UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                         -------------------------------

                                    FORM 10-Q



           (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                For the Quarterly Period Ended September 30, 2002

                                       OR

     ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

               For the transition period from ________ to ________

                                     0-22345

                             SHORE BANCSHARES, INC.
             (Exact name of registrant as specified in its charter)

               Maryland                                52-1974638
- --------------------------------------              ------------------
(State or Other Jurisdiction of                     (I.R.S. Employer
Incorporation or Organization)                       Identification No.)

18 East Dover Street, Easton, Maryland                     21601
- ---------------------------------------             ---------------------
(Address of Principal Executive Offices)                 (Zip Code)

                                 (410) 822-1400
               Registrant's Telephone Number, Including Area Code


         Former name, former address and former fiscal year, if changed
                               since last report.

Indicate  by check  mark  whether  the  registrant:  (1) has filed  all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  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 __.

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (As
defined in Rule 12b-2 of the Exchange Act). Yes X No __.


                      APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practicable date:

        As of October 31, 2002, registrant had outstanding 5,372,061 shares
        of common stock.





                                      INDEX



Part I.


Item 1.           Financial Statements                                      Page

  Condensed Consolidated Balance Sheets -
   September 30, 2002 (unaudited) and December 31, 2001                        3

  Condensed Consolidated Statements of Income -
   For the three and nine months ended September 30, 2002 and 2001 (unaudited) 4

  Condensed Consolidated Statements of Changes in Stockholders' Equity -
   For the nine months ended September 30, 2002 and 2001 (unaudited)           5

  Condensed Consolidated Statements of Cash Flows -
   For the nine months ended September 30, 2002 and 2001 (unaudited)           6

  Notes to Condensed Consolidated Financial Statements (unaudited)           7-9

Item 2.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations                                         9-14

Item 3.  Quantitative and Qualitative Disclosures about Market Risk           14

Item 4.  Controls and Procedures                                              15

Part II.

Item 6.  Exhibits and Reports on Form 8-K                                     15


Signatures                                                                    16

Certifications                                                             17-18



                                       2



Part I

Item 1.       Financial Statements

                             SHORE BANCSHARES, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                             (Dollars in Thousands)





                                                                    September 30,       December 31,
ASSETS:                                                                2002                 2001
- -------                                                           ---------------      ----------------
                                                                   (unaudited)

                                                                                  
Cash and due from banks                                               $    19,467         $  17,424
Interest bearing deposits with other banks                                  6,962            14,179
Federal funds sold                                                         33,254            20,035
Investment securities:
   Held-to-maturity, at amortized cost (fair value of $13,919,
   $11,042, respectively)                                                  13,501            10,896
   Available for sale, at fair value                                      107,361           114,932
Loans, less allowance for credit losses ($4,086,
   $4,189, respectively)                                                  432,762           388,516
Premises and equipment, net                                                 7,803             7,224
Accrued interest receivable on loans and investment securities              3,364             3,321
Investment in unconsolidated subsidiary                                     1,147             1,126
Goodwill                                                                    5,521             1,440
Other intangible assets                                                     1,479                35
Deferred income taxes                                                         215               681
Other real estate owned                                                         9                56
Other assets                                                                3,778             2,538
                                                                      -----------       -----------

   TOTAL ASSETS                                                          $636,623          $582,403
                                                                         ========          ========

LIABILITIES:
Deposits:
   Non-interest bearing demand                                          $  68,076         $  65,305
   NOW and Super NOW                                                       92,667            91,288
   Certificates of deposit $100,000 or more                                92,600            75,096
   Other time and savings                                                 273,996           255,781
                                                                        ---------         ---------
       Total Deposits                                                     527,339           487,470

Accrued interest payable                                                      656               785
Short term borrowings                                                      24,328            17,054
Long term debt                                                              5,000             5,000
Other liabilities                                                           2,800             1,124
                                                                       ----------         ---------

   TOTAL LIABILITIES                                                      560,123           511,433
                                                                       ----------         ---------

STOCKHOLDERS' EQUITY:
Common Stock, Par Value $.01; authorized 35,000,000 shares; issued and
   outstanding:
     September 30, 2002     5,371,893
     December 31, 2001      5,332,947                                          54                53
Additional paid in capital                                                 23,833            23,039
Retained earnings                                                          51,385            47,412
Accumulated other comprehensive income (loss)                               1,228               466
                                                                        ---------         ---------

   TOTAL STOCKHOLDERS' EQUITY                                              76,500            70,970
                                                                        ---------         ---------

TOTAL LIABILITIES & STOCKHOLDERS' EQUITY                                 $636,623          $582,403
                                                                         ========          ========



See accompanying notes to Condensed Consolidated Financial Statements.


                                       3



                             SHORE BANCSHARES, INC.
             CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
                (Dollars in thousands, except per share amounts)




                                                    For the three months ended September 30, For the nine months ended September 30,
                                                              2002           2001                      2002           2001
                                                              ----           ----                      ----           ----
                                                                                                           
INTEREST INCOME
  Loans, including fees                                     $ 7,687        $ 7,801                    $22,158        $23,746
  Interest and dividends on investment securities:
     Taxable                                                  1,374          1,280                      4,378          4,256
     Tax-exempt                                                 124            191                        344            418
  Other interest income                                         150            415                        434          1,189
                                                            -------        -------                   --------        -------

       Total interest income                                  9,335          9,687                     27,314         29,609
                                                             ------         ------                     ------         ------

INTEREST EXPENSE
     Certificates of deposit, $100,000 or more                  756            958                      2,287          3,122
     Other deposits                                           2,143          3,059                      6,909          9,506
     Other interest                                             131            198                        371            684
                                                              -----         ------                     ------          -----

       Total interest expense                                 3,030          4,215                      9,567         13,312
                                                              -----         ------                      -----         ------

NET INTEREST INCOME                                           6,305          5,472                     17,747         16,297
PROVISION FOR CREDIT LOSSES                                      66             56                        277            168
                                                           --------        -------                   --------       --------

NET INTEREST INCOME AFTER PROVISION FOR
  CREDIT LOSSES                                               6,239          5,416                     17,470         16,129
                                                              -----         ------                     ------         ------

NONINTEREST INCOME
  Service charges on deposit accounts                           477            454                      1,421          1,370
  Gain(loss) on sale of securities                               18              -                         23            (1)
  Insurance agency commissions                                1,078              -                      1,738              -
  Other noninterest income                                      241            216                        713            566
                                                              -----         ------                     ------          -----

       Total noninterest income                               1,814            670                      3,895          1,935
                                                             ------           ----                      -----          -----

NONINTEREST EXPENSE
  Salaries and employee benefits                              2,596          1,740                      6,761          5,273
  Expenses of premises and fixed assets                         454            340                      1,306          1,096
  Other noninterest expense                                   1,177            877                      3,413          2,723
                                                             ------         ------                    -------        -------

  Total noninterest expense                                  4,227           2,957                     11,480          9,092
                                                             -----          ------                    -------        -------


INCOME BEFORE TAXES ON INCOME                                3,826           3,129                      9,885          8,972
Federal and State income taxes                               1,338           1,111                      3,500          3,142
                                                          --------         -------                      -----          -----

NET INCOME                                                  $2,488          $2,018                     $6,385         $5,830
                                                            ======          ======                     ======         ======

  Basic earnings per common share                         $    .46         $   .37                   $   1.19       $   1.09
  Diluted earnings per common share                       $    .46         $   .37                   $   1.18       $   1.08



See accompanying notes to Condensed Consolidated Financial Statements.


