SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                                    10-KSB/A
                 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934


             For the fiscal year ended December 31, 2002 Commission

File No. 0-11255

                            Heritage Bankshares, Inc.


           Virginia                                          54-1234322
(State or other jurisdiction of                      (IRS Employer corporation
 incorporation or organization)                        identification number)


       200 East Plume Street
         Norfolk, Virginia                                       23514
(Address of principal executive offices)                      (Zip Code)

Registrant's telephone number, including area code:         (757) 523-2600


Securities registered pursuant to Section 12(b) of the Act:


Common Stock, $5 par value         Securities not registered on a stock exchange
Title of Each Class


Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.

                  Yes X                                       NO
                     ---                                        ---


Indicate by check mark if disclosure of delinquent filers pursuant to item 405
of Regulation SB is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-KSB of any amendment to
this Form 10-KSB. [x]


State the aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 21 2003: $12,308,151

Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of March 21 2003 Common Stock, $5 Par Value - 786,025
--------------------------------------------------------------------------------



*In calculating the aggregate market value, we have used the most recent sales
price of Common Stock known to the Company, which is $19.65 per share and voting
stock held by non-affiliates of the registrant March 21, 2003 of 626,369.


<PAGE>

This Form 10-KSB contains certain forward-looking statements. For this purpose
any statements contained in this Form 10-KSB that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, words such as "may", "will", "expect", "believe",
"anticipate","estimate" or "continue" or comparable terminology are intended to
identify forward looking-statements. These statements by their nature involve
substantial risks and uncertainties, and actual results may differ materially
depending on a variety of factors.

Part I

Item 1.  BUSINESS

General

         Heritage Bankshares, Inc. (the "Company") was incorporated under the
laws of the Commonwealth of Virginia in 1983. In August of 1992, two wholly
owned subsidiaries, Princess Anne Bank and The Heritage Bank-McLean, were spun
off, and the Company has operated as a one bank holding company since that time.
The principal executive office of the Company is located at 200 East Plume
Street, Norfolk, Virginia. Currently, the Company does not transact any material
business other than through its wholly owned banking subsidiary. The total
consolidated assets of the Company on December 31, 2002 were $128.1 million.

The Bank

         Heritage Bank & Trust, a state banking corporation, is engaged in the
general commercial and retail banking business. The cities of Norfolk and
Chesapeake, Virginia, constitute the primary service area of the Bank and to a
lesser extent the Bank includes the remaining areas of Hampton Roads in its
market area. The Bank was incorporated as a Virginia corporation on September
19, 1975, and commenced business at 841 North Military Highway in Norfolk,
Virginia on February 7, 1977. On December 31, 2002, the Bank had assets of
$127.9 million, with total loans of $82.55 million and deposits of $111.09
million.

IBV Real Estate Holdings, Inc.

         IBV Real Estate Holdings, Inc., is a corporation formed for the sole
purpose of owning additional real estate assets acquired by the Company or the
Bank. Currently, IBV Real Estate Holdings, Inc. owns a 1% interest in IBV
Partners, LP, a Virginia limited partnership formed in December 1986. IBV Real
Estate Holdings, Inc., serves as the sole general partner of the partnership.
The partnership's sole asset is a 17,200 square-foot office building located at
1450 South Military Highway, Chesapeake, Virginia. Heritage Bank & Trust is a
tenant in the property.

Sentinel Trust Services, L.L.C. and Sentinel Financial Group, Inc. (formerly
Sentinel Title Services, Inc.)

         Sentinel Trust Services, L.L.C. is a wholly owned subsidiary of the
Company. Sentinel Financial Group, Inc. (formerly Sentinel Title Services, Inc.)
is a wholly owned subsidiary of Heritage Bank & Trust. These entities own an
interest in providers of various insurance products, investment products and
trust services. The strategic relationship with these entities provides the Bank
with the ability to provide these services to its customers. The financial
activities pertaining to these interests are recorded on the cost method of
accounting for investments.

Competition

         The banking business in the cities of Norfolk and Chesapeake, as well
as all of the Hampton Roads area is highly competitive. The Bank encounters
competition from major commercial banking institutions, local banks, money
market and mutual funds, small loan companies, credit unions, brokerage firms
and other financial institutions. Current federal law allows the acquisition of
banks by bank holding companies nationwide. Further, federal and Virginia law
permit interstate banking. As a consequence of these developments, competition
in the Bank's principal market may increase, and a consolidation of financial
institutions in Virginia may occur.

Employees

         The Company and the Bank have 51 employees. Of this total, 42 are
full-time and 9 are part-time. Management considers its employee relations to be
excellent.

                                       2
<PAGE>

Regulation and Supervision

         The Company is registered as a bank holding company, under the Bank
Holding Company Act of 1956. As such, the Company is subject to regulation and
examination by the Federal Reserve Board, and is required to file periodic
reports and any additional information that the Federal Reserve Board may
require. The Bank Holding Company Act imposes certain restrictions upon the
Company regarding the acquisition of substantially all of the assets of or
direct or indirect ownership or control of any bank of which it is not already
the majority owner; or, with certain exceptions of any company engaged in
nonbanking activities.

         The Bank is subject to supervision, regulation and examination by the
State Corporation Commission of the State of Virginia. Asset growth, deposits,
reserves, investments, loans, consumer law compliance, issuance of securities,
establishment of branches, mergers and consolidation, changes in control,
electronic funds transfer, management practices and other aspects of operations
are subject to regulation by the appropriate federal and state supervisory
authorities. The Bank is also subject to various regulatory requirements of the
Federal Reserve Board applicable to FDIC insured depository institutions.

Legislation

         Because of concerns relating to the competitiveness and the safety and
soundness of the industry, Congress continues to consider a number of
wide-ranging proposals for altering the structure, regulation and competitive
relationships of the nation's financial institutions. Among such bills are
proposals to combine banks and thrifts into a unified charter, to combine
regulatory agencies, to alter the statutory separation of commercial and
investment banking, and to further expand the powers of depository institutions,
bank holding companies, and competitors of depository institutions. It cannot be
predicted whether or in what form any of these proposals will be adopted or the
extent to which the business of the Company or the Bank may be affected thereby.

Monetary Policy

         The Company and the Bank are affected by fiscal and monetary policies
of the federal government, including those of the Federal Reserve Board, which
regulates the national money supply in order to mitigate recessionary and
inflationary pressures. Among the techniques available to the Federal Reserve
Board are engaging in open market transactions of U.S. Government securities,
changing the discount rate and changing reserve requirements against bank
deposits. These techniques are used in varying combinations to influence the
overall growth of bank loans, investments and deposits. Their use may also
affect interest rates charged on loans and paid on deposits. The effect of
governmental policies on the earnings of the Company and the Bank cannot be
predicted.

Item 2.  PROPERTIES

         The Bank owns four of its banking locations, 841 North Military
Highway, 200 East Plume Street, 4815 Colley Avenue and 735 East Ocean View
Avenue in Norfolk, Virginia. Management believes these locations are in
excellent condition. A fifth banking location and the bank's operations center
are located at 1450 South Military Highway in Chesapeake, Virginia. See "IBV
Real Estate Holdings, Inc." under Item 1 and "Certain Relationships and Related
Transactions" under Item 12.

Item 3.  LEGAL PROCEEDINGS

         The Company is subject to claims and lawsuits arising primarily in the
ordinary course of business. Based on information presently available to
management and advice received from legal counsel, there are no meritorious
claims involving the Company.

Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS

         No matters were submitted to a vote of securities holders during the
fourth quarter of 2002.

                                       3
<PAGE>

PART II

Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

         The Company's common stock is listed on the OTC Bulletin Board under
the symbol HBKS.ob. At March 21, 2003, there are 1,014 record holders of the
786,025 outstanding shares of common stock. As of March 21, 2003, the most
recent sales price of common stock known to the Company is $19.65 per share.

         The following table sets forth the trading range for the common stock
by calendar quarters for the past two years.

Calendar Quarter

                          HIGH          LOW
2002
Fourth Quarter           $21.50       $18.60
Third Quarter             19.00        17.25
Second Quarter            18.75        15.34
First Quarter             15.75        14.75

2001
Fourth Quarter           $15.00       $14.10
Third Quarter             15.10        14.00
Second Quarter            15.00        11.03
First Quarter             11.75        10.63


         The Company's Board of Directors determines whether to declare
dividends and the amount of such dividends. Determinations by the Board take
into account the Company's financial condition, results of operations, capital
requirements, general business conditions and other relevant factors. The
Company's principal source of funds for cash dividends are the dividends paid to
the Company by the Bank. The Company declared and paid annual dividends of $.31
and $.26 per share in 2002 and 2001, respectively. On December 18, 2002 the
Company declared a semi-annual dividend of $.16 per share to shareholders of
record as of December 27, 2002. That dividend was paid on January 24, 2003.
These dividends represented a dividend payout ratio of 27% in 2002 and 17% in
2001. Regulatory restrictions on the payment of dividends by the Bank to the
Company are disclosed in Note 3 to the Consolidated Financial Statements.

Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS

FINANCIAL REVIEW:

         Heritage Bankshares, Inc. (the "Company"), recorded net income in 2002
of $1.36 million, $150 thousand ahead of the $1.21 million reported in 2001.
Heritage Bank & Trust earned $1.38 million and Heritage Bankshares, Inc.
recorded a loss of $16 thousand. That earnings level represents a return on
average assets of 1.15% and 1.12% at December 31, 2002 and December 31, 2001,
respectively. The return on average equity was 12.16% at December 31, 2002
compared to 12.04% at December 31, 2001. On a diluted per share basis, net
income for 2002 was $1.65 compared to the $1.51 earned in 2001.

         The Bank's principal source of revenue is net interest income, the
amount by which interest income exceeds interest expense. Interest income is
presented on a tax-equivalent basis to recognize associated tax benefits. This
presentation provides a basis for comparison of yields with taxable earning
assets. Tax-equivalent net interest income increased $618 thousand from 2001.
The net interest yield margin for 2002 was 4.50% compared with 4.24% in 2001.
Despite an 8.11% increase in average earning assets, the falling interest rate
environment negatively impacted the net interest margin. Conversely, the falling
rate environment positively impacted the net interest margin by reducing costs
for the Bank's interest bearing liabilities. The average yield on interest
earning assets decreased from 7.89% to 6.90% while the average yield on interest
bearing liabilities decreased from 4.55% to 3.02%. Average earning assets grew
$8.08 million while average interest bearing liabilities grew $7.15 million.

         The provision for loan losses is charged to operations in an amount
sufficient to maintain the allowance for loan losses at a level management
considers adequate to provide for future losses inherent in the loan portfolio.
Loans are charged against this allowance when management perceives the
collection of the loan is unlikely. The level of the allowance is based on
management's ongoing review of the loan portfolio and includes the present and


                                       4
<PAGE>

prospective financial condition of borrowers, consideration of actual loan loss
experience and projected economic conditions in general and for the Bank's
service area. The 2002 provision for loan losses was $99 thousand compared to
the 2001 provision of $34 thousand. The allowance for loan losses of $1.09
million at year-end 2002 and 2001, respectively reflects an allowance to
year-end loans ratio of 1.32% and 1.36%, respectively.

         Noninterest income is largely derived from fee-based services and
mortgage banking activities. Total noninterest income increased $132 thousand to
$847 thousand. The ratio of noninterest income to average assets of .72%
compared to .66% in 2001. Fees related to mortgage banking activities increased
$106 thousand reaching $250 thousand in 2002 compared to $144 thousand in 2001.
Fees related to credit and debit card usage increased $15 thousand totaling $117
thousand in 2002 compared to $101 thousand in 2001.

         Noninterest expense totaled $3.53 million for 2002, compared with $3.09
million in 2001. The ratio of noninterest expense to average assets was 2.98%
compared to the 2.86% reported in 2001. This ratio reflects the Company's
successful management of overhead and other related expenses.

