UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2007

Commission File Number: 000-50047

CALVIN B. TAYLOR BANKSHARES, INC.

I.R.S. Employer Identification No.: 52-1948274State of incorporation: Maryland
Address of principal executive offices: 24 North MainStreet, Berlin, Maryland 21811Issuer’s telephone number: (410) 641-1700
 

Indicate by check mark whether the registrant (1) has filedall reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has been subjectto such filing requirements for the past 90 days. YES   X   NO ____
Indicate by check mark whether the registrant is a largeaccelerated filer, an accelerated filer, or a non-accelerated filer. Seedefinition of "accelerated filer and large accelerated filer" in Rule 12b-2 ofthe Exchange Act. Large accelerated filer ____ Accelerated filer   X  Non-accelerated filer ____

Indicate by check mark whether the registrant is a shellcompany (as defined in Rule 12b-2 of the Exchange Act). YES ____ NO   X  
Indicate the number of shares outstanding of each of theissuer’s classes of common stock, as of the latest practicable date: Theregistrant had 3,115,464 shares ofcommon stock ($1.00 par) outstanding as of July 31, 2007.** 

Calvin B. Taylor Bankshares, Inc. and SubsidiaryForm 10-QIndex**Part I - Financial		InformationPageItem 1Consolidated		Financial StatementsConsolidated		Balance Sheets as of June 30, 2007 and December 31, 20063 Consolidated		Statements of Income for the three months ended June		30, 2007 and 20064Consolidated		Statements of Income for the six monthsended June		30, 2007 and 20065Consolidated		Statements of Cash Flows for the six months ended June		30, 2007 and 20066-7Notes to		Consolidated Financial Statements8-9Item 2Management’s		Discussion and Analysis of Financial Conditionand Results		of Operations10-14Item 3Quantitative		and Qualitative Disclosures About Market Risks 14Item 4Controls and		Procedures15Part II - Other		InformationItem 1Legal		Proceedings16Item 1ARisk Factors16Item 2Unregistered		Sales of Equity Securities and Use of Proceeds16-17Item 3Defaults Upon		Senior Securities17Item 4Submission of		Matters to a Vote of Security Holders17Item 5Other		Information17Item 6Exhibit Index17Signatures18Exhibits19-21
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		Calvin B. Taylor Bankshares, Inc. and Subsidiary 		Part I - Financial Information  		Consolidated Balance Sheets   		(unaudited)  		June 30,		December 31, 		2007		2006		Assets		Cash and due from banks		 $             22,347,697 		 $             21,138,799 		Federal funds sold		47,181,770 		24,616,735 		Interest-bearing deposits		1,765,428 		2,055,689 		Investment securities available for sale		20,820,763 		18,854,192 		Investment securities held to maturity (approximate   		  fair value of $41,355,500 and $56,031,190)		41,507,457 		56,271,631 		Loans, less allowance for loan losses  		  of $2,180,894 and $2,175,418		231,522,497 		231,251,783 		Premises and equipment		6,552,600 		6,562,837 		Accrued interest receivable		1,783,515 		1,692,622 		Computer software		169,058 		175,383 		Bank owned life insurance		4,624,172 		4,530,259  		Other assets		                     482,801 		                     382,236  		 $           378,757,758 		 $           367,532,166 		Liabilities and Stockholders' Equity		Deposits  		  Noninterest-bearing		 $             81,626,257 		 $             79,625,853 		  Interest-bearing		              218,132,659 		              210,698,907  		              299,758,916 		              290,324,760 		Securities sold under agreements to repurchase		                  4,309,705 		                  5,624,048 		Note payable		                     109,583 		                     120,737 		Accrued interest payable 		                     438,961 		                     340,155 		Deferred income taxes		                     760,995 		                     719,714 		Other liabilities		                       85,584 		                     233,196  		              305,463,744 		              297,362,610 		Stockholders' equity  		  Common stock, par value $1 per share   		   authorized 10,000,000 shares, issued and outstanding  		   3,132,922 shares at June 30, 2007, and  		   3,149,356 shares at December 31, 2006		                  3,132,922 		                  3,149,356 		  Additional paid-in capital		                13,523,192 		                14,117,732 		  Retained earnings		                54,738,012 		                51,053,985  		                71,394,126 		                68,321,073 		  Accumulated other comprehensive income		                  1,899,888 		                  1,848,483  		                73,294,014 		                70,169,556  		 $           378,757,758 		 $           367,532,166          		See accompanying Notes to Consolidated Financial Statements
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		Calvin B. Taylor Bankshares, Inc. and Subsidiary 		Consolidated Statements of Income (unaudited)   		For the three months ended 		June 30, 		2007		2006		Interest and dividend revenue  		  Loans, including fees		 $               4,198,828 		 $               3,928,251 		  U.S. Treasury and government agency securities		                     597,304 		                     649,515 		  State and municipal securities		                       17,533 		                       43,353 		  Federal funds sold 		                     526,685 		                     200,550 		  Interest-bearing deposits		                       22,772 		                       18,090 		  Equity securities		                       13,371 		                       18,409 		          Total interest and dividend revenue		                  5,376,493 		                  4,858,168    		Interest expense  		  Deposits		                  1,124,916 		                     739,085 		  Borrowings		                         7,754 		                       11,207 		    Total interest expense		                  1,132,670 		                     750,292    		    Net interest income		                  4,243,823 		                  4,107,876     		Provision for loan losses		                              -   		                              -    		    Net interest income after provision for loan losses		                  4,243,823 		                  4,107,876    		Noninterest revenue  		  Service charges on deposit accounts		                     270,749 		                     297,844 		  ATM and debit card revenue		                     123,841 		                     115,336 		  Miscellaneous revenue		                     111,795 		                     115,111 		    Total noninterest revenue		                     506,385 		                     528,291    		Noninterest expenses  		  Salaries		                     863,550 		                     809,015 		  Employee benefits		                     196,525 		                     171,346 		  Occupancy		                     160,173 		                     168,430 		  Furniture and equipment		                     108,019 		                     130,272 		  Other operating		                     443,386 		                     497,943 		    Total noninterest expenses		                  1,771,653 		                  1,777,006    		    Income before income taxes		                  2,978,555 		                  2,859,161 		Income taxes		                  1,083,900 		                  1,041,000    		Net income		 $               1,894,655 		 $               1,818,161    		Earnings per common share - basic and diluted		 $                        0.60 		 $                        0.57       		See accompanying Notes to Consolidated Financial Statements
