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

 
PageReport of		Independent 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 Statements7-23
 

 

 

 

 

 

 

 

1

 

 
**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,	2009, 2008, and 2007, and the related consolidated statements of income,	changes in stockholders' equity, and cash flows for each of the years in the	three-year period ended December 31, 2009. These consolidated financial	statements are the responsibility of the Company's management. Our	responsibility is to express an opinion on these consolidated 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.

    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, 2009, 2008, and	2007, and the results of its operations and its cash flows for each of the	years in the three-year period ended December 31, 2009, in conformity with	accounting principles generally accepted in the United States of America.

    We have also audited, in accordance with the standards of the Public	Company Accounting Oversight Board in the United States of America, the	Company’s internal control over financial reporting as of December 31, 2009,	based on criteria established in *Internal Control – Integrated Framework*	issued by the Committee of Sponsoring Organizations of the Treadway	Commission (COSO) and our report dated	March 5, 2010, expressed an	unqualified opinion.

 

/s/ Rowles & Company, LLP

 

Baltimore, Maryland	March 5, 2010

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		Calvin B. Taylor Bankshares, Inc.		and subsidiary		Consolidated Balance Sheets 		December 31, 		2009		2008		2007		Assets		Cash and due from banks		 $  15,117,190 		 $    8,769,784 		 $  17,428,347 		Federal funds sold		     28,222,472 		     26,460,842 		     23,121,256 		Interest-bearing deposits		     12,494,003 		     15,517,115 		       6,012,482 		Investment securities available for sale		     42,767,578 		     33,975,271 		     24,082,202 		Investment securities held to maturity (approximate fair   		   value of $38,897,082, $33,523,422, and $47,302,194)		     38,597,942 		     32,621,797 		     46,679,750 		Loans, less allowance for loan losses of $637,761,   		   $707,152, and $195,525		   240,061,869 		   241,430,914 		   238,076,278 		Premises and equipment		       6,594,757 		       6,326,312 		       6,536,469 		Other real estate owned		       1,433,000 		                 -   		                 -   		Accrued interest receivable		       1,292,604 		       1,704,260 		       1,693,173 		Computer software		         135,831 		         156,372 		         156,629 		Bank owned life insurance		       5,089,278 		       4,914,810 		       4,720,770 		Other assets		       1,721,772 		         725,034 		         638,317  		 $ 393,528,296 		 $ 372,602,511 		 $ 369,145,673 		Liabilities and Stockholders' Equity		Deposits   		  Noninterest-bearing		 $  72,431,731 		 $  70,652,032 		 $  73,357,578 		  Interest-bearing		   240,215,888 		   221,807,181 		   215,585,969  		   312,647,619 		   292,459,213 		   288,943,547 		Securities sold under agreements to repurchase		       7,048,176 		       5,742,765 		       3,426,173 		Note payable		           48,519 		           74,046 		           98,090 		Accrued interest payable		         192,621 		         359,673 		         501,909 		Deferred income taxes		       1,026,786 		       1,437,813 		       1,481,111 		Other liabilities		         287,282 		         245,507 		         219,080  		   321,251,003 		   300,319,017 		   294,669,910 		Stockholders' equity   		  Common stock, par value $1 per share;   		    authorized 10,000,000 shares; issued and outstanding   		    3,000,508 shares at December 31, 2009,   		    3,048,397 shares at December 31, 2008, and   		    3,102,510 shares at December 31, 2007		       3,000,508 		       3,048,397 		       3,102,510 		  Additional paid-in capital		       8,733,438 		     10,406,403 		     12,381,413 		  Retained earnings		     58,975,278 		     56,569,913 		     57,076,461  		     70,709,224 		     70,024,713 		     72,560,384 		  Accumulated other comprehensive income		       1,568,069 		       2,258,781 		       1,915,379  		     72,277,293 		     72,283,494 		     74,475,763  		 $ 393,528,296 		 $ 372,602,511 		 $ 369,145,673 
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,              		2009		2008		2007		Interest and dividend revenue   		  Loans, including fees		 $  15,962,526 		 $  16,582,428 		 $  16,645,904 		  U. S. Treasury and government agency securities		       1,605,558 		       2,243,413 		       2,811,829 		  State and municipal securities		           45,674 		           42,336 		           68,445 		  Federal funds sold 		           66,548 		         732,227 		       1,919,020 		  Interest-bearing deposits		         158,496 		         325,396 		         168,485 		  Equity securities		           63,391 		           74,843 		           70,479 		          Total interest and dividend revenue		     17,902,193 		     20,000,643 		     21,684,162 		Interest expense   		  Deposits		       2,506,433 		       3,963,962 		       4,616,037 		  Borrowings		           36,205 		           58,292 		           35,803 		          Total interest expense		       2,542,638 		       4,022,254 		       4,651,840 		          Net interest income		     15,359,555 		     15,978,389 		     17,032,322    		Provision for loan losses		         850,000 		         617,526 		                 -   		          Net interest income after provision for loan losses		     14,509,555 		     15,360,863 		     17,032,322    		Noninterest revenue   		  Service charges on deposit accounts		         987,169 		       1,092,899 		       1,022,472 		  ATM and debit card revenue		         533,822 		         518,859 		         505,146 		  