NORFOLK, Va., July 24 /EMWNews/ -- Heritage Bankshares,

Inc. ("Heritage"; the "Company") (OTC Bulletin Board: HBKS), the parent of

Heritage Bank (the "Bank"), today announced unaudited financial results for

the second quarter and first six months of 2008.



    Net income, after tax, for the quarter ended June 30, 2008 was

$184,000, or $0.08 per diluted share, compared to net income, after tax, of

$139,000, or $0.06 per diluted share, for the second quarter of 2007. Net

income, after tax, for the first six months of 2008 was $231,000, or $0.10

per diluted share, compared to net income, after tax, of $239,000, or $0.10

per diluted share, for the same period in 2007.



    Michael S. Ives, President and CEO of the Company and the Bank,

commented:



    "This was a quiet quarter for the Company in that there was very little

impact on our net income from items of income or expense outside of our

core operations. As I have stated on numerous occasions, we expect our net

income to continue to improve from the growth of the Company and the

elimination of transitional expenses.



    "Furthermore, we are in the process of identifying and implementing

opportunities for expense savings that should have no material impact on

our basic banking operations. We believe this is only prudent as all

financial institutions now face uncertain economic conditions.



    "Finally, we are pleased to report that the asset quality of the

Company remains exceptional. As of June 30, 2008, the Company did not hold

any real estate owned and had total nonperforming assets of a mere $36,000,

constituting less than 0.02% of total assets. Even with these impressive

statistics regarding our asset quality, we will remain diligent to identify

and address quickly any problems that might arise in our loan portfolio."



    Comparison of Operating Results for the Three Months Ended June 30,

2008 and 2007



    Overview. The Company's pretax income was $288,000 for the second

quarter of 2008, compared to a pretax income of $208,000 for the second

quarter of 2007. Compared to the second quarter of 2007, net interest

income increased by $152,000, noninterest income decreased by $96,000 and

noninterest expense decreased by $24,000. Net income, after tax, was

$184,000, or $0.08 per diluted share, for the three months ended June 30,

2008, compared to a net income, after tax, of $139,000, or $0.06 per

diluted share, for the three months ended June 30, 2007.



    Net Interest Income. The Company's net interest income before provision

for loan losses increased by $152,000 in the second quarter of 2008

compared to the second quarter of 2007. This increase was primarily

attributable to an increase of $18.1 million in the average balance of

interest-earning assets, which more than offset an increase of $15.1

million in average interest- bearing liabilities, plus an increase in net

interest spread from 2.68% to 3.07%. Net interest margin decreased by 4

basis points, from 3.84% in the second quarter of 2007 to 3.80% in the

second quarter of 2008.



    Provision for Loan Losses. There was no provision for loan losses for

the three months ended June 30, 2008 or for the three months ended June 30,

2007.



    Noninterest Income. Total noninterest income decreased by $96,000, from

$311,000 in the second quarter of 2007 to $215,000 in the second quarter of

2008. This decrease was primarily due to a decrease of $29,000 in service

charges on deposits, a decrease of $30,000 in gains on sales of mortgage

loans held for sale and the sale of an investment in the second quarter of

2007 which resulted in a gain of $20,500 that did not recur in 2008.



    Noninterest Expense. Total noninterest expense decreased by $24,000.

Decreases of $65,000 and $38,000 in professional fees and compensation

expense, respectively, were largely offset by a $50,000 increase in courier

expense and a $49,000 increase in occupancy, furniture and fixture expense.



    Income Taxes. The Company's income tax expense for the quarter ended

June 30, 2008 was $104,000, which represented an effective tax rate of

36.2%, compared to income tax expense of $69,000 for the quarter ended June

30, 2007, which represented an effective tax rate of 33.5%. The effective

tax rate increased due to a higher percentage of net non-deductible items

relative to pre-tax income.



    Comparison of Operating Results for the Six Months Ended June 30, 2008

and 2007



    Overview. The Company's pretax income was $371,000 for the first six

months of 2008, compared to a pretax income of $358,000 for the first six

months of 2007, an increase of $13,000. Compared to the first six months of

2007, net interest income increased by $187,000, provision for loan losses

decreased by $2,000, noninterest income decreased by $103,000 and

noninterest expense increased by $73,000. Net income, after tax, was

$231,000, or $0.10 per diluted share, for the six months ended June 30,

2008, compared to after- tax net income of $239,000, or $0.10 per diluted

share, for the six months ended June 30, 2007.



