Message from the CEO

Dear Stockholder:

During 2008, we witnessed the demise of such venerable institutions as
Merrill Lynch, Bear Stearns and Lehman Brothers. The year proved to be
treacherous for the financial services industry. The banking industry's largest
banks, including Citi Bank, Wachovia, and Bank of America, experienced major meltdowns.
These institutions posted billions of dollars in losses. The industry as a whole suffered with earnings dropping to the lowest level in 18 years.

The U.S. economy has fallen into a deep recession. As a result, the financial services industry is expected to undergo challenging circumstance for some time. "Experts" don't anticipate signs of recovery until the second quarter of 2010.

Even so, I am pleased to report that Harbor Bank has no subprime loans on the books, and there are no toxic assets in the investment portfolio. While Harbor Bankshares Corporation suffered its first loss ever (with Harbor Bank of Maryland having delivered 23 years of continuous profits), the Corporation and Bank remain financially sound, exceeding regulatory guidelines for well capitalized banks. Management continues employing strategic maneuvers to ensure profitability in the future.

The Corporation has intentionally reduced assets declined by 5%, reflecting management's decision to not renew high price deposits that challenged the profit margin. In light of the deteriorating economy, we increased loan loss reserves as a safety mechanism. This largely contributed to the $700,000 earnings loss for 2008 yet provides the needed cushion to weather 2009 successfully. We have also initiated several cost cutting measures which will enhance earnings.

The Board of Directors decided to delay making a decision on paying a dividend, until later in the year

when the bank's earnings are stronger and there is more positive news in the economy.

Harbor Bank recently opened its newest branch in the East Side Biotech Park at 855 North Wolfe Street in Baltimore. We are the only bank in Baltimore's coveted new biotech parks, having opened the west Bio-Research Park branch in 2005. Despite depressed domestic and global markets, Harbor Bank management remains excited about the future. We know that tough times present opportunities for those well positioned. We continue on our journey toward excellence, and thank you for your continued belief and support.

Sincerely,

Joseph Haskins, Jr.

Chairman, President & CEO