UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549
Form 10-K

ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2001

Commission File No. 33-99762

CALVIN B. TAYLOR BANKSHARES, INC.
(Exact name of registrant as specified in its Charter)

Maryland

(State or other jurisdiction of incorporation or
organization)

52-1948274
(I.R.S. Employer Identification No.)

24 North Main Street, Berlin, Maryland   21811
(Address of principal executive offices)(Zip Code)

Registrant's telephone number, including area code:
(410) 641-1700

Securities registered under Section 12(b) of the
Exchange Act:
None

Securities registered under Section 12(g) of the
Exchange Act:
Common Stock Par Value $1.00

Check whether the registrant has (1) filed all reports
required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past 90
days.	             Yes   X     No ____

Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-K contained in
this form, and no disclosure will be contained, to the
best of the registrant's knowledge, in definitive proxy
or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this
Form 10-K.         [ X ]

The aggregate market value of the Common Stock held by
non-affiliates of the registrant on December 31, 2001,
was $101,380,125.  This calculation is based upon
estimation by the Company's Board of Directors of fair
market value of the Common Stock of $35.00 per share.
There is not an active trading market for the Common
Stock and it is not possible to identify precisely the
market value of the Common Stock.

On February 28, 2002, 3,240,000 shares of the
registrant's common stock were issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE
The Company's Proxy Statement for Annual Meeting of
Shareholders to be held on May 8, 2002, is incorporated
by reference in this Form 10-K in Part III, Item 9,
Item 10, Item 11, and Item 12.



     This Report contains statements which constitute
forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and the
Securities Exchange Act of 1934.  These statements
appear in a number of places in this Report and include
all statements regarding the intent, belief or current
expectations of the Company, its directors, or its
officers with respect to, among other things: (i) the
Company's financing plans; (ii) trends affecting the
Company's financial condition or results of operations;
(iii) the Company's growth strategy and operating
strategy; and (iv) the declaration and payment of
dividends.  Investors are cautioned that any such
forward-looking statements are not guarantees of future
performance and involve risks and uncertainties, and
that actual results may differ materially from those
projected in the forward-looking statements as a result
of various factors discussed herein and those factors
discussed in detail in the Company's filings with the
Securities and Exchange Commission.

PART I

Item 1. Description of Business

General

     Calvin B. Taylor Bankshares, Inc. (the "Company")
was incorporated as a Maryland corporation on October 31,
1995.  The Company owns all of the stock of two banks.
The Maryland bank is a commercial bank incorporated under
the laws of the State of Maryland on December 17, 1907.
This bank operates nine banking offices in Worcester
County with the Bank's main office located in Berlin,
Maryland.  It is engaged in a general commercial and
retail banking business serving individuals, businesses,
and governmental units in Worcester County, Maryland and
neighboring counties.  The second bank was incorporated in
Delaware in 1997 but opened late in the second quarter of
1998.  This one-branch Delaware bank offers the same
services as the Maryland bank.

     The Company's holding company structure can assist
the banks in maintaining their required capital ratios
because the Company may, subject to compliance with debt
guidelines implemented by the Board of Governors of the
Federal Reserve System (the "Board of Governors" or the
"Federal Reserve"), borrow money and contribute the
proceeds to the banks as primary capital. The holding
company structure also permits greater flexibility in
issuing stock for cash, property, or services and in
reorganization transactions.  Moreover, subject to certain
regulatory limitations, a holding company can purchase
shares of its own stock, which the banks may not do
without regulatory approval.  A holding company may also
engage in certain non-banking activities which the Board
of Governors has deemed to be closely related to banking
and proper incidents to the business of a bank holding
company.  These activities include making or servicing
loans and certain types of leases; performing certain data
processing services; acting as a fiduciary or investment
or financial advisor; acting as a management consultant
for other depository institutions; providing courier,
appraisal, and consumer financial counseling services;
providing tax planning and preparation services; providing
check guaranty and collection agency services; engaging in
limited real estate investment activities; underwriting,
brokering, and selling credit life and disability
insurance; engaging in certain other limited insurance
activities; providing discount brokerage services;
underwriting and dealing in certain government obligations
and money market instruments and providing portfolio
investment advice; acting as a futures commission merchant
with respect to certain financial instrument transactions;
providing foreign exchange advisory and transactional
services; making investments in certain corporations for
projects designed primarily to promote community welfare;
and owning and operating certain healthy savings and loan
associations.  Although the Company has no present
intention of engaging in any of these services, if
circumstances should lead the Company's management to
believe that there is a need for these services in the
banks' marketing areas and that such activities could be
profitably conducted, the management of the Company would
have the flexibility of commencing these activities upon
filing notice thereof with the Board of Governors.

Location and Service Area

     The Company conducts general commercial banking in
its primary service areas, emphasizing the banking needs
of individuals and small- to medium-sized businesses and
professional concerns.  The Maryland bank operates from
nine branches located throughout Worcester County,
Maryland while the Delaware bank operates from one branch
located in Sussex County, Delaware.  The Banks draw most
of their customer deposits and conduct most of their
lending transactions from within their primary service
areas, which encompass Worcester County, Maryland, Sussex
County, Delaware and neighboring counties.

     Both Sussex County, Delaware and Worcester County,
Maryland are located along the shores of the Atlantic
Ocean and have experienced population growth in recent
years.  The area is growing as both a resort and a
retirement community.

     The principal components of the economy of the
counties are tourism and agriculture.  Berlin has a strong
component of health-care related businesses.  The tourist
businesses of Ocean City, Maryland and Bethany, Delaware
and the health-care facilities in Berlin, Maryland
(including Berlin Nursing Home and Atlantic General
Hospital) are the largest employers in the counties.  The
largest industrial employers are Perdue Farms and Hudson
Farms.



Banking Services

     The banks offer a full range of deposit services
including checking, NOW and Money Market accounts, savings
and time deposits including certificates of deposit.  The
transaction accounts and time certificates are tailored to
the banks' principal market areas at rates competitive to
those offered in the area.  In addition, the banks offer
certain retirement account services, such as Individual
Retirements Accounts ("IRAs").  All deposits are insured
by the Federal Deposit Insurance Corporation (the "FDIC")
up to the maximum amount allowed by law (generally,
$100,000 per depositor subject to aggregation rules).  The
banks solicit these accounts from individuals, businesses,
associations and organizations, and governmental
authorities.

     The Company, through its banks, also offers a full
range of short- to medium-term commercial and personal
loans.   Commercial loans include both secured and
unsecured loans for working capital (including inventory
and receivables), business expansion (including
acquisition of real estate and improvements), and purchase
of equipment and machinery.  Consumer loans include
secured and unsecured loans for financing automobiles,
home improvements, education, and personal investments.
The Company originates commercial and residential mortgage
loans and real estate construction and acquisition loans.
 These lending activities are subject to a variety of
lending limits imposed by state and federal law.  Neither
bank may make any loans to any director, officer, or
employee (except for commercial loans to directors who are
not officers or employees) unless the loans are approved
by the Board of Directors of the lending bank.  The Board
of Directors must review any such loans every six months.

     Other bank services include cash management
services, 24-hour ATM's, credit cards, debit cards, safe
deposit boxes, travelers' checks, direct deposit of
payroll and social security checks, and automatic drafts
for various accounts.    In 2002, the banks plan to offer
Internet banking including electronic bill-payment
services to both commercial and retail customers.

Competition

     The Company faces strong competition in all areas of
its operations.  The competition comes from entities
operating in Worcester County, Maryland and Sussex County,
Delaware and neighboring counties and includes branches of
some of the largest banks in Maryland, Delaware, and
Virginia. Its most direct competition for deposits
historically has come from other commercial banks, savings
banks, savings and loan associations, and credit unions
operating in its service areas.  The banks also compete
for deposits with money market mutual funds and corporate
and government securities.  The banks compete for loans
with the same banking entities, as well as mortgage
banking companies and other institutional lenders.  The
competition for loans varies from time to time depending
on certain factors.  These factors include, among others,
the general availability of lendable funds and credit,
general and local economic conditions, current interest
rate levels, conditions in the mortgage market, and other
factors which are not readily predictable.

     The banks' employ traditional marketing media
including local newspapers and radio, to attract new
customers.  Bank officers, directors and employees are
active in numerous community organizations and participate
in community-based events.  These activities and referrals
of satisfied customers result in new business.

Employees

     As of December 31, 2001, the banks employed 97 full-
time equivalent employees.  The Company's operations are
conducted through the banks.  Consequently, the Company
does not have separate employees.  None of the employees
of the banks are represented by any collective bargaining
unit.  The banks consider their relations with their
employees to be good.

SUPERVISION AND REGULATION

     The Company and the banks are subject to state and
federal banking laws and regulations which impose specific
requirements or restrictions on, and provide for general
regulatory oversight with respect to, virtually all
aspects of operations.  These laws and regulations are
generally intended to protect depositors, not
shareholders.  The following is a brief summary of certain
statutes, rules, and regulations affecting the Company and
the banks.  To the extent that the following summary
describes statutory or regulatory provisions, it is
qualified in its entirety by reference to the particular
statutory and regulatory provisions.  Beginning with the
enactment of the Financial Institutions Reform, Recovery
and Enforcement Act of 1989 (FIRREA) and following with
the Federal Deposit Insurance Corporation Improvement Act
of 1991 (FDICIA), numerous additional regulatory
requirements have been placed on the banking industry, and
additional changes have been proposed.  Legislative
changes and the policies of various regulatory authorities
may affect the operations of the Company and the banks and
those effects may be material.  The Company is unable to
predict the nature or the extent of the effect on its
business and earnings that fiscal or monetary policies,
economic controls, or new federal or state legislation may
have in the future.



Gramm-Leach-Bliley Act

     On November 12, 1999, the Gramm-Leach-Bliley Act was
signed into law.  Among other things, the Act repeals the
restriction, contained in the Glass-Steagall Act, on banks
affiliating with securities firms.  The Act permits bank
holding companies to engage in a statutorily provided list
of financial activities, including insurance and
securities underwriting and agency activities, merchant
banking, and insurance company portfolio investment
activities.  The Act also authorizes activities that are
"complementary" to financial activities.  The Act is
intended to grant certain powers to community banks that
larger institutions have accumulated on an ad hoc basis.
The Act may have the result of increasing competition that
the Company and the banks face from larger institutions
and other types of companies.  In fact, it is not possible
to predict the full effect that the Act will have on the
Company and the banks.

The Company

     Because it owns the outstanding common stock of the
banks, the Company is a bank holding company within the
meaning of the federal Bank Holding Company Act of 1956
(the "BHCA").  Under the BHCA, the Company is subject to
periodic examination by the Federal Reserve and is
required to file periodic reports of its operations and
such additional information as the Federal Reserve may
require.  The Company's and the banks' activities are
limited to banking, managing or controlling banks,
furnishing services to or performing services for its
subsidiaries, or engaging in any other activity that the
Federal Reserve determines to be so closely related to
banking or managing and controlling banks as to be a
proper incident thereto.

     Investments, Control, and Activities.  With certain
limited exceptions, the BHCA requires every bank holding
company to obtain the prior approval of the Federal
Reserve before (i) acquiring substantially all the assets
of any bank, (ii) acquiring direct or indirect ownership
or control of any voting shares of any bank if after such
acquisition it would own or control more than 5% of the
voting shares of such bank (unless it already owns or
controls the majority of such shares), or (iii) merging or
consolidating with another bank holding company.

     In addition, and subject to certain exceptions, the
BHCA and the Change in Bank Control Act, together with
regulations thereunder, require Federal Reserve approval
(or, depending on the circumstances, no notice of
disapproval) prior to any person or company acquiring
"control" of a bank holding company, such as the Company.
 Control is conclusively presumed to exist if an
individual or company acquires 25% or more of any class of
voting securities of the bank holding company.  Because
the Company's Common Stock is registered under the
Securities Exchange Act of 1934, under Federal Reserve
regulations, control will be rebuttably presumed to exist
if a person acquires at least 10% of the outstanding
shares of any class of voting securities of the Company.
The regulations provide a procedure for challenge of the
rebuttable control presumption.

     Under the BHCA, the Company is generally prohibited
from engaging in, or acquiring direct or indirect control
of more than 5% of the voting shares of any company
engaged in non-banking activities, unless the Federal
Reserve, by order or regulation, has found those
activities to be so closely related to banking or managing
or controlling banks as to be a proper incident thereto.
Some of the activities that the Federal Reserve has
determined by regulation to be proper incidents to the
business of banking include making or servicing loans and
certain types of leases, engaging in certain insurance and
discount brokerage activities, performing certain data
processing services, acting in certain circumstances as a
fiduciary or investment or financial advisor, owning
savings and loan associations, and making investments in
certain corporations or projects designed primarily to
promote community welfare.

     Source of Strength; Cross-Guarantee.  In accordance
with Federal Reserve policy, the Company is expected to
act as a source of financial strength to its banks and to
commit resources to support the banks in circumstances in
which the Company might not otherwise do so.  Under the
BHCA, the Federal Reserve may require a bank holding
company to terminate any activity or relinquish control of
a nonbank subsidiary (other than a nonbank subsidiary of a
bank) upon the Federal Reserve's determination that such
activity or control constitutes a serious risk to the
financial soundness or stability of any subsidiary
depository institution of the bank holding company.
Further, federal bank regulatory authorities have
additional discretion to require a bank holding company to
divest itself of any bank or nonbank subsidiary if the
agency determines that divestiture may aid the depository
institution's financial condition.  The banks may be
required to indemnify, or cross-guarantee, the FDIC
against losses it incurs with respect to any other bank
controlled by the Company, which in effect makes the
Company's equity investments in healthy bank subsidiaries
available to the FDIC to assist any failing or failed bank
subsidiary of the Company.

