U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   FORM 10-KSB

[ X ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934
                      For the year ended December 31, 1998.

                        Commission file number 000-23847

                           SHORE FINANCIAL CORPORATION
                           ---------------------------

          Virginia                                      54-1873994
--------------------------------                   -------------------
(State or other jurisdiction of                      (I.R.S Employer
 incorporation or organization)                    Identification No.)

                    25253  Lankford  Highway,  Onley,  VA 23418
                    ---------------------------------------------
               (Address of principal executive offices) (Zip Code)

        Issuer's telephone number, including area code: (757) 787-1335

   Securities registered pursuant to Section 12(b) of the Exchange Act: None

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

                         Common Stock ($0.33 par value)
                         ------------------------------
                                (Title of Class)

Check  whether  the Issuer  (1) has filed all  reports  required  to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period that the  registrant was required to file such reports),  and (2)
has been subject to such filing requirements for the past 90 days. Yes X  No 

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

State Issuer's Revenues for its most recent fiscal year $8,489,000.

On March 1, 1999, the aggregate  market value of the 1,810,812  shares of Common
Stock of the Registrant  outstanding on such date, which excludes shares held by
affiliates of the Registrant,  was approximately  $17.3 million.  This figure is
based on the closing price of $9.56 per share of the  Registrant's  Common Stock
on March 1, 1999.

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock as of March 1, 1999:

                   Class                Outstanding at March 1, 1999
        ------------------------------------------------------------
         Common Stock, $0.33 par value           [1,810,812]

      DOCUMENTS INCORPORATED BY REFERENCE

(1) Portions of the Registrant's 1998 Annual Report to the Shareholders are
incorporated by reference in Part II hereof.
(2) Portions of Registrant's 1999 Proxy Statement are incorporated by reference
in Part III hereof.

Transitional Small Business Disclosure Format         Yes         No   X


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                                     PART I

     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.

Item 1.
                                    BUSINESS

General

     Shore  Financial  Corporation ( the  "Company") is a Virginia  corporation
organized  in  September  1997 by Shore  Bank (the  "Bank")  for the  purpose of
becoming a unitary holding company of the Bank. The Company's  assets consist of
its  investment  in  the  Bank  and  approximately  $2.0  million  in  cash  and
investments. The business and management of the Company consists of the business
and management of the Bank. The Bank is a Virginia  chartered,  Federal  Reserve
member,  commercial  bank whose  predecessor  began  business  in 1961 and whose
headquarters  are in Onley,  Virginia.  The Bank operates six banking offices on
the Eastern Shore of Virginia and  Maryland,  including the counties of Accomack
and Northampton in Virginia and the Salisbury/Wicomico  County area in Maryland.
At December 31, 1998, the Company had assets of $119.9 million, Bank deposits of
$104.3 million and stockholders'  equity of $13.8 million.
     In the summer of 1997, the Bank  completed  both a public and  subscription
rights offering, issuing 431,250 new shares of common stock that netted the Bank
approximately  $3.1 million in new capital.  It was in August 1997 that the Bank
became  publicly  traded on the Nasdaq Stock Market under the symbol "SHBK".  In
November 1997, the Bank's  shareholders  approved the reorganization of the bank
into the holding company form of  organization  (the  "Reorganization"),  and in
December  1997,  the bank  changed its year end from fiscal June 30, to calendar
year December 31 for financial  and income tax  reporting  purposes.  Finally on
March 31, 1998 the Bank was converted from a federally chartered savings bank to
a Virginia chartered, Federal Reserve member, commercial bank.
     The  Bank  offers a full  menu of  banking  products  and  services  in the
communities it serves. For the business customers the Bank offers checking, cash
management, credit card merchant services, sweep accounts, and a variety of loan
options  including  operating lines of credit,  equipment loans, and real estate
loans.  For the consumer,  the Bank has the only totally free  checking  account
available in its Virginia market,  along with telephone banking  services,  safe
deposit  boxes,  and the  largest  network  of  ATM's  on the  Eastern  Shore of
Virginia.  The bank delivers its banking  services  through six branch  offices,
including the main office, that are served by 51 dedicated employees.

Market Area

     The Bank's Main Office and three additional banking offices are located in
Accomack and Northampton Counties, which comprise the Eastern Shore of Virginia.
Poultry and seafood  processing  are major  industries in the area,  with Perdue
Farms,  Inc. and Tyson Foods,  Inc. being two of the area's  largest  employers.
Agriculture and tourism are also integral parts of the area's economy. Recently,
the legislature of the  Commonwealth of Virginia  created a Space Port Authority
to serve northern  Accomack County by promoting  commercial  space launches from
existing  space  flight  facilities  and  infra  structure  at  Wallops  Island,
Virginia.  In Northampton  County there is a recently  completed  Eco-Industrial
Park which is committed to environmentally  friendly job creation. The park is a
model for others nationally and has signed its first tenant.

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<PAGE>

     During 1999,  management  expects to open the Bank's fifth Virginia  branch
and seventh  overall in Parksley,  Virginia.  The planned full service  facility
will provide a banking  alternative  for a community that  management  considers
under-served and will provide  transaction  volume support for the Bank's Onley,
Virginia office which currently  serves customers from that area. The Bank plans
to purchase land currently owned by the town of Parksley to build the facility.

