LOGO



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LOGO



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Dear Stockholders;

It is with great pleasure that I report to you that your company posted its fifth consecutive year of record profits and eighth consecutive year of increased dividends paid to our stockholders. Income for 2006 reached $2.9 million or $1.16
per share on a fully diluted basis. Total assets grew to $260 million with total gross loans at year end of $210 million.

Your banking
company saw two developments during the year that will impact performance over the next twenty four months. The first was a marked increase in non interest income. Shore Bank benefited from a 95% increase in revenues generated by its investment
subsidiary, stable fee income generated by its mortgage brokerage operation, and significant growth in deposit fee income. Non interest income sources are typically stable core earnings and the bank intends to continue to focus on growth in these
areas. The second development during the year was a declining net interest margin which drives net interest income. This decline is being driven by the movement of money from low yielding transaction accounts to higher yielding short term money
market and certificate of deposit accounts. It is being exacerbated by long term interest rates being lower than short term rates, effectively keeping a lid on the return available on many types of loans. Both of these trends will impact earnings in
the future and are receiving the management teams full attention.

Loan quality remained at remarkably contained levels with non
current loans to total loans at 0.89% at year end. The company had no foreclosures that resulted in losses or in real estate owned by the bank. The loan loss reserve account stood at 1.36% of total loans outstanding at year end or 303% of non
performing loans.

During the last year your banking company reviewed strategic opportunities for the future. As the company grows its
assets and expands in new markets the need for depth of management and operational support becomes much greater. In an effort to strengthen the team the bank added two experienced commercial bankers in the operations and lending areas. The company
also determined that the internet banking platform would be a line of business on which future growth would depend. For the first time in our history electronic transactions exceeded paper check transactions during 2006. Electronic banking in all of
its forms is now the expectation of banking customers. At Shore Bank we have committed human and financial resources to delivering an excellent e-banking product complimented by the largest ATM network in our markets and convenient branch banking
for the personal touch.

Finally, we were pleased to announce a 6 for 5 stock split in September which increased the number of shares
outstanding by twenty percent to 2.7 million total shares.

Thank you for your support in the past and for your continued support in
2007. We are committed to the long term growth of your investment.