The Banks

     General.  The banks operate as state nonmember
banking associations incorporated under the laws of the
State of Maryland and the State of Delaware.  They are
subject to examination by the FDIC and each state's
department of banking regulation.  Deposits in the banks
are insured by the FDIC up to a maximum amount (generally
$100,000 per depositor, subject to aggregation rules).
The States and FDIC regulate or monitor all areas of the
banks' operations, including security devices and
procedures, adequacy of capitalization and loss reserves,
loans, investments, borrowings, deposits, mergers,
issuances of securities, payment of dividends, interest
rates payable on deposits, interest rates or fees
chargeable on loans, establishment of branches, corporate
reorganizations, maintenance of books and records, and
adequacy of staff training to carry on safe lending and
deposit gathering practices.  The FDIC requires the banks
to maintain certain capital ratios and imposes limitations
on each of the banks' aggregate investment in real estate,
bank premises, and furniture and fixtures.  The banks are
required by the FDIC to prepare quarterly reports on the
banks' financial condition.

     Under provisions of the FDICIA, all insured
institutions must undergo periodic on-site examination by
the appropriate banking agency.  The cost of examinations
of insured depository institutions and any affiliates may
be assessed by the agency against each institution or
affiliate, as it deems necessary or appropriate.  Insured
institutions are required to submit annual reports to the
FDIC and the appropriate agency (and state supervisor when
applicable).  FDICIA also directs the FDIC to develop with
other appropriate agencies a method for insured depository
institutions to provide supplemental disclosure of the
estimated fair market value of assets and liabilities, to
the extent feasible and practicable, in any balance sheet,
financial statement, report of condition, or other report
of any insured depository institution.  FDICIA also
requires the federal banking regulatory agencies to
prescribe, by regulation, standards for all insured
depository institutions and depository institution holding
companies relating, among other things, to: (i) internal
controls, information systems, and audit systems; (ii)
loan documentation; (iii) credit underwriting; (iv)
interest rate risk exposure; and (v) asset quality.

     Transactions With Affiliates and Insiders.  The
banks are subject to Section 23A of the Federal Reserve
Act, which places limits on the amount of loans or
extensions of credit to, or investment in, or certain
other transactions with, affiliates and on the amount of
advances to third parties collateralized by the securities
or obligations of affiliates.  The aggregate of all
covered transactions is limited in amount, as to any one
affiliate, to 10% of each bank's capital and surplus and,
as to all affiliates combined, to 20% of each bank's
capital and surplus.  In addition, each covered
transaction must meet specific collateral requirements.
The banks are also subject to Section 23B of the Federal
Reserve Act which, among other things, prohibits an
institution from engaging in certain transactions with
certain affiliates unless the transactions are on terms
substantially the same, or at least as favorable to such
institution or its subsidiaries, as those prevailing at
the time for comparable transactions with nonaffiliated
companies.  The banks are subject to certain restrictions
on extensions of credit to executive officers, directors,
certain principal shareholders, and their related
interests.  Such extensions of credit (i) must be made on
substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable
transactions with third parties, and (ii) must not involve
more than the normal risk of repayment or present other
unfavorable features.

     Branching.  Under Maryland law, the Maryland bank
may open branches statewide, subject to the prior approval
of the State Department of Financial Regulation and the
FDIC.  Maryland law permits banking organizations in other
states to acquire Maryland banking organizations, as long
as such states grant similar privileges to banking
organizations in Maryland to acquire banking organizations
in their states, by opening a de novo branch, by acquiring
an existing branch from a Maryland depository institution,
or as a result of an interstate merger with a Maryland
banking organization.  Delaware law also allows branches
statewide with prior approval of the Office of the State
Bank Commissioner and the FDIC.  Delaware law is more
restrictive allowing other state banking organizations to
branch to Delaware only through opening a de novo bank, or
as the result of an interstate merger.

     Community Reinvestment Act.  The Community
Reinvestment Act requires that each insured depository
institution shall be evaluated by its primary federal
regulator with respect to its record in meeting the credit
needs of its local community, including low and moderate
income neighborhoods, consistent with the safe and sound
operation of those institutions.  These factors are also
considered in evaluating mergers, acquisitions, and
applications to open a branch or facility.  Failure to
adequately meet these criteria would impose additional
requirements and limitations on the banks.  The banks
received satisfactory ratings in their most recent
evaluations.

     Other Regulations.  Interest and certain other
charges collected or contracted for by the banks are
subject to state and federal laws concerning interest
rates.  The banks' loan operations are also subject to
certain federal laws applicable to credit transactions,
such as the federal Truth-In-Lending Act governing
disclosures of credit terms to consumer borrowers, the
Home Mortgage Disclosure Act of 1975 requiring financial
institutions to provide information to enable the public
and public officials to determine whether a financial
institution is fulfilling its obligation to help meet the
housing needs of the community it serves, the Equal Credit
Opportunity Act prohibiting discrimination on the basis of
race, creed, or other prohibited bases in extending
credit, the Fair Credit Reporting Act of 1978 governing
the use and provision of information to credit reporting
agencies, the Fair Debt Collection Act governing the
manner in which consumer debts may be collected by
collection agencies, and the rules and regulations of the
various federal agencies charged with the responsibility
of implementing such federal laws.  The deposit operations
of the banks are also subject to the Right to Financial
Privacy Act which imposes a duty to maintain
confidentiality of customers' financial records and
prescribes procedures for complying with administrative
subpoenas of financial records, and the Electronic Funds
Transfer Act as implemented by the Federal Reserve Board's
Regulation E which governs automatic deposits to and
withdrawals from deposit accounts and customers' rights
and liabilities arising from the use of automated teller
machines and other electronic banking services.

Deposit Insurance

     The FDIC establishes rates for the payment of
premiums by federally insured banks and thrifts for
deposit insurance.  Separate insurance funds are
maintained for commercial banks (BIF) and thrifts (SAIF),
with insurance premiums from the industry used to offset
losses from insurance payouts when banks and thrifts fail.
 Since 1993, insured depository institutions like the
banks have paid for deposit insurance under a risk-based
premium system.  Under this system, until mid-1995
depository institutions paid to BIF or SAIF from $0.23 to
$0.31 per $100 of insured deposits depending on the
capital levels and risk profile of the institution, as
determined by its primary federal regulator on a semi-
annual basis.  When BIF reached its legally mandated
reserve ratio in mid-1995, the FDIC lowered premiums for
well-capitalized banks, eventually to a level of $.00 per
$100 of insured deposits, with a minimum semiannual
assessment of $1,000.  In 1996, congress enacted the
Deposit Insurance Funds Act of 1996, which eliminated this
minimum assessment.  The BIF insurance assessment rate for
the first semiannual assessment period of 2002 is proposed
to remain at $.00 to $.27 per $100 in deposits.  In
addition to the amount paid for deposit insurance, banks
are assessed an additional amount to service the interest
on the bond obligations of the Financial Corporation
(FICO).  Any increase in deposit insurance premiums for
the banks will increase the banks' cost of funds, and
there can be no assurance that such costs can be passed on
to the banks' customers.

Dividends

     The principal source of the Company's cash revenues
comes from dividends received from the Maryland bank.  The
amount of dividends that may be paid by the bank to the
Company depends on the bank's earnings and capital
position and is limited by federal and state laws,
regulations, and policies.  The Federal Reserve has stated
that bank holding companies should refrain from or limit
dividend increases or reduce or eliminate dividends under
circumstances in which the bank holding company fails to
meet minimum capital requirements or in which earnings are
impaired.

     The Company's ability to pay any cash dividends to
its shareholders in the future will depend primarily on
the Maryland bank's ability to pay dividends to the
Company.  In order to pay dividends to the Company, the
bank must comply with the requirements of all applicable
laws and regulations.  Under Maryland law, the bank must
pay a cash dividend only from the following, after
providing for due or accrued expenses, losses, interest,
and taxes:  (i) its undivided profits, or (ii) with the
prior approval of the Department of Financial Regulation,
its surplus in excess of 100% of its required capital
stock.  Under FDICIA, the bank may not pay a dividend if,
after paying the dividend, the bank would be
undercapitalized.  See "Capital Regulations" below.  See
Item 5 for a discussion of dividends paid by the bank in
the past two years.

     In addition to the availability of funds from the
Maryland bank, the future dividend policy of the Company
is subject to the discretion of the Board of Directors and
will depend upon a number of factors, including future
earnings, financial condition, cash needs, and general
business conditions.  The amount of dividends that might
be declared in the future presently cannot be estimated
and it cannot be known whether such dividends would
continue for future periods.

Capital Regulations

     The federal bank regulatory authorities have adopted
risk-based capital guidelines for banks and bank holding
companies that are designed to make regulatory capital
requirements more sensitive to differences in risk profile
among banks and bank holding companies, account for off-
balance sheet exposure, and minimize disincentives for
holding liquid assets.  The resulting capital ratios
represent qualifying capital as a percentage of total
risk-weighted assets and off-balance sheet items.  The
guidelines are minimums, and the regulators have noted
that banks and bank holding companies contemplating
significant expansion programs should not allow expansion
to diminish their capital ratios and should maintain
ratios well in excess of the minimums.

     Current guidelines require bank holding companies
and federally regulated banks to maintain a minimum ratio
of total capital to risk-based assets equal to 8%, of
which at least 4% must be Tier 1 capital.  Tier 1 capital
includes common shareholders' equity before the unrealized
gains and losses on securities available for sale,
qualifying perpetual preferred stock, and minority
interests in equity accounts of consolidated subsidiaries,
but excludes goodwill and most other intangibles, and
excludes the allowance for loan and lease losses.  Tier 2
capital includes the excess of any preferred stock not
included in Tier 1 capital, mandatory convertible
securities, hybrid capital instruments, subordinated debt
and intermediate term-preferred stock, and general
reserves for loan and lease losses up to 1.25% of risk-
weighted assets.  Total capital is the sum of Tier 1 plus
Tier 2 capital.

     Under the guidelines, banks' and bank holding
companies' assets are given risk-weights of 0%, 20%, 50%,
and 100%.  In addition, certain off-balance sheet items
are given credit conversion factors to convert them to
asset equivalent amounts to which an appropriate risk-
weight will apply.  These computations result in the total
risk-weighted assets.

     The federal bank regulatory authorities have also
implemented a leverage ratio, which is Tier 1 capital as a
percentage of average total assets less intangibles, to be
used as a supplement to the risk-based guidelines.  The
principal objective of the leverage ratio is to place a
constraint on the maximum degree to which a bank holding
company may leverage its equity capital base.  The minimum
required leverage ratio for top-rated institutions is 3%,
but most institutions are required to maintain an
additional cushion of at least 100 to 200 basis points.

     FDICIA established a new capital-based regulatory
scheme designed to promote early intervention for troubled
banks and requires the FDIC to choose the least expensive
resolution of bank failures.  The new capital-based
regulatory framework contains five categories for
compliance with regulatory capital requirements, including
"well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," and
"critically undercapitalized."  To qualify as a "well
capitalized" institution, a bank must have a leverage
ratio of no less than 5%, a Tier 1 risk-based ratio of no
less than 6%, and a total risk-based capital ratio of no
less than 10%, and the bank must not be under any order or
directive from the appropriate regulatory agency to meet
and maintain a specific capital level.  As of December 31,
2001, the Company and its banks were qualified as "well
capitalized."  For further discussions, see "Item 7.
Management's Discussion and Analysis or Plan of Operation
- Capital."

Recent Legislative Developments

     Periodically, the federal and state legislatures
consider bills with respect to the regulation of financial
institutions.  Some of these proposals could significantly
change the regulation of banks and the financial services
industry.  The Company cannot predict if such proposals
will be adopted or the affect to the Company.


Item 2. Description of Property

     The Company has ten branch locations, all of which
are owned by the Company or the banks.  The locations are
described as follows:

Office  Location  Square Footage
Main Office, Maryland
        24 North Main Street, Berlin, Maryland 21811
        6,500
East Berlin Office
        10524 Old Ocean City Blvd, Berlin, MD 21811
        1,500
20th Street Office
        100 20th Street, Ocean City, Maryland 21842
        3,100
Ocean Pines Office
        11003 Cathell Road, Berlin, Maryland 21811
        2,420
Mid-Ocean City Office
        9105 Coastal Highway, Ocean City, Maryland 21842
        1,984
North Ocean City Office
        14200 Coastal Highway, Ocean City, Maryland 21842
        2,545
West Ocean City Office
        9923 Golf Course Road, Ocean City, Maryland 21842
        2,496
Pocomoke Office
        2140 Old Snow Hill Road, Pocomoke, Maryland 21851
        2,624
Snow Hill Office
        108 West Market Street, Snow Hill, Maryland 21863
        3,773
Main Office, Delaware
        50 Atlantic Avenue, Ocean View, Delaware 19970
        4,900

     The Berlin office is the centralized location for
the Company and for all the Maryland branches; that is to
say that all proof and bookkeeping is performed there.
The Delaware office has its own proof and bookkeeping
functions.  Each branch has a manager that also serves as
its loan officer, with exception of the East Berlin office
which does not have a loan officer.  All offices
participate in normal day-to-day banking operations.
     Eight Maryland offices offer automated teller
machines; all locations except the East Berlin office.
The Delaware bank has an automated teller machine on-
premise. The Company operates one automated teller machine
which is located at a local hospital.