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		Calvin B. Taylor Bankshares, Inc. and Subsidiary 		Consolidated Statements of Income (unaudited)   		For the six months ended 		June 30, 		2007		2006		Interest and dividend revenue  		  Loans, including fees		 $               8,351,726 		 $               7,642,850 		  U.S. Treasury and government agency securities		                  1,185,875 		                  1,381,200 		  State and municipal securities		                       39,685 		                       91,312 		  Federal funds sold 		                     919,114 		                     338,038 		  Interest-bearing deposits		                       45,511 		                       35,323 		  Equity securities		                       41,148 		                       43,402 		          Total interest and dividend revenue		                10,583,059 		                  9,532,125    		Interest expense  		  Deposits		                  2,147,163 		                  1,378,727 		  Borrowings		                       16,451 		                       22,255 		    Total interest expense		                  2,163,614 		                  1,400,982    		    Net interest income		                  8,419,445 		                  8,131,143     		Provision for loan losses		                              -   		                              -    		    Net interest income after provision for loan losses		                  8,419,445 		                  8,131,143    		Noninterest revenue  		  Service charges on deposit accounts		                     529,466 		                     580,065 		  ATM and debit card revenue		                     231,540 		                     210,382 		  Miscellaneous revenue		                     210,956 		                     213,470 		    Total noninterest revenue		                     971,962 		                  1,003,917    		Noninterest expenses  		  Salaries		                  1,709,711 		                  1,644,032 		  Employee benefits		                     406,019 		                     383,487 		  Occupancy		                     340,401 		                     348,909 		  Furniture and equipment		                     226,969 		                     239,430 		  Other operating		                     918,780 		                     930,640 		    Total noninterest expenses		                  3,601,880 		                  3,546,498    		    Income before income taxes		                  5,789,527 		                  5,588,562 		Income taxes		                  2,105,500 		                  2,007,000    		Net income		 $               3,684,027 		 $               3,581,562    		Earnings per common share - basic and diluted		 $                        1.17 		 $                        1.12       		See accompanying Notes to Consolidated Financial Statements
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		Calvin B. Taylor Bankshares, Inc. and Subsidiary 		Consolidated Statements of Cash Flows (unaudited)   		For the six months ended 		June 30, 		2007		2006		Cash flows from operating activities  		  Interest and dividends received		 $             10,304,624 		 $               9,366,111 		  Fees and commissions received		                     871,657 		                     923,460 		  Interest paid		                (1,979,337)		                (1,324,000)		  Cash paid to suppliers and employees		                (3,455,930)		                (3,371,186)		  Income taxes paid		                (2,302,063)		                (2,124,938) 		                  3,438,951 		                  3,469,447 		Cash flows from investing activities  		  Certificates of deposit purchased, net of maturities		                     395,787 		                       (2,252)		  Proceeds from maturities of investments available  		     for sale		                12,000,000 		                              -   		  Purchase of investments available for sale		              (13,692,486)		                (2,050,203)		  Proceeds from maturities of investments held to   		     maturity		                25,760,000 		                35,395,000 		  Purchase of investments held to maturity		              (10,989,737)		                              -   		  Loans made, net of principal collected		                   (270,714)		              (29,206,329)		  Proceeds from sale of equipment		                         5,824 		                              -   		  Purchases of premises, equipment,  		    and computer software		                   (265,852)		                   (251,729) 		                12,942,822 		                  3,884,487  		    		Cash flows from financing activities  		  Net increase (decrease) in  		    Time deposits		                11,467,308 		                  3,018,750 		    Other deposits		                (2,033,152)		              (10,589,091)		    Securities sold under agreements to repurchase		                (1,314,343)		                     682,756 		  Payments on note payable		                     (11,154)		                     (10,506)		  Common shares repurchased		                   (610,974)		                     (55,512) 		  Dividends paid		                              -   		                (4,462,578) 		                  7,497,685 		              (11,416,181)   		Net increase (decrease) in cash and cash equivalents		                23,879,458 		                (4,062,247)		Cash and cash equivalents at beginning of period		                45,771,812 		                50,425,595 		Cash and cash equivalents at end of period		 $             69,651,270 		 $             46,363,348 
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		Calvin B. Taylor Bankshares, Inc. and Subsidiary 		Consolidated Statements of Cash Flows (unaudited)   		For the six months ended 		June 30, 		2007		2006		Reconciliation of net income to net cash provided  		  by operating activities  		  Net income		 $               3,684,027 		 $               3,581,562 		  Adjustments to reconcile net income to net cash  		    provided by operating activities  		    Depreciation and amortization		                     278,098 		                     299,092 		    Deferred income taxes		                            118 		                              -   		    Amortization of premiums and accretion of  		      discount, net		                   (187,607)		                     (42,727)		    (Gain) loss on disposition of assets		                       (1,508)		                              -   		    Decrease (increase) in  		      Accrued interest receivable		                     (90,893)		                   (123,287)		      Cash surrender value of bank owned life insurance		                     (93,913)		                     (78,519)		      Other assets		                   (100,565)		                     (17,751)		    Increase (decrease) in  		      Accrued interest payable		                       98,806 		                       76,982 		      Accrued income taxes		                            113 		                              -   		      Other liabilities		                   (147,725)		                   (225,905) 		 $               3,438,951 		 $               3,469,447       		  Composition of cash and cash equivalents  		    Cash and due from banks		 $             22,347,697 		 $             20,258,241 		    Federal funds sold 		                47,181,770 		                26,008,837 		    Interest-bearing deposits, except for time deposits		                     121,803 		                       96,270  		 $             69,651,270 		 $             46,363,348    
See accompanying Notes to Consolidated Financial Statements