     During  February  1999,  the Company  entered  into an  agreement to lease
commercial  office  space that will  accommodate  the  Company's  administrative
operations and will enable the Company to better serve the Bank's branch network
and  provide  improved  item  processing  service to the Bank's  customers.  The
Company expects to move operations into the facility in April 1999.

     In  1995,  the Bank  expanded into the  Salisbury/Wicomico  County area of
Maryland,  which is approximately 60 miles north of the Bank's main office.  The
Salisbury/Wicomico County area is the economic hub of the Delmarva Peninsula and
is centrally  located as a crossroads on the  peninsula.  Approximately  215,000
people  live within a 20 mile  radius of the City of  Salisbury.  The area has a
diversified economy and leading employers in the area include Perdue Farms, Inc.
(poultry processing),  Dresser Industries (electronic controls), Bayliner Marine
(yachts),  PRMC (medical  services),  and  Salisbury  State  University.  During
November  1997,  the Bank  opened its second  Maryland  branch in the  financial
district of downtown Salisbury. The branch has an automated teller machine (ATM)
and safe deposit  boxes and  management  believes that its location will attract
more  commercial  and  consumer  customers  and  will  complement  the  existing
Salisbury location.


Competition

     In its market area, the Bank competes with regional  commercial  banks and
independent  community banks with multiple  offices on the Eastern Shore.  These
and  certain  other  non-bank   competitors  may  have  much  greater  financial
resources,  diversified  markets,  and branch  networks than the Bank and may be
able to offer similar services at varying costs with higher lending limits. With
nationwide banking,  the Bank also faces the prospect of additional  competitors
entering its market area.

     The  Bank  faces  strong  competition  both in  originating  loans  and in
attracting  deposits.  Competition  in  originating  loans comes  primarily from
commercial  banks and mortgage  lenders and to a lesser extent consumer  finance
companies,  credit  unions,  and savings and loans.  The Bank competes for loans
principally  on the basis of the  interest  rates and loan fees it charges,  the
types  of loans  it  originates  and the  quality  of  service  it  provides  to
borrowers.

     The Bank faces  substantial  competition in attracting  deposits from other
banks,  money  market  and mutual  funds,  credit  unions  and other  investment
vehicles.  The ability of the Bank to attract and retain deposits depends on its
ability to provide an investment  opportunity that satisfies the requirements of
investors as to rate of return, liquidity,  risk, convenience and other factors.
The Bank competes for these  deposits by offering a variety of deposit  accounts
at  competitive   rates,   convenient   business  hours,   and  being  the  only
locally-owned independent bank on the Eastern Shore of Virginia. 

                                       3
<PAGE>

Credit Policies

     The  principal risk associated with each of the categories of loans in the
Bank's portfolio is the creditworthiness of its borrowers. Within each category,
such  risk  is  increased  or  decreased,   depending  on  prevailing   economic
conditions.  The Bank  employs  extensive  written  policies and  procedures  to
enhance  management  of credit  risk.  The loan  portfolio  is  managed  under a
specifically  defined  credit  process.  This process  includes  formulation  of
portfolio  management strategy,  guidelines for underwriting  standards and risk
assessment,  procedures  for ongoing  identification  and  management  of credit
deterioration,  and regular  portfolio  reviews to estimate loss exposure and to
ascertain compliance with the Bank's policies. The largest unsecured and secured
individual  lending  authority  currently  granted  by the Bank is  $50,000  and
$100,000,  respectively.  The  President,  the  Chief  Lending  Officer  and the
President of the Maryland  Division may individually  approve unsecured loans up
to $50,000 and secured loans up to $100,000. The President and the Chief Lending
Officer may together  approve  unsecured  loans between $50,000 and $100,000 and
secured loans  between  $100,000 and $200,000.  Loan  applications  in excess of
$200,000 secured and $100,000  unsecured are approved by the Loan Committee on a
weekly basis.  The Loan  Committee  consists of the President and one additional
director,  with the  directors  rotating  their  service on this  committee on a
monthly basis.  All loan  applications in excess of $300,000 must be approved by
the Board of Directors.

     In the normal course of business,  the Bank makes various  commitments and
incurs certain  contingent  liabilities which are disclosed but not reflected in
its annual  financial  statements,  including  commitments to extend credit.  At
December 31, 1998, commitments to extend credit totaled $14.4 million.

          One- to  Four-Family  Residential  Real  Estate  Lending.  The  Bank's
primary  lending  program has been the  origination  of loans secured by one- to
four-family  residences,  virtually all of which have been located in its market
area.  The Bank  evaluates  both the  borrower's  ability to make  principal and
interest  payments  and the value of the  property  that will  secure  the loan.
Federal  law  permits  the Bank to make  loans in  amounts  of up to 100% of the
appraised  value of the  underlying  real estate.  Loans are made with a loan to
value up to 90% for conventional mortgage loans on primary residences.  The Bank
generally  originates  mortgage  loans that have an  adjustable  rate feature in
which the rate changes every one,  three or five years.  Most of these loans are
tied to comparable  maturity U.S.  Treasury Bills.  Where loans are not indexed,
they generally have a balloon feature.  There are unquantifiable risks resulting
from potential  increased costs to the borrower as a result of repricing.  It is
possible,  therefore,  that during periods of rising interest rates, the risk of
defaults on adjustable  rate  mortgages  ("ARMs") may increase due to the upward
adjustment of interest costs to borrowers.

