UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549

                                  FORM 10-KSB

[X]  ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE ACT OF
     1934

                  For the fiscal year ended: December 31, 2001

     Special  Financial  Report  containing  only  financial  statements for the
     fiscal year ended December 31, 2001 pursuant to Rule 15d-2.

                                       OR

[_]  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT
     OF 1934

                         Commission File No.: 000-49637

                            HERITAGE BANCSHARES, INC.
 ------------------------------------------------------------------------------

                 (Name of Small Business Issuer in its charter)

               Delaware                                   75-2963969
-----------------------------------            --------------------------------

    (State or other jurisdiction                       (I.R.S. Employer
  of incorporation or organization)                 Identification Number)

        102 West High Street
           Terrell, Texas                                 75160
-----------------------------------        ----------------------------------

        (Address of Principal                          (Zip Code)
         Executive Offices)

         Issuer's telephone number, including area code: (972) 563-2657

         Securities registered under Section 12(b) of the Exchange Act:
                                 Not Applicable

         Securities registered under Section 12(g) of the Exchange Act:
                    Common Stock (par value $0.01 per share)
 ------------------------------------------------------------------------------

                                (Title of Class)

Check  whether  the issuer  (1) has filed all  reports  required  to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 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 [_] No [X]

Check if disclosure  of delinquent  filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure  will be contained,  to the
best of Registrant's  knowledge,  in definitive proxy or information  statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-KSB. [X]

As of April 9, 2002,  the aggregate  value of the 438,468 shares of Common Stock
of the Registrant  issued and  outstanding on such date,  which excludes  53,000
shares held by all  directors  and  executive  officers of the  Registrant  as a
group, was  approximately  $5.3 million.  This figure is based on the last known
trade  price of $12.10 per share of the  Registrant's  Common  Stock on April 9,
2002.

Number of  shares  of Common  Stock  outstanding  as of April 9,  2002:  491,468
Transitional Small Business Disclosure Format:
                                  Yes [_] No [X]




<PAGE>


                   HERITAGE SAVINGS BANK, SSB AND SUBSIDIARY

             Table of Contents to Consolidated Financial Statements



<TABLE>
<CAPTION>


                                                                                   Page


<S>                                                                                   <C>
Independent Auditors' Report of Payne Falkner Smith & Jones, P. C .................   2

Consolidated Balance Sheet as of December 31, 2001 and 2000 .......................   3

Consolidated Statement of Income for the Years Ended December 31, 2001 and 2000 ...   4

Consolidated Statement of Changes in Equity for the Years Ended December 31, 2001
  and 2000 ........................................................................   5

Consolidated Statement of Cash Flows for the Years Ended December 31, 2001
  and 2000 ........................................................................   6

Notes to Consolidated Financial Statements ...................................... ..  7 to 26
</TABLE>


<PAGE>

                        PAYNE FALKNER SMITH & JONES, P.C.
                        ---------------------------------
                          Certified Public Accountants



                          Independent Auditors' Report



The Board of Directors
Heritage Savings Bank, SSB and Subsidiary

We have audited the accompanying  consolidated balance sheet of Heritage Savings
Bank, SSB and Subsidiary (Bank) as of December 31, 2001 and 2000 and the related
consolidated  statements  of  income,  changes  in equity and cash flows for the
years then ended. These consolidated financial statements are the responsibility
of the Bank's  management.  Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the financial  position of Heritage Savings
Bank,  SSB and  Subsidiary as of December 31, 2001 and 2000,  the results of its
operations  and its cash  flows  for the years  then  ended in  conformity  with
accounting principles generally accepted in the United States of America.

/s/Payne Falkner Smith & Jones P.C.

Dallas, Texas
March 1, 2002


                                       (2)
<PAGE>


                   HERITAGE SAVINGS BANK, SSB AND SUBSIDIARY

                           Consolidated Balance Sheet
                           December 31, 2001 and 2000
                                 (In Thousands)

                                                 2001         2000
                                                 ----         ----
ASSETS
------

Cash and due from banks                      $    978     $    753
Federal funds sold                              1,100        1,000
                                             --------     --------
        Total cash and cash equivalents         2,078        1,753
Interest bearing deposits in other banks        1,151        2,960
Securities available for sale                   1,923        8,883
Loans held for sale                                --          449
Loans, net                                     31,669       24,785
Accrued interest receivable                       269          266
Bank premises and equipment, net                  604          398
Other assets                                      949          681
                                             --------     --------
        Total assets                         $ 38,643     $ 40,175
                                             --------     --------

LIABILITIES AND EQUITY

Deposits                                     $ 32,682     $ 34,772
Advances from Federal Home Loan Bank            1,940        1,826
Other liabilities                                  90          109
                                             --------     --------
        Total liabilities                      34,712       36,707
Commitments and contingencies                      --           --
Equity:
        Members' equity                         3,895        3,470
        Accumulated other comprehensive
          income (loss), net of tax                36           (2)
                                             --------     --------
        Total equity                            3,931        3,468
                                             --------     --------
        Total liabilities and equity         $ 38,643     $ 40,175
                                             ========     ========



          See accompanying notes to consolidated financial statements.


                                      (3)
<PAGE>


                   HERITAGE SAVINGS BANK, SSB AND SUBSIDIARY

                        Consolidated Statement of Income

                 For the Years Ended December 31, 2001 and 2000

                                 (In Thousands)
<TABLE>
<CAPTION>

                                                                        2001       2000
                                                                      ------     ------
<S>                                                                   <C>        <C>
Interest income:
        Loans                                                         $2,566     $1,937
        Investment securities                                            302        848
        Other                                                            194        188
                                                                      ------     ------

        Total interest income                                          3,062      2,973
                                                                      ------     ------
Interest expense:
        Deposits                                                       1,546      1,781
        Advances from Federal Home Loan Bank                             118        217
                                                                      ------     ------

        Total interest expense                                         1,664      1,998
                                                                      ------     ------

Net interest income                                                    1,398        975

Provision for loan losses                                                 15         72
                                                                      ------     ------

Net interest income after provision for loan losses                    1,383        903
                                                                      ------     ------

Noninterest income:
        Fee income and service charges                                    49         18
        Net gain on sales of securities available for sale and
           redemption of interest bearing deposits in other banks         --        433
        Gain on sale of loan servicing rights                             --        117
        Bonding claim settlement                                         400         --
        Other                                                             56         40
                                                                      ------     ------

        Total noninterest income                                         505        608
                                                                      ------     ------

Noninterest expense:
        Loss on investments                                               52         --
        Compensation and benefits                                        608        369
        Occupancy                                                        176        155
        Data processing                                                  118         59
        Other                                                            489        551
                                                                      ------     ------

        Total noninterest expense                                      1,443      1,134
                                                                      ------     ------

Income before income tax expense                                         445        377

Income tax expense                                                        20         --
                                                                      ------     ------

Net income                                                            $  425     $  377
                                                                      ======     ======

</TABLE>
          See accompanying notes to consolidated financial statements.