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**Calvin B. Taylor Bankshares, Inc. and SubsidiaryNotes to Consolidated Financial Statements (unaudited)**
1. Basis of Presentation

The accompanying unaudited consolidated financial	statements have been prepared in accordance with generally accepted	accounting principles in the United States of America for interim financial	information and with the instructions to Form 10-Q. Accordingly, they do not	include all the information and footnotes required by generally accepted	accounting principles for complete financial statements. In the opinion of	management, all adjustments considered necessary for a fair presentation of	financial position and results of operations have been made. These	adjustments are of a normal recurring nature. Results of operations for the	six months ended June 30, 2007 are not necessarily indicative of the results	that may be expected for the year ending December 31, 2007. For further	information, refer to the audited consolidated financial statements and	related footnotes included in the Company's Form 10-K for the year ended	December 31, 2006.

Consolidation has resulted in the elimination of all	significant intercompany accounts and transactions.

Cash Flows
For purposes of reporting cash flows, cash and cash	equivalents include cash on hand, amounts due from banks, federal funds	sold, and interest-bearing deposits except for time deposits. Federal funds	are purchased and sold for one-day periods.

Per share data
Earnings per common share are determined by dividing net	income by the weighted average number of common shares outstanding for the	period, as follows:
 		2007		2006		Three months ended June 30		           3,139,456 		           3,186,014 		Six months ended June 30		           3,142,584 		           3,186,333 
2. Comprehensive Income

Comprehensive income consists of:
 		For the six months ended 		June 30, 		2007		2006		Net income		 $        3,684,027 		 $        3,581,562 		Unrealized gain on investment securities  		  available for sale, net of income taxes		                51,405 		              139,921 		Comprehensive income		 $        3,735,432 		 $        3,721,483 
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** 

Calvin B. Taylor Bankshares, Inc. and SubsidiaryNotes to Consolidated Financial Statements (unaudited) (continued)**
3. Loan commitments

Loan commitments are agreements to lend to customers as	long as there is no violation of any conditions of the contracts.	Outstanding loan commitments and letters of credit consist of:
 				June 30, 2007				December 31, 2006				Loan commitments				 $      33,916,121  				 $      40,423,268  				Standby letters of credit				 $        1,113,035  				 $        1,682,942  
4. New accounting standards

The following accounting pronouncements have been	approved by the Financial Accounting Standards Board and would apply to the	Company if the Company or the Bank entered into an applicable activity.

FASB Statement No. 157, *Fair Value Measurements*	defines fair value, establishes a framework for measuring fair value, and	expands disclosures about fair value measurements.  SFAS No. 157 will	be applied prospectively and is effective for fiscal years beginning after	November 15, 2007, and interim periods within those fiscal years. 	Management does not expect SFAS No. 157 to have a material impact on the	Company’s consolidated financial statements.

FASB Statement No. 159, *The Fair Value Option for	Financial Assets and Financial Liabilities - including an amendment of FASB	Statement No. 115*. This Statement permits companies to choose to measure	many financial instruments and certain other items at fair value. The	objective is to improve financial reporting by providing companies with the	opportunity to mitigate volatility in reported earnings caused by measuring	related assets and liabilities differently without having to apply complex	hedge accounting provisions. This Statement is expected to expand the use of	fair value measurement, which is consistent with the Board’s long-term	measurement objectives for accounting for financial instruments. SFAS No.	159 is effective for fiscal years beginning after November 15, 2007. Early	adoption is permitted as of the beginning of a fiscal year that begins on or	before November 15, 2007, provided the entity also elects to apply the	provisions of FASB Statement No. 157, *Fair Value Measurements.*	Management does not expect SFAS No. 159 to have a material impact on the	Company's consolidated financial statements.

In September 2006, the Financial Accounting Standards	Board (FASB) ratified the consensus reached by the Emerging Issues Task	Force ("EITF") on issue No. 06-4, *Accounting for Deferred Compensation	and Postretirement Benefit Aspects of Endorsement Split-Dollar Life	Insurance Arrangements*determining whether the postretirement benefit	associated with an endorsement split-dollar life insurance arrangement is	effectively settled in accordance with FASB Statement No. 106, *Employers’	Accounting for Postretirement Benefits Other Than Pensions*(or Opinion	12, *Omnibus Opinion*-1967, if the arrangement does not constitute a	plan). The Task Force concluded that for a split-dollar life insurance	arrangement, an employer should recognize a liability for future benefits in	accordance with Statement 106 or Opinion 12 (depending on whether a	substantive plan is deemed to exist) based on the substantive agreement with	the employee. Management does not expect the adoption of EITF Issue No.	06-4, which is effective for fiscal years beginning after December 15, 2007,	to have a material impact on the Company's consolidated financial	statements.

The accounting policies adopted by management are	consistent with accounting principles generally accepted in the United	States of America and are consistent with those followed by peer Banks.