Item 3. Legal Proceedings

     There are no material pending legal proceedings to
which the Company or the banks or any of their properties
are subject.

Item 4. Submission of Matters to a Vote of Security
Holders

     There were no matters submitted to a vote of the
shareholders of the Company during the fourth quarter of
2001.

PART II

Item 5. Market for Common Equity and Related Stockholder
Matters

     The Company's Articles of Incorporation, as
amended, authorize it to issue up to 10,000,000 shares
of common stock.

     As of February 28, 2001, there were approximately
905 holders of record of the common stock and 3,240,000
shares of Common Stock issued and outstanding. There is
no established public trading market in the stock, and
there is no likelihood that a trading market will
develop in the near future.  Transactions in the common
 stock are infrequent and are negotiated privately
between the persons involved in those transactions.

     All outstanding shares of common stock of the
Company are entitled to share equally in dividends from
funds legally available, when, as, and if declared by
the Board of Directors.   The Company paid dividends of
$.37 per share in 2001 and $.61 per share in 2000 which
includes a special cash dividend of $.25 per share
which is not expected to be an annual event.
Per share data for 2000 is restated to give retroactive
effect to the 2000 stock split effected in the form
of a 100% stock dividend.



Item 6. Selected Financial Data
     The following table presents selected financial
data for the five years ended December 31, 2001.  Prior
period per share data is restated to reflect 100% stock
dividends paid in 1998 and 2000.

<table>
<caption>
                              2001     2000     1999     1998     1997

                           <c>      <c>      <c>      <c>      <c>
(Dollars in thousands, except for per share data)

At Year End

Total assets                 336,825  289,048  288,921  277,463  249,893
Total deposits               274,149  231,926  238,726  230,618  206,793
Total loans, net of unearned
 income and allowance for
 loan losses                 166,502  168,571  152,001  139,737  147,191
Total stockholders' equity    57,243   53,085   49,220   46,343   42,577


For the Year

Net interest income           13,297   13,580   12,221   11,554   11,465
Net income                     5,414    5,625    5,020    4,697    4,935

Per share data
Book value                     17.67    16.38    15.19    14.31    13.14
Net income                      1.67     1.74     1.55     1.45     1.53
Cash dividends declared          .37      .61      .60      .33      .68
</table>

Item 7. Management's Discussion and Analysis or Plan of
Operation

BUSINESS OF THE COMPANY

     Calvin B. Taylor Bankshares, Inc. (the "Company")
is a bank holding company which was incorporated in
the State of Maryland on October 31, 1995.  Calvin B.
Taylor Banking Company (the "Maryland Bank"), which
commenced operation in 1890, was incorporated under the
laws of the State of Maryland on December 17, 1907 and
is a state nonmember bank under the laws of the State
of Maryland. Calvin B. Taylor Bank of Delaware (the
"Delaware Bank") was incorporated under the laws of
the State of Delaware on September 18, 1997, and is a
state nonmember bank under the laws of the State of
Delaware.  Both banks are engaged in a general
commercial banking business, emphasizing in their
marketing the Company's local management and ownership,
from their main offices located in their primary
service areas of Worcester County, Maryland and Sussex
County, Delaware, and their neighboring counties. The
banks offer a full range of deposit services, including
checking accounts, NOW accounts, savings accounts and
other time deposits of various types, ranging from
daily money market accounts to longer-term certificates
of deposit.  In addition, the banks offer certain
retirement account services, such as Individual
Retirement Accounts.  The banks also offer a full range
of short- to medium-term commercial and personal loans.
 The banks originate fixed rate mortgage loans and real
estate construction and acquisition loans.  These loans
generally have a demand feature.  Other bank services
include cash management services, safe deposit boxes,
travelers' checks, direct deposit of payroll and social
security checks, debit cards, and automatic drafts for
various accounts.


MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     The following discussion of the Company's
financial condition and results of operations should be
read in conjunction with the Company's financial
statements and related notes and other statistical
information included elsewhere herein.

Overview

     Consolidated income of the Company is derived
primarily from operations of the banks.  The 2001 net
income was $5,414,404, compared to $5,624,558 for 2000,
and $5,019,660 for 1999.  The Company continued its
history of above average earnings with a return on
average equity of 9.54% and return on average assets of
1.75% for 2001, compared to returns on average equity
of 10.84% and 10.47%, and returns on average assets of
1.94% and 1.78%, for 2000 and 1999, respectively.


Results of Operations

     The Company reported net income of $5,414,404, or
$1.67 per share, for the year ended December 31, 2001,
which was a decrease of $210,154, or 3.74%, from the
net income of $5,624,558, or $1.74 per share, for the
year ended December 31, 2000.  Primarily responsible
for this decrease was the decline in net interest
income and increased personnel costs.  Net income for
2000 increased by $604,898, or 12.05%, over the net
income of $5,019,660, or $1.55 per share for the year
ended December 31, 1999.  Per share data for 1999 is
restated for the effect of the 100% stock dividend
distributed 2000.  Primarily responsible for this
increase was the growth in net interest income.

     Net interest income decreased $283,039, or 2.08%,
to $13,296,966 in 2001, from $13,580,005 in 2000.  This
decrease was the result of a lower net interest spread
between the rates on interest-earning assets and
interest-bearing liabilities.  Interest expense
increased $388,357 while interest income increased by
$105,318.  The yield on interest-earning assets
decreased to 6.91% in 2001, from 7.39% in 2000, while
the combined yield on deposits and borrowed funds was
stable at 2.48% for the same periods.

     Net interest income increased $1,359,187, or
11.12%, to $13,580,005 in 2000, from $12,220,818 in
1999.  This increase was the result of an increase in
interest revenue of $1,440,460 while interest expense
increased by $81,273.  Net interest income increased
primarily due to growth of $18,090,114 in the mortgage
loan portfolio funded largely by a decrease of
$13,648,377 in the amortized cost of investment
securities held to maturity.  Decreasing deposit
balances offset increased rates, resulting in an
increase of $47,198 of deposit interest expense.
Interest expense on retail repurchase agreements, which
were first offered by the Bank in 2000, was $23,427.
The yield on interest-earning assets increased to 7.39%
in 2000, from 6.97% in 1999, while the combined yield
on deposits and borrowed funds increased to 2.48% from
2.47% for the same periods.

     Noninterest income and noninterest expense
increased by 17.83% and 5.45%, respectively, during
2001 compared to 2000.   Noninterest income and
noninterest expense increased by 5.60% and 4.54%,
respectively, during 2000 compared to 1999.

     The Company reproted net income of $1,165,144 or
$.36 per share for the quarter ended December 31, 2001,
which was a decrease of $273,045, or 18.99% from the net
income of $1,438,189, or $.44 epr share, for the quarter
ended December 31, 2000.  Primarily responsible was the
decrease in quarterly net income from $3,532,645 in
fourth quarter 2000 to $3,253,986 in fourth quarter 2001.
Management attributes this $278,657 or 7.89% decline in
net interest income to several factors related to the
national economic environment.  Decreased yields on
federa; funds sold and investment securities, coupled
with the banks' loan rate reductions caused interest
income to lag by $255,829 or 5.06% behind the comparable
quarter last year.  Throughout the year, the banks'
lowered the rate they pay on time deposit.  In mid-
fourth quarter, they lowered rated on interest-bearing
checking and savings deposits.

Net Interest Income

     The primary source of income for the Company is
net interest income, which is the difference between
revenue on interest-earning assets, such as investment
securities and loans, and interest incurred on
interest-bearing sources of funds, such as deposits and
borrowings.  The level of net interest income is
determined primarily by the average balance of
interest-earning assets and funding sources and the
various rate spreads between the interest-earning
assets and the Company's funding sources.   Changes in
net interest income from period to period result from
increases or decreases in the volume of interest-
earning assets and interest-bearing liabilities, and
increases or decreases in the average rates earned and
paid on such assets and liabilities.  The volume of
interest-earning assets and interest-bearing
liabilities is affected by the ability to manage the
earning-asset portfolio, which includes loans, and the
availability of particular sources of funds, such as
noninterest bearing deposits.

     The key performance measure for net interest
income is the "net margin on interest-earning assets,"
or net interest income divided by average interest-
earning assets.  The Company's net interest margin for
2001 was 4.74% compared to 5.21% for 2000 and 4.77% for
1999.  Because most of the loans of the banks are
written with a demand feature, the income of the banks
should not change dramatically as interest rates
change.  Management of the Company expects to maintain
the net margin on interest-earning assets. The net
margin may decline, however, if competition increases,
loan demand decreases, or the cost of funds rises
faster than the return on loans and securities.
Although such expectations are based on management's
judgment, actual results will depend on a number of
factors that cannot be predicted with certainty, and
fulfillment of management's expectations cannot be
assured.

<table>
<caption>
Average Balances, Interest, and Yields
(Dollars stated in thousands)

                             For the Year Ended      For the Year Ended      For the Year Ended
                             December 31, 2001       December 31, 2000       December 31, 1999

                             Average                 Average                 Average
                             Balance  Interest Yield Balance  Interest Yield Balance  Interest Yield

                          <c>      <c>      <c>   <c>      <c>      <c>   <c>      <c>      <c>
Assets
Federal funds sold           41,265   1,413   3.42%  27,035   1,716   6.35%  25,120   1,262   5.02%
Interest-bearing deposits       803      46   5.77%     833      46   5.53%   1,136      60   5.27%
Investment securities:
  U. S. Treasury             47,478   2,577   5.43%  52,382   3,009   5.74%  70,036   3,744   5.35%
  U. S. Government Agency    18,180   1,121   6.17%  14,102     924   6.55%   5,202     312   6.00%
  State and municipal         8,773     493   5.62%  11,045     601   5.44%  14,684     776   5.28%
  Other                       1,508      49   3.26%   1,466      35   2.38%     936      26   2.80%
  Total investment securities75,939   4,240   5.58%  78,995   4,569   5.78%  90,859   4,858   5.35%
Loans:
  Commercial                 15,722   1,330   8.46%  16,670   1,372   8.23%  16,466   1,329   8.07%
  Mortgage                  151,521  12,398   8.18% 142,159  11,666   8.21% 125,807  10,299   8.19%
  Consumer                    5,061     475   9.38%   5,059     491   9.72%   5,029     480   9.55%
   Total loans              172,304  14,203   8.24% 163,888  13,529   8.26% 147,303  12,108   8.22%
Allowance for loan losses     2,188                   2,091                   2,084
  Total loans, net
    of allowance            170,116  14,203   8.35% 161,797  13,529   8.36% 145,219  12,108   8.34%
Total interest-earning
  assets                    288,123  19,902   6.91% 268,660  19,860   7.39% 262,334  18,288   6.97%
Noninterest-bearing cash     13,437    -             12,658    -             12,929    -
Premises and equipment        5,800    -              5,774    -              5,538    -
Other assets                  2,137    -              2,155    -              1,898    -
  Total assets              309,497  19,902         289,247  19,860         282,699  18,288

Interest-bearing
  Deposits
  Savings and NOW            76,033   1,409   1.85%  82,093   1,531   1.86%  69,550   1,411   2.03%
  Money market               35,804     864   2.41%  38,001     946   2.49%  58,167   1,332   2.29%
  Other time                 79,894   3,900   4.88%  69,456   3,345   4.82%  68,900   3,032   4.40%
Total interest-bearing
  deposits                  191,731   6,173   3.22% 189,550   5,822   3.07% 196,617   5,775   2.94%
Securities sold under
 agreements to repurchase     4,126      62   1.50%   1,610      24   1.45%    -       -
Borrowed funds                  223      13   6.03%     239      14   6.02%     123       4   3.03%
Total interest-bearing
  liabilities               196,080   6,248   3.19% 191,399   5,860   3.06% 196,740   5,779   2.94%
Noninterest-bearing
  deposits                   55,879    -             45,144    -             37,291    -
                            251,959   6,248   2.48% 236,544   5,860   2.48% 234,031   5,779   2.47%
Other liabilities               759     -                841    -                747    -

Stockholders' equity         56,779    -             51,863    -             47,921    -

Total liabilities and
  stockholders' equity      309,497   6,248         289,247   5,860         282,699   5,779

Net interest spread                           3.72%                   4.33%                   4.03%
Net interest income                  13,654                  14,000                  12,509

Net margin on interest-
 earning assets                               4.74%                   5.21%                   4.77%

Dividends and interest on tax-exempt securities and loans are reported on fully taxable
 equivalent basis.
US Treasury and Agency income for December 31, 2000 is restated for the effect of exemption
 from Maryland income tax.
</table>

Analysis of Changes in Net Interest Income
(Dollars stated in thousands)
<table>
<caption>
                         Year ended December 31, Year ended December 31, Year ended December 31,
                         2001 compared with 2000 2000 compared with 1999 1999 compared with 1998
                         variance due to         variance due to              variance due to

                         Total   Rate   Volume   Total  Rate   Volume    Total  Rate   Volume

                      <c>     <c>    <c>      <c>    <c>    <c>       <c>    <c>    <c>
Earning assets
  Interest-bearing
    deposits               -        2       (2)    (14)    2      (16)     (11)   (5)      (6)
  Federal funds sold      (303)(1,207)     904     454   358       96     (150)  (83)     (66)
  Investment
  securities:
    U. S. Treasury        (432)  (150)    (281)   (735)  209     (945)     276  (295)     570
    U. S. Government
     Agency                198    (69)     267     612    78      534      297    27      270
    State, county,
    and municipals        (109)    15     (124)   (175)   17     (192)      65   (69)     134
    Other                   14     13        1       9    (6)      15        2   (38)      40
  Loans:
    Commercial             (43)    35      (78)     43    27       17       30  (105)     135
    Mortgage               773    (35)     768   1,367    28    1,339     (286) (162)    (124)
    Consumer               (17)   (17)    -         11     8        3      (33)  (34)       1
      Total interest
       revenue              42 (1,413)   1,455   1,572   721      851      190  (764)     954

Interest-bearing liabilities
  Savings and NOW
   deposits               (122)    (9)    (113)    120  (134)     254      (83) (305)     222
  Money market             (82)   (27)     (55)   (386)   76     (462)    (199) (206)       7
  Other time deposits      555     52      503     313   289       24     (245) (441)     196
  Other borrowed funds      37      1       36      34     7       27        4     4      -
    Total interest
     expense               388     17      371      81   238     (157)    (523) (948)     425

Net interest income       (346) (1,430)   1,084  1,491   483    1,008      713   185      528
</table>

Dividends and interest on tax-exempt securities and loans
are reported on fully taxable equivalent basis.  The
variance that is both rate/volume related is reported with the rate
variance.

