LOGO



SHORE FINANCIAL

CORPORATION

2 0 0 5 A N N U A L R E P O R T

COMMITTED TO THE EASTERN SHORE

SHORE FINANCIAL

CORPORATION

FINANCIAL HIGHLIGHTS

NET INCOME

(In thousands) $3,000 $2,500 $2,000 $1,500 $1,000 $500 $0 $2,675 $2,353

$2,062 $1,772 $1,431

2001 2002 2003 2004 2005

EARNINGS PER SHARE

$1.50 $1.20 $0.90 $0.60 $0.30 $0 $1.29 $1.14



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LOGO



$1.01 $0.87

$0.68

2001 2002 2003 2004 2005

ASSETS

(In thousands) $250,000 $200,000 $150,000 $100,000 $50,000 $0 $247,419 $237,689

$196,550 $179,993

$142,851

2001 2002 2003 2004 2005

DIVIDENDS PER SHARE

$0.30 $0.25 $0.20 $0.15 $0.10 $0.05 $0 $0.26

$0.22

$0.17

$0.12
$0.10

2001 2002 2003 2004 2005



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Dear Shareholders,



It is again a pleasure to provide you with an annual report on the financial condition of your banking company. On our cover
is the Chesapeake Bay Bridge Tunnel which connects Tidewater Virginia with the Eastern Shore. Construction on the original structure was begun in the same year that our founders began dreaming about starting a local financial institution.



Some forty years later the Lucius J. Kellam, Jr. Bridge Tunnel
carries close to 250,000 vehicles a month between the Eastern Shore and Virginia Beach while Shore Bank manages close to $250 million in assets. Both initiatives have served to enhance the quality of life on the Eastern Shore and both continue to be
catalysts for economic expansion on the Delmarva Peninsula.



During 2005 your company produced record earnings and expanded services in several key areas. In the first quarter of the year we were able to expand our ATM network by 13 units, giving our customers 19 convenient locations from Salisbury,
Maryland to Cape Charles, Virginia. The additional locations give Shore Bank the second largest network of ATMs on the Delmarva Peninsula.



The second quarter saw the introduction of Online Banking for Business which allows our local business customers to do their banking from their offices
and enhance their cash management practices. Shore Bank has operated in an online real time environment for two decades, giving our customers the ability to see their account balances in real time. The Online Banking for Business product gives our
business customers additional tools to better manage their banking relationship. Customer feedback has been excellent.



In the third quarter we announced the grand opening of a new office for Shore Investments, our subsidiary that provides brokerage services throughout our
markets. The new office, located in Accomac, Virginia, is managed by a retail broker with over 15 years of experience delivering a full range of financial products and services on the Eastern Shore of Virginia.



2005 was also the first full year that we offered conforming mortgage
products and we were pleased with the positive impact on noninterest income. The conforming residential loan market continues to grow and now exceeds the nonconforming market in our two Virginia counties. We are excited about the prospects for this
line of business.



Our asset growth and the continued expansion
of services have resulted in solid financial performance. As you review the report you will see that income hit a new record of $2.68 million. Cash dividends paid out to our stockholders increased 18%. Average loans grew by 16.4% and noninterest
bearing core deposits continued to grow at double digit rates. While our interest margin remained stable over the year, the current interest rate environment presents challenges as we manage the bank in 2006.



Thank you again for the opportunity to serve you and for your continued
support. I can be reached any time by email at sharvard@shorebank.com.