         Total loans at December 31, 2002 were $82.55 million compared with
$79.77 million at December 31, 2001. Loans secured by real estate increased
$4.66 million while construction lines of credit decreased $1.94 million from
year-end 2001.

         Deposits increased $10.58 million or 10.58% to $110.62 million compared
to $100.04 million at December 31, 2001. Noninterest bearing deposits increased
$1.68 million to $21.62 million compared to $19.95 million at December 31, 2001.
Interest bearing deposits grew $8.91 million to $89.00 million from $80.09
million at December 31, 2001.

BANK LIQUIDITY:

         An important component of the Bank's asset/liability structure is the
level of liquidity available to fund depositors' withdrawals and extensions of
credit to borrowers. Traditional sources of bank liquidity include deposit
growth, loan repayments, investment maturities, borrowings and interest
received. Liquid assets include cash, federal funds sold and investments
maturing within one year. The Bank's ability to obtain deposits and purchase
funds at favorable rates determines its liability liquidity. 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
that is sufficient to satisfy its depositors' requirements and meet its
customers' credit needs.


Table 1:
Selected Liquidity Statistics
For the year ended December 31,
                                                    2002            2001
                                               --------------------------
                                                 (Dollars in thousands)


Available short-term assets (1)                  $26,303         $18,879

Certificates of deposit $100,000 and over         20,226          18,390
                                               --------------------------
Net available short-term assets                   $6,077            $489
                                               --------------------------
Ratio of available short-term assets to
certificates $100,000 and over                       130%            103%

Ratio of loans to deposits                            75%             80%

Ratio of certificates $100,000 and over to
   total assets                                       16%             16%

(1)  As of December 31, 200, available short-term assets include cash of
     $8,879,000, federal funds sold of $13,423,000 and held-to-maturity and
     available-for-sale securities maturing within one year of $250,000 and
     $3,751,000, respectively. As of December 31, 2001, available short-term
     assets include cash of $5,942,000, federal funds sold of $9,181,000 and
     held-to-maturity and available-for-sale securities maturing within one year
     of $493,000 and $3,263,000, respectively.

                                       5
<PAGE>

         The Company's Consolidated Statement of Cash Flows, found in the
Consolidated Financial Statements, provides information as to cash provided and
used from operating, investing and financing activities. At December 31, 2002,
cash and cash equivalents available to meet immediate liquidity needs and
reserve requirements were $22.30 million. The Company's cash and cash
equivalents increased $7.18 million from $15.12 million at December 31, 2001.

PARENT COMPANY LIQUIDITY:

         The parent holding company incurred expenses for stockholder-related
activities, stock transfer and other functions necessary for the administration
of the Company. See Note 3 of the Consolidated Financial Statements for the
parent company's Cash Flow Statement for further information on cash provided or
used by the parent for operating, financing and investing activities. In
addition, certain restrictions on cash dividends, loans and advances are imposed
by regulation of the Bank, which are also disclosed in Note 3.

CAPITAL:

         Banking regulations established to ensure capital adequacy require the
Company and the Bank to maintain minimum amounts and ratios of Total and Tier I
capital (as defined in the regulations) to risk-weighted assets (as defined),
and of Tier I capital (as defined) to average assets (as defined). Management
believes, as of December 31, 2002, that the Company meets all capital adequacy
requirements to which it is subject.

         Stockholders' equity at December 31, 2002 was $11.76 million compared
to $10.66 million at the end of 2001. Book value per share increased from $13.71
at December 31, 2001 to $14.99 at December 31, 2002.

         The following table provides information on the Company's risk-based,
leverage and capital ratios at December 31, 2002 and 2001.

Table 2:
Capital Ratios
For the year ended December 31,

                                                 2002               2001
                                          ---------------------------------
                                                (Dollars in thousands)

Risk-based capital:
Tier I Capital
   Stockholders' equity                         $11,498            $10,445
Tier II Capital
    Allowance for loan losses (limited)           1,088              1,068
                                                -------            -------
Total                                           $12,586            $11,513
                                                =======            =======

Risk adjusted assets                            $89,985            $85,392

Risk-based capital ratios:
   Tier I                                         12.78%             12.23%
   Total                                          13.99%             13.48%

Leverage ratio                                     9.72%              9.67%
Primary capital ratio                              9.74%              9.80%


RATE SENSITIVITY:

         An important element of earnings performance is proper management of
the interest sensitivity gap. The interest sensitivity gap is the difference
between interest sensitive assets and interest sensitive liabilities at a
specific time interval. A gap is considered positive when the amount of interest
rate sensitive assets exceeds the amount of interest rate sensitive liabilities,
and is considered negative when the amount of interest rate sensitive


                                       6
<PAGE>

liabilities exceeds the amount of interest rate sensitive assets during a given
period. Repricing assets or liabilities, selling investments available for sale,
replacing an asset or liability at maturity or adjusting the interest rate
during the life of an asset or liability are all means by which a Company can
manage the gap. Matching the amounts of assets and liabilities maturing in the
same time interval helps to minimize the impact on net interest income in
periods of interest rate volatility.

         The following table presents the Company's interest sensitivity
position at December 31, 2002. This one-day position, which continually is
changing, is not necessarily indicative of the Company's position at any other
time.

Table 3:
Interest Sensitivity Analysis
 December 31, 2002
<TABLE>


                                          Within         Over         Over          Over            Over
                                           1-3-          3-12          1-3          3 - 5             5
                                          months        months        years         years           years          Total
                                       ------------ ------------- ------------ -------------- ---------------- -------------
<S>                                        <C>            <C>         <C>            <C>              <C>          <C>
Earning assets:
  Federal funds                            $13,423            $0           $0             $0               $0       $13,423
  Investment securities                        793         5,566        7,295            194            1,650       $15,498
  Loans                                     25,073         3,511       13,180         10,127           30,663        82,554
Total Earning Assets                       $39,289        $9,077      $20,475        $10,321          $32,313      $111,475

Interest and non-interest bearing liabilities:

  Commercial DDA                            $8,690            $0       $5,214         $3,476               $0       $17,380
   Personal DDA                                  0             0        2,546            849              849         4,243
  TT&L Note                                     65             0            0              0                0            65
  Savings                                        0             0        2,771            924              924         4,619
  Money Market                                   0         2,975        2,975              0                0         5,950
  NOW                                            0             0       10,299          3,433            3,433        17,166
  Certificates                              12,901        23,555       15,390          5,673            3,747        61,266
   Federal Funds Purchased                       0             0            0              0                0             0
  Repurchase Agreements                      4,468             0            0              0                0         4,468
Total Interest and non interest
  bearing liabilities                      $26,124       $26,530      $39,195        $14,355           $8,953      $115,157


Interest sensitivity gap                    13,165      (17,453)     (18,720)        (4,034)           23,360       (3,682)

Cumulative gap                              13,165       (4,288)     (23,008)       (27,042)          (3,682)

Ratio interest sensitive assets
to interest-sensitive liabilities             1.50          0.34         0.52           0.72             3.61          0.97

Ratio of cumulative gap to
 total earning assets                       11.81%       (3.85%)     (20.64%)       (24.26%)          (3.30%)
</TABLE>

(1)  Assets and liabilities are presented in the period they mature or reprice,
     whichever is earlier.

NET INTEREST INCOME:

         Net interest income is the difference between interest earned on loans,
investment securities and short-term investments and interest paid on deposits
and other borrowings. Material 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
of noninterest bearing liabilities. The following table presents the components
of net interest income.

                                       7
<PAGE>
<TABLE>

Table 4:  Components of Net Interest Income
For the years ended December 31,                                     2002                                 2001
                                                                   -----------------------------------------------
 (Dollars in thousands)

                                                      Average                   Average     Average                 Average
                                                      Balance(1)   Interest   yield/rate   Balance(1)   Interest   yield/rate
                                                      ----------   --------   ----------   ----------   --------   ----------
<S>                                                       <C>         <C>        <C>           <C>         <C>          <C>
Interest earning assets: (taxable equivalent basis (2))
Loans (net of unearned discount (3))                      $82,925     $6,451     7.78%         $74,859     $6,560       8.76%
Investment securities-taxable (4)                          15,420        777     5.04%          16,290        921       5.65%
Investment securities- non-taxable (1) (4)                    871         65     7.46%             778         55       7.07%
Federal Funds                                               8,500        135     1.59%           7,710        321       4.16%
                                                      ------------ ---------- ---------    ------------ ---------- -----------
Total Interest earning assets                            $107,716     $7,428     6.90%         $99,637     $7,857       7.89%
Noninterest earning assets:
Cash and due from banks                                     5,831                                4,080

Allowance for loan losses                                 (1,086)                              (1,044)
Other real estate owned                                       433                                  433
Premises and equipment                                      2,410                                2,413
Other assets                                                2,986                                2,486
                                                            -----                                -----
Total Assets                                             $118,290                             $108,005

Liabilities and stockholders' equity
Interest bearing liabilities:
Money Market and NOW accounts                             $19,716       $171     0.87%         $17,348       $379       2.18%
Savings Deposits                                            5,916         75     1.27%           5,980        157       2.63%
Savings Certificates                                       43,331      1,840     4.25%          39,802      2,302       5.78%
Large denomination certificates                            12,184        440     3.61%          12,725        660       5.19%
Securities sold under agreements to repurchase              4,197         55     1.31%           3,770        129       3.42%
Short-term borrowings                                          47          1     2.13%              67          2       2.99%
                                                      ------------ ---------- ---------    ------------ ---------- -----------
Total interest bearing liabilities                        $85,391     $2,582     3.02%         $79,692     $3,629       4.55%

Noninterest bearing liabilities:
Demand deposits                                            20,771                               17,449
Other                                                         910                                  785
 Total Liabilities                                        107,072                               97,926
Stockholders' equity                                       11,219                               10,079
                                                      ------------                         ------------

  Total liabilities and stockholders' equity             $118,290                             $108,005
                                                        =========                             ========

Net interest earnings                                                 $4,846                               $4,228
                                                                     =======                               ======

Net interest yield  margin on average interest earning
 assets (taxable equivalent basis)                                               4.50%                                  4.24%
                                                                                 =====                                  =====

Less tax equivalent adjustment                                         ($54)                                ($65)
                                                                       -----                                -----
Net interest income                                                   $4,792                               $4,163
                                                                     =======                               ======

 Net interest spread (taxable
    equivalent basis)                                                            3.87%                                  3.34%
                                                                                 =====                                  =====
</TABLE>

(1)  Daily average balances are calculated using the aggregate daily average
     balances on a monthly basis.
(2)  Tax equivalent adjustments (using 34% federal income tax rates) have been
     made in calculating the yields on tax-free loans and investments. Virginia
     banks are exempt from state income tax.
(3)  For the purposes of these computations, non-accruing loans are included in
     the daily average loan amounts outstanding.
(4)  The yield/rate of the investment securities is computed using the amortized
     cost basis.

                                       8
<PAGE>

The following table illustrates the impact on the interest income of the Company
resulting from changes in average balances and average rates for the periods
indicated. The change in interest due to both rate and volume has been allocated
to volume and rate changes in proportion to the relationship of the absolute
dollar of the changes in each.