Composition of Loan Portfolio

     Because loans are expected to produce higher yields
than investment securities and other interest-earning
assets (assuming that loan losses are not excessive),
the absolute volume of loans and the volume as a
percentage of total earning assets is an important
determinant of net interest margin.  Average loans, net
of the allowance for loan losses, were $170,116,213,
$161,796,946 and $145,219,090 during 2001, 2000 and
1999, respectively, which constituted 59.04%, 60.22%
and 55.36% of average interest-earning assets for the
periods.  The Company's loan to deposit ratio was
60.73%, 72.68%, and 63.67% at December 31, 2001, 2000,
and 1999, respectively.  Average loans to average
deposits were 68.70%, 68.94%, and 62.08% for the same
periods.  The decrease in the loan to deposit ratio as
of year-end 2001 versus year-end 2000 is attributable to
a dramatic increase in deposits.

     The Company extends loans primarily to customers
located in and near Worcester County, Maryland and
Sussex County, Delaware.  There are no industry
concentrations in the Company's loan portfolio.  The
Company does, however, have a substantial portion of
its loans in real estate and performance of the will be
influenced by the real estate market in the region.



    The following table sets forth the composition of
the Company's loan portfolio as of December 31, 2001,
2000 and 1999, respectively.
<table>
<caption>
Composition of Loan Portfolio

                      December 31, 2001     December 31, 2000    December 31, 1999
                                  Percent              Percent              Percent
                      Amount     of total   Amount     of total  Amount     of total

                   <c>         <c>       <c>         <c>      <c>         <c>
Commercial           15,341,122   9.09%    15,588,946   9.13%   17,825,019  11.57%
Real estate         146,258,549  86.70%   148,468,890  86.94%  130,378,776  84.62%
Construction          2,117,685   1.26%     1,540,376   0.90%      824,071   0.53%
Consumer              4,980,078   2.95%     5,165,742   3.03%    5,054,669   3.28%
 Total loans        168,697,434 100.00%   170,763,954 100.00%  154,082,535 100.00%
Less allowance for
loan losses           2,195,922            2,192,755             2,082,031
  Net loans         166,501,512          168,571,199           152,000,504
</table>


     The following table sets forth the maturity
distribution, classified according to sensitivity to
changes in interest rates, for selected components of
the Company's loan portfolio as of December 31, 2001.

Loan Maturity Schedule and Sensitivity to Changes in
Interest Rates
<table>
<caption>
December 31, 2001

                                  Over one
                      One year    through    Over five
                      or less     five years years      Total

                 <c>           <c>        <c>       <c>
Commercial           15,341,122         -         -     15,341,122
Real estate         146,258,549         -         -    146,258,549
Construction          2,117,685         -         -      2,117,685
Consumer              2,109,087    2,648,073   222,918   4,980,078
  Total             165,826,443    2,648,073   222,918 168,697,434

Fixed interest rate   2,109,087    2,648,073   222,918   4,980,078
Variable interest rate
(or demand)         163,717,356         -         -    163,717,356
   Total            165,826,443    2,648,073   222,918 168,697,434
</table>

     As of December 31, 2001, $163,717,356 or 97.05%, of
the total loans were either variable rate loans or
loans written on demand.



     The Company has the following commitments, lines of
credit, and letters of credit outstanding as of
December 31, 2001, 2000 and 1999, respectively.
<table>
	             2001       2000       1999

               <c>         <c>       <c>
Construction loans 6,456,910  2,964,536  9,486,899
Other loan
 commitments       8,639,337  3,192,350  4,843,120
Standby letters
 of credit         3,243,063  1,412,552  1,504,241
Total             18,339,310  7,569,438 15,834,260
</table>
     Loan commitments are agreements to lend to a
customer as long as there is no violation of any
condition to the contract. Loan commitments may have
interest fixed at current rates, fixed expiration
dates, and may require the 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 credit loss in the event of
nonperformance by the borrower is represented by the
contract amount of the commitment.

Loan Quality

     The allowance for loan losses represents a reserve
for potential losses in the loan portfolio.  The
adequacy of the allowance for loan losses is evaluated
periodically based on a review of all significant
loans, with a particular emphasis on non-accruing, past
due, and other loans that management believes require
attention.  The determination of the reserve level
rests upon management's judgment about factors
affecting loan quality and assumptions about the
economy.  Management considers the year-end allowance
appropriate and adequate to cover possible losses in
the loan portfolio; however, management's judgment is
based upon a number of assumptions about future events,
which are believed to be reasonable, but which may or
may not prove valid.  Thus, there can be no assurance
that charge-offs in future periods will not exceed the
allowance for credit loss or that additional increases
in the credit loss allowance will not be required.  The
Company has a history of low loan charge-offs.

     For significant problem loans, management's review
consists of evaluation of the financial strengths of
the borrowers and guarantors, the related collateral,
and the effects of economic conditions.  The overall
evaluation of the adequacy of the total allowance for
loan losses is based on an analysis of historical loan
loss ratios, loan charge-offs, delinquency trends, and
previous collection experience, along with an
assessment of the effects of external economic
conditions.  It is the Company's policy to have each
bank evaluate loan portfolio risk for the purpose of
establishing an adequate allowance.  The banks' target
levels for their allowances as a percentage of gross
loans range from approximately 1.00% to 1.35%.  This
allowance may be increased for reserves for specific
loans identified as substandard during management's
loan review.  Generally, the Company will not require a
negative provision to reduce the allowance as a result
of either net recoveries or a decrease in loans, even
though this may cause the allowance as a percentage of
gross loans to exceed the Company's target.

     The provision for loan losses is a charge to
earnings in the current period to replenish the
allowance and maintain it at a level management has
determined to be adequate.  As of December 31, 2001,
2000 and 1999, the respective allowances for loan
losses were 1.30%, 1.28% and 1.35% of outstanding
loans.

     The provision for loan losses was $22,985 in 2001,
a decrease of $151,095 from the $174,080 provision in
2000.  This decrease is due to the stable size and
delinquency status of the loan portfolio, and the low
level of net charge-offs in 2001.  The provision for
loan losses was $174,080 in 2000, an increase of
$168,335 from the $5,745 provision in 1999.  The
increased provision is the result of a $56,295 increase
in net charge-offs for 2000, which totaled $63,356.
Outstanding loans increased 10.83% during the same
period.

<table>
                           2001             2000            1999

                 <c>       <c>     <c>       <c>     <c>       <c>
Commercial            218,414   9.95%   167,626   7.64%   213,549  10.26%
Real estate, including
  construction        913,449  41.60    810,790  36.98    656,104  31.51
Consumer              174,671   7.94    174,003   7.93    152,313   7.31
General               889,388  40.51  1,040,336  47.45  1,060,155  50.92
Total               2,195,922 100.00% 2,192,755 100.00% 2,082,031 100.00%
</table>

<table>
<caption>
Allowance for Loan Losses
                               2001             2000            1999

                          <c>              <c>             <c>
Balance at beginning of year 2,192,755         2,082,031         2,080,358

Loan losses:
  Commercial                     3,741            56,193            13,628
  Mortgages                       -                 -                 -
  Consumer                      20,983            10,907             8,256
Total loan losses               24,724            67,100            21,884

Recoveries on loans previously
charged off
  Commercial                     4,056             2,386             6,504
  Consumer                         850             1,358             8,319
Total loan recoveries            4,906             3,744            14,823

Net loan losses                 19,818            63,356             7,061
Provision for loan losses
 charged to expense             22,985           174,080             5,745
Provision related to commitments  -                 -                2,989

Balance at end of year       2,195,922         2,192,755         2,082,031


Allowance for loan losses to loans
 outstanding at end of year      1.30%             1.28%             1.35%

Net charge-offs to average loans 0.00%             0.04%             0.00%
</table>

     As a result of management's ongoing review of the
loan portfolio, loans are classified as nonaccrual when
it is not reasonable to expect collection of interest
under the original terms.  These loans are classified
as nonaccrual even though the presence of collateral or
the borrower's financial strength may be sufficient to
provide for ultimate repayment.  Interest on nonaccrual
loans is recognized only when received. A delinquent
loan is generally placed in nonaccrual status when it
becomes 90 days or more past due.  When a loan is
placed in nonaccrual status, all interest that has been
accrued on the loan but remains unpaid is reversed and
deducted from earnings as a reduction of reported
interest income.  No additional interest is accrued on
the loan balance until the collection of both principal
and interest becomes reasonably certain.  The Company
had no nonperforming loans at December 31, 2001, 2000
or 1999.

     Where real estate acquired by foreclosure and held
for sale is included with nonperforming loans, the
result comprises nonperforming assets.  There were no
nonperforming assets at December 31, 2001, 2000 or
1999.  Loans are classified as impaired when the
collection of contractual obligations, including
principal and interest, is doubtful.  Management has
identified no significant impaired loans as of December
31, 2001, 2000 or 1999.

Liquidity and Interest Rate Sensitivity

     The primary objective of asset/liability management
is to ensure the steady growth of the Company's primary
source of earnings, net interest income.  Net interest
income can fluctuate with significant interest rate
movements.  To lessen the impact of these margin
swings, the balance sheet should be structured so that
repricing opportunities exist for both assets and
liabilities in roughly equivalent amounts at
approximately the same time intervals.  Imbalances in
these repricing opportunities at any point in time
constitute interest rate sensitivity.

     Liquidity represents the ability to provide steady
sources of funds for loan commitments and investment
activities, as well as to provide sufficient funds to
cover deposit withdrawals and payment of debt and
operating obligations.  These funds can be obtained by
converting assets to cash or by attracting new
deposits.

     Average liquid assets (cash and amounts due from
banks, interest bearing deposits in other banks,
federal funds sold, and investment securities) were
53.08% of average deposits for 2001, compared to 50.93%
and 55.60% for 2000 and 1999, respectively.

     As of December 31, 2001, $41,521,902, or 47.87% of
the investment debt securities mature in one year or
less.  Funds invested in federal funds sold provide
liquidity so the banks do not need a large portfolio of
securities classified as "available-for-sale." Other
sources of liquidity include letters of credit,
overnight federal funds, and reverse repurchase
agreements available from correspondent banks.  The
total lines of credit available from correspondent
banks at December 31, 2001 were $39,000,000.  At
December 31, 2000 and 1999, they were $19,000,000.

     Interest rate sensitivity refers to the
responsiveness of interest-bearing assets and
liabilities to changes in market interest rates.  The
rate-sensitive position, or gap, is the difference in
the volume of rate-sensitive assets and liabilities at
a given time interval.  The general objective of gap
management is to actively manage rate-sensitive assets
and liabilities to reduce the impact of interest rate
fluctuations on the net interest margin.  Management
generally attempts to maintain a balance between rate-
sensitive assets and liabilities as the exposure period
is lengthened to minimize the overall interest rate
risk to the Company.

     Interest rate sensitivity may be controlled on
either side of the balance sheet.  On the asset side,
management exercises some control over maturities.
Also, loans are written to provide repricing
opportunities on fixed rate notes.  The Company's
investment portfolio, including federal funds sold,
provides the most flexible and fastest control over
rate sensitivity since it can generally be restructured
more quickly than the loan portfolio.

     On the liability side, deposit products are
structured to offer incentives to attain the maturity
distribution desired.  Competitive factors sometimes
make control over deposits more difficult and,
therefore, less effective as an interest rate
sensitivity management tool.

     The asset mix of the balance sheet is continually
evaluated in terms of several variables; yield, credit
quality, appropriate funding sources, and liquidity.
Management of the liability mix of the balance sheet
focuses on expanding the various funding sources.

     The Company was asset-sensitive for all time
horizons. For asset-sensitive institutions, if interest
rates should decrease, the net interest margins should
decline.  Since all interest rates and yields do not
adjust at the same velocity, the gap is only a general
indicator of rate sensitivity.