LOGO

Scott C. Harvard

President and Chief Executive Officer



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FINANCIAL HIGHLIGHTS



|                                                                   |  |                                       |         |    |      |   |         |      |  |   |         |    |  |      |         |   |  |   |         |  
|------------------------------------------------------------------ |  | ------------------------------------- | ------- | -- | ---- | - | ------- | ---- |  | - | ------- | -- |  | ---- | ------- | - |  | - | ------- | -
|                                                                   |  | Years Ended December 31,              |        
|                                                                   |  | 2005                                  |         |    | 2004 |   |         | 2003 |  |   | 2002    |    |  | 2001 |        
|                                                                   |  | (In thousands, except per share data) |        
|Income Statement Data:                                             |  |                                       |         |    |      |   |         |      |  |   |         |    |  |      |         |   |  |   |         |  
|Interest income                                                    |  | $                                     | 12,851  |    |      | $ | 10,697  |      |  | $ | 9,501   |    |  | $    | 9,406   |   |  | $ | 9,917   |  
|Interest expense                                                   |  |                                       | 4,414   |    |      |   | 3,275   |      |  |   | 3,275   |    |  |      | 3,716   |   |  |   | 4,929   |  
|Net interest income                                                |  |                                       | 8,437   |    |      |   | 7,422   |      |  |   | 6,226   |    |  |      | 5,690   |   |  |   | 4,988   |  
|Provision for loan losses                                          |  |                                       | 304     |    |      |   | 419     |      |  |   | 380     |    |  |      | 335     |   |  |   | 310     |  
|Noninterest income                                                 |  |                                       | 2,379   |    |      |   | 1,920   |      |  |   | 1,889   |    |  |      | 1,375   |   |  |   | 1,251   |  
|Noninterest expense                                                |  |                                       | 6,644   |    |      |   | 5,559   |      |  |   | 4,780   |    |  |      | 4,156   |   |  |   | 3,882   |  
|Income taxes                                                       |  |                                       | 1,193   |    |      |   | 1,011   |      |  |   | 893     |    |  |      | 802     |   |  |   | 616     |  
|                                                                   |  |                                       |         |    |      |   |         |      |  |   |         |    |  |      |         |   |  |   |         |  
|Net income                                                         |  | $                                     | 2,675   |    |      | $ | 2,353   |      |  | $ | 2,062   |    |  | $    | 1,772   |   |  | $ | 1,431   |  
|                                                                   |  |                                       |         |    |      |   |         |      |  |   |         |    |  |      |         |   |  |   |         |  
|Per Share Data:                                                    |  |                                       |         |    |      |   |         |      |  |   |         |    |  |      |         |   |  |   |         |  
|Net incomebasic (3)                                               |  | $                                     | 1.29    |    |      | $ | 1.14    |      |  | $ | 1.01    |    |  | $    | 0.87    |   |  | $ | 0.68    |  
|Net incomedilutive (3)                                            |  |                                       | 1.27    |    |      |   | 1.12    |      |  |   | 1.00    |    |  |      | 0.86    |   |  |   | 0.68    |  
|Cash dividends (3)                                                 |  |                                       | 0.26    |    |      |   | 0.22    |      |  |   | 0.17    |    |  |      | 0.12    |   |  |   | 0.12    |  
|Book value at period end                                           |  |                                       | 11.39   |    |      |   | 10.64   |      |  |   | 9.80    |    |  |      | 10.73   |   |  |   | 9.58    |  
|Tangible book value at period end                                  |  |                                       | 11.17   |    |      |   | 10.39   |      |  |   | 9.51    |    |  |      | 10.35   |   |  |   | 9.56    |  
|Average shares outstanding (000s) (3)                             |  |                                       | 2,071   |    |      |   | 2,062   |      |  |   | 2,037   |    |  |      | 2,034   |   |  |   | 2,083   |  
|                                                                   |  |                                       |         |    |     
|Balance Sheet Data (period end):                                   |  |                                       |         |    |      |   |         |      |  |   |         |    |  |      |         |   |  |   |         |  
|Assets                                                             |  | $                                     | 247,419 |    |      | $ | 237,689 |      |  | $ | 196,550 |    |  | $    | 179,993 |   |  | $ | 142,851 |  
|Loans, net of unearned income and allowance                        |  |                                       | 192,697 |    |      |   | 175,995 |      |  |   | 140,207 |    |  |      | 116,810 |   |  |   | 104,096 |  
|Securities                                                         |  |                                       | 32,351  |    |      |   | 38,972  |      |  |   | 40,611  |    |  |      | 47,183  |   |  |   | 28,058  |  
|Deposits                                                           |  |                                       | 188,970 |    |      |   | 192,737 |      |  |   | 158,891 |    |  |      | 158,989 |   |  |   | 125,314 |  
|Stockholders equity                                               |  |                                       | 23,629  |    |      |   | 21,959  |      |  |   | 20,201  |    |  |      | 18,218  |   |  |   | 16,261  |  
|                                                                   |  |                                       |         |    |     
|Performance Ratios:                                                |  |                                       |         |    |      |   |         |      |  |   |         |    |  |      |         |   |  |   |         |  
|Return on average assets                                           |  |                                       | 1.10    | %  |      |   | 1.08    | %    |  |   | 1.11    | %  |  |      | 1.12    | % |  |   | 1.02    | %
|Return on average equity                                           |  |                                       | 11.74   | %  |      |   | 11.01   | %    |  |   | 10.64   | %  |  |      | 10.31   | % |  |   | 9.08    | %
|Net interest margin                                                |  |                                       | 3.75    | %  |      |   | 3.72    | %    |  |   | 3.63    | %  |  |      | 3.82    | % |  |   | 3.77    | %
|Efficiency (1)                                                     |  |                                       | 63.54   | %  |      |   | 59.47   | %    |  |   | 59.70   | %  |  |      | 59.01   | % |  |   | 62.45   | %
|                                                                   |  |                                       |         |    |     
|Asset Quality Ratios:                                              |  |                                       |         |    |      |   |         |      |  |   |         |    |  |      |         |   |  |   |         |  
|Allowance for loan losses to period end loans                      |  |                                       | 1.49    | %  |      |   | 1.35    | %    |  |   | 1.41    | %  |  |      | 1.35    | % |  |   | 1.26    | %
|Allowance for loan losses to nonaccrual loans                      |  |                                       | 267.95  | %  |      |   | 253.05  | %    |  |   | 362.68  | %  |  |      | 182.37  | % |  |   | 248.78  | %
|Nonperforming assets to period end loans and foreclosed properties |  |                                       | 0.56    | %  |      |   | 0.53    | %    |  |   | 0.39    | %  |  |      | 0.74    | % |  |   | 0.51    | %
|Net charge-offs (recoveries) to average loans                      |  |                                       | (0.08   | )% |      |   | 0.01    | %    |  |   | (0.01   | )% |  |      | 0.05    | % |  |   | 0.33    | %
|                                                                   |  |                                       |         |    |     
|Capital and Liquidity Ratios:                                      |  |                                       |         |    |      |   |         |      |  |   |         |    |  |      |         |   |  |   |         |  
|Leverage (2)                                                       |  |                                       | 9.55    | %  |      |   | 9.24    | %    |  |   | 10.28   | %  |  |      | 10.12   | % |  |   | 11.38   | %
|Risk-based:                                                        |  |                                       |         |    |      |   |         |      |  |   |         |    |  |      |         |   |  |   |         |  
|Tier 1 capital                                                     |  |                                       | 13.21   | %  |      |   | 12.74   | %    |  |   | 14.37   | %  |  |      | 15.02   | % |  |   | 15.67   | %
|Total capital                                                      |  |                                       | 14.53   | %  |      |   | 14.14   | %    |  |   | 15.74   | %  |  |      | 16.24   | % |  |   | 16.89   | %
|Average loans to average deposits                                  |  |                                       | 96.93   | %  |      |   | 87.60   | %    |  |   | 79.78   | %  |  |      | 80.56   | % |  |   | 78.33   | %

