<PAGE>

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

    For the fiscal year ended December 31, 2000 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 19, 2001: $6,696,145*

Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of March 19, 2001:  Common Stock, $5 Par Value - 775,325
--------------------------------------------------------------------------------

*In calculating the aggregate market value, we have used the most recent sales
price of Common Stock known to the Company, which is $10.63 per share and voting
stock held by non-affiliates of the registrant March 19, 2001 of 629,929.
<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, 2000 were $99.2 million.

The Bank

     Heritage Bank & Trust 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.

     Heritage Bank & Trust is a state banking corporation. 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, 2000, the Bank had assets of $99.1 million, with total loans of
$70.7 million and deposits of $86.5 million.

IBV Real Estate Holding, 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
major tenant in the property.

Sentinel Title Services, Inc. and Sentinel Trust Services, L.L.C.

     Sentinel Trust Services, L.L.C. is a wholly owned subsidiary of the
Company. Sentinel Title Services, Inc. is a wholly owned subsidiary of Heritage
Bank & Trust. These entities own an interest in providers of various insurance
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. All of the major commercial
banking institutions based
<PAGE>

in Virginia conduct business in the area. The Bank also encounters competition
from local banks, savings and loan associations, 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 45 employees. Of this total, 38 are full-time
and 7 are part-time. Management considers its employee relations to be
excellent.

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.

Recent Legislation

     The Gramm-Leach-Bliley Act of 1999 authorizes a bank holding company that
meets specified conditions to become a "financial holding company" and thereby
engage in a broader array of financial activities than previously permitted.
Such activities can include insurance underwriting and investment banking. The
Gramm-Leach-Bliley Act also authorizes banks to engage through "financial"
subsidiaries in certain other activities permitted for financial holding
companies.

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
<PAGE>

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 2000.

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. At March 19, 2001, there are 1,153 record holders of the 775,325
outstanding shares of common stock. As of March 19, 2001, the most recent sales
price of common stock known to the Company is $10.63 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
2000
Fourth Quarter             $11.38      $10.50
Third Quarter               11.88        9.75
Second Quarter              10.38        9.50
First Quarter               13.63        9.00

1999
Fourth Quarter             $14.50      $12.50
Third Quarter               15.75       13.25
Second Quarter              16.75       14.88
First Quarter               17.00       15.00


     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 is the dividends paid to the Company by the
Bank. The Company declared and paid annual dividends of $.23 and $.20 per share
in 2000 and 1999, respectively. Regulatory restrictions on the payment of
dividends by the Bank to the Company are disclosed in Note 3 to the Consolidated
Financial Statements.
<PAGE>

Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS

      FINANCIAL REVIEW:

      Heritage Bankshares, Inc. (the "Company"), recorded net income in 2000 of
$1.18 million, or $1.53 per share/basic, $117 thousand ahead of the $1.06
million reported in 1999.

      The Company'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 $525 thousand or 14% from
1999.  The net interest yield margin for 2000 was 4.67% compared with 4.38% in
1999.  Increases in the volume of loans generated and a rising interest rate
environment favorably impacted the net interest margin.  Conversely the effect
was partially offset by an increased cost of the Company's interest bearing
liabilities.  Average earning assets grew $5.9 million or 6.94% while average
interest bearing liabilities grew $4.3 million or 6.42%.

      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
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 2000 provision for loan losses was $124 thousand compared to
the 1999 provision of $101 thousand.  The allowance for loan losses of $1.06
million at year-end 2000 and $912 in 1999 reflect an allowance to year-end loans
ratio of 1.49% and 1.46%, respectively.

      Noninterest income is largely derived from fee-based services and mortgage
banking activities.  Total noninterest income decreased $43 thousand to $579
thousand.  This decrease was largely due to reduced activity in the mortgage
banking division of the Company.  Fees related to mortgage banking activities
totaled $63 thousand in 2000 compared to $133 thousand in 1999.  This decrease
was partially offset by increases in fees related to credit, debit and ATM card
services and products.

      Noninterest expense totaled $2.96 million for 2000, compared with $2.7
million in 1999.  The ratio of noninterest expense to average assets was 3.03%
slightly higher that the 2.88% reported in 1999.  This ratio reflects the
Company's successful management of overhead and other related expenses.

      Total loans at December 31, 2000 were $70.7 million compared with $62.3
million at December 31, 1999.  The increase is attributable to a $6.4 million
increase in the real estate loan portfolio.  The commercial and consumer loans
increased $1.5 million and $777 thousand, respectively.

      Deposits increased $2.8 million or 3.38% to $86.5 million compared to
$83.6 million at December 31, 1999.  This increase was wholly due to a $3.3
million increase in interest bearing deposits.  Noninterest bearing deposits
decreased $484 thousand to $15.9 million compared to $16.4 million at December
31, 1999.
<PAGE>

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.

Selected Liquidity Statistics
For the year ended December 31,

                                                     2000                1999
                                                    (Dollars in thousands)

Available short-term assets (1)                     $14,161             $12,727
Certificates of deposit $100,000 and over            14,241              12,645
                                              ----------------------------------
Net available short-term assets                        ($80)            $    82

Ratio of available short-term assets to
certificates $100,000 and over                           99%                101%

Ratio of loans to deposits                               82%                 75%

Ratio of certificates $100,000 and over to
   total assets                                          14%                 13%

 (1) As of December 31, 2000, available short-term assets include cash of
     $3,688,000, federal funds sold of $5,215,000, held-to-maturity and
     available-for-sale securities maturing within one year of $1,252,000 and
     $4,006,000, respectively. At December 31, 1999, available short-term assets
     included cash of $3,437,000, federal funds sold of $4,049,000, held-to-
     maturity and available-for-sale securities maturing within one year of
     $1,238,000 and $4,003,000, respectively.

          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, 2000,
cash and cash equivalents available to meet immediate liquidity needs and
reserve requirements were $8.9 million.  The Company's cash and cash equivalents
increased $1.4 million from $7.5 million at December 31, 1999.

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,
<PAGE>

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, 2000, that the Company meets all capital adequacy
requirements to which it is subject.

      Stockholders' equity at December 31, 2000 was $9.4 million compared to
$8.3 million at the end of 1999.  Book value per share increased from $10.81 at
December 31, 1999 to $12.17 at December 31, 2000.

      The following table provides information on the Company's risk-based,
leverage and capital ratios at December 31, 2000 and 1999.

Capital Ratios
For the year ended December 31,

                                          2000                 1999
                                           (Dollars in thousands)
Risk-based capital:
Tier I Capital
   Stockholders' equity                    $ 9,421              $ 8,394
Tier II Capital
    Allowance for loan losses (limited)        931                  797
                                           -------              -------
Total                                      $10,352              $ 9,191
                                           =======              =======

Risk adjusted assets                       $74,361              $63,611

Risk-based capital ratios:
   Tier I                                    12.67%               13.20%
   Total                                     13.92%               14.45%

Leverage ratio                                9.65%                9.12%
Primary capital ratio                        10.47%                9.59%


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 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
<PAGE>

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, 2000.  This one-day position, which continually is changing, is
not necessarily indicative of the Bank's position at any other time.


