U. S. Securities and Exchange Commission
                             Washington, D. C. 20549

                                   FORM 10-QSB

                   Quarterly Report Under Section 13 or 15 (d)
                     of The Securities Exchange Act of 1934

                For the Quarterly period Ended September 30, 1998

                        Commission file Number 000-24933

                             Heritage Bancorp, Inc.
             (Exact Name of Registrant As Specified In Its Charter)


           VIRGINIA                                               54-1914902
(State or Other Jurisdiction of                               (I.R.S. Employer
Incorporation of Organization)                               Identification No.)

 1313 Dolley Madison Blvd., McLean, Va.                    22101
(Address of Principal Executive Offices)                 (Zip Code)

                          REGISTRANT'S TELEPHONE NUMBER
                                  703-356-6060


                                       N/A

                  (Former Name, Former Address and Former Year,
                          If Changed Since Last Report)



              INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS
        FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF
                      EXCHANGE ACT DURING THE PRECEDING 12
             MONTHS (OF 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
                            -----     -----


           COMMON SHARES OUTSTANDING AS OF October 9, 1998: 2,294,617

<PAGE>
                                      INDEX
                               THE HERITAGE BANK

Part 1 Financial Information                                               Page

       Item 1 Financial Statements
              Balance Sheets
                September 30, 1998 and December 31, 1997                    3

              Statement of income
                Three months ended September 30, 1998 and 1997              4
                Nine months ended September 30, 1998 and 1997               5

              Statement of Stockholders Equity
                Nine months ended September 30, 1998 and 1997               6
   
              Statement of Cash Flows
                Nine months ended September 30, 1998 and 1997               7

                Notes to Financial Statements                               8

     Item 2. Managements Discussion and Analysis of
                Financial Condition and Results of operation                9
                 and Selected Financial Data

Part II. Other Information:                                                17

         Item 1. Legal Proceedings
         Item 2. Changes in Securities and Use of Proceeds
         Item 3. Defaults Upon /Senior Securities
         Item 4. Submission of Matters to a Vote of Security Holders
         Item 5. Other Information
         Item 6. Exhibits and Reports on Form 8-K



                                       2
<PAGE>
<TABLE>
ITEM I.

Part I. Financial Information

                                                  THE HERITAGE BANK
                                               STATEMENT OF CONDITION
                                              (in thousands, unaudited)



<CAPTION>
ASSETS                                                               SEPT. 30,1998                   DECEMBER 31, 1997
                                                                  ------------------                 -----------------
<S>                                                                       <C>                               <C>    
Cash and due from banks                                                   $ 1,517                           $ 1,987
Federal Funds Sold                                                          4,250                             7,600

   Total Cash and Due From Banks                                            5,767                             9,587

Securities available for sale                                              20,967                            11,794
Securities held to maturity                                                     0                               250

Loans, Net                                                                 27,056                            22,756

Premises and Equipment, Net                                                   346                               379
Other Real Estate Owned                                                       263                               263
Accrued Int and other Assets                                                  795                            $  421

TOTAL ASSETS                                                              $55,194                          $ 45,450


LIABILITIES

Noninterest bearing deposits                                             $ 10,366                          $ 11,856
Interest bearing deposits                                                  33,787                            28,748
   TOTAL DEPOSITS                                                          44,153                            40,604

Repurchase agreements                                                       1,922                                 0
Other liabilities                                                             118                               116
   TOTAL LIABILITIES                                                       46,193                            40,720


CAPITAL
Common Stock                                                                2,295                             1,490
Surplus                                                                     6,530                             3,327
Undivided profits                                                              57                              -105
Accumulated other comprehensive
income net                                                                    119                                18
   TOTAL CAPITAL                                                            9,001                             4,730


TOTAL CAPITAL AND LIABILITIES                                            $ 55,194                          $ 45,450

Notes to financial statements are an
integral part of these statements. 


                                       3
<PAGE>

                                     THE HERITAGE BANK
                                  STATEMENTS OF OPERATION
                          Third Quarter Ending September 30, 1998

<CAPTION>


INTEREST INCOME                                  3rd Quarter 1998        3rd quarter 1997
                                                 ----------------        ----------------

Loans                                               $   616,000               $   564,000
Securities                                              315,000                   197,000
Federal Funds Sold                                       74,000                    51,000
                                                    -----------               -----------
  Total interest income                             $ 1,005,000               $   812,000

INTEREST EXPENSE

Interest checking deposit                                34,000                    27,000
Other time deposit                                      232,000                   210,000
Cert.of deposit $100,000 or more                         57,000                    36,000
Repurchase agreements                                    17,000                     3,000
                                                    -----------               -----------
   Total interest expense                               340,000                   276,000

Net interest income                                     665,000                   536,000

Provision for loan losses                                98,000                        (7)
                                                    -----------               -----------

Net interest income after
provision for loan losses                               567,000                   543,000

OTHER INCOME

Service charges on deposit accounts                      27,000                    21,000
Other operating income, net                               8,000                     8,000
Gain or loss on sale of securities                            0                         0
                                                    -----------               -----------
   Total other income                                    35,000                    29,000

OTHER EXPENSES

Salaries and employee benefits                          267,000                   229,000
Occupancy expense                                        71,000                    55,000
Equipment expense                                        19,000                    24,000
Other operating expenses                                283,000                   159,000
                                                    -----------               -----------
   Total other expenses                                 640,000                   467,000

Income before income taxes                              (38,000)                  105,000

Income tax                                                1,000                     1,000
                                                    -----------               -----------

NET INCOME                                          $   (39,000)              $   104,000
                                                    ===========               ===========

Basic income per share                              $     (0.02)              $      0.08

Diluted income per share                            $     (0.02)              $      0.08

Weighted avg shares outstanding                       2,294,617                 1,249,634




Notes to financial statements are an integral part of these statements.