                                      (4)
<PAGE>




                   HERITAGE SAVINGS BANK, SSB AND SUBSIDIARY

                  Consolidated Statement of Changes in Equity

                 For the Years Ended December 31, 2001 and 2000

                                 (In Thousands)

<TABLE>
<CAPTION>

                                                     Accumulated
                                                        Other
                                                    Comprehensive Comprehensive
                                                        Income        Income       Members'
                                                        (Loss)        (Loss)       Equity         Total
                                                        ------        ------       ------         -----

<S>             <C>                                   <C>        <C>                <C>          <C>
Balance January 1, 2000                               $   293                       $ 3,093      $ 3,386

Comprehensive income:
        Unrealized losses arising during
           the period (net of tax)                       (97)     $   (97)               --         (97)
        Reclassification adjustment (net of tax)        (198)        (198)               --        (198)
        Net income                                        --          377               377         377

                                                      -------      -------           -------     -------
        Total comprehensive income                                $    82
                                                                   =======

Balance December 31, 2000                                  (2)                         3,470       3,468

Comprehensive income:
        Unrealized gains arising during
          the period (net of tax)                          38      $    38                --          38
        Net income                                         --          425               425         425
                                                      -------      -------           -------     -------
        Total comprehensive income                                 $   463
                                                                   =======

Balance December 31, 2001                             $    36                        $ 3,895     $ 3,931
                                                      =======                        =======     =======

</TABLE>





          See accompanying notes to consolidated financial statements.


                                      (5)
<PAGE>

                   HERITAGE SAVINGS BANK, SSB AND SUBSIDIARY

                      Consolidated Statement of Cash Flows

                 For the Years Ended December 31, 2001 and 2000

                                 (In Thousands)
                                       `

<TABLE>
<CAPTION>
                                                                               2001         2000
                                                                            -------      -------

<S>                                                                        <C>          <C>
Cash flows from operating activities:
        Net income                                                          $   425      $   377
        Adjustments to reconcile net income to
          net cash provided by operating activities:
            Depreciation                                                         52           50
            Provision for loan losses                                            15           72
            Net loss (gain) on sales of securities available for sale
              and redemption of interest bearing deposits in other
              banks                                                              52         (433)
          Gain on sale of loan servicing rights                                  --         (117)
          Decrease in loans held for sale                                       449           81
          (Increase) decrease in accrued interest and other assets             (290)         396
          (Decrease) increase in accrued interest and other liabilities         (19)           9
                                                                            -------      -------

          Net cash provided by operating activities                             684          435
                                                                            -------      -------

Cash flows from investing activities:
        Net decrease (increase) in interest bearing deposits in other
          banks                                                               1,809         (301)
        Net sales, calls and paydowns of securtities available for sale       6,965        4,308
        Net loans originated                                                 (6,899)        (778)
        Net additions of property and equipment                                (258)        (163)
                                                                            -------      -------

        Net cash provided by investing activities                             1,617        3,066
                                                                            -------      -------

Cash flows from financing activities:
        Net (decrease) increase in demand, money market and
          savings accounts                                                   (3,014)          46
        Net increase (decrease) in certificates of deposits                     924       (3,127)
        Net increase in Advances from Federal Home Loan Bank                    114          826
                                                                            -------      -------

        Net cash used by financing activities                                (1,976)      (2,255)
                                                                            -------      -------

Net increase in cash and cash equivalents                                       325        1,246

Cash and cash equivalents at beginning of year                                1,753          507
                                                                            -------      -------

Cash and cash equivalents at end of year                                    $ 2,078      $ 1,753
                                                                            =======      =======

</TABLE>


          See accompanying notes to consolidated financial statements.


                                      (6)
<PAGE>


                    HERITAGE SAVINGS BANK, SSB AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

December 31, 2001 and 2000


 1. Summary of Significant Accounting Policies
 ---------------------------------------------

The  accounting  and  reporting  policies  of  Heritage  Savings  Bank,  SSB and
Subsidiary  (together  referred to as the Bank)  conform to  generally  accepted
accounting  principles and to practices  generally  followed  within the Banking
industry.  The  following  is a  description  of the more  significant  of these
policies.

Basis of Presentation
---------------------

The Bank's  primary  source of revenue is interest on loans and  mortgage-backed
and related securities.  The Bank is subject to competition from other financial
institutions. The Bank is also subject to the regulations of certain federal and
state  agencies  and  undergoes   periodic   examinations  by  those  regulatory
authorities.

The  accompanying  consolidated  financial  statements  include the  accounts of
Heritage  Savings  Bank,  SSB and its wholly  owned  subsidiary  TFS  Investment
Corporation.  All significant  intercompany  transactions and balances have been
eliminated in consolidation.

Use of Estimates
----------------

The  accompanying  consolidated  financial  statements  have  been  prepared  in
conformity  with  generally  accepted  accounting  principles.  In preparing the
financial  statements,  management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the date of the
balance  sheet  and  revenues  for  the  period.  Actual  results  could  differ
significantly from those estimates.

Cash and Cash Equivalents
-------------------------

Cash and cash equivalents consist of cash on hand, federal funds sold, and funds
due from banks.  For purposes of the statement of cash flows, the Bank considers
all highly liquid debt instruments  with original  maturities of three months or
less to be cash equivalents.

Investment Securities
---------------------

Trading Securities

Securities that are held for short-term resale are classified as trading account
securities and recorded at their fair values.  Realized and unrealized gains and
losses on trading account securities are included in other income.




                                      (7)
<PAGE>


              HERITAGE SAVINGS BANK, SSB AND SUBSIDIARY


Securities Held to Maturity

Government,  Federal  agency,  and corporate debt securities that management has
the  positive  intent and  ability to hold to  maturity  are  reported  at cost,
adjusted  for  amortization  of premiums and  accretion  of  discounts  that are
recognized  in  interest  income  using the  interest  method over the period to
maturity.  Mortgage-backed securities represent participating interests in pools
of long-term  first  mortgage  loans  originated  and serviced by issuers of the
securities. Mortgage-backed securities are carried at unpaid principal balances,
adjusted for unamortized premiums and unearned discounts. Premiums and discounts
are amortized using the interest method over the remaining period to contractual
maturity, adjusted for anticipated prepayments.