Interest Sensitivity Analysis
December 31, 2000
<TABLE>
<CAPTION>


                                              Within          Over 3       Over 1 Yr     Over 3 Yr
                                           1 through 3       through        through       through        Over
                                              months        12 months        3 yrs         5 yrs         5 yrs       Total
                                      -------------------------------------------------------------------------------------
<S>                                     <C>             <C>             <C>           <C>           <C>          <C>
Earning assets: (1)
  Federal funds                               $ 5,215        $      0      $      0      $      0      $     0      $ 5,215
  Investment securities (2)                     2,250           5,833         5,836           997          827      $15,743
  Loans                                        20,255           5,046         7,942         8,621       28,872       70,736
Total Earning Assets                          $27,720        $ 10,879      $ 13,778      $  9,618      $29,699      $91,694

Interest and non-interest
bearing liabilities:
  Commercial DDA (3)                          $ 6,451        $      0      $  3,871      $  2,580      $     0      $12,902
   Personal DDA (3)                                 0               0         1,780           593          593        2,966
  TT&L Note                                        58               0             0             0            0           58
  Savings (3)                                       0               0         3,191         1,064        1,064        5,319
  Money Market (3)                                  0           2,460         2,460             0            0        4,920
  NOW (3)                                           0               0         6,744         2,248        2,248       11,240
  Certificates                                 13,242          22,916        11,029         1,903           25       49,115
  Repurchase Agreements                         2,289               0             0             0            0        2,289
Total Interest and non interest
  bearing liabilities                         $22,040        $ 25,376      $ 29,075      $  8,388      $ 3,930      $88,809


Interest sensitivity gap                        5,680         (14,497)      (15,297)        1,230       25,769        2,885

Cumulative gap                                  5,680          (8,817)      (24,114)      (22,884)       2,885

Ratio interest sensitive assets
to interest-sensitive liabilities                1.26            0.43          0.47          1.15         7.56         1.03

Ratio of cumulative gap to
 total earning assets                            6.19%          -9.62%       -26.30%       -24.96%        3.15%
</TABLE>

(1)  Assets and liabilities are presented in the period they mature or reprice,
     whichever is earlier.
(2)  Presented on an amortized cost basis.
(3)  Based on the proposed range of permissible maturities for non-maturity
     deposits issued by the banking agencies in the Joint Policy Statement
     (August 2, 1995): Supervisory Policy Statement Concerning a Supervisory
     Framework for Measuring and Assessing Banks' Interest Rate Risk Exposure
<PAGE>

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.
<PAGE>

<TABLE>
<CAPTION>
Components of the Net Interest Income
For the years ended December 31,                                            2000                                1999
(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))                           $69,234    $ 6,354     9.18%        $60,112    $ 5,239     8.72%
Investment securities-taxable (4)                               17,312      1,056     6.10%         18,064      1,079     5.97%
Investment securities-non-taxable (1) (4)                          924         65     7.03%          1,005         71     7.06%
Federal Funds                                                    3,213        213     6.63%          5,614        289     5.15%
                                                               ---------------------------         ---------------------------
Total Interest earning assets                                  $90,683    $ 7,688     8.48%        $84,795    $ 6,678     7.88%
Noninterest earning assets:
Cash and due from banks                                          3,128                               3,617
Allowance for loan losses                                         (998)                               (903)
Other real estate owned                                            431                                 429
Premises and equipment                                           2,311                               2,259
Other assets                                                     2,024                               1,823
                                                               -------                             -------
Total Assets                                                   $97,579                             $92,020

Liabilities and stockholders' equity
 Interest bearing liabilites:
Money Market and NOW accounts                                  $16,535    $   445     2.69%        $15,776    $   411     2.61%
Savings Deposits                                                 5,091        166     3.26%          4,643        146     3.14%
Savings Certificates                                            36,045      2,036     5.65%         36,060      1,851     5.13%
Large denomination certificates                                 10,614        643     6.06%          8,832        474     5.37%
Securities sold under agreements to repurchase                   2,802        121     4.32%          2,026         82     4.05%
Short-term borrowings                                              630         41     6.51%             55          3     5.45%
                                                               ---------------------------         ---------------------------
Total interest bearing liabilities                             $71,717    $ 3,452     4.81%        $67,392    $ 2,967     4.40%

Noninterest bearing liabilities:
Demand deposits                                                 16,146                              15,408
Other                                                              959                                 824
 Total Liabilities                                              88,822                              83,624
Stockholders' equity                                             8,757                               8,396
                                                               -------                             -------
 Total liabilities and stockholders'
   equity                                                      $97,579                             $92,020
                                                               =======                             =======

Net interest earnings                                                     $ 4,236                             $ 3,711
                                                                          =======                             =======

Net interest yield margin on average interest earning
 assets (taxable equivalent basis)                                                    4.67%                               4.38%
                                                                                      ====                                ====

Less tax equivalent adjustment                                            $   (84)                            $   (77)
                                                                          -------                             -------
Net interest income                                                       $ 4,152                             $ 3,634
                                                                          =======                             =======

Net interest spread (taxable
 equivalent basis)                                                                    3.67%                               3.47%
                                                                                      ====                                ====
</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.
<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.

Volume and Rate Analysis
For the years ended December 31,
(Dollars in thousands)

<TABLE>
<CAPTION>

                                                2000 / 1999                                1999 / 1998
                                         (Dollars in thousands)                      (Dollars in thousands)
                                           Increase (Decrease)                         Increase (Decrease)
                                            Due to Change in:                           Due to Change in:

                                      Volume        Rate       Total              Volume        Rate        Total
                                     -------------------------------             --------------------------------
<S>                                  <C>                                         <C>         <C>          <C>
Interest income (1):
  Loans                              $  826        $ 289     $ 1,115             $  547       $ (226)      $  321
  Taxable securities                    (47)          24         (23)              (108)         (25)        (133)
  Non-taxable securities                 (6)           -          (6)                 -            1            1
  Federal funds sold                   (232)         156         (76)               (25)         (18)         (43)
                                     -------------------------------             --------------------------------
    Total interest income            $  541        $ 469     $ 1,010             $  414       $ (268)      $  146

Interest expense:
  Money Market and NOW
    accounts                             20           14          34                 73           (3)          70
  Savings                                14            6          20                  1           (2)          (1)
  Certificates                           (1)         186         185                (28)        (123)        (151)
  Certificates of $100,000
    or more                             103           66         169                  -            -            -
  Securities sold under
   agreements to repurchase              33            6          39                 (2)           -           (2)
  Short-term borrowings                  37            1          38                  -            0            0
                                     ----------------------------------------------------------------------------
    Total interest expense              206          279         485                 44         (128)         (84)

Net change in interest
  earnings                           $  335        $ 191     $ 1,494             $  370       $ (140)      $  230
</TABLE>

(1) Interest income includes taxable equivalent adjustments of $84,000 in 2000
    and $77,000 in 1999, which are used to adjust interest on tax-exempt assets
    to a fully taxable basis.
<PAGE>

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, 2000.

Loan Portfolio Composition and Maturities
(Dollars in thousands)

<TABLE>
<CAPTION>
                                                        After 1
                                         Within       but within             After
                                        1 year         5 years              5 years
                                        -------      -----------            -------
<S>                               <C>               <C>                    <C>
Commercial                              $ 7,137         $ 4,652            $ 1,505
Real estate-mortgage                      7,327          12,503             28,802
Real estate-construction                  2,800               -                  -
Consumer                                  1,395           4,412                203
                                        -------         -------            -------
                                        $18,659         $21,567            $30,510
                                        -------         -------            -------

Loans maturing after 1 year with:
Fixed interest rates                                    $18,213            $29,716
Variable interest rates                                   3,354                794
                                                        -------            -------
                                                        $21,567            $30,510
                                                        -------            -------
</TABLE>


      The following table presents loan collateralized by real estate at
December 31, 2000.  Some of these loans are included in commercial loans for
purposes of Table 10.

