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 fiscal year ended December 31, 1996.

                         Commission file number 0-18543

                        CHESAPEAKE FINANCIAL SHARES, INC.

                  Virginia                                54-1210845
       (State or other jurisdiction of                  (I.R.S Employer
       incorporation or organization)                 Identification No.)

        1 N. Main St., Kilmarnock, VA                        22482
  (Address of principal executive offices)                (Zip Code)

         Issuer's telephone number, including area code: (804)-435-1181

    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 ($5.00 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 $12,701,431.

As of March 1, 1997, the aggregate market value of Common Stock of Chesapeake
Financial Shares, Inc. held by nonaffiliates was approximately $7,507,065 based
upon the average sales price per share known to management during January and
February 1997.

Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of March 1, 1997:

                       Class Outstanding at March 1, 1997
                       ---------------------------------
                      Common Stock, $5.00 par value 839,254

                       DOCUMENTS INCORPORATED BY REFERENCE

         The following documents are incorporated by reference and the Part of
the Form 10-KSB into which the document is incorporated.

(1)  Portions of the Annual Report to Shareholders for the year ended December
     31, 1996 are incorporated into Part II, Items 5 through 7 of this Form
     10-KSB.

(2)  Portions of the definitive proxy statement for the 1997 Annual Meeting of
     Stockholders are incorporated into Part III, Items 9 through 12 of this
     Form 10-KSB.

Transitional Small Business Disclosure Format     Yes     No   X


<PAGE>




                        CHESAPEAKE FINANCIAL SHARES, INC.
                                   FORM 10-KSB
                                      INDEX

                                     PART I
<TABLE>
<CAPTION>


<S> <C>
Item 1.       Description of Business
              Statistical Information

Item 2.       Description of Properties

Item 3.       Legal Proceedings

Item 4.       Submission of Matters to a Vote of Security Holders

                                     PART II

Item 5.       Market for Common Equity and Related Stockholder Matters

Item 6.       Management's Discussion and Analysis or Plan of Operation

Item 7.       Financial Statements

Item 8.       Changes in and Disagreements with Accountants on Accounting and
              Financial Disclosure

                                    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

Item 13.      Exhibits and Reports on Form 8-K

Signatures

</TABLE>


<PAGE>


                                     PART I

Item 1. Description of Business

The Company

         Chesapeake Financial Shares, Inc. (the "Company") is an independent,
community owned one-bank holding company based in Kilmarnock, Virginia. The
Company was incorporated under the laws of the Commonwealth of Virginia in 1982
in connection with the reorganization of Chesapeake Bank (the "Bank") into a
one-bank holding company structure. Today the Company conducts substantially all
of its business activities through the wholly-owned subsidiary - the Bank.
Additionally, the Company operates Chesapeake Mortgage Company, Inc., Chesapeake
Insurance Agency, Inc., and CNB Properties, Inc.

         On December 31, 1996, the Company and its subsidiaries had 87 full-time
equivalent employees.

The Bank

         The Bank is a full-service commercial bank incorporated under the laws
of the Commonwealth of Virginia and traces its origins back to 1900. The Bank
was formed by the merger on April 27, 1968 of Chesapeake Banking Company,
headquartered in Lively, Virginia, and Lancaster National Bank, headquartered in
Irvington, Virginia. Lancaster National Bank was originally chartered on April
14, 1900, and Chesapeake Banking Company was organized on October 15, 1920. The
Bank (formerly Chesapeake National Bank) converted from a national to a state
chartered bank on June 27,1995.

         The Bank has grown to provide a full range of banking and related
financial services, including checking, savings, certificates of deposit and
other depository services, commercial, residential real estate and consumer loan
services, safekeeping services and trust and estate services. The Bank is a
member of the Federal Reserve System and its deposits are insured by the Bank
Insurance Fund ("BIF") of the Federal Deposit Insurance Corporation ("FDIC").

         Total assets have increased 8.9%, 5.5%, and 3.0% for each of the years
1996, 1995, and 1994, respectively. Total loans increased to $90.4 or 11.6% at
December 31, 1996, to $81.0 million or 8.3% at December 31, 1995, and to $74.8
million or 10.2% at December 31, 1994. Growth in total deposits has followed a
similar pattern with increases of 7.5%, 5.7%, and 2.7%. The Gloucester Office
was relocated in a new Winn-Dixie store during the fall of 1994, and the James
City County Winn-Dixie Office was opened in May of 1995. The Five
Forks/Williamsburg Office was opened in May of 1996. The Bank operates nine
banking offices and seventeen ATMs.

         The Bank expanded its market area to James City County in the spring of
1995. The second full service banking facility was opened at Route 5 and
Ironbound Road, southwest of Williamsburg. This branch has complimented the
Winn-Dixie branch and ATM facilities currently in the county. The Bank's
existing market area covers most of the area north of the Rappahannock River and
south of the Potomac River known as the "Northern Neck", the area bounded on the
south by the York River and on the north by the Rappahannock River, known as the
"Middle Peninsula", and the Williamsburg area north of the James River.

         The Bank's current market area is largely rural. The principal business
activities are primarily related to the small commercial enterprises and
residential real estate due to the area's popularity as a retirement and summer
home location. The growth of the York County - Williamsburg - Hampton triangle
has provided additional commercial and residential business activity which
diversifies revenue sources.

         With the exception of the Bank's Westminster Canterbury Office, the
Gloucester Winn-Dixie Office, the James City County Winn-Dixie Office, the Five
Forks Office, the Bank's Main Office and branch offices are held in fee, free of
any encumbrances. The Westminster Canterbury Office is leased under an agreement
that expires May 31, 2000. The Gloucester Courthouse and the James City County
branches occupy facilities rented from Winn-Dixie Raleigh. The initial
Gloucester lease on the premises expires in October of 1999, and the James City
lease expires May of 2000. Both Winn-Dixie contracts have two five year
renewals.

         The Bank's branch offices are located as follows:
<TABLE>


<S> <C>
Gloucester Winn-Dixie Office            Hayes Office                            Lively Office
Route 17                                Route 17                                Lively, Virginia
The Shoppes at Gloucester               Hayes Shopping Center
Gloucester, Virginia                    Hayes, Virginia

Rappahannock Westminster                Kilmarnock Office                       Mathews Office
Canterbury Office                       97 North Main Street                    Mathews Courthouse
Irvington, Virginia                     Kilmarnock, Virginia                    Mathews, Virginia

Irvington Office                        James City County                       Five Forks Office
Irvington, Virginia                     Winn-Dixie Office                       Rt. 5 & Ironbound Rd
                                        Williamsburg, Virginia                  Williamsburg, Va.
</TABLE>


         The Company operates a separate office for its Loan Administration
Department at 19 North Main Street, Kilmarnock, Virginia. This office is leased
under an agreement that expires on April 1, 2002 and has a five year renewal.
The Company has an operations center at 1 North Main Street in Kilmarnock, which
it owns in fee and is unencumbered.