Increase in cash surrender value of bank owned life insurance		         174,468 		         194,040 		         190,511 		  Miscellaneous revenue		         293,167 		         231,392 		         214,807 		          Total noninterest revenue		       1,988,626 		       2,037,190 		       1,932,936    		Noninterest expenses   		  Salaries		       3,717,107 		       3,681,469 		       3,563,855 		  Employee benefits		         953,890 		         989,482 		         969,305 		  Occupancy 		         763,715 		         753,605 		         700,092 		  Furniture and equipment 		         476,518 		         464,559 		         463,582 		  Deposit insurance premiums		         495,406 		           43,186 		           33,831 		  Other operating		       2,106,936 		       2,019,967 		       1,831,426 		          Total noninterest expenses		       8,513,572 		       7,952,268 		       7,562,091    		          Income before income taxes 		       7,984,609 		       9,445,785 		     11,403,167 		Income taxes		       2,875,000 		       3,386,568 		       4,106,580 		Net income		 $    5,109,609 		 $    6,059,217 		 $    7,296,587     		Earnings per common share - basic and diluted		 $            1.69 		 $            1.97 		 $            2.33 
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, 2006		 3,149,356 		 $3,149,356 		 $ 14,117,732 		 $ 52,265,370 		 $ 1,848,483    		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    		Net income		            -   		              -   		                -   		     6,059,217 		               -     		 $ 6,059,217 		Unrealized gain on investment        		  securities available for sale net        		  of income taxes of $154,135		            -   		              -   		                -   		                -   		      343,402   		      343,402 		Comprehensive income       		 $ 6,402,619 		Common shares repurchased 		    (54,113)		      (54,113)		    (1,975,010)		                -   		               -      		Cash dividend, $2.15 per share		            -   		              -   		                -   		    (6,565,765)		               -               		Balance, December 31, 2008		 3,048,397 		   3,048,397 		    10,406,403 		    56,569,913 		    2,258,781    		Net income		            -   		              -   		                -   		     5,109,609 		               -     		 $ 5,109,609 		Unrealized (loss) on investment        		  securities available for sale net        		  of income taxes of ($400,129)		            -   		              -   		                -   		                -   		     (690,712)  		     (690,712)		Comprehensive income       		 $ 4,418,897 		Common shares repurchased 		    (47,889)		      (47,889)		    (1,672,965)		                -   		               -      		Cash dividend, $.90 per share		            -   		              -   		                -   		    (2,704,244)		               -               		Balance, December 31, 2009		 3,000,508 		 $3,000,508 		 $   8,733,438 		 $ 58,975,278 		 $ 1,568,069    
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,  		2009		2008		2007    		Cash flows from operating activities   		  Interest and dividends received		 $  18,404,895 		 $  19,804,313 		 $  20,969,946 		  Fees and commissions received		       1,745,339 		       1,499,929 		       1,735,778 		  Interest paid		     (2,709,690)		     (4,164,490)		     (4,490,056)		  Cash paid to suppliers and employees		     (9,030,265)		     (7,016,197)		     (7,005,983)		  Income taxes paid		     (2,744,434)		     (3,657,415)		     (4,396,848) 		       5,665,845 		       6,466,140 		       6,812,837     		Cash flows from investing activities   		  Proceeds from sale of collectible coin		           33,410 		                 -   		                 -   		  Certificates of deposit purchased, net of maturities		       3,133,184 		     (9,483,255)		     (3,954,410)		  Proceeds from maturities of investments available for sale		     24,200,000 		     19,000,000 		     29,000,000 		  Purchase of investments available for sale		    (34,149,247)		    (28,237,469)		    (33,387,809)		  Proceeds from maturities of investments held to maturity		     26,975,000 		     29,360,000 		     37,025,000 		  Purchase of investments held to maturity		    (32,976,024)		    (15,274,817)		    (27,456,181)		  Loans made, net of principal reductions		        (938,487)		     (3,972,162)		     (4,845,160)		  Proceeds from sale of equipment		           20,900 		                 -   		             7,549 		  Purchases of premises, equipment, and computer software		        (828,173)		        (369,363)		        (534,978)		  Proceeds from sale of other real estate and repossessed assets		           39,509 		                 -   		                 -    		    (14,489,928)		     (8,977,066)		     (4,145,989)    		Cash flows from financing activities   		  Net increase (decrease) in   		     Time deposits		        (289,966)		       7,710,096 		     16,968,141 		     Other deposits		     20,478,372 		     (4,194,430)		    (18,349,354)		     Securities sold under agreements to repurchase		       1,305,411 		       2,316,592 		     (2,197,875)		  Payments on note payable		          (25,528)		          (24,044)		          (22,647)		  Common shares repurchased 		     (1,720,854)		     (2,029,123)		     (1,783,165)		  Dividends paid		     (2,704,244)		     (6,565,765)		     (2,485,496) 		     17,043,191 		     (2,786,674)		     (7,870,396)    		Net increase (decrease) in cash and cash equivalents		       8,219,108 		     (5,297,600)		     (5,203,548)    		Cash and cash equivalents at beginning of year		     35,270,664 		     40,568,264 		     45,771,812 		Cash and cash equivalents at end of year		 $  43,489,772 		 $  35,270,664 		 $  40,568,264 
The accompanying notes are an integral part of these financialstatements.