                                        4





                             SHORE BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)
                             (Dollars in thousands)







                                                                                                    Accumulated
                                                                                                       Other               Total
                                                        Common                       Retained      Comprehensive       Stockholders'
                                                        Stock          Surplus       Earnings       Income(loss)           Equity
                                                     -----------    -----------     ---------    ---------------       -------------

                                                                                                            
Balances, January 1, 2002                           $       53       $ 23,039        $ 47,412            $  466            $70,970

Comprehensive income:
   Net income                                                -              -           6,385                 -              6,385
   Other comprehensive income, net of tax:
     Unrealized gain on available for sale
     securities                                              -              -               -               762                762
                                                                                                                         ---------

     Total comprehensive income                                                                                              7,147
                                                                                                                         ---------

Shares issued for employee benefit plans                     -             15              -                -                 15
Shares issued for acquisition of insurance
   agency                                                    1            800              -                -                801

Shares repurchased and retired                               -            (21)              -                -                (21)

Cash dividends paid $0.45 per share                          -              -          (2,412)               -             (2,412)
                                                  ------------    ------------    ------------     ------------      -------------

   Balances, September 30, 2002                     $       54       $ 23,833        $ 51,385          $  1,228           $ 76,500
                                                    ==========       ========        ========         =========           ========


Balances, January 1, 2001                           $       53       $ 22,924        $ 42,601          $   (554)          $ 65,024

Comprehensive income:
   Net income                                                -              -           5,830                 -              5,830
   Other comprehensive income, net of tax:
     Unrealized gain on available for sale
     securities                                              -              -               -             1,632              1,632
                                                                                                                         ---------

     Total comprehensive income                                                                                              7,462
                                                                                                                         ---------

Shares issued for employee benefit plans                     -             89               -                 -                 89

Cash dividends paid $0.45 per share                          -              -           (2,397)               -             (2,397)
                                                  ------------    -----------     ------------     ------------      -------------

   Balances, September 30, 2001                     $       53       $ 23,013         $ 46,034         $  1,078           $ 70,178
                                                    ==========       ========         ========         ========          =========






See accompanying Notes to Condensed Consolidated Financial Statements.


                                       5


                             SHORE BANCSHARES, INC.
           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
                             (Dollars in thousands)



                                                                                    For the Nine Months Ended  September 30,
                                                                                        2002                      2001
                                                                                   ---------------          --------------
                                                                                                      
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net Income                                                                           $    6,385          $      5,830
   Adjustments to reconcile net income to net cash provided by
   operating activities:
     Depreciation and amortization                                                             923                   718
     Discount accretion on debt securities                                                     (92)                 (115)
     Provision for credit losses, net                                                         (102)                   47
     Deferred income taxes                                                                     (13)                    -
     (Gain) loss on sale of securities                                                         (23)                    1
     Loss on disposal of premises and equipment                                                  2                     -
     Loss on other real estate owned                                                             4                     -
     Equity in earnings of unconsolidated subsidiary                                           (21)                    -
     Net changes in:
       Accrued interest receivable                                                             (43)                  (80)
       Other assets                                                                         (1,240)                 (607)
       Accrued interest payable on deposits                                                   (129)                 (146)
       Accrued expenses                                                                      1,676                   748
                                                                                    ---------------              --------
     Net cash provided by operating activities                                               7,327                 6,396
                                                                                    ---------------              --------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Proceeds from maturities and principal payments of securities
     available for sale                                                                     63,390                60,526
   Proceeds from sale of investment securities available for sale                            3,017                 3,999
   Purchase of securities available for sale                                               (57,864)              (77,711)
   Proceeds from maturities and principal payments of securities
     held to maturity                                                                        1,754                12,689
   Purchase of securities held to maturity                                                  (4,367)                 (546)
   Net increase in loans                                                                   (44,144)              (10,950)
   Purchase of loans                                                                            -                   (508)
   Proceeds from sale of loans                                                                  -                     34
   Purchase of premises and equipment                                                         (753)                 (733)
   Proceeds from sale of premises and equipment                                                 19                     -
   Purchase other real estate owned                                                              -                   (47)
   Proceeds from sale of other real estate owned                                                43                     -
   Acquisition, net of stock issued                                                         (5,103)                    -
                                                                                    ---------------           -------------
     Net cash used in investing activities                                                ( 44,008)              (13,247)
                                                                                    ---------------           -------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Net increase in demand, NOW, money market and
     savings deposits                                                                       24,262                 6,542
   Net increase in certificates of deposit                                                  15,607                 7,658
   Net increase in securities sold under agreement to repurchase                             7,274                 4,385
   Proceeds from issuance of common stock                                                       16                    89
   Repurchase of common stock                                                                  (21)                    -
   Dividends paid                                                                           (2,412)               (2,397)
                                                                                     --------------          --------------
       Net cash provided by financing activities                                            44,726                16,277
                                                                                     --------------          --------------

NET INCREASE IN CASH AND CASH EQUIVALENTS                                                    8,045                 9,426
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                            51,638                39,715
                                                                                     -------------           --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                                           $      59,683             $   49,141
                                                                                     =============           ==============



See accompanying Notes to Condensed Consolidated Financial Statements.



                                       6


                             Shore Bancshares, Inc.
              Notes to Condensed Consolidated Financial Statements
                                   (Unaudited)

1)       The  consolidated  financial  statements  include the accounts of Shore
         Bancshares,   Inc.  (the  "Company")  and  its  subsidiaries  with  all
         significant  intercompany  transactions  eliminated.  The  consolidated
         financial   statements  conform  to  accounting   principles  generally
         accepted in the United  States and to prevailing  practices  within the
         banking industry.  The accompanying  interim  financial  statements are
         unaudited;  however,  in the  opinion  of  management  all  adjustments
         necessary to present  fairly the  financial  position at September  30,
         2002, the results of operations  for the three- and nine-month  periods
         ended  September 30, 2002 and 2001,  and cash flows for the  nine-month
         periods ended September 30, 2002 and 2001, have been included. All such
         adjustments  are of a  normal  recurring  nature.  There  have  been no
         significant  changes to the Company's  accounting policies as disclosed
         in the 2001  Annual  Report.  The  results of  operations  for the nine
         months ended September 30, 2002 are not  necessarily  indicative of the
         results to be expected for the full year. This quarterly report on Form
         10-Q should be read in conjunction  with the Company's annual report on
         Form 10-K for the year ended December 31, 2001.

