Calvin B. Taylor Bankshares, Inc.and Subsidiary**Table of Contents**
 

 
PageReport of		Registered Public Accounting Firm1Consolidated		Financial StatementsConsolidated		Balance Sheets2Consolidated		Statements of Income3Consolidated		Statements of Changes in Stockholders' Equity4Consolidated		Statements of Cash Flows5-6Notes to		Consolidated Financial Statements7-22
 

 

 
**Report of Independent Registered Public Accounting Firm

 

The Board of Directors and Stockholders	Calvin B. Taylor Bankshares, Inc.	Berlin, Maryland

    We have audited the accompanying consolidated balance sheets of Calvin B.	Taylor Bankshares, Inc. and Subsidiary (the Company) as of December 31,	2007, 2006, and 2005, and the related consolidated statements of income,	changes in stockholders' equity, and cash flows for each of the three years	then ended. These financial statements are the responsibility of the	Company's management. Our responsibility is to express an opinion on these	financial statements based on our audits.

    We conducted our audits in accordance with the standards of the Public	Company Accounting Oversight Board in the United States of America. Those	standards require that we plan and perform the audit to obtain reasonable	assurance about whether the consolidated financial statements are free of	material misstatement. An audit includes examining, on a test basis,	evidence supporting the amounts and disclosures in the consolidated	financial statements. An audit also includes assessing the accounting	principles used and significant estimates made by management, as well as	evaluating the overall financial statement presentation. We believe that our	audits provide a reasonable basis for our opinion.

    As discussed in Note 2 to the financial statements, management determined	that the allowance for loan losses was overstated as a result of provisions	charged to earnings in years prior to 2003. Accordingly, the 2006 and 2005	financial statements have been restated and an adjustment has been made to	retained earnings.

    In our opinion, the consolidated financial statements referred to above	present fairly, in all material respects, the financial position of Calvin	B. Taylor Bankshares, Inc. and Subsidiary as of December 31, 2007, 2006, and	2005, and the results of its operations and its cash flows for each of the	three years then ended, in conformity with accounting principles generally	accepted in the United States of America.

    We have also audited, in accordance with standards of the Public Company	Accounting Oversight Board in the United States of America, the	effectiveness of the Company’s internal control over financial reporting as	of December 31, 2007, based on criteria established in *Internal Control –	Integrated Framework* issued by the Committee of Sponsoring Organizations	of the Treadway Commission and our report dated March 12, 2008, expressed	an unqualified opinion on management’s assessment of internal control over	financial reporting and an unqualified opinion on the effectiveness of	internal control over financial reporting.

 

 

/s/ Rowles & Company, LLP

Baltimore, Maryland	March 12, 2008

 
		Calvin B. Taylor Bankshares, Inc.		and subsidiary		Consolidated Balance Sheets December 31, 200720062005  RestatedRestatedAssetsCash and due from banks $  17,428,347  $  21,138,799  $  24,069,790 Federal funds sold     23,121,256      24,616,735      26,296,780 Interest-bearing deposits       6,012,482        2,055,689        2,192,731 Investment securities available for sale     24,082,202      18,854,192        6,505,278 Investment securities held to maturity (approximate fair      value of $47,302,194, $56,031,190, and $111,306,528)     46,679,750      56,271,631    112,579,162 Loans, less allowance for loan losses of $195,525,      $196,083, and $211,374   238,076,278    233,231,118    206,421,292 Premises and equipment       6,536,469        6,562,837        6,664,051 Accrued interest receivable       1,693,173        1,692,622        1,504,945 Computer software         156,629		         175,383		         228,014		Bank owned life insurance       4,720,770        4,530,259        4,367,744 Other assets         638,317		         382,236		         224,172		  $ 369,145,673  $ 369,511,501  $ 391,053,959 Liabilities and Stockholders' EquityDeposits     Noninterest-bearing $  73,357,578  $  79,625,853  $  88,236,133   Interest-bearing   215,585,969    210,698,907    222,621,474     288,943,547    290,324,760    310,857,607 Securities sold under agreements to repurchase       3,426,173        5,624,048        6,149,263 Note payable           98,090		         120,737		         142,069		Dividend payable                 -  		                 -  		       4,462,578 Accrued interest payable         501,909		         340,155		         177,357		Deferred income taxes       1,481,111        1,487,664        1,403,286 Other liabilities         219,080		         233,196		         332,030		    294,669,910    298,130,560    323,524,190 Stockholders' equity     Common stock, par value $1 per share;       authorized 10,000,000 shares; issued and outstanding       3,102,510 shares at December 31, 2007,       3,149,356 shares at December 31, 2006, and       3,187,556 shares at December 31, 2005       3,102,510        3,149,356        3,187,556   Additional paid-in capital     12,381,413      14,117,732      15,454,735   Retained earnings     57,076,461      52,265,370      47,232,513       72,560,384      69,532,458      65,874,804   Accumulated other comprehensive income       1,915,379        1,848,483        1,654,965       74,475,763      71,380,941      67,529,769   $ 369,145,673  $ 369,511,501  $ 391,053,959 
The accompanying notes are an integral part of these financialstatements.2

 
		Calvin B. Taylor Bankshares, Inc.		and subsidiary		Consolidated Statements of Income                    Years Ended December 31,              200720062005Interest and dividend revenue     Loans, including fees $  16,645,904  $  15,868,454  $  12,957,693   U. S. Treasury and government agency securities       2,811,829        2,875,040        3,267,544   State and municipal securities           68,445		         155,620		         267,243		  Federal funds sold        1,919,020        1,136,460        1,077,571   Interest-bearing deposits         168,485		           78,944		           55,674		  Equity securities           70,479		           70,752		           55,494		          Total interest and dividend revenue     21,684,162      20,185,270      17,681,219    Interest expense     Deposits       4,616,037        3,174,670        1,738,647   Borrowings           35,803		           48,088		           30,726		          Total interest expense       4,651,840        3,222,758        1,769,373           Net interest income     17,032,322      16,962,512      15,911,846    Provision for loan losses                 -  		                 -  		                 -  		          Net interest income after provision for loan losses     17,032,322      16,962,512      15,911,846    Noninterest revenue     Service charges on deposit accounts       1,022,472        1,119,158        1,053,443   ATM and debit card revenue         505,146		         448,202		         372,426		  Miscellaneous revenue         405,318		         381,384		         373,505		          Total noninterest revenue       1,932,936        1,948,744        1,799,374    Noninterest expenses     Salaries       3,563,855        3,407,224        3,173,430   Employee benefits         969,305		         849,961		         924,103		  Occupancy          700,092		         709,619		         640,335		  Furniture and equipment          463,582		         478,551		         490,955		  Other operating       1,865,257        1,909,332        1,930,859           Total noninterest expenses       7,562,091        7,354,687        7,159,682              Income before income taxes      11,403,167      11,556,569      10,551,538 Income taxes       4,106,580        4,156,200        3,753,900    Net income $    7,296,587  $    7,400,369  $    6,797,638     Earnings per common share - basic and diluted $            2.33		 $            2.33		 $            2.13		****
The accompanying notes are an integral part of these financialstatements.3