    Net Interest Income. The Company's net interest income before provision

for loan losses increased by $187,000 for the first six months of 2008

compared to the first six months of 2007. This increase was primarily

attributable to an $11.8 million increase in the average balance of

interest- earning assets, and an increase in net interest spread from 2.64%

to 2.93%. The net interest margin declined by 6 basis points, from 3.80%

for the second quarter of 2007 to 3.74% for the second quarter of 2008.



    Provision for Loan Losses. Provision for loan losses decreased by

$2,000. No provision for loan losses was recorded in the six months ended

June 30, 2008 while $2,000 was recorded in the first six months of 2007.



    Noninterest Income. Total noninterest income decreased by $103,000,

from $567,000 in the first six months of 2007 to $464,000 in the first six

months of 2008. This decrease was primarily related to a $49,000 decrease

in service charges on deposits, a $15,000 decrease in gains on sales of

mortgage loans held for sale and a nonrecurring $20,500 gain related to the

sale of an investment in 2007.



    Noninterest Expense. Total noninterest expense increased by $73,000,

from $3.9 million in the first six months of 2007 to $4.0 million in the

first six months of 2008. Decreases of $77,000 and $60,000 in compensation

expense and professional fees, respectively, were more than offset by

increases of $143,000 in occupancy, furniture and fixture expense and

$98,000 in courier expense.



    Income Taxes. The Company's income tax expense for the six months ended

June 30, 2008 was $140,000, which represented an effective tax rate of

37.7%, compared to income tax expense for the six months ended June 30,

2007 of $119,000, which represented an effective tax rate of 33.3%. The

effective tax rate increased due to a higher percentage of net

non-deductible items relative to pre-tax income.



    Financial Condition of the Company



    Total Assets. The Company's total assets increased by $19.6 million, or

9.0%, from $216.8 million at June 30, 2007 to $236.4 million at June 30,

2008. The increase in assets resulted primarily from a $22.1 million

increase in the ending balance of loans held for investment.



    Funds Sold and Investment Securities. Total federal funds sold and

investment securities available for sale were $46.0 million at June 30,

2008, compared to a combined balance of $53.0 million at June 30, 2007,

reflecting a decrease in the combined balance of $7.0 million, or 13.2%.



    Loans. Loans held for investment, net, at June 30, 2008 were $166.1

million, which represents an increase of $22.1 million, or 15.3%, from the

June 30, 2007 loan balance of $144.0 million.



    Asset Quality. The Company's total nonperforming assets decreased to

$36,000, or 0.02% of assets, at June 30, 2008, compared to $187,000, or

0.09% of assets, at June 30, 2007, attributable to a decrease in the

balance of nonaccrual loans.



    Deposits. Driven by growth in core deposits, total deposits increased

by $5.6 million, or 3.0%, from $189.7 million at June 30, 2007 to $195.3

million at June 30, 2008. Core deposits, which are comprised of checking,

savings and money market accounts, increased by $5.1 million, or 3.7%, from

$137.6 million at June 30, 2007 to $142.7 million at June 30, 2008.



    Average total deposits increased by $6.4 million, or 3.5%, from $183.7

million during the six months ended June 30, 2007 to $190.1 million during

the six months ended June 30, 2008. Average core deposits increased by

$13.0 million, offset by a $6.6 million decrease in the average balance of

certificates of deposit, between the comparable quarters.



    Borrowed Funds. To fund asset growth, in addition to the increase in

deposit balances, borrowed funds increased by $13.1 million, from $900,000

at June 30, 2007 to $14.0 million at June 30, 2008, due an increase in FHLB

borrowings.



    Capital. Stockholders' equity increased by $1.0 million, or 3.9%, from

$24.3 million at June 30, 2007 to $25.3 million at June 30, 2008.

Stockholders' equity increased primarily as a result of a $366,000 increase

in retained earnings and a $448,000 increase in accumulated after-tax

comprehensive income attributable to an increase in the market value of the

Company's available-for-sale investment securities portfolio.



    Certain reclassifications have been made to prior period financial

statements to conform them to the current period presentation.



    The tables attached to and incorporated within this release present in

greater detail certain of the unaudited financial information described

above.