Securities Available for Sale

Available for sale securities consist of investment securities not classified as
trading securities nor as held to maturity securities.  Unrealized holding gains
and losses,  net of tax, on available for sale  securities are included in other
comprehensive  income.  Realized gains (losses) on available for sale securities
are included in other income (expense) and, when  applicable,  are reported as a
reclassification  adjustment,  net of tax, in other comprehensive  income. Gains
and losses on the sale of available for sale securities are determined using the
specific  identification  method. The amortization of premiums and the accretion
of discounts are  recognized in interest  income using the interest  method over
the period to maturity.

Declines in the fair value of individual held to maturity and available for sale
securities  below their cost that are other than temporary result in write-downs
of the individual  securities to their fair value.  The related  write-downs are
included in earnings as realized losses.

Loans Held for Sale
-------------------

Loans  originated  for sale in the secondary  market are carried at the lower of
cost or estimated fair value in the aggregate.  Net unrealized  losses,  if any,
are recognized through a valuation allowance by charges to income.

Loans and Allowance for Loan Losses
-----------------------------------

Loans  receivable  that  management  has the intent and  ability to hold for the
future or until maturity or pay-off are reported at their outstanding  principal
balance  adjusted for any  charge-offs,  the allowance for loan losses,  and any
deferred fees or costs on originated loans and unamortized premiums or discounts
on purchased loans.








                                      (8)
<PAGE>


                    HERITAGE SAVINGS BANK, SSB AND SUBSIDIARY



Impaired  loans are accounted  for at the net present  value of expected  future
cash flows,  discounted at the loan's  effective  interest  rate, the observable
market price of the loan or at the fair value of the  collateral  if the loan is
collateral dependent.

The accrual of interest on impaired loans is discontinued  when, in management's
opinion,  the borrower may be unable to meet  payments as they become due.  When
interest  accrual is  discontinued,  all unpaid  accrued  interest is  reversed.
Interest income is subsequently  recognized only to the extent cash payments are
received.

The allowance for loan losses is increased by charges to income and decreased by
charge-offs  (net  of  recoveries).  Management's  periodic  evaluation  of  the
adequacy  of the  allowance  is based on the Bank's  past loan loss  experience,
known and inherent risks in the portfolio,  adverse  situations  that may affect
the  borrower's  ability  to  repay,  the  estimated  value  of  any  underlying
collateral, and current economic conditions.

Fees and Costs Associated with Originating Loans
------------------------------------------------

Loan origination fees, net of certain direct  origination  costs, are recognized
as an adjustment of the related loan yield using the interest method.

Loan Servicing
--------------

During  the year  ended  December  31,  2000,  the Bank sold its  mortgage  loan
servicing  rights and accordingly  recognized a gain upon sale of  approximately
$117,000.  This  amount is included in  noninterest  income in the  Consolidated
Statement of Income.

Bank Premises and Equipment
---------------------------

Bank premises,  equipment and leasehold  improvements  are stated at cost,  less
accumulated depreciation and amortization using the straight-line method.

Building                                                  30 years
Furniture, fixtures and equipment                         3-10 years

Other Real Estate Owned
-----------------------

Real  estate  properties  acquired  through or in lieu of loan  foreclosure  are
initially recorded at the lower of the Bank's cost of acquisition or the asset's
fair market  value that  becomes the  property's  new basis.  Costs  relating to
development and improvement of property are capitalized,  whereas costs relating
to holding  property are  expensed.  The portion of interest  costs  relating to
development of real estate is capitalized subject to management's  evaluation of
its recoverability.





                                      (9)
<PAGE>


                    HERITAGE SAVINGS BANK, SSB AND SUBSIDIARY


Valuations are periodically performed by management, and an allowance for losses
is established, if necessary, by means of a charge to operations if the carrying
value of the property exceeds the fair value less estimated costs to sell.

Income Taxes
------------

Deferred tax assets and  liabilities  are reflected at currently  enacted income
tax rates  applicable  to the  period  in which  the  deferred  tax  assets  and
liabilities  are  expected to be realized or settled.  As changes in tax laws or
rates are enacted,  deferred tax assets and liabilities are adjusted through the
provision for income taxes.  Valuation allowances are established when necessary
to reduce deferred tax assets to the amount expected to be realized.

Financial Instruments
---------------------

The Bank has not acquired or issued any derivative financial instruments.

In the ordinary course of business the Bank has entered into certain off balance
sheet  financial  instruments  consisting of commitments to extend credit.  Such
financial  instruments  are recorded in the financial  statements  when they are
funded or related fees are incurred or received.

Fair Values of Financial Instruments
------------------------------------

The following  methods and assumptions  were used by the Bank in estimating fair
values of financial instruments as disclosed herein:

Cash and short term instruments

The carrying amounts of cash and short term instruments  approximate  their fair
value.

Available for sale securities

Fair values for securities excluding restricted equity securities,  are based on
quoted  market  prices.  The carrying  values of  restricted  equity  securities
approximate their fair value.

Loans

For variable-rate  loans that reprice frequently and have no significant changes
in credit  risk,  fair  values are based on  carrying  values.  Fair  values for
certain mortgage loans (for example,  one-to-four family  residential) and other
consumer  loans are based on quoted  market  prices  of  similar  loans  sold in
conjunction with securitization  transactions,  adjusted for differences in loan
characteristics. Fair values for commercial real estate and commercial loans are
estimated using  discounted  cash flow analyses,  using interest rates currently
being offered for loans with similar





                                      (10)
<PAGE>

                    HERITAGE SAVINGS BANK, SSB AND SUBSIDIARY


terms to borrowers of similar credit quality. Fair values for impaired loans are
estimated using discounted cash flow analyses or underlying  collateral  values,
where applicable.

Deposits

The fair values  disclosed for demand deposits are, by definition,  equal to the
amount  payable  on demand  at the  reporting  date  (that  is,  their  carrying
amounts).  The  carrying  amounts of  variable-rate,  fixed  term  money  market
accounts and certificates of deposit (CD's) approximate their fair values at the
reporting date. Fair values for fixed-rate CD's are estimated using a discounted
cash flow  calculation  that applies  interest rates  currently being offered on
certificates  to a schedule of aggregated  expected  monthly  maturities on time
deposits.