Table 5:
Volume and Rate Analysis
For the years ended December 31,
(Dollars in thousands)
<TABLE>

                                             2002 / 2001                           2001 / 2000
                                        (Dollars in thousands)                (Dollars in thousands)
                                          Increase (Decrease)                   Increase (Decrease)
                                           Due to Change in:                     Due to Change in:

                                    Volume      Rate       Total          Volume      Rate      Total
                                   ---------- ---------- ----------      ---------- --------- ----------
Interest income (1):
<S>                                   <C>      <C>          <C>               <C>     <C>          <C>
  Loans                               $2,599   ($2,708)     ($109)            $464    ($258)       $206
  Taxable securities                    (47)       (97)      (144)            (60)      (75)      (135)

  Non-taxable securities                   7          3         10            (10)  -              (10)
  Federal funds sold                      37      (223)      (186)             147      (39)        108
                                   ---------- ---------- ----------      ---------- --------- ----------
    Total interest income             $2,596   ($3,025)     ($429)            $541    ($372)       $169

Interest expense:
  Money Market and NOW
    Accounts                             $61     ($269)     ($208)             $23     ($90)      ($67)
  Savings                                (2)       (80)       (82)              78      (87)        (9)
  Certificates                           231      (693)      (462)             215        53        268
  Certificates of $100,000
    or more                             (27)      (193)      (220)              61      (44)         17
  Securities sold under
   agreements to repurchase               17       (91)       (74)              20      (12)          8

  Short-term borrowings                  (1)         -         (1)            (24)      (15)       (39)
                                   ---------- ---------- ---------- ---- ---------- --------- ----------
    Total interest expense
                                         279    (1,326)    (1,047)             373     (195)        178

Net change in interest
  Earnings                            $2,317   ($1,699)       $618            $168    ($177)       ($9)
</TABLE>

(1)  Interest income includes taxable equivalent adjustments of $54,000 in 2002
     and $65,000 in 2001 which are used to adjust interest on tax exempt assets
     to a fully taxable basis.

LOAN PORTFOLIO:

         The loan portfolio is the largest category of the Company's earning
assets. The following table summarizes the type and maturity of loans
outstanding as of December 31, 2002.

                                       9
<PAGE>
<TABLE>
Table 6:
Loan Portfolio Composition and Maturities
(Dollars in thousands)
                                                                                           Percentage
                                                 After 1                                    of total
                                    Within      but within       After                        Loan
                                    1 year       5 years        5 years      Total          Portfolio
                                    ------       -------        -------      -----        --------------
<S>                                  <C>            <C>            <C>        <C>                <C>
Commercial                           $5,216         $6,088         $2,589     $13,893            16.83%
Real estate-mortgage                 11,408         16,971         29,697      58,076            70.35%
Real estate-construction              4,171              0              0       4,171             5.05%
Consumer                              2,559          3,449            406       6,414             7.77%
                                    -------        -------        -------     -------           -------
                                     23,354         26,508         32,692      82,554           100.00%
                                    -------        -------        -------     -------           -------

Loans maturing after 1 year with:
Fixed interest rates                               $20,611        $31,323
Variable interest rates                              5,896          1,369
                                                -----------    -----------
                                                   $26,507        $32,692


         The following table presents loan collateralized by real estate at
December 31, 2002.

Table 7:

Loan Collateralized By Real Estate
(Dollars in thousands)
                                                                                Percentage
                                                                                 of total
                                                                                   loan
                                                                 Amount          portfolio
                                                               ------------------------------
Construction and land development                                  $4,171                 5%
Collateralized by 1 - 4 family residential properties              21,912                27%
Collateralized by multi-family residential properties               4,262                 5%
Collateralized by non-farm, non-residential properties             31,902                39%
                                                                   ------                ---
                                                                  $62,247                76%

INVESTMENT PORTFOLIO:

         The Company's investment portfolio is a source of liquidity and is the
second largest category of earning assets. The portfolio includes U.S.
Government securities, municipal securities, mortgage-backed securities and
other debt securities. In addition to the investment securities, the Company
also invests in federal funds sold. Management's principal objectives for the
investment portfolio during 2002 were to maintain an appropriate level of
quality, ensure sufficient liquidity and maximize yield.

         The following table presents the maturity distribution and weighted
average yields of the securities portfolio at December 31, 2002.

Table 8:
Investment Securities
                             1 year or less     1 - 2 years       2 - 3 Years      4 - 5 Years      Over 5 years
                             Amount   Yield    Amount  Yield     Amount  Yield    Amount  Yield     Amount  Yield
                             --------------------------------------------------------------------------------------
U.S. Treasury, government    $4,001    5.51%   $4,911   4.13%    $3,380   4.27%    $500    5.10%    $1,551   4.88%
agencies, state and
political
subdivisions
Other                           -        -        -       -          517  5.44%      -       -         638   7.28%
                             --------------------------------------------------------------------------------------
Total                        $4,001    5.51%   $4,911   4.13%    $3,897   4.86%    $500    5.10%    $2,189   6.08%
</TABLE>


                                       10
<PAGE>

DEPOSITS:

         The Company's deposit base includes large denomination certificates of
deposit of $100,000 or more. These deposits represented approximately 18% of
total deposits at December 31, 2002. The Bank pays market rates for these funds.
Generally management attempts to match large denomination certificates of
deposit with rate sensitive assets.

Table 9:
Remaining Maturities of Large Denomination Certificates of Deposit
(Dollars in thousands)

                                              December 31, 2002
                                                         Amount
                                                         ------
Three months or less                                     $5,246
Over three through six months                             3,022
Over six through twelve months                            4,705
Over twelve months                                        7,253
                                                        -------
Total                                                   $20,226

Noninterest Income

         The following table provides a comparison of noninterest income.

Table 10:  Noninterest Income
(Dollars in thousands)

                      For the years ended December 31,

                       2002          2001         2002 over 2001
                       -------------------------------------------------

Service Charges         $295          $292              $    3
Other Income             552           423                 129
                       -------------------------------------------------
                        $847          $715               $ 132

Noninterest Expense

         The following table provides a comparison of noninterest expense.
Table 11:
Non-interest Expense
For the years ended December 31,
(Dollars in thousands)
                                                                       2002
                                                                   over/(under)
                                              2002       2001          2001
                                           ----------- ---------- --------------
Salaries and employee benefits                 $1,932     $1,705       $227
Other                                             657        534       123
Automated services                                298        257        41
Occupancy expenses                                239        227        12
Furniture and equipment expense                   200        185        15
Taxes and licenses                                126        114        12
Stationery and supplies                            73         71         2
                                           ----------- ---------- --------------
                                               $3,525     $3,093      $432

Provision and Allowance For Loan Losses:

         In 2002, the provision for loan losses was $99 thousand compared to $34
thousand in 2001. Net loans charged-off in 2002 were $96 thousand as compared to
2001 when net loans charged-off totaled $4 thousand. The following table
summarizes activity in the allowance for loan losses. The table that follows
provides statistics on non-performing assets and past due loans. There were no
restructured loans, as defined by applicable securities rules and regulations.

                                       11
<PAGE>
<TABLE>
Table 12:
Summary of the Allowance For Loan Losses
Non-Performing Assets, Past Due Loans and Selected
Loan Loss Statistics

For The Years Ended
December 31,                                                         2002                 2001
(Dollars in Thousands)

Allowance for Loan Losses:
<S>               <C>                                              <C>                  <C>
Balance, December 31                                               $1,085               $1,055
Charge-offs:
   Commercial                                                          41                    0
   Real estate                                                          0                    0
   Consumer                                                            58                   46
                                                                       --                   --
      Total loans charged-off                                          99                   46
Recoveries:
   Commercial                                                           0                    0
   Real estate                                                          0                   25
   Consumer                                                             3                   17
                                                                        -                   --
      Total recoveries                                                  3                   42


Net (recoveries)charge-offs                                            96                    4
Provision for loan losses                                              99                   34
                                                                   ------               ------
Balance, December 31,                                              $1,088               $1,085

Ratio of net charge-offs to average loans outstanding                0.12%                0.01%

Ratio of allowance for loan losses to loans at period-end            1.32%                1.36%

Non-performing loans                                                  $13                  $33

 Ratio of non-performing loans to total assets                       0.01%                0.03%

   Non-accrual loans:
      Interest income that would have been recorded
      under original terms                                             $4                   $5

     Interest income recorded during the period                        $0                   $0

   Loans 90 days past due and still accruing                          $43                 $160
</TABLE>

         The allowance for loan losses has two components, a specific and a
general portion. The specific portion is determined by the Banks' risk rating
system. The Bank assigns a reserve amount consistent with each loan's rating
category. The reserve amount is based on the loan rating system which focuses on
historical loss experience.

         The actual amount of losses incurred can vary significantly from the
estimated amount. The Bank's methodology includes general factors intended to
minimize the differences in estimate and actual losses. These factors allow the
Bank to adjust its estimates of losses based on the most recent information
available. Although the Bank determines the amount of each element of the
allowance for loan losses separately, and this process is an important credit
management tool, the entire allowance for loan losses is available for the
entire loan portfolio.

         The general reserves are necessary to deal with conditions that cannot
be directly measured in the risk rating system. These risks are subject to a
higher degree of uncertainty but are a critical component of the total allowance
for possible loan losses. Factors involved in determining the general reserve
include national and local economic conditions, downturns in specific industries
including loss in collateral value, the results of bank regulatory exams, trends


                                       12
<PAGE>

in credit quality at the Bank and in the banking industry, loan volumes and
concentrations, findings of internal credit reviews, and trends in risk rating
changes.

         A breakdown of the allowance for loan losses among the various loan
types is provided in the following table. Management does not believe the
allowance can be fragmented by category with any precision that would be useful
to investors because the entire amount of the allowance is available to absorb
losses occurring in any category. The allowance is allocated in the table based
on the proportion of the loan types that make up the specific problem loans. The
allowance shown in the table should not be interpreted as an indication that
charge-offs in future periods will occur in these amounts or proportions or that
the allowance indicates future charge-off amounts or trends. Also, the allowance
shown in the table does not assure that the allowance will be sufficient for all
future charge-off amounts.

Table 13:
Allocation of Allowance for Loan Losses
December 31,
<TABLE>
                                              Percent of                        Percent of
                                                 Loans                             Loans
                                              In Category                       In Category
                                  2002      To Total Loans          2001      To Total Loans
                               -----------------------------    ------------------------------
<S>                                    <C>          <C>                  <C>          <C>
Specific Problem Loans                $123                               $69

Loan Type Allocation:
Real Estate-Mortgage                    76           70.35%              175           66.96%

Real Estate-Construction                 -            5.05%                -            7.66%
Commercial                             319           16.83%              143           17.20%
Consumer                                39            7.77%               96            8.18%
                                       ---            -----               --            -----
                                       434          100.00%              414          100.00%


Unallocated                            531                               602
                                      ----                               ---

Total                               $1,088                            $1,085
                                    ======                            ======
</TABLE>

Potential Problem Loans:

         At December 31, 2002 and 2001 loans on either non-accrual status or
loans past due 90 days or more and still accruing amounted to $56 thousand and
$193 thousand, respectively. In addition to these loans, at December 31, 2002,
the Bank had approximately $800 thousand of loans that have been internally
classified, and $1.8 million that required more than normal attention and are
potential problem loans. Management has considered these loans in establishing
the level of the allowance for loan losses. At December 31, 2001, loans that had
been internally classified or which required more than normal attention and were
potential problem loans were $402 thousand and $1.8 million, respectively.

Non-performing loans:

         Non-performing loans are loans on non-accrual status. Loans are placed
on non-accrual status when they become over 90 days past due unless such loans
are fully collateralized and, in management's judgment, are collectible.
At December 31, 2002, there were 19 non-performing loans that totaled $13
thousand. All 19 loans were unsecured credit card loans.

Credit Risk and Regulatory Matters:

         Credit risk, the risk of loss from default, is inherent in lending.
While management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions. Management and the Board of Directors of the Company believe the
allowance is a reasonable estimate of potential loss exposure in the loan
portfolio at year-end, however, many factors affecting the ability of borrowers
to repay their loans, including economic factors beyond the control of the Bank
or the borrowers, will impact this estimate on an ongoing basis.

                                       13
<PAGE>

         Management also considers reports of examinations furnished by state
and federal banking authorities. Regulatory agencies periodically review the
allowance for loan losses as part of their examination process and may require
the Bank to recognize additions to the allowance based on their judgment of
information available to them at the time of their examination. A Federal
Reserve Bank examination of the Company and the Bank was conducted in the first
quarter of 2002 for the balance sheet dated December 31, 2001. No additions to
the allowance for loan losses were recommended as a result of the examination.