     Construction  Lending. The Bank makes local construction loans,  primarily
residential and small commercial  loans.  The construction  loans are secured by
the property for which the loan was obtained. At December 31, 1998, construction
and land loans  outstanding  were $3.7  million,  or 4.6%,  of gross loans.  The
average  life of a  construction  loan is less than 12 months  and they  reprice
daily based on the prime rate or are fixed for a 12-month  period.  Construction
lending entails significant additional risks, compared with residential mortgage
lending.  Construction  loans involve risks  attributable  to the fact that loan
funds are advanced upon the security of the home under construction, which is of
uncertain  value  prior to the  completion  of  construction.  Thus,  it is more
difficult  to evaluate  accurately  the total loan funds  required to complete a
project and related  loan-to-value ratios. To minimize the risks associated with
construction lending, the Bank limits loan amounts to 80% of appraised value, in
addition to its usual credit analysis of its borrowers. Additionally, the Bank's
officers make regular inspections of construction projects prior to disbursement
of loan funds.  The Bank also obtains a first lien on the  security  property as
security for its construction loans.

     Commercial  Real Estate Lending. The Bank also originates  commercial real
estate  loans.  These  loans are  secured by various  types of  commercial  real
estate,  including multifamily  residential

                                       4
<PAGE>

buildings, commercial buildings and offices. At December 31, 1998, commercial
real estate loans aggregated $17.5 million or 21.7% of the Bank's gross loans.
The interest rates on commercial real estate loans is usually fixed for 1 to 3
years, with either a balloon feature or an additional rate increase feature.
Commercial real estate loans made by the Bank generally amortize over 5 to 15
years and may have a call provision of 3 or 5 years. The Bank's commercial real
estate loans are secured by properties in its market area.

     In its  underwriting of commercial real estate,  the Bank may lend,  under
federal  regulation,  up to 100% of the  security  property's  appraised  value,
although the Bank's loan to original appraised value ratio on such properties is
80% or less in most cases.  Commercial real estate lending  entails  significant
additional risk,  compared with residential  mortgage  lending.  Commercial real
estate loans  typically  involve larger loan balances  concentrated  with single
borrowers or groups of related borrowers.  Additionally,  the payment experience
on loans secured by income  producing  properties is typically  dependent on the
successful  operation  of a business  or a real  estate  project and thus may be
subject, to a greater extent, to adverse conditions in the real estate market or
in the economy  generally.  The Bank's  commercial real estate loan underwriting
criteria require an examination of debt service coverage ratios,  the borrower's
creditworthiness and prior credit history and reputation, and the Bank generally
requires personal guarantees or endorsements of borrowers.

     Commercial  Loans.  Beginning in fiscal year 1993, the Bank began to focus
on developing its commercial loan portfolio to qualified small businesses in its
market area. At December 31, 1998,  commercial  loans aggregated $3.6 million or
4.5% of the Bank's gross  loans.  Commercial  business  loans  generally  have a
higher degree of risk than residential  mortgage loans,  but have  commensurably
higher yields.  To manage these risks,  the Bank generally  secures  appropriate
collateral  and  carefully  monitors  the  financial  condition  of its business
borrowers.  Commercial  business  loans  typically  are made on the basis of the
borrower's  ability to make  repayment  from the cash flow from its business and
are often secured by business assets, such as accounts receivable, equipment and
inventory.  As a  result,  the  availability  of  funds  for  the  repayment  of
commercial  business loans may be substantially  dependent on the success of the
business  itself.  Further,  the collateral  for  commercial  business loans may
depreciate  over  time  and  cannot  be  appraised  with  as much  precision  as
residential real estate.  The Bank has a credit review and monitoring  system to
regularly review the cash flow and collateral of commercial borrowers.

     Consumer  Lending.  The Bank offers various secured and unsecured consumer
loans, including unsecured personal loans and lines of credit, home equity lines
of credit,  automobile  loans,  deposit  account loans,  installment  and demand
loans, and letters of credit.  At December 31, 1998, the Bank had consumer loans
of $11.9  million  or 14.8% of gross  loans.  Such loans are  generally  made to
customers with whom the Bank has a preexisting relationship and are generally in
amounts of under $75,000.  The Bank  originates all of its consumer loans in its
market area and  intends to continue  its  consumer  lending in this  geographic
area.

     Consumer loans may entail greater risk than do residential mortgage loans,
particularly in the case of consumer loans which are unsecured, such as lines of
credit, or secured by rapidly  depreciable  assets such as automobiles.  In such
cases, any repossessed  collateral for a defaulted consumer loan may not provide
an adequate source of repayment of the  outstanding  loan balance as a result of
the greater likelihood of damage, loss or depreciation. The remaining deficiency
often does not  warrant  further  substantial  collection  efforts  against  the
borrower. In addition, consumer loan collections are dependent on the borrower's
continuing  financial  stability,  and  thus  are more  likely  to be  adversely
affected by job loss, divorce, illness or personal bankruptcy.  Furthermore, the
application  of various  federal  and state  laws,  including  federal and state
bankruptcy and  insolvency  laws, may limit the amount which can be recovered on
such loans.