Advances from Federal Home Loan Bank

Fair  values for the  Advances  from  Federal  Home Loan Bank are based on rates
currently  charged to enter into  similar  agreements  taking  into  account the
remaining term of the agreements.

Accrued interest

The carrying amounts of accrued interest approximate their fair values.

Off balance sheet instruments

Fair  values  for off  balance  sheet  lending  commitments  are  based  on fees
currently  charged to enter into  similar  agreements  taking  into  account the
remaining terms of the agreements and the counterparties' credit standings.

Recent Accounting Pronouncements
--------------------------------

In June 1998, the Financial  Accounting  Standards Board (FASB) issued Statement
No. 133 (FAS 133), Accounting for Derivative Instruments and Hedging Activities.
In July 1999, the FASB issued Statement No. 137,  Deferral of the Effective Date
of FASB  Statement  No. 133,  which  deferred the  effective  date of FAS 133 to
fiscal years beginning after June 15, 2001. FAS 133 requires companies to record
derivatives  on the balance  sheet at fair value.  Changes in the fair values of
those  derivatives would be reported in earnings or other  comprehensive  income
depending  on the use of the  derivative  and  whether  it  qualifies  for hedge
accounting.  The  key  criterion  for  hedge  accounting  is  that  the  hedging
relationship  must be highly effective in achieving  offsetting  changes in fair
value of assets or liabilities or cash flows from  forecasted  transactions.  In
June 2000, the FASB issued Statement No. 138,  Accounting for Certain Derivative
Instruments and Certain Hedging  Activities,  an amendment of FASB Statement No.
133.  Because  the Bank  generally  does not hold  derivative  instruments,  the
adoption  of this  Statement  did not have a  material  impact on the  financial
statements.





                                      (11)
<PAGE>



                    HERITAGE SAVINGS BANK, SSB AND SUBSIDIARY



In September 2000, the FASB issued  Statement No. 140 (FAS 140),  Accounting for
the  Transfers  and  Servicing  of  Financial  Assets  and   Extinguishments  of
Liabilities, which replaces FAS 125 (of the same title). FAS 140 revises certain
standards in the accounting for securitizations and other transfers of financial
assets and collateral,  and requires some disclosures relating to securitization
transactions and collateral,  but it carries over most of FAS 125's  provisions.
The collateral  and disclosure  provisions of FAS 140 are effective for year-end
2000 financial statements.  The other provisions of this Statement are effective
for  transfers  and  servicing  of  financial  assets  and   extinguishments  of
liabilities  occurring  after March 31, 2001. The adoption of this Statement did
not have a material impact on the financial statements.

In  June  2001,  the  FASB  issued   Statement  No.  141  (FAS  141),   Business
Combinations.  FAS 141 addresses financial accounting and reporting for business
combinations and supersedes APB Opinion No. 16, Business Combinations,  and FASB
Statement  No. 38,  Accounting  for  Preacquisition  Contingencies  of Purchased
Enterprises.  All business combinations in the scope of this Statement are to be
accounted  for using one method,  the  purchase  method.  FAS 141 applies to all
business combinations initiated after June 30, 2001. FAS 141 also applies to all
business combinations accounted for using the purchase method for which the date
of acquisition is July 1, 2001, or later.

In June 2001,  the FASB issued  Statement No. 142 (FAS 142),  Goodwill and Other
Intangible  Assets.  FAS 142 addresses  financial  accounting  and reporting for
acquired goodwill and other intangible assets and supersedes APB Opinion No. 17,
Intangible  Assets.  It  addresses  how  intangible  assets  that  are  acquired
individually  or with a group  of other  assets  (but not  those  acquired  in a
business combination) should be accounted for in financial statements upon their
acquisition.  This Statement  also  addresses how goodwill and other  intangible
assets should be accounted for after they have been initially  recognized in the
financial  statements.  The  provisions  of FAS 142 are  required  to be applied
starting with fiscal years  beginning  after December 15, 2001.  Management does
not  believe  these  pronouncements  will  have  a  significant  effect  on  its
operations.

Reclassification
----------------

Certain  amounts  previously  reported have been  reclassified to conform to the
current format.

 2. Statement of Cash Flows
    -----------------------

The Bank has chosen to report on a net basis its cash receipts and cash payments
for  members'  shares and savings  accounts  accepted  and  repayments  of those
members'  shares and  savings  accounts,  loans made to  members  and  principal
collections  on those loans and  interest  bearing  deposits in other  financial
institutions.






                                      (12)
<PAGE>


                    HERITAGE SAVINGS BANK, SSB AND SUBSIDIARY



The  Bank  uses the  indirect  method  to  present  cash  flows  from  operating
activities.  Supplemental cash flow information at December 31, 2001 and 2000 is
presented as follows (in thousands):

                                                         2001        2000
                                                         ----        ----
Cash transactions:
        Interest expense paid                          $ 1,673     $ 2,001
                                                       =======     =======
        Interest income received                       $ 3,043     $ 3,111
                                                       =======     =======
        Federal income taxes paid                      $    --     $    25
                                                       =======     =======

Noncash transactions:
        Net unrealized appreciation (depreciation)
          on securities available for sale             $    38     $   (97)
                                                       =======     =======
        Reclassification adjustment                    $    --     $  (198)
                                                       =======     =======

3.  Debt and Equity Securities
    --------------------------

Debt and equity  securities  have been  classified in the  consolidated  balance
sheet  according to management's  intent.  The carrying amount of securities and
their  approximate  fair values at December 31, 2001 and 2000 are as follows (in
thousands):

                                                   Gross       Gross
                                   Amortized   Unrealized  Unrealized   Fair
                                        Cost       Gains       Losses   Value
                                        ----       -----       ------   -----
Securities Available for Sale
-----------------------------
   December 31, 2001:
   U.S. Government Agency obligations  $  500    $   19      $   --     $  519
   Mortgage-backed securities           1,369        35          --      1,404
                                       ------    ------      ------     ------
                                       $1,869    $   54      $   --     $1,923
                                       ======    ======      ======     ======


   December 31, 2000:
   U.S. Government Agency obligations  $4,649    $   87      $   64     $4,672
   Mortgage-backed securities           3,664        44           9      3,699
   State and political obligations        573        --          61        512
                                       ------    ------      ------     ------
                                       $8,886    $  131      $  134     $8,883
                                       ======    ======      ======     ======



                                      (13)
<PAGE>


                    HERITAGE SAVINGS BANK, SSB AND SUBSIDIARY



Proceeds  from the sales of  securities  classified  as available  for sale were
approximately  $4,480,000  and  $3,608,000 for the years ended December 31, 2001
and 2000, respectively.  Gross gains of approximately $7,000 and gross losses of
approximately  $59,000 were realized on those sales during 2001.  Gross gains of
approximately $535,000 and gross losses of approximately $3,000 were realized on
those sales during 2000.