    Subsequent Event



    In July 2008, the Company sold approximately $28 million of FNMA and

FHLMC balloon mortgage-backed securities, which yielded approximately 5%,

and expects to record an after-tax gain on the sale of approximately

$329,000 in the third quarter of 2008. The Company has not yet determined

the disposition of the proceeds of the sale.



    Dividend



    On July 23, 2008, Heritage's Board of Directors declared a $0.06 per

share dividend on Heritage's common stock. The dividend will be paid on

August 14, 2008 to shareholders of record on August 4, 2008.

    About Heritage



    Heritage is the parent company of Heritage Bank

(http://www.heritagebankva.com). Heritage Bank has four full-service

branches in the city of Norfolk and one full-service branch in the city of

Virginia Beach. Heritage Bank provides a full range of banking services

including business, personal and mortgage loans.



    Forward Looking Statements



    The press release contains statements that constitute "forward-looking

statements" within the meaning of Section 21E of the Securities Exchange

Act of 1934, as amended. Forward-looking statements address future events,

developments or results and typically use words such as believe,

anticipate, expect, intend, plan, forecast, outlook, or estimate. Such

forward-looking statements involve known and unknown risks, uncertainties

and other factors that may cause Heritage's actual results, performance,

achievements, and business strategy to differ materially from the

anticipated results, performance, achievements or business strategy

expressed or implied by such forward-looking statements. Factors that could

cause such actual results, performance, achievements and business strategy

to differ materially from anticipated results, performance, achievements

and business strategy include: general and local economic conditions,

competition, capital requirements of the planned expansion, customer demand

for Heritage's banking products and services, and the risks and

uncertainties described in Heritage's most recent Form 10-KSB filed with

the Securities and Exchange Commission. Heritage disclaims any intention or

obligation to update or revise any forward-looking statements, whether as a

result of new information, future events or otherwise.










    HERITAGE BANKSHARES, INC.

    CONSOLIDATED BALANCE SHEETS

    (in thousands)

                                                          At June 30,

                                                    2008              2007

                                                 (unaudited)       (unaudited)

    ASSETS



    Cash and due from banks                         $9,020             $6,814

    Federal funds sold                               8,049             12,483

    Securities available for sale, at

     fair value                                     37,940             40,519

    Securities held to maturity, at cost               575                678

    Loans, net

       Held for investment, net of

        allowance for loan losses                  166,047            143,993

       Held for sale                                   417                330

    Accrued interest receivable                        704                849

    Stock in Federal Reserve Bank, at cost             320                313

    Stock in Federal Home Loan Bank of

     Atlanta, at cost                                  983                401

    Premises and equipment, net                     11,090              8,985

    Other assets                                     1,249              1,430

    Total assets                                  $236,394           $216,795



    LIABILITIES AND STOCKHOLDERS' EQUITY

    Liabilities



    Deposits

    Noninterest bearing                            $58,896            $53,049

    Interest-bearing                               136,417            136,649

    Total deposits                                 195,313            189,698



    Federal Home Loan Bank Advance                  13,000                  -

    Securities sold under agreements to

     repurchase                                        919                850

    Other borrowings                                    50                 50

    Accrued interest payable                           247                296

    Other liabilities                                1,560              1,555

    Total liabilities                              211,089            192,449



    Stockholders' equity

    Common stock, $5 par value - authorized

     3,000,000 shares; issued and outstanding:

     2,278,652 shares at June 30, 2008;

     2,278,652 shares at June 30, 2007              11,393             11,393

    Additional paid-in capital                       6,247              6,102

    Retained earnings                                7,303              6,937

    Accumulated other comprehensive income

    (loss), net                                        362                (86)

    Total stockholders' equity                      25,305             24,346

    Total liabilities and stockholders' equity    $236,394           $216,795





    HERITAGE BANKSHARES, INC.