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		calvin b. taylor bankshares, inc.		and subsidiary		Consolidated Statements of Cash Flows		Continued     		Years Ended December 31, 		2009		2008		2007    		Reconciliation of net income to net cash provided by   		   operating activities   		    Net income		 $    5,109,609 		 $    6,059,217 		 $    7,296,587     		   Adjustments to reconcile net income to net cash    		      provided by operating activities   		        Provision for loan losses		         850,000 		         617,526 		                 -   		        Depreciation and amortization		         562,670 		         575,106 		         570,369 		        Deferred income taxes		          (10,898)		        (197,433)		          (43,131)		        Premium amortization and discount accretion 		           90,979 		        (185,294)		        (713,664)		        Gain on sale of collectible coin		          (33,410)		                 -   		                 -   		        Loss (gain) on disposition of premises, equipment,   		           and computer software		           (3,301)		             4,671 		             2,172 		        Gain on sale of other real estate and repossessed assets		           (1,203)		                 -   		                 -   		        Decrease (increase) in   		           Accrued interest receivable		         411,656 		          (11,087)		              (551)		           Cash surrender value of bank owned life insurance		        (174,468)		        (194,040)		        (190,511)		           Other assets		     (1,010,512)		          (86,717)		           (8,718)		        Increase (decrease) in   		           Accrued interest payable		        (167,052)		        (142,236)		         161,754 		           Accrued income taxes		                 -   		                 -   		        (247,353)		           Other liabilities		           41,775 		           26,427 		          (14,117) 		 $    5,665,845 		 $    6,466,140 		 $    6,812,837     		Composition of cash and cash equivalents   		        Cash and due from banks		 $  15,117,190 		 $    8,769,784 		 $  17,428,347 		        Federal funds sold		     28,222,472 		     26,460,842 		     23,121,256 		        Interest-bearing deposits, except for time deposits		         150,110 		           40,038 		           18,661  		 $  43,489,772 		 $  35,270,664 		 $  40,568,264     		Supplemental cash flows information:   		Non-cash transfers from loans to other real estate owned		 $    1,448,500 		 $               -   		 $               -   
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.

7

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

Loans (continued)   		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.

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.

Other real estate owned    		Other real estate owned is comprised of real estate		acquired in satisfaction of a loan receivable either by foreclosure or		deed taken in lieu of foreclosure. Other real estate owned is recorded		at the lower of cost or net realizable value, which is fair value less		estimated costs to sell the property. If net realizable value is less		than the book value of the related loan at the time of foreclosure, a		loan loss is recorded through the allowance for loan losses. Quarterly,		the Company reviews net realizable value estimates and records declines		in value through expense. Costs to maintain properties, such as		maintenance, utilities, taxes and insurance are expensed as they are		incurred. Gains or losses resulting from the sale of other real estate		owned are included in noninterest expenses.

 

 

 

8

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

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 3,019,867, 3,076,278, and 3,125,761 for the		years ended December 31, 2009, 2008, and 2007, respectively. 

 

2.  Cash and Due From Banks

    The Company normally carries balances with other		banks that exceed the federally insured limit. Average balances carried		in excess of the limit, including unsecured federal funds sold to the		same banks, were $36,975,474 for 2009, $36,500,123 for 2008, and		$38,104,224 for 2007.		    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.

 

3. Lines of Credit

    The Company has available lines of credit, including		overnight federal funds, reverse repurchase agreements and letters of		credit, totaling $28,000,000 as of December 31, 2009.

 

 

 