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** 

Calvin B. Taylor Bankshares, Inc. and SubsidiaryPart I. Financial InformationItem 2. Management's Discussion and Analysis of Financial Condition andResults of Operations
*    This Report contains statements which constituteforward-looking statements within the meaning of Section 27A of the SecuritiesAct of 1933 and the Securities Exchange Act of 1934. These statements appear ina number of places in this Report and include all statements regarding theintent, belief or current expectations of the Company, its directors, or itsofficers with respect to, among other things: (i) the Company's financing plans;(ii) trends affecting the Company's financial condition or results ofoperations; (iii) the Company's growth strategy and operating strategy; and (iv)the declaration and payment of dividends. Investors are cautioned that any suchforward-looking statements are not guarantees of future performance and involverisks and uncertainties, and that actual results may differ materially fromthose projected in the forward-looking statements as a result of various factorsdiscussed herein and those factors discussed in detail in the Company's filingswith the Securities and Exchange Commission.*    The following discussion of the financial condition andresults of operations of the Registrant (the Company) should be read inconjunction with the Company's financial statements and related notes and otherstatistical information included elsewhere herein.

General

    Calvin B. Taylor Bankshares, Inc. (Company) was incorporatedas a Maryland corporation on October 31, 1995. The Company owns all of the stockof Calvin B. Taylor Banking Company (Bank), a commercial bank that wasestablished in 1890 and incorporated under the laws of the State of Maryland onDecember 17, 1907. The Bank operates nine banking offices in Worcester County,Maryland and one banking office in Ocean View, Delaware. The Bank'sadministrative office is located in Berlin, Maryland. The Bank is engaged in ageneral commercial and retail banking business serving individuals, businesses,and governmental units in Worcester County, Maryland, Ocean View, Delaware, andneighboring counties.    The Company currently engages in no business other thanowning and managing the Bank.

Critical Accounting Policies

    The Company’s financial condition and results of operationsare sensitive to accounting measurements and estimates of inherently uncertainmatters. When applying accounting policies in areas that are subjective innature, management uses its best judgment to arrive at the carrying value ofcertain assets. One of the most critical accounting policies applied is relatedto the valuation of the loan portfolio. Management estimates the appropriateallowance for loan losses, including the timing of loan charge-offs.    The allowance for loan losses represents a reserve forpotential losses in the loan portfolio. It is one of the most difficult andsubjective judgments. The adequacy of the allowance for loan losses is evaluatedquarterly based on a review of the loan portfolio, with particular emphasis onnon-accruing, past due, and other loans that management believes requireattention. The determination of the reserve level relies on management'sjudgment about factors affecting loan quality, current trends in delinquenciesand charge-offs, and anticipated changes in the composition and size of theportfolio, as well as an analysis of historical loan loss ratios. Managementalso considers external factors such as changes in the interest rateenvironment, the view of the Bank’s regulators, economic conditions in theBank’s service area and beyond, and legislation that affects the bankingindustry. 

Financial Condition

    Total assets of the Company increased $11.2 million fromDecember 31, 2006 to June 30, 2007. Combined deposits and customer repurchaseagreements increased $8.1 million during the same period. During the secondquarter of the year, the Bank typically experiences growth in deposits fromseasonal business customers, summer residents and tourists. From first quarterto second quarter 2007, the Bank’s average assets and average deposits increasedmodestly by $5.1 million (1.42%) and $4.3 million (1.50%), respectively.Management carefully monitors deposit levels and their effect on liquidity,taking steps to retain core deposits.
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    The Company’s investment portfolio has decreased by $12.8million in the first six months of 2007. Investment securities that areclassified as available for sale are comprised of both equity and debtsecurities. Due to loan portfolio growth, combined with deposit balancereductions during 2005 and 2006, management has begun classifying purchases ofshort-term U. S. Treasury Bills as available for sale. This has resulted in agradual shift of investment balances from held to maturity into available forsale. This strategy provides increased availability of liquid funds for loangrowth or deposit demand.     During the first quarter of 2007, the Bank’s gross loanportfolio increased $7.3 million. By the end of the second quarter, theyear-to-date increase had diminished to $276,190 due to the scheduled repaymentof two large loans and a loan participation sold.     Based on its quarterly review of the consolidated loanportfolio, the Company determined that an allowance of $2.2 million was adequateas of June 30, 2007. Historically, the Company has low levels of loandelinquencies and charge-offs. Loans delinquent ninety days or more and stillaccruing interest totaled $2,913 or .001% of the portfolio at June 30, 2007, and$239,620 or .10% of the portfolio at December 31, 2006. There were no nonaccrualloans as of June 30, 2007 or December 31, 2006.    The Company makes loans to customers located primarily in theDelmarva region. Although the loan portfolio is diversified, its performancewill be influenced by the economy of the region.

Liquidity

   The Company’s major sources of liquidity are loan repayments,maturities of short-term investments including federal funds sold, and increasesin core deposits. Throughout the first quarter of the year, when the Banktypically experiences a decline in deposits, federal funds sold and investmentsecurities are primary sources of liquidity. During the second quarter of theyear, additional sources of liquidity become more readily available as businessborrowers start repaying loans, and the Bank receives seasonal deposits.Throughout the second and third quarters the Bank maintains a high liquiditylevel. Funds from seasonal deposits are generally invested in short-term U.S.Treasury Bills and overnight federal funds.   The Company has available lines of credit, includingovernight federal funds, reverse repurchase agreements and letters of credit,totaling $21,000,000 as of June 30, 2007.   Average liquid assets (cash and amounts due from banks,interest-bearing deposits in other banks, federal funds sold, and investmentsecurities) compared to average deposits and retail repurchase agreements were39.66% for the second quarter of 2007 compared to 38.08% for the first quarterof 2007 and 44.06% for the second quarter of 2006. Contributing to theyear-to-year decrease is growth of the loan portfolio which has been funded bydecreased investments in debt securities. 