Loan Collateralized By Real Estate
(Dollars in thousands)

<TABLE>
<CAPTION>
                                                                                  Percentage
                                                                                   of total
                                                                Amount          loan portfolio
                                                           -----------------------------------
<S>                                                          <C>                <C>
Construction and land development                                 $ 2,799                    4%
Collateralized by 1 - 4 family residential properties              19,172                   27%
Collateralized by multi-family residential properties               2,239                    3%
Collateralized by non-farm, non-residential properties             26,278                   37%
                                                                  -------                   --
                                                                  $50,488                   72%
</TABLE>

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 2000 were to maintain an appropriate level of
quality, ensure sufficient liquidity and maximize yield.
<PAGE>

      The following table presents the maturity distribution and weighted
average yields of the securities portfolio at December 31, 2000.

Investment Securities (1)
December 31, 2000
(Dollars in thousands)

<TABLE>
<CAPTION>
                          1 year or less   1 - 2 years (2)   2 - 3 years     3 - 4 years     4 - 5 years    Over 5 years (3)
---------------------------------------------------------------------------------------------------------------------------
                          Amount   Yield   Amount   Yield   Amount  Yield   Amount  Yield   Amount  Yield   Amount    Yield
---------------------------------------------------------------------------------------------------------------------------
<S>                       <C>      <C>     <C>      <C>     <C>     <C>     <C>     <C>     <C>     <C>     <C>      <C>
U.S. Treasury,
 government
agencies, state and
 political subdivision    $5,258     5.58%  $4,420   5.85%  $2,969   6.30%  $1,497   6.28%     $32   7.25%     $934    5.58%
---------------------------------------------------------------------------------------------------------------------------
Other                     $    -        -   $           -   $           -   $           -      $        -      $633    8.06%
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

     (1)  Presented on an amortized cost basis.
     (2)  Includes a $245,772 tax-exempt security with a yield of 4.48%
     (3)  Includes $780,524 in tax-exempt securities with a weighted average
          yield of 4.72%

DEPOSITS:

          The Company's deposit base includes large denomination certificates of
deposit of $100,000 or more.  These deposits represented approximately 16% of
total deposits at December 31, 2000.  The Bank pays market rates for these
funds.  Generally management attempts to match large denomination certificates
of deposit with rate sensitive assets.

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

                                          December 31, 2000
                                                Amount
                                                ------
Three months or less                           $ 7,658
Over three through six months                    3,734
Over six through twelve months                   1,533
Over twelve months                               1,316
                                               -------
Total                                          $14,241


Noninterest Income

          The following table provides a comparison of noninterest income.


Noninterest Income
(Dollars in thousands)
               For the years ended December 31,

                        2000      1999  1999 over/
                                        (under) 2000
                       -----------------------------
Service Charges        $ 265     $ 259     $  6
Other Income             314       363      (49)
                       -----     -----      ----
                       $ 579     $ 622     $(43)
<PAGE>

Noninterest Expense

     The following table provides a comparison of noninterest expense.


                                          For the years ended December 31,
Noninterest Expense                         2000            1999    2000 over/
                                                                   (under) 1999
                                         ---------------------------------------
Salaries and employee benefits              $1,626         $1,445          $181
Other                                          545            478            67
Occupancy expenses                             220            212             8
Automated services                             231            198            33
Furniture and equipment expense                167            149            18
Taxes and licenses                              99            102            (3)
Stationery and supplies                         68             67             1
                                            ------         ------          ----
                                            $2,956         $2,651          $305

Provision and Allowance For Loan Losses:

     In 2000, the provision for loan losses was $124 thousand compared to $101
thousand in 1999.  Net loans recovered in 2000 were $19 thousand as compared to
1999 when net loans charged-off totaled $84 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.

Summary of the Allowance For Loan Losses

<TABLE>
<CAPTION>
For The Years Ended
December 31,                                                         2000                      1999
(Dollars in Thousands)
<S>                                                                <C>                        <C>
Allowance for Loan Losses:
Balance, December 31                                               $  912                     $ 895
Charge-offs:
   Commercial                                                           0                       109
   Real estate                                                         13                        25
   Consumer                                                            15                        40
                                                                   ------                     -----
      Total loans charged-off                                          28                       174
Recoveries:
   Commercial                                                           2                        66
   Real estate                                                         37                        18
   Consumer                                                             8                         6
                                                                   ------                     -----
      Total recoveries                                                 47                        90
Net (recoveries)charge-offs                                           (19)                       84
Provision for loan losses                                             124                       101
Balance, December 31, 2000                                         $1,055                     $ 912

Ratio of net charge-offs to average loans outstanding               -0.03%                     0.14%
</TABLE>
<PAGE>

<TABLE>
<S>                                                                  <C>                       <C>
Ratio of allowance for loan losses to loans at period-end            1.49%                     1.46%
</TABLE>

Non-Performing Assets and Past Due Loans

<TABLE>
<CAPTION>
                                                             For the Year Ended December 31,
                                                                 2000                   1999
<S>                                                          <C>                        <C>
Non-performing Assets and Loans Past Due 90 Days
   Non-accrual loans                                            $  55                   $  82
   Other real estate owned                                        433                     429

      Total non-performing assets                               $ 488                   $ 511

   Ratio of non-performing assets to total assets                0.49%                   0.54%

   Non-accrual loans:
      Interest income that would have been recorded
      under original terms                                      $   0                   $  10

     Interest income recorded during the period                 $   0                   $   0

   Loans 90 days past due and still accruing                    $  11                   $  11
</TABLE>

     An allocation of the allowance for loan losses in dollars and as a percent
of the total allowance 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.  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 relative percent of loans in each category to total loans.

Allocation of the Allowance for Loan Losses
As of December 31,

<TABLE>
<CAPTION>
                                                 2000                                         1999

                                                          Percent                                        Percent
                                     Amount              of Total                 Amount                of Total
                                  ---------------------------------             ----------------------------------
<S>                               <C>                    <C>                    <C>                    <C>
Commercial                              $  201                   19%                    $ 182                   20%
Real estate - mortgage                  $  728                   69%                      629                   69%
Real estate - construction              $   42                    4%                       27                    3%
Consumer                                $   84                    8%                       74                    8%
                                        ------                  ---                     -----                  ---
                                        $1,055                  100%                    $ 913                  100%
</TABLE>

Potential Problem Loans:

     At December 31, 2000 and 1999 loans on either non-accrual status or loans
past due 90 days or more and still accruing amounted to $55 thousand and $21
thousand, respectively. In addition to these loans, at December 31, 2000, the
Company had approximately $330 thousand of loans that have been internally
classified, and $1.4 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, 1999, loans that had
been internally classified or which
<PAGE>

required more than normal attention and were potential problem loans were $271
thousand and $876 thousand, respectively.

Non-performing Assets:

     Non-performing assets consist of loans on non-accrual status and other real
estate owned.  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.  Other real estate owned consists of real estate
acquired in settlement of loans.  These properties are carried at the lower of
cost or estimated fair value.  Losses from the acquisition of other real estate
owned in full or partial satisfaction of a loan are charged to the allowance for
loan losses.  Subsequent declines in value or losses upon disposition are
charged to noninterest expense.

     The following table provides an analysis of the size, number and collateral
composition of non-performing assets at December 31, 2000.