    CONSOLIDATED STATEMENTS OF INCOME

    (in thousands, except per

     share data)                     Three Months Ended     Six Months Ended

                                         June 30                 June 30

                                     2008       2007       2008       2007

                                  (unaudited)(unaudited)(unaudited)(unaudited)

    Interest income

      Loans and fees on loans         $2,426     $2,479     $4,943     $4,922

      Taxable investment securities      441        519        905        922

      Nontaxable investment securities    13         12         25         25

      Dividends on FRB and FHLB stock     14         11         32         22

      Interest on federal funds sold      43        108         82        397

      Other interest income                1          3          3          6

      Total interest income            2,938      3,132      5,990      6,294



    Interest expense

      Deposits                           874      1,241      1,931      2,511

      Borrowings                          39         18        146         57

      Total interest expense             913      1,259      2,077      2,568



    Net interest income                2,025      1,873      3,913      3,726



    Provision for loan losses              -          -          -          2



    Net interest income after

     provision for loan losses         2,025      1,873      3,913      3,724



    Noninterest income

      Service charges on deposit

       accounts                           99        128        205        254

      Gains on sale of loans held

       for sale, net                      23         53         68         83

      Gain on sale of investment

       securities                          -          -          5          1

      Late charges and other fees on

       loans                              21         24         33         39

      Other                               72        106        153        190

      Total noninterest income           215        311        464        567



    Noninterest expense

      Compensation                     1,012      1,050      2,084      2,161

      Data processing                    141        130        276        260

      Occupancy                          192        160        406        300

      Furniture and equipment            140        123        288        251

      Taxes and licenses                  64         55        132        109

      Professional fees                   65        130        160        220

      Marketing                           40         45         77         85

      Telephone                           25         29         51         64

      Stationery and supplies             26         37         45         69

      Other                              247        217        487        414

      Total noninterest expense        1,952      1,976      4,006      3,933



    Income before provision for

     income taxes                        288        208        371        358



    Provision for income taxes           104         69        140        119



    Net income                          $184       $139       $231       $239

    Earnings per common share

      Basic                            $0.08      $0.06      $0.10      $0.10

      Diluted                          $0.08      $0.06      $0.10      $0.10

    Dividends per share                $0.06      $0.06      $0.12      $0.12



    Weighted average shares

     outstanding - basic           2,278,652  2,278,652  2,278,652  2,278,507

    Effect of dilutive stock

     options                               -          -          -          -

    Weighted average shares

     outstanding - assuming

     dilution                      2,278,652  2,278,652  2,278,652  2,278,507





    HERITAGE BANKSHARES, INC.

    OTHER SELECTED FINANCIAL INFORMATION

    (Unaudited)

    (in thousands, except share

     and per share data)              Six Months Ended      Three Months Ended

                                          June 30,               June 30,

                                       2008       2007       2008       2007

    Financial ratios

      Annualized return on average

       assets                          0.32%      0.26%      0.20%      0.23%

      Annualized return on average

       equity                          2.89%      2.26%      1.82%      1.96%

      Average equity to average

       assets                         11.00%     11.61%     11.21%     11.55%

      Equity to assets, at

       period-end                     10.70%     11.23%     10.70%     11.23%

      Net interest margin              3.80%      3.84%      3.74%      3.80%



    Per common share

      Earnings per share - basic      $0.08      $0.06      $0.10      $0.10

      Earnings per share - diluted    $0.08      $0.06      $0.10      $0.10

      Book value per share           $11.11     $10.68     $11.11     $10.68

      Dividends declared per share    $0.06      $0.06      $0.12      $0.12



    Common stock outstanding       2,278,652  2,278,652  2,278,652  2,278,652

    Weighted average basic shares

     outstanding                   2,278,652  2,278,652  2,278,652  2,278,507

    Weighted average diluted

     shares                        2,278,652  2,278,652  2,278,652  2,278,507



    Asset quality

      Nonaccrual loans                    $-       $187         $-       $187

      Accruing loans past due 90

       days or more                       36          -         36          -

      Total nonperforming loans           36        187         36        187



      Real estate owned, net               -          -          -          -



      Total nonperforming assets         $36       $187        $36       $187



      Nonperforming assets to total

       assets                           0.02%      0.09%      0.02%      0.09%





    Allowance for loan losses

      Balance, beginning of period    $1,492     $1,373     $1,400     $1,373

      Provision for loan losses            -          -          -          2

      Loans charged-off                   (1)         -         (1)        (8)

      Recoveries                         101          9        193         15

      Balance, end of period          $1,592     $1,382     $1,592     $1,382



    Allowance for loan losses to

     gross loans held for investment,

     net of unearned fees and costs     0.95%      0.95%      0.95%      0.95%