                                            4

<PAGE>
                                                  THE HERITAGE BANK
                                               STATEMENTS OF OPERATION
                                        Nine Months Ending September 30, 1998


<CAPTION>

INTEREST INCOME                                                          SEPT. 30, 1998               SEPT 30, 1997

Loans                                                                        $1,746,000                  $1,737,000
Securities                                                                      801,000                     599,000
Federal Funds Sold                                                              212,000                      97,000
                                                                             ----------                 -----------
  Total interest income                                                      $2,759,000                 $ 2,433,000

INTEREST EXPENSE

Interest checking deposits                                                       98,000                      84,000
Other time deposit                                                              652,000                     632,000
Cert. of deposit $100,000 or more                                               147,000                     109,000
Repurchase agreements                                                            24,000                       4,000
                                                                             ----------                 -----------
   Total interest expense                                                       921,000                     829,000

Net interest income                                                           1,838,000                   1,604,000

Provision for loan losses                                                       102,000                           0
                                                                             ----------                 -----------

Net interest income after
provision for loan losses                                                     1,736,000                   1,604,000

OTHER INCOME

Service charges on deposit accounts                                              80,000                      67,000
Other operating income, net                                                      23,000                      29,000
Gain or loss on sale of securities                                               (1,000)                          0
                                                                             ----------                 -----------
   Total other income                                                           102,000                      96,000
OTHER EXPENSES

Salaries and employee benefits                                                  792,000                     708,000
Occupancy expense                                                               158,000                     161,000
Equipment expense                                                                53,000                      67,000
Other operating expenses                                                        670,000                     451,000
                                                                             ----------                 -----------
   Total other expenses                                                       1,673,000                   1,387,000
Income before income taxes                                                      165 000                     313,000
Income tax                                                                        3,000                       8,000
                                                                             ----------                 -----------
NET INCOME                                                                     $162,000                   $ 305,000
                                                                             ==========                 ===========

Basic income per share                                                           $ 0.09                       $0.24

Diluted income per share                                                         $ 0.08                       $0.24

Weighted average shares outstanding basic.                                    1,890,666                   1,249,634

Weighted average shares outstanding, assuming
dilution.                                                                     1,894,639                   1,263,988


Notes to financial statements are an integral part of these statements

                                                         5
<PAGE>

THE HERITAGE BANK
Statement of Change in Stockholder's Equity
For Nine Months Ended Sept. 30, 1998 and Sept. 30 1997
(Dollars in Thousands,unaudited)
<CAPTION>

                                                                                               Accumulated
                                                                                                     other
                                                                    Comprehensive  etained   comprehensive                  Capital
                                                             Total         income  arnings          income  Common stock    surplus
                                                             -----         ------  -------          ------  ------------    -------
Balances January 1 1997
                                                           $ 3,543                 $  (676)           $  2       $ 1,250    $ 2,967
Comprehensive income
  Net income                                                   305           $305      305               -             -          -
  Other comprehensive income net of tax                          -              -        -               -             -          -
  Unrealized gain(loss) on securities available for
     sale                                                       38             38        -              38             -          -
  Unrealized holding gain(loss) arising during period            -              -        -               -             -          -
  Less reclassification adjustment                               -              -        -               -             -          -
  Other comprehensive income, net of tax                        38             38        -              38             -          -
                                                           -------          -----  ------              ---       -------    -------
  Total comprehensive income                                   343           $343        -            $                -          -
                                                           =======          =====  =======            ====       =======    =======
Balances Sept. 30, 1997                                     $3,886                 $  (371)           $ 40       $ 1,250    $ 2,967
                                                           =======                 =======            ====       =======    =======

Balances January 1 1998
                                                           $ 4,730                 $  (105)            $18       $ 1,490    $ 3,327
Comprehensive income
  Net income                                                   162           $162      162               -             -          -
  Other comprehensive income net of tax                          -              -        -               -             -          -
  Unrealized gain(loss) on securities available for            157            157        -             157             -          -
     sale
  Unrealized holding gain(loss) arising during period            1              1        -               1             -          -
  Less reclassification adjustment                              57             57        -              57             -          -
                                                           -------          -----  ------              ---       -------    -------
  Other comprehensive income, net of tax                       101            101        -             101             -          -
  Total comprehensive income                                 $ 263           $263                                      -          -
                                                           =======           ====  =======            ====       =======    =======
Issuance of common stock                                   $ 4,108              -                        -         $ 805    $ 3,303
                                                           -------          -----  ------              ---       -------    -------
Balances June 30, 1998                                     $ 9,001                    $ 57            $119       $ 2,295    $ 6,530
                                                           =======                 =======            ====       =======    =======


                                                         6

<PAGE>


THE HERITAGE BANK
Statement of Cash Flows
(In Thousands of Dollars)
<CAPTION>

                                                        Sept. 30 1998         Sept. 30 1997
                                                        -------------         -------------
Cash Flows From Operating Activities
 Net income                                                $    162              $    305
 Adjustments to reconcile net income(loss) to net
   cash provided by (used in) operating activities
     Provision for loan losses                                  102                     0
     Depreciation and amortization                               35                    30
     Gain on sale of available-for-sale investments              (1)                    0
     Amortization of investment security
      premiums, net of discount                                  26                    24
    (Increase)decrease in accrued interest and
      other assets                                             (446)                   (5)
    (Increase)Decrease in accrued interest and other
     liabilities                                                  2                   (30)
                                                           --------              --------
      Net cash provided by(used in) operating activities   $   (120)             $    324
                                                           --------              --------