Non-performing Assets

<TABLE>
<CAPTION>

                                                 Number                                   Total
Non-performing assets by dollar amount:         of items                Balance          Dollars
                                             ----------------------------------------------------
<S>                                           <C>                      <C>               <C>
$100,000 - $200,000                                     4                $433                  89%
$50,000 - $100,000                                      0                   -                   0%
$50,000 and under                                      27                  55                  11%
                                                       --                ----                 ---
                                                       31                $488                 100%
                                                       --                ----                 ---

Non-performing assets by collateral composition:
 1 - 4 Family residential                               1                $128
Multi-family residential                                3                 305
Automobile, equipment and other                         2                  23
Uncollateralized                                       25                  32
                                                       --                ----
                                                       31                $488
                                                       --                ----
</TABLE>

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
Company or the borrowers, will impact this estimate on an ongoing basis.

     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 state
examination of the Company and the Bank was conducted in the first quarter of
2001 for the balance sheet dated September 30, 2000.
<PAGE>

No additions to the allowance for loan losses were recommended as a result of
the examination.

Income Taxes:

          For the year ended December 31, 2000, the Company recognized an
expense of $477 thousand. This represents a $33 thousand increase from the $444
thousand expense for 1999. 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.

Part III

Item 9.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

          The text and tables under "Nominees" and "Other Directors" in the
Company's 2001 Proxy Statement are incorporated herein by reference.

Item 10. EXECUTIVE COMPENSATION

          The text and tables under "Compensation of Executive Officer" in the
Company's 2001 Proxy Statement are incorporated herein by reference.

Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

          The text and tables under "Persons Owning In Excess of Five Percent of
Outstanding Common Stock", "Nominees", and "Other Directors" in the Company's
2001 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's 2001 Proxy Statement are incorporated herein by reference.
<PAGE>

PART IV

Item 13: EXHIBITS AND REPORTS ON FORM 8-K

     (A)  (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.)

     (B)  Reports on Form 8-K

          None

     Financial Statements Filed

          None
<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 28, 2001     ______________________________________
                         Robert J. Keogh, President and Chief
                         Executive Officer


                         ______________________________________
                         Peter M. Meredith, Jr., Chairman of
                         the Board of Directors
<PAGE>

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated on March 28, 2001.

SIGNATURES*


_________________________________________________
Peter M. Meredith, Jr.
Chairman of the Board of Directors

_________________________________________________
Robert J. Keogh
President and Chief Executive Officer & Director


_________________________________________________
Henry U. Harris, III
Vice-Chairman of the Board of Directors


_________________________________________________
Stephen A. Johnsen
Secretary of the Board of Directors


_________________________________________________
Lisa F. Chandler
Director


_________________________________________________
James A. Cummings
Director


_________________________________________________
F. Dudley Fulton
Director


_________________________________________________
Gerald L. Parks
Director


_________________________________________________
Ross C. Reeves
Director


_________________________________________________
Harvey W. Roberts, III
Director
<PAGE>

*POWER OF ATTORNEY

Each person whose signature appears above under "SIGNATURES" hereby authorizes
Robert J. Keogh and Peter M. Meredith, Jr. or either of them, to execute in the
name of each such person, and to file any amendment to this report, and hereby
appoints Robert J. Keogh and Peter M. Meredith, Jr. or either of them, as
attorneys-in-fact to sign on his behalf, individually and in each capacity
stated below, and to file any and all amendments to this report.
<PAGE>

                            HERITAGE BANKSHARES, INC.
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
ITEM                                                                                  PAGE
<S>                                                                                   <C>
Report of Independent Accountants...........................................          F-1

FINANCIAL STATEMENTS:
   Consolidated Balance Sheets..............................................          F-2

   Consolidated Statements of Income........................................          F-3

   Consolidated Statements of Stockholders' Equity..........................          F-4

   Consolidated Statements of Cash Flows....................................          F-5

   Notes to Consolidated Financial Statements...............................          F-6
</TABLE>
<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS


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



       We have audited the accompanying consolidated balance sheets of Heritage
Bankshares, Inc. and its subsidiaries at December 31, 2000 and 1999 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, 2000 and 1999,
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.

Norfolk, Virginia
January 21, 2001
<PAGE>

HERITAGE BANKSHARES, INC.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

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

December 31,                                                                  2000                  1999
---------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>                   <C>
                                ASSETS

Cash and due from banks                                                $         3,687,811   $        3,436,565
Federal funds sold                                                               5,214,506            4,049,069
Securities available for sale                                                   12,672,549           16,908,604
Securities held to maturity                                                      3,098,932            4,316,878
Loans, net                                                                      69,681,205           61,437,024
Loans held for sale                                                                166,779                    -
Accrued interest receivable                                                        635,222              646,619
Other real estate owned                                                            433,340              428,500
Premises and equipment, net                                                      2,288,429            2,353,524
Other assets                                                                     1,331,451            1,318,933
                                                                       ----------------------------------------

                                                                       $        99,210,224   $       94,895,716
                                                                       ========================================

             LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits

             Noninterest bearing deposits                              $        15,866,993   $       16,350,570
             Interest-bearing deposits                                          70,595,058           67,283,837
                                                                       ----------------------------------------
                                                                                86,462,051           83,634,407
Securities sold under agreements to repurchase                                   2,288,919            2,069,810
Short-term borrowings                                                               58,485               53,045
Accrued interest payable                                                           354,076              302,276
Other liabilities                                                                  607,460              562,788
                                                                       ----------------------------------------
                                                                                89,770,991           86,622,326
                                                                       ----------------------------------------
Stockholders' equity

             Common stock, $5 par value - authorized
                           3,000,000 shares; issued and outstanding:
                           2000 - 775,325 shares; 1999 - 765,700                 3,876,625            3,828,500
             Additional paid-in capital                                           (333,721)            (343,377)
             Retained earnings                                                   5,877,616            4,908,908
             Accumulated other comprehensive income (loss)                          18,713             (120,641)
                                                                       ----------------------------------------
                                                                                 9,439,233            8,273,390
                                                                       ----------------------------------------

                                                                       $        99,210,224   $       94,895,716
                                                                       ========================================
</TABLE>
                The notes to consolidated financial statements
                    are an integral part of this statement.

                                                                             F-2
<PAGE>

HERITAGE BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>

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

Years Ended December 31,                                                         2000            1999
---------------------------------------------------------------------------------------------------------
<S>                                                                    <C>                <C>
Interest income
           Interest and fees on loans                                  $       6,292,625  $     5,185,754
                                                                       ----------------------------------
           Interest on investment securities:
                       Available for sale                                        875,708          848,820
                       Held to maturity                                          222,794          277,027
                                                                       ----------------------------------
                                                                               1,098,502        1,125,847
                                                                       ----------------------------------

           Interest on federal funds sold                                        213,347          289,102
                                                                       ----------------------------------
                                   Total interest income                       7,604,474        6,600,703
                                                                       ----------------------------------

Interest expense
           Interest on deposits                                                3,289,477        2,882,323
           Interest on short-term borrowings                                     162,162           84,956
                                                                       ----------------------------------
                                   Total interest expense                      3,451,639        2,967,279
                                                                       ----------------------------------

                                   Net interest income                         4,152,835        3,633,424

Provision for loan losses                                                        123,750          101,250
                                                                       ----------------------------------

Net interest income after provision for loan losses                            4,029,085        3,532,174
                                                                       ----------------------------------
Noninterest income
           Services charges                                                      265,039          258,757
           Other                                                                 314,201          363,462
                                                                       ----------------------------------
                                                                                 579,240          622,219
                                                                       ----------------------------------
Noninterest expense
           Salaries and employee benefits                                      1,625,694        1,444,685
           Other                                                                 545,389          477,647
           Occupancy expenses                                                    219,956          212,444
           Automated services                                                    230,934          198,400
           Furniture and equipment expense                                       166,458          148,518
           Taxes and licenses                                                     99,413          102,430
           Stationery and supplies                                                67,661           66,795
                                                                       ----------------------------------
                                                                               2,955,506        2,650,919
                                                                       ----------------------------------