 
		calvin b. taylor bankshares, inc.		and subsidiary		Consolidated Statements of Changes in Stockholders' Equity              		Accumulated       		other   		Common stock		Additional		Retained		comprehensive		 Comprehensive  		Shares 		Par value 		paid-in capital		earnings		income		 income          Balance, December 31, 2004 3,208,478  $3,208,478  $ 16,187,005  $ 47,128,812  $ 1,384,658    Restated        Net income            -  		              -  		                -  		     6,797,638                -  		   $ 6,797,638 Unrealized gain on investment          securities available for sale net          of income taxes of $168,016            -  		              -  		                -  		                -  		      270,307         270,307 Comprehensive income        $ 7,067,945 Common shares repurchased     (20,922)      (20,922)       (732,270)                -  		               -  		   Cash dividend, $2.10 per share            -  		              -  		                -  		    (6,693,937)               -  		            Balance, December 31, 2005 3,187,556    3,187,556     15,454,735     47,232,513     1,654,965    Restated        Net income            -  		              -  		                -  		     7,400,369                -  		   $ 7,400,369 Unrealized gain on investment          securities available for sale net          of income taxes of $127,088            -  		              -  		                -  		                -  		      193,518         193,518 Comprehensive income        $ 7,593,887 Common shares repurchased     (38,200)      (38,200)    (1,337,003)                -  		               -  		   Cash dividend, $.75 per share            -  		              -  		                -  		    (2,367,512)               -  		            Balance, December 31, 2006 3,149,356    3,149,356     14,117,732     52,265,370     1,848,483    Restated        Net income            -  		              -  		                -  		     7,296,587                -  		   $ 7,296,587 Unrealized gain on investment          securities available for sale net          of income taxes of $36,578            -  		              -  		                -  		                -  		        66,896           66,896 Comprehensive income        $ 7,363,483 Common shares repurchased     (46,846)      (46,846)    (1,736,319)                -  		               -  		   Cash dividend, $.80 per share            -  		              -  		                -  		    (2,485,496)               -  		            Balance, December 31, 2007 3,102,510  $3,102,510  $ 12,381,413  $ 57,076,461  $ 1,915,379    ** **
The accompanying notes are an integral part of these financialstatements.4

 
		calvin b. taylor bankshares, inc.		and subsidiary		Consolidated Statements of Cash Flows    Years Ended December 31,  200720062005    Cash flows from operating activities     Interest and dividends received $  20,969,946  $  19,672,392  $  17,301,217   Fees and commissions received       1,735,778        1,786,980        1,720,362   Interest paid     (4,490,056)     (3,059,960)     (1,708,517)  Cash paid to suppliers and employees     (7,005,983)     (6,857,365)     (6,418,778)  Income taxes paid     (4,396,848)     (4,350,114)     (3,738,920)        6,812,837        7,191,933        7,155,364     Cash flows from investing activities     Certificates of deposit purchased, net of maturities     (3,954,410)           94,295		           (1,934)  Proceeds from maturities of investments available for sale     29,000,000        2,000,000                  -  		  Purchase of investments available for sale    (33,387,809)    (13,750,206)          (45,379)  Proceeds from maturities of investments held to maturity     37,025,000      73,050,000      89,345,000   Purchase of investments held to maturity    (27,456,181)    (16,695,344)    (45,704,174)  Loans made, net of principal collected     (4,845,160)    (26,809,826)    (42,931,800)  Proceeds from sale of equipment             7,549		             2,500		                 -  		  Purchases of premises, equipment, and computer software        (534,978)        (452,448)        (311,387)      (4,145,989)     17,438,971          350,326		    Cash flows from financing activities     Net increase (decrease) in        Time deposits     16,968,141      12,074,786      (7,401,051)     Other deposits    (18,349,354)    (32,607,633)     (1,513,700)     Securities sold under agreements to repurchase     (2,197,875)        (525,215)         215,797		  Payments on note payable          (22,647)          (21,332)          (20,093)  Common shares repurchased      (1,783,165)     (1,375,203)        (753,192)  Dividends paid     (2,485,496)     (6,830,090)     (2,231,359)      (7,870,396)    (29,284,687)    (11,703,598)    Net increase (decrease) in cash and cash equivalents     (5,203,548)     (4,653,783)     (4,197,908)    Cash and cash equivalents at beginning of year     45,771,812      50,425,595      54,623,503 Cash and cash equivalents at end of year $  40,568,264  $  45,771,812  $  50,425,595 

The accompanying notes are an integral part of these financialstatements.5

 
		calvin b. taylor bankshares, inc.		and subsidiary   		Consolidated Statements of Cash Flows		Continued     		Years Ended December 31, 		2007		2006		2005    Reconciliation of net income to net cash provided by      operating activities       Net income $    7,296,587  $    7,400,369  $    6,797,638        Adjustments to reconcile net income to net cash          provided by operating activities           Depreciation and amortization         570,379		         602,442		         630,606		        Deferred income taxes          (43,131)          (42,710)          (81,749)        Premium amortization and discount accretion         (713,664)        (325,227)        (290,831)        Loss on disposition of assets             2,172		             1,351		             2,163		        Decrease (increase) in              Accrued interest receivable              (551)        (187,677)          (80,917)           Cash surrender value of bank owned life insurance        (190,511)        (162,515)        (152,938)           Other assets           (8,728)        (158,064)           48,618		        Increase (decrease) in              Accrued interest payable         161,754		         162,798		           60,855		           Accrued income taxes        (247,353)          (96,730)           88,474		           Other liabilities          (14,117)           (2,104)         133,445		  $    6,812,837  $    7,191,933  $    7,155,364             Composition of cash and cash equivalents           Cash and due from banks $  17,428,347  $  21,138,799  $  24,069,790         Federal funds sold     23,121,256      24,616,735      26,296,780         Interest-bearing deposits, except for time deposits           18,661		           16,278		           59,025		  $  40,568,264  $  45,771,812  $  50,425,595 
The accompanying notes are an integral part of these financialstatements.6

Calvin B. Taylor Bankshares, Inc.and Subsidiary**Notes to Consolidated Financial Statements**
1. Summary of Significant Accounting Policies	    The consolidated financial statements of Calvin B.		Taylor Bankshares, Inc. include the accounts of its wholly owned		subsidiary, Calvin B. Taylor Banking Company. All significant		intercompany balances and transactions have been eliminated in		consolidation. The accounting and reporting policies reflected in these		financial statements conform to accounting principles generally accepted		in the United States of America and to general practices within the		banking industry. 