Cash Flows From Investing Activities
  Maturities of securities available-for-sale              $  7,000              $    750
  Maturities of securities held-to-maturity                     250                     0
  Purchases of securities available-for-sale                (16,524)               (5,010)
  Proceeds from sale of securities available-for-sale           499                 4,500
  Increase(decrease) in loans                                (4,402)                1,567
  Purchase of premises and equipment                             (2)                  (73)
                                                           --------              --------
     Net cash provided by (used in) investing activities   $(13,179)             $  1,734
                                                           --------              --------


Cash Flows From Financing Activities
  (decrease) in non interest-bearing deposits              $ (1,490)             $    684
  Increase(Decrease)in certif of deposits and savings         5,039                (3,408)
  Increase in securities sold under repurchase agreement      1,922                   586
  Issuance of common stock                                    4,008                  --
                                                           --------              --------
     Net cash provided by (used in) financing activities   $  9,479              $ (2,138)
                                                           --------              --------

     Net change in cash and cash equivalents                 (3,820)             $    (80)

Cash and cash equivalents, beginning of year                  9,587                 6,679
                                                           --------              --------

Cash and cash equivalents, end of period                   $  5,767              $  6,599
                                                           ========              ========
</TABLE>

                                                         7

<PAGE>
<TABLE>

THE HERITAGE BANK
NOTES TO UNAUDITED FINANCIAL STATEMENTS

(1)     Basis of Presentation

        The financial  statements included herein have been prepared by the Bank
without audit. In the opinion of management,  the quarterly  unaudited financial
statements  include all adjustments,  consisting of normal  recurring  accruals,
necessary  for a fair  presentation  of the  financial  position  and results of
operations  at and for  the  periods  presented.  The  Bank  believes  that  the
disclosures  are  adequate to make the  information  presented  not  misleading,
however, the results for the periods presented are not necessarily indicative of
results to be expected for the entire year.

(2)     Accounting Policies

        The interim financial information should be read in conjunction with the
Bank's  1997  Annual  Report on Form  10-K-A.  Management  is  required  to make
estimates  and  assumptions  that  affect  amounts  reported  in  the  financial
statements. Actual results could differ significantly from estimates.

(3)     Earnings Per Share

        The  following  shows the  weighted  average  number  of shares  used in
computing earnings per share and the effect on weighted average number of shares
of diluted potential common stock. Potential dilutive common stock had no effect
on income available to common shareholders.
<CAPTION>
                                                    1998                                 1997              
                                        -----------------------------         ----------------------------  
                                                          Per Share                           Per Share
                                          Shares            Amount             Shares           Amount 
                                          ------          ---------            ------         ---------
             <S>                         <C>            <C>                   <C>            <C>          
             Basic earnings
               per share                 1 890 666      $         .09         1 249 634      $         .24
                                                        =============                        =============
             Effect of dilutive
               securities:
                 Stock options               3,973                                  197
                 Warrants                        0                               14,157
                                      ------------                         ------------

             Diluted earnings
               per share                 1,894,639      $         .08         1 263 988      $         .24
                                      ============      =============      ============      =============
</TABLE>

Options on 30,625 shares of common stock were not included in computing  diluted
EPS in 1997, because their effects were antidilutive.

(4) Holding Company Formation

        On  October  1,  1998,  the Bank  became a  wholly-owned  subsidiary  of
Heritage  Bancorp,  Inc., a newly formed stock holding  company,  pursuant to an
agreement  and plan of  reorganization  approved by the Bank's  shareholders  on
August 26, 1998.  Upon completion of the  reorganization,  holders of the Bank's
common stock became holders of Heritage  Bancorp,  Inc.  common stock in a share
for share exchange.  The common stock of Heritage Bancorp, Inc. will continue to
trade on the Nasdaq SmallCap Market under the symbol "HBVA."

                                       8
<PAGE>

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

General

         The  following  discussion  and  analysis of  financial  condition  and
results of operations,  unless otherwise disclosed,  presented in this quarterly
report on Form  10-QSB  represents  the  activities  of the Bank for the quarter
ended  September 30, 1998, and should be read in conjunction  with the financial
statements of the Bank included in this Form 10-QSB.

         Heritage Bancorp, Inc. (the "Company"), a Virginia corporation,  is the
holding  company  for The  Heritage  Bank (the  "Bank"),  a  Virginia  chartered
commercial  bank.  On October 1, 1998,  the Company  acquired all of the capital
stock of the Bank  and  shareholders  of the  Bank  became  shareholders  of the
Company  in a share  for share  exchange  pursuant  to a plan of  reorganization
approved by the Bank's  shareholders on August 26, 1998, whereby the Bank became
the wholly-owned subsidiary of the Company (the "Reorganization"). The Company's
sole  business  activity is ownership of the Bank.  The  Company's  common stock
trades on the Nasdaq SmallCap Market under the symbol "HBVA".

         The Bank is the only independent financial institution headquartered in
McLean,  Virginia.  Established  in 1987,  the Bank  operated as a  wholly-owned
subsidiary of Heritage Bankshares, Inc. (formerly Independent Banks of Virginia,
Inc.)  until  1992  when  it  became  an   independent   bank.  The  Bank  is  a
well-capitalized,   profitable  community  bank  dedicated  to  financing  small
business  and consumer  needs in its market area.  The Bank also is committed to
providing personalized  "hometown" quality service to its customers by tailoring
its  products  and services to appeal to its local  market.  The Bank  currently
operates  one  full-service  office and  engages in a broad range of lending and
deposit services aimed at individual and commercial customers in the McLean area
of Fairfax County, Virginia.