Income before income taxes                                                     1,652,819        1,503,474

Income tax expense                                                               476,869          444,324
                                                                       ----------------------------------
Net income                                                             $       1,175,950  $     1,059,150
                                                                       ==================================
Earnings per common share - basic                                      $            1.53  $          1.33
                                                                       ==================================
Earnings per common share - assuming dilution                          $            1.50  $          1.26
                                                                       ==================================
</TABLE>



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

                                                                             F-3
<PAGE>

HERITAGE BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Years Ended December 31, 2000 and 1999
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                                       Accumulated
                                                                                                          Other
                                                                        Additional                    Comprehensive
                                           Common Stock                  Paid-in         Retained        Income
                              ---------------------------------------
                                    Shares               Amount          Capital         Earnings        (Loss)          Total
                              -------------------   -----------------  -------------   -------------- -------------- ---------------
<S>                                 <C>             <C>                 <C>            <C>            <C>            <C>
Balance, December 31, 1998               801,250    $      4,006,250    $  (351,757)   $   4,336,068  $      88,391  $    8,078,952
                                                                                                                     ---------------

Net income for 1999                            -                   -              -        1,059,150                      1,059,150

Net changes in unrealized gain (loss)
         on securities available-for-sale,
         net of deferred income taxes
         of $107,683                                                                                       (209,032)       (209,032)
                                                                                                                     ---------------
Total comprehensive income                                                                                                  850,118
                                                                                                                     ---------------

Stock options exercised in 1999            6,450              32,250          8,380                -              -          40,630
Common stock reacquired                  (42,000)           (210,000)                       (325,500)                      (535,500)
Less: Dividends paid in 1999                   -                   -              -         (160,810)                      (160,810)
                            --------------------------------------------------------------------------------------------------------

Balance, December 31, 1999               765,700           3,828,500       (343,377)       4,908,908       (120,641)      8,273,390
                                                                                                                     ---------------

Net income for 2000                            -                   -              -        1,175,950                      1,175,950

Net changes in unrealized gain (loss)
         on securities available-for-sale,
         net of deferred income tax benefit
         of ($71,788)                          -                   -              -                -        139,354         139,354
                                                                                                                     ---------------
Total comprehensive income                                                                                                1,315,304
                                                                                                                     ---------------

Stock options exercised in 2000           15,625              78,125          9,656                -              -          87,781
Common stock reacquired                   (6,000)            (30,000)                        (31,062)                       (61,062)
Less:  Dividends paid in 2000                  -                   -              -         (176,180)             -        (176,180)
                            --------------------------------------------------------------------------------------------------------

Balance, December 31, 2000               775,325    $      3,876,625    $  (333,721)   $   5,877,616  $      18,713  $    9,439,233
                            ========================================================================================================
</TABLE>

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

                                                                             F-4
<PAGE>

HERITAGE BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Years Ended December 31,                                                                    2000                1999
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                                    <C>                <C>
Operating activities

        Net income                                                                     $     1,175,950    $      1,059,150
        Adjustments to reconcile to net cash
               provided by operating activities:
               Provision for loan losses                                                       123,750             101,250
               Provision for depreciation and amortization                                     150,562             136,125
               Amortization of investment security premiums,
                      net of discounts                                                          (7,284)             21,355
               Deferred loan origination fees, net of costs                                      9,314             (21,621)
               Changes in:
                      Interest receivable                                                       11,397             (68,003)
                      Interest payable                                                          51,800             (15,719)
                      Loans held for sale                                                     (166,779)            938,456
                      Other assets                                                             (89,144)            (45,644)
                      Other liabilities                                                         44,672              (4,321)
                                                                                       ------------------------------------
                              Net cash provided by operating activities                      1,304,238           2,101,028
                                                                                       ------------------------------------

Investing activities
        Proceeds from maturities of available-for-sale securities                            4,462,619           6,740,890
        Proceeds from maturities, prepayments and calls of
               held-to-maturity securities                                                   1,214,107           1,878,301
        Purchases of available-for-sale securities                                                   -          (9,663,065)
        Purchases of held-to-maturity securities                                                (4,300)         (1,082,873)
        Loan originations, net of principal repayments                                      (8,377,245)         (5,845,839)
        Purchases of land, premises and equipment                                              (85,467)           (478,356)
                                                                                       ----------------   -----------------
                              Net cash used by investing activities                         (2,790,286)         (8,450,941)
                                                                                       ------------------------------------

Financing activities
        Net increase in demand deposits,
               NOW accounts and savings accounts                                               855,244           2,000,402
        Net increase (decrease) in certificates of deposit                                   1,972,399           4,351,067
        Net increase (decrease) in securities sold under
               agreements to repurchase                                                        219,109           1,088,539
        Net increase (decrease) in short-term borrowings                                         5,440             (10,189)
        Common stock reacquired                                                                (61,062)           (535,500)
        Net proceeds from exercise of stock options                                             87,781              40,630
        Cash dividends paid                                                                   (176,180)           (160,810)
                                                                                       ----------------    ----------------
                              Net cash provided by financing activities                      2,902,731           6,774,139
                                                                                       ------------------------------------

Increase in cash and cash equivalents                                                        1,416,683             424,226

Cash and cash equivalents at beginning of year                                               7,485,634           7,061,408
                                                                                       ------------------------------------

Cash and cash equivalents at end of year                                               $     8,902,317    $      7,485,634
                                                                                       ------------------------------------

        As shown on the Consolidated Balance Sheets
               Cash and due from banks                                                       3,687,811           3,436,565
               Federal funds sold                                                            5,214,506           4,049,069
                                                                                       ------------------------------------
                                                                                       $     8,902,317    $      7,485,634
                                                                                       ------------------------------------
Supplemental schedules and cash flow information
Cash paid for: Interest on deposits and other borrowings                               $     3,399,839    $      2,982,997
                                                                                       ------------------------------------
               Income taxes                                                            $       417,040    $        543,036
                                                                                       ------------------------------------
</TABLE>

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

                                                                             F-5
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

HERITAGE BANKSHARES, INC.

================================================================================
DECEMBER 31, 2000 AND 1999

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

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.

                        (Notes continued on next page)

                                                                             F-6
<PAGE>

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     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 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.

                        (Notes continued on next page)

                                                                             F-7
<PAGE>

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     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.

     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.

                        (Notes continued on next page)

                                                                             F-8
<PAGE>

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     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.

                        (Notes continued on next page)

                                                                             F-9
<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, 2000,
     a valuation allowance has not been provided against the deferred tax asset.

                        (Notes continued on next page)

                                                                            F-10
<PAGE>

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     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.

     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.

                        (Notes continued on next page)

                                                                            F-11
<PAGE>

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     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:

                                                         2000           1999
                                                     ------------   ------------
        Unrealized holding gains (losses) on
           available-for-sale securities              $ 211,142      $(316,715)
        Reclassification adjustment for
           gains realized in income
                                                              -              -
                                                      ---------      ---------
        Net unrealized gains (losses)                   211,142       (316,715)
        Tax effect                                      (71,788)       107,683
                                                      ---------      ---------

        Net-of-tax amount                             $ 139,354      $(209,032)
                                                      =========      =========


     Reclassifications

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

                        (Notes continued on next page)

                                                                            F-12
<PAGE>

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.