LOGO

Scott C. Harvard

President and
Chief Executive Officer



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FINANCIAL HIGHLIGHTS



|                                                                   |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |    |  |   |         |  
|------------------------------------------------------------------ |  | ------------------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | -- |  | - | ------- | -
|                                                                   |  | Years Ended December 31,              |        
|                                                                   |  | 2006                                  |         |   | 2005 |   |         | 2004 |  |   | 2003    |   |  | 2002 |        
|                                                                   |  | (In thousands, except per share data) |        
|Income Statement Data:                                             |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |    |  |   |         |  
|Interest income                                                    |  | $                                     | 15,113  |   |      | $ | 12,851  |      |  | $ | 10,697  |   |  | $    | 9,501   |    |  | $ | 9,406   |  
|Interest expense                                                   |  |                                       | 6,618   |   |      |   | 4,414   |      |  |   | 3,275   |   |  |      | 3,275   |    |  |   | 3,716   |  
|Net interest income                                                |  |                                       | 8,495   |   |      |   | 8,437   |      |  |   | 7,422   |   |  |      | 6,226   |    |  |   | 5,690   |  
|Provision for loan losses                                          |  |                                       | 59      |   |      |   | 304     |      |  |   | 419     |   |  |      | 380     |    |  |   | 335     |  
|Noninterest income                                                 |  |                                       | 3,392   |   |      |   | 2,379   |      |  |   | 1,920   |   |  |      | 1,889   |    |  |   | 1,375   |  
|Noninterest expense                                                |  |                                       | 7,739   |   |      |   | 6,644   |      |  |   | 5,559   |   |  |      | 4,780   |    |  |   | 4,156   |  
|Income taxes                                                       |  |                                       | 1,156   |   |      |   | 1,193   |      |  |   | 1,011   |   |  |      | 893     |    |  |   | 802     |  
|                                                                   |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |    |  |   |         |  
|Net income                                                         |  | $                                     | 2,933   |   |      | $ | 2,675   |      |  | $ | 2,353   |   |  | $    | 2,062   |    |  | $ | 1,772   |  
|                                                                   |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |    |  |   |         |  
|                                                                   |  |                                       |         |   |     
|Per Share Data:                                                    |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |    |  |   |         |  
|Net incomebasic (1)                                               |  | $                                     | 1.18    |   |      | $ | 1.08    |      |  | $ | 0.95    |   |  | $    | 0.84    |    |  | $ | 0.73    |  
|Net incomedilutive (1)                                            |  |                                       | 1.16    |   |      |   | 1.06    |      |  |   | 0.93    |   |  |      | 0.83    |    |  |   | 0.72    |  
|Cash dividends (1)                                                 |  |                                       | 0.25    |   |      |   | 0.22    |      |  |   | 0.18    |   |  |      | 0.14    |    |  |   | 0.10    |  
|Book value at period end                                           |  |                                       | 10.46   |   |      |   | 11.39   |      |  |   | 10.64   |   |  |      | 9.80    |    |  |   | 10.73   |  
|Tangible book value at period end                                  |  |                                       | 10.30   |   |      |   | 11.17   |      |  |   | 10.39   |   |  |      | 9.51    |    |  |   | 10.35   |  
|Average shares outstanding (000s) (1)                             |  |                                       | 2,492   |   |      |   | 2,485   |      |  |   | 2,474   |   |  |      | 2,444   |    |  |   | 2,441   |  
|                                                                   |  |                                       |         |   |     
|Balance Sheet Data (period end):                                   |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |    |  |   |         |  
|Assets                                                             |  | $                                     | 260,676 |   |      | $ | 247,419 |      |  | $ | 237,689 |   |  | $    | 196,550 |    |  | $ | 179,993 |  
|Loans, net of unearned income and allowance                        |  |                                       | 207,725 |   |      |   | 192,697 |      |  |   | 175,995 |   |  |      | 140,207 |    |  |   | 116,810 |  
|Securities                                                         |  |                                       | 30,408  |   |      |   | 32,351  |      |  |   | 38,972  |   |  |      | 40,611  |    |  |   | 47,183  |  
|Deposits                                                           |  |                                       | 198,103 |   |      |   | 188,970 |      |  |   | 192,737 |   |  |      | 158,891 |    |  |   | 158,989 |  
|Stockholders equity                                               |  |                                       | 26,126  |   |      |   | 23,629  |      |  |   | 21,959  |   |  |      | 20,201  |    |  |   | 18,218  |  
|                                                                   |  |                                       |         |   |     
|Performance Ratios:                                                |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |    |  |   |         |  
|Return on average assets                                           |  |                                       | 1.14    | % |      |   | 1.10    | %    |  |   | 1.08    | % |  |      | 1.11    | %  |  |   | 1.12    | %
|Return on average equity                                           |  |                                       | 11.76   | % |      |   | 11.74   | %    |  |   | 11.01   | % |  |      | 10.64   | %  |  |   | 10.31   | %
|Net interest margin                                                |  |                                       | 3.57    | % |      |   | 3.75    | %    |  |   | 3.72    | % |  |      | 3.63    | %  |  |   | 3.82    | %
|Efficiency (2)                                                     |  |                                       | 63.99   | % |      |   | 63.54   | %    |  |   | 59.47   | % |  |      | 59.70   | %  |  |   | 59.01   | %
|                                                                   |  |                                       |         |   |     
|Asset Quality Ratios:                                              |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |    |  |   |         |  
|Allowance for loan losses to period end loans                      |  |                                       | 1.36    | % |      |   | 1.49    | %    |  |   | 1.35    | % |  |      | 1.41    | %  |  |   | 1.35    | %
|Allowance for loan losses to nonaccrual loans                      |  |                                       | 308.59  | % |      |   | 267.95  | %    |  |   | 253.05  | % |  |      | 362.68  | %  |  |   | 182.37  | %
|Nonperforming assets to period end loans and foreclosed properties |  |                                       | 0.44    | % |      |   | 0.56    | %    |  |   | 0.53    | % |  |      | 0.39    | %  |  |   | 0.74    | %
|Net charge-offs (recoveries) to average loans                      |  |                                       | 0.02    | % |      |   | (0.08   | )%   |  |   | 0.01    | % |  |      | (0.01   | )% |  |   | 0.05    | %
|                                                                   |  |                                       |         |   |     
|Capital and Liquidity Ratios:                                      |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |    |  |   |         |  
|Leverage (3)                                                       |  |                                       | 10.02   | % |      |   | 9.55    | %    |  |   | 9.24    | % |  |      | 10.28   | %  |  |   | 10.12   | %
|Risk-based:                                                        |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |    |  |   |         |  
|Tier 1 capital                                                     |  |                                       | 13.77   | % |      |   | 13.21   | %    |  |   | 12.74   | % |  |      | 14.37   | %  |  |   | 15.02   | %
|Total capital                                                      |  |                                       | 15.09   | % |      |   | 14.53   | %    |  |   | 14.14   | % |  |      | 15.74   | %  |  |   | 16.24   | %
|Average loans to average deposits                                  |  |                                       | 104.48  | % |      |   | 96.93   | %    |  |   | 87.60   | % |  |      | 79.78   | %  |  |   | 80.56   | %