Interest Sensitivity Analysis
December 31, 2001
<table>
<caption>
                                     After three
                          Within     but within   After one
                          Three      twelve       but within  After
                          Months     months       five years  five years   Total

                       <c>         <c>          <c>         <c>          <c>
Assets
Earning assets
 Federal funds sold        54,389,656        -           -           -      54,389,656
 Interest-bearing deposits     99,000     590,000     190,000        -         879,000
 Investment debt securities12,833,044  28,688,858  42,876,250   2,336,880   86,735,032
 Loans                    159,744,976   6,081,467   2,648,073     222,918  168,697,434
Total earning assets      227,066,676  35,360,325  45,714,323   2,559,798  310,701,122

Liabilities
Interest-bearing deposits
 Money market and NOW      86,379,359        -           -           -      86,379,359
 Savings                   38,306,292        -           -           -      38,306,292
 Certificates =>$100,000    5,437,744  13,206,842   2,097,332        -      20,741,917
 Certificates <$100,000    22,618,597  36,548,676   9,045,676        -      68,212,949
Securities sold under
 agreements to repurchase   4,555,323        -           -           -       4,555,323
Note payable                    4,198      12,593      78,175     120,737      215,702
Total interest-bearing
  liabilities             157,301,513  49,768,110  11,221,183     120,737  218,411,542

Period gap                 69,765,163 (14,407,785) 34,493,140   2,439,061   92,289,579
Cumulative gap             69,765,163  55,357,378  89,850,518  92,289,579   92,289,580
Ratio of cumulative
 gap to total earning assets   22.45%      17.82%      28.92%      29.70%       29.70%
</table>

Investment Securities Maturity Distribution and Yields
<table>
<caption>
                                December 31, 2001 December 31, 2000 December 31, 1999
                                 Amount   Percent  Amount   Percent  Amount   Percent

                             <c>        <c>    <c>        <c>    <c>        <c>
U. S. Treasury securities
  One year or less              31,483,510 4.81%  29,941,815 5.34%  43,479,940 5.29%
  Over one through five years   26,563,088 3.96%  17,480,762 6.36%  22,986,692 5.11%
  Over ten years                 2,336,880 7.28%   2,428,120 7.28%   2,108,760 7.29%
Total U.S. Treasury securities  60,383,478 4.52%  49,850,697 5.78%  68,575,392 5.29%

U.S. Government Agencies
  One year or less               5,900,000 5.68%   8,750,177 6.35%
  Over one through five years   13,505,013 4.84%   9,900,000 6.46%  10,649,787 6.08%
Total U. S. Government Agencies 19,405,013 5.09%  18,650,177 6.41%  10,649,787 6.08%


State, county, and municipal securities
  One year or less               4,138,392 5.54%   6,641,744 5.67%   5,267,528 3.56%
  Over one through five years    2,808,149 5.23%   3,559,060 6.12%   7,064,654 3.61%
  Over five through ten years         -                 -              100,671 3.71%
  Over ten years                      -                 -              372,663 3.45%
Total state, county, and
municipal securities             6,946,541 5.43%  10,200,804 5.83%  12,805,516 3.59%

Total debt securities
  One year or less              41,521,902 5.01%  45,333,736 5.59%  48,747,468 5.10%
  Over one through five years   42,876,250 4.32%  30,939,822 6.36%  40,701,133 5.10%
  Over five through ten years         -                 -              100,671 3.71%
  Over ten years                 2,336,880 7.28%   2,428,120 7.28%   2,481,423 6.71%
Total debt securities           86,735,032 4.73%  78,701,678 5.94%  92,030,695 5.15%

Equity securities                1,637,219 3.03%   1,624,814 2.38%   1,293,336 3.72%

Total securities                88,372,251 4.70%  80,326,492 5.87%  93,324,031 5.13%
</table>

Deposits and Other Interest-Bearing Liabilities

	Average interest-bearing liabilities increased
$4,680,417, or 2.45%, to  $196,079,693 in 2001, from
$191,399,276 in 2000. Average interest-bearing deposits
increased $2,180,688, or 1.15%, to  $191,730,858 in
2001, from  $189,550,170 in 2000, while average demand
deposits increased $10,735,100, or 23,78% to
$55,879,394 in 2000, from $45,144,294 in 2000.  At
December 31, 2001, total deposits were $274,149,181,
compared to $231,926,192 at December 31, 2000, an
increase of 18.21%.

	Average interest-bearing liabilities decreased
$5,340,895, or 2.71%, to  $191,399,276 in 2000, from
$196,740,171 in 1999. Average interest-bearing deposits
decreased $7,067,017, or 3.59%, to  $189,550,170 in
2000, from  $196,617,187 in 1999, while average demand
deposits increased $7,853,381, or 21.06% to $45,144,294
in 2000, from $37,290,913 in 1999.  At December 31,
2000, total deposits were $231,926,192, compared to
$238,725,852 at December 31, 1999, a decrease of 2.85%.



	The following table sets forth the deposits of the
Company by category as of December 31, 2001, 2000 and 1999,
respectively.
<table>
<caption>
                                               December 31,
                                 2001              2000               1999
                                     Percent of          Percent of          Percent of
                            Amount   deposits   Amount   deposits   Amount   deposits

                         <c>         <c>     <c>         <c>     <c>         <c>
Demand deposit accounts     60,508,663  22.07%  49,674,943  21.42%  39,151,702  16.40%
NOW accounts                45,639,869  16.65%  39,910,464  17.21%  41,203,474  17.26%
Money market                40,739,491  14.86%  34,896,077  15.04%  52,985,409  22.19%
Savings accounts            38,306,292  13.97%  34,057,361  14.68%  35,254,807  14.77%
Time deposits <$100,000     68,212,949  24.88%  58,206,911  25.10%  57,312,394  24.01%
Time deposits =>$100,000    20,741,917   7.57%  15,180,436   6.55%  12,818,066   5.37%
 Total deposits            274,149,181 100.00% 231,926,192 100.00% 238,725,852 100.00%
</table>
     Core deposits, which exclude certificates of
deposit of $100,000 or more, provide a relatively
stable funding source for the Company's loan portfolio
and other earning assets.  The Company's core deposits
increased $36,661,508 during 2001.  Management believes
that this increase is largely attributable to a
migration of funds from the stock market into insured
deposits. Deposits, and particularly core deposits,
have been the Company's primary source of funding and
have enabled the Company to meet both its short-term
and long-term liquidity needs.  Management anticipates
that such deposits will continue to be the Company's
primary source of funding in the future.

     The maturity distribution of the Company's time
deposits over $100,000 at December 31, 2001, is shown
in the following table.

Maturities of Certificates of Deposit
and Other Time Deposits of $100,000 or More


December 31, 2001
<table>
<caption>
                        Within    After three  After six      After
                        three     through six  through twelve twelve
                        months    months       months         months     Total

                     <c>        <c>          <c>            <c>        <c>
Certificates of deposit
 of $100,000 or more    5,437,743  4,701,656    8,505,186      2,097,332  20,741,917
</table>
Large certificate of deposit customers tend to be
extremely sensitive to interest rate levels, making
these deposits less reliable sources of funding for
liquidity planning purposes than core deposits.  Some
financial institutions partially fund their balance
sheets using large certificates of deposit obtained
through brokers.  These brokered deposits are generally
expensive and are unreliable as long-term funding
sources.  Accordingly, the Company does not accept
brokered deposits.


Noninterest Income

      Noninterest income for 2001 increased $196,777, or
17.83% over the previous year.  Service charges on
deposit accounts, which contributed $128,262 of this
increase, were due to the growth of deposits.  VISA
Check Card fees increased by $29,761 due to increased
use.  Noninterest income for 2000 increased $58,531, or
5.60% over the previous year.  Additional revenues from
Credit Card and VISA Check Card fees contributed
$49,710 of this increase.



     The following table presents the principal
components of noninterest income for the years ended
December 31, 2001, 2000, and 1999, respectively.

Noninterest Income
<table>
<caption>
                        2001       2000       1999

                 <c>        <c>        <c>
Service charges on
 deposit accounts     853,107    724,845    724,067
Other noninterest
 revenue              447,528    379,013    321,260
  Total noninterest
  income            1,300,635  1,103,858  1,045,327


Noninterest income as a percentage of
average total assets
                        0.42%      0.38%      0.37%
</table>

Noninterest Expense

     Noninterest expense increased by $321,782, or
5.45%, from 2000 to 2001.  Increased personnel costs of
$297,807 were due to annual raises, increased 401(k)
expense, and increased costs of group insurance.
Occupancy expense decreased due to the bank's adoption
of accrual basis accounting for real property taxes,
which were previously recorded on the cash basis.  Of
the $53,987 increase in other operating expense,
$30,891 was attributable to increased fees related to
ATM operation.

	Noninterest expense increased by $256,594, or
4.54%, from 1999 to 2000.  Increased personnel costs of
$162,545 were due to annual raises and the addition of
a fulltime audit position.  Furniture and equipment
expense increased $160,003 of which approximately
$110,000 was attributable to costs associated with the
Check Imaging system installed in 1999.  Included in
noninterest expense in 1999 was property with a book
value of $128,806, which was donated to a Worcester
County municipality.  In 1999, costs of stationery and
supplies were above normal due to a branch relocation
and costs associated with potential year 2000 computer
problems; in 2000, stationery and supplies costs
decreased $47,994, returning to a pre-1999 level.

     The following table presents the principal
components of noninterest expense for the years ended
December 31, 2001, 2000 and 1999, respectively.

Noninterest Expense
<table>
<caption>
                        2001       2000       1999

                 <c>        <c>        <c>
Compensation and
 related expenses   3,536,660  3,238,854  3,076,309
Occupancy expense     392,499    425,767    413,073
Furniture and
 equipment expense    674,296    671,040    511,037
Amortization of
 intangible assets     68,503     62,005     19,721
Advertising           144,983    132,784    146,341
Business and
 product development   60,189     57,055     57,649
Courier service        96,726     99,466     93,968
Deposit insurance      43,413     35,157     37,917
Director fees          83,025     72,575     64,120
Dues, donations,
  and subscriptions    80,024    107,114     83,105
Donated real property    -          -       128,806
Freight                57,806     62,411     57,879
Liability insurance    44,608     61,649     64,686
Postage               155,002    145,325    155,092
Professional fees      52,400     62,660     61,538
Stationery and
  supplies            252,686    261,733    309,727
Telephone             100,455     82,256     82,466
Teller machine fees   154,289    123,398    110,791
Miscellaneous         228,423    202,957    173,387
  Total noninterest
  expense           6,225,987  5,904,206  5,647,612

Noninterest expense as a percentage of
average total assets
                        2.01%      2.04%      2.00%
</table>

Capital

     Under the capital guidelines of the Federal Reserve
Board and the FDIC, the Company and its banks are
currently required to maintain a minimum risk-based
total capital ratio of 8%, with at least 4% being Tier
1 capital.  Tier 1 capital consists of common
shareholders' equity, qualifying perpetual preferred
stock, and minority interests in equity accounts of
consolidated subsidiaries, less certain intangibles.
In addition, the Company and the banks must maintain a
minimum Tier 1 leverage ratio (Tier 1 capital to total
assets) of at least 3%, but this minimum ratio is
increased by 100 to 200 basis points for other than the
highest-rated institutions.

     At December 31, 2001, the Company and the banks
exceeded their regulatory capital ratios, as set forth
in the following table.

Analysis of Capital
<table>
<caption>
                                Required     Consolidated   Maryland     Delaware
                                Minimums     Company        Bank         Bank
2001

                             <c>           <c>            <c>          <c>
Total risk-based capital ratio  8.0%          36.8%          33.2%        60.9%
Tier I risk-based capital ratio 4.0%          35.6%          31.9%        59.7%
Tier I leverage ratio           3.0%          17.1%          15.5%        22.4%

2000
Total risk-based capital ratio  8.0%          36.6%          34.5%         53.0%
Tier I risk-based capital ratio 4.0%          35.4%          33.3%         52.0%
Tier I leverage ratio           3.0%          18.2%          16.6%         29.6%

1999
Total risk-based capital ratio  8.0%          38.4%          35.0%         99.6%
Tier I risk-based capital ratio 4.0%          37.1%          33.8%         99.3%
Tier I leverage ratio           3.0%          17.5%          15.4%         30.8%
</table>

Accounting Rule Changes

FASB Statement No. 141, Business combination requires
that business combinations be accounted for using the
purchase method.  The pooling-of-interest method is
no longer permitted.  This Statement applies to business
combinations initiated after June 30, 2001.

FASB Statement No. 142 Goodwill and Other Intangible
Assets changes the accounting for acquired goodwill and
other intangibles.  Annually, management should review
these items to determine if they should be reduced due to
impairment.  Systematic amortization is no longer permitted.
The effective date of the Statement is for fiscal years
beginning after December 31, 2001.  Core deposit
intangibles are not goodwill and are still amortizable.

FASB Statement No. 143 Accounting for Asset Retirement
obligations applies to legal obligtaions associated
with the retirement of a tangible long-lived asset.
The statement requires that management recognize the fair
value of an asset retirement obligation in the period
incurred, adding capitalization of this cost to the cost
of the asset.  Annually the asset, including the capitalized
cost, should be reviewed for impairment.  The effective
date of the Statement is for years beginning after June 15,
2002.


Impact of Inflation

     Unlike most industrial companies, the assets and
liabilities of financial institutions such as the
Company and the banks are primarily monetary in nature.
 Therefore, interest rates have a more significant
effect on the Company's performance than do the effects
of changes in the general rate of inflation and change
in prices.  In addition, interest rates do not
necessarily move in the same direction or in the same
magnitude as the prices of goods and services.  As
discussed previously, management seeks to manage the
relationships between interest sensitive assets and
liabilities in order to protect against wide interest
rate fluctuations, including those resulting from
inflation.   See "Liquidity and Interest Rate
Sensitivity" above.