<TABLE>
<CAPTION>
Condensed Balance Sheets

                                                                                      2000               1999
                                                                                ------------------ ------------------
<S>                                                                             <C>                <C>
Assets
Cash on deposit with Heritage Bank & Trust                                             $  465,284         $  232,710
Investment in Heritage Bank & Trust                                                     8,934,433          7,833,149
Investment in non-bank subsidiaries                                                       217,549            217,549
Other assets                                                                               37,676            136,356
                                                                                ------------------------------------
     Total assets                                                                      $9,654,942         $8,419,764
                                                                                ====================================

Liabilities and Stockholders' Equity

Other liabilities                                                                      $  215,709         $  146,373
Common stock                                                                            3,876,625          3,828,500
Additional paid-in capital                                                               (333,721)          (343,377)
Retained earnings                                                                       5,877,616          4,908,908
Accumulated other comprehensive income (loss)                                              18,713           (120,640)
                                                                                ------------------------------------
    Total liabilities and stockholders' equity                                         $9,654,942         $8,419,764
                                                                                ====================================
</TABLE>

<TABLE>
<CAPTION>
                                                                                      Years Ended December 31,
                                                                                -------------------------------------
Condensed Statements of Income                                                        2000               1999
                                                                                ------------------ ------------------

<S>                                                                             <C>                <C>
Income
Dividends from subsidiary bank                                                         $  196,989         $  696,310
Other                                                                                      49,041             12,116
                                                                                ------------------------------------

Expenses
Other                                                                                      31,266             35,004
                                                                                ------------------------------------

Income before income taxes and equity in
    undistributed net income of subsidiaries                                              214,764            673,425
Applicable income tax benefit (expense)                                                      (745)            18,521
                                                                                ------------------------------------
Income before equity in undistributed net
    income of subsidiaries                                                                214,019            691,946
Equity in undistributed net income of subsidiaries                                        961,931            367,204
                                                                                ------------------------------------

             Net income                                                                $1,175,950         $1,059,150
                                                                                ------------------------------------
</TABLE>

                        (Notes continued on next page)
                                                                            F-13
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                        Years Ended December 31,
             Condensed Statements of Cash Flows                                         2000               1999
                                                                                  ----------------  ------------------
<S>                                                                               <C>               <C>
             Operating activities:
             Net income                                                                 $ 1,175,950        $ 1,059,150
             Adjustments to reconcile to net cash provided by
             operating activities:
             Depreciation                                                                         -              3,940
             Undistributed net income of subsidiaries                                      (961,931)          (367,204)
             Changes in:
                 Other assets                                                                98,680            (56,573)
                 Other liabilities                                                           69,337             (8,305)
                                                                                       ------------        -----------
             Net cash provided by operating activities                                      382,036            631,008
                                                                                       ------------        -----------

             Financing activities:
             Net proceeds from exercise of stock options                                     87,781             40,630
             Common stock reacquired                                                        (61,063)          (535,500)
             Cash dividends paid                                                           (176,180)          (160,810)
                                                                                       ------------        -----------
             Net cash used by financing activities                                         (149,462)          (655,680)
                                                                                       ------------        -----------
             Net increase (decrease) in cash and cash equivalents                           232,574            (24,672)

             Cash and cash equivalents at beginning of year                                 232,710            257,382
                                                                                       ------------        -----------
             Cash and cash equivalents at end of year                                     $ 465,284          $ 232,710
                                                                                       ============        ===========
</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, 2000, dividends from the Bank to the Company are limited
          to approximately $2,650,000 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, 2000, such maximum
          amount available is approximately $893,000.

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 $903,000 for the year ended December 31, 2000, with
          the average reserve requirement for the same period being
          approximately $886,000. On December 31, 2000, the reserve balances
          were approximately $893,000.

                        (Notes continued on next page)
                                                                            F-14
<PAGE>

NOTE 5 - SECURITIES

        Securities at December 31, 2000 and 1999 are as follows:


<TABLE>
<CAPTION>

                                                    Amortized         Gross Unrealized   Gross Unrealized    Estimated Fair
                                                       Cost                Gains              Losses             Value
                                                -------------------- -----------------  ------------------  ------------------
<S>                                             <C>                  <C>                <C>                 <C>
December 31, 2000
  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
                                                =============================================================================

December 31, 1999
  Securities available for sale
      U.S. Treasury                                     $ 2,756,257           $  2,730          $  16,952         $ 2,742,035
      U.S. government agencies                           13,438,368                842            157,769          13,281,441
      Mortgage-backed securities                            704,400              1,717                489             705,628
      State and political subdivisions                      192,368                  -             12,868             179,500
                                                -----------------------------------------------------------------------------

                                                       $ 17,091,393           $  5,289          $ 188,078        $ 16,908,604
                                                =============================================================================

Securities held to maturity
      U.S. Treasury                                      $  997,176            $   537            $    53          $  997,660
      U.S. government agencies                            1,459,551                475             22,545           1,437,481
      Mortgage-backed securities                            166,975                  -                 10             166,965
      State and political subdivisions                      814,987              1,865              4,060             812,792
      Other                                                 878,189                  -              7,229             870,960
                                                -----------------------------------------------------------------------------

                                                        $ 4,316,878           $  2,878          $  33,897         $ 4,285,858
                                                -----------------------------------------------------------------------------
</TABLE>

                        (Notes continued on next page)
                                                                            F-15
<PAGE>

NOTE 5 - SECURITIES (Continued)

          Other securities include restricted investments of $630,400 and
          $626,100 at December 31, 2000 and 1999, 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 $6,836,041 and
          $6,858,604 at December 31, 2000 and 1999, respectively, are pledged to
          secure deposits of the U.S. government and the Commonwealth of
          Virginia. The estimated fair values of these securities were
          $6,850,081 and $6,787,210 at December 31, 2000 and 1999, respectively.

          The amortized cost and fair value of securities by maturity date,
          including the contractual maturities of mortgage-backed securities, at
          December 31, 2000 are as follows:

<TABLE>
<CAPTION>
                                                       Securities Held to Maturity            Securities Available for Sale
                                                       ---------------------------            --------------------------------
                                                        Amortized       Estimated                                 Estimated Fair
                                                          Cost         Fair Value             Amortized Cost          Value
                                                       ----------     ------------            --------------      -------------
<S>                                                  <C>              <C>                     <C>                 <C>
     Due in one year or less                         $ 1,252,078       $ 1,248,382            $ 4,005,874         $  3,997,190
     Due from one year to five years                     748,378           747,117              8,169,673            8,206,783
     Due from five years to ten years                    193,730           201,028                      -                    -
     Due after ten years                                 904,746           905,934                468,650              468,576
                                                     -------------------------------------------------------------------------

                                                     $ 3,098,932       $ 3,102,462            $12,644,196         $ 12,672,549
                                                     -------------------------------------------------------------------------
</TABLE>
NOTE 6 - LOANS

     Loans consist of the following:
<TABLE>
<CAPTION>
                                                                                                    December 31,
                                                                                         --------------------------------
                                                                                              2000                1999
                                                                                         -------------        -----------
<S>                                                                                      <C>                  <C>
             Gross loans
                 Commercial                                                              $ 13,293,885         $11,771,965
                 Real estate - mortgage                                                    48,632,641          43,686,330
                 Real estate - construction                                                 2,799,852           1,657,724
                 Installment and consumer loans                                             6,010,043           5,232,608
                                                                                         ------------         -----------

             Total gross loans                                                             70,736,421          62,348,627

             Less - allowance for loan losses                                              (1,055,216)           (911,603)
                                                                                         ------------         -----------

             Loans, net                                                                  $ 69,681,205         $61,437,024
                                                                                         ------------         -----------
</TABLE>
                        (Notes continued on next page)