The Mortgage Company

         Chesapeake Mortgage Company, Inc. (the "Mortgage Company"), which is a
wholly-owned subsidiary of the Company, completed its eleventh year of
operations in 1996. The Mortgage Company operations area was consolidated with
the Bank's loan operations/underwriting area at the end of 1995. This resulted
in improved customer service while reducing over all costs. The Bank offers the
same permanent fixed and adjustable rate home mortgage loans as the Mortgage
Company. The Bank also solicits customers in the counties of Lancaster,
Northumberland, Gloucester, Mathews, Middlesex, York and the James City County
area. The Bank and the Mortgage Company comply with the guidelines of the
Federal Home Loan Mortgage Corporation ("FHLMC"), and all loans are sold in the
secondary market within fifteen to sixty days after the loan closing date.

         See "Lending Activities" below for further information on the mortgage
lending services offered by the Bank.

The Title Company

         Chesapeake Insurance Agency, Inc., T/A Chesapeake Title Company, (the
"Title Company"), which is a wholly-owned subsidiary of the Bank, completed its
tenth year of operations in 1996. The Title Company has also had the operations
area consolidated with the Bank. The Title Company offers annuity products and
provides referrals to other companies for title insurance services.

Lending Activities

         The Company provides a wide range of commercial, real estate, and
consumer loan services.

         Real Estate Lending. The Company's real estate loan portfolio (both
mortgage and construction lending) continues to be its largest loan category as
it amounted to $41.4 million at December 31, 1996, or 45.0% of its total loan
portfolio. The Bank offers permanent fixed and adjustable rate first mortgage
loans on one-to-four family residential properties. Most of the long-term fixed
rate mortgages and the adjustable rate mortgages are underwritten and documented
in accordance with the guidelines of the FHLMC and are sold in the secondary
market within fifteen to sixty days after the loan closing date.

         The Bank emphasizes the origination of adjustable rate mortgages in
order to increase the proportion of the Company's total loan portfolio with more
frequent repricing. At December 31, 1996, 49.3% of the mortgage portfolio was
subject to repricing or maturing within twelve months.

         The relative customer demand for adjustable-rate and fixed-rate
residential mortgage loans has varied considerably, depending on such factors as
the level of interest rates and expectations regarding future interest rates and
the supply of new housing units placed on the market in the Company's trade
area. At December 31, 1996, the mortgage portfolio amounted to $38.3 million, or
41.6% of total loans.

         As part of its residential lending program, the Bank offers
construction loans with 80% loan-to-value ratios to qualified builders and
individuals. Construction loans generally have terms of up to twelve months and
interest rates which generally are fixed commitments. Loan proceeds are
disbursed in increments as construction progresses and as inspections warrant.
In addition to builders' projects, the Bank finances the construction of
individual, owner-occupied houses where qualified contractors are involved.
Construction loans are structured either to be converted to permanent loans at
the end of the construction phase or to be paid off upon receiving financing
from another financial institution.

         Construction loans afford the Bank the opportunity to charge higher
loan origination fees, to increase the frequency of repricing of its loan
portfolio and to earn yields higher than those obtainable on adjustable-rate
loans secured by existing one - to four - family residential properties. These
higher yields reflect the higher risks associated with construction lending,
principally the difficulty in evaluating accurately the total funds required to
complete a project and the post-completion value of the project. As a result,
the Bank places a strong emphasis upon the borrower's ability to repay principal
and interest.


         Consumer Lending. As the competitive and regulatory environments have
changed, the Company has sought to expand its retail banking services to
complement the range of traditional consumer services already offered. The Bank
has placed increased emphasis on consumer loans (11.8% increase over 1995 and
43.2% increase in 1995 over 1994) because of their attractive yields and
repricing characteristics. The Bank currently originates a variety of consumer
loans, including lines of credit secured by owner-occupied real estate, real
estate equity loans, boat loans, loans secured by deposits, unsecured loans and
automobile loans. The Bank's consumer loan portfolio was approximately $14.6
million at December 31, 1996, or 15.8% of its total loan portfolio.

         Consumer loans generally are considered to entail greater risk than
residential mortgage loans secured by first liens on owner-occupied properties.
The Bank's underwriting and screening processes have been designed to reduce
this risk and have, to date, limited the Bank's consumer delinquency rate to
levels below industry averages. At December 31, 1996, 0.36% of the Bank's
consumer loan portfolio was 30 days or more delinquent.

         Commercial Lending. Commercial lending activities to the Bank's
commercial, industrial, agricultural, and governmental customers include the
making of asset-based and other secured loans, making unsecured loans, and
offering demand and term loans. Management believes commercial loans offer the
potential for better yields and repricing characteristics than most other types
of loans. At December 31, 1996, the Bank's commercial loan portfolio amounted to
$33.3 million, or 36.1% of its total loan portfolio. See Note 3 to the
Consolidated Financial Statements of the Company included in the Company's 1996
Annual Report to Shareholders ("1996 Annual Report"), specified portions of
which are incorporated by reference herein (attached as Exhibit 13.0 to this
Form 10-KSB), for a breakdown of the major loan classifications of the Bank. Of
the $33.3 million of commercial loans at December 31, 1996, 73.8% of such loans
either matured or were subject to repricing within one year. (see Table 4 at
page 16).

         Unlike residential mortgage loans, which generally are made on the
basis of the borrower's ability to make repayment from his employment and other
income, commercial loans generally involve more risk. Commercial loans typically
are made on the basis of the borrower's ability to make repayment from the cash
flow of its business and are generally secured by business assets, such as
accounts receivable, equipment, and inventory. As a result, the availability of
funds for the repayment of commercial loans may be substantially dependent on
the success of the business itself. At December 31, 1996, 90.5% of the
commercial loans were secured by some form of collateral and 0.49% of the Bank's
commercial loan portfolio was 30 days or more delinquent. See Table 6 at page 18
showing the amount of commercial loans charged off during 1996 and 1995.

Long-Term Debt

         See Note 6 to the Consolidated Financial Statements included in the
Company's 1996 Annual Report, specified portions of which are incorporated by
reference herein (attached as Exhibit 13.0 to this Form 10-KSB), for information
concerning past term loan agreements of the Company. The existing line of credit
agreement mentioned in Note 6 requires the Bank, among other things, to maintain
its reserve for loan losses and certain minimum capital ratios as required by
the Company's regulators.