Nature of operations	    Calvin B. Taylor Bankshares, Inc. is a bank holding		company. Its subsidiary, Calvin B. Taylor Banking Company, is a		financial institution operating primarily in Worcester County, Maryland		and Sussex County, Delaware. The Bank is a full-service commercial bank,		offering deposit services and loans to individuals, small- to		medium-sized businesses, associations and government entities. 
Use of estimates	    The preparation of financial statements in conformity		with accounting principles generally accepted in the United States of		America requires management to make estimates and assumptions that		affect the reported amounts of assets and liabilities and disclosure of		contingent assets and liabilities at the date of the financial		statements. These estimates and assumptions may affect the reported		amounts of revenues and expenses during the reporting period. Actual		results could differ from these estimates.Cash equivalents		    For purposes of reporting cash flows, cash and cash		equivalents include cash on hand, amounts due from banks, federal funds		sold and interest-bearing deposits except for time deposits. Federal		funds are purchased and sold for one-day periods.Investment securities		    As securities are purchased, management determines if		the securities should be classified as held to maturity or available for		sale. Securities which management has the intent and ability to hold to		maturity are recorded at amortized cost which is cost adjusted for		amortization of premiums and accretion of discounts to maturity.		Securities classified as available-for-sale are recorded at fair value.		    Purchase premiums and discounts are recognized in		income revenue using the straight line method over the terms of the		securities. Gains and losses on disposal are determined using the		specific-identification method.Loans		    Loans are stated at their outstanding principal		amounts less the allowance for loan losses. Interest on loans is accrued		and credited to income based on contractual interest rates applied to		principal amounts outstanding. The accrual of interest is discontinued		when principal or interest is ninety days past due or when the loan is		determined to be impaired, unless collateral is sufficient to discharge		the debt in full and the loan is in process of collection. When a loan		is placed in nonaccruing status, any interest previously accrued but		unpaid is reversed from interest revenue. Interest payments received on		nonaccrual loans may be recorded as cash basis income, or as a reduction		of principal, depending on management’s judgment on a loan by loan		basis. Accrual of interest may be restored when all principal and		interest are current and management believes that future payments will		be received in accordance with the loan agreement. The Company does not		defer loan origination costs which management has determined to be		immaterial.		    Loans are considered impaired when, based on current		information, management considers it unlikely that collection of		principal and interest payments will be made according to contractual		terms. Generally, loans are not reviewed for impairment until the		accrual of interest has been discontinued, although management may		categorize a performing loan as impaired based on knowledge of the		borrower’s financial condition, devaluation of collateral, or other		circumstances that are deemed relevant to loan collection. Impaired		loans may have specific reserves allocated to them in the allowance for		loan losses.
7

Calvin B. Taylor Bankshares, Inc.and Subsidiary**Notes to Consolidated Financial Statements**
1. Summary of Significant Accounting Policies (Continued)

Allowance for loan losses		    The allowance for loan losses represents an amount		which management judges to be adequate to absorb identified and inherent		losses in the loan portfolio as of the balance sheet date. Valuation of		the allowance is completed no less than quarterly. The determination of		the allowance is inherently subjective as it relies on estimates of		potential loss related to specific loans, the effects of portfolio		trends, and other internal and external factors.		    In determining an adequate level for the allowance,		management considers historical loss experience for major types of		loans. However, historical data may not be an accurate predictor of loss		potential in the current loan portfolio. Management reviews the current		portfolio giving consideration to problem loans, delinquencies, the		composition of the portfolio, concentrations of credit, and changes in		lending products, processes, or staffing. Management considers external		factors such as the interest rate environment, competition, current		local and national economic trends, and the results of recent		independent reviews by auditors and banking regulators. 		    The allowance is increased by current period		provisions recorded as expense and by recoveries of amounts previously		charged-off. The allowance is decreased when loans are charged-off as		losses, which occurs when they are deemed to be uncollectible.		Provisions for loan losses are made to bring the balance in the		allowance to the level established by application of management’s		allowance methodology, and may result in an increase or decrease to		expense.Premises and equipment    Premises and equipment are recorded at cost less		accumulated depreciation. Depreciation is computed under both		straight-line and accelerated methods over the estimated useful lives of		the assets.
Computer software		    The Company amortizes software costs over their		useful lives using the straight-line method.Bank owned life insurance    The Company records increases in cash surrender value		of bank owned life insurance as current period income based on		projections provided by the underwriting company.
Advertising    Advertising costs are expensed during the period of therelated marketing effort.

Income taxes    The provision for income taxes includes taxes payable		for the current year and deferred income taxes. Deferred income taxes		are provided for the temporary differences between financial and taxable		income. Tax expense and tax benefits are allocated to the Bank and		Company based on their proportional share of taxable income.Per share data    Earnings per common share are determined by dividing		net income by the weighted average number of common shares outstanding		for the period, which was 3,125,761, 3,176,092, and 3,194,669 for the		years ended December 31, 2007, 2006, and 2005, respectively.
8

Calvin B. Taylor Bankshares, Inc.and Subsidiary**Notes to Consolidated Financial Statements**
2. Prior period adjustment    The Company has determined that the allowance for		loan losses was overstated as a result of provisions charged to earnings		in years prior to 2003. The Company has experienced minimal loan losses,		including in recent years and, as a result, has not recorded provisions		for loan losses since prior to 2003. Management determined that the		balance in the allowance for loan losses could not be supported given		the Company’s loan loss history combined with an analysis of probable		losses in the current loan portfolio. A prior period adjustment to		re-value the allowance for loan losses has been recorded, resulting in		the restatement of balances previously reported for years prior to 2007.				    The following table details the accounts and balances		that are affected: 			 As Originally    			 Reported 			 Adjustment 			 Restated 			Restatement of 2006 balances   			Allowance for loan losses			                  2,175,418 			                (1,979,335)			                     196,083 			Loans, less allowance for loan losses			              231,251,783 			                  1,979,335 			              233,231,118 			Total assets			              367,532,166 			                  1,979,335 			              369,511,501 			Deferred income taxes			                     719,714 			                     767,950 			                  1,487,664 			Total liabilities			              297,362,610 			                     767,950 			              298,130,560 			Retained earnings			                51,053,985 			                  1,211,385 			                52,265,370 			Total stockholders' equity			                70,169,556 			                  1,211,385 			                71,380,941 			Total liabilites and stockholders' equity			              367,532,166 			                  1,979,335 			              369,511,501 			Average assets			              375,231,774 			                  1,979,335 			              377,211,109 			Average equity			                68,057,182 			                  1,211,385 			                69,268,567     			Restatement of 2005 balances   			Allowance for loan losses			                  2,190,709 			                (1,979,335)			                     211,374 			Loans, less allowance for loan losses			              204,441,957 			                  1,979,335 			              206,421,292 			Total assets			              389,074,624 			                  1,979,335 			              391,053,959 			Deferred income taxes			                     635,336 			                     767,950 			                  1,403,286 			Total liabilities			              322,756,240 			                     767,950 			              323,524,190 			Retained earnings			                46,021,128 			                  1,211,385 			                47,232,513 			Total stockholders' equity			                66,318,384 			                  1,211,385 			                67,529,769 			Total liabilites and stockholders' equity			              389,074,624 			                  1,979,335 			              391,053,959 			Average assets			              397,366,486 			                  1,979,335 			              399,345,821 			Average equity			                67,927,416 			                  1,211,385 			                69,138,801 
    No restatement has been made to the Consolidated		Statements of Income for the years ended December 31, 2006 or 2005. In		accordance with Paragraph 3 of Financial Accounting Standard No. 16, *Prior Period Adjustments*, no adjustment has been made to the		estimate of loan losses in prior periods. In management’s opinion, had		adjustments been made to prior period Consolidated Statements of Income,		they would have been immaterial.