Employees

                                       5
<PAGE>

     At  December  31,  1998,  the  Bank  had 39  full-time  and  16  part-time
employees. The Bank considers relations with its employees to be good.


Regulation and Supervision

      Set forth below is a brief  description  of certain  laws and  regulations
that relate to the regulation of the Company and the Bank. The  descriptions  of
these laws and  regulations,  as well as  descriptions  of laws and  regulations
contained  elsewhere  herein, do not purport to be complete and are qualified in
their entirety by reference to applicable laws and regulations.

The Company

      General.  The Company, as a bank holding company, is subject to regulation
under the Bank  Holding  Company  Act of 1956 (as  amended,  the "BHCA") and the
regulation,  supervision and examination  requirements of the Board of Governors
of the Federal Reserve System.  Bank holding  companies are subject to extensive
regulation by the Federal  Reserve as set forth in Regulation Y, 12 C.F.R.  Part
225,  as  amended.   Regulation  Y  establishes  the  registration,   reporting,
examination, applications, acquisitions, control and divestiture, change in bank
control,  appraisals,  and  change in  director  and senior  executive  officers
requirements  applicable  to  bank  holding  companies.  Regulation  Y  and  the
interpretations  and rulings issued by the Federal Reserve  thereunder  identify
various  prohibited  non-banking  activities in which bank holding companies and
their  subsidiaries may not engage as well as various exempt activities in which
a bank holding company and its  subsidiaries  may engage either with or, in some
cases, without prior Federal Reserve approval. Regulation Y further confirms the
authority  of the Federal  Reserve  under the BHCA to impose  criminal and civil
penalties  for  violations  of the BHCA and the  regulations  and orders  issued
thereunder  and to issue cease and desist  orders when  necessary in  connection
therewith.

      Activities Obligations and Restrictions. There are a number of obligations
and  restrictions  imposed  on  bank  holding  companies  and  their  depository
institution  subsidiaries that are designed to reduce potential loss exposure to
the depositors of the depository  institutions  and to the FDIC insurance funds.
For example,  under a policy of the Federal Reserve with respect to bank holding
company  operations,  a bank holding company is required to serve as a source of
financial  strength  to its  subsidiary  depository  institutions  and to commit
resources to support such institutions in circumstances where it might not do so
absent such policy. In addition, the "cross-guarantee" provisions of federal law
require insured  depository  institutions  under common control to reimburse the
FDIC for any loss suffered or reasonably  anticipated  by either the SAIF or BIF
as  a  result  of  the  default  of a  commonly  controlled  insured  depository
institution or for any assistance  provided by the FDIC to a commonly controlled
insured  depository  institution  in danger of default.  The FDIC may decline to
enforce the cross-guarantee  provisions if it determines that a waiver is in the
best  interest of the SAIF or the BIF or both.  The FDIC's  claim for damages is
superior to claims of stockholders of the insured depository  institution or its
holding  company but is subordinate to claims of depositors,  secured  creditors
and  holders of  subordinated  debt  (other  than  affiliates)  of the  commonly
controlled insured depository institutions.

      Banking laws also provide that amounts  received from the  liquidation  or
other resolution of any insured  depository  institution by any receiver must be
distributed (after payment of secured claims) to pay the deposit  liabilities of
the  institution  prior to payment  of any other  general  or  unsecured  senior
liability,   subordinated  liability,  general  creditor  or  stockholder.  This
provision  would give  depositors  a preference  over  general and  subordinated
creditors  and  stockholders  in the event a receiver is appointed to distribute
the asset of any bank or savings bank subsidiaries.

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<PAGE>

      The restriction on interstate  acquisitions by bank holding  companies was
abolished  effective  September 1995, and bank holding  companies from any state
are able to acquire banks and bank holding companies located in any other state,
subject  to  certain   conditions,   including   nationwide  and  state  imposed
concentration   limits.   Banks  are  able  to  branch  across  state  lines  by
acquisition,  merger or de novo (unless  state law would permit such  interstate
branching at an earlier date),  provided certain  conditions are met,  including
that applicable state law must expressly permit such interstate branching.

      Limitations  on  Transactions   with  Affiliates.   Transactions   between
financial  institutions  such as the  Bank and any  affiliate  are  governed  by
Sections 23A and 23B of the Federal Reserve Act (the "FRA").  An affiliate of an
institution is any company or entity that controls, is controlled by or is under
common control with the institution.  In a holding company  context,  the parent
holding  company of an institution  (such as the Company) and any companies that
are controlled by such parent holding company are affiliates of the institution.
Generally,  Sections  23A and 23B of the FRA (i) limit  the  extent to which the
institution or its  subsidiaries may engage in "covered  transactions"  with any
one affiliate to an amount equal to 10% of such institution's  capital stock and
surplus,  and  contain  an  aggregate  limit on all such  transactions  with all
affiliates  to an amount equal to 20% of such capital stock and surplus and (ii)
require that all such  transactions  be on terms  substantially  the same, or at
least as favorable,  to the  institution  or  subsidiary as those  provided to a
non-affiliate.  The term  "covered  transaction"  includes  the making of loans,
purchase  of  assets,  issuance  of a  guarantee  and  other  similar  types  of
transactions. In addition to the restrictions imposed by Sections 23A and 23B of
the FRA, no institution may (i) loan or otherwise extend credit to an affiliate,
except for any affiliate  which engages only in activities  that are permissible
for bank holding  companies,  or (ii)  purchase or invest in any stocks,  bonds,
debentures, notes or similar obligations of any affiliate, except for affiliates
that are subsidiaries of the institution.