         There is no line of credit balance outstanding at December 31, 1996.

         To secure this indebtedness of the Company to The Community Banker's
Bank, the Company pledged its entire stock ownership interest in the Bank to The
Community Banker's Bank. So long as no event of default shall occur under the
loan agreement and related documents, the Company will be entitled to continue
to receive all cash distributions and dividends with respect to the pledged
shares and to vote such shares, and otherwise to have all rights as owner of the
pledged shares, except the right to transfer or encumber such shares.

Competition

         The Bank is subject to intense competition from various financial
institutions and other companies or firms that offer financial services. In its
market area, the Company is and will be competing with several statewide banking
institutions, including First Virginia Bank, Signet Bank, Crestar Bank,
NationsBank of Virginia, N.A. and First Union. The Bank competes for deposits
with other commercial banks, savings and loan associations, credit unions and
with issuers of commercial paper and securities, such as money market and mutual
funds. In making loans, the Bank competes with other commercial banks, savings
and loan associations, consumer finance companies, credit unions, leasing
companies and other lenders. Federal and state legislative changes since 1982
have significantly increased competition among financial institutions, and
current trends towards further deregulation may be expected to increase such
competition even further. Many of the financial organizations in competition
with the Company have greater financial resources than the Company and are able
to offer similar services at varying costs with greater loan capacities.

Supervision and Regulation

         Bank holding companies and banks are extensively regulated under both
federal and state law. The following description briefly discusses certain
provisions of federal and state laws and certain regulations and proposed
regulations and the potential impact of such provisions on the Company and the
Bank.

         Bank Holding Companies. As a bank holding company registered under The
Bank Holding Company Act of 1956 (the "BHCA"), the Company is subject to
regulation by the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board"). The Federal Reserve Board has jurisdiction under the BHCA to
approve any bank or nonbank acquisition, merger or consolidation proposed by a
bank holding company. The BHCA generally limits the activities of a bank holding
company and its subsidiaries to that of banking, managing or controlling banks,
or any other activity which is so closely related to banking or to managing or
controlling banks as to be a proper incident thereto.

         The BHCA currently prohibits the Federal Reserve Board from approving
an application from a bank holding company to acquire shares of a bank located
outside the state in which the operations of the holding company's banking
subsidiaries are principally conducted, unless such an acquisition is
specifically authorized by statute of the state in which the bank whose shares
are to be acquired is located. However, under recently enacted federal
legislation, the restriction on interstate acquisitions will be abolished
effective one year from enactment of such legislation, and thereafter bank
holding companies from any state will be able to acquire banks and bank holding
companies located in any other state subject to certain conditions, including
nationwide and state concentration limits. Banks also will be able to branch
across state lines effective June 1, 1997 (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. Virginia has adopted legislation that will permit branching across
state lines effective July 1, 1995, provided there is reciprocity with the state
in which the out-of-state bank is based.

         There are a number of obligations and restrictions imposed on bank
holding companies and their depository institution subsidiaries by federal law
and regulatory policy that are designed to reduce potential loss exposure to the
depositors of such depository institutions and to the FDIC insurance fund in the
event the depository institution becomes in danger of default or is in default.
For example, under a policy of the Federal Reserve Board with respect to bank
holding company operations, a bank holding company is required to serve as a
source of financial strength to is 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" provision of
federal law requires insured depository institutions under common control to
reimburse the FDIC for any loss suffered or reasonably anticipated by either the
Savings Association Insurance Fund ("SAIF") or the 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.

         The Federal Deposit Insurance Act ("FDIA") also provides 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 assets of the Bank.

         The Company is registered under the bank holding company laws of
Virginia. Accordingly, the Company and the Bank are subject to regulation and
supervision by the State Corporation Commission of Virginia (the "SCC").

         Capital Requirements. The Federal Reserve Board, the Office of the
Comptroller of the Currency (the "OCC") and the FDIC have issued substantially
similar risk-based and leverage capital guidelines applicable to United States
banking organizations. In addition, those regulatory agencies may from time to
time require that banking organization maintain capital above the minimum levels
because of its financial condition or actual or anticipated growth. Under the
risk-based capital requirements of these federal bank regulatory agencies, the
Company and the Bank are required to maintain a minimum ratio of total capital
to risk-weighted assets of at least 8%. At least, half of the total capital is
required to be "Tier 1 capital", which consists principally of common and
certain qualifying preferred shareholders' equity, less certain intangibles and
other adjustments. The remainder ("Tier 2 capital") consists of a limited amount
of subordinated and other qualifying debt (including certain hybrid capital
instruments) and a limited amount of the general loan loss allowance. The Tier 1
and total capital to risk-weighted asset ratios of the Company as of December
31, 1996 were 12.5% and 13.7%, respectively, exceeding the minimums required.

         In addition, each of the federal regulatory agencies has established a
minimum leverage capital ratio (Tier 1 capital to average tangible assets).
These guidelines provide for a minimum ratio of 3% for banks and bank holding
companies that meet certain specified criteria, including that they have the
highest regulatory examination rating and are not contemplating significant
growth or expansion. All other institutions are expected to maintain a leverage
ratio of at least 100 to 200 basis points above the minimum. The leverage ratio
of the Company as of December 31, 1996, was 8.5%, which is above the minimum
requirements. The guidelines also provide that banking organizations
experiencing internal growth or making acquisitions will be expected to maintain
strong capital positions substantially above the minimum supervisory levels,
without significant reliance on intangible assets.

         On August 2, 1995, the OCC, the Federal Reserve Board, and the FDIC
issued a final rule which implements minimum capital standards for interest rate
risk exposures in a two-step process. The final rule implements the first step
of that process by revising the capital standards to explicitly include a bank's
exposure to declines in the economic value of its capital due to changes in
interest rates as a factor that the federal banking agencies will consider in
evaluating a bank's capital adequacy. This rule will be implemented on a
case-by-case basis during the examination process. In the second step, the
federal banking agencies will issue a proposed rule that would establish an
explicit minimum capital charge for interest rate risk, based on the level of
the bank's measured interest rate risk exporue. Due to the subjective nature of
the first phase of this final rule, the Bank is unable to determine what effect,
if any, this rule may ultimately have on its regulatory capital requirements.

         Limits on Dividends and Other Payments. The Company is a legal entity
separate and distinct from its subsidiary institutions. Substantially all of the
revenues of the Company result from dividends paid to it by the Bank. There are
various legal limitations applicable to the payment of dividends to Company as
well as the payment of dividends by Company to its respective shareholders.