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, 2009    		Available for sale    		  U.S. Treasury		 $    38,197,971 		 $     950,429 		 $            -   		 $    39,148,400 		  State and municipal		           395,000 		            5,392 		             270 		           400,122 		  Equity		         1,691,841 		      1,571,962 		        44,747 		         3,219,056  		 $    40,284,812 		 $   2,527,783 		 $      45,017 		 $    42,767,578 		Held to maturity    		  U.S. Treasury		 $    25,498,390 		 $     254,672 		 $       8,999 		 $    25,744,063 		  U.S. Government agency		       10,000,000 		          30,808 		             650 		       10,030,158 		  State and municipal		         3,099,552 		          23,309 		               -   		         3,122,861  		 $    38,597,942 		 $     308,789 		 $       9,649 		 $    38,897,082      		December 31, 2008    		Available for sale    		  U.S. Treasury		 $    28,309,823 		 $   1,408,794 		 $            -   		 $    29,718,617 		  State and municipal		           400,000 		            5,220 		             590 		           404,630 		  Equity		         1,691,841 		      2,160,183 		               -   		         3,852,024  		 $    30,401,664 		 $   3,574,197 		 $          590 		 $    33,975,271 		Held to maturity    		  U.S. Treasury		 $    24,519,603 		 $     861,569 		 $            -   		 $    25,381,172 		  U.S. Government agency		         6,999,443 		          32,657 		          1,016 		         7,031,084 		  State and municipal		         1,102,751 		            8,415 		               -   		         1,111,166  		 $    32,621,797 		 $     902,641 		 $       1,016 		 $    33,523,422      		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 
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, 2009, 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				losses				value				losses				value				losses				U. S. Treasury				 $      1,989,375 				 $        8,999 				 $                   -   				 $             -   				 $      1,989,375 				 $        8,999 				U. S. Government Agency				            999,350 				              650 				                      -   				                -   				            999,350 				              650 				State and municipal				            109,729 				              270 				                      -   				                -   				            109,729 				              270  				Equity				            492,249 				         44,747 				                      -   				                -   				            492,249 				         44,747  				 $      3,590,703 				 $      54,666 				 $                   -   				 $             -   				 $      3,590,703 				 $      54,666 
    The debt securities for which an unrealized loss is		recorded are issues of the U.S. 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 equity securities for which an unrealized loss is		recorded are issues of community banks located in the same general		geographic area as the Company. In the opinion of management,		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, 2009				December 31, 2008				December 31, 2007 				Amortized				Fair				Amortized				Fair				Amortized				Fair 				cost				value				cost				value				cost				value				Available for sale      				  Within one year				 $    15,106,388 				 $    15,136,254 				 $    17,159,259 				 $    17,201,296 				 $    16,918,515 				 $    16,935,694 				  After one year      				   through five years				       21,490,230 				       21,822,893 				         9,554,499 				         9,960,076 				            400,000 				            401,417  				  After ten years				         1,996,353 				         2,589,375 				         1,996,065 				         2,961,875 				         1,995,775 				         2,567,812   				 $    38,592,971 				 $    39,548,522 				 $    28,709,823 				 $    30,123,247 				 $    19,314,290 				 $    19,904,923 				Held to maturity      				  Within one year				 $    16,042,286 				 $    16,273,130 				 $    13,766,474 				 $    14,027,311 				 $    16,454,622 				 $    16,552,091 				  After one year       				   through five years				       22,555,656 				       22,623,952 				       18,855,323 				       19,496,111 				       30,225,128 				       30,750,103   				 $    38,597,942 				 $    38,897,082 				 $    32,621,797 				 $    33,523,422 				 $    46,679,750 				 $    47,302,194        				Pledged securities				 $    26,269,854 				 $    27,142,948 				 $    25,023,730 				 $    26,891,914 				 $    25,231,084 				 $    25,682,422 
    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. Loans and Allowance for Loan Losses

    Major classifications of loans are as follows:
  		2009		2008		2007 		Real estate mortgages    		Construction, land development, and land		 $    21,952,873 		 $    30,330,261 		 $    38,230,033  		Residential 1 to 4 family		       94,757,873 		       95,203,258 		       87,327,448  		Second mortgages		         2,460,550 		         2,952,418 		         3,287,734  		Commercial properties		     102,476,713 		       89,302,549 		       84,568,665  		Commercial 		       16,915,476 		       21,990,067 		       22,283,007  		Consumer		         2,136,145 		         2,359,513 		         2,574,916   		     240,699,630 		     242,138,066 		     238,271,803  		Allowance for loan losses		           637,761 		           707,152 		           195,525  		Loans, net		 $  240,061,869 		 $  241,430,914 		 $  238,076,278 
    The rate repricing distribution of the loan portfoliofollows:
 		Immediately		 $  235,500,380 		 $  236,027,947 		 $  232,518,768  		Within one year		           995,916 		         1,967,273 		         1,878,462  		Over one to five years		         2,634,299 		         2,608,201 		         2,622,311  		Over five years		         1,569,035 		         1,534,645 		         1,252,262   		 $  240,699,630 		 $  242,138,066 		 $  238,271,803 
    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:
  		2009		2008		2007      		Beginning balance		 $        707,152 		 $        195,525 		 $        196,083  		Provision charged to operations		           850,000 		           617,526 		                   -    		Recoveries		             59,478 		               5,016 		               5,705   		         1,616,630 		           818,067 		           201,788  		Loans charged off		           978,869 		           110,915 		               6,263  		Ending balance		 $        637,761 		 $        707,152 		 $        195,525 

 

 

12

Calvin B. Taylor Bankshares, Inc.and Subsidiary**Notes to Consolidated Financial Statements**
5. Loans and Allowance for Loan Losses (Continued)

    Nonperforming loans are loans past due 90 or more		days and still accruing interest plus nonaccrual loans. Nonperforming		assets are comprised of nonperforming loans combined with real estate		acquired in foreclosure and held for sale (other real estate owned). The		following table details the composition of nonperforming assets as of		December 31.
  		2009		2008		2007 		Loans 90 or more days past due and still accruing    		Real estate		 $         787,580 		 $       4,602,365 		 $                 -    		Commercial		              -   		        40,000 		         9,100  		Consumer		              -   		         5,427 		              -     		      787,580 		   4,647,792 		         9,100  		Nonaccruing loans		   1,023,083 		      199,724 		        40,916  		Total nonperforming loans		   1,810,663 		   4,847,516 		        50,016       		Other real estate owned		   1,433,000 		              -   		              -    		Total nonperforming assets		 $ 3,243,663 		 $ 4,847,516 		 $     50,016       		Interest not accrued on nonaccruing loans		 $     46,467 		 $       6,797 		 $       1,509       		Interest included in net income on nonaccruing    		loans, year-to date		 $     30,492 		 $     12,275 		 $       2,746 
    Included in amounts past due 90 days or more and		still accruing at December 31, 2008, was a loan with a principal balance		of $4,500,000. As of December 31, 2009, this loan was 53 days past due		and still accruing as the Bank continued collection efforts. Late in		2008, the Bank was notified that there is a lien on the property		securing this loan that is superior to the Bank’s liens. The Bank was		not aware of this lien at the time the loan was originated, and the		Bank’s settlement agent did not discover the lien during the title		examination process. The Bank has filed a claim with the title company		that insured its title and lien priority. The Bank believes the title		company will indemnify the Bank for any loss resulting from the superior		lien, although there is no guarantee that this will be the case.		Management reviews the accrual status of this loan quarterly. As of		December 31, 2009, there is $33,438 of accrued interest on this loan		that was included in interest income in 2009.		   		Management has identified impaired loans with		outstanding principal balances totaling $2,901,859 as of December 31,		2009, for which $258,869 was allocated in the allowance for loan losses.				   		As of December 31, 2008, management had identified		impaired loans with outstanding principal balances totaling $8,888,200,		for which $605,405 was allocated in the allowance for loan losses.		Included in principal balances of impaired loans was $419,770 which was		guaranteed by a government agency. 		   		As of December 31, 2007, management had identified		impaired loans with outstanding principal balances totaling $595,774,		for which $138,514 was allocated in the allowance for loan losses.		Included in principal balances of impaired loans was $436,802 which was		guaranteed by a government agency. 