      The  restrictions  contained  in  Section  22(h)  of the FRA on  loans  to
executive officers, directors and principal stockholders also apply to the Bank.
Under Section 22(h), loans to a director,  an executive officer and to a greater
than  10%  stockholder  of  a  financial  institution,  and  certain  affiliated
interests of either,  may not exceed,  together with all other outstanding loans
to such person and affiliated interests, the institution's loans to one borrower
limit  (generally  equal  to 15% of the  institution's  unimpaired  capital  and
surplus).  Section  22(h)  also  prohibits  loans  above  prescribed  amounts to
directors,   executive   officers  and  greater  than  10%  stockholders  of  an
institution,  and their respective  affiliates,  unless such loan is approved in
advance by a majority of the board of  directors  of the  institution,  with any
"interested"  director not  participating  in the voting.  The  prescribed  loan
amount (which includes all other  outstanding  loans to such person) as to which
such prior board of director  approval is required  generally  is the greater of
$25,000  or 5% of capital  and  surplus  (up to  $500,000).  Section  22(h) also
requires that loans to directors,  executive officers and principal stockholders
be made on terms substantially the same as offered in comparable transactions to
other persons.

      Restrictions on  Acquisitions.  Under the BHCA, a bank holding company may
not directly or indirectly  acquire  ownership or control of more than 5% of the
voting shares or substantially all of the assets of any additional bank or merge
or consolidate  with another bank holding  company without the prior approval of
the Federal  Reserve Board.  The BHCA also generally  limits the activities of a
bank holding company to that of banking,  managing or controlling  banks, or any
other  activity  which is  determined  to be  closely  related  to banking or to
managing or controlling banks that an exception is allowed for those activities.


The Bank

      General.  As a state  chartered  commercial  bank,  the Bank is subject to
regulation,  supervision  and  examination  requirements  of the Virginia  State
Corporation  Commission's  Bureau of  Financial

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<PAGE>

Institutions. The Bank is also subject to the regulation, supervision and
examination requirements of the Federal Reserve Board and the Federal Deposit
Insurance Corporation. State and federal laws also govern the activities in
which the Bank may engage, the investments it may make and the aggregate amount
of loans that may be granted to one borrower. Various consumer and compliance
laws and regulations also affect the Bank's operations. The Federal Reserve and
the SCC conduct periodic examinations to test the Bank's compliance with various
regulatory requirements. The Federal Reserve completed its most recent
examination in September, 1997. In November 1998, the Federal Reserve completed
a compliance examination of the Bank.

      Insurance  of  Accounts.  The Bank's  deposits  are insured to the maximum
extent permitted by the SAIF and BIF, which is administered by the FDIC, and are
backed by the full faith and credit of the U.S. Government. As insurer, the FDIC
is  authorized  to  conduct  examinations  of,  and  to  require  reporting  by,
FDIC-insured  institutions.  It also may prohibit any  FDIC-insured  institution
from engaging in any activity the FDIC determines by regulation or order to pose
a serious  threat  to the FDIC.  The FDIC  also has the  authority  to  initiate
enforcement  actions  against  banking  institutions,  after  giving the SCC and
Federal Reserve an opportunity to take such action.

      On September  30,  1996,  the Omnibus  Appropriations  Act (the "Act") was
signed into law. The  legislation  authorized a one-time  charge of SAIF insured
institutions  at a rate of 65.7  basis  points  per  $100.00  of March 31,  1995
deposits.  As a result, the Bank's assessment  amounted to $447,000.  Additional
provisions  of the Act include new BIF and SAIF  premiums  and the merger of BIF
and SAIF.  The new BIF and SAIF premiums  include a premium for repayment of the
Financing  Corporation  ("FICO")  bonds plus any regular  insurance  assessment.
Until full  pro-rata  FICO sharing is in effect,  the FICO  premiums for BIF and
SAIF are 1.3 and 6.4 basis  points,  respectively,  which began January 1, 1997.
Full  pro-rata FICO sharing is to begin no later than January 1, 2000. It is the
intention  of the Act that the BIF and SAIF are merged once the bank and savings
association  charters are merged.  The Act designated the original date for this
occurrence to be January 1, 1999, but it had not  materialized as of the date of
this report.

      Under the current risk classification system, institutions are assigned to
one  of  three  capital  groups  which  are  based  solely  on the  level  of an
institution's  capital  --"well  capitalized",   "adequately   capitalized"  and
"undercapitalized"  -- which are defined in the same  manner as the  regulations
establishing the prompt corrective action system under Section 38 of the Federal
Deposit  Insurance Act ("FDIA").  These three groups are then divided into three
subgroups which reflect varying levels of supervisory concern,  from those which
are  considered to be healthy to those which are considered to be of substantial
supervisory  concern.  The matrix so created  results  in nine  assessment  risk
classifications, with rates ranging from zero basis points for well capitalized,
healthy institutions to 27 basis points for under capitalized  institutions with
substantial supervisory concerns.