Income Taxes:

         For the year ended December 31, 2002, the Company recognized an expense
of $650 thousand. This represents a $114 thousand increase from the $537
thousand expense for 2001. See Note 11 of the Consolidated Financial Statements
for additional information with respect to income taxes.

Item 7. FINANCIAL STATEMENTS

         The Consolidated Financial Statements and the notes thereto are filed
herewith.

Item 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

         None.

                                       14
<PAGE>

Part III

Item 9.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The text and tables under "Nominees" and "Continuing Directors" in the
company's 2003 Proxy Statement are incorporated herein by reference.

Item 10. COMPENSATION

         The text under "Director Compensation" in the Company's 2003 Proxy
Statement is incorporated herein by reference.

         The text and tables under "Executive Compensation" in the Company's
2003 Proxy Statement are incorporated herein by reference.

ITEM 11:  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                MANAGEMENT

         The text and tables under "Security Ownership of Certain Beneficial
Owners and Management" in the Company's 2003 Proxy Statement are incorporated
herein by reference.

         The text and tables under "Equity Compensation Plan Information" in the
Company's 2003 Proxy Statement are incorporated herein by reference.

ITEM 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The text under "Certain Relationships and Related Transactions" in the
company' 2003 Proxy Statement are incorporated herein by reference.


                                       15
<PAGE>

PART IV

Item 13:  EXHIBITS AND REPORTS ON FORM 8-K

(3) Exhibits:


3.1          Articles of Incorporation. (Incorporated herein by reference to
             Corporation's Form 10-K for 1983 filed March 29, 1984.)

3.2          Bylaws, as amended

10.1         Stock Option Plan for Employees. (Incorporated herein by reference
             to the Corporation's Form 10-K for 1987 filed March 25, 1988.)

10.2         Employee's Stock Option Plan. (Incorporated herein by reference to
             the Corporation's Form 10-K for 1987 filed March 25, 1988.)

10.3         Employee Stock Ownership Plan. (Incorporated herein by reference to
             the Corporation's Form 10-K for 1984 filed April 12, 1985.)

10.4         Lease dated December 29, 1996, between IBV Partners, L.P. as
             landlord, and Heritage Bank & Trust, as Tenant, for the lease of
             7,581 square feet of space in a building located at 1450 South
             Military Highway, Chesapeake, Virginia. (Incorporated herein by
             reference to the Corporation's Form 10-K for 1986 filed March
             1987.)

10.5         Amended and restated January 1, 1989, Stock Ownership Plan, which
             provided for certain changes required by IRS regulations including
             changes in participant vesting schedules. (Incorporated herein by
             reference to the Corporation's Form 10-K for 1990 filed March 30,
             1991.)

10.6         Employee's Stock Ownership Plan. (Incorporated herein by reference
             to the Corporation's Form 10-KSB for 1998 filed March 30,1999.)

99.1         Certification of principal executive officer pursuant to 18 U.S.C.
             Section 1350, as adopted pursuant to Section 906 of the
             Sarbanes-Oxley Act of 2002.

99.2         Certification of principal executive officer pursuant to 18 U.S.C.
             Section 1350, as adopted pursuant to Section 906 of the
             Sarbanes-Oxley Act of 2002.


Reports on Form 8-K

         None

Financial Statements Filed

         None


                                       16
<PAGE>


                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.

Heritage Bankshares, Inc.
 (Registrant)

Date: March 26, 2003 /s/ Robert J. Keogh
                    -----------------------------------------
                      Robert J. Keogh, President and
                      Chief Executive Officer

Date: March 26, 2003 /s/ Catherine P. Jackson
                    -----------------------------------------
                      Catherine P. Jackson
                      Chief Operating Officer

 /s/ Peter M. Meredith, Jr.
--------------------------------------
Peter M. Meredith, Jr.
Chairman of the Board of Directors

 /s/ Stephen A. Johnsen
--------------------------------------
Stephen A. Johnsen
Secretary of the Board of Directors

 /s/ Lisa F. Chandler
--------------------------------------
Lisa F. Chandler
Director

 /s/ James A. Cummings
--------------------------------------
James A. Cummings
Director

 /s/ F. Dudley Fulton
--------------------------------------
F. Dudley Fulton
Director

 /s/ Thomas G. Johnson, III
--------------------------------------
Thomas G. Johnson, III
Director

 /s/ Gerald L. Parks
--------------------------------------
Gerald L. Parks
Director

 /s/ L. Allan Parrott
--------------------------------------
L. Allan Parrott
Director

 /s/ Ross C. Reeves
--------------------------------------
Ross C. Reeves
Director

 /s/ Harvey W. Roberts, III
--------------------------------------
Harvey W. Roberts, III
Director

                                       17
<PAGE>

                                  CERTIFICATION
I, Robert J. Keogh, certify that:

1.       I have reviewed this annual report on form 10-KSB of Heritage
         Bankshares, Inc.;

2.       Based on my knowledge, this annual report does not contain any untrue
         statement of a material fact or omit to state a material fact necessary
         to make the statements made, in light of the circumstances under which
         such statements were made, not misleading with respect to the period
         covered by this annual report;

3.       Based on my knowledge, the financial statements, and other financial
         information included in this annual report, fairly present in all
         material respects the financial condition, results of operations and
         cash flows of the registrant as of, and for, the periods presented in
         this annual report;

4.       The registrant's other certifying officers and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         have:

         a)       designed such disclosure controls and procedures to ensure
                  that material information relating to the registrant,
                  including its consolidated subsidiaries, is made known to us
                  by others within those entities, particularly during the
                  period in which this annual report is being prepared;

         b)       evaluated the effectiveness of the registrant's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this annual report (the "Evaluation Date");
                  and

         c)       presented in this annual report our conclusions about the
                  effectiveness of the disclosure controls and procedures based
                  on our evaluation as of the Evaluation Date;

5.       The registrant's other certifying officers and I have disclosed, based
         on our most recent evaluation, to the registrant's auditors and the
         audit committee of registrant's board of directors (or persons
         performing the equivalent functions):

         a)       all such deficiencies in the design or operation of internal
                  controls which could adversely affect the registrant's ability
                  to record, process, summarize and report financial data and
                  have identified for the registrant's auditor's any material
                  weaknesses in internal controls; and

         b)       any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal controls; and

6.       The registrant's other certifying officers and I have indicated in this
         annual report whether there were significant changes in internal
         controls or in other factors that could significantly affect internal
         controls subsequent to the date of our most recent evaluation,
         including any corrective actions with regard to significant
         deficiencies and material weaknesses.



Date:  March 26, 2003                      /s/ Robert J. Keogh
                                           --------------------------
                                           Robert J. Keogh
                                           President and Chief Executive
                                             Officer

                                       18
<PAGE>
                                  CERTIFICATION
I, Catherine P. Jackson, certify that:

1.       I have reviewed this annual report on form 10-KSB of Heritage
         Bankshares, Inc.;

2.       Based on my knowledge, this annual report does not contain any untrue
         statement of a material fact or omit to state a material fact necessary
         to make the statements made, in light of the circumstances under which
         such statements were made, not misleading with respect to the period
         covered by this annual report;

3.       Based on my knowledge, the financial statements, and other financial
         information included in this annual report, fairly present in all
         material respects the financial condition, results of operations and
         cash flows of the registrant as of, and for, the periods presented in
         this annual report;

4.       The registrant's other certifying officers and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         have:

         a.       designed such disclosure controls and procedures to ensure
                  that material information relating to the registrant,
                  including its consolidated subsidiaries, is made known to us
                  by others within those entities, particularly during the
                  period in which this annual report is being prepared;

         b.       evaluated the effectiveness of the registrant's disclosure
                  controls and procedures as of a date within 90 days prior
                  prior to the filing date of this annual report (the
                  "Evaluation Date"); and

         c.       presented in this annual report our conclusions about the
                  effectiveness of the disclosure controls and procedures based
                  on our evaluation as of the Evaluation Date;

5.       The registrant's other certifying officers and I have disclosed, based
         on our most recent evaluation, to the registrant's auditors and the
         audit committee of registrant's board of directors (or persons
         performing the equivalent functions):

         a.       all such deficiencies in the design or operation of internal
                  controls which could adversely affect the registrant's ability
                  to record, process, summarize and report financial data and
                  have identified for the registrant's auditor's any material
                  weaknesses in internal controls; and

         b.       any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal controls; and

6.       The registrant's other certifying officers and I have indicated in this
         annual report whether there were significant changes in internal
         controls or in other factors that could significantly affect internal
         controls subsequent to the date of our most recent evaluation,
         including any corrective actions with regard to significant
         deficiencies and material weaknesses.



Date:  March 26, 2003                      /s/ Catherine P. Jackson
                                           --------------------------
                                           Catherine P. Jackson
                                           Chief Operating Officer

                                       19
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS


The Stockholders and Board of Directors
Heritage Bankshares, Inc.
Norfolk, Virginia


           We have audited the accompanying consolidated balance sheet of
Heritage Bankshares, Inc. and its subsidiaries at December 31, 2002 and 2001 and
the related consolidated statements of income, stockholders' equity and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company'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 audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated 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 consolidated financial
position of Heritage Bankshares, Inc. and its subsidiaries as of December 31,
2002 and 2001, and the consolidated results of their operations and their cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.

Witt Mares & Company, PLC

/s/ Witt Mares & Company, PLC

Virginia Beach, Virginia
January 31, 2003


                                       20
<PAGE>
<TABLE>

HERITAGE BANKSHARES, INC.
CONSOLIDATED BALANCE SHEETS



December 31,                                                                        2002                      2001
-------------------------------------------------------------------------------------------------------------------------

ASSETS
<S>                                                                        <C>                     <C>
Cash and due from banks                                                    $         8,878,558     $           5,941,788
Federal funds sold                                                                  13,423,376                 9,180,640
Securities available for sale                                                       14,257,498                14,101,169
Securities held to maturity                                                          1,641,357                 1,789,552
Loans, net                                                                          81,465,850                78,689,246
Loans held for sale                                                                  3,361,680                 2,253,100
Accrued interest receivable                                                            477,100                   549,393
Other real estate owned                                                                433,340                   433,340
Premises and equipment, net                                                          2,391,222                 2,428,391
Other assets                                                                         1,799,351                 1,260,012
                                                                           ----------------------------------------------

                                                                           $       128,129,332     $         116,626,631
                                                                           ==============================================

LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits
                Noninterest bearing deposits                               $        21,623,273     $          19,948,266
                Interest-bearing deposits                                           89,000,702                80,091,489
                                                                           ----------------------------------------------
                                                                                   110,623,975               100,039,755
Securities sold under agreements to repurchase                                       4,467,660                 5,149,857
Short-term borrowings                                                                   65,349                    59,217
Accrued interest payable                                                               248,356                   291,249
Other liabilities                                                                      961,279                   428,622
                                                                           ----------------------------------------------
                                                                                   116,366,619               105,968,700
                                                                           ----------------------------------------------
Stockholders' equity
                Common stock, $5 par value - authorized
                             3,000,000 shares; issued and
                             outstanding:
                             2002 - 784,525 shares; 2001 - 777,625                   3,922,625                 3,888,125
                Additional paid-in capital                                           (302,461)                 (323,421)
                Retained earnings                                                    7,878,163                 6,880,776
                Accumulated other comprehensive income (loss)                          264,386                   212,451
                                                                           ----------------------------------------------
                                                                                    11,762,713                10,657,931
                                                                           ----------------------------------------------

                                                                           $       128,129,332     $         116,626,631
                                                                           ==============================================

 The notes to consolidated financial statements are an integral part of this statement.