3. Cash and Due From Banks    The Company normally carries balances with other		banks that exceed the federally insured limit. The average balances		carried in excess of the limit, including unsecured federal funds sold		to the same banks, were $38,104,224 for 2007, $22,867,864 for 2006, and		$34,580,755 for 2005.		    Banks are required to carry noninterest-bearing cash		reserves at specified percentages of deposit balances. The Company's		normal amount of cash on hand and on deposit with other banks is		sufficient to satisfy the reserve requirements.
9

Calvin B. Taylor Bankshares, Inc.and Subsidiary**Notes to Consolidated Financial Statements**
4. Investment Securities    Investment securities are summarized as follows:
 		Amortized 		Unrealized		Unrealized		Fair 		cost		gains		losses		value		December 31, 2007    		Available for sale    		  U.S. Treasury		 $    18,914,290 		 $     590,315 		 $       1,099 		 $    19,503,506 		  State and municipal		           400,000 		            2,329 		             912 		           401,417 		  Equity		         1,691,841 		      2,485,438 		               -   		         4,177,279  		 $    21,006,131 		 $   3,078,082 		 $       2,011 		 $    24,082,202 		Held to maturity    		  U.S. Treasury		 $    35,473,741 		 $     587,431 		 $            -   		 $    36,061,172 		  U.S. Government agency		       10,000,000 		          33,226 		             209 		       10,033,017 		  State and municipal		         1,206,009 		            2,206 		             210 		         1,208,005  		 $    46,679,750 		 $     622,863 		 $          419 		 $    47,302,194      		December 31, 2006    		Available for sale    		  U.S. Treasury		 $    13,923,505 		 $     528,889 		 $       8,049 		 $    14,444,345 		  State and municipal		           300,000 		                -   		          3,441 		           296,559 		  Equity		         1,658,091 		      2,455,197 		               -   		         4,113,288  		 $    15,881,596 		 $   2,984,086 		 $      11,490 		 $    18,854,192 		Held to maturity    		  U.S. Treasury		 $    43,968,110 		 $       54,368 		 $    226,931 		 $    43,795,547 		  U.S. Government agency		         8,749,280 		                -   		        47,330 		         8,701,950 		  State and municipal		         3,554,241 		              107 		        20,655 		         3,533,693  		 $    56,271,631 		 $       54,475 		 $    294,916 		 $    56,031,190      		December 31, 2005    		Available for sale    		  U.S. Treasury		 $      1,995,197 		 $     591,990 		 $            -   		 $      2,587,187 		  State and municipal		           200,000 		                -   		          3,859 		           196,141 		  Equity		         1,658,091 		      2,063,859 		               -   		         3,721,950  		 $      3,853,288 		 $   2,655,849 		 $       3,859 		 $      6,505,278 		Held to maturity    		  U.S. Treasury		 $    84,654,996 		 $             -   		 $    890,971 		 $    83,764,025 		  U.S. Government agency		       17,745,997 		                -   		       282,502 		       17,463,495 		  State and municipal		       10,178,169 		                -   		        99,161 		       10,079,008  		 $  112,579,162 		 $             -   		 $ 1,272,634 		 $  111,306,528 
10

Calvin B. Taylor Bankshares, Inc.and Subsidiary**Notes to Consolidated Financial Statements**
4. Investment Securities (Continued)    The table below shows the gross unrealized losses and		fair value of securities that are in an unrealized loss position as of		December 31, 2007, aggregated by length of time that individual		securities have been in a continuous unrealized loss position. 
 				Less than 12 months				12 months or more				Total 				Fair				Unrealized				Fair				Unrealized				Fair				Unrealized 				value				loss				value				loss				value				loss       				U. S. Treasury				 $      3,996,410 				 $        1,099 				 $                   -   				 $             -   				 $      3,996,410 				 $        1,099 				U. S. Government Agency				            999,791 				              209 				                      -   				                -   				            999,791 				              209 				State and municipal				                      -   				                -   				            633,992 				           1,122 				            633,992 				           1,122  				 $      4,996,201 				 $        1,308 				 $         633,992 				 $        1,122 				 $      5,630,193 				 $        2,430 
    The debt securities for which an unrealized loss is		recorded are issues of the United States Treasury, Federal Home Loan		Bank (a U. S. government agency), and general and highly rated revenue		obligations of states and municipalities. The Company has the ability		and the intent to hold these securities until they are called or mature		at face value. Fluctuations in fair value reflect market conditions, and		are not indicative of an other-than-temporary impairment of the		investment.

    The amortized cost and estimated fair value of debt		securities, by contractual maturity and the amount of pledged		securities, follow. Actual maturities may differ from contractual		maturities because issuers may have the right to call or prepay		obligations with or without call or prepayment penalties.
 				December 31, 2007				December 31, 2006				December 31, 2005 				Amortized				Fair				Amortized				Fair				Amortized				Fair 				cost				value				cost				value				cost				value       				Available for sale      				  Within one year				 $    16,918,515 				 $    16,935,694 				 $    11,928,019 				 $    11,919,970 				 $                   -   				 $                   -   				  After one year      				   through five years				            400,000 				            401,417 				            300,000 				            296,559 				            200,000 				            196,141 				  After ten years				         1,995,775 				         2,567,812 				         1,995,486 				         2,524,375 				         1,995,197 				         2,587,187  				 $    19,314,290 				 $    19,904,923 				 $    14,223,505 				 $    14,740,904 				 $      2,195,197 				 $      2,783,328        				Held to maturity      				  Within one year				 $    16,454,622 				 $    16,552,091 				 $    37,025,991 				 $    36,795,410 				 $    74,014,166 				 $    73,304,862 				  After one year      				   through five years				       30,225,128 				       30,750,103 				       19,245,640 				       19,235,780 				       38,564,996 				       38,001,666  				 $    46,679,750 				 $    47,302,194 				 $    56,271,631 				 $    56,031,190 				 $  112,579,162 				 $  111,306,528        				Pledged securities				 $    25,231,084 				 $    25,682,422 				 $    29,579,859 				 $    29,487,094 				 $    26,980,663 				 $    26,656,250 
    Investments are pledged to secure deposits of federal		and local governments. Pledged securities also serve as collateral for		securities sold under agreements to repurchase.