         The  business of the Bank  consists  of  attracting  deposits  from the
general  public and using these funds to originate  various  types of individual
and  commercial  loans  primarily  in the McLean  area.  The  Bank's  commercial
activities  include  providing  checking  accounts,  money  market  accounts and
certificates  of  deposit to small and medium  sized  businesses.  The Bank also
provides  credit  services,  such as lines of credit,  term loans,  construction
loans,  and letters of credit,  as well as real estate  loans and other forms of
collateralized  financing.  The Bank's products include checking  accounts,  NOW
accounts,  savings  accounts,  certificates  of deposit,  installment  accounts,
construction and other personal loans,  home improvement  loans,  automobile and
other consumer financing.

         On May 18, 1998, the Bank closed a secondary offering of 805,000 shares
of its common stock,  par value $1.00 per share (the  "Offering"),  at $5.50 per
share,  raising  $4.4 million in gross  proceeds.  After  offering  expenses and
underwriting  commissions  , the Bank netted  $4,117,575 in new capital from the
offering.

                                       9
<PAGE>
<TABLE>

         The  selected  financial  ratios  and other  data of the Bank set forth
below is derived  in part from,  and  should be read in  conjunction  with,  the
Unaudited Financial Statements of the Bank and Notes thereto presented elsewhere
in this report.
                                              SELECTED FINANCIAL DATA


                                                                     For the Nine Months Ended   For the Nine Months Ended
                                                                          Sept. 30, 1998               Sept. 30, 1997
                                                                       (Dollars in thousands)
                                                                            (Unaudited)
<S>                                                                            <C>                          <C>   
Summary of operating results:
Total interest income..............................                            $2,759                       $2,433
Total interest expense.............................                               921                          829
                                                                               ------                       ------
Net interest income................................                            $1,838                       $1,604
Provision for (recovery of) loan losses............                               102                            0
Net interest income after provision for (recovery
     of) loan losses...............................                            $1,736                       $1,604
Other income.......................................                               102                           96
Other expenses.....................................                             1,673                        1,387
                                                                               ------                       ------
Income (loss) before taxes.........................                               165                          313
Income tax expense (benefit)(1)....................                                 3                            8

Net income (loss)..................................                            $  162                       $  305
                                                                               ======                       ======

Per share:
Basic earnings (loss) per share....................                            $ 0.09                       $ 0.24

Diluted earnings (loss) per share..................                              0.08                         0.24
Cash dividend declared.............................                                 -                            -
Book value at period end...........................                              3.92                         3.11
Common shares outstanding..........................                         2,294,617                    1,249,634

Balance sheet data (at period end):                                   Sept.  30, 1998            December 31, 1997
                                                     -                ---------------            -----------------

Loans, net of unearned interest....................                           $27,626                      $23,391
Allowance for loan loss............................                               570                          634
Total assets.......................................                            55,194                       45,450
Total deposits.....................................                            44,153                       40,604
Total stockholders' equity.........................                             9,001                        4,730
Performance and asset quality ratios:
Return on average total assets (3).................                             0.43%                        1.33%
Return on average stockholders' equity..........(3)                              3.12                        15.24
Average stockholders' equity to average total assets                            13.86                         8.74
Non-accrual and past due loans to total loans......                              5.27                          .98
Allowance for loan losses to total loans...........                              2.06                         2.71
Net yield..........................................                              3.87                         4.29
Net interest margin(2).............................                              5.15                         5.25
</TABLE>

(1)  At December 31, 1997, the Bank had available  approximately  $387,000 of an
     operating loss carryforward which could be offset against future income.

(2)  Net interest margin is calculated as net interest income divided by average
     earning assets and  represents the Bank's net yield on its earning  assets.

(3)  Annualized for the nine months ended September 30, 1998.



                                       10
<PAGE>

Comparison of Financial Condition at September 30, 1998 and December 31, 1997

     Total  assets  increased  $9.7  million,  or 21.4%,  from $45.5  million at
December 31, 1997 to $55.2 million at September 30 1998. This increase in assets
is due in part to the receipt by the Bank of $4.l million in net  proceeds  from
the Offering  which closed on May 18,  1998.  The proceeds of the Offering  were
invested in U.S.  agency  securities.  In addition,  net loans increased by $4.3
million. Federal funds sold decreased $3.4 million from $7.6 million at December
31, 1997 to $4.2 million at September 30, 1998.  This decrease  primarily is due
to use of these funds to purchase U. S. Agencies Bonds.

         Securities  available for sale increased $9.2 million,  or 77.8%,  from
$11.8 million at December 31, 1997 to $20.9  million at September 30, 1998.  The
increase  was caused by the  investment  by the Bank of the net  proceeds of the
Offering and the decrease in the fed funds sold in the bond portfolio.

         Net loans  increased  $4.3  million,  or 18.9%,  from $22.8  million at
December 31, 1997 to $27.1  million at September  30,  1998.  This  increase was
primarily due to the increased marketing of the Bank's loan products.  Also, the
proceeds from the offering increased the Bank's legal lending limit by 86%, thus
allowing loan originations to increase.

         Total deposits  increased $3.5 million,  or 8.7%, from $40.6 million at
December 31, 1997 to $44.1  million at September  30,  1998.  This  increase was
caused by an increase in attorney's  escrow account  balances and an increase of
$1.8 million of certificates of deposit of $100,000 and over. Of these deposits,
$40.0 million were core deposits which the Bank uses to originate loans.

         Repurchase  agreements  at September  30,1998  totaled  $1,922,000,  as
compared to no  repurchase  agreements  at December 31, 1997.  The Bank utilizes
repurchase agreements to fund customer sweep accounts.


                                       11
<PAGE>

Comparison of Operating Results for the Three Months Ended September 30, 1998 
and 1997

         Net income.  The Bank  incurred a net loss for the three  months  ended
September 30, 1998 of $39 000, or $(0.02) basic and diluted  earnings per share,
compared to net income of  $104,000,  or $0.08 basic and  diluted  earnings  per
share, for the three months ended September 30, 1997. This $143,000 decrease was
due  primarily to an increase in the  provision  for loan losses of $98,000,  an
increase in legal fees of 105,000 and an  increase in salaries  and  benefits of
$40,000, which was partially offset by an increase in net interest income before
provision of loan losses of $129,000.