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|(1) | Earnings per share, dividends per share and average share data adjusted to reflect 20% stock dividend paid by the Company during December 2003 and the six-for-five stock split
effected during August 2006.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Computed by dividing noninterest expense, net of nonrecurring expenses, by the sum of net interest income and noninterest income, net of security gains and losses.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Computed as a percentage of stockholders equity to period end assets.
|--- | ----------------------------------------------------------------------



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Directors and Officers

SHORE FINANCIAL CORPORATION

BOARD OF DIRECTORS

Henry P. Custis, Jr., Chairman

Law firm of Custis, Lewis & Dix, L.L.P.

Terrell E. Boothe

Retired

The Honorable D. Page Elmore

Maryland House of Delegates

Scott C. Harvard

President & Chief Executive Officer

Shore Financial Corporation and Shore Bank

Richard F. Hall,
III

Loblolly Farms Seaside Produce

Dr. Lloyd J.
Kellam, III

Eastern Shore Physicians and Surgeons

L. Dixon
Leatherbury

Leatherbury Equipment Company

Wakefield Equipment
Company

OFFICERS

Scott C. Harvard

President & Chief Executive Officer

Steven M. Belote

Vice President, Chief Financial Officer and Secretary

Lynn M. Badger

Assistant Vice President

Vonda M. Smith

Assistant Secretary

SHORE
BANK

OFFICERS

Scott C. Harvard

President & Chief Executive Officer

Steven M. Belote

Senior Vice President and Chief Financial Officer

J.
Anderson Duer, Jr.

Senior Vice PresidentLending

Brenda L. Payne

Senior Vice PresidentOperations

Craig H. McConnell

President, Maryland Division

Vonda M. Smith

Corporate Secretary

Julie M.
Badger

Vice President

Natalie N. Binder

Vice President

Robert J. Bloxom

Vice President

Christine R. Bouton

Vice President

Dennis J. Hebert

Vice President

Lisa M. Lentz

Vice President

Tammy V. Mason

Vice President

J. Scott Schreiber

Vice President

Donna E. Weaver

Vice President

Jacqueline L. Carpenter

Assistant Vice President

William H. Deckert, III

Assistant Vice President

Anne H. J. Dize

Assistant Vice President

Claire I. Hoff

Assistant Vice President

Martha H. James

Assistant Vice President

Dawn M. Steelman

Assistant Vice President

Jane O. Wyatt

Assistant Vice President

SHORE INVESTMENTS, INC.

Henry P. Custis, Jr.

Chairman

Scott C. Harvard

President & CEO

Steven M. Belote

Vice President/Secretary/CFO

Ann Y. Justis

Vice President

Donna E. Weaver

Vice President

Vonda M. Smith

Assistant Secretary

SALISBURY BOARD OF DIRECTORS

John Charles Seipp,

Chairman Attorney & Counselor at Law

Edward E. Henry

Retired

William E. Martin

ERA Martin & Associates

Craig H. McConnell

President, Maryland Division

Brent C. Miller

Sperry Van NessMiller

Commercial Real Estate

Billye Lee Sarbanes

Retired

Donald E. Williams

Advanced Property Rental.com

Dr. Donald Wood

Peninsula Cardiology Associates, P.A.



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Corporate Information

CORPORATE HEADQUARTERS

25020 Shore Parkway

Onley, Virginia 23418

(757) 787-1335

Fax
(757) 787-3275

MAIN OFFICE

25253 Lankford Highway

Onley, VA 23418

(757) 787-1335

BRANCH OFFICES

18426 Dunne Avenue

Parksley, Virginia 23421

(757) 665-4188

6350 Maddox Boulevard

Chincoteague, Virginia 23336

(757) 336-3144

21220 North Bayside Drive

Cheriton, Virginia 23316

(757) 331-3800

4017 Lankford Highway

Exmore, Virginia 23350

(757) 442-3911

1516 South Salisbury Boulevard

Salisbury, Maryland 21801

(410) 543-2600

100 West Main Street

Salisbury, Maryland 21801

(410) 548-7125

SHORE INVESTMENTS, INC.