         Under federal law, the Bank may not, subject to certain limited
exceptions, make loans or extensions of credit to, or investments in the
securities of, the Company or take securities of the Company as collateral for
loans to any borrower. The Bank is also subject to collateral security
requirements from any loans or extensions of credit permitted by such
exceptions.

         The Bank is subject to various statutory restrictions on its ability to
pay dividends to the Company. Under the current supervisory practices of the
Bank's regulatory agencies, prior approval from those agencies is required if
cash dividends declared in any given year exceed net income for that year plus
retained earnings of the two preceding years. Under these supervisory practices,
at December 31, 1996, the Bank could have paid additional dividends to the
Company of approximately $1.1 million, without obtaining prior regulatory
approval. The payment of dividends by the Bank or the Company may also be
limited by other factors, such as requirements to maintain capital above
regulatory guidelines. Bank regulatory agencies have authority to prohibit the
Bank or the Company from engaging in an unsafe or unsound practice in conducting
their business. The payment of dividends, depending upon the financial condition
of the Bank, or the Company, could be deemed to constitute such an unsafe and
unsound practice.

         Under the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), insured depository institutions such as the Bank are prohibited from
making 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). Based on the Bank's current financial
condition, the Company does not expect that this provision will have any impact
on its ability to obtain dividends from the Bank.

         The Bank. The Bank is supervised and regularly examined by the Federal
Reserve Board and the SCC. The various laws and regulations administered by the
regulatory agencies affect corporate practices, such as payment of dividends,
incurring debt and acquisition of financial institutions and other companies,
and affect business practices, such as payment of interest of deposits, the
charging of interest on loans, types of business conducted and locations of
offices.

         The Bank is also subject to the requirements of the Community
Reinvestment Act (the "CRA"). The CRA imposes on financial institutions an
affirmative and ongoing obligation to meet the credit needs of the local
communities, including low and moderate income neighborhoods, consistent with
the safe and sound operation of those institutions. Each financial institution's
efforts in meeting community credit needs currently are evaluated as part of the
examination process pursuant to twelve assessment factors. These factors also
are considered in evaluating mergers, acquisitions and applications to open a
branch or facility.

         As an institution with deposits insured by the BIF, the Bank also is
subject to insurance assessments imposed by the FDIC. In September 1995, the BIF
met its target reserve level and consequently, effective January 1996, the FDIC
revised its risk-based assessment schedule, imposing assessments ranging from
0.0% (subject to an annual minimum of $2,000) to 0.27% of an institution's
average assessment base. The actual assessment to be paid by each BIF member is
based on whether the institution is considered "well capitalized," "adequately
capitalized" or "undercapitalized," as such terms have been defined in
applicable federal regulations, and whether such institution is considered by
its supervisory agency to be financially sound or to have supervisory concerns.

         Other Safety and Soundness Regulations. The federal banking agencies
have broad powers under current federal law to take prompt corrective action to
resolve problems of insured depository institutions. The extent of these powers
depends upon whether the institutions in question are "well capitalized,""
adequately capitalized," "undercapitalized," "significantly undercapitalized" or
"critically undercapitalized," all such terms are defined under uniform
regulations defining such capital levels issued by each of the federal banking
agencies.

         In addition, for institutions with assets exceeding $500 million, FDIC
regulations now require that management report on its institution's
responsibility for preparing financial statements, and establishing and
maintaining an internal control structure and procedures for financial reporting
and compliance with designated laws and regulations concerning safety and
soundness; and that independent auditors attest to and report separately on
assertions in management's reports concerning compliance with such laws and
regulations, using FDIC-approved audit procedures.

         Current federal law also requires each of the federal banking agencies
to develop regulations addressing certain safety and soundness standards for
insured depository institutions and depository institution holding companies,
including operational and managerial standards, asset quality, earnings and
stock valuation standards, as well as compensation standards (but not dollar
levels of compensation). Each of the federal banking agencies have issued a
joint notice of proposed rulemaking, which requested comment on the
implementation of these standards. The proposed rule sets forth general
operational and managerial standards in the areas of internal controls,
information systems and internal audit systems, loan documentation, credit
underwriting, interest rate exposure, asset growth and compensation, fees and
benefits. The proposal contemplates that each federal agency would determine
compliance with these standards throughout the examination process, and if
necessary to correct weaknesses, require an institution to file a written safety
and soundness compliance plan. The Company has not yet determined the effect
that the proposed rule would have on its operations if it is enacted
substantially as proposed.


<PAGE>


Item 1.  Statistical Information

         The following statistical information is furnished pursuant to the
requirements of Guide 3 (Statistical Disclosure by Bank Holding Companies)
promulgated under the Securities Act of 1933.

INDEX
<TABLE>
<CAPTION>
                                                                              Page
<S> <C>

TABLE 1.          Average Balance Sheets, Net Interest Income, and Rates.... 13-14

TABLE 2.          Analysis of Change in Net Interest Income.................    15

TABLE 3.          Types of Investment Securities............................    16

TABLE 4.          Maturity Schedule of Selected Loans as of Dec. 31, 1996...    17

TABLE 5.          Risk Elements.............................................    18

TABLE 6.          Summary of Reserve for Loan Losses........................    19

TABLE 7.          Allocation of the Reserve for Loan Losses.................    20

TABLE 8.          Deposits..................................................    21

TABLE 9.          Return on Equity and Assets...............................    22

TABLE 10.         Short Term Borrowing......................................    22

TABLE 11.         Interest Sensitivity Analysis.............................    23

TABLE 12.         Analysis of Capital.......................................    24

</TABLE>

<PAGE>

                                     TABLE 1
               AVERAGE BALANCES, INCOME AND EXPENSES, YIELDS AND RATES

         The following table depicts interest income on earnings assets and
related average yields as well as interest expense on interest-bearing
liabilities and related average rates paid for the periods indicated.