2)       Year to date basic earnings per share is derived by dividing net income
         available  to common  stockholders  by the weighted  average  number of
         common  shares  outstanding  during the period of 5,354,573  shares for
         2002 and  5,329,030  shares for 2001.  The diluted  earnings  per share
         calculation  is  arrived  at by  dividing  net  income by the  weighted
         average number of shares The diluted earnings per share  calculation is
         derived by dividing net income by the weighted average number of shares
         outstanding,  adjusted for the dilutive  effect of outstanding  options
         and warrants. Considering the effect of these common stock equivalents,
         the adjusted  average  shares for the nine months ended  September  30,
         2002 and 2001 were 5,415,176 and 5,381,339, respectively.

3)       Under the  provisions of Statements of Financial  Accounting  Standards
         (SFAS) Nos. 114 and 118,  "Accounting  by Creditors for Impairment of a
         Loan," a loan is considered impaired if it is probable that the Company
         will not collect all principal and interest  payments  according to the
         loan's  contracted  terms.  The impairment of a loan is measured at the
         present value of expected future cash flows using the loan's  effective
         interest  rate,  or at the loan's  observable  market price or the fair
         value of the collateral if the loan is collateral  dependent.  Interest
         income  generally is not  recognized on specific  impaired loans unless
         the likelihood of further loss is remote. Interest payments received on
         such loans are applied as a reduction of the loans  principal  balance.
         Interest  income on other  nonaccrual  loans is recognized  only to the
         extent of interest payments received.

Information with respect to impaired loans and the related valuation allowance
is shown below:



                                                                                     September 30,          December 31,
(Dollars in thousands)                                                                       2002                  2001
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                                                        
Impaired loans with a specific allowance                                                 $     20                $  561
Impaired loans with a general allowance                                                       734                   382
                                                                                         --------                ------
     Total impaired loans                                                                $    754                $  943
                                                                                         ========                ======

Allowance for credit losses applicable to impaired loans                                 $     70                $   76
Allowance for credit losses applicable to other than impaired loans                         4,016                 4,113
                                                                                           -------               ------
     Total allowance for credit losses                                                   $  4,086                $4,189
                                                                                          ========               ======

Interest income on impaired loans recorded on the cash basis                             $     27                $   19
                                                                                        =========                ======

         Impaired  loans do not include  groups of smaller  balance  homogeneous
         loans such as residential  mortgage and consumer installment loans that
         are evaluated collectively for impairment. Reserves for probable credit
         losses related to these loans are based upon historical loss ratios and
         are included in the allowance for credit losses.

4)       In the normal course of business,  to meet the  financial  needs of its
         customers,   the  Banks  are  parties  to  financial  instruments  with
         off-balance sheet risk. These financial instruments include commitments
         to extend credit and standby letters of credit.  At September 30, 2002,
         total  commitments  to extend credit were  approximately  $120,672,000.
         Outstanding  letters  of  credit  were  approximately  $  6,301,000  at
         September 30, 2002.
                                       7

5)       In July 2001, the Financial  Accounting  Standards  Board (FASB) issued
         Statement  No.   141(Statement  141),   "Business   Combinations,"  and
         Statement  No. 142  (Statement  142),  "Goodwill  and Other  Intangible
         Assets."  Statement 141 requires that the purchase method of accounting
         be used for all business  combinations  initiated  after June 30, 2001.
         Statement  141  also  specifies  the  criteria  for  intangible  assets
         acquired in a purchase method business combination to be recognized and
         reported  apart from  goodwill.  Statement  142  requires  goodwill and
         intangible assets with indefinite lives to no longer be amortized,  but
         instead tested for impairment at least annually in accordance  with the
         provisions of Statement  142.  Statement  142 also requires  intangible
         assets with definite useful lives to be amortized over their respective
         estimated useful lives to their estimated residual values, and reviewed
         for  impairment  in  accordance  with  the  FASB's  Statement  No.  121
         (Statement  121),  "Accounting for the Impairment of Long-Lived  Assets
         and for Long-Lived  Assets to Be Disposed Of." The Company  adopted the
         provisions  of Statement 141  effective  July 1, 2001and  Statement 142
         effective January 1, 2002.

         As of January 1, 2002, the Company had $1,440,000 of goodwill  recorded
         that was a result of the  acquisition of a financial  institution  that
         occurred  in 1997. The transaction  qualified  as a  purchase  business
         combination  under APB 16,  "Business  Combinations".  On May 1,  2002,
         $4,081,000  additional  goodwill  was  recorded  as  a  result  of  the
         acquisition of certain assets of The  Avon-Dixon  Agency,  Inc. and its
         subsidiaries.  The  transaction  was  accounted for under SFAS No. 141,
         "Business Combinations".  Each transferred set of assets and activities
         meets the definition of a business under EITF 98-3.

         Under the  provisions  of SFAS NO.  142,  goodwill  was  subject  to an
         initial  assessment of  impairment.  The Company  completed its initial
         assessment  review  and  determined  that  there was no  impairment  of
         goodwill as of January 1, 2002. The Company will review  goodwill on an
         annual  basis  for  impairment  and as  events  occur or  circumstances
         change.

         The  Company  adopted  SFAS NO. 142  effective  January  1,  2002.  The
         following  presents  the net  income  that  would  have  been  reported
         (pro-forma) had SFAS No. 142 been implemented January 1, 2001.



 (Dollars and amounts in thousands, except                        Three Months Ended                    Nine Months Ended
  per share data)                                                   September 30,                         September 30,
- ------------------------------------------------------------------------------------------------------------------------------
                                                                  2002           2001                2002         2001
                                                                  ----           ----                ----         ----

                                                                                                    
Reported net income                                             $2,488         $2,018              $6,385       $5,830
Add back:  goodwill amortization, net of tax effect                  -             35                   -          105
                                                             ---------     ----------             -------       ------
Pro-forma net income                                           $ 2,488         $2,053              $6,385       $5,935
                                                                 =====          =====               =====        =====

Basic net income per share:
    Reported net income                                          $ .46          $ .37               $1.19        $1.09
    Goodwill amortization                                            -            .02                   -          .02
                                                             ---------     ----------             -------      -------
Pro-forma net income per share                                   $ .46          $ .39               $1.19        $1.11
                                                                  ====           ====                ====         ====

Diluted net income per share:
    Reported net income                                          $ .46          $ .37               $1.18        $1.08
    Goodwill amortization                                            -            .01                   -          .01
                                                             ---------     ----------             -------      -------
Pro-forma net income per share                                   $ .46          $ .38               $1.18        $1.09
                                                                  ====           ====                ====         ====

         The Company's other  intangible  assets at September 30, 2002 primarily
         represent  unamortized  intangibles  related to the  acquisition of The
         Avon-Dixon  Agency,  Inc.  and  its  subsidiaries  on May 1,  2002.  At
         September  30,  2002,  the  carrying  amount of these  intangibles  was
         $1,544,000,  and they are being amortized on a straight-line basis over
         5 or 15 years, depending on their estimated useful lives.  Amortization
         expense related to other intangible  assets was  approximately  $98,000
         for the nine-month period ended September 30, 2002.