Item 8. Financial Statements

     In response to this Item, the information included
on pages 1 through 22 of the Company's Annual Report to
Shareholders for the year ended December 31, 2001, is
incorporated herein by reference.

PART III

Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosures

     Not applicable.

Item 10. Directors and Executive Officers; Compliance
with Section 16(a) of the Exchange Act

     In response to this item, the information included
on pages 2 through 3 of the Company's Proxy Statement
for Annual Meeting of Shareholders To Be Held on May 8,
2002, is incorporated herein by reference.

Item 11. Executive Compensation

     In response to this item, the information included
on page 4 of the Company's Proxy Statement for Annual
Meeting of Shareholders To Be Held on May 8, 2002, is
incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial
Owners and Management

     In response to this item, the information included
on pages 4 through 5 of the Company's Proxy Statement
for  Annual Meeting of Shareholders to be held May 8,
2002, is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions

     In response to this item, the information included
on page 6 of the Company's Proxy Statement for Annual
Meeting of Shareholders to be held May 8, 2002, is
incorporated herein by reference.

Item 14. Exhibits and Reports on Form 8-K

(a)    Exhibits
     3.1     Articles of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 of
Registration Statement Form S-4, File No. 33-99762).
     3.2     Bylaws of the Company (incorporated by reference
to Exhibit 3.2 of Registration Statement Form S-4, File
No. 33-99762).
     13     Annual Report to Shareholders for the year ended
December 31, 2001.
     21     Subsidiaries of the Company.

(b)    Reports on Form 8-K

     No reports on Form 8-K were filed during the
fourth quarter of the year ended December 31, 2001.


SIGNATURES
     In accordance with Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.


CALVIN B. TAYLOR BANKSHARES, INC.
(Registrant)

Date:	          By:  /s/     Reese F. Cropper, Jr.
                  President and Chief Executive Officer

Date:	          By:  /s/     William H. Mitchell
                  Vice President and Chief Financial Officer

     In accordance with the Securities Exchange Act of
1934, this report has been signed below by the
following persons on behalf of the registrant and in
the capacities and on the dates indicated.

Date:             By:  /s/     James R. Bergey, Jr.,
                  Director

Date:             By:  /s/     James R. Bergey, Sr.,
                  Director

Date:             By:  /s/     George H. Bunting, Jr.,
                  Director

Date:             By:  /s/     John H. Burbage, Jr.,
                  Director

Date:	          By:  /s/     Reese F. Cropper, Jr.
                  President, Chief Executive Officer
                   and Director

Date:             By:  /s/     Reese F. Cropper, III,
                  Director

Date:	          By:  /s/     Hale Harrison,
                  Director

Date:	          By:  /s/     Gerald T. Mason,
                  Director

Date:	          By:  /s/     William H. Mitchell,
                  Vice President and Director

Date:	          By:  /s/     Joseph E. Moore,
                  Director

Date:	          By:  /s/     Michael L. Quillin, Sr.,
                  Director

Date:	          By:  /s/     D. Bruce Rogers,
                  Director







EXHIBIT 13

ANNUAL REPORT TO SHAREHOLDERS
FOR THE YEAR ENDED DECEMBER 31, 2001



<page>


Calvin B. Taylor Bankshares, Inc.
and Subsidiaries

Financial Statements

December 31, 2001




<page>


Calvin B. Taylor Bankshares, Inc.
and subsidiaries

Table of Contents




	 Page

Report of independent auditors                1

Consolidated financial statements

  Consolidated balance sheets                 2

  Consolidated statements of income           3

  Consolidated statements of changes in
   stockholders' equity                       4

  Consolidated statements of cash flows       5-6

  Notes to consolidated financial statements  7-21





<page>





Report of Independent Auditors
The Board of Directors and Stockholders
Calvin B. Taylor Bankshares, Inc. and Subsidiaries
Berlin, Maryland


	We have audited the accompanying consolidated
balance sheets of Calvin B. Taylor Bankshares, Inc. and
Subsidiaries as of December 31, 2001, 2000, and 1999,
and the related consolidated statements of income,
changes in stockholders' equity, and cash flows for the
years then ended.  These consolidated 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 auditing
standards generally accepted in the United States of
America.  Those standards require that we plan and
perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement.  An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures
in the 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 Subsidiaries as of December
31, 2001, 2000, and 1999, and the results of their
operations and their cash flows for the years then
ended in conformity with accounting principles
generally accepted in the Untied States.



			/s/ Rowles & Company, LLP


Salisbury, Maryland
January 8, 2002


<page>
<table>
<caption>

Calvin B. Taylor Bankshares, Inc.
and subsidiaries
Consolidated Balance Sheets

                                                December 31,
                                      2001         2000         1999

                                <c>          <c>          <c>
Assets
Cash and due from banks            18,397,266   13,332,279   18,546,576
Federal funds sold                 54,389,656   18,167,527   15,877,383
Interest-bearing deposits             879,000      784,000      983,000
Investment securities available
 for sale                           3,974,099    4,052,934    3,402,096
Investment securities held to maturity
(approximate market value of
 $85,604,080, $76,610,933, and
 $89,352,513)                      84,398,152   76,273,558   89,921,935
Loans, less allowance for loan losses
 of $2,195,922, $2,192,755,
 and $2,082,031                   166,501,512  168,571,199  152,000,504
Premises and equipment              5,895,275    5,620,478    5,858,928
Accrued interest income             1,753,816    1,948,199    1,928,735
Intangible assets                     355,549       99,574      161,579
Deferred income taxes                 134,639      107,227      222,986
Other assets                          145,603       91,036       17,076

                                  336,824,567  289,048,011  288,920,798

Liabilities and Stockholders' Equity
Deposits
  Noninterest-bearing              60,508,663   49,674,943   39,151,702
  Interest-bearing                213,640,518  182,251,249  199,574,150
                                  274,149,181  231,926,192  238,725,852
Securities sold under agreements
 to repurchase                      4,555,323    3,113,671         -
Accrued interest payable              529,348      503,519      424,042
Accrued income taxes                    2,298      103,818       56,490
Note payable                          215,702      231,517      246,413
Other liabilities                     130,145       84,085      247,667

                                  279,581,997  235,962,802  239,700,464
Stockholders' equity
  Common stock, par value $1 per
  share; authorized 10,000,000 shares;
  issued and outstanding 3,240,000
  shares in 2001 and 2000, 1,620,000
  shares in 1999                    3,240,000    3,240,000    1,620,000
  Additional paid-in capital       17,290,000   17,290,000   17,290,000
  Retained earnings                36,274,102   32,058,498   30,030,340
                                   56,804,102   52,588,498   48,940,340
  Accumulated other comprehensive
   income                             438,468      496,711      279,994
                                   57,242,570   53,085,209   49,220,334

                                  336,824,567  289,048,011  288,920,798
</table>


The accompanying notes are an integral part of these financial
statements.

2
<page>
<table>
<caption>

Calvin B. Taylor Bankshares, Inc.
and subsidiaries
Consolidated Statements of Income

                                         Years Ended December 31,
                                      2001         2000         1999

                                <c>          <c>          <c>
Interest and dividend revenue
  Loans, including fees            14,179,181   13,480,035   12,070,649
  U. S. Treasury and government
   agency securities                3,540,767    3,761,021    4,056,031
  State and municipal securities      332,035      410,891      531,857
  Federal funds sold                1,412,927    1,716,303    1,261,883
  Time certificates of deposit         46,354       46,110       59,892
  Equity securities                    34,090       25,676       19,264
    Total interest and dividend
      revenue                      19,545,354   19,440,036   17,999,576

Interest expense
  Deposit interest                  6,173,101    5,822,224    5,775,026
  Other                                75,287       37,807        3,732
    Total interest expense          6,248,388    5,860,031    5,778,758
      Net interest income          13,296,966   13,580,005   12,220,818

Provision for loan losses              22,985      174,080        5,745
      Net interest income after
       provision for loan losses   13,273,981   13,405,925   12,215,073

Other operating revenue
  Service charges on deposit
  accounts                            853,107      724,845      724,067
  Other noninterest revenue           447,528      379,013      321,260
    Total other operating revenue   1,300,635    1,103,858    1,045,327

Other expenses
  Salaries                          2,943,241    2,723,713    2,554,963
  Employee benefits                   593,419      515,141      521,346
  Occupancy                           392,499      425,767      413,073
  Furniture and equipment             674,296      671,040      511,037
  Other operating                   1,622,532    1,568,545    1,647,193
    Total other expenses            6,225,987    5,904,206    5,647,612

Income before income taxes          8,348,629    8,605,577    7,612,788
Income taxes                        2,934,225    2,981,019    2,593,128

Net income                          5,414,404    5,624,558    5,019,660

Earnings per common share                1.67         1.74         1.55
</table>





The accompanying notes are an integral part of these financial
statements.

3
<page>
<table>
<caption>

Calvin B. Taylor Bankshares, Inc.
and subsidiaries

Consolidated Statements of Changes in Stockholders' Equity
                                                                       Accumulated
                                                                       other
                              Common stock     Additional     Retained  comprehensive Comprehensive
                           Shares   Par value paid-in capital earnings  income        income

                       <c>        <c>         <c>          <c>           <c>         <c>
Balance, December 31,1998  1,620,000 1,620,000   17,290,000   26,954,680    478,519

Net income                      -         -            -       5,019,660       -         5,019,660
Unrealized gain on
 investment securities
 available for sale
 net of income taxes            -         -            -            -      (198,525)      (198,525)
Comprehensive income            -         -            -            -          -         4,821,135
Cash dividend,$.60 per share    -         -            -      (1,944,000)      -

Balance, December 31,1999  1,620,000 1,620,000   17,290,000   30,030,340    279,994

Net income                      -         -            -       5,624,558       -         5,624,558
Stock split effected
  in the form of
  a 100% stock
  dividend                1,620,000 1,620,000         -      (1,620,000)      -
Unrealized gain on
  investment securities
  available for sale
  net of income taxes          -         -            -            -       216,717        216,717
Comprehensive income           -         -            -            -          -         5,841,275
Cash dividend, $.61 per share  -         -            -      (1,976,400)      -

Balance, December 31,2000 3,240,000 3,240,000   17,290,000   32,058,498    496,711

Net income                     -         -            -       5,414,404       -         5,414,404
Unrealized gain on
 investment securities
 available for sale
 net of income taxes           -         -            -            -       (58,243)       (58,243)
Comprehensive income           -         -            -            -          -         5,356,161
Cash dividend, $.37 per share  -         -            -      (1,198,800)      -

Balance, December 31,2001 3,240,000 3,240,000   17,290,000   36,274,102    438,468
</table>






The accompanying notes are an integral part of these financial
statements.
4
<page>
<table>
<caption>

Calvin B. Taylor Bankshares, Inc.
and Subsidiaries

Consolidated Statements of Cash Flows

                                         Years Ended December 31,
                                      2001         2000         1999

                                <c>          <c>          <c>
Cash flows from operating activities
  Interest received                19,541,166   19,291,291   17,649,136
  Fees and commissions received     1,361,593    1,080,633    1,029,416
  Interest paid                    (6,222,559)  (5,780,554)  (5,810,849)
  Cash paid to suppliers and
    employees                      (5,731,055)  (5,371,499)  (4,864,057)
  Income taxes paid                (3,075,025)  (2,954,290)  (2,413,486)
                                    5,874,120    6,265,581    5,590,160

Cash flows from investing activities
  Proceeds from maturities of
   investment securities           57,857,000   49,458,000   39,025,000
  Purchase of investment securities held
   to maturity                    (65,799,078) (35,978,105) (49,108,227)
  Certificates of deposits purchased,
   net of maturities                  (95,000)     199,000      245,000
  Loans made, net of principal
   collected                        2,046,702  (16,744,775) (12,248,786)
  Sale (purchase) of foreclosed real
   estate                                -            -          39,000
  Purchases of and deposits on
   premises, equipment, software,
   and other intangibles           (1,063,655)    (443,405)    (776,547)
  Proceeds from sale of equipment      17,000          423        2,400
                                   (7,037,031)  (3,508,862) (22,822,160)


Cash flows from financing activities
  Net increase (decrease) in
     Time deposits                 15,567,519    3,256,887      452,474
     Other deposits                26,655,470  (10,056,547)   7,655,693
     Securities sold under agreements
      to repurchase                 1,441,652    3,113,671         -
  Payments on capital lease and
   mortgage obligations               (15,814)     (18,483)      (3,587)
  Dividends paid                   (1,198,800)  (1,976,400)  (1,944,000)
                                   42,450,027   (5,680,872)   6,160,580

Net increase (decrease) in cash and
 cash equivalents                  41,287,116   (2,924,153) (11,071,420)

Cash and cash equivalents at
 beginning of year                 31,499,806   34,423,959   45,495,379
Cash and cash equivalents at
 end of year                       72,786,922   31,499,806   34,423,959
</table>


The accompanying notes are an integral part of these financial
statements.
5
<page>
<table>
<caption>

Calvin B. Taylor Bankshares, Inc.
and Subsidiaries

Consolidated Statements of Cash Flows
(Continued)

                                         Years Ended December 31,
                                      2001         2000         1999

                                 <c>          <c>          <c>
Reconciliation of net income to net
 cash provided by operating activities
    Net income                      5,414,404    5,624,558    5,019,660
   Adjustments to reconcile net income
     to net cash provided by operating
     activities
       Depreciation and amortization  528,247      498,612      418,403
        Provision for loan losses      22,985      174,080        5,745
        Deferred income taxes           9,234      (20,599)     (30,721)
        Amortization of premiums and
         accretion of discounts, net (198,571)    (129,281)    (291,392)
        Charitable donation of property  -            -         128,806
        (Gain) loss on disposition of
         assets                        12,365        1,564       (2,400)
        Decrease (increase) in
          Accrued interest receivable(194,383)     (19,464)     (19,464)
           Other assets               (54,566)     (73,960)     135,690
        Increase (decrease) in
          Accrued interest payable     25,829       79,477      (32,091)
           Accrued income taxes      (101,520)      47,328       56,490
           Other liabilities           46,060       83,266      201,434
                                    5,874,120    6,265,581    5,590,160

Noncash Activity
   Property acquired by issuance
     of debt                             -            -         250,000
</table>


The accompanying notes are an integral part of these financial
statements.
6
<page>

Calvin B. Taylor Bankshares, Inc.
and Subsidiaries

Notes to Consolidated Financial Statements


 1.  Summary of Significant Accounting Policies

     The accounting and reporting policies reflected
in the financial statements conform to generally
accepted accounting principles and to general
practices within the banking industry.