<TABLE>
<CAPTION>
                                                                 Year Ended December 31,
                                                               ---------------------------
                                                      1996                                    1995
                                             -----------------------                  --------------------
                                                      Annual                                 Annual
                                       Average        Income/       Yield/     Average       Income/       Yield/
                                       Balance        Expense        Rate      Balance       Expense        Rate
                                     ---------       --------       ------    --------       --------      ------
                                                              (Dollars in Thousands)
<S> <C>
Assets:
Securities:
Taxable                              $  24,881       $   1,466       5.89%   $  29,559      $   1,705      5.77%
Tax-exempt(1)                           10,101             514       7.71        6,911            343      7.52%
                                     ---------       ---------               ---------      ---------
Total securities                        34,982           1,980       6.42       36,470          2,048      6.10%
Loans (net of unearned income):
   Taxable(2)                           83,935           7,929       9.45       76,240          7,224      9.48%
   Tax-exempt                            2,669             175       9.93        2,488            133      8.10%
                                     ---------       ---------               ---------      ---------
Total  loans                            86,604           8,104       9.46       78,728          7,357      9.43%
Federal funds sold and
repurchase agreements                      750              40       5.33        1,771            102      5.76%
Interest-bearing deposits
in other banks                             396              18       4.55          941             49      5.21%
                                     ---------       ---------       ----    ---------      ---------      ----
Total earning asset                    122,732          10,142       8.55%     117,910          9,556      8.31%
Less:  allowance for loan
   losses                               (1,587)                                 (1,418)
Total nonearning assets                 12,231                                  10,917
                                     ---------                               ---------
Total assets                         $ 133,376                               $ 127,409
                                     ---------                               ---------
</TABLE>




                                       13

<PAGE>




                                 TABLE 1 (cont.)
             AVERAGE BALANCES, INCOME AND EXPENSES, YIELDS AND RATES

<TABLE>
<CAPTION>

                                                                       Year Ended December 31,
                                                                      -------------------------
                                                           1996                                     1995
                                                   -----------------------                  ----------------------
                                                           Annual                                   Annual
                                           Average         Income/         Yield/     Average       Income/       Yield/
                                           Balance         Expense          Rate      Balance       Expense        Rate
                                           -------         -------         ------     -------       -------       -----
                                                                      (Dollars in Thousands)
<S> <C>
Liabilities and Shareholder's Equity:
Interest-bearing deposits:
   Checking                                  20,552            503           2.45%   $ 19,345      $    514         2.65%
   Regular savings                           11,064            299           2.70      10,893           298         2.74
   Money market savings                       6,692            199           2.97       8,111           240         2.96

Certificates of deposit:
$100,000 and over                            14,022            781           5.57       8,164           620         7.59
Under $100,000                               53,049          2,922           5.51      55,346         2,817         5.09
                                            -------         ------          -----     -------        ------        -----
Total interest-bearing
         deposits                           105,379          4,704           4.46     101,859         4,489         4.41
Federal funds purchased                         452             25           5.53         385            24         6.23
Other borrowing                                 286             26           9.09         463            44         9.50
                                            -------         ------                    -------        ------        -----
   Total interest-bearing
      liabilities                           106,117          4,755           4.48%    102,707         4,557         4.44%
Noninterest bearing liabilities:
   Demand deposits                           14,362                                    12,958
   Other liabilities                          1,471                                     1,323
                                            -------                                   -------
Total liabilities                           121,950                                   116,988
Shareholders' equity                         11,426                                    10,421
                                            -------                                   -------
   Total Liabilities and
      Shareholders' equity                 $133,376                                  $127,409

Net interest income/yield                                    5,387           4.68                  $  4,999         4.45%
Interest rate spread                                                         4.07%                                  3.87%
</TABLE>

1)  Yields are reported on a taxable equivalent basis assuming a federal
    tax rate of 34%.
2)  Includes non-accrual loans.


                                       14

<PAGE>


                                     TABLE 2
                          VOLUME AND RATE ANALYSIS (1)

         The following table analyzes changes in net interest income
attributable to changes in the volume of interest-bearing assets and liabilities
compared to changes in interest rates. Nonaccruing loans are included in average
loans outstanding.

<TABLE>
<CAPTION>

                                                        Year Ended December 31,
                                             ------------------------------------------
                                           1996 vs.1995                      1995 vs. 1994
                                        Increase (Decrease)               Increase (Decrease)
                                       Due to Changes in:(1)              Due to Changes in:(2)
                                  ------------------------------       ---------------------------
                                  Volume        Rate       Total      Volume       Rate        Total
                                ---------    --------     -------    --------     ------     --------
                                                            (In thousands)
<S> <C>
Earning Assets:
Securities:
   Taxable                       $  (269)    $    30     $  (239)    $  (158)    $    29     $  (129)
   Tax-exempt                        185         (14)        171         116        (160)        (44)
Loans
  Taxable                            730         (25)        705         507         514       1,021
  Tax-exempt                           4          38          42          75         (24)         51
Federal funds sold
   and repurchase
   agreements                        (59)         (3)        (62)          7          30          37
Interest-bearing deposits
   in other banks                    (28)         (3)        (31)        (54)          6         (48)
                                 -------     -------     -------     -------     -------     -------
Total earning
         assets                  $   563     $    23     $   586     $   493     $   395     $   888
                                 -------     -------     -------     -------     -------     -------

Interest-Bearing Liabilities:
   Interest checking             $    30     $   (41)    $   (11)      $ (22)    $    97     $    75
   Regular savings                     5          (4)          1         (39)          1         (38)
   Money market savings              (42)          1         (41)       (117)         (5)       (122)
Time deposits:
      CDS $100,000 or more           444        (283)        161         152         124         276
      CDS Other                     (118)        223         105         180         415         595
                                 -------     -------     -------     -------     -------     -------
Total interest-bearing
   deposits                          319        (104)        215         154         632         786
Federal funds purchased
   and securities sold
   under agreements to
   repurchase                          4          (3)          1           7           6          13
Other borrowing                      (17)         (1)        (18)         16         (28)        (12)
                                 -------     -------     -------     -------     -------     -------
   Total interest-bearing
      liabilities                $   306     $  (108)    $   198     $   177     $   610     $   787
                                 -------     -------     -------     -------     -------     -------
Change in net interest
   income:                       $   257     $   131     $   388      $  316     $  (215)    $   101
                                 -------     -------     -------     -------     -------     -------
</TABLE>

(1) The change in interest due to both rate and volume has been allocated to
change due to volume and change due to rate in proportion to the relationship of
the absolute dollar amounts of the change in each.

(2) The combine effect of changes in both volume and rate which cannot be
separately identified has been allocated proportionately to the change due to
volume and change due to rate.