         Interest  Income.  Total  interest  income for the three  months  ended
September 30, 1998 was $1,005,000,  as compared to $812,000 for the three months
ended September 30, 1997,  representing an increase of $193,000,  or 23.8%. This
increase was due primarily to the increase in the bond portfolio and interest on
Fed Funds sold.

         Interest  Expense.  Total interest expense  increased from $276,000 for
the three months ended September 30, 1997 to $340,000 for the three months ended
September 30, 1998, representing an increase of $64,000, or 23.2%. This increase
was due primarily to the increase in deposits.

         Net Interest  Income.  Net interest  income is the  difference  between
interest earned on loans, investments, securities and short term investments and
interest  paid on  deposits.  Factors  affecting  net  interest  income  include
interest rates earned on loans and investments  and those paid on deposits,  the
mix and volume of earning assets and interest bearing  liabilities and the level
or  non-earning  assets  and  non-interest  bearing   liabilities.   The  Bank's
management  seeks to maximize net interest  income by managing the balance sheet
and  determining  the optimal  product mix with  respect to yields on assets and
costs of funds in light of projected economic  conditions,  while maintaining an
acceptable level of risk.

         Net interest  income  increased in the three months ended September 30,
1998 by $129,000,  or 24.1%,  from $536,000 for the three months ended September
30, 1997 to  $665,000  for the three  months  ended  September  30,  1998.  This
increase  was due  primarily  to an  increase  in  interest  income  on the bond
investment portfolio.  The bond portfolio increased due to the investment by the
Bank of the net proceeds of the Offering which occurred in May, 1998.

         Provision for Loan Losses.  The provision for loan losses for the three
months ended  September  30, 1998 was $98,000,  as compared to $.00 for the same
period in the prior year,  representing  a $98,000  increase.  This increase was
caused  primarily by the settlement of the Wills case. See part II, Item 1 for a
discussion of the Wills case.

          The level of the allowance for loan losses is based upon  management's
ongoing  review of the loan  portfolio and includes the present and  prospective
financial  condition of borrowers,  consideration of actual loan loss experience
and projected economic conditions in general and for the Bank's service areas in
particular.  Management  believes  that the  provision  for loan  losses and the
allowance for loan losses are  reasonable and adequate to cover any known losses
and any  losses  reasonably  expected  in the  existing  loan  portfolio.  While
management estimates loan losses using the best available  information,  such as
independent  appraisals  on  collateral,  no assurance  can be given that future
additions to the allowance will

                                       12
<PAGE>

not be necessary based on changes in economic and real estate market conditions,
further  information  obtained regarding known problem loans,  identification of
additional problem loans, regulatory examinations and other factors, both within
and outside of management's control.

          Other income. Total other income consists primarily of service charges
and fees  associated  with the Bank's  loan and  savings  accounts.  Total other
income  increased  $6,000 from $29,000 for the three months ended  September 30,
1997 to $35,000 for the three months ended  September 30, 1998.  This was caused
by an increase in service charges on deposit accounts.

          Other expense.  Other expense consists primarily of operating expenses
for compensation and related benefits, occupancy, federal insurance premiums and
operating assessments and data processing charges. Total other expense increased
by $173,000,  or 37.0%,  from $467,000 for the three months ended  September 30,
1997 to $640,000 for the three months ended  September  30, 1998.  This increase
was due, in part, to a $105,000  increase in legal fees in  connection  with the
Reorganization,  a  non-recurring  item.  The increase is also due, in part,  to
costs  associated  with the Year 2000  expenses  and  increases  in salaries and
benefits.

          Income Tax  Expense.  The Bank had a tax  liability  of $1,000 for the
three months ended  September 30, 1998 and 1997. At December 31, 1997,  the Bank
had operating loss  carryforwards of  approximately  $387,000 that may be offset
against  future taxable  income.  The Bank expects to use its net operating loss
carryforward in its entirety by the end of fiscal year 1998.

                                       13
<PAGE>
Comparison of Operating Results for the Nine Months Ended September 30, 1998 
and 1997

          Net income.  Net income for the nine months ended  September  30, 1998
was $162,000 and $305,000 for the nine months ended  September 30, 1997. For the
nine  months  ended  September  30,  1997 basic  earnings  per share and diluted
earnings per share was $0.24 per share,  as compared to basic earnings per share
of $0.09 and  diluted  earnings  per share of $0.08  for the nine  months  ended
September  30,  1998.  Net income  decreased  primarily  due to an  increase  of
$105,000  in legal fees,  a $84,000  increase in  salaries  and  benefits  and a
$35,000 increase in stockholder expense.

          Interest  Income.  Total  interest  income for the nine  months  ended
September  30, 1998 was $2.7  million,  as compared to $2.4 million for the nine
months ended September 30, 1997, representing an increase of $326,000, or 13.4%.
This increase was due primarily to the increase in Bond  portfolio and fed funds
sold.

          Interest  Expense.  Total interest expense increased from $829,000 for
the nine  months  ended June 30, 1997  compared to $921,000  for the nine months
ended  September 30, 1998,  representing a increase of $92,000,  or 11.1%.  This
increase was due to the growth in deposits.