         In August  2001,  the FASB  issued SFAS No.  144,  "Accounting  for the
         Impairment of Long-Lived  Assets"  ("Statement  144") which  supersedes
         SFAS No. 121,  "Accounting for the Impairment of Long-Lived  Assets and
         for  Long-Lived  Assets to Be Disposed  Of"  ("Statement  121") and the
         accounting  and  reporting  provisions  of APB No. 30,  "Reporting  the
         Results of  Operations - Reporting the Effects of Disposal of a Segment
         of a Business,  and Extraordinary,  Unusual and Infrequently  Occurring
         Events and  Transactions," for the disposal of a segment of a business.
         While  Statement  144 retains  many of the  fundamental  provisions  of
         Statement 121, it establishes a single  accounting model for long-lived
         assets to be disposed of by sale, and resolves  certain  implementation
         issues not  previously  addressed by Statement  121.  Statement  144 is
         effective for fiscal
                                       8

         years  beginning after December 15, 2002. This Statement did not have a
         material impact on the Company's financial statements.

6)       On May 1, 2002, the Company completed its acquisition of certain assets
         of The Avon-Dixon  Agency,  Inc., a full service insurance agency,  and
         its subsidiaries, all located in Easton, Maryland. The initial purchase
         price was $5,600,000  which was paid in the form of $4,800,000 cash and
         39,037 shares of the Company's  common stock, par value $.01 per share,
         valued at $800,000. An additional $1,400,000 may be payable if specific
         performance  criteria set forth in the purchase agreement are realized.
         The  Company   recorded   approximately   $4,082,000  of  goodwill  and
         $1,542,000 of other  intangible  assets as a result of the acquisition.
         The  Company is now  offering a full range of  insurance  products  and
         services to its customers.

7)       On November 1, 2002 the  Company's  subsidiary,  The Avon-Dixon Agency,
         LLC   completed it's acquisition of certain assets of W. M. Freestate &
         Son,  Inc. a full  service  insurance  agency  located in  Centreville,
         Maryland.  The initial  purchase  price was $768,750  which was paid in
         cash.  An  additional  $512,200  may be payable if certain  performance
         criteria set forth in the purchase agreement are realized.

Item 2. Management's  Discussion and Analysis of Financial Condition and Results
of Operations.

Shore  Bancshares,  Inc. (the  "Company") is the largest  independent  financial
holding  company  located on the  Eastern  Shore of  Maryland.  It is the parent
company of The Talbot Bank of Easton,  Maryland located in Easton,  Maryland and
The Centreville National Bank of Maryland (collectively, the "Banks") located in
Centreville, Maryland. The Banks operate 11 full service branches in Kent, Queen
Anne's,  Talbot,  Caroline and Dorchester Counties. The Company is listed on the
NASDAQ  Small Cap Market,  trading  under the symbol  "SHBI." On May 1, 2002 the
Company  completed  its  acquisition  of certain  assets and the  assumption  of
certain  liabilities of the Avon-Dixon  Agency,  Inc., a full service  insurance
agency, and its subsidiaries,  all located in Easton,  Maryland.  The Company is
now  offering a full range of insurance  products and services to its  customers
through three new wholly-owned subsidiaries, The Avon-Dixon Agency, LLC, Elliott
Wilson Insurance,  LLC, and Mubell Finance,  LLC ( collectively,  the "Insurance
Agency").

The following  discussion is designed to provide a better  understanding  of the
financial  position of the Company  and should be read in  conjunction  with the
December 31, 2001 audited Consolidated Financial Statements and Notes.

Forward-Looking  Information
Portions  of  this  Quarterly  Report  on  Form  10-Q  contain   forward-looking
statements within the meaning of The Private Securities Litigation Reform Act of
1995.  Statements that are not historical in nature,  including  statements that
include  the  words  "anticipate,"  "estimate,"  "should,"  expect,"  "believe,"
"intend,"  and  similar   expressions,   are  expressions  about  the  Company's
confidence,  policies,  and  strategies,  the  adequacy of capital  levels,  and
liquidity and are not  guarantees of future  performance.  Such  forward-looking
statements   involve  certain  risks  and   uncertainties,   including  economic
conditions,  competition  in the  geographic  and  business  areas in which  the
Company and its affiliates operate,  inflation,  fluctuations in interest rates,
legislation,  and governmental  regulation.  These risks and  uncertainties  are
described in more detail in the  Company's  Form 10-K,  under the heading  "Risk
Factors."  Actual  results  may  differ  materially  from such  forward  looking
statements,  and the Company  assumes no  obligation  to update  forward-looking
statements at any time.

Critical Accounting Policies
The Company's  financial  statements are prepared in accordance  with accounting
principals  generally  accepted  in the  United  States of America  (GAAP).  The
financial  information  contained  within  the  financial  statements  is,  to a
significant extent, financial information contained that is based on measures of
the financial effects of transactions and events that have already  occurred.  A
variety of factors could affect the ultimate value that is obtained  either when
earning  income,  recognizing  an expense,  recovering  an asset or  relieving a
liability.

The  Company  believes  its  most  critical  accounting  policy  relates  to the
allowance for credit  losses.  The allowance for credit losses is an estimate of
the losses that may be sustained in the loan  portfolio.  The allowance is based
on two basic principles of accounting: (i) SFAS 5, Accounting for Contingencies,
which  requires  that losses be accrued when they are probable of occurring  and
estimable,  and (ii) SFAS 114, Accounting by Creditors for Impairment of a Loan,
which requires that losses be accrued based on the differences  between the loan
balance  and the value of  collateral,  present  value of future  cash  flows or
values  that are  observable  in the  secondary  market.  Management  uses  many
factors,  including  economic  conditions and trends,  the value and adequacy of
collateral,  the  volume  and  mix of the  loan  portfolio,  and  internal  loan
processes of the Company,  in determining  the inherent loss that may be present
in the Company's loan portfolio.  Actual losses could differ  significantly from
Management's  estimates. In addition, GAAP itself may change from one previously
acceptable  method to another.  Although the economics of transactions  would be
the same, the timing of events that would impact the transactions  could change.
Management has significant  discretion in making the adjustments inherent in the
determination  of the provision and  allowance for credit  losses,  including in
connection with the valuation of collateral, the

                                       9

borrower's prospects of repayment,  and in establishing allowance factors on the
formula  allowance and unallocated  allowance  components of the allowance.  The
establishment  of  allowance  factors  is  a  continuing   exercise,   based  on
Management's  continuing assessment of the global factors such as delinquencies,
loss history, trends in volume and terms of loans, effects of changes in lending
policy,  the  experience  and depth of  Management,  national and local economic
trends,  concentrations of credit,  quality of loan review system and the effect
of external factors such as competition and regulatory  requirements,  and their
impact on the  portfolio.  Allowance  factors  may change from period to period,
resulting  in an  increase  or  decrease  in  the  amount  of the  provision  or
allowance,  based upon the same volume and  classification of loans.  Changes in
allowance factors will have a direct impact on the amount of the provision,  and
a  corresponding  effect on net income.  Errors in  Management's  perception and
assessment of the global factors and their impact on the portfolio  could result
in the allowance not being  adequate to cover losses in the  portfolio,  and may
result in additional provisions or charge-offs.