                                       21
<PAGE>

HERITAGE BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME



Years Ended December 31,                                                                         2002                  2001
---------------------------------------------------------------------------------------------------------------------------------

Interest income
      Interest and fees on loans                                                         $       6,418,644     $       6,513,877
                                                                                         ----------------------------------------
      Interest on investment securities:
          Available for sale                                                                       695,665               807,094
          Held to maturity                                                                         124,070               150,224
                                                                                         ----------------------------------------
                                                                                                            --
                                                                                                   819,735               957,319
                                                                                         ----------------------------------------

      Interest on federal funds sold                                                               135,251               320,675
                                                                                         ----------------------------------------
               Total interest income                                                             7,373,630             7,791,871
                                                                                         ----------------------------------------

Interest expense
      Interest on deposits                                                                       2,525,852             3,498,233
      Interest on short-term borrowings                                                             55,685               131,125
                                                                                         ----------------------------------------
               Total interest expense                                                            2,581,537             3,629,358
                                                                                         ----------------------------------------

               Net interest income                                                               4,792,093             4,162,513

Provision for loan losses                                                                           99,000                33,500
                                                                                         ----------------------------------------

               Net interest income after provision for loan losses                               4,693,093             4,129,013
                                                                                         ----------------------------------------
Noninterest income
      Services charges                                                                             295,217               292,000
      Other                                                                                        551,957               423,243
                                                                                         ----------------------------------------
                                                                                                   847,174               715,243
                                                                                         ----------------------------------------
Noninterest expense
      Salaries and employee benefits                                                             1,932,129             1,704,800
      Other                                                                                        657,362               534,287
      Automated services                                                                           297,413               257,054
      Occupancy expenses                                                                           239,177               227,190
      Furniture and equipment expense                                                              199,443               185,354
      Taxes and licenses                                                                           126,355               113,871
      Stationery and supplies                                                                       73,245                70,720
                                                                                         ----------------------------------------
                                                                                                 3,525,124             3,093,276
                                                                                         ----------------------------------------

Income before income taxes                                                                       2,015,143             1,750,980
Income tax expense                                                                                 650,440               536,500
                                                                                         ----------------------------------------

Net income                                                                               $       1,364,703     $       1,214,480
                                                                                         ========================================

Earnings per common share - basic                                                        $            1.75     $            1.57
                                                                                         ========================================

Earnings per common share - assuming dilution                                            $            1.65     $            1.51
                                                                                         ========================================

The notes to consolidated financial statements are an integral part of this statement.

                                       22
<PAGE>

HERITAGE BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY


Years Ended December 31, 2002 and 2001
---------------------------------------------------------------------------------------------------------------------------------


                                                                                                  Accumulated
                                              Common Stock         Additional                        Other
                                        -------------------------    Paid-in       Retained      Comprehensive
                                         Shares       Amount         Capital       Earnings          Income            Total
                                        ------------------------------------------------------------------------------------------
Balance, December 31, 2000                775,325   $3,876,625    ($333,721)      $5,877,616    $         18,713     $ 9,439,233


Net income for 2001                                                                1,214,480                           1,214,480

Net changes in unrealized gain
on securities available-for-sale,
net of deferred income taxes
of ($99,804)                                                                                             193,738         193,738
                                                                                               ------------------- ---------------
Total comprehensive income
                                                                                                                       1,408,218
                                                                                                                   ---------------


Stock options exercised in 2001             3,800       19,000        10,300                                              29,300

Common stock reacquired                   (1,500)      (7,500)                      (10,125)                            (17,625)

Less: Dividends paid in 2001                                                       (201,195)                           (201,195)
                                        ---------- -------------- -------------- ------------- ------------------- ---------------
Balance, December 31, 2001                777,625    3,888,125     (323,421)                             212,451      10,657,931
                                                                                   6,880,776


Net income for 2002                                                                1,364,703                           1,364,703

Net changes in unrealized gain
on securities available-for-sale,
net of deferred income taxes
of ($26,755)                                                                                              51,935          51,935
                                                                                               ---------------------------------
Total comprehensive income
                                                                                                                       1,416,638


Stock options exercised in 2002             6,900       34,500        20,960                                              55,460

Less: Dividends paid in 2002                                                       (367,316)                           (367,316)
                                        ---------- -------------- -------------- ------------- ------------------- ---------------
Balance, December 31, 2002                784,525   $3,922,625    $(302,461)      $7,878,163     $       264,386     $11,762,713

The notes to consolidated financial statements are an integral part of this statement.

                                       23
<PAGE>

HERITAGE BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW

Years Ended December 31,
---------------------------------------------------------------------------------------------------------------

                                                                                    2002              2001
                                                                           ------------------------------------
Operating activities:
Net income                                                                       $1,364,703        $ 1,214,480
Adjustments to reconcile to net cash provided by operating activities
 Gain on sale of fixed assets                                                        (7,332)                 -
 Loss on disposal of fixed assets                                                     7,237                  -
 Provision for loan losses                                                           99,000             33,500
 Provision for depreciation and amortization                                        167,726            162,768
 Amortization of investment security premiums, net of discounts                      79,610             24,560
 Deferred loan origination fees, net of costs                                        (9,174)            16,709
Changes in:
  Interest receivable                                                                72,293             85,829
  Interest payable                                                                  (42,893)           (62,827)
  Loans held for sale                                                            (1,108,580)        (2,086,321)
  Other assets                                                                     (224,550)           (29,224)
  Other liabilities                                                                  65,310           (178,837)
                                                                           ------------------------------------
   Net cash provided by operating activities                                        463,350           (819,363)
                                                                           ------------------------------------

Investing activities:
 Proceeds from maturities of available-for sale securities                        5,374,637          7,784,961
 Proceeds from maturities, prepayments and calls of
  held-to-maturity securities                                                       666,734          1,302,123
 Purchases of available-for-sale securities                                      (5,523,129)                 -
 Purchases of held-to-maturity securities                                          (527,016)        (8,936,482)
 Loan originations, net of principal repayments                                  (2,866,431)        (9,058,250)
 Proceeds from sale or disposal of land, premises and equipment                      16,000                  -
 Purchases of land, premises and equipment                                         (146,462)          (302,731)
                                                                           ------------------------------------
  Net cash used by investing activities                                          (3,005,667)        (9,210,379)
                                                                           ------------------------------------

Financing activities:
Net increase in demand deposits, NOW and savings accounts                         2,617,777          9,832,327
Net increase in certificates of deposit                                           7,966,443          3,745,376
Net increase (decrease) in securities sold under agreements
 to repurchase                                                                     (682,197)         2,860,938
Net increase in short-term borrowings                                                 6,132                732
Common stock acquired                                                                     -            (17,625)
Net proceeds from exercise of stock options                                          55,460             29,300
Cash dividends paid                                                                (241,792)          (201,195)
                                                                           ------------------------------------
  Net cash provided by financing activities                                       9,721,823         16,249,853
                                                                           ------------------------------------

Increase in cash and cash equivalents                                             7,179,506          6,220,111
Cash and cash equivalents at beginning of period                                $15,122,428          8,902,317
                                                                           ------------------------------------
                                                                           ------------------------------------
Cash and cash equivalents at end of period                                     $ 22,301,934       $ 15,122,428
                                                                           ------------------------------------

As shown on the Consolidated Balance Sheets:
   Cash and due from banks                                                       $8,878,558          5,941,788
   Federal funds sold                                                            13,423,376          9,180,640
                                                                           ------------------------------------
                                                                               $ 22,301,934       $ 15,122,428
                                                                           ------------------------------------
Cash paid for:
   Interest on deposits and other borrowings                                     $2,624,430        $ 3,692,182
                                                                           ------------------------------------
   Income taxes                                                                   $ 552,680          $ 429,833


The notes to consolidated financial statements are an integral part of this statement.

</TABLE>

                                       24
<PAGE>

HERITAGE BANKSHARES, INC.
--------------------------------------------------------------------------------
DECEMBER 31, 2002 AND 2001

--------------------------------------------------------------------------------

NOTE 1 - ORGANIZATION AND BUSINESS

Heritage Bankshares, Inc. (the "Company") was organized under the laws of the
Commonwealth of Virginia in 1983. The Company has four wholly owned
subsidiaries, including one bank: Heritage Bank & Trust (the "Bank") with five
full-service branches in Norfolk and Chesapeake, Virginia. The Company's other
subsidiaries are IBV Real Estate Holdings, Inc., a Virginia corporation,
Sentinel Title Services, Inc., a Virginia corporation, and Sentinel Trust
Services, L.L.C., a Virginia limited liability company. The Bank is a
state-chartered bank and a member of the Federal Reserve System. The deposits of
the Bank are insured by the Federal Deposit Insurance Corporation (the "FDIC")
to the extent and subject to the limitations set forth in the Federal Deposit
Insurance Act, as amended.

The Bank is a full-service bank conducting a general commercial and consumer
banking business with its customers located throughout the Hampton Roads area of
Virginia. Its principal banking activities include receiving demand, savings and
time deposits for personal and commercial accounts; making commercial, real
estate and consumer loans; acting as a United States tax depository facility;
providing money transfer and cash management services; selling traveler's checks
and bank money orders; issuing letters of credit; and investing in U.S. Treasury
securities and securities of other U.S. government agencies and corporations,
and mortgage-backed and state and municipal securities.

IBV Real Estate Holdings, Inc. was formed in December, 1986. Presently, its only
business is owning a 1% general partnership interest in IBV Partners, L.P., the
lessor of office space to Heritage Bank and Trust in Chesapeake, Virginia.
Sentinel Title Services, Inc. and Sentinel Trust Services, L.L.C. are wholly
owned subsidiaries, which own an interest in providers of title and trust
services. As these subsidiaries own a less than ten percent (10%) interest in
other companies, the financial activities pertaining to these interests are
recorded on the cost method of accounting for investments. The Company's
strategic relationship with these entities provides the Bank with the ability to
provide title and trust services to its customers.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Statement Presentation and Principles of Consolidation

The accompanying consolidated financial statements include the accounts of
Heritage Bankshares, Inc. and its wholly owned subsidiaries, Heritage Bank and
Trust, IBV Real Estate Holdings, Inc., Sentinel Title Services, Inc. and
Sentinel Trust Services, L.L.C. All significant intercompany balances and
transactions have been eliminated in consolidation.

Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts due from banks, interest bearing deposits with banks and federal
funds sold. Generally, federal funds are sold for one-day periods.

Securities

Investments in debt securities that management has the positive intent and
ability to hold to maturity are classified as "held to maturity" and reflected
at amortized cost. Investments that are purchased and held principally for the
purpose of selling them in the near term, if any, are classified as "trading
securities" and reflected at fair value, with unrealized gains and losses
included in earnings. Investments not classified as either of the above are
classified as "available for sale" and recorded at

                                       25
<PAGE>

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Securities (continued)

fair value, with unrealized gains and losses excluded from earnings and reported
in other comprehensive income.

Purchase premiums and discounts are recognized in interest income using the
interest method over the period to maturity on held-to-maturity and
available-for-sale securities. Other-than-temporary declines in the fair value
of individual held-to-maturity and available-for-sale securities, if any, result
in write-downs of the individual securities to fair value. Gains and losses are
determined using the specific-identification method.

Loans

Loans are reported at their principal outstanding balance net of charge-offs,
deferred loan fees and costs on originated loans, unearned income, and
unamortized premiums or discounts, if any, on purchased loans. Interest income
is generally recognized when income is earned using the interest method. Loan
origination fees and certain direct loan origination costs are deferred and the
net amounts are amortized as an adjustment to yield on the respective loans.

Loans Held For Sale

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

Allowance for Loan Losses

A loan is considered impaired, based on current information and events, if it is
probable that the Bank will be unable to collect the scheduled payments of
principal or interest when due according to the contractual terms of the loan
agreement. The measurement of impaired loans is generally based on the present
value of expected future cash flows discounted at the historical effective
interest rate, except that all collateral-dependent loans are measured for
impairment based on the fair value of the collateral.

Large groups of smaller balance homogeneous loans are collectively evaluated for
impairment. Accordingly, the Bank does not separately identify individual
consumer and residential loans for impairment disclosures.