Investment  securities  with recorded  values of  approximately  $1,452,000  and
$1,910,000 were pledged as collateral for purposes  required or permitted by law
at December 31, 2001 and 2000, respectively.

The amortized cost and estimated  market value of debt and equity  securities at
December  31,  2001 are shown below (in  thousands).  Expected  maturities  will
differ from contractual  maturities because borrowers may have the right to call
or repay obligations with or without prepayment penalties.

                                                      Amortized    Fair
                                                      Cost         Value
                                                      ----         -----

                Due in one year or less              $   --     $   --
                Due from one year to five years         655        677
                Due from five years to ten years          9         10
                Due after ten years                   1,205      1,236
                                                     ------     ------
                                                     $1,869     $1,923
                                                     ======     ======

During  2000,  the  Bank  transferred  all of  their  securities  in the held to
maturity category to the available for sale category. The amortized costs of the
transferred securities were approximately  $9,643,000 and the related unrealized
loss was  approximately  $300,000.  The decision to transfer the  securities was
based on current tax planning strategies.





                                      (14)
<PAGE>



                    HERITAGE SAVINGS BANK, SSB AND SUBSIDIARY



 4. Loans and Allowance for Loan Losses
    -----------------------------------

The  composition  of loans at  December  31,  2001  and  2000  consisted  of the
following (in thousands):

                                           2001          2000
                                       --------      --------
Real estate:
        Residential 1-4 family         $ 13,076      $ 14,420
        Multi-family                        455         1,160
        Commercial                        5,449         4,776
        Construction & development       16,200         5,802
                                       --------      --------
                                         35,180        26,158
Commercial business                         702           136
Consumer:
        Loans secured by deposits           282           305
        Other                               924           253
                                       --------      --------
                                          1,206           558
                                       --------      --------
                                         37,088        26,852
Allowance for loan losses                  (320)         (310)
Loans in process                         (5,099)       (1,757)
                                       --------      --------
                                       $ 31,669      $ 24,785
                                       ========      ========


A summary of the  activity in the  allowance  for loan losses for the year ended
December 31, 2001 and 2000 is as follows (in thousands):

                                                     2001       2000
                                                    -----      -----
                Balance at beginning of year        $ 310      $ 238
                Provision charged to operations        15         72
                Loans charged-off                      (5)        --
                Recoveries                             --         --
                                                    -----      -----

                Balance at end of year              $ 320      $ 310
                                                    =====      =====



                                      (15)
<PAGE>


                    HERITAGE SAVINGS BANK, SSB AND SUBSIDIARY




The Bank extends  commercial and consumer credit loans primarily to borrowers in
the state of Texas.  At  December  31, 2001 and 2000,  substantially  all of the
Bank's loans were collateralized with real estate,  automobiles,  deposits,  and
other assets.  Although the Bank has a diversified loan portfolio,  its debtors'
ability to honor their  contracts is  substantially  dependent  upon the general
economic conditions.

Impairment of loans having recorded  investments of  approximately  $578,000 and
$487,000 at December 31, 2001 and 2000,  respectively,  has been  recognized  in
conformity with FAS 114 as amended by FAS 118. The average  recorded  investment
in impaired loans during 2001 and 2000 was approximately  $532,000 and $243,000,
respectively.  The total  allowance  for loan losses  related to these loans was
approximately  $87,000 and $31,000 at December 31, 2001 and 2000,  respectively.
Interest income  recognized on impaired loans for such payments received in 2001
and 2000 was insignificant.

The Bank is not committed to lend  additional  funds to debtors whose loans have
been modified.

 5. Accrued Interest Receivable
    ---------------------------

Accrued  interest  receivable  at December  31, 2001 and 2000  consisted  of the
following (in thousands):

                                                           2001         2000
                                                           ----         ----
Loans receivable                                       $   247        $ 177
Mortgage-backed and related securities                      22           89
                                                       -------        -----
                                                       $   269        $ 266
                                                       =======        =====




                                      (16)
<PAGE>


                    HERITAGE SAVINGS BANK, SSB AND SUBSIDIARY




 6. Bank Premises and Equipment
    ---------------------------

Bank  premises  and  equipment at December  31, 2001 and 2000 is  summarized  as
follows (in thousands):

                                                          2001         2000
                                                          ----         ----
           Land                                        $    90        $  90
           Building                                        441          389
           Furniture fixtures and equipment                342          160
                                                       -------       ------
                                                           873          639
           Less accumulated depreciation and
                   amortization                           (269)        (241)
                                                       -------       ------
                                                       $   604       $  398
                                                       =======       ======


7. Advances From Federal Home Loan Bank
   ------------------------------------

Advances  from the Federal Home Loan Bank amounted to  approximately  $1,940,000
and $1,826,000 at December 31, 2001 and 2000,  respectively.  The borrowings are
collateralized  by a security  agreement,  which requires the Bank to maintain a
certain level of qualified  first mortgage  collateral in relation to the amount
of outstanding  debt.  The borrowings  bear interest rates ranging from 2.50% to
7.09%.