13

Calvin B. Taylor Bankshares, Inc.and Subsidiary**Notes to Consolidated Financial Statements**
6. 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:
  				2009				2008				2007 				Loan commitments and lines of credit    				  Construction and land development				 $    10,231,711 				 $    15,218,812 				 $    12,582,162  				  Other				       19,038,506 				       22,245,089 				       20,941,323   				 $    29,270,217 				 $    37,463,901 				 $    33,523,485       				Standby letters of credit				 $      1,907,736 				 $      1,921,878 				 $      1,582,050 
 

7. Lease Commitments

    The Company leases the land on which the Route 50		branch in East Berlin is located. Rent expense was $17,083, $16,250, and		$15,000 for the years ended December 31, 2009, 2008, and 2007,		respectively. The lease obligation, which expires August 31, 2014,		requires payments as follows: 
 		Period		 		Minimum rents		  		2010 		 $    20,333   		2011 		       21,333   		2012 		       22,333   		2013 		       23,333   		2014 		       16,000     		 $  103,332  

 

 

14

Calvin B. Taylor Bankshares, Inc.and Subsidiary**Notes to Consolidated Financial Statements**
8. Premises and Equipment and Computer Software

    A summary of premises and equipment and the relateddepreciation is as follows:
  		Estimated useful life		2009		2008		2007 		Land 		 $      2,104,061 		 $      2,092,717 		 $      2,092,717  		Premises		5 - 50 years		         7,196,851 		         6,745,668 		         6,642,872  		Furniture and equipment		3 - 20 years		         3,778,111 		         3,619,752 		         3,505,080    		       13,079,023 		       12,458,137 		       12,240,669  		Accumulated depreciation 		         6,484,266 		         6,131,825 		         5,704,200  		Net premises and equipment 		 $      6,594,757 		 $      6,326,312 		 $      6,536,469        		Depreciation expense 		 $        490,776 		 $        496,742 		 $        490,601 
    A summary of capitalized computer software and the relatedamortization is as follows:
  		Estimated useful life		2009		2008		2007 		Computer software		3 - 5 years		 $        890,360 		 $        839,007 		 $        760,900  		Accumulated amortization 		           754,529 		           682,635 		           604,271  		Net computer software 		 $        135,831 		 $        156,372 		 $        156,629        		Amortization expense 		 $          71,894 		 $          78,364 		 $          79,768 
9. Interest-bearing deposits
 		Major classifications of interest-bearing deposits are as follows:    		2009		2008		2007 		NOW		 $    58,328,093 		 $    48,043,193 		 $    51,218,087  		Money market		       36,559,471 		       32,039,678 		       31,719,473  		Savings		       46,958,194 		       43,064,214 		       41,698,409  		Time deposits of $100,000 or more		       41,858,162 		       37,375,216 		       35,860,947  		Time deposits of less than $100,000		       56,511,968 		       61,284,880 		       55,089,053   		 $  240,215,888 		 $  221,807,181 		 $  215,585,969       		The rate repricing distribution of time deposits follows:   		Three months or less		 $    41,762,134 		 $    47,025,262 		 $    31,340,615  		Over three through twelve months		       42,268,474 		       41,529,109 		       51,075,812  		Over one through two years		       14,339,522 		       10,105,725 		         8,533,573   		 $    98,370,130 		 $    98,660,096 		 $    90,950,000 
15

Calvin B. Taylor Bankshares, Inc.and Subsidiary**Notes to Consolidated Financial Statements**
 