The adequacy of the allowance for loan losses is periodically evaluated by the
Bank, in order to maintain the allowance at a level that is sufficient to absorb
probable credit losses. Management's evaluation of the adequacy of the allowance
is based on a review of the Bank's historical loss experience, known and
inherent risks in the loan portfolio, including adverse circumstances that may
affect the ability of the borrower to repay interest and/or principal, the
estimated value of collateral, and an analysis of the levels and trends of
delinquencies, charge-offs, and the risk ratings of the various loan categories.

  Such factors as the level and trend of interest rates and the condition of the
national and local economies are also considered. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowance for losses on loans. Such agencies may
require the Bank to recognize additions to the allowance based on their
judgments of information available to them at the time of their examination.

                                       26
<PAGE>

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Allowance for Loan Losses (continued)

The allowance for loan losses is established through charges to earnings in the
form of a provision for loan losses. Increases and decreases in the allowance
due to changes in the measurement of impaired loans, if applicable, are included
in the provision for loan losses. Loans continue to be classified as impaired
unless they are brought fully current and the collection of scheduled interest
and principal is considered probable.

When a loan or portion of a loan is determined to be uncollectible, the portion
deemed uncollectible is charged against the allowance and subsequent recoveries,
if any, are credited to the allowance.

Income Recognition on Impaired and Nonaccrual Loans

Loans, including impaired loans, are generally classified as nonaccrual if they
are past due as to maturity or payment of principal or interest for a period of
more than 90 days, unless such loans are well-secured and in the process of
collection. If a loan or a portion of a loan is classified as doubtful, or is
partially charged off, the loan is generally classified as nonaccrual. Loans
that are on a current payment status or past due less than 90 days may also be
classified as nonaccrual, if repayment in full of principal and/or interest is
in doubt.

Loans may be returned to accrual status when all principal and interest amounts
contractually due (including arrearages) are reasonably assured of repayment
within an acceptable period of time, and there is a sustained period of
repayment performance (generally a minimum of six months) by the borrower, in
accordance with the contractual terms of interest and principal.

While a loan is classified as nonaccrual and the future collectibility of the
recorded loan balance is doubtful, collections of interest and principal are
generally applied as a reduction to principal outstanding. When the future
collectibility of the recorded loan balance is expected, interest income may be
recognized on a cash basis. In the case where a nonaccrual loan had been
partially charged off, recognition of interest on a cash basis is limited to
that which would have been recognized on the recorded loan balance at the
contractual interest rate. Cash interest receipts in excess of that amount are
recorded as recoveries to the allowance for loan losses until prior charge-offs
have been fully recovered.

Other Real Estate Owned

Other real estate owned is comprised of real estate acquired through
foreclosure, acceptance of a deed in lieu of foreclosure, or loans in which the
Bank receives physical possession of the debtor's real estate. Other real estate
owned is carried at the lower of the recorded investment in the loan or the fair
value less estimated costs to sell.

Restructured Loans

Loans are considered troubled debt restructurings if for economic or legal
reasons, a concession has been granted to the borrower related to the borrower's
financial difficulties that the Bank would not have otherwise considered. The
Bank has restructured certain loans in instances where a determination was made
that greater economic value will be realized under new terms than through
foreclosure, liquidation, or other disposition. The terms of the renegotiation
generally involve some or all of the following characteristics: a reduction in
the interest pay rate to reflect actual operating income, an extension of the
loan maturity date to allow time for stabilization of operating income, and
partial forgiveness of principal and interest.

                                       27
<PAGE>

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Restructured Loans (continued)


The carrying value of a restructured loan is reduced by the fair value of assets
or equity interest received, if any. Prior to demonstrating performance, the
Bank generally classifies impaired restructured loans, if any, as nonaccrual.
The accrual of interest resumes when such loans can demonstrate performance,
generally evidenced by six months of pre- or post-restructuring payment
performance in accordance with the restructured terms, or by the presence of
other significant factors. In addition, at the time of restructuring, loans are
generally classified as impaired. A restructured loan that is not impaired,
based on the restructured terms and has a stated interest rate greater than or
equal to a market interest rate at the date of the restructuring, is
reclassified as unimpaired in the year immediately following the year it was
disclosed as restructured.

Premises and Equipment

Premises and equipment are stated at cost less accumulated depreciation. For
financial reporting purposes, assets are depreciated over their estimated useful
lives using the straight-line method. For income tax purposes, the accelerated
cost recovery system and the modified accelerated cost recovery system are used.

Transfers of Financial Assets

Transfers of financial assets are accounted for as sales, when control over the
assets has been surrendered. Control over transferred assets is deemed to be
surrendered when (1) the assets have been isolated from the Bank, (2) the
transferee obtains the right (free of conditions that constrain it from taking
advantage of that right) to pledge or exchange the transferred assets, and (3)
the Bank does not maintain effective control over the transferred assets through
an agreement to repurchase them before their maturity.

Income Taxes

The Company files a consolidated tax return. Provisions for income taxes reflect
tax expense incurred as a consolidated group. Tax expense is allocated among the
members of the consolidated group in accordance with an intercompany agreement
for tax expense. Income taxes are provided for the tax effects of the
transactions reported in the financial statements and consist of taxes currently
due plus deferred taxes related primarily to differences between the basis of
investment securities, deferred loan fees, allowance for loan losses, allowance
for losses on foreclosed real estate, accumulated depreciation and deferred
compensation for financial and income tax reporting. The deferred tax assets and
liabilities represent the future tax return consequences of those differences,
which will either be taxable or deductible when the assets and liabilities are
recovered or settled. An allowance is provided if it is more likely than not
that the Company will not realize the benefits of a deferred tax asset. As of
December 31, 2002, a valuation allowance has not been provided against the
deferred tax asset.

Deferred Compensation Plans

The Bank maintains deferred compensation and retirement arrangements with
certain directors and officers. The Company's policy is to accrue the present
value of estimated amounts to be paid under the contracts over the expected
period of active employment. The Bank purchased life insurance contracts to fund
the expected liabilities under the contracts.

Off-Balance-Sheet Financial Instruments

In the ordinary course of business, the Bank has entered into off-balance-sheet
financial instruments consisting of commitments to extend credit, commitments
under credit card arrangements, commercial letters of credit, standby letters of
credit and financial guarantees written. Such financial instruments are recorded
in the financial statements when they become payable.

                                       28
<PAGE>

Use of Estimates

The preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for losses on loans and the
valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans. While management uses available information to recognize
losses on loans and foreclosed real estate, future additions to the allowance
may be necessary based on changes in local economic conditions and other
factors.

Earnings per Share

Basic earnings per share (EPS) excludes dilution and is computed by dividing
income available to common shareholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised, converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity.

Comprehensive Income

Accounting principles generally require that recognized revenue, expenses, and
realized gains and losses be included in net income. Although certain changes in
assets and liabilities, such as unrealized gains and losses on
available-for-sale securities, are reported as a separate component of the
equity section of the balance sheet, such items, along with net income, are
components of comprehensive income.

The components of other comprehensive income and related tax effects are as
follows:

                                             Years Ended December 31,
                                           ------------------------------
                                                2002           2001
                                           --------------- --------------
Unrealized holding gains on
   available-for-sale securities                $ 78,690       $293,542

Tax effect                                       (26,755)       (99,804)
                                           --------------- --------------
Net-of-tax amount                                 $51,935       $193,738
                                           --------------- --------------


Reclassifications

Certain reclassifications have been made to prior year financial statements to
conform them to the current year's presentation.

                                       29
<PAGE>
<TABLE>

NOTE 3 - CONDENSED FINANCIAL INFORMATION OF HERITAGE BANKSHARES, INC.
 (PARENT COMPANY ONLY)

The financial position, results of operations and cash flows of Heritage
Bankshares, Inc. are presented below on a parent company only basis for the
years indicated.

                                                             Years Ended December 31,
               Condensed Balance Sheets                       2002              2001
               ------------------------
                                                        ------------------------------------
Assets
<S>                                                             <C>                <C>
Cash on deposit with Heritage Bank & Trust                      $468,767           $233,581

Investment in Heritage Bank & Trust                           11,168,025         10,130,065

Investment in non-bank subsidiaries                              245,549            217,549

Other assets                                                     232,004            218,967
                                                        ------------------------------------
                     Total assets                           $ 12,114,345       $ 10,800,162
                     ------------                       ------------------------------------


         Liabilities and Stockholders' Equity
         ------------------------------------
Other Liabilities                                              $ 351,632           $142,231

Common Stock                                                   3,922,625          3,888,125

Additional paid-in capital                                     (302,461)          (323,421)

Retained earnings                                              7,878,163          6,880,776

Accumulated other comprehensive income                           264,386            212,451
                                                        ------------------------------------
      Total liabilities and stockholders' equity            $ 12,114,345       $ 10,800,162
      ------------------------------------------

                                                             Years Ended December 31,

            Condensed Statement of Income                     2002              2001
            -----------------------------               ------------------------------------


                        Income
Dividends from subsidiary bank                                  $367,316          $ 218,820

                       Expenses

Other                                                             29,305             22,537

Income before income taxes and equity in

 undistributed net income of subsidiaries                        338,012            209,374

Applicable income tax benefit                                      8,570              3,212
                                                        ------------------------------------
Income before equity in undistributed net

 income of subsidiaries                                          346,582            212,586

Equity in undistributed net income of subsidiaries             1,018,121          1,001,894
                                                        ------------------------------------

                      Net income                             $ 1,364,703         $1,214,480
                      ----------

                                       30
<PAGE>

                                                                  Years Ended December 31,
            Condensed Statements of Cash Flows                    2002              2001
            ----------------------------------              ------------------------------------

Operating activities:
  Net income                                                     $ 1,364,703        $ 1,214,480
  Adjustments to reconcile to net cash provided
    by operating activities:

Undistributed net income of subsidiaries                           (986,023)        (1,001,894)
Changes in:

  Other assets                                                      (13,037)          (181,291)

  Other liabilities                                                  209,401           (73,478)
                                                            ------------------------------------

Net cash provided by operating activities                            575,044           (42,183)
                                                            ------------------------------------

Investing activities:

  Investment in non-bank subsidiary                                 (28,000)                  -
                                                            ------------------------------------
  Net cash used by investing activities
                                                                    (28,000)                  -

Financing activities:

  Net proceeds from exercise of stock options                         55,460             29,300

  Common stock reacquired                                                  -           (17,625)

  Cash dividends paid                                              (367,317)          (201,195)
                                                            ------------------------------------
           Net cash used by financing activities
                                                                   (311,857)          (189,520)


Net increase (decrease) in cash and cash equivalents                 235,186          (231,703)

Cash and cash equivalents at beginning of year                       233,581            465,284
                                                            ------------------------------------
Cash and cash equivalents at end of year                           $ 468,767          $ 233,581
                                                            ------------------------------------
</TABLE>

Certain restrictions exist regarding the ability of Heritage Bank and Trust to
transfer funds to Heritage Bankshares, Inc. in the form of cash dividends, loans
or advances. Pursuant to federal regulations, dividends are generally restricted
to net profits, as defined, for the current year, plus retained net profits for
the previous two years. At December 31, 2002, the Bank could have paid dividends
to the Company of approximately $3,345,000 under these regulations. The maximum
amount available for transfer from Heritage Bank and Trust to the Company in the
form of loans and advances is 10% of Heritage Bank and Trust's stockholder's
equity. At December 31, 2002, such maximum amount available is approximately
$1,176,000.

NOTE 4 - RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS

The Bank is required by the Federal Reserve Bank to maintain average reserve
balances. The average amount of maintained reserve balances was approximately
$1,089,000 for the year ended December 31, 2002, with the average reserve
requirement for the same period being approximately $1,073,000. On December 31,
2001, the reserve balances were approximately $934,000.