      The FDIC may  terminate  the deposit  insurance of any insured  depository
institution,  including  the Bank,  if it  determines  after a hearing  that the
institution has engaged or is engaging in unsafe or unsound practices,  is in an
unsafe  or  unsound  condition  to  continue  operations,  or has  violated  any
applicable law, regulation,  order or any condition imposed by an agreement with
the FDIC. It also may suspend deposit insurance  temporarily  during the hearing
process for the permanent  termination of insurance,  if the  institution has no
tangible  capital.  If insurance of accounts is terminated,  the accounts at the
institution  at  the  time  of the  termination,  less  subsequent  withdrawals,
continue to be insured for a period of six months to two years, as determined by
the FDIC. Management is aware of no existing circumstances which would result in
termination of the Bank's deposit insurance.

      Regulatory Capital  Requirements.  The Company and the Bank are subject to
various  regulatory  capital  requirements  administered  by the federal banking
agencies. Generally, the Company and the Bank are required to maintain a minimum
ratio of total capital to  risk-weighted  assets of 8%.  Failure to

                                       8
<PAGE>

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 Company's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Company and the Bank must meet specific capital guidelines that involve
quantitative measures of assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. The capital amounts
and classification are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.

      Quantitative measures established by regulation to ensure capital adequacy
require the Company and its 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, 1998, that the Company meets all capital
adequacy requirements to which it is subject. In fact, at December 31, 1998, the
Bank exceeded all of its regulatory capital requirements,  with total capital to
risk-weighted  assets, tier 1 capital to risk-weighted assets and tier 1 capital
to average assets ratios of 19.43%, 18.02% and 11.80%, respectively.

      Liquidity Requirements. The Bank is required to maintain adequate reserves
related to the demand  deposits and time deposits held by the Bank. Such reserve
requirements  may be imposed  by the  Federal  Reserve  and by the SCC under the
Virginia Banking Act. At December 31, 1998, the Bank was maintaining appropriate
reserves  as  required  by law with  respect  to its  demand  deposits  and time
deposits.

      Capital Distributions. The Bank is subject to legal limitations on capital
distributions  including  the  payment  of  dividends,  if,  after  making  such
distribution,  the institution would become  "undercapitalized" (as such term is
used in the statute).  For all state member banks of the Federal Reserve seeking
to pay dividends,  the prior approval of the applicable  Federal Reserve Bank is
required if the total of all dividends declared in any calendar year will exceed
the sum of the bank's net profits for that year and its retained net profits for
the  preceding  two  calendar  years.  Federal  law also  generally  prohibits a
depository  institution from making any capital distribution  (including payment
of a dividend  or payment of a  management  fee to its  holding  company) if the
depository   institution   would  thereafter  fail  to  maintain  capital  above
regulatory  minimums.  Federal  Reserve  Banks are also  authorized to limit the
payment of  dividends  by any state member bank if such payment may be deemed to
constitute an unsafe or unsound  practice.  In addition,  under Virginia law, no
dividend may be declared or paid that would impair a Virginia  chartered  bank's
paid-in capital.  The SCC has general authority to prohibit payment of dividends
by a Virginia  chartered  bank if it  determines  that the  limitation is in the
public interest and is necessary to ensure the bank's financial soundness.

      Federal  Home Loan Bank System.  The Bank is members of the  FHLB-Atlanta,
which is one of twelve regional FHLBs that administers the home financing credit
functions of banking  institutions.  As a member of the FHLB system, the Bank is
required to purchase and maintain stock in the  FHLB-Atlanta  in an amount equal
to the greater of 1% of its  aggregate  unpaid  residential  mortgage  loans and
mortgage-backed  securities,  0.3% of its assets or 5% (or such greater fraction
as  established  by the  FHLB) of its  outstanding  FHLB  advances.  The Bank is
required to purchase and maintain stock in the  FHLB-Atlanta  in an amount equal
to the greater of 1% of its  aggregate  unpaid  residential  mortgage  loans and
mortgage-backed  securities, 0.3% of its assets or 10% (or such greater fraction
as established by the FHLB) of its  outstanding  FHLB advances.  At December 31,
1998, the Bank held $580,500 in FHLB stock,  which was in compliance  with these
requirements.  The FHLB pays quarterly cash dividends on its stock. For the year
ended December 31, 1998, the Bank received FHLB cash dividends totaling $42,000.

      Each FHLB serves as a reserve or central  bank for its members  within its
assigned  region.  The FHLBs are funded primarily from proceeds derived from the
sale of  consolidated  obligations  of the

                                       9
<PAGE>

FHLB system. Each FHLB makes loans (i.e., advances) to members in accordance
with policies and procedures established by the board of directors of the FHLB.
These polices and procedures are subject to the regulation and oversight of the
Federal Housing Finance Board.

      Federal  Reserve  System.  The Federal  Reserve  requires  all  depository
institutions to maintain reserves against their transaction  accounts (primarily
NOW and Super NOW checking accounts) and non-personal time deposits. At December
31,  1998,  the Bank is in  compliance  with  such  requirements.  The  balances
maintained to meet the reserve  requirements  imposed by the Federal Reserve may
be used to satisfy applicable liquidity requirements.  However, because required
reserves   must  be   maintained   in  the  form  of  either   vault   cash,   a
noninterest-bearing  account at a Federal Reserve Bank or a pass-through account
as defined by the Federal Reserve,  the effect of this reserve requirement is to
reduce the Company's interest-earning assets.