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|(1) | 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.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Computed as a percentage of stockholders equity to period end assets.
|--- | ----------------------------------------------------------------------



|(3) | Earnings per share, dividends per share and average share data adjusted in periods prior to 2004 to reflect 20% stock dividend paid by the Company during December 2003.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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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 P. Wallace

Senior Vice PresidentOperations



Craig H. McConnell

President, Maryland Division



Vonda M. Smith

Corporate Secretary



Natalie N. Binder

Vice President



Christine R. Gray

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 J. Evans, CPA, Chairman

Holloway & Marval, P.A.



Edward E. Henry

Retired



Craig H. McConnell

President, Maryland Division



Brent C.
Miller

Miller Commercial Real Estate & Property Management



Billye Lee Sarbanes

Retired



John Charles Seipp

Attorney & Counselor at Law



Donald
E. Williams

Advanced Property Rental



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



BRANCH OFFICES



18426 Dunne Avenue

Parksley, Virginia 23421



6350 Maddox Boulevard

Chincoteague, Virginia 23336



21220 North Bayside Drive

Cheriton, Virginia 23316



4017 Lankford Highway

Exmore, Virginia 23350



1503 South Salisbury Boulevard

Salisbury, Maryland 21801



100 West Main Street

Salisbury, Maryland 21801



SHORE INVESTMENTS, INC.



OFFICES



Accawmacke Office Park

23349 Counsel Drive

Accomac,
VA 23301



25253 Lankford Highway

Onley, Virginia 23418



100 West Main Street

Salisbury, Maryland 21801



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 18, 2006 at 2:00 p.m.



SECURITIES LISTING



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



MARKET PARTICIPANTS



Anderson & Strudwick, Inc.



Boenning & Scattergood, Inc.



Citadel Derivatives Group, LLC



Davenport & Company, 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.



Susquehanna Capital Group



UBS Capital Markets, L.P.



UBS Securities,
L.L.C.



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



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

MARYLAND



|                                                                |  |                                                              
|--------------------------------------------------------------- |  | -------------------------------------------------------------
|Salisbury Route 13 Branch                                       |  | Salisbury Downtown Plaza Branch                              
|1503 S Salisbury Blvd. 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 (757) 787-4279 |  | 100 West Main Street Salisbury, Maryland 21801 (410) 548-7125

Photo courtesy of Chesapeake Bay Bridge Tunnel.



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LOGO

COMMITTED TO THE EASTERN SHORE

www.shorebank.com

SHORE FINANCIAL CORPORATION

25020 Shore Parkway

P.O. Box 920

Onley, Virginia 23418

(757) 787-1335

(800) 852-8176