11

Calvin B. Taylor Bankshares, Inc.and Subsidiary**Notes to Consolidated Financial Statements**
5. Lines of Credit    The Company has available lines of credit, including		overnight federal funds, reverse repurchase agreements and letters of		credit, totaling $21,000,000 as of December 31, 2007.

6. Loans and Allowance for Loan Losses    Major classifications of loans are as follows:
  		2007		2006		2005 		Real estate mortgages 		 Restated 		 Restated  		Construction, land development, and land		 $    38,230,033 		 $    37,331,256 		 $    23,430,345  		Residential 1 to 4 family		       87,327,448 		       88,599,071 		       81,327,154  		Second mortgages		         3,287,734 		         2,395,178 		         2,094,749  		Commercial properties		       84,568,665 		       79,484,039 		       76,103,526  		Commercial 		       22,283,007 		       23,264,997 		       21,461,593  		Consumer		         2,574,916 		         2,352,660 		         2,215,299   		     238,271,803 		     233,427,201 		     206,632,666  		Allowance for loan losses		           195,525 		           196,083 		           211,374  		Loans, net		 $  238,076,278 		 $  233,231,118 		 $  206,421,292 
    The rate repricing distribution of the loan portfoliofollows:
 		Immediately		 $  232,518,768 		 $  227,174,910 		 $  201,175,220  		Within one year		         1,878,462 		         1,432,234 		         1,351,581  		Over one to five years		         2,622,311 		         3,496,707 		         2,849,940  		Over five years		         1,252,262 		         1,323,350 		         1,255,925   		 $  238,271,803 		 $  233,427,201 		 $  206,632,666 
    The Company makes loans to customers located		primarily in the Delmarva region. Although the loan portfolio is		diversified, its performance will be influenced by the economy of the		region.

    Transactions in the allowance for loan losses were asfollows:
 		2007		2006		      2005       		Restated		Restated		        		Beginning balance		 $        196,083 		 $        211,374 		 $        198,591 		        		Provision charged to operations		                   -   		                   -   		                   -   		        		Recoveries		               5,705 		                   95 		             20,914  		           201,788 		           211,469 		           219,505 		        		Loans charged off		               6,263 		             15,386 		               8,131 		        		Ending balance		 $        195,525 		 $        196,083 		 $        211,374 
12

Calvin B. Taylor Bankshares, Inc.and Subsidiary**Notes to Consolidated Financial Statements**
6. Loans and Allowance for Loan Losses (Continued)    Amounts past due 90 days or more, and still accruing interestat December 31, are as follows:
  		2007		2006		2005      		Real estate		 $                -   		 $        190,289 		 $        119,741  		Commercial		               9,100 		             49,331 		             11,443  		Consumer		                   -   		                   -   		                 533   		 $            9,100 		 $        239,620 		 $        131,717 
    Loans on which accrual of interest had been		discontinued as of December 31, are as follows:
  				2007				2006				2005      				Nonaccruing loans				 $          40,916 				 $                -   				 $                -    				Interest not accrued on nonaccruing loans				 $            1,509 				 $                -   				 $                -   
    Management has identified impaired loans with		outstanding principal balances totaling $595,774 as of December 31,		2007, for which $138,514 was allocated in the allowance for loan losses.		Included in principal balances of impaired loans is $436,802 which is		guaranteed by a government agency. Management had identified no impaired		loans as of December 31, 2006 or 2005. 

7. Loan Commitments    Loan commitments are agreements to lend to customers		as long as there is no violation of any conditions of the contracts.		Loan commitments generally have interest at current market rates, fixed		expiration dates, and may require payment of a fee. Letters of credit		are commitments issued to guarantee the performance of a customer to a		third party.		    Loan commitments and letters of credit are made on		the same terms, including collateral, as outstanding loans. The		Company's exposure to loss in the event of nonperformance by the		borrower is represented by the contract amount of the commitment.		   		Outstanding loan commitments, lines of credit, and		letters of credit at December 31, are as follows:
  				2007				2006				2005 				Loan commitments and lines of credit    				  Construction and land development				 $    12,582,162 				 $    18,866,083 				 $    21,845,161  				  Other				       20,941,323 				       21,557,185 				       24,252,637   				 $    33,523,485 				 $    40,423,268 				 $    46,097,798       				Standby letters of credit				 $      1,582,050 				 $      1,682,942 				 $      1,272,000 
13

Calvin B. Taylor Bankshares, Inc.and Subsidiary**Notes to Consolidated Financial Statements**
8. Lease Commitments    The Company leases the land on which the Route 50		branch in East Berlin is located. The lease obligation, which expires		August 31, 2009, has remaining minimum rental payments of $15,000 in		2008 and $10,000 in 2009, totaling $25,000. Rent expense for each of the		years ended December 31, 2007, 2006, and 2005, was $15,000.

9. Premises and Equipment    A summary of premises and equipment and the relateddepreciation is as follows:
  		Estimated useful life		2007		2006		2005       		Land 		 $      2,092,717 		 $      2,092,717 		 $      2,092,717 		Premises		5 - 50 years		         6,642,872 		         6,539,781 		         6,449,630  		Furniture and equipment		3 - 20 years		         3,505,080 		         3,632,597 		         3,517,505    		       12,240,669 		       12,265,095 		       12,059,852  		Accumulated depreciation 		         5,704,200 		         5,702,258 		         5,395,801  		Net premises and equipment 		 $      6,536,469 		 $      6,562,837 		 $      6,664,051        		Depreciation expense 		 $        490,601 		 $        490,676 		 $        508,624 
10. Interest-bearing Deposits 		Major classifications of interest-bearing deposits are as follows:    		2007		2006		2005      		NOW		 $    51,218,087 		 $    54,458,814 		 $    62,601,973  		Money market		       31,719,473 		       36,413,676 		       46,464,340  		Savings		       41,698,409 		       45,844,558 		       51,648,088  		Time deposits of $100,000 or more		       35,860,947 		       27,961,782 		       17,878,226  		Other time deposits		       55,089,053 		       46,020,077 		       44,028,847   		 $  215,585,969 		 $  210,698,907 		 $  222,621,474       		The rate repricing distribution of other time deposits follows:        		Three months or less		 $    31,340,615 		 $    27,264,435 		 $    20,059,735  		Over three through twelve months		       51,075,812 		       40,508,905 		       28,184,281  		Over one through two years		         8,533,573 		         6,208,519 		       13,663,057   		 $    90,950,000 		 $    73,981,859 		 $    61,907,073 
14