At December 31, 2001,  the scheduled  repayments of principal due on outstanding
advances are as follows (in thousands):

                                                         Amount
                                                         ------

                      2002                              $1,289
                      2003                                 288
                      2004                                 309
                      2005                                  54
                      2006                                  --
                Thereafter                                  --
                                                        ------
                                                        $1,940
                                                        ======


                                      (17)
<PAGE>

                    HERITAGE SAVINGS BANK, SSB AND SUBSIDIARY



 8.  Deposits
     --------

Deposits at December 31, 2001 and 2000 are summarized as follows (in thousands):

                              Weighted Average Rate at
                              ------------------------

                                 2001          2000        2001       2000
                                 ----          ----        ----       ----
Demand accounts                  0.50%         1.98%     $1,931     $1,646
Money market                     1.00%         2.72%      2,553      3,725
Savings                          1.00%         2.72%      1,837      2,116
                                                        -------     -------
                                                          6,321      7,487
                                                        -------     -------
Certificates of deposit:
       1.0% to 1.99%                                      1,211          --
       2.0% to 2.99%                                      3,504          --
       3.0% to 3.99%                                      5,139          --
       4.0% to 4.99%                                      3,784          --
       5.0% to 5.99%                                      7,500      27,011
       6.0% to 6.99%                                      5,223         274
                                                        -------     -------
                                                         26,361      27,285
                                                        -------     -------

Total deposits                                          $32,682     $34,772
                                                        =======     =======

At December 31, 2001,  scheduled  maturities of  certificates  of deposit are as
follows (in thousands):

       2002                                                    $19,131
       2003                                                      5,317
       2004                                                      1,913
                                                               -------
                                                               $26,361
                                                               =======

Interest expense on deposits is summarized as follows (in thousands):

                                     2001       2000

       Demand deposits             $    7     $   38
       Money market                    45        150
       Savings                         24         72
       Certificates of deposit      1,470      1,521
                                   ------     ------
                                   $1,546     $1,781
                                   ======     ======

The weighted  average rates on  certificates of deposits are 4.58% and 5.77%, at
December 31, 2001 and 2000, respectively. Deposits in excess of $100,000 are not
federally insured.



                                      (18)
<PAGE>

                    HERITAGE SAVINGS BANK, SSB AND SUBSIDIARY




 9. Income Taxes
    ------------

The  provision  for income tax for the years ended  December  31, 2001 and 2000,
consisted of the following (in thousands):

                                        2001             2000
                                        ----             ----
       Income tax expense:
              Current                 $     --     $         --
              Deferred                      20               --
                                      --------        ----------
              Income tax expense      $     20     $         --
                                      ========        ==========



The  provision  for federal  income taxes is less than that computed by applying
the federal  statutory  rate of 34% as indicated in the  following  analysis (in
thousands):

                                    2001          %       2000          %
                                   -----      -----      -----      -----
Taxes based on statutory rate     $ 151         34      $ 128         34
Reduction in the valuation
        allowance for the net
        deferred tax asset          (144)       (32)      (128)       (34)
        Other                         13          3         --         --
                                   -----      -----      -----      -----
                                   $  20          5      $  --         --
                                   =====      =====      =====      =====

Deferred  income  taxes  reflect  the net tax effects of  temporary  differences
between the recorded  amounts of assets and liabilities for financial  reporting
purposes and the amounts used for income tax purposes.


                                      (19)
<PAGE>


                    HERITAGE SAVINGS BANK, SSB AND SUBSIDIARY




Significant  components of the Bank's  deferred tax assets and liabilities as of
December 31, 2001 and 2000 are as follows (in thousands):

                                                                 2001      2000
                                                                -----     -----
Deferred tax assets:
       Net operating loss carryforward                          $ 132     $ 264
       Allowance for possible loan losses                          80        57
       Bank premises and equipment                                 --         9
       Net unrealized loss on available for sale securities        --         1
       Deferred loan fees                                          21        23
       Other                                                        7         5
                                                                -----     -----
          Total deferred tax assets                               240       359
                                                                -----     -----
Deferred tax liabilities:
       Stock dividends not recognized for tax purposes             32        26
       Bank premises & equipment                                   17        --
       Accrual to cash adjustment                                  84        61
       Net unrealized gain on available for sale securities        18        --
                                                                -----     -----
          Total deferred tax liabilities                          151        87
                                                                -----     -----
          Net deferred tax asset before valuation allowance        89       272
          Valuation allowance                                      --      (144)
                                                                -----     -----
          Net deferred tax asset                                $  89     $ 128
                                                                =====     =====

At December 31, 2001 and 2000,  respectively,  the Bank had net  operating  loss
carryforwards  for federal  income tax  purposes of  approximately  $387,000 and
$778,000  that will expire in 2019.  At December 31, 2000,  management  believed
that the above  indicated  valuation  allowance was necessary in order to comply
with the provisions of FAS No. 109, as discussed in note 1.

Included in other  assets at December  31,  2001 and 2000 are net  deferred  tax
assets  of  approximately  $89,000  and  $128,000,  respectively.  Additionally,
included in other  assets at December  31, 2000 are current tax  receivables  of
approximately $125,000.

10. Related Party Transactions
    --------------------------

In the ordinary course of business, the Bank has and expects to continue to have
transactions including borrowings, with its employees,  officers,  directors and
their  affiliates.  In the opinion of management,  such  transactions are on the
same terms,  including  interest  rates and  collateral  requirements,  as those
prevailing at the time for comparable  transactions with  unaffiliated  persons.
There were no significant related party loans at December 31, 2001 and 2000.







                                      (20)
<PAGE>


                    HERITAGE SAVINGS BANK, SSB AND SUBSIDIARY




11. Financial Instruments
    ---------------------

The Bank is a party to financial  instruments with off balance sheet risk in the
normal  course of business to meet the  financing  needs of its  members.  These
financial  instruments include  commitments to extend credit.  Those instruments
involve, to varying degrees, elements of credit and interest rate risk in excess
of the amount recognized in the consolidated balance sheet.

The Bank's exposure to credit loss in the event of  nonperformance  by the other
party  to  the  financial   instrument  for  commitments  to  extend  credit  is
represented by the contractual  amount of these  instruments.  The Bank uses the
same credit policies in making  commitments  and  conditional  obligations as it
does for  on-balance-sheet  instruments.  At  December  31,  2001 and 2000,  the
approximate  amounts  of  these  financial   instruments  were  as  follows  (in
thousands):

                                                            2001       2000
                                                            ----       ----
Financial instruments whose contract
     amounts represent credit risk:
        Commitments to extend variable rate credit        $5,099     $1,288
        Commitments to extend fixed rate credit               --        469
        Letters of credit                                     --         --
                                                          ------     ------
                                                          $5,099     $1,757
                                                          ======     ======

Commitments  to extend fixed rate credit and the related  interest  rates are as
follows at December 31, 2001 and 2000 (in thousands):

                                                            2001     2000
                                                            ----     ----
      8.00%                                               $   --     $ 78
      8.50%                                                   --        3
     10.50%                                                   --      339
     13.25%                                                   --       49
                                                          ------     ----
                                                          $   --     $469
                                                          ======     ====

Commitments  to extend  variable  rate credit are at rates ranging from 5.75% to
10.50% as of December 31, 2001, and 7.00% to 10.50% at December 31, 2000.