                                       15

<PAGE>



                                     TABLE 3
                    SECURITIES HELD FOR RESALE AND INVESTMENT
                     MATURITY DISTRIBUTION AND AVERAGE YIELD

                                                  December 31,
                                               -----------------
                                            1996              1995
                                          --------          -------
                                                (In thousands)
Book Value:
U.S. Government securities. . . . . . . . .$26,547          $26,806
State and political subdivisions. . . . . . 10,540            9,637
Other securities. . . . . . . . . . . . .      711              541
                                          --------          -------
   Total securities                        $37,798          $36,984


Maturities of Securities Held at December 31, 1996

<TABLE>
<CAPTION>

                                                                         Over Ten
                                         One         One         Five    Years and
                                        Year       to Five      to Ten     Equity
                                       or Less      Years       Years    Securities   Total
                                      --------    --------    --------   ----------   ------
                                                          (Dollars in thousands)
<S> <C>
U.S. Agency Securities:
   Book value                         $ 2,040     $ 6,884     $ 3,786     $10,779     $23,489
   Market value                         1,951       6,830       3,764      10,855      23,400
   Weighted average yield(1)             6.42%       5.46%       7.04%       7.68%       6.75%
U.S. Treasury Securities:
   Book value                           1,103       1,955         --          --        3,058
   Market value                         1,101       1,941         --          --        3,042
   Weighted average yield(1)             5.34%       5.24%        -- %        -- %       5.28%
State and Political Subdivisions:
   Book value                             226         261         812       9,241      10,540
   Market value                           227         262         814       9,226      10,529
   Weighted average yield(1)             7.56%       6.61%       7.62%       8.32%       8.20%
Other Securities:
   Book Value                             --          --          --          711         711
   Market Value                           --          --          --          711         711
   Weighted Average Yield(1)              -- %        -- %        -- %       4.76%       4.76%
Total Securities:
   Book value                         $ 3,369     $ 9,100     $ 4,598     $20,731     $37,798
   Market value                         3,279       9,033       4,578      20,792      37,682
   Weighted average yield(1)             6.14%       5.44%       7.14%       7.87%       6.99%
</TABLE>

(1) Yields on tax-exempt securities have been computed on a tax-equivalent
basis.

    The Bank held no issues that exceeded 10% of Shareholder's Equity at
December 31, 1996.


                                       16

<PAGE>

                                     TABLE 4
             LOAN PORTFOLIO AND MATURITY SCHEDULE OF SELECTED LOANS
                             AS OF DECEMBER 31, 1996


         For the table and accompanying notes addressing the loan portfolio, see
"Note 3 - Loans" on page 18 of the Annual Report to Shareholders which is
incorporated by reference herein (attached as Exhibit 13 to this Form 10-KSB).

         The maturity distribution and rate sensitivity of certain categories of
loans as of December 31, 1996 is presented below.

         Management considers the liquidity of the Company to be adequate.
Sufficient assets are maintained on a short-term basis to meet the liquidity
demands anticipated by management. In addition, secondary sources are available
through the use of borrowed funds. See Table 10 at page 20.

<TABLE>
<CAPTION>

                              1 Year or Less           1-5 Years          Over 5 Years
                              --------------      ------------------    -----------------
                             Fixed   Variable       Fixed   Variable      Fixed  Variable
                              Rate       Rate        Rate       Rate       Rate      Rate
                             ------    -------    -------    -------    --------  -------
                                              (Dollars in thousands)
<S> <C>

Commercial and other         $2,638    $21,979    $ 4,742    $ 3,714    $   578    $     0
Real estate-construction      3,109          0          0          0          0          0
Real estate mortgage          5,707     12,169      1,618     17,817      1,023          0
Consumer installment          3,983      2,085      5,285      1,124      2,078          0
                            -------    -------    -------    -------    -------    -------
   Total                    $15,437    $36,233    $11,645    $22,655    $ 3,679    $     0
                            -------    -------    -------    -------    -------    -------
</TABLE>



                                       17

<PAGE>

                                     TABLE 5
                                  RISK ELEMENTS


         Risk elements associated with the loan portfolio are presented below.
The Company places a loan on nonaccrual status when management believes, after
considering economic and business conditions and collection efforts, that the
borrower's financial condition is such that collection of principal and interest
is doubtful. The Company's policy is to place loans on nonaccrual status if
principal or interest is past due for 90 days or more unless the debt is both
well secured and in the process of being collected.


                                                     December 31,
                                                  ----------------
                                                1996             1995
                                               ------           ------
                                                     (Thousands)

Nonaccrual loans(1)                            $ 143            $ 138

Restructured loans                                 0                0

Foreclosed properties                            245              272
                                               -----            -----

Total nonperforming assets                     $ 388            $ 410
                                               -----            -----

Loans past due 90+ days and
   accruing interest                           $   8            $  72

Reserve for loan losses
   to period end loans                           1.8%             1.8%

Reserve for loan losses to
   nonaccrual loans                          1,156.3%         1,060.3%

Nonperforming assets to
   period-end loans and
   foreclosed properties                        0.42%             .50%

Net charge-offs (recoveries)
   to average loans                            (0.05%)          (0.01)%



(1)There were no troubled debt restructurings in 1996 or 1995. The Bank expects
to charge off $39,765 in problem loans (fully reserved at December 31, 1996).
These loans present potential risk of non-payment and are not included in the
numbers above. The Bank expects to collect all other payments due. See the
discussion on page 5 of the 1996 Annual Report to Shareholders and Note 3 to the
Financial Statements contained therein for additional information on the risk
elements associated with the loan portfolio.

         Loan Concentrations:  The Bank has no concentration of credit that
exceeds 10% of gross loans.



                                       18

<PAGE>



                                     TABLE 6
                        SUMMARY OF RESERVE FOR LOAN LOSS


         The following table shows the Company's loan loss and recovery
experience for the past two years.

         The Company tries to maintain a reserve for loan loss that represents
an estimate of all losses estimated in the Bank's loan portfolio. To achieve
this goal, the loan loss provision must be sufficient to cover charged-off loans
plus growth in the loan portfolio. The loan loss provision is a charge against
earnings necessary to maintain the reserve for loan losses at management's
targeted level. In considering the provision for loan loss, an evaluation of the
loan portfolio is conducted. Loans in non-accrual status and loans past due over
ninety days are considered in this evaluation as well as other loans the Company
feels may be a potential loss. The status of non-accrual and past due loans
varies from quarter to quarter based on seasonality and cash flow of customers.


                                                        Year ended December 31,
                                                       ------------------------
                                                         1996           1995
                                                       --------       --------
                                                         (Dollars in thousands)

Reserve, beginning of period                           $ 1,463        $ 1,371

Loans charged off:
   Commercial                                              (92)            (4)

   Real estate construction                                  0              0

   Real estate mortgage                                      0             (8)

   Consumer                                                (65)           (16)
                                                       -------        -------


Total loans charged off                                   (157)           (28)
                                                       -------        -------

Recoveries of loans previously charged off:
   Commercial                                              180             28

   Real estate - construction                                0              0

   Real estate - mortgage                                    0              0

   Consumer                                                 17              8
                                                       -------        -------


Total recoveries                                           197             36
                                                       -------        -------

Net loans (charged off) recovered                           40              8


Provision for loan losses                                  150             84
                                                       -------        -------

Balance, end of period                                 $ 1,653        $ 1,463
                                                       -------        -------

Net charge-offs (recoveries) to average loans            (0.05%)        (0.01)%



                                       19

<PAGE>


                                     TABLE 7
                    ALLOCATION OF THE RESERVE FOR LOAN LOSSES

         The following table provides a breakdown of the allowance for loan
losses by major categories of the Company's loan portfolio. See Note 3 to the
Financial Statements for the amount of loans in each category.