          Net Interest  Income.  Net interest  income is the difference  between
interest earned on loans, investments, securities and short term investments and
interest  paid on  deposits.  Factors  affecting  net  interest  income  include
interest rates earned on loans and investments  and those paid on deposits,  the
mix and volume of earning assets and interest bearing  liabilities and the level
or  non-earning  assets  and  non-interest  bearing   liabilities.   The  Bank's
management  seeks to maximize net interest  income by managing the balance sheet
and  determining  the optimal  product mix with  respect to yields on assets and
costs of funds in light of projected economic  conditions,  while maintaining an
acceptable level of risk.

          Net interest income  increased for the nine months ended September 30,
1998 by  $234,000,  or  14.6%,  from  $1.6  million  for the nine  months  ended
September 30, 1997 to $1.8 million for the nine months ended September 30, 1998.
This  increase was due  primarily to an increase in interest  income on the bond
investment portfolio.  The bond portfolio increased due to the investment by the
Bank of the net proceeds of the Offering which occurred in May, 1998.

          Provision for Loan Losses.  The provision for loan losses for the nine
months ended  September 30, 1998 was  $102,000,  as compared to $ 0 for the same
period in the prior year,  representing a $102,000 increase.  This increased was
caused by a the  settlement  of the Wills  suit  which  resulted  in a charge to
reserve for loan losses.
See part II, item 1 for a discussion of the Wills suit.

          The level of the allowance is based upon  management's  ongoing review
of the loan  portfolio  and  includes  the  present  and  prospective  financial
condition  of  borrowers,  consideration  of  actual  loan loss  experience  and
projected  economic  conditions  in general and for the Bank's  service areas in
particular.  Management  believes  that the  provision  for loan  losses and the
allowance for loan losses are  reasonable and adequate to cover any known losses
and any  losses  reasonably  expected  in the  existing  loan  portfolio.  While
management estimates loan losses using the best available  information,  such as
independent  appraisals  on  collateral,  no assurance  can be given that future
additions to the  allowance  will not be necessary  based on changes in economic
and real estate market conditions,  further information obtained regarding known
problem  loans,   identification   of  additional   problem  loans,   regulatory
examinations and other factors, both within and outside of management's control.
The ratio of the allowance for loan losses to total loans was 2.06% at September
30, 1998, as compared to 2.71% for the year ended December 31, 1997.

                                       14
<PAGE>

          Other income. Total other income consists primarily of service charges
and fees  associated  with the Bank's  loan and  savings  accounts.  Total other
income  increased  $6,000 from $96,000 for the nine months ended  September  30,
1997 to $102,000 for the nine months ended September 30, 1998. This increase was
caused by a increase in service charges on deposit accounts.

          Other expense.  Other expense consists primarily of operating expenses
for compensation and related benefits, occupancy, federal insurance premiums and
operating assessments and data processing charges. Total other expense increased
by $286,000,  or 20.6%,  from $1,387,000 for the nine months ended September 30,
1997 to $1,673,000  million for the nine months ended  September 30, 1998.  This
increase was due to a $105,000  increase in legal fees due to the litigation and
settlement  of the Wills case and the formation of the Bank's  holding  company,
$84,000 increase in salaries and benifits,  an increse in stockholder expense of
$35,000 and a loss of $25,000 from a robbery at the Bank which  occurred in May,
1998. The increase also was due, in part, to a $14,000  expense  associated with
Year 2000 compliance.

          Income Tax  Expense.  The Bank had a tax  liability  of $3,000 for the
nine months ended  September 30, 1998, as compared to $8,000 for the nine months
ended  September  30, 1997. At December 31, 1997,  the Bank had  operating  loss
carryforwards  of  approximately  $387,000  that may be  offset  against  future
taxable income.  The Bank expects to use its net operating loss  carryforward in
its entirety by the end of fiscal year 1998.

Liquidity and Capital Resources

         Liquidity  is a measure of the Bank's  ability to  generate  sufficient
cash to meet present and future financial obligations in a timely manner through
either the sale or maturity of existing  assets or the acquisition of additional
funds through liability  management.  These obligations include the credit needs
of customers,  funding deposit withdrawals, and the day-to-day operations of the
Bank. Liquid assets include cash,  interest-bearing deposits with banks, federal
funds  sold,  and  certain  investment  securities.  As a result  of the  Bank's
management  of liquid  assets and the  ability  to  generate  liquidity  through
liability funding, management believes that the Bank maintains overall liquidity
sufficient  to satisfy  its  depositors'  requirements  and meet its  customers'
credit needs. The levels of the Bank's liquid assets are dependent on the Bank's
operating,   financing  and  investing   activities  during  any  given  period.
Management believes it will have adequate resources to fund all commitments on a
short-term and long-term basis in accordance with its business strategy.

         As of September 30, 1998,  cash,  federal funds sold,  held-to-maturity
investment securities maturing within one year and available-for-sale securities
represented  57.87% of  deposits  and other  liabilities,  compared to 52.51% at
December 31, 1997.

         Management  continuously  reviews the  capital  position of the Bank to
insure  compliance with minimum  regulatory  requirements,  as well as exploring
ways to increase capital either by retained earnings or other means.

         Banks are required to maintain minimum risk-based capital ratios. These
ratios  compare  capital,  as defined by the risk-based  regulations,  to assets
adjusted  for their  relative  risk as  defined by the  regulations.  Guidelines
require  banks  to have a  minimum  Tier 1  capital  ratio,  as  defined  by the
regulators,  of 4.00% and a minimum Tier 2 capital ratio of 8.00%, and a minimum
4.00% leverage  capital ratio.  On September 30, 1998, the Bank's Tier 1 capital
ratio was 26.52%, Tier 2 capital ratio was 27.77% and leverage ratio was 16.09%.
At  September  30  1998,  the  Bank  exceeded  all  of  its  regulatory  capital
requirements.

                                       15
<PAGE>
<TABLE>

         At September 30, 1998, the total  stockholders'  equity of The Heritage
Bank was $9.0 million, and the ratio of average  stockholders' equity to average
total assets was 13.86%, as compared to 8.74% on December 31, 1998.