Commitments to extend credit are agreements to lend to a member as long as there
is no  violation  of any  condition  established  in the  contract.  Commitments
generally  have fixed  expiration  dates or other  termination  clauses  and may
require  payment of a fee. Since many of the  commitments are expected to expire
without being fully drawn upon, the total commitment







                                      (21)
<PAGE>

                    HERITAGE SAVINGS BANK, SSB AND SUBSIDIARY




amounts  do  not  necessarily  represent  future  cash  requirements.  The  Bank
evaluates each member's creditworthiness on a case-by-case basis. The amount and
type of collateral  obtained,  if deemed necessary by the Bank upon extension of
credit, varies and is based on management's credit evaluation of the borrower.

Standby  letters of credit  are  conditional  commitments  issued by the Bank to
guarantee the  performance  of a customer to a third party.  Standby  letters of
credit generally have fixed expiration  dates or other  termination  clauses and
may require  payment of a fee.  The credit risk  involved in issuing  letters of
credit is essentially  the same as that involved in extending loan facilities to
customers.  The Bank's  policy for obtaining  collateral  and the nature of such
collateral is  essentially  the same as that involved in making  commitments  to
extend credit.

Although  the  maximum  exposure  to loss  is the  amount  of such  commitments,
management currently anticipates no material losses from such activities.

The estimated fair values of the Bank's financial instruments were as follows at
December 31, 2001 and 2000 (in thousands):

<TABLE>
<CAPTION>
                                                2001                     2000
                                                ----                     ----
                                          Carrying    Fair       Carrying       Fair
                                          Amount      Value      Amount         Value
                                          ------      -----      ------         -----
Financial assets:
       Cash and due from banks and
<S>                                      <C>         <C>         <C>         <C>
          federal funds sold             $ 2,078     $ 2,078     $ 1,753     $ 1,753
       Interest bearing deposits           1,151       1,148       2,960       2,958
       Federal Home Loan Bank stock          469         469         450         450
       Securities available for sale       1,923       1,923       8,883       8,883
       Loans and loans held for sale      31,669      30,622      25,234      26,770
       Accrued interest receivable           269         269         266         266

Financial liabilities:
       Deposit liabilites                 32,682      33,175      34,772      34,707
       Accrued interest payable               40          40          48          48
       Other borrowings                    1,940       2,017       1,826       1,831

Off balance sheet assets:
       Commitments to extend credit           --          --          --          --
       Standby letters of credit              --          --          --          --



</TABLE>



                                      (22)
<PAGE>


                    HERITAGE SAVINGS BANK, SSB AND SUBSIDIARY




12. Noninterest Expense
    -------------------

Other noninterest expense amounts are summarized as follows at December 31, 2001
and 2000 (in thousands):


                                                        2001     2000
                                                        ----     ----
                Advertising and public relations        $ 43     $ 63
                Dues and subscriptions                    16       33
                Exam, assessments and audit expense       75       29
                Consulting fees                           98      120
                Directors fees                            60       43
                Franchise tax expense                      7       17
                Legal fees                                54      209
                Travel                                    51       11
                Office expense                            60       20
                Miscellaneous expenses                    25        6
                                                        ----     ----
                                                        $489     $551
                                                        ====     ====

13. Commitments and Contingencies
    -----------------------------

The Bank is involved  in certain  legal  actions  arising  from normal  business
activities.  Management  believes that the outcome of such  proceedings will not
materially affect the financial position or results of operations of the Bank.

14. Significant Group Concentrations of Credit Risk
    -----------------------------------------------

Most of the Bank's  business  activity is with  customers  located within Texas.
Such customers are normally also members of the Bank.

The  distribution of commitments to extend credit  approximates the distribution
of loans  outstanding.  Commercial  and standby  letters of credit were  granted
primarily to commercial borrowers.

The  contractual  amounts  of  credit  related  financial  instruments  such  as
commitments  to extend  credit and  letters of credit  represent  the amounts of
potential  accounting loss should the contract be fully drawn upon, the customer
default, and the value of any existing collateral become worthless.

15. Regulatory Matters
    ------------------

The Bank is subject to various regulatory capital  requirements  administered by
its primary federal regulator, the Federal Deposit Insurance Corporation (FDIC).
Failure to meet the minimum regulatory capital requirements can initiate certain
mandatory, and possible additional




                                      (23)
<PAGE>


                    HERITAGE SAVINGS BANK, SSB AND SUBSIDIARY



discretionary  actions by  regulators  that if  undertaken,  could have a direct
material affect on the Bank and the financial  statements.  Under the regulatory
capital adequacy  guidelines and the regulatory  framework for prompt corrective
action,  the Bank must meet specific capital guidelines  involving  quantitative
measures of the Bank's assets, liabilities,  and certain off balance sheet items
as calculated under regulatory accounting practices.  The Bank's capital amounts
and  classification  under the  prompt  corrective  action  guidelines  are also
subject to  qualitative  judgments  by the  regulators  about  components,  risk
weightings, and other factors.

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require the Bank to maintain  minimum  amounts and ratios of:  total  risk-based
capital  and  Tier  I  capital  to  risk-weighted  assets  (as  defined  in  the
regulations), Tier I capital to adjusted total assets (as defined), and tangible
capital to  adjusted  total  assets (as  defined).  Management  believes,  as of
December  31,  2001  and  2000,  that  the  Bank  meets  all  capital   adequacy
requirements to which it is subject.

As of December 31, 2001 and 2000,  the Bank's capital ratios exceed those levels
necessary to be categorized as "well capitalized" under the regulatory framework
for prompt corrective action. To be categorized as "well  capitalized," the Bank
must maintain minimum total risk-based,  Tier I risk-based,  and Tier I leverage
ratios as disclosed in the table below.  There are no conditions or events since
December 31, 2001 that management believes have changed the Bank's category.