Results of Operations

   Net income for the three months ended June 30, 2007***,***was $1,894,655 or $.60 per share, compared to $1,818,161 or $.57 pershare for the second quarter of 2006. This represents an increase of $76,494 or4.21% from the prior year. Year to date net income has increased $102,465 or$.05 per share from $3,581,562 or $1.12 per share in 2006 to $3,684,027 or $1.17per share in 2007. The key components of net income are discussed in thefollowing paragraphs.    For the first six months of 2007 compared to 2006, netinterest income increased $288,302 (3.55%). Net interest income increased$135,947 (3.31%)in the second quarter 2007 compared to the second quarter 2006.This increase is attributable to a shift in earning assets from investmentsecurities to higher yielding loans, while the expense increase is due to themovement of deposits from noninterest-bearing and lower rate interest-bearingdeposits to higher rate time deposits.    The tax-equivalent quarterly yield oninterest-earning assets increased by 67 basis points from 5.84% for secondquarter 2006 to 6.51% in 2007. The quarterly yield on interest-bearingliabilities increased by 74 basis points from 1.36% in 2006 to 2.10% in 2007. In combination, these shiftscontributed to an increase in net margin on interest-earning assets of 21 basispoints.
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   The following table presents information including averagebalances of interest-earning assets and interest-bearing liabilities, the amountof related interest income and interest expense, and the resulting yields bycategory of interest-earning asset and interest-bearing liability. In thistable, dividends and interest on tax-exempt securities and loans are reported ona fully taxable equivalent basis, which is a non-GAAP measure as defined in SECRegulation G and Item 10 of SEC Regulation S-K. Management believes that thesemeasures provide better yield comparability as a tool for managing net interestincome.
		Average Balances, Interest, and Yields 		For the quarter ended 		For the quarter ended 		June 30, 2007		 		June 30, 2006 		Average    		Average    		balance		 		Interest		Yield		 		balance 		Interest		Yield		Assets         		  Federal funds sold		$40,680,165  		$526,685 		5.19% 		$16,961,214  		$200,550 		4.74%		  Interest-bearing deposits		2,021,169 		22,772		4.52% 		2,224,899 		18,090		3.26%		  Investment securities		57,593,773 		670,450		4.67% 		95,624,286 		770,520		3.23%		  Loans, net of allowance		235,225,454 		4,226,327		7.21% 		223,805,472 		3,940,651		7.06%		    Total interest-earning assets		335,520,561 		5,446,234 		6.51% 		338,615,871 		4,929,811 		5.84%		Noninterest-bearing cash		16,068,149    		18,042,747   		Other assets		13,462,537    		13,408,287   		        Total assets		$365,051,247     		$370,066,905    		Liabilities and Stockholders' Equity         		Interest-bearing deposits         		  NOW 		$50,648,543  		         44,620 		0.35% 		$59,032,074  		         33,890 		0.23%		  Money market		34,237,355 		80,852		0.95% 		42,249,574 		82,497		0.78%		  Savings		44,869,370 		82,849		0.74% 		48,192,270 		71,317		0.59%		  Other time		82,776,690 		916,595		4.44% 		66,812,366 		551,381		3.31%		    Total interest-bearing deposits		212,531,958 		1,124,916		2.12% 		216,286,284 		739,085		1.37%		Securities sold under agreements to repurchase & federal funds purchased		3,593,834 		6,053		0.68% 		5,504,844 		9,180		0.67%		Borrowed funds		111,525 		1,701		6.12% 		133,410 		2,027		6.09%		    Total interest-bearing liabilities		216,237,317 		1,132,670		2.10% 		221,924,538 		750,292		1.36%		Noninterest-bearing deposits		77,266,064 		                  -   		79,718,655 		                  -   		293,503,381 		1,132,670 		1.55% 		301,643,193 		750,292 		1.00%		Other liabilities		624,267    		518,141   		Stockholders' equity		70,923,599    		67,905,571   		        Total liabilities and         		        stockholders' equity		$365,051,247     		$370,066,905    		Net interest spread   		4.41%    		4.48%		Net interest income  		$4,313,564  		    		$4,179,519  		 		Net margin on interest-earning assets   		5.16%    		4.95%          		Tax equivalent adjustment in:         		    Investment income  		$42,242     		$59,243  		    Loan income  		$27,499     		$12,400  
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   The Company’s net interest income is one of the mostimportant factors in evaluating its financial performance. Management usesinterest sensitivity analysis to determine the effect of rate changes. Netinterest income is projected over a one-year period to determine the effect ofan increase or decrease in the prime rate of 100 basis points. If prime were todecrease one hundred basis points, and all assets and liabilities maturingwithin that period were fully adjusted for the rate change, the Company wouldexperience a decrease of approximately 5.6% in net interest income. Conversely,if prime were to increase one hundred basis points, and all assets andliabilities maturing within that period were fully adjusted for the rate change,the Company would experience a corresponding increase in net interest income.The sensitivity analysis does not consider the likelihood of these rate changesnor whether management’s reaction to this rate change would be to reprice itsloans or deposits.    No provision for loan losses was charged to expense duringthe first six months of 2007 or 2006. Net loan charged-off (recovered) were($5,476) during the first half of 2007 versus ($69) in the same period in 2006.   Noninterest revenue for the second quarter of 2007 is $21,906(4.15%) less than last year. Noninterest revenue for the year-to-date is $31,955(3.18%) less than last year. For both the quarter and the year-to-date,increased ATM and VISA debit card revenue helped to offset declines in depositaccount service charges which are volume-related. Included in miscellaneousrevenue is the increase in cash surrender value of bank owned life insurance,which is $15,394 (19.61%) higher in the first six months of 2007 than in thesame period for 2006.    Noninterest expense for the second quarter of 2007 is $5,353(.30%) less than last year. During the quarter, increased salary and benefitexpense is offset by lower occupancy, furniture and equipment, and otheroperating expenses. Noninterest expense for the year-to-date is $55,382 (1.56%)more than last year. Included in this is a $10,377 (10.80%) increase inATM/Debit Card processing fees which relates primarily to volume oftransactions. Other notable variances in this category are due to the timing ofroutine period expenses that are recognized on a cash basis.   The Bank employed 98 full time equivalent employees as ofJune 30, 2007. The Bank hires seasonal employees during the summer, and employsyear-round part-time employees to meet peak-time demands. The Company has noemployees other than those hired by the Bank.   Income taxes are $98,500 higher this year than last, on apre-tax income increase of $200,965. The Company’s effective tax rate hasincreased from 35.91% through June 2006 to 36.37% through June 2007. Thisresults from the decrease of tax preferenced revenues in actual dollars and as apercentage of total revenues. Additionally, the Company’s marginal federalstatutory rate has increased due to annualized taxable income exceeding $10million.