Calvin B. Taylor Bankshares, Inc.and Subsidiary
**Notes to Consolidated Financial Statements**
11. Securities Sold Under Agreements to Repurchase    Securities sold under agreements to repurchase		represent overnight borrowings from customers. The government agency		securities that collateralize these agreements are owned by the Company		but maintained in the custody of an unaffiliated bank designated by the		Company. Additional information follows:
  				2007				2006				2005      				Maximum month-end amount outstanding				 $      5,740,493 				 $      7,605,046 				 $      8,720,287  				Average amount outstanding				 $      4,248,315 				 $      5,878,171 				 $      6,324,760  				Average rate paid during the year				 .69% 				 .68% 				 .34%  				Investment securities underlying the agreements    				  at year end    				    Carrying value				 $    13,988,225 				 $    18,988,534 				 $    18,986,750  				    Estimated fair value				 $    14,318,281 				 $    18,968,000 				 $    18,805,000 
12. Related Party Transactions    The executive officers and directors of the Company		enter into loan transactions with the Bank in the ordinary course of		business. The terms of these transactions are similar to the terms		provided to other borrowers entering into similar loan transactions.		Executive officers and directors make deposits in the Bank, and invest		in uninsured non-deposit investment products. They receive the same		rates and terms on insured deposit accounts and securities sold under		agreements to repurchase as other customers with similar accounts.
  				2007				2006				2005 				Related party loan activity    				Beginning balance				 $    24,719,784 				 $    20,530,646 				 $      6,207,252  				Advances				       13,266,800 				       12,883,577 				       22,065,239  				Other increases				                   -   				         1,376,525 				                   -     				       37,986,584 				       34,790,748 				       28,272,491  				Repayments				       15,438,533 				       10,070,964 				         7,741,845  				Other decreases				           914,585 				                   -   				                   -    				Ending balance				 $    21,633,466 				 $    24,719,784 				 $    20,530,646       				Unfunded loan commitments				 $      1,703,469 				 $      3,596,956 				 $      1,691,250       				Deposit and non-deposit investment balances				 $      5,258,542 				 $      4,601,253 				 $      6,670,094 
    The Company obtains legal services from a law firm in		which one of the principal attorneys is also a member of the Board of		Directors. Fees charged for these services are at similar rates charged		by unrelated law firms for similar legal work. Amounts paid to this		related party totaled $6,700, $5,800, and $13,438 during the years ended		December 31, 2007, 2006, and 2005, respectively. 

15

Calvin B. Taylor Bankshares, Inc.and Subsidiary**Notes to Consolidated Financial Statements**
13. Note Payable    In 1999, the Company purchased real estate in Berlin,		financing 100% of the purchase price. In 2003, an operations center was		constructed on this site. This 6% unsecured note has a final maturity of		September, 2011. The note requires principal payments as follows:
  				2008  				 $          24,044   				2009  				             25,527   				2010  				             27,102   				2011  				             21,417      				 $          98,090 
14. Profit Sharing Plan    In 1999, the Company adopted a defined contribution		profit sharing plan under Section 401(k) of the Internal Revenue Code.		The plan covers substantially all of the employees and allows		discretionary Company contributions. Annually, the Board of Directors		approves a discretionary contribution in addition to matching 50% of		employee contributions to a maximum of 6% of the employee wages.		    The total cost of the profit sharing plan for 2007,		2006, and 2005, was $214,557, $214,864, and $186,657, respectively.

15. Noninterest Expenses   The components of noninterest other operating expensesfollow:
  		2007		2006		2005 		Advertising		 $        177,567 		 $        166,441 		 $        147,541  		Armored car service		             64,710 		             52,513 		             76,068  		ATM and debit card		           272,479 		           234,409 		           234,732  		Business and product development		             78,703 		             79,623 		             78,399  		Computer software amortization		             79,768 		           111,765 		           121,982  		Computer software maintenance contracts		           127,959 		           111,777 		           101,875  		Courier service		             58,594 		           108,961 		           105,148  		Deposit insurance		             33,831 		             36,275 		             42,098  		Director fees		           149,400 		           140,200 		             99,900  		Dues, donations, and subscriptions		             85,179 		             88,255 		             94,385  		Liability insurance		             36,294 		             39,402 		             40,380  		Postage		           161,595 		           149,262 		           179,462  		Professional fees		             47,206 		             41,337 		             65,090  		Stationery and supplies		             95,854 		           123,652 		           111,593  		Telephone		           152,855 		           170,960 		           152,464  		Miscellaneous		           243,263 		           254,500 		           279,742   		 $      1,865,257 		 $      1,909,332 		 $      1,930,859 
16

Calvin B. Taylor Bankshares, Inc.and Subsidiary**Notes to Consolidated Financial Statements**
16.  Income Taxes               The components of income tax expense are as follows:  		2007		2006		2005  		 		Restated		Restated 		Current    		  Federal		 $    3,579,068 		 $    3,606,800 		 $    3,339,742  		  State		         570,643 		         592,110 		         495,907   		       4,149,711 		       4,198,910 		       3,835,649  		Deferred		          (43,131)		          (42,710)		          (81,749)  		 $    4,106,580 		 $    4,156,200 		 $    3,753,900       		The components of the deferred taxes are as follows:   		Nonaccrual loan interest		 $           (596)		 $               -   		 $               -    		Employee benefit 		           (3,805)		             8,966 		          (37,234) 		Provision for loan losses		               434 		             5,906 		           (4,774) 		Depreciation		          (31,395)		          (55,162)		          (42,854) 		Discount accretion		           (7,769)		           (2,420)		             3,113   		 $       (43,131)		 $       (42,710)		 $       (81,749)      		The components of the net deferred tax liability are as follows:   		Deferred tax assets    		  Nonaccrual loan interest		 $             596 		 $               -   		 $               -    		  Employee benefit		           32,073 		           28,268 		           37,234   		           32,669 		           28,268 		           37,234  		Deferred tax liabilities    		  Allowance for loan losses		         171,841 		         171,407 		         165,501  		  Depreciation		         169,562 		         200,957 		         256,119  		  Discount accretion		           11,686 		           19,455 		           21,875  		  Unrealized gain on securities available for sale		       1,160,691 		       1,124,113 		         997,025   		       1,513,780 		       1,515,932 		       1,440,520  		     Net deferred tax liability		 $   (1,481,111)		 $   (1,487,664)		 $   (1,403,286) 
 		A reconciliation of the provision for taxes on income from the statutory		federal income tax rates 		to the effective income tax rates follows: 		Statutory federal income tax rate		         34.04 		%		         34.00 		%		         34.00 		% 		Increase (decrease) in tax rate resulting from		    		    		     		  Tax-exempt income		         (1.33) 		         (1.38) 		         (1.52)  		  State income taxes net of federal income tax benefit		           3.30  		           3.34  		           3.10    		         36.01 		%		         35.96 		%		         35.58 		%
17