A comparison of the Bank's actual capital amounts and ratios to required capital
amounts and Ratios is presented in the following table (in thousands):

<TABLE>
<CAPTION>
                                                                                     To Be Well
                                                                                  Capitalized Under
                                                               For Capital        Prompt Corrective
                                                Actual      Adequacy Purposes     Action Provisions
                                                ------      -----------------    --------------------
                                         Amount     Ratio    Amount    Ratio       Amount      Ratio
                                         ------     -----    ------    -----       ------      -----

<S>                                      <C>        <C>     <C>        <C>        <C>        <C>
As of December 31, 2001:
       Total Risk-Based
         Capital (to Risk-
         Weighted assets)                $4,215     16.1%   >  $2,090  >   8.0%   >  $2,612  >   10.0%
       Tier I capital (to Risk-                             -          -          -          -
         Weighted assets)                $3,895     14.9%   >  $1,045  >   4.0%   >  $1,567  >    6.0%
       Tier I capital (to Adjusted                          -          -          -          -
         Total Assets)                   $3,895      9.9%   >  $1,566  >   4.0%   >  $1,957  >    5.0%
       Tangible Capital (to Total                           -          -          -          -
         Adjusted Assets)                $3,895      9.9%   >  $  587  >   1.5%   >  $  978  >    2.5%
                                                            -          -          -          -
As of December 31, 2000:
       Total Risk-Based
         Capital (to Risk-
         Weighted assets)                $3,725     18.2%   >  $1,636  >   8.0%   >  $2,045  >   10.0%
       Tier I capital (to Risk-                             -          -          -          -
         Weighted assets)                $3,470     17.0%   >  $  818  >   4.0%   >  $1,227  >    6.0%
       Tier I capital (to Adjusted                          -          -          -          -
         Total Assets)                   $3,470      8.0%   >  $1,736  >   4.0%   >  $2,170  >    5.0%
       Tangible Capital (to Total                           -          -          -          -
         Adjusted Assets)                $3,470      8.0%   >  $  651  >   1.5%   >  $1,085  >    2.5%
                                                            -          -          -          -
</TABLE>


                                      (24)
<PAGE>


                    HERITAGE SAVINGS BANK, SSB AND SUBSIDIARY



The following is a reconciliation of equity capital in accordance with Generally
Accepted Accounting  Principles (GAAP) with total risk based capital at December
31, 2001 and 2000, respectively (in thousands):


                                                              2001         2000
                                                              ----         ----

                GAAP equity capital                        $ 3,931      $ 3,468
                Unrealized (gains) losses on available
                        for sale securities                    (36)           2
                Allowance for loan losses                      320          255
                                                           -------      -------
                Total risk-based capital                   $ 4,215      $ 3,725
                                                           =======      =======

16. Agreed Order
   -------------

Effective  May 17, 2000,  the Bank entered into an Agreed Order Placing the Bank
Under Voluntary  Supervisory Control (Agreement) with the Texas Savings and Loan
Department (Department). The Agreement provided among other things that the Bank
would:

     o    Operate in a safe and sound manner,

     o    Provide acceptable management,

     o    Establish acceptable internal controls and segregation of duties,

     o    Establish acceptable investment policies and practices,

     o    Establish  acceptable  operational  practices in conformity with Rules
          and Regulations Applicable to State Savings Banks,

     o    Establish profitability in operations.

On February 21, 2001 the Department  determined that the Bank had  substantially
complied with these provisions and the Agreement with the Bank was terminated.

17. Loss on Investments
   --------------------

During 1999, the Bank engaged in certain  activities  with an investment  broker
(Broker) whereby the Bank purchased  certain  government  agency  securities and
long-term  certificates  of  deposits  as part of the  management  of the Bank's
interest rate risk. It was determined subsequent to the purchase of the relating
investments that the Broker had fraudulently misrepresented the amount of assets
acquired. The Bank,  accordingly,  realized a loss in regard to this transaction
of approximately $1,599,000 in its 1999 consolidated financial statements.

During June 2001, the Bank agreed to a bonding claim settlement of $400,000. The
amount is  included  in  non-interest  income in the  accompanying  consolidated
statement of income for the year ended December 31, 2001.







                                      (25)
<PAGE>


             HERITAGE SAVINGS BANK, SSB AND SUBSIDIARY




18. Subsequent Event
   -----------------

On July  25,  2001,  the  Board  of  Directors  of the  Bank  adopted  a Plan of
Conversion,  subject to  regulatory  approval and approval by the members of the
Bank, to convert from a state chartered mutual savings bank to a state chartered
stock  savings  bank with the  concurrent  issuance  of its  capital  stock to a
holding company.  In September 2001, the holding company,  Heritage  Bancshares,
Inc.  (Bancshares)  was formed.  The conversion was expected to be  accomplished
through the  amendment of the Bank's state  charter and the sale of  Bancshare's
common  stock in an amount equal to the  consolidated  pro forma market value of
Bancshares after giving effect to the conversion.

In January  2002,  the Bank  engaged in an  offering of  Bancshares'  stock with
priority given first to the Bank's eligible account holders, then to Bancshares'
Employee Stock Ownership Plan (formed in February  2002),  then to other members
of the Bank. In February  2002,  the offering was concluded  with 491,468 shares
sold,  proceeds  received  of  approximately  $4,915,000  and costs  incurred of
approximately $438,000.

With the  consummation  of the Plan of  Conversion,  the Bank is a wholly  owned
subsidiary of Bancshares.





                                      (26)
<PAGE>


                                  SIGNATURES

     In accordance  with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.


                            HERITAGE BANCSHARES, INC.



      Date: April 11, 2002            By:  /s/ John H. Mackey
                                           ------------------
                                           John H. Mackey
                                           President and Chief Executive Officer
                                           (Duly Authorized Representative)

     In  accordance  with the Exchange Act, this report has been signed below by
the following  persons on behalf of the  Registrant and in the capacities and on
the dates indicated.




/s/ J. Pat Baker                                                 April 11, 2002
---------------------------
J. Pat Baker
Chairman of the Board



/s/ John H. Mackey                                               April 11, 2002
---------------------------
John H. Mackey
Director, President and Chief Executive Officer
(Principal Executive Officer)



/s/ Christi Thompson                                             April 11, 2002
---------------------------
Christi Thompson
Director, Executive Vice President, Chief Operating
Officer and Chief Financial Officer (Principal
Financial and Accounting Officer)



/s/ Joy Milton Catlin                                            April 11, 2002
---------------------------
Joy Milton Catlin
Director



/s/ Switzer L. Deason                                            April 11, 2002
---------------------------
Switzer L. Deason
Director


/s/ Mary Gayle Ramsey                                            April 11, 2002
---------------------------
Mary Gayle Ramsey
Director



/s/ Milton Lee Risinger                                          April 11, 2002
---------------------------
Milton Lee Risinger
Director



/s/ Thomas J. Wageman                                            April 11, 2002
---------------------------
Thomas J. Wageman
Director