      As a  member  of the  Federal  Reserve  System,  the Bank is  required  to
purchase  shares of Federal Reserve Bank stock with a par value of $100 equal to
6.0% of the bank's  capital  and  surplus.  One-half of the amount of the bank's
subscription  shall be paid to the Federal  Reserve Bank and the remaining  half
will be subject to call when deemed  necessary  by the Board of Governors of the
Federal Reserve System. At December 31, 1998, the Bank owned $124,800 in Federal
Reserve Stock which was in compliance with these requirements.


Federal Taxation

      General.  The Company and the Bank are subject to the applicable corporate
tax provisions of the Internal Revenue Code of 1986, as amended (the "Code"), as
well as certain additional  provisions of the Code that apply to banks and other
types of financial  institutions.  The  following  discussion  of tax matters is
intended  only  as a  summary  and  does  not  purport  to  be  a  comprehensive
description of the tax rules applicable to the Company and the Bank.

      Under the applicable statutes of limitation, the Bank's federal income tax
returns for 1994 through 1997 are open to  examination  by the Internal  Revenue
Service (the "Service"). The Bank is unaware, however, of any current or pending
Service examinations of the Bank's returns for any of those open years.

      Historically, the Bank has reported its income and expenses on the accrual
method of  accounting  and filed its  federal  income  tax  returns on a June 30
fiscal year basis. Effective December 29, 1997, the Bank changed its year end to
a calendar  year basis for  financial  and income tax  reporting  purposes.  The
Company's fiscal year end is also December 31.

      Bad Debt Reserves.  Prior to 1996,  savings  institutions such as the Bank
that met certain  definitional  tests primarily relating to their assets and the
nature of their  business  ("Qualifying  Thrifts") were permitted to establish a
reserve  for bad debts and to make annual  additions  thereto,  which  additions
could, within specified formula limits, be deducted by the savings  institutions
in arriving at their  taxable  income.  For purposes of the bad debt  deduction,
loans were  separated  into  "qualifying  real  property  loans"  (which are, in
general,  loans  secured by interests in improved real property or real property
which is to be  improved  out of the  proceeds  of the loan) and  "nonqualifying
loans" (which are all other loans).

      During 1996,  new tax  legislation  was enacted that  repealed the reserve
method of accounting  for bad debts of qualified  thrift  institutions  and, for
years after 1995, the Bank will only be eligible to claim tax deductions for bad
debts under the rules for banks. Because the Bank was a small thrift institution
(one with an adjusted basis of assets of less than $500 million) at that time it
is permitted to compute its bad debt deduction  using the  experience  method in
lieu  of  deducting  bad  debts  only  as  they  occur.

                                       10
<PAGE>

     Additionally,   the  new  legislation  requires  a  thrift  institution  to
recapture  over a six-year  period its reserve as of December 31,  1995,  to the
extent it exceeds its reserve  balance at December 31, 1987. As a result of such
legislation,  the Bank is recapturing into taxable income approximately $497,000
ratably over six fiscal years.  The income is includable  over the third through
eighth  years  following  the fiscal year ending June 30,  1997,  since the Bank
meets the residential loan requirement exception in the legislation.  See Note 2
of the notes to the financial statements.

      The Bank's retained  earnings at December 31, 1998 included  approximately
$783,000 representing that portion of the Bank's reserve for bad debts for which
no provision for income taxes has been made. Under  legislation  passed in 1996,
this amount was not  subject to federal  income  taxes upon the Bank  converting
from a federal savings bank to a state chartered  commercial bank. However,  the
Bank is subject to the same recapture  provisions it was subject to as a savings
association.

      Corporate Minimum Tax. The Bank could be subject to an alternative minimum
tax ("AMT")  which is imposed to the extent  that it exceeds the Bank's  regular
tax liability for a year. The alternative  minimum tax generally will apply at a
rate of 20% to a base of regular taxable income plus certain tax preferences and
adjustments  ("alternative minimum taxable income" or "AMTI"), less an exemption
amount.  Currently  no more than 90% of the AMTI may be offset by net  operating
losses (as  determined for AMTI  purposes).  Payment of the AMT may be used as a
credit  against a portion of the regular tax  liabilities  in future years.  The
Code  provisions  relating  to the AMT  also:  (i)  treat as a  preference  item
interest on certain  tax-exempt private activity bonds issued on or after August
8, 1986; and (ii) include in AMTI (for tax years beginning after 1989) an amount
equal to 75% of the amount by which a corporation's  adjusted  current  earnings
exceed  its AMTI  (determined  without  regard  to this  preference  and  before
reduction  for the  alternative  tax net  operating  losses).  The  Bank was not
subject  to the AMT in 1997,  and does not  expect to be  subject  to AMT in the
foreseeable future.

State and Local Taxation

      The Bank, as a Virginia  chartered  bank,  is subject to  Virginia's  Bank
Franchise Tax. Under this system,  the Bank's net capital is subject to tax at a
rate of one percent.  Net capital is composed  generally of the equity  accounts
(common stock,  additional paid-in capital,  and retained earnings) adjusted for
investments  in real  and  personal  property,  certain  reserves,  and  certain
securities exempt from state taxation.