                              RESULTS OF OPERATIONS

Overview
Net income for the nine  months  ended  September  30, 2002 was  $6,385,000,  an
increase of 9.5% when compared to  $5,830,000  for the same period in 2001. On a
per share basis,  diluted  earnings  were $1.18,  compared to $1.08 for the same
period last year.  Return on average  assets was 1.47% for the first nine months
of 2002  compared to 1.40% for the first nine months of 2001.  Return on average
stockholders'  equity  increased from 11.53% at September 30, 2001 to 11.66% for
the first nine months of 2002.

Net income  increased  $470,000,  totaling  $2,488,000  for the third quarter of
2002,  compared to $2,018,000 for the same period in 2001. On a per share basis,
diluted  earnings  were $0.46 for the  quarter,  compared  to $0.37 for the same
period in 2001.  Interest rates remained  stable during the first nine months of
2002,  however  the overall  yields on earning  assets  continues  to decline as
assets reprice and new assets are recorded at currently low interest rates.  The
average  yield on  earning  assets was 6.36% for the nine-month  period   ending
September 30, 2002 compared  to7.56% for the same period last year.  The overall
rate paid for interest  bearing deposits has also declined to 2.75% at September
30,  2002,  compared  to 4.14% one year ago.  The  interest  rates  paid for all
deposits  have  declined as those  deposits  matured and repriced in the current
rate environment.

The average balance of loans increased  $35,839,000 to $419,500,000 at September
30, 2002 when  compared to September  30, 2001.  The average  balance of federal
funds sold and interest bearing  deposits with other banks increased  $1,121,000
for the  nine-month  period ended  September  30, 2002 when compared to the same
period last year. The average balance of investment  securities was $127,113,000
at September  30, 2002,  an increase of  $15,189,000  when  compared to the same
period last year.  Average  deposits  increased  $49,318,000 to  $510,710,000 at
September 30, 2002 compared to one year ago.

Net Interest Income
For the three months ended  September  30, 2002 net interest income was $833,000
higher than the same period in 2001.  The increase is the result of a $1,185,000
decrease  in  interest  expense,  primarily  related  to  lower  rates  paid for
deposits.  Total interest income for the period declined $352,000 as a result of
lower yields on earning assets.

Net interest income totaled  $17,747,000 for the nine months ended September 30,
2002,  representing  an increase of $1,450,000 or 8.9% over the same period last
year. Total interest income declined  $2,295,000 or 7.8%,  totaling  $27,314,000
for the nine months ended  September  30, 2002  compared to the same period last
year.  Total interest  expense for the nine months ended  September 30, 2002 was
$9,567,000, a reduction of $3,745,000 or 28.1% compared to last year.

During  November  2002,  in response to continued  weakness in the economy,  the
Federal  Reserve cut short term interest  rates by 50 basis  points.  During the
first nine  months of 2002 there had been no rate cuts,  and the  federal  funds
rate remained stable at 1.75%. The Federal Reserve cut short-term interest rates
eight times during the nine-month  period ended  September 30, 2001, for a total
of 350 basis points decline in short term rates. Yields on investment securities
declined  during  the  nine-month  period  as the  major  stock  market  indices
continued  to  decline,   and  more  investors  looked  to  government   quality
investments.  Loan demand remained strong, however the market for those loans is
competitive.  In an effort to offset the declining  yields on loans,  as well as
the reinvestment rates available on investment securities, the Company continues
to reduce the rates paid for deposits. For the nine-month period ended September
30, 2002,  the  Company's  net interest  margin  declined  only 4 basis  points,
compared  to the same period last year.  A further  decline in the net  interest
margin is likely as earning  assets are reinvested in the currently low interest
rate environment and the Company's  ability to further reduce the rates paid for
interest bearing liabilities is limited.

Interest and fees on loans declined  $1,588,000 due to declining yields on loans
for the  nine-month  period ended  September  30, 2002 when compared to the same
period in 2001.  The average yield on loans declined from 8.29% to 7.09% for the
nine-month period ended September 30, 2002 when compared to the same period last
year.  Interest on  investment  securities  increased  $48,000 due to  increased
volume of  investments  for the  nine-month  period  ended  September  30, 2002.
Interest on federal  funds sold and interest  bearing  deposits with other banks
decreased $755,000 due to lower rates despite increased volume. The overall rate
earned on federal  funds sold was 1.76% for the nine months ended  September 30,
2002,  compared to 4.65% for the same period last year.  The average rate earned
on  interest  bearing  deposits  with other  banks was 1.67% for the nine months
ended September 30, 2002.

                                       10


Interest  expense  declined as a result of  reductions in the overall rates paid
for  deposits  and  other  short  term  borrowings.  The  average  rate paid for
certificates  of  deposit  decreased  141 basis  points  from 5.59% for the nine
months ended September 30, 2001 to 4.18% for the nine months ended September 30,
2002. Average interest bearing deposits at September 30, 2002 were $446,808,000,
an increase of $39,429,000 when compared to the same period in 2001. The average
rate  paid  for NOW,  savings  and  money  market  accounts  was  1.23%  for the
nine-month period ended September 30, 2002 compared to 2.34% for the same period
in 2001.

On a tax  equivalent  basis,  net  interest  income  for the nine  months  ended
September  30,  2002 was  $1,484,000  higher  than the same period last year due
primarily to a decline in interest  expense.  The net interest  margin was 4.15%
when  compared  to 4.19% one year  ago.  The  overall  yield on  earning  assets
declined  120  basis  points  to 6.36% and the  overall  rate paid for  interest
bearing liabilities declined 141 basis points to 2.71% for the nine-month period
ended  September  30, 2002 when  compared to the same period last year.  See the
Analysis of Interest Rates and Interest Differentials below for further details.

Loans comprised 72.3% and 72.7% of total average earning assets at September 30,
2002 and 2001, respectively.

Analysis of Interest Rates and Interest Differentials.
The  following  table  presents  the  distribution  of the average  consolidated
balance sheets, interest income/expense,  and annualized yields earned and rates
paid through the first nine months of the year.



                                                            September 30, 2002                      September 30, 2001
                                                            ------------------                      ------------------
                                                       Average    Income      Yield          Average      Income         Yield
(Dollars in thousands)                                 Balance    Expense     Rate           Balance      Expense        Rate
- --------------------------------------------------------------------------------------------------------------------------------
                                                                                            
Earning Assets
   Investment securities                             $127,113    $ 4,918       5.10%        $111,924       $ 4,967        5.93%
   Loans                                              419,500     22,231       7.09%         383,661        23,792        8.29%
   Interest bearing deposits
          with other banks                              7,736         96       1.67%        10,277             307        3.99%
   Federal funds sold                                  25,696        337       1.76%          22,034           777        4.65%
                                                   ----------  ---------       -----    ------------      --------     --------
   Total earning assets                              $580,045    $27,582       6.36%        $527,896       $29,843        7.56%
Non-interest earning assets                            32,132                               $ 27,724
                                                       ------                               --------
    Total Assets                                     $612,177                               $555,620
                                                     ========                               ========
Interest bearing liabilities
   Interest bearing deposits                         $446,808     $9,196       2.75%        $407,379       $12,628        4.14%
   Short term borrowing                                20,311        183       1.20%          19,147           477        3.32%
   Long term debt                                       5,000        188       5.04%           5,000           207        5.54%
                                                   ----------  ---------       -----    ------------      --------        -----
   Total interest bearing liabilities                $472,119     $9,567       2.71%        $431,526       $13,312        4.12%
Non-interest bearing liabilities                       66,848                                 56,668
Stockholders' equity                                   73,210                                 67,426
                                                   ----------                           ------------
Total liabilities and stockholders' equity           $612,177                               $555,620
                                                     ========                               ========