Calvin B. Taylor Bankshares, Inc.and Subsidiary**Notes to Consolidated Financial Statements**
17. Fair Value of Financial Instruments    The estimated fair values of the Company's financial		instruments are summarized below. The fair values of a significant		portion of these financial instruments are estimates derived using		present value techniques prescribed by the Financial Accounting		Standards Board and may not be indicative of the net realizable or		liquidation values. The calculation of estimated fair values is based on		market conditions at a specific point in time and may not reflect		current or future fair values. 
 				      December 31, 2007      				      December 31, 2006				      December 31, 2005         				Restated				Restated 				Carrying				Fair				Carrying				Fair				Carrying				Fair 				amount				value				amount				value				amount				value       				Financial assets      				  Cash and due      				   from banks				      17,428,347 				      18,042,845 				      21,138,799 				      21,665,764 				      24,069,790 				      24,305,510 				  Interest-bearing      				   deposits				        6,012,482 				        6,056,125 				        2,055,689 				        2,068,114 				        2,192,731 				        2,149,957 				  Investment      				   securities				      70,761,952 				      71,384,396 				      75,125,823 				      74,885,382 				    119,084,440 				    117,811,806 				  Loans, net				    238,076,278 				    238,096,729 				    233,231,118 				    233,162,386 				    206,421,292 				    206,418,053        				Financial liabilities      				  Interest-bearing      				   deposits				    215,585,969 				    215,962,746 				    210,698,907 				    210,968,428 				    222,621,474 				    222,335,613 				  Note payable				             98,090 				             96,201 				           120,737 				           115,815 				           142,069 				           137,990 
    The fair value of federal funds sold, noninterest-bearing deposits, and securities sold under agreements to repurchase equals their carrying value.    The fair value of silver coin included with cash is determined based on quoted market prices.    The fair value of interest-bearing deposits with		other financial institutions is estimated based on quoted interest rates		for certificates of deposit with similar remaining terms.    The fair values of equity securities are determined		using market quotations. The fair values of readily marketable debt		securities are provided by an independent third party and are based on		quoted market price. Debt securities that are not readily marketable are		assigned values based on prices from multiple sources, mostly from		dealers’ bids and offers.    The fair value of fixed-rate loans is estimated to be		the present value of scheduled payments discounted using interest rates		currently in effect for loans of the same class and term. The fair value		of variable-rate loans, including loans with a demand feature, is		estimated to equal the carrying amount. The valuation of loans is net of		the allowance for loan losses. It is not practicable to estimate the fair		value of outstanding loan commitments, unused lines, and letters of		credit.    The fair value of interest-bearing checking, savings,		and money market deposit accounts is equal to the carrying amount. The		fair value of fixed-rate time deposits is estimated based on interest		rates currently offered for deposits of similar remaining maturities.

18

Calvin B. Taylor Bankshares, Inc.and Subsidiary**Notes to Consolidated Financial Statements**
18. Capital Standards    The Federal Reserve Board and the Federal Deposit		Insurance Corporation have adopted risk-based capital standards for		banking organizations. These standards require ratios of capital to		assets for minimum capital adequacy and to be classified as well		capitalized under prompt corrective action provisions. The capital		ratios and minimum capital adequacy requirements of the Company and the		Bank are as follows:
 				Company 				Bank 				To be well 				Minimum  				Actual 				Actual 				capitalized 				adequacy				(in thousands)				Amount				Ratio 				Amount				Ratio 				Ratio 				Ratio          				December 31, 2007         				Total risk-based capital				 $   73,765 				33.7% 				 $   68,695 				32.0% 				10.0% 				8.0%				  (to risk weighted assets)         				Tier 1 capital				 $   72,560 				33.1% 				 $   68,499 				31.9% 				6.0% 				4.0%				  (to risk-weighted assets)         				Tier 1 capital				 $   72,560 				19.5% 				 $   68,499 				18.6% 				5.0% 				4.0%				  (to average fourth quarter assets)                   				December 31, 2006 restated         				Total risk-based capital				 $   70,833 				33.4% 				 $   65,926 				31.7% 				10.0% 				8.0%				  (to risk weighted assets)         				Tier 1 capital				 $   69,532 				32.8% 				 $   65,730 				31.6% 				6.0% 				4.0%				  (to risk-weighted assets)         				Tier 1 capital				 $   69,532 				18.6% 				 $   65,730 				17.8% 				5.0% 				4.0%				  (to average fourth quarter assets)                   				December 31, 2005 restated         				Total risk-based capital				 $   67,015 				34.8% 				 $   61,980 				32.8% 				10.0% 				8.0%				  (to risk weighted assets)         				Tier 1 capital				 $   65,875 				34.2% 				 $   61,769 				32.7% 				6.0% 				4.0%				  (to risk-weighted assets)         				Tier 1 capital				 $   65,875 				16.5% 				 $   61,769 				15.6% 				5.0% 				4.0%				  (to average fourth quarter assets)         
    Tier 1 capital consists of common stock, additional		paid-in capital, and retained earnings. Total risk-based capital		includes a limited amount of the allowance for loan losses. In		calculating risk-weighted assets, specific risk percentages are applied		to each category of asset and off-balance sheet items.		    Failure to meet the capital requirements could affect		the Company's ability to pay dividends and accept deposits, and may		significantly affect the operations of the Company.		    In the most recent regulatory report, the Company was		determined to be well capitalized. Management has no plans that should		change the classification of the capital adequacy.