Plans of Operation

   The Bank offers a full range of deposit services includingchecking, NOW, Money Market, and savings accounts, and time deposits includingcertificates of deposit. The transaction accounts and time certificates aretailored to the Bank’s principal market areas at rates competitive to thoseoffered in the area. In addition, the Bank offers certain retirement accountservices, such as Individual Retirements Accounts ("IRAs"). All deposits areinsured by the Federal Deposit Insurance Corporation (the "FDIC") up to themaximum amount allowed by law (generally, $100,000 for non-IRA accounts perdepositor and $250,000 for IRAs per depositor, subject to aggregation rules).The Bank solicits these accounts from individuals, businesses, associations andorganizations, and governmental authorities.    The Company, through the Bank, offers a full range of short-to medium-term commercial and personal loans. Commercial loans include bothsecured and unsecured loans for working capital (including inventory andreceivables), business expansion (including acquisition of real estate andimprovements), and purchase of equipment and machinery. Consumer loans includesecured and unsecured loans for financing automobiles, home improvements,education, and personal investments. The Company originates commercial andresidential mortgage loans and real estate construction and acquisition loans.These lending activities are subject to a variety of lending limits imposed bystate and federal law. The Bank may not make any loans to any director orexecutive officer (except for commercial loans to directors who are not officersor employees) unless the Board of Directors of the Bank approves the loans. TheBoard of Directors reviews such loans every six months.   Other bank services include cash management services, 24-hourATM’s, debit cards, safe deposit boxes, travelers’ checks, direct deposit ofpayroll and social security, and automatic drafts for various accounts. The Bankoffers bank-by-phone and Internet banking services, including electronicbill-payment, to both commercial and retail customers. The Bank also offersnon-deposit products including retail repurchase agreements and discountbrokerage services through a correspondent bank. Effective May 2007, the Bankoffers individual customers up to $30 million in FDIC insured deposits throughthe Certificate of Deposit Account Registry Services®.
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Capital Resources and Adequacy

   Total stockholders’ equity increased $3,124,458 from December31, 2006 to June 30, 2007. This increase is attributable to comprehensive incomerecorded during the period, as detailed in Note 2 of the Notes to FinancialStatements, reduced by $610,974 used to repurchase and retire 16,434 shares ofcommon stock. Stock repurchases were at prices ranging from $36.00 to $38.50 pershare.   Under the capital guidelines of the Federal Reserve Board andthe FDIC, the Company and Bank are currently required to maintain a minimumrisk-based total capital ratio of 8%, with at least 4% being Tier 1 capital.Tier 1 capital consists of stockholders' equity less accumulated othercomprehensive income. In addition, the Company and the Bank must maintain aminimum Tier 1 leverage ratio (Tier 1 capital to total assets) of at least 4%,but this minimum ratio is increased by 100 to 200 basis points for other thanthe highest-rated institutions.   Tier one risk-based capital ratios of the Company as of June30, 2007 and December 31, 2006 were 32.3% and 32.2%, respectively. Both aresubstantially in excess of regulatory minimum requirements. 

Fair value of debt securities

   The following is a clarification of the method by which theCompany establishes fair value of debt securities, as disclosed in its AnnualReport as of December 31, 2006, 2005, and 2004:

The fair values of readily marketable debt			securities are provided by an independent third party and are based			on quoted market price. Debt securities that are not readily			marketable are assigned values based on prices from multiple			sources, mostly from dealers’ bids and offers.

Website Access to SEC Reports

   The Bank maintains an Internet website at www.taylorbank.com. The Company’s periodic SEC reports, includingannual reports on Form 10-K, quarterly reports on Form 10-Q, and current reportson Form 8-K, are accessible through this website. Access to these filings isfree of charge. The reports are available as soon as practicable after they arefiled electronically with the SEC. **Item 3. Quantitative and Qualitative Disclosures About Market Risk
   The Company’s principal market risk exposure relates tointerest rates on interest-earning assets and interest-bearing liabilities.Unlike most industrial companies, the assets and liabilities of financialinstitutions such as the Company and the Bank are primarily monetary in nature.Therefore, interest rates have a more significant effect on the Company'sperformance than do the effects of changes in the general rate of inflation andchange in prices. In addition, interest rates do not necessarily move in thesame direction or in the same magnitude as the prices of goods and services. Asdiscussed previously, management monitors and seeks to manage the relationshipsbetween interest sensitive assets and liabilities in order to protect againstwide interest rate fluctuations, including those resulting from inflation.    At June 30, 2007, the Company’s interest rate sensitivity, asmeasured by gap analysis, showed the Company was asset-sensitive with a one-yearcumulative gap of 26.78%, as a percentage of interest-earning assets. Generallyasset-sensitivity indicates that assets reprice more quickly than liabilitiesand in a rising rate environment net interest income typically increases.Conversely, if interest rates decrease, net interest income would decline. TheBank has classified its demand mortgage and commercial loans as immediatelyrepriceable. Unlike loans tied to prime, these rates do not necessarily changeas prime changes since the decision to call the loans and change the rates restswith management. 