Net interest spread                                              $18,015       3.65%                       $16,531        3.43%
                                                                 =======                                   =======
Net interest margin                                                            4.15%                                      4.19%



(1) All  amounts are  reported  on a tax  equivalent  basis  computed  using the
statutory federal income tax rate exclusive of the alternative  minimum tax rate
of 34% and nondeductible interest expense.
(2) Average loan balances include non-accrual loans.
(3) Loan fee income is included in interest  income for each loan  category  and
yield calculations are based on the total.

Non-interest Income
Total non-interest  income for the three- and nine-month periods ended September
30, 2002 increased $1,144,000 and $1,960,000, respectively, when compared to the
same  period in 2001.  The  increase  is  primarily  attributable  to  insurance
commission  income  resulting  from the purchase of the assets of The Avon-Dixon
Agency,  Inc. and its subsidiaries on May 1, 2002.  Insurance agency commissions
for the three- and nine-month periods ended  September 30, 2002 were  $1,078,000
and $1,738,000, respectively. In addition, the Company had increased income from
service charges, earnings of an unconsolidated  subsidiary,  and income from the
sale of nondeposit investment products.

                                       11




Non-interest Expense
Total  non-interest  expense increased  $1,270,000 and $2,388,000 for the three-
and nine-month  periods ended  September 30, 2002 from the comparable  period in
2001. Operation of the Company's insurance  subsidiaries  accounted for $978,000
and $1,610,000 of the increase during the three- and  nine-months  periods ended
September  30, 2002,  respectively,  when  compared to the same periods in 2001.
Other  increases  relate to the start up costs  associated with new products and
services as well as general  increases in overhead  resulting form the growth of
the Company.

Income Taxes
The effective tax rates for the three- and  nine-month  periods ended  September
30,2002  were  35%  and  35.4%,   respectively,   compared  to  35.5%  and  35%,
respectively,  for the same  periods last year.  There have been no  significant
changes in tax law or to the  Company's  tax  structure  which would  materially
impact the effective tax rate.

                         Analysis of Financial Condition

Loans
Loans,  net  of  allowance  for  credit  losses  and  unearned  income,  totaled
$432,762,000  at September  30, 2002, an increase of  $44,246,000  or 11.4% from
December 31, 2001. The increase is attributable to increased real estate lending
during the year.  Average  loans,  net of unearned  income,  for the  nine-month
period ended September 30, 2002 totaled  $419,500,000,  compared to $383,661,000
for the same period last year.

Allowance for Credit Losses
The Company has  established an allowance for credit losses,  which is increased
by provisions charged against earnings and recoveries of previously  charged-off
debts. The allowance is decreased by current period  charge-off of uncollectible
debts. Management evaluates the adequacy of the allowance for credit losses on a
quarterly  basis and adjusts the  provision  for credit  losses  based upon this
analysis.  The  evaluation of the adequacy of the allowance for credit losses is
based  on a risk  rating  system  of  individual  loans  as well  as  collective
evaluation  of smaller balance  homogeneous  loans based on factors such as past
credit loss experience, local economic trends, non-performing and problem loans,
and  other  factors  which  may  impact  collectibility.  A loan  is  placed  on
nonaccrual when it is  specifically  determined to be impaired and principal and
interest is delinquent for 90 days or more.

The  provision  for credit  losses was $56,000 and  $277,000  for the three- and
nine-month  periods  ended  September  30,  2002,  respectively,  an increase of
$10,000 and $109,000, respectively, when compared to the same periods last year.
The   increased   provision  is  the  result  of  continued   growth  in  loans,
identification  of an  increased  number  of watch  list  loans  throughout  the
periods,  as well as general economic conditions and other factors considered in
the Company's methodology.  A decline in nonaccrual loans and loan delinquencies
during  the  three- and  nine-month  periods  did not result in a decline in the
provision  because the loans were  predominately  real estate  secured and posed
little  loss  exposure  to the  Company.  Net  charge-offs  for the  three-  and
nine-month  periods were  $288,000 and  $92,000,  respectively,  compared to net
charge-offs  of $46,000 and  $121,000,  respectively,  for the same periods last
year.  The allowance for credit losses as a percentage of average loans was .97%
and 1.11% as of September 30, 2002 and 2001, respectively. Based on Management's
quarterly  evaluation  of the adequacy of the allowance  for credit  losses,  it
believes that the allowance credit losses is adequate at September 30, 2002.

                                       12




The following table presents a summary of the activity in the allowance for
credit losses.



                                                           Nine Months Ended September 30,
(Dollars in thousands)                                            2002              2001
- ------------------------------------------------------------------------------------------

                                                                          
Allowance balance - beginning of year                         $  4,189          $  4,199
Charge-offs:
   Commercial and other                                            273               110
   Real estate                                                      64                 6
   Consumer                                                        128                85
                                                              --------        ----------
     Totals                                                        465               201
                                                             ---------           -------
Recoveries:
   Commercial                                                       14                33
   Real estate                                                      14                 1
   Consumer                                                         57                46
                                                            ----------           -------
     Totals                                                         85               80
                                                             ---------           -------
Net charge-offs:                                                   380               121
Provision for credit losses                                        277               168
                                                            ----------              ----
Allowance balance-ending                                     $   4,086           $ 4,246
                                                             =========          ========

Average loans outstanding during period                       $419,500          $383,661
                                                              ========          ========

Net charge-offs (annualized) as a percentage of
   average loans outstanding during period                        .12%              .04%
                                                                  ====        ==========
Allowance for credit losses at period end as a
   percentage of average loans                                    .97%             1.11%
                                                                  ====          ========


The general  economic  conditions  in the Company's  market area remain  strong;
however,  because the Company's  loans are  predominately  real estate  secured,
weaknesses  in the  local  real  estate  market  may have an  adverse  effect on
collateral  values. The Company does not have any concentrations of loans in any
particular industry, nor does it engage in foreign lending activities.

Nonperforming Assets
The  following  table  summarizes  past  due and  non-performing  assets  of the
Company.

                                                 September 30,    December 31,
Non-performing Assets:                               2002             2001
                                                ------------     ------------
 Non-accrual loans                                    754               943
 Other real estate owned                                9                56
                                                   ------            ------
                                                      763               999
 Past due loans                                       244             1,532
                                                   ------            ------
 Total non-performing and past due loans           $1,007            $2,531
                                                   ======            ======

Investment Securities
Investment  securities  decreased  $4,966,000 during the nine-month period ended
September  30, 2002 when compared to December 31, 2001.  The average  balance of
investment securities was $127,113,000 for the nine-month period ended September
30, 2002, compared to $111,924,000 for the same period in 2001. At September 30,
2002, the overall yield on investment  securities  was 5.10%,  an 83 basis point
decrease from 5.93% at September 30, 2001, on a tax equivalent basis.

