Excessive Luxury Expenditures Policy

Harbor Bankshares Corporation Subsidiaries Excessive and Luxury Expenditures Policy

Harbor Bankshares Corporation (HBC) Subsidiaries Excessive and Luxury Expenditures

Introduction:

This policy applies to Harbor Bankshares Corporation (“HBC” or “Corporation”) and to all of its subsidiaries. It has been established in order to comply with the federal American Recovery and Reinvestment Act of 2009 and related regulations of the Department of the Treasury.

HBC prohibits excessive or luxury expenditures. In general, excessive or luxury expenditures are those that are unreasonable in relationship to the benefit conferred by them to HBC and its shareholders. All expenditures shall have a business purpose.

Following are discussions regarding certain categories of expenditures. However, HBC recognizes that no list of approved or prohibited expenditures can take the place of good and ethical judgment and strong internal controls.

Use of an Aircraft

Harbor Bankshares does not own or regularly lease private aircraft. However, expenditures for private air travel are not prohibited when use of commercial flights is impractical or inefficient in the circumstances, as determined and approved by the President, or CEO.

Office Facilities and Renovations

The design and appearance of banking offices and other facilities serving HBC’s customers should be attractive, fulfill their intended business use, and be consistent with relevant markets. Other facilities should be attractive, well maintained, and facilitate an efficient and pleasant working environment. All facilities should be safe and well maintained.

All renovations, other than emergency or urgent renovations not anticipated at the time the capital budget was approved, generally should be included in the capital budget in connection with the annual budget process. However, renovations that are not luxury expenditures may be approved by the Board of Directors at any time, or by officers subject to the following chart (Executive Officers are CEO, President, EVP/CFO):

Plans for possible renovations should be reported to the Board of Directors prior to approval by an officer or officers. Approvals by officers of all capital renovation expenditures greater than $50,000 and contracts related thereto should be reported to the Board of Directors at its next meeting.

Emergency or urgent renovations expected to cost $100,000 or less may be approved by the President, CEO, or the EVP/CFO and any other executive officer and will be presented for review and ratification by the Board of Directors at its next meeting. Other than as stated below, an emergency or urgent renovation expected to cost more than $100,000 will be approved as stated above, provided that, if practical, a special board meeting will be called to consider such expenditure prior to execution of binding contract(s).

Emergency or urgent repairs that involve the safety or health of employees or customers (exceeding $50,000) or as required by law may be authorized by the President, CEO, or the EVP/CFO, and will be presented for review and ratification by the Board of Directors at its next meeting.

Entertainment or Events

All entertainment or events must be business related, which may include expenses for entertainment or events in connection with customer development, charitable and community development, investor relations, and staff development and awards. Authorized entertainment or events, other than those prohibited under reasonableness and business- related tests in paragraph 1, include, but are not limited to: Board of Directors or board committee meetings; management or employee meetings called by appropriate officers for legitimate business purposes; business related conferences; investor relations trips, conferences, and meetings; shareholders’ meetings; employees recognition programs to motivate or reward employees; costs of attendance of sports events; market areas at which customers or prospective customers are entertained; expenses and fees of club memberships used for customer development purposes; Harbor Bankshares and Subsidiaries sponsored or co-sponsored events that advance charitable or civic purposes; and entertainment, events, and club memberships provided as part of reasonable compensation packages for officers or employees. Expenditures for entertainment or events that are not luxury expenditures may be approved by the Board of Directors at any time, or by officers subject to the following chart:

This policy will be reviewed annually or as necessary by the Board of Directors.