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** 

Item 4. Controls and procedures
   Disclosure controls and procedures are designed andmaintained by the Company to ensure that information required to be disclosed inthe Company’s publicly filed reports is recorded, processed, summarized andreported in a timely manner. Such information must be available to management,including the Chief Executive Officer (CEO) and Treasurer, to allow them to maketimely decisions about required disclosures. Even a well-designed and maintainedcontrol system can provide only reasonable, not absolute, assurance that itsobjectives are achieved. Inherent limitations in any system of controls includeflawed judgment, errors, omissions, or intentional circumvention of controls.   The Company’s management, including the CEO and Treasurer,performed an evaluation of the effectiveness of the design and operation of theCompany’s disclosure controls and procedures as of June 30, 2007. Based on thatevaluation, the Company’s management, including the CEO and Treasurer, hasconcluded that the Company’s disclosure controls and procedures are effective.The projection of an evaluation of controls to future periods is subject to therisk that procedures may become inadequate due to changes in conditionsincluding the degree of compliance with procedures.**Changes in Internal Controls**
   During the quarter ended on the date of this report, therewere no significant changes in the Company’s internal control over financialreporting that have had or are reasonably likely to have a material affect onthe Company’s internal control over financial reporting. As of June 30, 2007,the Company’s management, including the CEO and Treasurer, has concluded thatthe Company’s internal controls over financial reporting are effective. 

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**Calvin B. Taylor Bankshares, Inc. and SubsidiaryPart II. Other Information**
 

Item 1 Legal ProceedingsNot applicable
Item 1A Risk Factors
The Company and the Bank are subject to various types		of risk during the normal conduct of business. There has been no		material increase in any level of risk incurred by the Company or the		Bank during the quarter covered by this report. Following are		descriptions of the significant categories of risk most relevant to the		Company.

Credit risk is the risk to the Company’s		earnings or capital from the potential of an obligor to fulfill its		contractual commitment to the Company. Credit risk is most closely		associated with the Company’s lending activities.Interest rate risk is the risk to earnings or		capital from the potential movement in interest rates. It is the		sensitivity of the Company’s future earnings to interest rate changes.Liquidity risk is the risk to earnings or		capital from the Company’s inability to meet its obligations when they		come due without incurring unacceptable losses or costs.Market risk is the risk to earnings or capital		from changes in the value of portfolios of financial instruments. For		the Company, market risk is the risk of a decline in market value of its		securities portfolio.Transaction risk is the risk to earnings or		capital arising from problems with service or product delivery.		Transaction risk is the risk of a failure in the Company’s operating		processes, such as automation, employee integrity, or internal controls.Compliance risk is the risk to earnings or		capital from noncompliance with laws, rules, and regulations. Compliance		risk is one of the greatest risks the Company faces.Reputation risk is the risk to earnings or		capital from negative public opinion. Customer and public relations are		critical to the Company’s success. Accordingly, the Company’s reputation		is extremely important and anything that would impair that reputation is		a significant risk.Strategic risk is the risk to earnings or		capital arising from adverse business decisions or improper		implementation of those decisions.

Item 2 Unregistered Sales of Equity Securities and Use ofProceeds
( c ) The following table presents information about		the Company’s repurchase of its equity securities during the calendar		quarter ended on the date of this Form 10-Q.
      				(c) Total number				(d) Maximum number  				(a) Total				(b) Average				of Shares Puchased				of Shares that may 				Number				Price Paid				as Part of a Publicly				yet be Purchased				Period				of Shares				per Share				Announced Program				Under the Program				April 				      4,600  				               36.00  				        4,600  				253,092				   Plan renewal      				314,072				May 				         300  				               38.00  				           300  				313,772 				June 				      7,500  				               38.50  				        7,500  				306,272				Totals 				    12,400    				      12,400   
- 16 -

The Company publicly announced on August 14, 2003,		that it would repurchase up to 10% of its outstanding equity stock at		that time, which equated to a total of 324,000 common shares available		for repurchase. As of January 1, 2005, and again on May 18, 2007, this		plan was renewed, by public announcement, making up to 10% of the		Company’s outstanding equity stock at the time of renewal. This equated		to a total of 314,072 common shares, available for repurchase as of May		18, 2007. There is no expiration date for this program. No other stock		repurchase plan or program existed or exists simultaneously, nor has any		other plan or program expired during the period covered by this table.		Common shares repurchased under this plan are retired. 

Item 3 Defaults Upon Senior SecuritiesNot applicable
Item 4 Submission of Matters to a Vote of Security Holders
The Company held its annual meeting on May 9, 2007, during which the		items detailed in the proxy statement dated March 23, 2007, were		approved. This includes the reelection of the Board of Directors.

Item 5 Other informationNot applicable.
Item 6 Exhibits
Exhibits			31. Certifications of Principal Executive Officer			and Principal Financial Officer pursuant to Section 302 of the			Sarbanes-Oxley Act of 2002.			32. Certification of Principal Executive Officer			and Principal Financial Officer pursuant to Section 906 of the			Sarbanes-Oxley Act of 2002.
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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, theRegistrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

 
  **Calvin B. Taylor Bankshares, Inc.      
Date: August 7, 2007_______
By:
/s/ Raymond M. Thompson   
Raymond M. Thompson  
Chief Executive Officer      
Date: August 7, 2007_______
By:
/s/ Jennifer G Hawkins   
Jennifer G. Hawkins  
Treasurer (Principal Financial Officer)
 

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Exhibit 31.1Certification - Pursuant to Section 302 of the Sarbanes-OxleyAct of 2002