Deposits
Total deposits at September 30, 2002 were $527,339,000, compared to $487,470,000
at December 31, 2001. Certificate of deposit rates declined significantly during
2002 as the  result of lower  overall  interest  rates.  Many  depositors  began
leaving  money in shorter  term  certificates  of  deposit  or money  management
accounts hoping that rates would increase.  Certificates of deposit greater than
$100,000 increased  $17,504,000 during the nine-month period ended September 30,
2002 primarily as a result of an increase in municipal deposits.  Other time and
savings  accounts  increased  $18,215,000  during the  nine-month  period  ended
September 30, 2002, and noninterest and interest  bearing  transaction  accounts
increased $2,771,000 during the same period.

                                       13


Borrowed Funds
Short term  borrowings,  which  consist of securities  sold under  agreements to
repurchase,  increased  $7,274,000,  totaling  $24,328,000 at September 30, 2002
when  compared  to  December  31,  2001.  The  average  rate paid for short term
borrowings was 1.20% and 3.32% at September 30, 2002 and 2001, respectively. The
Company  also has an advance  from the Federal  Home Loan Bank of Atlanta in the
amount  $5,000,000  outstanding  at September 30, 2002 and 2001. As of September
30, 2002, the interest rate on the advance was 4.97%.

Liquidity and Capital Resources
The Company derives liquidity through increased customer deposits, maturities in
the investment portfolio, loan repayments and income from earning assets. To the
extent that deposits are not adequate to fund  customer  loan demand,  liquidity
needs can be met in the short term funds markets through  arrangements  with its
correspondent banks. The Banks are also members of the Federal Home Loan Bank of
Atlanta,  which provides another source of liquidity.  There are no known trends
or demands,  commitments,  events or  uncertainties  that Management is aware of
which will  materially  affect the  Company's  ability to maintain  liquidity at
satisfactory levels.

Total stockholders' equity was $76,500,000 at September 30, 2002, an increase of
7.8% when compared to December 31, 2001. Accumulated other comprehensive income,
which  consists  solely  of  net  unrealized  gains  and  losses  on  investment
securities  available  for sale,  increased  $762,000  since  December 31, 2001,
resulting in  accumulated  other  comprehensive  income at September 30, 2002 of
$1,228,000.

Bank regulatory  agencies have adopted  various capital  standards for financial
institutions,  including risk-based capital standards. The primary objectives of
the risk-based  capital  framework are to provide a more  consistent  system for
comparing capital  positions of financial  institutions and to take into account
the different risks among financial  institutions'  assets and off-balance sheet
items.

Risk-based  capital  standards have been  supplemented  with  requirements for a
minimum Tier 1 capital to assets ratio (leverage ratio). In addition, regulatory
agencies consider the published capital levels as minimum levels and may require
a financial  institution to maintain  capital at higher levels.  A comparison of
the capital as of September 30, 2002 with the minimum  requirements is presented
below.


                                                               Minimum
                                          Actual             Requirements
                                          ------             ------------
   Tier 1 risk-based capital              15.42%                4.00%
   Total risk-based capital               16.37%                8.00%
   Leverage ratio                         10.87%                4.00%



Item 3.  Quantitative and Qualitative Disclosures about Market Risk

The Company's  principal  market risk exposure is to interest rates. The Company
utilizes a simulation model to quantify the effect a hypothetical  plus or minus
200 basis point change in rates would have on net  interest  income and the fair
value of capital. The model takes into consideration the effect of call features
of  investments  as well as repayments  of loans in periods of declining  rates.
When actual  changes in interest  rates occur,  the changes in interest  earning
assets and interest bearing  liabilities may differ from the assumptions used in
the model. As of December 31, 2001, the model produced the following sensitivity
profile for net interest income and the fair value capital:  Immediate Change in
Rates



                                        Immediate Change in Rates
                                        -------------------------
                                +200 Basis Points -200 Basis Points Policy Limit
- --------------------------------------------------------------------------------
%Change in net interest income        (.43)%         (2.8)%             + 25%
                                                                        -
%Change in fair value of capital      (.16)%          4.4%              + 15%
                                                                        -

The Company continuously  monitors exposure to interest rates and was within the
policy  guidelines  established as of June 30, 2002, the most recent  simulation
analysis available. For more information regarding market risk and the Company's
objectives and strategies in managing market risk, see "Management's  Discussion
and Analysis of Financial Condition and Results of Operations."


                                       14



Item 4.  Controls and Procedures

         (a)      Evaluation of Disclosure Controls and Procedures

         The Company  maintains  disclosure  controls and  procedures  (as those
terms are defined in Exchange Act Rules  240.13a-14(c)  and 15d-14(c))  that are
designed  to  provide  material  information  about  the  Company  to the  chief
executive  officer and the chief  financial  officer in a timely  manner so that
such  information  may be  recorded,  processed,  summarized,  and  reported  as
required under the Securities  Exchange Act of 1934. The chief executive officer
and  the  chief   financial   officer  have  each  reviewed  and  evaluated  the
effectiveness of the Company's  current internal controls and procedures as of a
date within 90 days prior to the filing date of this  quarterly  report and have
each concluded that such disclosure controls and procedures are effective.

         (b)      Changes in Internal Controls

         There  have  been no  significant  changes  in the  Company's  internal
controls or in other  factors  that could  significantly  affect  such  controls
subsequent to the date of the evaluations by the chief executive officer and the
chief  financial  officer.  Neither  the chief  executive  officer nor the chief
financial  officer  is  aware  of  any  significant   deficiencies  or  material
weaknesses in the Company's  internal  controls,  so no corrective  actions have
been taken with respect to such internal controls.


                                     Part II

Item 6.  Exhibits and Reports on Form 8-K.

        a)      Exhibits

        3.1     Shore   Bancshares,   Inc.  Amended  and  Restated  Articles  of
                Incorporation  (incorporated by reference to Exhibit 3.1 on Form
                8-K filed by Shore Bancshares, Inc. on December 14, 2000).

        3.2     Shore   Bancshares,    Inc.   Amended   and   Restated   By-Laws
                (incorporated  by  reference to Exhibit 3.2 on Form 8-K filed by
                Shore Bancshares, Inc. on December 14, 2000).

        10.1    Form  of  Employment   Agreement   with  W.  Moorhead   Vermilye
                (incorporated  by reference  to Appendix  XIII of Exhibit 2.1 on
                Form 8-K filed by Shore Bancshares, Inc. on July 31, 2000).

        10.2    Form of Employment Agreement with Daniel T. Cannon (incorporated
                by reference  to Appendix  XIII of Exhibit 2.1 on Form 8-K filed
                by Shore Bancshares, Inc. on July 31, 2000).

        99.1    1998 Employee  Stock  Purchase Plan  (incorporated  by reference
                from the Shore Bancshares,  Inc. Registration  Statement on From
                S-8 filed on September 25, 1998 (Registration No. 333-64317)).