<TABLE>
<CAPTION>

                                              1996                          1995
                                        Percent of loans              Percent of loans
                                        in each category              in each category
                                 Amount  to Total Loans       Amount   to Total Loans
                                ------- ----------------      ------  ----------------
                                                (dollars in thousands)
<S> <C>
Commercial                      $  344             36.1%      $  311             35.4%
Real estate - construction           0              3.4            0              2.4
Real estate - mortgage           1,107             41.6          849             42.6
Consumer                           202             15.8          303             15.8
Other                                0              0.5            0              0.6
Participations                       0              2.6            0              3.2
                                ------            -----       ------            -----

Total                           $1,653            100.0%      $1,463            100.0%
                                ------            -----       ------            -----
</TABLE>

                                       20

<PAGE>

                                     TABLE 8
                                    DEPOSITS

         The average balance and rates for certain categories of deposits for
the last two years are shown in the following table:

<TABLE>
<CAPTION>

                                                          Year ended December 31,
                                                       ----------------------------
                                                     1996                      1995
                                                  -----------             --------------
                                              Average     Average      Average     Average
                                              Balance      Rate        Balance       Rate
                                             --------     -------     --------     -------
                                                          (dollars in thousands)

<S> <C>
Non-interest bearing demand deposits         $ 14,362                 $ 12,958
                                             --------                 --------
Interest bearing deposits:
  Interest checking                            20,552        2.45%      19,345      2.65%
  Regular savings                              11,064        2.70       10,893      2.74
  Money market savings                          6,692        2.97        8,111      2.96
Time deposits:
  Certificates of deposit $100,000 or more     14,022        5.57        8,164      7.59
  Other certificates of deposit                53,049        5.51       55,346      5.09
                                             --------                 --------
Total interest bearing deposits               105,379        4.46      101,859      4.41
                                             --------                 --------
Total deposits                                119,741        3.93%     114,817      3.91%
                                             --------                 --------
</TABLE>


         Maturities of time certificates of deposits of $100,000 or more
outstanding at December 31, 1996 were (dollars in thousands):

                                                        1996
                                                      -------
                   3 months or less                   $ 6,984
                   3 - 6 months                         2,303
                   6 - 12 months                        3,949
                   Over 12 months                       2,520
                                                      -------
                      Total                           $15,756



                                       21

<PAGE>

                                                 TABLE 9
                                       RETURN ON EQUITY AND ASSETS

         The ratio of net income to average total assets and average
shareholders' equity and certain other ratios for the periods indicated are as
follows:

                                                    Year ended December 31,
                                                   --------------------------
                                                     1996               1995
                                                   --------           -------
      Return on average assets                       1.18%               .99%

      Return on average equity                      13.78%             12.14%

      Dividend payout ratio                         15.53%             16.97%

      Average equity to average assets               8.57%              8.18%




                                    TABLE 10
                              SHORT TERM BORROWING

         The Bank periodically borrows funds through federal funds from its
correspondent banks, through securities sold under agreements to repurchase, and
through the discount window at the Federal Reserve Bank of Richmond. The
borrowings mature daily for cash flow requirements. The borrowed amounts and
their corresponding rates during 1996 and 1995 are presented below:

                                                      Year ended December 31,
                                                      ----------------------
                                                      (Dollars in Thousands)
                                                        1996         1995
                                                     --------     ---------
Average daily amount outstanding                        $452       $  385

Average interest rate                                   5.53%        6.23%

Maximum outstanding at any month end                  $2,400       $1,040

Balance at end of period                              $2,000       $  115


                                       22

<PAGE>



                                    TABLE 11
                          INTEREST SENSITIVITY ANALYSIS

<TABLE>
<CAPTION>
                                                December 31, 1996
                                   ------------------------------------------------
                           Within        90-365         1 to 5         Over
                           90  Days        Days         Years        5 Years        Total
                           --------       -----         -----        -------        -----
                                              (dollars in thousands)
<S> <C>
Earnings Assets:
Loans (2)                $ 23,790       $ 29,897      $ 34,300      $  3,948      $ 91,935
Securities                  1,211          5,177        20,781        10,513        37,682
Federal funds sold
 and other short-
 term investments               0           --            --            --               0
                         --------       --------      --------      --------      --------
Total interest
 earning assets          $ 25,001       $ 35,074      $ 55,081      $ 14,461      $129,617
                         --------       --------      --------      --------      --------

Interest-Bearing
 Liabilities:
Interest checking,
 savings and money
 market savings(3)       $  2,148       $  5,028      $ 30,098      $      0      $ 37,274
Certificates of
 deposit:
   $100,000 and over        6,987          6,252         2,517          --          15,756
   Under $100,000          13,306         29,620        15,027          --          57,953
Federal funds
 purchased and
 securities sold
 under agreements
 to repurchase              2,000           --            --            --           2,000
Other borrowing              --             --            --            --            --
                         --------       --------      --------      --------      --------
Total interest-
bearing liabilities      $ 24,441       $ 40,900      $ 47,642      $      0      $112,983
                         --------       --------      --------      --------      --------

Period gap               $    560       $ (5,826)     $  7,439      $ 14,461      $ 16,634

Cumulative gap                          $ (5,266)     $  2,173      $ 16,634
Ratio of cumulative
 gap to total
 earning assets(4)           0.43%         -4.06%         1.68%        12.83%
</TABLE>

(1) The repricing dates may differ from maturity dates for certain assets due to
prepayment assumptions.

(2)  Excludes nonaccrual loans.

(3) The Bank's Asset Liability Management Committee has found that interest
bearing checking accounts and regular saving accounts are generally not
sensitive to changes in interest rates. However, current interest rate levels
have warranted placing approximately 5.6% of these balances in the 90 day
category.

(4) The Bank's Asset Liability Management Committee monitors interest rate risk
using gap analysis and rate shock - market value - duration analysis using
regulatory guidelines. The relative risk to earnings based on the gaps in the
table above are considered reasonable by management and is within limits
established by the Board of Directors.