                                       31
<PAGE>
<TABLE>

NOTE 5 - SECURITIES

                                               Amortized      Gross Unrealized     Gross Unrealized     Estimated Fair
                                                 Cost               Gains               Losses               Value
                                            -----------------------------------------------------------------------------
December 31, 2002
   Securities available-for-sale
<S>                                               <C>                   <C>                      <C>           <C>
     U.S. Treasury                                $ 501,026             $ 24,914                 $  -          $ 525,940

     U.S. government agencies                    12,027,119              334,956                    -         12,362,075

     Mortgage-backed securities                     581,713               25,295                    -            607,009

     State and political subdivisions               747,054               15,420                    -            762,474
                                            -----------------------------------------------------------------------------
                                                $13,856,913            $ 400,585                 $  -        $14,257,498
                                            -----------------------------------------------------------------------------

  Securities held-to-maturity

     U.S. government agencies                       250,336                5,211                    -            255,548

     Mortgage-backed securities                      41,944                  982                    -             42,926

     State and political subdivisions               194,067               13,501                    -            207,568

     Other                                        1,155,010                    -                    -          1,155,010
                                            -----------------------------------------------------------------------------
                                                $ 1,641,357              $19,695                 $  -        $ 1,661,052
                                            -----------------------------------------------------------------------------
December 31, 2001
   Securities available-for-sale
     U.S. Treasury                              $ 2,005,513              $ 9,118                $  19        $ 2,014,612

     U.S. government agencies                     9,955,298               35,382               15,330          9,975,350

     Mortgage-backed securities                     492,363                1,497                  799            493,061

     State and political subdivisions               191,022                    -                1,496            189,526
                                            -----------------------------------------------------------------------------
                                                $12,644,196              $45,997              $17,644        $12,672,549
                                            -----------------------------------------------------------------------------

  Securities held-to-maturity
     U.S. Treasury                                $ 499,661                $   -                $ 131         $  499,530

     U.S. government agencies                     1,005,150                    -                3,587          1,001,563

     Mortgage-backed securities                     121,891                  167                    -            122,058

     State and political subdivisions               589,502                9,507                    -            599,009

     Other                                          882,728                    -                2,426            880,302
                                            -----------------------------------------------------------------------------
                                                $ 3,098,932               $9,674               $6,144         $3,102,462
                                            -----------------------------------------------------------------------------



Other securities include restricted investments of $630,400 and $630,386 at
December 31, 2002 and 2001, respectively. These securities do not have a readily
determinable fair value and lack a market. Therefore, they are carried at cost
and periodically evaluated for impairment.

Investment securities having carrying values of $4,077,292 and $6,590,210 at
December 31, 2002 and 2001, respectively, are pledged to secure deposits of the
U.S. government and the Commonwealth of Virginia. The estimated fair values of
these securities were $4,224,631 and $6,788,330 at December 31, 2002 and 2001,
respectively.

The amortized cost and fair value of securities by maturity date, including the
contractual maturities of mortgage-backed securities, at December 31, 2002 are
as follows:

                                       32
<PAGE>

                                         Securities Held-to-Maturity           Securities Available-for-Sale
                                      ----------------------------------     ----------------------------------
                                                              Estimated                              Estimated
                                             Amortized          Fair               Amortized           Fair
                                                Cost            Value                 Cost             Value
                                      ----------------- ----------------     ----------------- ----------------
Due in one year or less                       $250,336         $255,548            $3,750,760       $3,840,853

Due from one year to five years                517,155          544,640             8,790,682        9,061,002

Due from five years to ten years               194,067          207,568               188,577          189,502

Due after ten years                            679,799          680,782             1,126,894        1,166,141
                                      ----------------- ---------------- --- ----------------- ----------------
                                            $1,641,357       $1,688,538           $13,856,913      $14,257,498
</TABLE>

NOTE 6 - LOANS

     Loans consist of the following:

                                             Years Ended December 31,
                                        ----------------------------------
                                              2002               2001
                                        ---------------    ---------------
Gross loans
  Commercial                               $13,892,187        $13,719,824
  Real estate-mortgage                      58,077,032         53,416,568
  Real estate-construction                   4,170,760          6,110,906
  Installment and consumer                   6,413,711          6,527,096
                                        ---------------    ---------------

Total gross loans                           82,553,690         79,774,394
Less-allowance for loan losses             (1,087,840)        (1,085,148)
                                        ---------------    ---------------
Loans, net                                $81,465,850        $78,689,246
                                        ===============    ===============


         A summary of the activity in the allowance for loan losses account is
as follows:

                                            Years Ended December 31,
                                            2002               2001
                                        --------------    ---------------
Balance, beginning of year                 $1,085,148         $1,055,216
Provision charged to operations                99,000             33,500
Loans charged-off                            (98,771)           (45,882)
Recoveries                                      2,462             42,314
                                        --------------    ---------------
Balance, end of year                      $1,087,840         $1,085,148
                                        ==============    ===============

The following is a summary of information pertaining to impaired loans:

                                                            December 31,
                                                  ------------------------------
                                                        2002            2001

Impaired loans without a valuation allowance        $        -      $        -
Impaired loans with a valuation allowance            2,613,790       2,146,404
                                                     ----------      ---------
Total impaired loans                                $2,613,790      $2,146,404
                                                    ===========     ==========

Valuation allowance related to impaired loans         $556,910        $483,297
                                                    ===========     ==========

                                       33
<PAGE>

                                                   Years Ended December 31,
                                               ---------------------------------
                                                     2002              2001
                                               ---------------    --------------
Average investment in impaired loans              $1,101,083        $2,331,112
                                                  ===========       ===========

Interest income recognized on impaired loans         $61,499          $149,952
                                                  ===========       ===========





No additional funds are committed to be advanced in connection with impaired
loans.

Loans on which the accrual of interest has been discontinued amount to $13,305
and $33,463 at December 31, 2002 and 2001, respectively. If interest on these
loans had been accrued, such income would have approximated $3,969 and $5,204
for 2002 and 2001, respectively. No interest income was recognized or received
on these loans in 2002 and 2001.

NOTE 7 - PREMISES AND EQUIPMENT

Premises and equipment consist of the following:
                                                  December 31,
                                        ---------------------------------
                                              2002               2001
                                        --------------    ---------------
Land and improvements                        $612,567           $612,567
Buildings                                   1,987,562          1,943,071
Leasehold improvements                          7,951              7,951
Equipment, furniture and fixtures           1,473,831          1,416,895
                                        --------------    ---------------
                                           $4,081,911         $3,980,484
Less - accumulated depreciation           (1,690,689)        (1,552,093)
                                        --------------    ---------------
                                           $2,391,222         $2,428,391

Depreciation charged to operating expense for the years ended December 31, 2002
and 2001 was $167,726 and $163,048, respectively.

NOTE 8 - DEPOSITS

Interest-bearing deposits consist of the following:
                                                        December 31,
                                              ----------------------------------
                                                    2002               2001
                                              ---------------    ---------------
Money market and NOWs                            $23,115,766        $21,064,507
Savings                                            4,618,687          5,727,176
Certificates of deposit $100,000 and over         20,225,821         18,390,041
Other time deposits                               41,040,428         34,909,765
                                              ---------------    ---------------
                                                 $89,000,702        $80,091,489


                                       34
<PAGE>

At December 31, 2001, the scheduled maturities of time deposits are as follows:

2003                                       $36,456,230
2004                                        13,776,318
2005                                         1,613,628
2006                                         1,304,434
2007                                         4,282,387
Thereafter                                  3,833,252
                                            ---------
                                          $61,266,249

NOTE 9 - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND SHORT-TERM
         BORROWINGS

Securities sold under agreements to repurchase generally mature within one to
four days from the transaction date. Investment securities with carrying values
of $6,169,959 and $5,347,655 at December 31, 2002 and 2001, respectively, are
pledged to secure these agreements. Information concerning securities sold under
agreements to repurchase is summarized, as follows:

                                               2002              2001
                                           --------------    --------------
Average balance during the year              $4,169,521        $3,770,166
                                             ===========       ===========

Average interest rate during the year              1.30%             3.42%
                                                   =====             =====

Maximum month-end balance during the year    $5,962,695        $5,149,866
                                             ===========       ==========

Short-term borrowings consist of U.S. Treasury tax and loan deposit notes, which
are payable on demand and fully collateralized by investment securities.

The Bank is a member of the Federal Home Loan Bank of Atlanta. One of the
benefits of membership is a borrowing capacity of $5.9 million secured by a
blanket floating lien on the unpaid principal balance of the Bank's one-to-four
unit residential real estate loans. In addition, the Bank may borrow up to 10%
of its total assets under a separate credit availability program with the
Federal Home Loan Bank of Atlanta. As of December 31, 2002, the Bank had no
outstanding balance on these lines of credit.


NOTE 10 - EMPLOYEE BENEFIT PLANS

Stock Compensation Plans

At December 31, 2002, the Bank had fixed stock compensation plans for its
employees. The Bank applies Accounting Principles Board Opinion No. 25 (APB 25),
Accounting for Stock Issued to Employees, and related interpretations in
accounting for its plans. Accordingly, no compensation cost has been recognized
for these plans against earnings. For those companies applying APB 25, FASB
Statement No. 123, Accounting for Stock-Based Compensation, requires certain
pro-forma disclosures of net income and earnings per share. Net income and
earnings per share computed under FASB Statement No. 123 do not materially
differ from the amounts reported.

All options have ten-year terms, vest and become fully exercisable in three
years. The option exercise price equals or exceeds the market price of the stock
as of the date the option was granted.




The following is a summary of the Bank's stock option activity, and related
information for the years ended December 31:
<TABLE>

                                                       2002                                  2001
                                        -----------------------------------    ----------------------------------
                                                        Weighted Average                       Weighted Average
                                         Options         Exercise Price         Options         Exercise Price
                                        ----------    ---------------------    -----------    -------------------
<S>                                       <C>          <C>                        <C>          <C>
Outstanding - beginning of year           122,850      $       10.36              128,250      $      10.27
Granted                                     6,500              16.24                    0                 -
Exercised                                 (6,900)               8.04              (3,800)              7.71
Forfeited                                   (625)               4.60              (1,600)              9.09
                                        -----------------------------------    ----------------------------------
Outstanding - end of year                121,825       $       10.82             122,850       $      10.36
                                         ========     ===============            ========     ==============

Exercisable - end of year                107,331       $       10.48              94,319       $       9.73
                                         ========     ===============             =======     =============
</TABLE>


Deferred Compensation Plans

In 1985, the Bank entered into a deferred compensation and retirement
arrangement with seven directors and in 1998 with one officer. The Bank
purchased life insurance contracts in order to fund the expected liabilities
under the contracts. The Bank's policy is to accrue the estimated amounts to be
paid under the contracts over the expected period of active employment. At
December 31, 2002 and 2001, other liabilities included $316,224 and $239,605,
respectively, related to the deferred compensation plans.

Employee Stock Ownership Plan

The Board of Directors adopted an Employees' Stock Bonus Plan (the "ESOP")
effective January 1, 1998. The ESOP covered substantially all employees, whereby
funds contributed were used to purchase outstanding common stock of the Company.
Employees become eligible after they have completed six consecutive months of
employment. Contributions to the plan are funded as accrued. The Company
expensed approximately $39,300 and $33,300, for the years ended December 31,
2002 and 2001 respectively.

401k Retirement Program

Effective January 1, 1993, the Board of Directors adopted a Retirement Program
(the "401K"). Eligible participants in the 401K include all employees who have
completed six months of service beginning with the effective date of the 401K.
Contributions to the plan are funded by the employees with an associated
employer match. At December 31, 2002 and 2001, other liabilities included
$13,084 and $49,220, respectively, related to this program. The accrued
contribution as of December 31, 2002 was $3,000.00. The Bank did not accrue for
a contribution to the plan in 2001.

