Message from the CEO

April 4, 2011

Dear Shareholder: 

2010 proved to be a turnaround year for Harbor Bankshares Corporation (HBC) and its major subsidiary, The Harbor Bank of Maryland (HBM).  We increased loan reserves and capital levels, achieved compliance with regulatory requirements, and exceeded requirements to reduce deposits by not renewing jumbo deposits (viewed as less stable).  Further, HBM strengthened the commercial real estate portfolio by requiring borrowers to provide additional loan collateral and/or reduce outstanding balances in addition to intensifying our collection efforts.  All of this resulted in a stronger bank at year-end, despite negative earnings.

Many economists believe the recession ended in 2010, though much of the Baltimore area failed to reflect signs of economic stability.   Unemployment levels remained near 10% level, and property values continued to decline.  This bleak economic picture caused the Corporation to post a loss, though our performance substantially improved over 2009.  

Harbor Bankshares Corporation successfully placed $30 million in New Markets Tax Credits in 2010.  We also strengthened our management team by appointing a Chief Financial Officer, Senior Lending Officer and a Chief Credit Officer.  We expect solid profits in 2011. 

As the economy strengthens, HBC is positioned to prosper.  We are focusing our financial products and services on more lucrative market segments throughout the Baltimore-Washington corridor. We strongly believe the results of this action will increase profitability for the organization.

Thank you for your support during these challenging times.

Sincerely,

Joseph Haskins, Jr.