I, Raymond M. Thompson, certify that:

I have reviewed this quarterly report on Form 10-Q of Calvin B. TaylorBankshares, Inc.;

1. Based on my knowledge, this report does not contain any untrue	statement of a material fact or omit to state a material fact necessary to	make the statements made, in light of the circumstances under which such	statements were made, not misleading with respect to the period covered by	this report;

2. Based on my knowledge, the financial statements, and other financial	information included in this report, fairly present in all material respects	the financial condition, results of operations and cash flows of the	registrant as of, and for, the periods presented in this report;

3. The registrant’s other certifying officers and I are responsible for	establishing and maintaining disclosure controls and procedures (as defined	in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over	financial reporting (as defined in Exchange Act Rules 13a-15(f) and	15d-15(f)) for the registrant and we have:

a) designed such disclosure controls and procedures, or caused			such disclosure controls and procedures to be designed under our			supervision, to ensure that material information relating to the			registrant, including its consolidated subsidiary, is made known to			us by others within those entities, particularly during the period			in which this report is being prepared;			b) designed such internal control over financial reporting, or			caused such internal control over financial reporting to be designed			under our supervision, to provide reasonable assurance regarding the			reliability of financial reporting and the preparation of financial			statements for external purposes in accordance with generally			accepted accounting principles;			c) evaluated the effectiveness of the registrant’s disclosure			controls and procedures and presented in this report our conclusions			about the effectiveness of the disclosure controls and procedures,			as of the end of the period covered by this report based on such			evaluation; and			d) disclosed in this report any change in the registrant’s			internal control over financial reporting that occurred during the			most recent fiscal quarter that has or is reasonably likely to			materially affect the registrant’s internal control over financial			reporting; and

4. The registrant’s other certifying officers and I have disclosed, based	on our most recent evaluation of internal control over financial reporting,	to the registrant’s auditors and the audit committee of the registrant’s	board of directors (or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the			design or operation of internal control over financial reporting			which are reasonably likely to adversely affect the registrant’s			ability to record, process, summarize and report financial			information; and			b) any fraud, whether or not material, that involves management			or other employees who have a significant role in the registrant’s			internal control over financial reporting.
  **Calvin B. Taylor Bankshares, Inc.   
Date: August 7, 2007_______
By:
/s/ Raymond M. Thompson   
Raymond M. Thompson  
Chief Executive Officer
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Exhibit 31.2Certification - Pursuant to Section 302 of the Sarbanes-OxleyAct of 2002

I, Jennifer G. Hawkins, certify that:

I have reviewed this quarterly report on Form 10-Q of Calvin B. TaylorBankshares, Inc.;

1. Based on my knowledge, this report does not contain any untrue	statement of a material fact or omit to state a material fact necessary to	make the statements made, in light of the circumstances under which such	statements were made, not misleading with respect to the period covered by	this report;

2. Based on my knowledge, the financial statements, and other financial	information included in this report, fairly present in all material respects	the financial condition, results of operations and cash flows of the	registrant as of, and for, the periods presented in this report;

3. The registrant’s other certifying officers and I are responsible for	establishing and maintaining disclosure controls and procedures (as defined	in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over	financial reporting (as defined in Exchange Act Rules 13a-15(f) and	15d-15(f)) for the registrant and we have:

a) designed such disclosure controls and procedures, or caused			such disclosure controls and procedures to be designed under our			supervision, to ensure that material information relating to the			registrant, including its consolidated subsidiary, is made known to			us by others within those entities, particularly during the period			in which this report is being prepared;			b) designed such internal control over financial reporting, or			caused such internal control over financial reporting to be designed			under our supervision, to provide reasonable assurance regarding the			reliability of financial reporting and the preparation of financial			statements for external purposes in accordance with generally			accepted accounting principles;			c) evaluated the effectiveness of the registrant’s disclosure			controls and procedures and presented in this report our conclusions			about the effectiveness of the disclosure controls and procedures,			as of the end of the period covered by this report based on such			evaluation; and			d) disclosed in this report any change in the registrant’s			internal control over financial reporting that occurred during the			most recent fiscal quarter that has or is reasonably likely to			materially affect the registrant’s internal control over financial			reporting; and

4. The registrant’s other certifying officers and I have disclosed, based	on our most recent evaluation of internal control over financial reporting,	to the registrant’s auditors and the audit committee of the registrant’s	board of directors (or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the			design or operation of internal control over financial reporting			which are reasonably likely to adversely affect the registrant’s			ability to record, process, summarize and report financial			information; and			b) any fraud, whether or not material, that involves management			or other employees who have a significant role in the registrant’s			internal control over financial reporting.
  **Calvin B. Taylor Bankshares, Inc.   
Date: August 7, 2007_______
By:
/s/ Jennifer G Hawkins   
Jennifer G. Hawkins  
Treasurer (Principal Financial Officer)
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Exhibit 32Certification - Pursuant to 18 U.S.C. 1350(Section 906 of the Sarbanes-Oxley Act of 2002)

We, the undersigned, certify that to the best of our knowledge, based upon areview of the Quarterly Report on Form 10-Q for the period ended June 30, 2007of the Registrant (the "Report"):

(1) The Report fully complies with the requirements of Section			13(a) or 15(d) of the Securities Exchange Act of 1934, as amended;			and

(2) The information contained in the Report fairly presents, in			all material respects, the financial condition and results of			operations of the Registrant.
  **Calvin B. Taylor Bankshares, Inc.      
Date: August 7, 2007_______
By:
/s/ Raymond M. Thompson   
Raymond M. Thompson  
Chief Executive Officer      
Date: August 7, 2007_______
By:
/s/ Jennifer G Hawkins   
Jennifer G. Hawkins  
Treasurer (Principal Financial Officer)
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