OFFICES

Accawmacke Office Park

23349 Counsel Drive

Accomac, VA 23301

(888) 576-4279

100 West Main Street

Salisbury, Maryland 21801

(410) 548-4133

TRANSFER AGENT

Fulton Financial Services

One Penn Square

Lancaster, Pennsylvania 17604

SPECIAL COUNSEL

LeClair Ryan

707 East Main Street, 11thFloor

Richmond, Virginia 23219

INVESTOR INFORMATION

Lynn M. Badger

Shore Financial Corporation

P. O. Box 920

Onley,
Virginia 23418

(757) 787-1335

investorinfo@shorebank.com

MEMBER

Federal Deposit Insurance Corporation Federal Reserve
System

INDEPENDENT AUDITORS

Goodman & Company, LLP

One Commercial Place, Suite 800

Norfolk, Virginia 23514

INTERNET

Web site: www.shorebank.com

Address: shorebank.com

ANNUAL MEETING

The annual meeting of the stockholders of Shore Financial Corporation will be held at its headquarters in Onley, Virginia on Tuesday, April 17, 2007 at 2:00 p.m.

SECURITIES LISTING

The Companys shares are traded on
the NASDAQ Global Market under ticker symbol SHBK.

MARKET PARTICIPANTS

Anderson & Strudwick, Inc.

Automated Trading Desk Financial Services, LLC

Boenning & Scattergood, Inc.

Citadel Derivatives Group, LLC

Citigroup Global Market Holdings Inc.

Davenport &
Company, LLC

E*Trade Capital markets, LLC

Ferris, Baker
Watts, Incorporated

Hill, Thompson, Magid & Co., Inc.

Knight Equity Markets, L.P.

Koonce Securities, Inc.

McKinnon & Company, Inc.

RBC Capital Markets Corporation

Sandler ONeill & Partners, L.P.

Scott & Stringfellow, Inc.

Sterne, Agee & Leach, Inc.

Susquehanna Capital Group

Thompson Davis & Company, Inc.

UBS Securities, L.L.C.



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CORPORATE INFORMATION

CORPORATE HEADQUARTERS

25020 Shore Parkway  Onley, Virginia 23418

(757) 787-1335 or (800) 852-8176

BRANCH LOCATIONS

VIRGINIA



|                      |  |                        |  |                         
|--------------------- |  | ---------------------- |  | ------------------------
|Onley Branch          |  | Exmore Branch          |  | Parksley Branch         
|25253 Lankford Hwy.   |  | 4071 Lankford Hwy.     |  | 18426 Dunne Ave.        
|Onley, Virginia 23418 |  | Exmore, Virginia 23350 |  | Parksley, Virginia 23421
|(757) 787-1335 or     |  | (757) 442-3911         |  | (757) 665-4188          
|(800) 852-8176        |  |                        |  |                         



|                             |  |                         
|---------------------------- |  | ------------------------
|Chincoteague Branch          |  | Cheriton Branch         
|6350 Maddox Blvd.            |  | 21220 N. Bayside Dr.    
|Chincoteague, Virginia 23336 |  | Cheriton, Virginia 23316
|(757) 336-3144               |  | (757) 331-3800          



|                          |  |                                
|------------------------- |  | -------------------------------
|MARYLAND                 
|                          | 
|Salisbury Route 13 Branch |  | Salisbury Downtown Plaza Branch
|1503 S Salisbury Blvd.    |  | 100 West Main Street           
|Salisbury, Maryland 21801 |  | Salisbury, Maryland 21801      
|(410) 543-2600            |  | (410) 548-7125                 

SHORE INVESTMENTS, INC.

OFFICES



|                       |  |                          
|---------------------- |  | -------------------------
|Accawmacke Office Park |  | 100 West Main Street     
|23349 Counsel Drive    |  | Salisbury, Maryland 21801
|Accomac, VA 23301      |  | (410) 548-7125           
|(757) 787-4279         |  |                          

Photos by Curtis J. Badger

Photo Courtesy of Bay Creek Resort & Club

Photo by Kathy Pusey, Salisbury
University



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LOGO

www.shorebank.com

SHORE FINANCIAL CORPORATION

25020 Shore Parkway

P.O. Box 920

Onley, Virginia 23418

(757) 787-1335

(800) 852-8176