10. Securities Sold Under Agreements to Repurchase

    Securities sold under agreements to repurchase		represent overnight borrowings from customers. The U.S. government		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:
  		2009		2008		2007 		Maximum month-end amount outstanding		 $      7,941,508 		 $      7,112,354 		 $      5,740,493  		Average amount outstanding		 $      6,527,440 		 $      4,792,158 		 $      4,248,315  		Average rate paid during the year		 .50% 		 1.11% 		 .69%  		Investment securities underlying the agreements    		  at year end    		    Carrying value		 $    16,098,916 		 $    13,991,966 		 $    13,988,225  		    Estimated fair value		 $    16,200,995 		 $    14,548,125 		 $    14,318,281 
11. 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.
 				2009				2008				2007				Related party loan activity   				Beginning balance				 $    22,097,589 				 $    21,633,466 				 $    24,719,784 				Advances				         5,542,120 				         8,971,905 				       13,266,800  				       27,639,709 				       30,605,371 				       37,986,584 				Repayments				         5,037,155 				         8,507,782 				       15,438,533 				Other decreases				                   -   				                   -   				           914,585 				Ending balance				 $    22,602,554 				 $    22,097,589 				 $    21,633,466     				Unfunded loan commitments				 $      2,047,886 				 $      1,868,664 				 $      1,703,469     				Deposit and non-deposit investment balances				 $      6,097,670 				 $      5,231,390 				 $      5,258,542 
    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 $83,348, $9,950, and $6,700 during the years ended		December 31, 2009, 2008, and 2007, respectively. Increased legal fees in		2009 relate to loan insurance claims and collections.

16

Calvin B. Taylor Bankshares, Inc.and Subsidiary**Notes to Consolidated Financial Statements**
12. 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:
  				2010  				 $          27,102   				2011  				             21,417      				 $          48,519 
13. 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 2009,		2008, and 2007, was $207,353, $215,571, and $214,557, respectively.

 

14. Noninterest Expenses

    The components of noninterest other operating expensesfollow:
  		2009		2008		2007 		Advertising		 $        190,461 		 $        211,056 		 $        177,567  		Armored car service		             75,446 		             66,003 		             64,710  		ATM and debit card		           255,850 		           304,737 		           272,479  		Business and product development		             77,319 		             78,757 		             78,703  		Computer software amortization		             71,895 		             78,364 		             79,768  		Computer software maintenance contracts		           151,927 		           148,098 		           127,959  		Correspondent bank fees		             79,677 		             60,666 		             18,168  		Courier service		             41,472 		             34,776 		             58,594  		Director fees		           147,650 		           151,900 		           149,400  		Dues, donations, and subscriptions		             81,634 		             84,872 		             85,179  		Liability insurance		             26,018 		             29,358 		             36,294  		Postage		           154,065 		           165,249 		           161,595  		Professional fees		           158,668 		             81,648 		             47,206  		Stationery and supplies		             76,896 		             95,945 		             95,854  		Telephone		           173,792 		           159,065 		           152,855  		Miscellaneous		           344,166 		           269,473 		           225,095   		 $      2,106,936 		 $      2,019,967 		 $      1,831,426 
17

Calvin B. Taylor Bankshares, Inc.and Subsidiary**Notes to Consolidated Financial Statements**
15.	Income Taxes                        The components ofincome tax expense are as follows:  				2009				2008				2007 				Current    				  Federal				 $    2,400,641 				 $    2,989,883 				 $    3,579,068  				  State				         485,257 				         594,118 				         570,643   				       2,885,898 				       3,584,001 				       4,149,711  				Deferred				          (10,898)				        (197,433)				          (43,131)  				 $    2,875,000 				 $    3,386,568 				 $    4,106,580       				The components of the deferred taxes are as follows:   				Nonaccrual loan interest				 $         (7,369)				 $         (2,029)				 $           (596) 				Provision for loan losses				           26,749 				        (201,340)				               434  				Holding costs of other real estate owned				          (23,859)				                 -   				                 -    				Employee benefit 				             3,653 				             3,266 				           (3,805) 				Depreciation				           (6,027)				           (2,214)				          (31,395) 				Discount accretion				           (4,045)				             4,884 				           (7,769)  				 $       (10,898)				 $     (197,433)				 $       (43,131)      				The components of the net deferred tax liability are as follows:   				Deferred tax assets    				  Nonaccrual loan interest				 $          9,994 				 $          2,625 				 $             596  				  Allowance for loan losses				             2,750 				           29,499 				                 -    				  Other real estate owned				           23,859 				                 -   				                 -    				  Employee benefit				           25,154 				           28,807 				           32,073   				           61,757 				           60,931 				           32,669  				Deferred tax liabilities    				  Allowance for loan losses				                 -   				                 -   				         171,841  				  Depreciation				         161,321 				         167,348 				         169,562  				  Discount accretion				           12,525 				           16,570 				           11,686  				  Unrealized gain on securities available for sale				         914,697 				       1,314,826 				       1,160,691   				       1,088,543 				       1,498,744 				       1,513,780  				     Net deferred tax liability				 $   (1,026,786)				 $   (1,437,813)				 $   (1,481,111) 				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				        34.00  								%				        34.00  								%				        34.04 				% 				Increase (decrease) in tax rate resulting from				    				    				     				  Tax-exempt income				        (2.23) 				        (1.99) 				        (1.34)  				  Non-deductible expenses				          0.04  				          0.04  				          0.03   				  State income taxes net of federal income tax benefit				          4.22  				          3.80  				          3.28    				        36.03 				%				        35.85 				%				        36.01 				%
18

Calvin B. Taylor Bankshares, Inc.and Subsidiary**Notes to Consolidated Financial Statements**
16. Fair Value of Financial Instruments

