the Federal Reserve Bank of Richmond (the "Reserve Bank").  A copy of the Written Agreement is filed as Exhibit 10.1 to this Current Report and is incorporated herein by reference.
Under the terms of the Written Agreement, the Bank has agreed to develop and submit to the Reserve Bank for approval within the time periods specified therein written plans or programs to:
●
strengthen board oversight of the management and operations of the Bank;
●
strengthen credit risk management and administration;
●
provide for the effective grading of the Bank's loan portfolio;
●
summarize the findings of its review of the adequacy of the staffing of its loan review function;
●
improve the Bank's position with respect to loans, relationships, or other assets in excess of $500,000 that currently are or in the future become past due more than 90 days, on the Bank's problem loan list, or adversely classified in any report of examination of the Bank;
●
review and revise the Bank's methodology for determining the allowance for loan and lease losses ("ALLL") and maintain an adequate ALLL;
●
maintain sufficient capital at the Company and the Bank;
●
establish a revised written contingency funding plan;
●
establish a revised investment policy;
●
improve the Bank's earnings and overall condition;
●
revise the Bank's information technology program; and
●
establish a disaster recovery and business continuity program.
In addition, the Bank has agreed that it will eliminate from its books all assets or portions of assets classified "loss" in its report of examination and that it will not extend, renew or restructure any credit that has been criticized by the Reserve Bank absent prior approval by the board of directors consistent with the requirements of the Written Agreement.
Further, both the Company and the Bank have agreed to refrain from declaring or paying dividends without prior regulatory approval.  The Company has agreed that it will not take any other form of payment representing a reduction in Bank's capital or make any distributions of interest, principal or other sums on subordinated debentures or trust preferred securities without prior regulatory approval.  The Company also has agreed not to incur, increase or guarantee any debt or not to purchase or redeem any shares of its stock without prior regulatory approval.
The directors of the Company and the Bank have recognized and unanimously agree with the common goal of financial soundness represented by the Written Agreement and have
confirmed the intent of the directors and executive management to diligently seek to comply with all requirements of the Written Agreement.
The foregoing description of the Written Agreement is a summary and does not purport to be a complete description of all of the terms of such agreement and is qualified in its entirety by reference to the copy of the Written Agreement filed with this Current Report.
Item 9.01.                    Financial Statements and Exhibits.
(d)                 Exhibits.
Exhibit No.
Description
10.1
Written Agreement by and among Highlands Bankshares, Inc.,
Highlands Union Bank, and the Federal Reserve Bank of
Richmond, dated October 13, 2010.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
HIGHLANDS BANKSHARES, INC.
(Registrant)
Date: October 19, 2010
By:
/s/ James R. Edmondson
James R. Edmondson
Vice President of Accounting
EXHIBIT INDEX
Exhibit No.
Description
10.1
Written Agreement by and among Highlands Bankshares, Inc.,
Highlands Union Bank, and the Federal Reserve Bank of
Richmond, dated October 13, 2010.