Year 2000 Issues

         The "Year 2000 Problem" centers on the inability of computer systems to
recognize  the Year 2000.  Many  existing  computer  programs  and systems  were
originally  programmed  with six digit  dates that  provided  only two digits to
identify the calendar year in the date field,  without  considering the upcoming
change  in the  century.  With the  impending  millennium,  these  programs  and
computers will  recognize "00" as the year 1900 rather than the Year 2000.  Like
most financial service providers,  the Bank may be significantly affected by the
Year 2000 Problem due to the nature of financial  information.  Furthermore,  if
computer  systems are not  adequately  changed to identify  the Year 2000,  many
computer applications could fail or create erroneous results.

         In addition,  noninformation  technology  systems,  such as telephones,
copies  and  elevators  may  contain  embedded  technology  which  controls  its
operations  and  which may be  affected  by the Year 2000  Problem.  Thus,  even
noninformation  technology  systems  may  affect the  normal  operations  of the
Company upon the arrival of the Year 2000.

         The Bank recently  hired an outside  consultant to assess the impact of
the  Year  2000  Problem  on the  Bank.  Because  the Bank  outsources  its data
processing and item processing  operations,  a significant component of the Year
2000 plan is working with external  vendors to test and certify their systems as
Year 2000 compliant. The Bank's external vendors have surveyed their programs to
inventory  the  necessary  changes  and have  begun  correcting  the  applicable
computer programs and replacing equipment so that the Bank's information systems
will be Year 2000 compliant  prior to the end of 1998. This will enable the Bank
to devote  substantial  time to the testing of the upgraded systems prior to the
arrival of the millennium in order to comply with all applicable regulations.

         The Company's timetable for working on the Year 2000 Problem is divided
into the following five phases:
<CAPTION>
Phase                      Description                                                      Status
-----                      -----------                                                      ------
<S>                        <C>                                                              <C>
1. Awareness               Define the problem.                                              Completed 11/1/97.

2. Assessment              Identify all systems and criticality of systems.                 Completed 6/1/98

3. Renovation              Program enhancements, hardware and software upgrades,            95% complete
                           system replacements, and vendor certifications.                  9/30/98

4. Validation              Test and verify system changes.                                  75% complete
                                                                                            9/30/98

5. Implementation          Components certified as Year 2000 compliant and moved            75% complete
                           to production.                                                   9/30/98
</TABLE>
         The Bank has a  contingency  plan to keep the bank in  operation in the
event that some Y2K problems have been overlooked and system  malfunctions occur
at the turn of the  century.  This  plan was  developed  by the  Bank's  outside
consultant with the help of Bank management.

                                       16
<PAGE>

         The Company currently estimates its total direct and indirect cost will
be  $35,000.  The costs of the  project  and the date on which the Bank plans to
complete the Year 2000  modifications  are based on management's best estimates,
which were derived utilizing numerous assumptions of future events including the
continued availability of certain resources,  third party modification plans and
other factors.  However,  there can be no guarantee that these estimates will be
achieved,  and actual  results  could differ  materially  from those  plans.  In
addition, there can be no guarantee that the systems of other companies on which
the Bank's systems rely will be timely  converted,  or that a failure to convert
by  another  company,  or a  conversion  that is  incompatible  with the  Bank's
systems, would not have a material adverse effect on the Bank.

Provision for Loan Losses

         For the nine months ended  September  30, 1998 the  provision  for loan
losses was $102,000,  a $102,000 increase compared to the $ 0 allowance for loan
losses  recorded in the first nine months of 1997. This increase was caused by a
charge to reserve for loan loss on the  settlement  of the Wills suit.  To bring
the  reserve  for loss  back up to  acceptable  level  the Bank made a charge to
earnings of $98,000 in the month of September 1998.

An analysis of the allowance for loan losses is as follows:

Loan Loss Reserve

Balance, December 31, 1997                   $634,000

Provision for Loan Losses                     102,000

Charge-offs                                 (177,000)

Recoveries                                     11,000

Balance, September 30, 1998                   570,000

         The level of the allowance is based upon management's ongoing review of
the loan portfolio and includes the present and prospective  financial condition
of  borrowers,  consideration  of actual  loan  loss  experience  and  projected
economic conditions in general and for the Bank's service areas in particular.

Potential Problem Loans

         At  September  30,  1998,  in  addition  to $838,000 of loans on either
non-accrual  status or loans  past due 90 days or more and still  accruing,  the
Bank had  approximately  3.69% of the loan  portfolio in loans which were either
internally  classified  or  specially  mentioned  and  require  more than normal
attention and are potential  problem loans.  The Bank has considered these loans
in establishing the level of the allowance for loan losses.  As of September 30,
1997, $990,000 of loans were either on a non-accrual status or loans past due 90
days or more and still  accruing.  In addition to these loans,  4.0% of the loan
portfolio was either internally  classified or specially  mentioned and required
more than normal attention and considered potential problems loans.

                                       17
<PAGE>

Part II   OTHER INFORMATION

Item 1. Legal Proceedings

         On July 24, 1998, in the case or Wills v. The Heritage Bank, the United
States  Bankruptcy  Court  for the  Eastern  District  of  Virginia,  Alexandria
Division, granted plaintiff's motion for partial summary judgment ruling against
the Bank.  The Court ruled that the Bank  violated an automatic  stay imposed by
the United States  Bankruptcy Code (the "Code") by collecting  interest payments
on a note  payable  by  plaintiff  to the Bank and in selling  stock  pledged as
collateral to secure such note. The Bank received the interest  payments in 1990
and the stock was sold in 1993.