    The Company values investment securities classified		as available for sale and other real estate acquired through foreclosure		at fair value on a recurring basis. The fair value hierarchy established		in the Financial Accounting Standards Board accounting standards		codification topic titled *Fair Value Measurements* defines three		input levels for fair value measurement. Level 1 is based on quoted		market prices in active markets for identical assets. Level 2 is based		on significant observable inputs other than those in Level 1. Level 3 is		based on significant unobservable inputs. The Company values US Treasury		securities, government agency securities, and an equity investment in an		actively traded public utility under Level 1. Municipal debt securities,		equity investments in community banks, and other real estate owned are		valued under Level 2. The Company has no assets measured at fair value		on a recurring basis that are valued under Level 3 criteria. At December		31, 2009, values for available for sale investment securities and other		real estate owned measured at fair value on a recurring basis were		established as follows:
 				Total				Level 1 Inputs				Level 2 Inputs				Investment securities available for sale				 $      42,767,578 				 $      39,484,913 				 $        3,282,665  				Other real estate owned				           1,433,000 				                         - 				           1,433,000   				 $      44,200,578 				 $      39,484,913 				 $        4,715,665 
    The Company does not have the		intent to sell any of these securities and deems that it is more likely		than not that it will not have to sell any of these securities before		recovery of their individual cost bases. The Company is actively		marketing other real estate owned and reviews market value of each		property quarterly.		    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, 2009				      December 31, 2008				      December 31, 2007       				Carrying				Fair				Carrying				Fair				Carrying				Fair 				amount				value				amount				value				amount				value				Financial assets      				  Cash and due from banks				    15,117,190 				    15,352,536 				      8,769,784 				      9,216,290 				    17,428,347 				    18,042,845 				  Interest-bearing deposits				    12,494,003 				    12,504,729 				    15,517,115 				    15,593,003 				      6,012,482 				      6,056,125 				  Investment securities				    81,365,520 				    81,664,660 				    66,597,068 				    67,498,693 				    70,761,952 				    71,384,396 				  Loans, net				  240,061,869 				  240,026,291 				  241,430,914 				  241,473,232 				  238,076,278 				  238,096,729 				Financial liabilities      				  Interest-bearing deposits				  240,215,888 				  240,331,613 				  221,807,181 				  222,208,321 				  215,585,969 				  215,962,746 				  Note payable				           48,519 				           48,091 				           74,046 				           73,339 				           98,090 				           96,201 
    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 and other collectible coin		included with cash is determined based on extrapolation of the value of		the remaining coin inventory relative to similar inventory liquidated in		2009.		    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.

19

Calvin B. Taylor Bankshares, Inc.and Subsidiary**Notes to Consolidated Financial Statements**
17. 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, 2009         				Total risk-based capital				 $   72,034 				32.1% 				 $   67,462 				30.6% 				10.0% 				8.0%				  (to risk weighted assets)         				Tier 1 capital				 $   70,709 				31.6% 				 $   66,824 				30.3% 				6.0% 				4.0%				  (to risk-weighted assets)         				Tier 1 capital				 $   70,709 				17.7% 				 $   66,824 				16.9% 				5.0% 				4.0%				  (to average fourth quarter assets)                   				December 31, 2008         				Total risk-based capital				 $   71,703 				32.5% 				 $   66,608 				30.8% 				10.0% 				8.0%				  (to risk weighted assets)         				Tier 1 capital				 $   70,025 				31.8% 				 $   65,901 				30.4% 				6.0% 				4.0%				  (to risk-weighted assets)         				Tier 1 capital				 $   70,025 				18.7% 				 $   65,901 				17.8% 				5.0% 				4.0%				  (to average fourth quarter assets)                   				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)         
    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.

 

20

Calvin B. Taylor Bankshares, Inc.and Subsidiary**Notes to Consolidated Financial Statements**
18. Parent Company Financial Information
		Balance Sheets		December 31, 		2009		2008		2007    		Assets		Cash and due from banks		 $                26,125 		 $              262,013 		 $                24,416 		Interest-bearing deposits		                 896,757 		                 871,247 		              1,022,482 		Investment securities available for sale		              3,219,056 		              3,852,024 		              4,177,279 		Investment in subsidiary bank		            67,454,505 		            66,834,104 		            68,888,764 		Premises and equipment		              1,176,488 		              1,203,579 		              1,230,431 		Other assets		                     2,794 		                     5,934 		                     6,975 		      Total assets		 $         72,775,725 		 $         73,028,901 		 $         75,350,347     		Liabilities and Stockholders' Equity		Deferred income taxes		 $              491,294 		 $              737,676 		 $              866,074 		Other liabilities		                     7,138 		                     7,731 		                     8,510 		                 498,432 		                 745,407 		                 874,584 		Stockholders' equity   		  Common stock		              3,000,508 		              3,048,397 		              3,102,510 		  Additional paid-in capital		              8,733,438 		            10,406,403 		            12,381,413 		  Retained earnings		            58,975,278 		            56,569,913 		            57,076,461 		  Accumulated other comprehensive income		              1,568,069 		              2,258,781 		              1,915,379 		      Total stockholders' equity		            72,277,293 		            72,283,494 		            74,475,763 		      Total liabilities and stockholders' equity		 $         72,775,725 		 $         73,028,901 		 $         75,350,347     		Statements of Income		Years Ended December 31, 		2009		2008		2007    		Interest revenue		 $                29,179 		 $                44,875 		 $                35,222 		Dividend revenue		                   63,457 		                   74,894 		                   70,479 		Dividends from subsidiary		              4,131,359 		              8,594,887 		              4,462,728 		Equity in undistributed income of subsidiary		                 922,597 		             (2,597,703)		              2,768,109  		              5,146,592 		              6,116,953 		              7,336,538 		Expenses   		  Occupancy		                    (3,921)		                    (1,415)		                        925 		  Other		                   34,904 		                   52,551 		                   33,026  		                   30,983 		                   51,136 		                   33,951     		Income before income taxes		              5,115,609 		              6,065,817 		              7,302,587 		Income taxes		                     6,000 		                     6,600 		                     6,000 		Net income		 $           5,109,609 		 $           6,059,217 		 $           7,296,587 
21