        99.2    1998 Stock Option Plan (incorporated by reference from the Shore
                Bancshares,  Inc.  Registration  Statement  on Form S-8 filed on
                September 25, 1998(Registration No. 333-64319)).

        99.3    Talbot Bancshares, Inc. Employee Stock Option Plan (incorporated
                by  reference  from  the  Shore  Bancshares,  Inc.  Registration
                Statement  on Form S-8  filed on May 4, 2001  (Registration  No.
                333-60214)).


                                       15



                                   Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly  caused  this  report  to be signed  on its  behalf by the  undersigned
thereunto duly authorized.

                                Shore Bancshares, Inc.


Date: November 14, 2002         By: /s/ W. Moorhead Vermilye
                                ---------------------------------------------
                                    W. Moorhead Vermilye
                                    President/CEO


Date: November 14, 2002        By: /s/ Susan E. Leaverton
                               ----------------------------------------------
                                   Susan E. Leaverton, CPA
                                   Treasurer/Principal Accounting Officer




                                       16


                                 CERTIFICATIONS


I, W. Moorhead Vermilye, certify that:

1. I have reviewed this Quarterly  Report on Form 10-Q (this  "Report") of Shore
Bancshares, Inc. (the "Company");

2. Based on my knowledge, this Report does not contain any untrue statement of a
material fact or omit to state a material fact  necessary to make the statements
made, in light of the  circumstances  under which such statements were made, not
misleading with respect to the period covered by this Report;

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information included in this Report, fairly present in all material respects the
financial condition,  results of operations and cash flows of the Company as of,
and for, the periods presented in this Report;

4.  The  Company's  other   certifying   officers  and  I  are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Company and we have:

         a) designed  such  disclosure  controls and  procedures  to ensure that
material  information  relating  to  the  Company,  including  its  consolidated
subsidiaries, is made known to us by others within those entities,  particularly
during the period in which this report is being prepared;

         b) evaluated the effectiveness of the Company's disclosure controls and
procedures as of the date within 90 days prior to the filing date of this report
(the "Evaluation Date"); and

         c) presented in this Report our conclusions  about the effectiveness of
the  disclosure  controls  and  procedures  based  on our  evaluation  as of the
Evaluation Date;

5. The Company's other  certifying  officers and I have disclosed,  based on our
most recent  evaluation,  to the Company's  auditors and the audit  committee of
Company's board of directors (or persons performing the equivalent function):

         a) all significant  deficiencies in the design or operation of internal
controls that could adversely affect the Company's  ability to record,  process,
summarize  and  report  financial  data and have  identified  for the  Company's
auditors any material weaknesses in internal controls; and

         b) any fraud,  whether or not  material,  that  involves  management or
other employees who have a significant role in the Company's  internal controls;
and

6. The Company's other  certifying  officers and I have indicated in this Report
whether or not there were significant  changes in internal  controls or in other
factors that could significantly affect internal controls subsequent to the date
of our most recent  evaluation,  including any corrective actions with regard to
significant deficiencies and material weakness.


Date: November 14, 2002                          /s/ W. Moorhead Vermilye
                                                 -------------------------------
                                         By:     W. Moorhead Vermilye
                                         Title:  President/CEO



                                       17


I, Susan E. Leaverton, certify that:

1. I have reviewed this Quarterly  Report on Form 10-Q (this  "Report") of Shore
Bancshares, Inc. (the "Company");

2. Based on my knowledge, this Report does not contain any untrue statement of a
material fact or omit to state a material fact  necessary to make the statements
made, in light of the  circumstances  under which such statements were made, not
misleading with respect to the period covered by this Report;

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information included in this Report, fairly present in all material respects the
financial condition,  results of operations and cash flows of the Company as of,
and for, the periods presented in this Report;

4.  The  Company's  other   certifying   officers  and  I  are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Company and we have:

         a) designed  such  disclosure  controls and  procedures  to ensure that
material  information  relating  to  the  Company,  including  its  consolidated
subsidiaries, is made known to us by others within those entities,  particularly
during the period in which this report is being prepared;

         b) evaluated the effectiveness of the Company's disclosure controls and
procedures as of the date within 90 days prior to the filing date of this report
(the "Evaluation Date"); and

         c) presented in this Report our conclusions  about the effectiveness of
the  disclosure  controls  and  procedures  based  on our  evaluation  as of the
Evaluation Date;

5. The Company's other  certifying  officers and I have disclosed,  based on our
most recent  evaluation,  to the Company's  auditors and the audit  committee of
Company's board of directors (or persons performing the equivalent function):

         a) all significant  deficiencies in the design or operation of internal
controls that could adversely affect the Company's  ability to record,  process,
summarize  and  report  financial  data and have  identified  for the  Company's
auditors any material weaknesses in internal controls; and

         b) any fraud,  whether or not  material,  that  involves  management or
other employees who have a significant role in the Company's  internal controls;
and

6. The Company's other  certifying  officers and I have indicated in this Report
whether or not there were significant  changes in internal  controls or in other
factors that could significantly affect internal controls subsequent to the date
of our most recent  evaluation,  including any corrective actions with regard to
significant deficiencies and material weakness.


Date: November 14, 2002                        /s/ Susan E. Leaverton
                                               ---------------------------------
                                          By:  Susan E. Leaverton
                                          Title:  Treasurer/Principal Accounting
                                                  Officer


                                       18





                                 EXHIBIT INDEX
                                 -------------


3.1      Shore  Bancshares,  Inc. Amended and Restated Articles of Incorporation
         (incorporated  by  reference  to Exhibit 3.1 on Form 8-K filed by Shore
         Bancshares, Inc. on December 14, 2000).

3.2      Shore  Bancshares,  Inc. Amended and Restated By-Laws  (incorporated by
         reference to Exhibit 3.2 on Form 8-K filed by Shore Bancshares, Inc. on
         December 14, 2000).

10.1     Form of Employment Agreement with W. Moorhead Vermilye (incorporated by
         reference  to  Appendix  XIII of Exhibit 2.1 on Form 8-K filed by Shore
         Bancshares, Inc. on July 31, 2000).

10.2     Form of Employment  Agreement  with Daniel T. Cannon  (incorporated  by
         reference  to  Appendix  XIII of Exhibit 2.1 on Form 8-K filed by Shore
         Bancshares, Inc. on July 31, 2000).

99.1     1998 Employee Stock Purchase Plan  (incorporated  by reference from the
         Shore  Bancshares,  Inc.  Registration  Statement  on Form S-8 filed on
         September 25, 1998 (Registration No. 333-64317)).

99.2     1998  Stock  Option  Plan  (incorporated  by  reference  from the Shore
         Bancshares,  Inc. Registration Statement on Form S-8 filed on September
         25, 1998 (Registration No. 333-64319)).

99.3     Talbot  Bancshares,  Inc.  Employee Stock Option Plan  (incorporated by
         reference from the Shore  Bancshares,  Inc.  Registration  Statement on
         Form S-8 filed on May 4, 2001 (Registration No. 333-60214)).