NOTE 11- INCOME TAXES

The principal components of income tax expense are as follows:

                                                       Years Ended December 31,
                                                      --------------------------
                                                        2002              2001
                                                      --------          --------
Federal income tax expense-current                    $629,186          $539,081
Deferred federal income tax expense (benefit)           21,254           (2,581)
                                                       -------           -------
Income tax expense                                    $650,440          $536,500
                                                      ========          ========


                                       35
<PAGE>
<TABLE>
Differences between income tax expense calculated at the statutory rate and that
shown in the statements of income are summarized as follows:

                                                         Years Ended December 31,
                                                     ---------------------------------
                                                           2002                2001
                                                     -------------       -------------
<S>                             <C>                      <C>                 <C>
Federal income tax expense - at 34% statutory rate       $685,150            $595,333
Tax effect of:
  Tax-exempt interest                                    (32,195)            (37,204)
  Exercised stock options                                (22,594)             (8,384)
  Other                                                    20,079            (13,245)
                                                          -------           --------
                                                         $650,440           $536,500
                                                        =========           ========


A cumulative net deferred tax asset is included in other assets at December 31,
2002 and 2001. The components of the asset are as follows:
                                                         --------------    --------------
                                                              2002              2001
                                                         --------------    --------------
Deferred tax assets:
   Deferred compensation                                      $150,275           $81,466
   Bad debts and other provisions                              351,343           344,888
   Other                                                        12,201            18,558
   Interest income                                               3,889             5,461
                                                              --------          --------
Total deferred tax assets                                     $517,708          $450,373

Deferred tax liabilities:
   Net unrealized appreciation on available-for sale         (136,199)         (109,444)
   Deferred loan fees                                         (34,964)          (39,504)
   Discount accretion on securities                           (16,300)          (15,625)
   Fixed assets                                               (63,718)          (64,366)
   Other                                                      (38,591)                0
                                                             ---------         --------
Total deferred tax liabilities                               (289,772)         (228,939)

Net deferred tax assets                                       $227,936          $221,434
                                                             =========          ========
</TABLE>


NOTE 12 - COMMITMENTS AND CONTINGENCIES- RELATED PARTY

The Company has entered into a long-term lease with a related party to provide
space for one branch and the Bank's operations center. This lease has been
classified as an operating lease for financial reporting purposes. Future
minimum lease payments of $75,810 are required each year for five years under
the long-term noncancellable lease agreement as of December 31, 2001, which
expires on December 31,2007. Total lease expense was $64,439 for the years 2002
and 2001, respectively.

NOTE 13 - OTHER RELATED PARTY TRANSACTIONS

The Bank has loan and deposit transactions with its officers and directors, and
with companies in which the officers and directors have a financial interest.
Related party deposits amounted to approximately $7,539,000 and $5,120,000 at
December 31, 2002 and 2001, respectively. In addition to related party deposits,
securities sold under agreements to repurchase with related parties amounted to
approximately $2,737,000 and $3,500,000 at December 31, 2002 and 2001,
respectively. A summary of related party loan activity for Heritage Bank and
Trust is as follows during 2002:

                                       36
<PAGE>

A summary of related party loan activity for Heritage Bank and Trust is as
follows during 2002:

Balance, December 31, 2001                        $4,802,237
Originations - 2002                                1,770,280
Repayments - 2002                                (1,582,363)
                                                 -----------
Balance, December 31, 2002                        $4,990,154
                                                 ===========

In the opinion of management, such loans are made in the ordinary course of
business at normal credit terms, including interest rate and collateral
requirements and do not represent more than normal credit risk.

In the ordinary course of business, the Company has engaged in transactions with
certain of its directors' companies for legal services and insurance.

Commitments to extend credit and letters of credit to related parties amounted
to $627,019 and $920,405 at December 31, 2002 and 2001, respectively.

NOTE 14 - CREDIT COMMITMENTS AND CONCENTRATIONS OF CREDIT RISK

The Bank has outstanding at any time a significant dollar amount of commitments
to extend credit. To accommodate major customers, the Bank also provides standby
letters of credit and guarantees to third parties. Those arrangements are
subject to strict credit control assessments. Guarantees and standby letters of
credit specify limits to the Bank's obligations. The amounts of loan
commitments, guarantees and standby letters of credit are set out in the
following table as of December 31, 2002 and 2001. Because many commitments and
almost all standby letters of credit and guarantees expire without being funded
in whole or in part, the contract amounts are not estimates of future cash
flows. The majority of commitments to extend credit have terms up to one year.
Interest rates on fixed-rate commitments range from 3.50% to 18%.
<TABLE>
                                                December 31, 2002                      December 31, 2001
                                        -----------------------------------    -----------------------------------
                                          Variable Rate       Fixed Rate          Variable Rate       Fixed Rate
                                           Commitment         Commitment           Commitment         Commitment

<S>                                        <C>                  <C>                <C>                 <C>
Loan Commitments                           $17,052,489          $2,363,465         $14,890,019         $2,376,038

Standby letters of credit and
  guarantees written                          $227,047            $369,371            $196,748           $208,600
</TABLE>

All of the guarantees outstanding at December 31, 2002 expire during 2003.

Loan commitments, standby letters of credit and guarantees written have
off-balance-sheet credit risk because only origination fees and accruals for
probable losses, if any, are recognized in the statement of financial position,
until the commitments are fulfilled or the standby letters of credit or
guarantees expire. Credit risk represents the accounting loss that would be
recognized at the reporting date if counterparties failed completely to perform
as contracted. The credit risk amounts are equal to the contractual amounts,
assuming that the amounts are fully advanced and that, in accordance with the
requirements of FASB Statement No. 105, Disclosure of Information about
Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments with
Concentrations of Credit Risk, collateral or other security is of no value. The
Bank's policy is to require customers to provide collateral prior to the
disbursement of approved loans. For retail loans, the Bank usually retains a
security interest in the property or products financed, which provides
repossession rights in the event of default by the customer. For business loans
and financial guarantees, collateral is usually in the form of inventory or
marketable securities (held in trust) or property (notations on title).

Concentrations of credit risk (whether on or off balance sheet) arising from
financial instruments exist in relation to certain groups of customers. A group
concentration arises when a number of counterparties have similar economic
characteristics that would cause their ability to meet contractual obligations


                                       37
<PAGE>

to be similarly affected by changes in economic or other conditions. The Bank
does not have significant exposure to any individual customer or counterparty.
The major concentrations of credit risk for the Bank arise by customer loan type
in relation to loans and credit commitments. A geographic concentration arises
because the Bank operates primarily in southeastern Virginia.

The credit risk amounts represent the maximum accounting loss that would be
recognized at the reporting date if counterparties failed completely to perform
as contracted and any collateral or security proved to be of no value. The Bank
has experienced little difficulty in accessing collateral when required. The
amounts of credit risk shown, therefore, greatly exceed expected losses, which
are included in the allowance for loan losses.

NOTE 15 - REGULATORY MATTERS

The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve 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 are also
subject to qualitative judgments by the regulators about components (such as
interest rate risk), risk weighting, and other factors.

Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 2002, the Bank
meets all capital adequacy requirements to which it is subject.

As of February 28, 2002, the most recent notification from the Federal Reserve
Bank of Richmond categorized the Bank 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 set forth in the table. There are no conditions or events
since that notification that management believes have changed the institution's
category.

                                       38
<PAGE>
<TABLE>

The Bank's actual capital amounts and ratios are also presented in the table.
                                                                                                     To Be Well Capitalized
                                                                       For Capital Adequacy         Under Prompt Corrective
                                              Actual                         Purposes                  Action Provisions
                                   -----------------------------    ---------------------------   -----------------------------
                                       Amount           Ratio          Amount          Ratio          Amount           Ratio
                                       ------           -----          ------          -----          ------           -----
<S>                                   <C>                <C>           <C>               <C>          <C>               <C>
As of December 31, 2002:
Total Capital
 (to risk-weighted assets)            $11,992,000        13.35%        $7,196,000        8.00%        $8,983,000        10.00%
Tier 1 Capital
  (to risk-weighted assets)           $10,904,000        12.14%        $3,593,000        4.00%        $5,390,000         6.00%
Tier 1 Capital
  (to average assets)                 $10,904,000         9.23%        $4,723,000        4.00%        $5,904,000         5.00%

As of December 31, 2001:
Total Capital
(to risk-weighted assets)             $11,513,000        13.48%        $6,831,000        8.00%        $8,539,200        10.00%
Tier 1 Capital
(to risk-weighted assets)             $10,445,000        12.23%        $3,416,000        4.00%        $5,124,000         6.00%
Tier 1 Capital
 (to average assets)                  $10,445,000         9.67%        $4,320,000        4.00%        $5,400,000         5.00%

There is no significant difference between the Bank's actual ratios disclosed
above, and the related actual ratios of the Company.

NOTE 16 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The following table presents the carrying amounts and fair value of the Bank's
financial instruments at December 31, 2002 and 2001. The fair value of a
financial instrument is the amount at which the instrument could be exchanged in
a current transaction between willing parties, other than in a forced or
liquidation sale. The carrying amounts in the table are included in the balance
sheet under the indicated captions.

                                                          2002                                           2001
                                         Carrying Amount           Fair Value           Carrying Amount           Fair Value
                                                 (Dollars in thousands)                         (Dollars in thousands)
Financial Assets
Cash and cash equivalents              $  22,301               $  22,301               $  15,123             $  15,123
Loans                                     84,828                  91,240                  78,689                82,018
Investment securities                     15,891                  15,939                  15,558                15,587
Accrued interest receivable                  477                     477                     549                   549

Financial Liabilities
Deposit liabilities                      111,093                 112,995                 100,273               101,452
Accrued interest payable                     248                     248                     291                   291
Short-term borrowings                         65                      65                      59                    59
Securities sold under agreements to
repurchase                                 4,468                   4,468                   5,150                 5,150
</TABLE>

Estimation of Fair Values

The following notes summarize the major methods and assumptions used in
estimating the fair values of financial instruments:

                                       39
<PAGE>

Short-term financial instruments are valued at their carrying amounts included
in the Bank's balance sheet, which are reasonable estimates of fair value due to
the relatively short period to maturity of the instruments. This approach
applies to cash and cash equivalents, short-term borrowings, and securities sold
under agreements to repurchase.

Loans are valued on the basis of estimated future receipts of principal and
interest, which are discounted at various rates. Loan prepayments are assumed to
occur at the same rate as in previous periods when interest rates were at levels
similar to current levels. Future cash flows for homogeneous categories of
consumer loans, such as motor vehicle loans, are estimated on a portfolio basis
and discounted at current rates offered for similar loan terms to new borrowers
with similar credit profiles. The fair value of nonaccrual loans also is
estimated on a present value basis, using higher discount rates appropriate to
the higher risk involved.

Investment securities are valued at quoted market prices if available. For
unquoted securities, the fair value is estimated by the Bank on the basis of
financial and other information.

The fair value of demand deposits and deposits with no defined maturity is taken
to be the amount payable on demand at the reporting date. The fair value of
fixed-maturity deposits is estimated using rates currently offered for deposits
of similar remaining maturities. The intangible value of long-term relationships
with depositors is not taken into account in estimating the fair values
disclosed.

The carrying amounts of accrued interest approximate fair value.

It is not practicable to separately estimate the fair values for
off-balance-sheet credit commitments, including standby letters of credit and
guarantees written, due to the lack of cost-effective reliable measurement
methods for these instruments.


NOTE 17 - EARNINGS PER SHARE RECONCILIATION

The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share computations.
<TABLE>

                                                           ---------------    --------------
                                                                  2002              2001
                                                           ---------------    --------------
<S>                                                            <C>               <C>
Net income (numerator, basic and diluted)                      $1,364,703        $1,214,480
Weighted average shares outstanding (denominator)                 781,179           775,275
                                                               ----------        ----------
Earnings per common share-basic                                     $1.75             $1.57
                                                                   ======             =====

Effect of dilutive securities

Weighted average shares outstanding                               781,179           775,275
Effect of stock options                                            47,030            27,297
                                                               ----------        ----------
Diluted average shares outstanding (denominator)                  828,209           802,572
                                                               ----------        ----------
Earnings per common share-assuming dilution                         $1.65             $1.51
                                                                   ======             =====
</TABLE>



                                    * * * * *