        The total amount of the judgment is $108,382 plus  attorney's fees in an
amount to be determined at a later date. This sum represents  payments  received
by  the  Bank  in  excess  of  sums  due  it  under  the   plaintiffs   Plan  of
Reorganization.  The  Bank  is  entitled  to  recover  the sum of  $11,810  from
plaintiff for sums due the Bank under  plaintiff's Plan of  Reorganization  upon
payment of the judgment.  Plaintiff's request for punitive damages in the sum of
$105,000  was denied on the summary  judgment  motion,  but remains  pending for
adjudication.  An additional claim by the plaintiff,  in the aggregate amount of
$326,437,  is vigorously disputed by the Bank and would have been the subject of
a  summary  judgment  motion  by the Bank  provided  that all  matters  were not
otherwise resolved.

        The Bank settled all  outstanding  judgments  and claims on this suit on
August 21, 1998 for $131,190.00.

         Heritage  Bank is a defendant  in a case  pending in the United  States
District Court for the Eastern  District of Virginia styled  Travelers  Property
Casualty Corporation v. The Heritage Bank and Crestar Bank, Case Number 98-496A.
Travelers  seeks  judgment  against  Heritage  Bank and Crestar  Bank for losses
sustained by its insured on an employee  check  embezzlement  and forgery scheme
for checks  deposited at Heritage Bank and paid by Crestar Bank.  The total loss
claimed is $396,123.79, plus interest, attorney's fees, and costs. Heritage Bank
obtained  summary  judgment in the amount of $30,529.77 for checks barred by the
statute  of  limitations.  Trial in this  matter is set for  December  8,  1998.
Heritage Bank has advised its financial  institution bond carrier of this claim.
The Bank's  insurance  carrier has notified  the Bank that the Bank's  insurance
policy  will cover a  fraudulent  endorsement  loss above the  policy's  $25,000
deductible.

         Heritage  Bank is a  defendant  in a suit styled  Brault &  Associates,
Ltd., et al. v. The Heritage  Bank, At Law Number 174525  pending in the Circuit
Court  of  Fairfax  County  Virginia.  The Bank is being  sued  for  trover  and
conversion,  breach of  fiduciary  duty,  defamation,  and  breach of  contract,
arising out of a loan relationship with plaintiffs. Plaintiff seeks compensatory
damages  of  $80,000.00  on the  trover  and  conversion  count,  $80,000.00  in
compensatory  damages on the breach of duty count,  $50,000.00 on the defamation
count,  and  $50,000.00 on the breach of contract  count.  Plaintiff  also seeks
punitive  damages of  $350,000.00  on each count plus  interest  and costs.  The
matter has been tendered to Heritage Bank's  insurance  carrier who is defending
the Bank under a reservation of rights. 

                                       18
<PAGE>

Item 2. Changes in Securities and Use of Proceeds
         None


Item 3. Defaults upon Senior Securities
         None

Item 4. Submission of matters to a Vote of Security Holders

         The Bank held its Annual Meeting of Shareholders  ("Meeting") on August
26, 1998. All of the proposals submitted to the shareholders at the Meeting were
approved.  The proposals  submitted to shareholders  and the tabulation of votes
for each proposal is as follows:

1.       Election of nine  candidates to the Board of  Directors,  each to serve
         for a one-year term expiring in 1999.

         The number of votes cast with respect to this matter was as follows:



              Nominee                  For         Withheld     Broker Non-Votes
              -------                  ---         --------     ----------------
              George K. Degnon         2,006,706   13,859                0
              Philip F. Herrick, Jr.   1,981,762   38,803                0
              Henry E. Hudson          2,003,803   16,762                0
              Ronald W. Kosh           1,996,635   23,930                0
              Harold E. Lieding        1,976,599   46,966                0
              Stanley I. Richards      2,006,806   13,759                0
              John T. Rohrback         1,984,638   35,927                0
              George P. Shafran        1,996,838   23,727                0
              Kevin P. Tighe           2,003,317   17,248                0

2.       Ratification  of the appointment of Yount,  Hyde & Barbour,  P.C. to as
         independent auditors for fiscal year ending December 31, 1998.

   The number of votes cast with respect to this matter was as follows:


              For                Against     Abstained       Broker Non-Votes
              ---                -------     ---------       ----------------
              1,997,754          10,682      11,949                 0


3.       Approval of the 1998 The Heritage Bank Stock Option Plan.

   The number of votes cast with respect to this matter was as follows:

              For              Against       Abstained      Broker Non-Votes
              ---              -------       ---------      ----------------
              1,502,082        70,039        23,074         425,370


                                       19
<PAGE>

4.       Approval of the 1998 The Heritage Bank Outside Directors Stock Option 
         Plan.

   The number of votes cast with respect to this matter was as follows:


              For               Against       Abstained      Broker Non-Votes
              ---               -------       ---------      ----------------
              1,446,460         133,141       15,594         425,370


5.       Approval of the Agreement and Plan of Reorganization

The number of votes cast with respect to this matter was as follows:


              For                  Against      Abstained      Broker Non-Votes
              ---                  -------      ---------      ----------------
              1,540,698            47,381       5,558          426,928


Item 5. Other Information

         None

Item 6. Exhibits and Reports on Form 8-K
            (a) Exhibits

         Exhibit 27.1-Financial Data Schedule* *Filed in electronic format only.

            (b) Reports on Form 8-K

       None



                                       20
<PAGE>

                                   SIGNATURES

   Pursuant to the  requirements  of the Securities Act 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned  thereunto
duly authorized.


                                           THE HERITAGE BANK
                                           (Registrant)

Date: November 10, 1998                    /s/ William B. Sutphin
                                           -----------------------------------
                                           William B. Sutphin
                                           Senior V. P. and Cashier



                                       21