     Calvin B. Taylor Bankshares, Inc. is a bank
holding company.  Its principal subsidiary, Calvin
B. Taylor Banking Company, is a financial
institution operating primarily in Worcester
County, Maryland. The other subsidiary, Calvin B.
Taylor Bank of Delaware, is a financial institution
operating primarily in Sussex County, Delaware.
The Banks offer deposit services and loans to
individuals, small businesses, associations and
government entities.  Other services include direct
deposit of payroll and social security checks,
automatic drafts from accounts, automated teller
machine services, safe deposit boxes, money orders
and travelers cheques.  The Banks also offer credit
card services and discount brokerage services
through correspondents.

     The preparation of financial statements in
conformity with generally accepted accounting
principles 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.

Principles of consolidation
     The consolidated financial statements of Calvin
B. Taylor Bankshares, Inc. include the accounts of
its wholly owned subsidiaries, Calvin B. Taylor
Banking Company and Calvin B. Taylor Bank of
Delaware.  All significant intercompany balances
and transactions have been eliminated in
consolidation.

Cash equivalents
     For purposes of reporting cash flows, cash and
cash equivalents include cash on hand, amounts due
from banks and federal funds sold.  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.

     Gains and losses on disposal are determined
using the specific-identification method.

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.

Intangible assets
     The Company amortizes software costs over
their useful lives using the straight-line method.




7
<page>

Calvin B. Taylor Bankshares, Inc.
and Subsidiaries

Notes to Consolidated Financial Statements


1.   Summary of Significant Accounting Policies
(Continued)

Loans and allowance for loan losses
     Loans are stated at face value less the
allowance for loan losses.  Interest on loans is
credited to income based on the principal amounts
outstanding.  The accrual of interest is
discontinued when any portion of the principal or
interest is ninety days past due and collateral is
insufficient to discharge the debt in full.

     The allowance for loan losses is maintained at a
level deemed appropriate by management to provide
adequately for known and inherent risks in the loan
portfolio.  The minimum range of the allowance for
loan losses is calculated by applying risk-weighted
percentages to loans based on their delinquency and
underlying collateral.  The portion of the
allowance that is a result of geographic and
industry concentrations and current economic
conditions is not allocated to specific loans.  At
December 31, 2001, the allowance included
approximately $850,186 that was not allocated to
specific loans.  Management has historically
maintained the allowance at a level of
approximately 1.30% to 1.35% of gross loans.

     If the current economy or real estate market
were to suffer a severe downturn, the estimate for
uncollectible accounts would need to be increased.
 Loans which are deemed to be uncollectible are
charged off and deducted from the allowance.  The
provision for loan losses and recoveries on loans
previously charged off are added to the allowance.

     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.

Advertising
     Advertising costs are expensed as incurred.

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 banks and company based on their
proportional share of taxable income.

Per share data
     Earnings per common share and dividends per
common share are determined by dividing net income
and dividends by the 3,240,000 shares outstanding,
giving retroactive effect to the stock dividends
distributed.

2.  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 $53,138,449 for 2001, $27,192,359 for
2000, and $25,041,212 for 1999.

     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.





8
<page>

Calvin B. Taylor Bankshares, Inc.
and Subsidiaries

Notes to Consolidated Financial Statements


 3.  Investment Securities

     Investment securities are summarized as follows:
<table>
<caption>
                         Amortized   Unrealized  Unrealized    Market
                         cost        gains       losses        value

                      <c>         <c>         <c>           <c>
December 31, 2001
Available for sale
  U.S. Treasury          1,994,041     342,839        -        2,336,880
  Equity                 1,265,708     455,713      84,202     1,637,219
                         3,259,749     798,552      84,202     3,974,099

Held to maturity
  U.S. Treasury         58,046,598     920,257       5,952    58,960,903
  U.S. Government agency19,405,013     230,276      12,389    19,622,900
  State and municipal    6,946,541      73,832          96     7,020,277
                        84,398,152   1,224,365      18,437    85,604,080


December 31, 2000
Available for sale
  U.S. Treasury          1,993,753     434,367        -        2,428,120
  Equity                 1,249,941     374,873        -        1,624,814
                         3,243,694     809,240        -        4,052,934

Held to maturity
  U.S. Treasury         47,422,577     285,916      37,823    47,670,670
  U.S. Government agency18,650,177      97,563       1,412    18,746,328
  State and municipal   10,200,804      16,051      22,920    10,193,935
                        76,273,558     399,530      62,155    76,610,933


December 31, 1999
Available for sale
  U.S. Treasury          1,993,463     115,297        -        2,108,760
  Equity                   952,467     346,869       6,000     1,293,336
                         2,945,930     462,166       6,000     3,402,096

Held to maturity
  U.S. Treasury         66,466,632       7,153     386,382    66,087,403
  U.S. Government agency10,649,787        -        119,085    10,530,702
  State and municipal   12,805,516         785      71,893    12,734,408
                        89,921,935       7,938     577,360    89,352,513
</table>


9
<page>

Calvin B. Taylor Bankshares, Inc.
and Subsidiaries

Notes to Consolidated Financial Statements


 3.  Investment Securities (Continued)

     The amortized cost and estimated market value of
debt securities, by contractual maturity and the
amount of pledged securities, follow.  Actual
maturities may differ from contractual maturities
because borrowers may have the right to call or
prepay obligations with or without call or
prepayment penalties.
<table>
<caption>
                          December 31, 2001     December 31, 2000     December 31, 1999
                      Amortized    Market   Amortized    Market   Amortized    Market
                      cost         value    cost         value    cost         value

                   <c>          <c>      <c>          <c>      <c>          <c>
Available for sale due
  After ten years      1,994,041  2,336,880  1,993,753  2,428,120  1,993,463  2,108,760

Held to maturity due
  In one year or less 41,521,902 42,125,457 45,333,736 45,313,048 49,004,373 48,908,330
  After one year
   through five years 42,876,250 43,478,623 30,939,822 31,297,885 40,917,562 40,444,183
                      84,398,152 85,604,080 76,273,558 76,610,933 89,921,935 89,352,513

Pledged securities    21,058,134 21,517,135 19,985,861 20,097,350  4,592,597  4,562,493
</table>
     Investments are pledged to secure deposits of
federal and local governments.  Pledged securities
also serve as collateral for securities sold under
agreements to repurchase.

 4.  Lines of Credit

     The Company has available lines of credit,
including overnight federal funds, reverse
repurchase agreements and letters of credit,
totaling $ 39,000,000 as of December 31, 2001, and
$19,000,000 as of December 31, 2000 and 1999.

 5.  Loans and Allowance for Loan losses

     Major classifications of loans are as follows:
<table>
<caption>
                               2001         2000         1999

                      <c>          <c>          <c>
Commercial                15,341,122   15,588,946   17,825,019
Mortgage                 146,258,549  148,468,890  130,378,776
Construction               2,117,685    1,540,376      824,071
Consumer                   4,980,078    5,165,742    5,054,669
                         168,697,434  170,763,954   154,082,535

Allowance for loan losses  2,195,922    2,192,755     2,082,031

Loans, net               166,501,512  168,571,199   152,000,504
</table>


10
<page>

Calvin B. Taylor Bankshares, Inc.
and Subsidiaries

Notes to Consolidated Financial Statements


 5.  Loans and Allowance for Loan losses (Continued)

     The rate repricing distribution of the loan
portfolio follows:
<table>
<caption>
                               2001         2000         1999

                      <c>          <c>          <c>
Immediately              164,098,147  165,596,389  149,036,842
Within one year            1,728,296      425,689      302,886
Over one to five years     2,648,073    4,114,779    4,258,632
Over five years              222,918      627,097      484,175
                         168,697,434  170,763,954  154,082,535
</table>

   Outstanding loan commitments and letters of credit
are as follows:
<table>

                      <c>          <c>          <c>
Loan commitments
  Construction and land
   development             6,456,910    2,964,536    9,486,899
  Other                    8,639,337    3,192,350    4,843,120
                          15,096,247    6,156,886   14,330,019

Standby letters of credit
  Secured by deposits      1,404,069    1,229,669    1,380,593
  Other                    1,838,994      182,883      123,648
                           3,243,063    1,412,552    1,504,241
</table>

     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
credit loss in the event of nonperformance by the
borrower is represented by the contract amount of
the commitment.

     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.





11
<page>

Calvin B. Taylor Bankshares, Inc.
and Subsidiaries

Notes to Consolidated Financial Statements


 5.   Loans and Allowance for Loan losses (Continued)

   Transactions in the allowance for loan losses
were as follows:
<table>
<caption>
                               2001         2000         1999

                        <c>          <c>          <c>
Beginning balance          2,192,755    2,082,031    2,080,358
Provision charged to
  operations                  22,985      174,080        5,745
Recoveries                     4,906        3,744       14,823
                           2,220,646    2,259,855    2,100,926

Loans charged off             24,724       67,100       21,884
                           2,195,922    2,192,755    2,079,042
Change in allowance related
 to loan commitments            -            -          (2,989)
Ending balance             2,195,922    2,192,755    2,082,031
</table>

     Amounts past due 90 days or more, and still
accruing interest, are as follows:


<table>
<caption>
                                         December 31,
                               2001         2000         1999

                          <c>          <c>          <c>
Commercial                   122,420       39,576       50,371
Mortgage                     343,136      263,237         -
Consumer                      50,883       18,296        1,346
                             516,439      321,109       51,717
</table>

     Management has identified no impaired or
nonaccrual loans at December 31, 2001, 2000, and 1999.

 6.  Premises and Equipment

     A summary of premises and equipment and the
related depreciation is as follows:
<table>
<caption>
              Estimated useful life      2001         2000         1999

                                 <c>          <c>          <c>
Land                                 1,891,950    1,891,950    1,891,950
Premises                5 - 50 years 4,826,954    4,645,138    4,602,879
Furniture and equipment 5 - 40 years 3,652,244    3,742,681    3,678,167
                                    10,371,148   10,279,769   10,172,996
Accumulated depreciation             4,475,873    4,659,291    4,314,068
Net premises and equipment           5,895,275    5,620,478    5,858,928

Depreciation expense                   459,744      436,608      398,682
</table>




12
<page>

Calvin B. Taylor Bankshares, Inc.
and Subsidiaries

Notes to Consolidated Financial Statements


 7.  Deposits

     Major classifications of interest-bearing
deposits are as follows:
<table>
<caption>
                               2001         2000         1999

                      <c>          <c>          <c>
Money market              40,739,491   34,896,077   52,985,409
Savings and NOW           83,946,161   73,967,825   76,458,281
Other time                88,954,866   73,387,347   70,130,460
                         213,640,518  182,251,249  199,574,150
</table>

     Included in other time deposits are certificates
of deposit of $100,000 or more with the following
maturities:
<table>

                      <c>          <c>          <c>
Three months or less       5,437,743    4,423,581    1,394,088
Over three through
  twelve months           13,206,842    6,795,644    9,356,422
Over one through five
  years                    2,097,332    3,961,211    2,067,556
                          20,741,917   15,180,436   12,818,066

Interest expense             987,329      680,474      550,206
</table>


 8.  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.

<table>
<caption>
                                            2001         2000

                                     <c>          <c>
Maximum month-end amount outstanding    5,383,038    4,557,860
Average amount outstanding              4,125,782    1,610,688
Average rate paid during the year           1.50%        1.45%

Investment securities underlying the
  agreements at year end
  Carrying value                       13,991,479   13,988,545
  Estimated fair value                 14,327,220   14,105,150
</table>


 9.  Note Payable

     The Company purchased real estate, financing
100% of the purchase price.  The 6% unsecured note
has a final maturity of September, 2011.
Maturities of this note are as follows:


                     2002                 16,790
                     2003                 17,826
                     2004                 18,925
                     2005                 20,092
                     2006                 21,332
                Remaining years          120,737
                                         215,702


13
<page>

Calvin B. Taylor Bankshares, Inc.
and Subsidiaries

Notes to Consolidated Financial Statements


10.  Profit Sharing and Pension Plans

     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 Company terminated its defined benefit
pension plan during 1999.  The plan covered
substantially all of the employees.  Benefits were
based on years of service and the employee's
average rate of earnings for the final five full
years before retirement.  The total cost of the
pension and profit sharing plans for 2001, 2000,
and 1999, were $140 620, $119,307, and $155,869,
respectively.