                                                                            F-16
<PAGE>

NOTE 6 - LOANS (Continued)

        A summary of the activity in the allowance for loan losses account is as
follows:
<TABLE>
<CAPTION>
                                                                                            Years Ended December 31,
                                                                                          ----------------------------
                                                                                             2000               1999
                                                                                          ---------          ---------
<S>                                                                                      <C>                <C>
             Balance, beginning of year                                                 $   911,603        $   894,845
             Provision charged to operations                                                123,750            101,250
             Loans charged-off                                                              (27,609)          (174,688)
             Recoveries                                                                      47,472             90,196
                                                                                        -----------        -----------

             Balance, end of year                                                       $ 1,055,216        $   911,603
                                                                                        ===========        ===========
</TABLE>
         The following is a summary of information pertaining to impaired loans:
<TABLE>
<CAPTION>
                                                                                                    December 31,
                                                                                          ----------------------------
                                                                                              2000             1999
                                                                                          ----------        ----------
<S>                                                                                       <C>               <C>
             Impaired loans without a valuation allowance                                 $        -        $        -
             Impaired loans with a valuation allowance                                        55,411            81,967
                                                                                          ----------        ----------

             Total impaired loans                                                         $   55,411        $   81,967
                                                                                          ==========        ==========

             Valuation allowance related to impaired loans                                $    4,739        $   25,639
                                                                                          ==========        ==========
</TABLE>
<TABLE>
<CAPTION>
                                                                                             Years Ended December 31,
                                                                                          ----------------------------
                                                                                             2000               1999
                                                                                          ---------          ---------
<S>                                                                                       <C>                <C>
             Average investment in impaired loans                                         $  68,690          $ 222,000
                                                                                          =========          =========

             Interest income recognized on impaired loans                                 $       -          $       -
                                                                                          =========          =========
             Interest income recognized on a cash basis on impaired loans                 $       -          $       -
                                                                                          =========          =========
</TABLE>

          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
          $55,411 and $81,967 at December 31, 2000 and 1999, respectively. If
          interest on these loans had been accrued, such income would have
          approximated $8,558 and $10,048 for 2000 and 1999, respectively. No
          interest income was recognized or received on these loans in 2000 and
          1999.

                        (Notes continued on next page)

                                                                            F-17
<PAGE>

NOTE 7 - PREMISES AND EQUIPMENT

         Premises and equipment consist of the following:
<TABLE>
<CAPTION>

                                                                                                       December 31,
                                                                                              -----------------------------
                                                                                                 2000               1999
                                                                                              ----------          ---------
<S>                                                                                         <C>                 <C>
              Land and improvements                                                         $    612,567        $   612,567
              Buildings                                                                        1,810,710          1,769,232
              Leasehold improvements                                                               7,951              7,951
              Equipment, furniture and fixtures                                                1,246,526          1,206,096
                                                                                            ------------        -----------
                                                                                               3,677,754          3,595,846
              Less - accumulated depreciation                                                 (1,389,325)        (1,242,322)
                                                                                            ------------        -----------
                                                                                            $  2,288,429        $ 2,353,524
                                                                                            ============        ===========
</TABLE>

          Depreciation charged to operating expense for the years ended December
          31, 2000 and 1999 was $150,562 and $136,125, respectively.

NOTE 8 - DEPOSITS

         Interest-bearing deposits consist of the following:
<TABLE>
<CAPTION>
                                                                                                    December 31,
                                                                                         --------------------------------
                                                                                             2000                 1999
                                                                                         ------------        ------------
<S>                                                                                      <C>                 <C>
             Money market and NOW account deposits                                       $ 16,160,153        $ 15,275,362
             Savings deposits                                                               5,319,743           4,865,712
             Certificates of deposit $100,000 and over                                     14,240,570          12,644,699
             Other time deposits                                                           34,874,592          34,498,064
                                                                                         ------------        ------------

                                                                                         $ 70,595,058        $ 67,283,837
                                                                                         ============        ============
</TABLE>

         At December 31, 2000, the scheduled maturities of time deposits are as
follows:

             2001                                              $36,124,088
             2002                                                6,304,218
             2003                                                4,759,048
             2004                                                1,123,312
             2005                                                  779,496
             Thereafter                                             25,000
                                                        -------------------

                                                               $49,115,162
                                                        ===================


                        (Notes continued on next page)
                                                                            F-18
<PAGE>

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 $4,723,505 and $3,682,680 at December 31, 2000 and
          1999, respectively, are pledged to secure these agreements.
          Information concerning securities sold under agreements to repurchase
          is summarized, as follows:

<TABLE>
<CAPTION>
                                                                                        2000               1999
                                                                                  -----------------  -----------------
             <S>                                                                  <C>                <C>
             Average balance during the year                                             $2,802,352         $2,026,344
                                                                                  =================  =================

             Average interest rate during the year                                             4.32%              4.06%
                                                                                  =================  =================

             Maximum month end balance during the year                                   $4,402,502         $2,880,363
                                                                                  =================  =================
</TABLE>

          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, 2000, the Bank had no outstanding
          balance on these lines of credit.

NOTE 10 - STOCK COMPENSATION PLANS

          At December 31, 2000, 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.

                        (Notes continued on next page)

                                                                            F-19
<PAGE>

NOTE 10 - STOCK COMPENSATION PLANS (Continued)

          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>
<CAPTION>
                                                            2000                                  1999
                                                ----------------------------------     --------------------------------
                                                   Options       Weighted-Average         Options     Weighted-Average
                                                                  Exercise Price                       Exercise Price
                                                -------------   ------------------     ------------  ------------------
    <S>                                         <C>              <C>                    <C>           <C>
    Outstanding - beginning of year                 117,950          $   9.40              93,650         $  7.52
    Granted                                          30,000             11.48              30,750           14.50
    Exercised                                       (15,625)             5.62              (6,450)           6.30
    Forfeited                                        (4,075)            12.81                   -               -
                                                -------------   ------------------     ------------  ------------------
    Outstanding - end of year                       128,250          $  10.27             117,950         $  9.40
                                                =============   ==================     ============  ==================
    Exercisable - end of year                        79,800          $   8.83              72,125         $  7.27
                                                =============   ==================     ============  ==================
</TABLE>

NOTE 11 - INCOME TAXES

        The principal components of income tax expense are as follows:

<TABLE>
<CAPTION>
                                                                                        Years Ended December 31,
                                                                                           2000         1999
                                                                                        -----------   ----------
             <S>                                                                        <C>           <C>
             Federal income tax expense - current                                         $ 507,666   $ 418,703

             Deferred federal income tax expense (benefit)                                  (30,797)     25,621
                                                                                        -----------   ----------
             Income tax expense                                                           $ 476,869   $ 444,324
                                                                                        ===========   ==========
</TABLE>

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

<TABLE>
<CAPTION>
                                                                                        Years Ended December 31,
                                                                                          2000          1999
                                                                                        -----------    ---------
             <S>                                                                        <C>            <C>
             Federal income tax expense - at 34% statutory rate                         $   561,958    $ 511,181
             Tax effect of:
               Tax-exempt interest                                                          (49,415)     (45,763)
               Exercised stock options                                                      (31,699)     (19,380)
               Other                                                                         (3,975)      (1,714)
                                                                                        -----------    ---------
             Income tax expense                                                         $   476,869    $ 444,324
                                                                                        ===========    =========
</TABLE>

                        (Notes continued on next page)

                                                                            F-20
<PAGE>

NOTE 11 - INCOME TAXES (Continued)