Calvin B. Taylor Bankshares, Inc.and Subsidiary**Notes to Consolidated Financial Statements**
18. Parent Company Financial Information (Continued)
 		Years Ended December 31,		Statements of Cash Flows		2009		2008		2007		Cash flows from operating activities   		  Interest and dividends received		 $           4,227,650 		 $           8,715,697 		$          4,568,324 		  Rental payments and fees received		               37,200 		                   37,200 		                   35,400 		  Cash paid for operating expenses		            (41,092)		                  (58,400)		                  (38,887)		  Income taxes paid		              (9,038)		                 (10,163)		              (10,353) 		          4,214,720 		              8,684,334 		            4,554,484 		Cash flows from investing activities   		  Certificates of deposit purchased, net of maturities		                   84,561 		                 172,613 		            (496,616)		  Proceeds from maturities of investments   		    held to maturity		                       -   		                           -   		               250,000 		  Purchase of investments held to maturity		                       -   		                           -   		              (33,750)		  Purchase of equipment		                       -   		                    (3,085)		                          -    		               84,561 		                 169,528 		            (280,366)		Cash flows from financing activities   		  Common shares repurchased		       (1,720,854)		             (2,029,123)		         (1,783,165)		  Dividends paid		             (2,704,244)		             (6,565,764)		         (2,485,496) 		             (4,425,098)		             (8,594,887)		         (4,268,661)    		Net increase (decrease) in cash and cash equivalents		                (125,817)		                 258,975 		                   5,457 		Cash and cash equivalents at beginning of year		                 302,052 		                   43,077 		                 37,620 		Cash and cash equivalents at end of year		 $              176,235 		 $              302,052 		$               43,077     		Reconciliation of net income to net cash provided   		   by operating activities   		   Net income		 $           5,109,609 		 $           6,059,217 		 $           7,296,587 		   Adjustments to reconcile net income to net cash   		     used in operating activities   		      Undistributed net income of subsidiary		                (922,597)		              2,597,703 		             (2,768,109)		      Premium amortization and discount accretion 		                           -   		                           -   		                        875 		      Depreciation		                   27,091 		                   29,936 		                   30,464 		      Decrease (increase) in other assets		                     3,140 		                        262 		                    (2,554)		      Increase (decrease) in   		         Deferred income taxes and other liabilities		                    (2,523)		                    (2,784)		                   (2,779) 		 $           4,214,720 		 $           8,684,334 		 $           4,554,484 		Composition of cash and cash equivalents   		Cash and due from banks		 $                26,125 		 $              262,013 		 $                24,416 		Interest-bearing deposits, except for time deposits		                 150,110 		                   40,039 		                   18,661  		 $              176,235 		 $              302,052 		 $                43,077 
22

Calvin B. Taylor Bankshares, Inc.and Subsidiary**Notes to Consolidated Financial Statements**
19.	Quarterly Results of Operations (Unaudited)
   		Three months ended  		December 31, 		September 30, 		 		June 30,		 		 		March 31,              		2009            		Interest and dividend revenue 		 $ 4,390,696   		 $ 4,437,310   		 $ 4,430,529   		 $ 4,643,658  		Interest expense 		       564,844   		       602,423   		       649,903   		       725,468  		Net interest income  		    3,825,852   		    3,834,887   		    3,780,626   		    3,918,190  		Provision for loan losses 		       352,950   		     (132,550)  		       296,500   		       333,100  		Net income 		    1,108,094   		    1,511,649   		    1,151,176   		    1,338,690  		Comprehensive income 		    1,029,224   		    1,171,734   		    1,062,765   		    1,155,174  		Earnings per share 		 $         0.37   		 $         0.50   		 $         0.38   		 $         0.44               		2008            		Interest and dividend revenue 		 $ 4,829,154   		 $ 5,016,573   		 $ 4,984,430   		 $ 5,170,486  		Interest expense 		       926,709   		       930,549   		       993,761   		    1,171,235  		Net interest income  		    3,902,445   		    4,086,024   		    3,990,669   		    3,999,251  		Provision for loan losses 		       542,511   		         (1,478)  		          5,284   		        71,209  		Net income 		    1,087,939   		    1,706,142   		    1,642,937   		    1,622,199  		Comprehensive income 		    1,358,415   		    1,936,154   		    1,448,612   		    1,659,438  		Earnings per share 		 $         0.36   		 $         0.56   		 $         0.53   		 $         0.52               		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 

 

 

 

 

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