19

Calvin B. Taylor Bankshares, Inc.and Subsidiary**Notes to Consolidated Financial Statements**
19. Parent Company Financial Information		Balance Sheets		December 31, 		2007		2006		2005  		Restated		Restated		Assets		Cash and due from banks		 $                24,416 		 $                21,342 		 $                18,212 		Interest-bearing deposits		              1,022,482 		                 523,484 		                 561,527 		Investment securities available for sale		              4,177,279 		              4,113,288 		              3,721,949 		Investment securities held to maturity		                           -   		                 250,875 		                 502,064 		Investment in subsidiary bank		            68,888,764 		            66,072,320 		            62,157,231 		Premises and equipment		              1,230,431 		              1,260,895 		              1,281,065 		Other assets		                     6,975 		                     5,995 		              4,467,685 		      Total assets		 $         75,350,347 		 $         72,248,199 		 $         72,709,733     		Liabilities and Stockholders' Equity		Dividend payable		 $                        -   		 $                        -   		 $           4,462,578 		Deferred income taxes		                 866,074 		                 857,174 		                 709,207 		Other liabilities		                     8,510 		                   10,084 		                     8,179  		                 874,584 		                 867,258 		              5,179,964 		Stockholders' equity   		  Common stock		              3,102,510 		              3,149,356 		              3,187,556 		  Additional paid-in capital		            12,381,413 		            14,117,732 		            15,454,735 		  Retained earnings		            57,076,461 		            52,265,370 		            47,232,513 		  Accumulated other comprehensive income		              1,915,379 		              1,848,483 		              1,654,965 		      Total stockholders' equity		            74,475,763 		            71,380,941 		            67,529,769 		      Total liabilities and stockholders' equity		 $         75,350,347 		 $         72,248,199 		 $         72,709,733     		Statements of Income		Years Ended December 31, 		2007		2006		2005    		Interest revenue		 $                35,222 		 $                30,657 		 $                24,671 		Dividend revenue		                   70,479 		                   70,752 		                   55,518 		Dividends from subsidiary		              4,462,728 		              3,374,143 		              2,984,551 		Equity in undistributed income of subsidiary		              2,768,109 		              3,961,775 		              3,759,919  		              7,336,538 		              7,437,327 		              6,824,659 		Expenses   		  Occupancy		                        925 		                     2,421 		                     2,087 		  Other		                   33,026 		                   28,337 		                   21,034  		                   33,951 		                   30,758 		                   23,121 		Income before income taxes		              7,302,587 		              7,406,569 		              6,801,538 		Income taxes		                     6,000 		                     6,200 		                     3,900 		Net income		 $           7,296,587 		 $           7,400,369 		 $           6,797,638 
20

Calvin B. Taylor Bankshares, Inc.and Subsidiary**Notes to Consolidated Financial Statements**
19.  Parent Company Financial Information (Continued) 		Years Ended December 31,		Statements of Cash Flows		2007		2006		2005		Cash flows from operating activities   		  Interest and dividends received		 $           4,568,324 		 $           7,938,431 		 $           3,065,338 		  Rental payments and fees received		                   35,400 		                   33,600 		                   33,619 		  Cash paid for operating expenses		                  (38,887)		                  (32,435)		                  (26,047)		  Income taxes refunded (paid)		                  (10,353)		                    (9,266)		                    (4,194) 		              4,554,484 		              7,930,330 		              3,068,716 		Cash flows from investing activities   		  Certificates of deposit purchased, net of maturities		                (496,616)		                    (4,704)		                    (1,923)		  Purchase of investments available for sale		                           -   		                           -   		                  (45,379)		  Proceeds from maturities of investments   		    held to maturity		                 250,000 		                 250,000 		                           -   		  Purchase of investments held to maturity		                  (33,750)		                           -   		                           -   		  Purchase of equipment		                           -   		                    (9,950)		                           -    		                (280,366)		                 235,346 		                  (47,302)		Cash flows from financing activities   		  Common shares repurchased		             (1,783,165)		             (1,375,203)		                (753,192)		  Dividends paid		             (2,485,496)		             (6,830,090)		             (2,231,359) 		             (4,268,661)		             (8,205,293)		             (2,984,551)		Net increase (decrease) in cash		                     5,457 		                  (39,617)		                   36,863 		Cash at beginning of year		                   37,620 		                   77,237 		                   40,374 		Cash at end of year		 $                43,077 		 $                37,620 		 $                77,237     		Reconciliation of net income to net cash provided   		   by operating activities   		   Net income		 $           7,296,587 		 $           7,400,369 		 $           6,797,638 		   Adjustments to reconcile net income to net cash   		     used in operating activities   		      Undistributed net income of subsidiary		             (2,768,109)		             (3,961,775)		             (3,759,919)		      Premium amortization and discount accretion 		                        875 		                     1,189 		                     1,092 		      Depreciation		                   30,464 		                   30,121 		                   30,675 		      Decrease (increase) in other assets		                    (2,554)		              4,461,690 		             (4,389,943)		      Increase (decrease) in   		       Deferred income taxes and other liabilities		                    (2,779)		                    (1,264)		              4,389,173  		 $           4,554,484 		 $           7,930,330 		 $           3,068,716     		Composition of cash and cash equivalents   		Cash and due from banks		 $                24,416 		 $                21,342 		 $                18,212 		Interest-bearing deposits, except for time deposits		                   18,661 		                   16,278 		                   59,025  		 $                43,077 		 $                37,620 		 $                77,237 
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Calvin B. Taylor Bankshares, Inc.And Subsidiary**Notes to Consolidated Financial Statements**
20.  Quarterly Results of Operations (Unaudited)   		Three months ended  		December 31, 		September 30, 		 		June 30,		 		 		March 31,              		2007            		Interest and dividend revenue 		 $ 5,459,878   		 $ 5,641,225   		 $ 5,376,493   		 $ 5,206,566  		Interest expense 		    1,254,843   		    1,233,383   		    1,132,670   		    1,030,944  		Net interest income  		    4,205,035   		    4,407,842   		    4,243,823   		    4,175,622  		Provision for loan losses 		               -     		               -     		               -     		               -    		Net income 		    1,651,416   		    1,961,144   		    1,894,655   		    1,789,372  		Comprehensive income 		    1,623,653   		    2,004,398   		    1,751,909   		    1,983,523  		Earnings per share 		 $         0.53   		 $         0.63   		 $         0.60   		 $         0.57               		2006            		Interest and dividend revenue 		 $ 5,309,067   		 $ 5,344,078   		 $ 4,858,168   		 $ 4,673,957  		Interest expense 		       975,665   		       846,111   		       750,292   		       650,690  		Net interest income  		    4,333,402   		    4,497,967   		    4,107,876   		    4,023,267  		Provision for loan losses 		               -     		               -     		               -     		               -    		Net income 		    1,831,259   		    1,987,548   		    1,818,161   		    1,763,401  		Comprehensive income 		    1,773,916   		    2,098,488   		    1,893,146   		    1,828,337  		Earnings per share 		 $         0.58   		 $         0.63   		 $         0.57   		 $         0.55               		2005            		Interest and dividend revenue 		 $ 4,793,757   		 $ 4,656,566   		 $ 4,289,745   		 $ 3,941,151  		Interest expense 		       560,574   		       458,851   		       388,934   		       361,014  		Net interest income  		    4,233,183   		    4,197,715   		    3,900,811   		    3,580,137  		Provision for loan losses 		               -     		               -     		               -     		               -    		Net income 		    1,703,943   		    1,905,371   		    1,687,865   		    1,500,459  		Comprehensive income 		    1,686,643   		    1,883,824   		    1,900,312   		    1,597,166  		Earnings per share 		 $         0.53   		 $         0.60   		 $         0.53   		 $         0.47 
 

 

 

 

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