      The Company is subject to Virginia  corporate  income taxes.  The Virginia
corporate  income  tax is imposed  at a rate of six  percent  on a combined  net
income of a Virginia  corporation  and its  subsidiaries as reported for federal
income tax purposes, with certain modifications.


Item 2.
------
                                   PROPERTIES


      The Main Office of the Bank is located at 25253 Lankford  Highway,  Onley,
Virginia,  a two story  colonial brick building built in 1988. The Bank owns the
building  free of any  encumbrances,  but  leases



                                       11
<PAGE>


the land under an agreement expiring in 2000, with four five-year renewals.
During February 1999, the Company entered into a five year lease agreement (with
two five-year renewals) to lease commercial office space that will accommodate
the Company's administrative operations and enable it to bring the Bank's item
processing function in house. The Bank operates five other banking offices (3 in
Virginia and 2 in Salisbury, Maryland), with all but the downtown Salisbury
branch being owned free of any encumbrances. The Bank leases the downtown
Salisbury branch location under an agreement expiring in 2002, with three
five-year renewals.

Item 3.
------

                                LEGAL PROCEEDINGS

      In the  ordinary  course  of its  operations,  the  Company  is a party to
various  legal  proceedings.   Based  upon  information   currently   available,
management believes that such legal proceedings, in the aggregate, will not have
a material adverse effect on the business,  financial  condition,  or results of
operations of the Company.

Item 4.
------
             SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matter was  submitted  to a vote of security  holders  during the fourth
quarter of 1998.

                                       12
<PAGE>

                                     PART II


Item 5.
------

     MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

      The information  included under "Market Price for Common Stock"  appearing
on page 50 of the Annual Report is incorporated herein by reference.


Item 6.
------

 SELECTED CONSOLIDATED FINANCIAL DATA AND MANAGEMENT'S DISCUSSION AND ANALYSIS
               OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

      The information included under "Selected Financial  Highlights"  appearing
on page 3 of the Annual Report and under  "Management's  Discussion and Analysis
of Financial  Condition and Results of  Operations" on pages 5 through 23 of the
Annual Report are incorporated herein by reference.


Item 7.
------
                  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

      The  Consolidated  Financial  Statements and the notes thereto on pages 24
through 49 of the Annual Report are incorporated herein by reference.


Item 8.
------

   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                                   DISCLOSURE

      None.



                                       13
<PAGE>






                                    PART III

Item 9.
------

 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
                        SECTION 16(a) OF THE EXCHANGE ACT


Item 10.
-------

                             EXECUTIVE COMPENSATION


Item 11.
-------

        SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT


Item 12.
-------

                CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


     Pursuant to General  Instructions E (3), the information called for by Part
III,  Items 9.  through  12.,  is  incorporated  herein  by  reference  from the
Company's  definitive  proxy  statement  for the  Company's  Annual  Meeting  of
Shareholders to be held on April 20, 1999,  which definitive proxy statement was
filed with the Commission pursuant to Rule 14a-6 on or prior to March 18, 1999.




                                       14
<PAGE>




                                     PART IV


Item  13.
--------
                              EXHIBITS AND FORM 8-K


(a)   The following exhibits are filed as part of this Form 10-KSB and this list
      includes the Exhibit Index.

       No.                                  Description
       ---                                  -----------

      11.0  Earnings Per Share Computation. *

      13.0  1998 Annual Report to Shareholders.

      21.0  Subsidiaries  of the  Registrant  --  Reference  is made to "Item 1.
            Business" for the required information.

      27.0  Financial Data Schedule.
---------------------
* Information  required herein is incorporated by reference from Note 15 on page
46 of the financial statements attached hereto to this Form 10-KSB.

(b)  Reports on Form 8-K.  No reports  were filed by the  registrant  during the
quarter ended December 31, 1998.



                                       15
<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.

                                             SHORE FINANCIAL CORPORATION

                                                By:   /s/ Scott C. Harvard
                                                ---   --------------------
                                                      Scott C. Harvard
                                                      President    and    Chief
                                                      Executive Officer


      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 and on the dates indicated.
<TABLE>
<CAPTION>


<S>       <C>                              <C>                                 <C>
       Signature                         Capacity                             Date
       ---------                         --------                             ----

/s/ Henry P. Custis, Jr.         Chairman of the Board and                 March 26, 1999
-----------------------                   Director
Henry P Custis, Jr.

/s/ Scott C. Harvard          President (Principal Executive                March 26, 1999
---------------------         Officer) and Director
Scott C. Harvard               

/s/ Steven M. Belote          Treasurer (Principal Financial                March 26, 1999
--------------------          Officer and Accounting Officer)
Steven M. Belote              

/s/ Terrell E. Boothe                Director                               March 26,1999
---------------------
Terrell E. Boothe

/s/ D. Page Elmore                   Director                               March 26,1999
---------------------
D. Page Elmore

/s/ Richard F. Hall, III             Director                               March 26, 1999
-----------------------
Richard F. Hall, III

/s/ Lloyd J. Kellam, III             Director                               March 26, 1999
------------------------
Lloyd J. Kellam, III

/s/ L. Dixon Leatherbury             Director                               March 26,1999
------------------------
L. Dixon Leatherbury

/s/ A. Jackson Mason                 Director                               March 26,1999
------------------------
A. Jackson Mason

                                       16
</TABLE>