11.  Other Operating Expenses

     The components of other operating expenses
follow:

<table>
<caption>
                                  2001         2000         1999

                            <c>          <c>          <c>
Amortization of intangible
  assets                         68,503       62,005       19,721
Advertising                     144,983      132,784      146,341
Business and product development 60,189       57,055       57,649
Courier service                  96,726       99,466       93,968
Deposit insurance                43,413       35,157       37,917
Director fees                    83,025       72,575       64,120
Dues, donations and subscriptions80,024      107,114       83,105
Donated real property
                                   -            -         128,806
Freight                          57,806       62,411       57,879
Liability insurance              44,608       61,649       64,686
Postage                         155,002      145,325      155,092
Professional fees                52,400       62,660       61,538
Stationery and supplies         252,686      261,733      309,727
Telephone                       100,455       82,256       82,466
ATM fees                        154,289      123,398      110,791
Miscellaneous                   296,926      202,957      173,387
                              1,622,532    1,568,545    1,647,193
</table>


12.  Income Taxes

     The components of income tax expense, including
taxes related to the change in accounting method
for organization costs, are as follows:
<table>
<caption>
                                  2001         2000         1999

                            <c>          <c>          <c>
Current
  Federal                     2,598,069    2,674,450    2,369,389
  State                         326,922      327,168      254,460
                              2,924,991    3,001,618    2,623,849
Deferred                          9,234      (20,599)     (30,721)
                              2,934,225    2,981,019    2,593,128
</table>



14
<page>

Calvin B. Taylor Bankshares, Inc.
and Subsidiaries

Notes to Consolidated Financial Statements


12.  Income Taxes (continued)

     The components of the deferred tax (benefit) are
as follows:

<table>
<caption>
                                  2001         2000         1999

                              <c>          <c>          <c>
Provision for loan losses          (754)     (40,495)         243
Pension expense                    -            -         (13,973)
Depreciation                      5,317       13,987      (35,808)
Discount accretion                  412       (1,656)       2,795
Health insurance premium deposits  -              27        8,486
Organization costs                4,259        7,538        7,536
</table>                          9,234      (20,599)     (30,721)

     The components of the net deferred tax assets
are as follows:
<table>
<caption>
                                  2001         2000         1999

                            <c>          <c>          <c>
Deferred tax asset
  Allowance for loan losses     603,779      603,025      562,530
  Health insurance premium
   deposits                        -             -             27
  Organization costs              5,341        9,600       17,138
                                609,120      612,625      579,695


Deferred tax liabilities
  Depreciation                  188,267      182,950      168,963
  Discount accretion             10,332        9,920       11,576
  Unrealized gain on securities
    available for sale          275,882      312,528      176,170
                                474,481      505,398      356,709

                                134,639      107,227      222,986
</table>

     A reconciliation of the provision for taxes on
income from the statutory federal income tax rates
to the effective income tax rates follows:
<table>

                               <c>          <c>          <c>
Statutory federal income tax rate 34.0%        34.0%        34.0%

Increase (decrease) in tax rate
 resulting from
  Tax-exempt income               (1.5)        (1.9)        (2.0)
  State income taxes net of
   federal income tax benefit      2.6          2.5          2.1
                                  35.1%        34.6%        34.1%
</table>





15
<page>

Calvin B. Taylor Bankshares, Inc.
and Subsidiaries

Notes to Consolidated Financial Statements


13.  Related Party Transactions

     The executive officers and directors of the
Company enter into loan transactions with the Banks
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.

<table>
<caption>
                                  2001         2000         1999

                          <c>          <c>          <c>
Beginning balance            12,293,244    9,231,028    8,641,536
Advances                      4,833,136    5,356,617    3,095,000
                             17,126,380   14,587,645   11,736,536
Repayments                    5,911,658    3,567,151    1,624,714
Other changes                   135,557   (1,272,750)     880,794
Ending balance               11,079,165   12,293,244    9,231,028
</table>


     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
$2,003, $1,805 and $3,746 during the years ended
December 31, 2001, 2000 and 1999.


14.  Lease Commitments

     The Company leases the land on which the Route
50 branch is located.  The lease obligation, which
expires August 31, 2009, requires payments as
follows:

                                           Minimum
                             Period        rentals

                             2002          15,000
                             2003          15,000
                             2004          15,000
                             2005          15,000
                             2006          15,000
                        Remaining years    40,000
                                          115,000




16
<page>

Calvin B. Taylor Bankshares, Inc.
and Subsidiaries

Notes to Consolidated Financial Statements


15.  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 FASB 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.  The fair value of financial
instruments equals the carrying value of the
instruments except as follows.

<table>
<caption>
                   December 31, 2001          December 31, 2000          December 31, 1999
                   Carrying     Fair          Carrying     Fair          Carrying     Fair
                   amount       value         amount       value         amount       value

                <c>          <c>           <c>          <c>           <c>          <c>
Financial assets
  Cash and due from
   banks            18,397,266  18,510,175    13,332,279   13,479,427    18,546,576   18,660,884
  Interest-bearing
   deposits            879,000     906,928       784,000      784,116       983,000      979,200
  Investment
   securities       88,372,251  89,578,179    80,326,492   80,663,867    93,324,031   92,754,609
  Loans, net       166,501,512 166,595,116   168,571,199  168,610,107   152,000,504  151,961,767

Financial liabilities
  Interest-bearing
   deposits        213,640,518 214,497,142   182,251,249  182,263,290   199,574,150  199,607,450
  Note payable         215,702     206,453       231,517      210,648       246,413      246,413
</table>

     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 debt securities are estimated using a
matrix that considers yield to maturity, credit
quality, and marketability.

     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
adjusted for possible loan losses.

     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.

     It is not practicable to estimate the fair value
of outstanding loan commitments, unused lines, and
letters of credit.




17
<page>

Calvin B. Taylor Bankshares, Inc.
and Subsidiaries

Notes to Consolidated Financial Statements


16.  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 requirements of the Company are
as follows:
<table>
<caption>
                                             Minimum           To be well
                             Actual          capital adequacy  capitalized
(in thousands)               Amount  Ratio   Amount  Ratio     Amount  Ratio

                          <c>     <c>     <c>     <c>       <c>     <c>
December 31, 2001
Total capital
  (to risk weighted assets)  58,800  36.8%   12,791  8.0%      15,989   10.0%
Tier 1 capital
  (to risk-weighted assets)  56,804  35.6%    6,396  4.0%       9,593    6.0%
Tier 1 capital
  (to average fourth
    quarter assets)          56,804  17.1%   13,329  4.0%      16,661    5.0%

December 31, 2000
Total capital
  (to risk weighted assets)  54,451  36.6%   11,897  8.0%      14,871   10.0%
Tier 1 capital
  (to risk-weighted assets)  52,588  35.4%    5,948  4.0%       8,923    6.0%
Tier 1 capital
  (to average fourth
    quarter assets)          52,588  18.2%   11,806  4.0%      14,757    5.0%

December 31, 1999
Total capital
  (to risk weighted assets)  50,589  38.4%   10,520  8.0%      13,150   10.0%
Tier 1 capital
  (to risk-weighted assets)  48,940  37.1%    5,260  4.0%       7,890    6.0%
Tier 1 capital
  (to average fourth
    quarter assets)          48,940  17.5%   11,691  4.0%      14,614    5.0%
</table>


     Tier 1 capital consists of capital stock,
additional paid in capital, and retained earnings.
 Total 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 which should change the
classification of the capital adequacy.



18
<page>

Calvin B. Taylor Bankshares, Inc.
and Subsidiaries

Notes to Consolidated Financial Statements

17.	Parent Company Financial Information


<table>
<caption>
                                           December 31,
Balance Sheets                    2001         2000        1999
Assets

                           <c>          <c>         <c>
Cash and due from banks           57,513        9,110     151,751
Interest-bearing deposits      1,512,125       75,505     100,000
Securities available for sale  1,637,219    1,624,814   1,293,336
Investment in subsidiary banks52,445,405   49,806,120  46,061,690
Premises and equipment         1,640,946    1,609,939   1,639,139
Other assets                      55,688       22,445      18,241
  Total assets                57,348,896   53,147,933  49,264,157

Liabilities and Stockholders' Equity
Liabilities
  Deferred income taxes           61,492       62,724      43,823
  Other liabilities               44,834           -           -
                                 106,326       62,724      43,823

Stockholders' equity
  Common stock                 3,240,000    3,240,000   1,620,000
  Additional paid-in capital  17,290,000   17,290,000  17,290,000
  Retained earnings           36,274,102   32,058,498  30,030,340
  Accumulated other
   comprehensive income          438,468      496,711     279,994
  Total stockholders' equity  57,242,570   53,085,209  49,220,334
    Total liabilities and
    stockholders' equity      57,348,896   53,147,933  49,264,157


                                     Years Ended December 31,
Statements of Income              2001         2000        1999
Interest revenue                  25,816        3,690      10,240
Dividend revenue                  34,090       25,676      19,264
Dividends from subsidiaries    2,698,800    2,076,400   2,344,000
Equity in undistributed income
 of subsidiaries               2,695,465    3,548,585   2,680,964
Rental income                      2,700        2,700       2,925
                               5,456,871    5,657,051   5,057,393

Expenses
  Occupancy                        6,115       24,898      31,570
  Furniture and equipment          1,968        1,904       3,423
  Other                           36,044       15,168      12,418
                                  44,127       41,970      47,411

Income before income taxes     5,412,744    5,615,081   5,009,982
Income taxes (benefit)            (1,660)      (9,477)     (9,678)
Net income                     5,414,404    5,624,558   5,019,660
</table>


19
<page>

Calvin B. Taylor Bankshares, Inc.
and Subsidiaries

Notes to Consolidated Financial Statements

17.	Parent Company Financial Information (Continued)

<table>
<caption>
                                     Years Ended December 31,
                                  2001         2000        1999
Statements of Cash Flows

                            <c>         <c>         <c>
Cash flows from operating
  activities
  Interest and dividends
    received                   2,749,579    2,105,906   2,375,011
  Rental payments received         9,900        2,700       2,925
  Cash paid for operating
    expenses                      33,827      (19,969)    (18,211)
  Income taxes refunded          (29,590)      18,101       7,074
                               2,763,716    2,106,738   2,366,799

Cash flows from investing
  activities
  Purchase of premises and
    equipment                    (64,126)          -           -
  Purchase of equity securities  (15,767)    (297,474)   (728,104)
  Purchase of certificates of
   deposit, net of redemptions(1,500,000)     100,000     400,000
                              (1,579,893)    (197,474)   (328,104)

Cash flows from financing
  activities
  Dividends paid              (1,198,800)  (1,976,400) (1,944,000)

Net increase (decrease) in cash  (14,977)     (67,136)     94,695

Cash at beginning of year         85,615      151,751      57,056

Cash at end of year               69,638       84,615     151,751


Reconciliation of net income to net
cash provided by operating activities
    Net income                 5,414,404    5,624,558   5,019,660
    Adjustments to reconcile net
     income to net cash used in
     operating activities
        Undistributed net income
         of subsidiary        (2,695,465)  (3,548,585) (2,680,964)
        Amortization and
         depreciation             33,120       29,200      29,200
        Increase (decrease) in
         deferred income taxes
         and other liabilities    44,900        5,769       8,423
        Decrease (increase) in
         other assets            (33,243)      (4,204)     (9,520)
                               2,763,716    2,106,738   2,366,799
</table>





20
<page>

Calvin B. Taylor Bankshares, Inc.
and Subsidiaries

Notes to Consolidated Financial Statements


18.     Quarterly Results of Operations (Unaudited)
<table>
<caption>
                                      Three months ended
                   December 31, September 30, June 30,      March 31,

                 <c>          <c>           <c>           <c>
2001
Interest revenue    4,804,117    5,003,872     4,882,457     4,854,908
Interest expense    1,550,131    1,626,675     1,542,283     1,529,299
Net interest income 3,253,986    3,377,197     3,340,174     3,325,609
Provision for
  loan losses          22,985         -             -             -
Net income          1,165,144    1,400,912     1,491,492     1,356,856
Comprehensive
  income            1,126,589    1,416,605     1,453,466     1,359,501
Earnings per share       0.36         0.43          0.46          0.42

2000
Interest revenue    5,059,947    5,056,443     4,678,198     4,645,448
Interest expense    1,527,302    1,498,739     1,400,906     1,433,084
Net interest income 3,532,645    3,557,704     3,277,292     3,212,364
Provision for
  loan losses          68,000       23,000        41,000        42,080
Net income          1,438,189    1,583,917     1,306,325     1,296,127
Comprehensive
  income            1,502,283    1,665,605     1,308,822     1,364,565
Earnings per share       0.44         0.49          0.40          0.40

1999
Interest revenue    4,607,224    4,669,910     4,410,901     4,311,541
Interest expense    1,439,769    1,439,279     1,407,424     1,492,286
Net interest income 3,167,455    3,230,631     3,003,477     2,819,255
Provision for
  loan losses          (7,980)       8,670         4,355           700
Net income
                    1,273,784    1,402,034     1,299,830     1,044,012
Comprehensive
  income            1,611,696    1,200,713     1,111,686       897,040
Earnings per share       0.39         0.43          0.40          0.32
</table>




21
<page>