Highlands Bancorp, Inc. Reports Enhanced Results for the Quarter and Year Ended December 31, 2012

Highlands Bancorp, Inc. (OTC BB: HSBK.OB) parent company of Highlands State Bank, reported fourth quarter net income of $1,012,000 in 2012 compared to net income of $798,000 for the same period of 2011. Fourth quarter net income available to common stockholders was $995,000 or $.56 per diluted share in 2012 compared to $770,000 or $.43 per diluted share for the same period in 2011. Net income for the full year 2012 was $1,548,000 compared to $1,534,000 for the full year 2011. Net income available to common stockholders for the full year 2012 was $1,485,000 or $.83 per diluted share compared to $1,192,000 or $.67 per diluted share for the year of 2011. The quarterly and annual results for both 2012 and 2011 were positively impacted by partial reversals of the Company’s valuation allowance on deferred tax assets which resulted in tax benefits of $640,000 or $.36 per share for 2012, and $480,000 or $.27 per share for 2011.

Net interest income increased by $350,000 to $1,989,000 for the fourth quarter of 2012 compared to net interest income of $1,639,000 for the fourth quarter of 2011. For the year ended December 31, 2012, net interest income increased to $7,237,000 from $6,364,000 for 2011 as a result of loan portfolio growth and a lower cost of funds. The provision for loan losses was $373,000 for the quarter and $1,077,000 for the year ended December 31, 2012. In 2011, the Company’s provision totaled $35,000 and $397,000 for the fourth quarter and year respectively. The increase in the provision for loan losses reflects increased loan growth in 2012 over 2011. Loans increased $29.8 million in 2012 compared to $10.7 million in 2011. The increased provisions for 2012 also reflect increased charge-offs for 2012 over 2011. Charge-offs for the year ended December 31, 2012 were $564,000 compared to charge-offs of $73,000 in 2011. Recoveries of previously charged off loans totaled $34,000 in 2012, compared to $66,000 in 2011. The ratio of non-performing loans to total loans declined to 4.18% at year end 2012 from 5.20% at year end 2011.

Non-interest income increased by $29,000 for the quarter and $38,000 for the year ended December 31, 2012 compared to similar periods of 2011 as a result of increased insufficient fund, loan prepayment penalty, wire transfer, and escrow agent fees, partially offset by lower gains from sales of investment securities. Non-interest expenses declined by $13,000 for the fourth quarter of 2012 compared to the same period in 2011 due to lower rent expense, fixed asset depreciation, audit, consulting, loan, and OREO costs. Non-interest expenses increased by $377,000 for the year ended December 31, 2012 compared to 2011 primarily due to higher employee salary and benefit costs resulting from additions made to staff, and from increases in data processing, board of directors fees, and OREO costs.

Total assets at Highlands State Bank were $193.1 million on December 31, 2012, an increase of $27.1 million from $166.0 million on December 31, 2011. Deposits increased $25.9 million from $141.0 on December 31, 2011 to $166.9 million on December 31, 2012. Net loans outstanding increased to $160.5 million as of December 31, 2012 from $131.3 million the previous year end. The allowance for loan and lease losses increased $547,000 to $2.6 million at the end of 2012 compared to $2.1 million on December 31, 2011.

Forward-Looking Statements

This news release contains certain forward-looking statements, either expressed or implied, which are provided to assist the reader in understanding anticipated future financial performance. These statements involve certain risks, uncertainties, estimates and assumptions made by management, which are subject to factors beyond the company’s control and could impede its ability to achieve these goals. These factors include general economic conditions, trends in interest rates, the ability of our borrowers to repay their loans, and results of regulatory exams, among other factors.