                                       23

<PAGE>
                                    TABLE 12
                              ANALYSIS OF CAPITAL *

                                           December 31,
                                        1996          1995
                                    --------       --------
                                            (thousands)

Tier 1 Capital:
          Common stock              $  2,000       $  2,000
 Additional paid in capital            1,952          1,952
   Retained earnings                   6,861          6,999
    Less:  Goodwill                      (84)          (168)
                                    --------       --------
 Total Tier 1 capital               $ 10,729       $ 10,783


Tier 2 Capital:
  Allowance for loan losses            1,196          1,051
  Allowable long-term debt                 0              0
                                    --------       --------
  Total Tier 2 Capital                 1,196          1,051
  Total risk-based capital          $ 11,925       $ 11,834
                                    --------       --------

Risk weighted assets                $ 95,149       $ 84,133


Capital Ratios:
Tier 1 risk-based capital ratio         11.3%          12.9%

Total risk-based capital ratio          12.5           14.2

Tier 1 capital to average
   adjusted total assets                 7.7            8.3



* Regulatory requirements relate to only the bank capital ratings since the
total assets of the Company are less than $150 million. See the captioned "Note
16 - Regulatory Matters" which is included in the Annual Report to Shareholders.


                                       24





<PAGE>


                            Accounting Rule Changes

         FASB Statement No. 125," Accounting for Transfers and Servicing of
Financial Assets and Extinquishments of Liabilities", was issued in June, 1996
and establishes, among other things, new criteria for determining whether a
transfer of financial assets in exchange for cash or other consideration should
be accounted for as a sale or as a pledge of collateral in a secured borrowing.
Statement 125 also establishes new accounting requirements for pledged
collateral. As issued, Statement 125 is effective for all transfers and
servicing of financial assets and extinquishments of liabilities occurring after
December 1996.

         FASB Statement No. 127, "Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125", defers for one year the effective date
(a) paragraph 15 of Statement 125 and (b) for repurchase agreement, dollar-roll,
securities lending, or similar transactions, of paragraph 9-12 and 237(b) of
Statement 125.

         The effects of these Statements on the Company's consolidated financial
statements are not expected to be material.

ITEM 2.  Description of Properties

         The Company owns no properties; however, its subsidiary, the Bank owns
and leases properties as described in Item 1 of this report.

ITEM 3.  Legal Proceedings

         The Company is not involved in any pending legal proceedings other than
non-material legal proceedings occurring in the ordinary course of business.

ITEM 4.  Submission of Matters to a Vote of Security Holders

         There were no matters submitted to a vote of security holders during
the quarter ended December 31, 1996.
                                    25

<PAGE>


                                    PART II

ITEM 5.  Market for the Common Equity and Related Shareholder Matters

         This  information is  incorporated  herein by reference from page 7 of
the Company's 1996 Annual Report to Shareholders ("1996 Annual Report").

ITEM 6.  Management's Discussion and Analysis or Plan of Operations

         This information is incorporated herein by reference from pages 3
through 7 of the 1996 Annual Report.

ITEM 7.  Financial Statements

         This information is incorporated herein by reference from pages 8
through 30 of the 1996 Annual Report.

ITEM 8.  Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

         There have been no disagreements between the Company and its
independent accountants for the Company's most recent two fiscal years.


                                   26
<PAGE>


                                    PART III

ITEM 9.  Directors,  Executive  Officers,  Promoters  and Control  Persons,
Compliance  with Section 16(a) of the Exchange Act

         This information is incorporated herein by reference from pages 2
through 4 and page 7 of the Company's 1997 definitive proxy statement
("Definitive Proxy Statement") filed with the Commission on or about March 11,
1997.

ITEM 10.  Executive Compensation

         This  information is incorporated  herein by reference from pages 4
through 7 of the Company's  Definitive Proxy Statement.

ITEM 11.  Security Ownership of Certain Beneficial Owners and Management

         This  information is incorporated  herein by reference from pages 2
through 4 of the Company's  Definitive Proxy Statement.

ITEM 12.  Certain Relationships and Related Transactions

         This information is incorporated herein by reference from page 7 of the
Company's Definitive Proxy Statement. For further information see Note 12 to the
Consolidated Financial Statements included in the Company's 1996 Annual Report.


                                   27
<PAGE>


ITEM 13.  Exhibits and Reports on 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

         3.1      Articles of Incorporation of Chesapeake Financial Shares,
                  Inc.1

         3.2      Bylaws of Chesapeake Financial Shares, Inc.1

         10.1     Employee Stock Option Plan1

         10.2     Douglas D. Monroe, Jr. Deferred Compensation Agreement1

         10.3     Thomas B. Denegre, Jr. Deferred Compensation Agreement1

         10.4     Ted M. Kattmann Employment Agreement2

         10.5     John H. Hunt, II Employment Agreement2

         13.0     1996  Annual  Report to  Shareholders,  specified  portion
                  (pp. 3 to 30) of the  Company's  1996 Annual Report to
                  Shareholders for the year ended December 31, 1996.

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

         27.0     Financial Data Schedule

         (b)      Reports on Form 8-K. No reports were filed by the  registrant
                  during the quarter ended  December 31, 1996.




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

1    Incorporated herein by reference from the Company's Registration Statement
     on Form S-18 (Registration No. 33-27825), filed by the Company with the
     Commission on May 15, 1989, as subsequently amended.

2    Incorporated herein by reference from the Company's Annual Report on Form
     10-KSB for the year ended December 31, 1995.

                                     28

<PAGE>


                                   SIGNATURES

         In accordance with 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.

                                         CHESAPEAKE FINANCIAL SHARES, INC.


Date:  March 28, 1997           By       /s/ Douglas D. Monroe, Jr.
       --------------                    --------------------------
                                                  Douglas D. Monroe, Jr.
                                                  Chairman of the Board and
                                                  Chief Executive Officer

In accordance with 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.



/s/ Douglas D. Monroe, Jr.                                    March 28, 1997
--------------------------
Douglas D. Monroe, Jr.
Chairman of the Board and
Chief Executive Officer

/s/ T. Nash Broaddus                                          March 28, 1997
--------------------
T. Nash Broaddus, Director

/s/ Thomas B. Denegre, Jr.                                    March 28, 1997
--------------------------
Thomas B. Denegre, Jr., Director

/s/ Eugene S. Hudnall                                         March 28, 1997
---------------------
Eugene S. Hudnall, Director

/s/ Kathrine W. Monroe                                        March 28, 1997
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Kathrine W. Monroe, Director

/s/ Robert S. Scheu                                           March 28, 1997
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Robert S. Scheu, Director

/s/ Robert L. Stephens                                        March 28, 1997
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Robert L. Stephens, Director

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