          A cumulative net deferred tax asset is included in other assets at
          December 31, 2000 and 1999. The components of the asset are as
          follows:

<TABLE>
<CAPTION>

                                                                                        2000               1999
                                                                                -------------------  -----------------
         <S>                                                                    <C>                  <C>
         Deferred tax assets:
             Deferred compensation                                              $            88,953  $          88,814
             Bad debts and other provisions                                                 333,498            291,423
             Other                                                                           28,823             24,688
             Interest income                                                                  4,949              3,444
             Net unrealized depreciation on available-for-sale
                 securities                                                                       -             62,149
                                                                                -------------------  -----------------

             Total deferred tax asset                                                       456,223            470,518
                                                                                -------------------  -----------------
       Deferred tax liabilities:
             Deferred loan fees                                                             (41,452)           (40,722)
             Discount accretion on securities                                               (21,950)           (14,170)
             Net unrealized appreciation on available-for-sale
                 securities                                                                  (9,640)
                                                                                                                     -
             Fixed assets                                                                   (59,174)           (50,627)
                                                                                -------------------  -----------------
                                                                                           (132,216)          (105,519)
                                                                                -------------------  -----------------
             Net deferred tax asset                                             $           324,007  $         364,999
                                                                                ===================  =================
</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 $64,439 are
          required each year for five years under the long-term noncancellable
          lease agreement as of December 31, 1996, which expires in December,
          2001. Total lease expense was $64,439 for the years 2000 and 1999,
          respectively.

                        (Notes continued on next page)

                                                                            F-21
<PAGE>

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
          $6,400,000 and $6,400,000 at December 31, 2000 and 1999, respectively.
          In addition to related party deposits, securities sold under
          agreements to repurchase with related parties amounted to
          approximately $1,603,000 and $1,805,000 at December 31, 2000 and 1999,
          respectively. A summary of related party loan activity for Heritage
          Bank and Trust is as follows during 2000:

                Balance, December 31, 1999                      $ 5,454,102
                Originations - 2000                               2,886,113
                Repayments - 2000                                (2,319,756)
                                                          -----------------

                Balance, December 31, 2000                      $ 6,020,459
                                                          =================

          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 $841,378 and $837,340 at December 31, 2000 and 1999,
          respectively.

                        (Notes continued on next page)

                                                                            F-22
<PAGE>

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, 2000 and 1999. 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 7% to
          18%.

<TABLE>
<CAPTION>
                                            ------------------------------------        -------------------------------------
                                               Variable Rate       Fixed Rate             Variable Rate         Fixed Rate
                                                Commitment         Commitment              Commitment           Commitment
                                            ------------------    --------------        -----------------     ---------------
<S>                                         <C>                   <C>                   <C>                   <C>
Loan Commitments                                  $ 11,224,866        $4,664,451              $11,000,158          $4,480,008

Standby letters of credit
   and guarantees written                         $    134,759        $  313,006              $   186,075          $  103,905
</TABLE>

          All of the guarantees outstanding at December 31, 2000 expire during
          2001.

          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).

                        (Notes continued on next page)

                                                                            F-23
<PAGE>

NOTE 14 - CREDIT COMMITMENTS AND CONCENTRATIONS OF CREDIT RISK (Continued)

          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 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, 2000, the Bank meets all capital adequacy
          requirements to which it is subject.

          As of September 30, 1999, 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.

                        (Notes continued on next page)

                                                                            F-24
<PAGE>

NOTE 15 - REGULATORY MATTERS (Continued)

         The Bank's actual capital amounts and ratios are also presented in the
table.

<TABLE>
<CAPTION>
                                                                                                    To Be Well Capitalized Under
                                                                                                      Prompt Corrective Action
                                                  Actual            For Capital Adequacy Purposes            Provisions
                                        -------------------------  -------------------------------  -----------------------------
                                           Amount        Ratio         Amount            Ratio         Amount           Ratio
                                        -----------   -----------  ---------------   -------------  -------------    ------------
<S>                                     <C>           <C>          <C>               <C>            <C>              <C>
As of December 31, 2000:
Total Capital
         (to Risk-Weighted Assets)      $ 9,844,000       13.26%       $ 5,939,000       8.00%         $7,423,000      10.00%
Tier I Capital
         (to Risk-Weighted Assets)      $ 8,915,000       12.01%       $ 2,969,000       4.00%         $4,454,000       6.00%
Tier I Capital
    (to Average Assets)                 $ 8,915,000        9.16%       $ 3,891,000       4.00%         $4,864,000       5.00%
</TABLE>

<TABLE>
<CAPTION>
                                                                                                    To Be Well Capitalized Under
                                                                                                      Prompt Corrective Action
                                                  Actual            For Capital Adequacy Purposes            Provisions
                                        -------------------------  -------------------------------  -----------------------------
                                           Amount        Ratio         Amount            Ratio         Amount           Ratio
                                        -----------   -----------  ---------------   -------------  -------------    ------------
<S>                                     <C>           <C>          <C>               <C>            <C>              <C>
As of December 31, 1999
Total Capital
         (to Risk-Weighted Assets)      $ 9,191,000       14.45%       $ 5,089,000       8.00%         $6,361,000      10.00%
Tier I Capital
         (to Risk-Weighted Assets)      $ 8,394,000       13.20%       $ 2,544,000       4.00%         $3,817,000       6.00%
Tier I Capital
    (to Average Assets)                 $ 8,394,000        9.12%       $ 3,680,000       4.00%         $4,600,000       5.00%
</TABLE>

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

                        (Notes continued on next page)

                                                                            F-25
<PAGE>

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, 2000 and 1999. 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.

<TABLE>
<CAPTION>
                                                               2000                         1999
                                                   ---------------------------    -----------------------
                                                     Carrying                      Carrying
                                                      Amount       Fair Value       Amount     Fair Value
                                                   ------------  -------------    ----------  -----------
                                                     (Dollars in thousands)       (Dollars in thousands)
<S>                                                <C>            <C>             <C>          <C>
Financial Assets
Cash and cash equivalents                          $   8,903      $   8,903       $   7,486    $   7,486
Loans (net)                                           69,681         71,492          61,437       61,099
Investment securities                                 15,769         15,773          21,225       21,192
Accrued interest receivable                              635            635             647          647

Financial Liabilities
Deposit liabilities                                   86,927         87,405          83,634       83,798
Accrued interest payable                                 354            354             302          302
Short term borrowings                                     58             58              53           53
Securities sold under agreements to repurchase         2,289          2,289           2,070        2,070
</TABLE>


          Estimation of Fair Values

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

          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.

                        (Notes continued on next page)

                                                                            F-26
<PAGE>

NOTE 16 - FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

          Estimation of Fair Values (continued)

          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.

                        (Notes continued on next page)

                                                                            F-27
<PAGE>

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>
<CAPTION>
                                                                                2000            1999
                                                                            -----------      -----------
<S>                                                                         <C>              <C>
             Net income (numerator, basic and diluted)                      $ 1,175,950      $ 1,059,150

             Weighted average shares outstanding (denominator)                  766,956          798,542
                                                                            -----------      -----------

             Earnings per common share-basic                                $      1.53      $      1.33
                                                                            ===========      ===========

             Effect of dilutive securities

             Weighted average shares outstanding                            $   766,956      $   798,542
             Effect of stock options                                             18,268           41,499
                                                                            -----------      -----------
             Diluted average shares outstanding (denominator)                   785,224          840,041
                                                                            -----------      -----------

             Earnings per common share - assuming dilution                  $      1.50      $      1.26
                                                                            ===========      ===========
</TABLE>

                                   * * * * *

                                                                            F-27