UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549**Form 10-Q**
Quarterly Report Pursuant to Section 13 or 15(d)			of the Securities Exchange Act of 1934For the quarterly period ended September 30, 2008Commission File No. 000-50047
Calvin B. Taylor Bankshares, Inc.(Exact name of registrant as specified in its Charter)

Maryland(State of incorporation or organization)

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

24 North Main Street, Berlin, Maryland 21811(Address of principal executive offices, including zip code)

Registrant's telephone number, including area code: (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, a non-accelerated filer, or a smallerreporting company. See the definitions of "large accelerated filer,""accelerated filer" and "smaller reporting company" in Rule 12b-2 of theExchange Act.    Large accelerated filer ____                                                                                     Accelerated filer [X]    Non- accelerated filer ____ (Do not check if a smallerreporting company)     Smaller reporting company ____
Indicate by check mark whether the registrant is a shellcompany (as defined in Rule 12b-2 of the Act). Yes ____ No [X] 

On October 31, 2008, 3,052,900 shares of the registrant'scommon stock were issued and outstanding.

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******Calvin B. Taylor Bankshares, Inc. and SubsidiaryForm 10-QIndex**Part I - Financial		InformationPageItem 1Consolidated		Financial StatementsConsolidated		Balance Sheets as of September 30, 2008 and December 31, 20073 Consolidated		Statements of Income for the three months ended		September 30, 2008 and 20074Consolidated		Statements of Income for the nine monthsended		September 30, 2008 and 20075Consolidated		Statements of Cash Flows for the nine months ended		September 30, 2008 and 20076-7Notes to		Consolidated Financial Statements9-10Item 2Management’s		Discussion and Analysis of Financial Conditionand Results		of Operations11-18Item 3Quantitative		and Qualitative Disclosures About Market Risks 19Item 4Controls and		Procedures19Part II - Other		InformationItem 1Legal		Proceedings20Item 1ARisk Factors20Item 2Unregistered		Sales of Equity Securities and Use of Proceeds20-21Item 3Defaults Upon		Senior Securities21Item 4Submission of		Matters to a Vote of Security Holders21Item 5Other		Information21Item 6Exhibits21-24Signatures25
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		Part I - Financial Information, Item 1 Financial Statements 		Calvin B. Taylor Bankshares, Inc. and Subsidiary 		Consolidated Balance Sheets   		(unaudited)  		September 30		December 31, 		2008		2007		Assets		Cash and due from banks		 $             12,103,008 		 $             17,428,347 		Federal funds sold		                39,722,207 		                23,121,256 		Interest-bearing deposits		                15,923,116 		                  6,012,482 		Investment securities available for sale		                32,555,778 		                24,082,202 		Investment securities held to maturity (approximate   		  fair value of $37,121,191 and $47,302,194)		                36,508,424 		                46,679,750 		Loans, less allowance for loan losses  		  of $199,475 and $195,525		              235,119,322 		              238,076,278 		Premises and equipment		                  6,334,937 		                  6,536,469 		Accrued interest receivable		                  1,380,374 		                  1,693,173 		Bank owned life insurance		                  4,870,830 		                  4,720,770 		Income taxes receivable		                     213,188 		                     301,826  		Other assets		                     518,572 		                     493,120  		 $           385,249,756 		 $           369,145,673 		Liabilities and Stockholders' Equity		Deposits  		  Noninterest-bearing		 $             81,112,309 		 $             73,357,578 		  Interest-bearing		              222,280,687 		              215,585,969  		              303,392,996 		              288,943,547 		Securities sold under agreements to repurchase		                  6,045,974 		                  3,426,173 		Note payable		                       80,192 		                       98,090 		Accrued interest payable 		                     350,917 		                     501,909 		Deferred income taxes		                  1,516,464 		                  1,481,111 		Other liabilities		                       91,054 		                     219,080  		              311,477,597 		              294,669,910 		Stockholders' equity  		  Common stock, par value $1 per share   		   authorized 10,000,000 shares, issued and outstanding  		   3,055,290 shares at September 30, 2008, and  		   3,102,510 shares at December 31, 2007		                  3,055,290 		                  3,102,510 		  Additional paid-in capital		                10,653,093 		                12,381,413 		  Retained earnings		                58,075,471 		                57,076,461  		                71,783,854 		                72,560,384 		  Accumulated other comprehensive income		                  1,988,305 		                  1,915,379  		                73,772,159 		                74,475,763  		 $           385,249,756 		 $           369,145,673    		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 		September 30, 		2008		2007		Interest and dividend revenue  		  Loans, including fees		 $               4,140,888 		 $               4,163,017 		  U.S. Treasury and government agency securities		                     545,844 		                     793,673 		  State and municipal securities		                       10,857 		                       14,965 		  Federal funds sold 		                     221,938 		                     608,500 		  Interest-bearing deposits		                       87,138 		                       51,474 		  Equity securities		                         9,908 		                         9,596 		          Total interest and dividend revenue		                  5,016,573 		                  5,641,225    		Interest expense  		  Deposits		                     905,011 		                  1,222,347 		  Borrowings		                       25,538 		                       11,036 		    Total interest expense		                     930,549 		                  1,233,383    		    Net interest income		                  4,086,024 		                  4,407,842  		Provision for loan losses		                       (1,478)		                              -    		    Net interest income after provision for loan losses		                  4,087,502 		                  4,407,842    		Noninterest revenue  		  Service charges on deposit accounts		                     280,280 		                     244,484 		  ATM and debit card		                     146,784 		                     145,509 		  Bank owned life insurance		                       51,510 		                       48,046 		  Miscellaneous revenue		                       47,062 		                       55,922 		    Total noninterest revenue		                     525,636 		                     493,961    		Noninterest expenses  		  Salaries		                     878,244 		                     876,444 		  Employee benefits		                     200,211 		                     196,587 		  Occupancy		                     188,860 		                     180,344 		  Furniture and equipment		                     111,778 		                     117,194 		  Data proccessing		                       67,847 		                       62,005 		  ATM and debit card		                       81,713 		                       71,932 		  Other operating		                     395,843 		                     335,653 		    Total noninterest expenses		                  1,924,496 		                  1,840,159    		    Income before income taxes		                  2,688,642 		                  3,061,644 		Income taxes		                     982,500 		                  1,100,500 		Net income		 $               1,706,142 		 $               1,961,144    		Earnings per common share - basic and diluted		 $                        0.56 		 $                        0.63 		Dividend per common share		 $                        1.30 		 $                           -      		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 nine months ended 		September 30, 		2008		2007		Interest and dividend revenue  		  Loans, including fees		 $             12,520,143 		 $             12,514,743 		  U.S. Treasury and government agency securities		                  1,683,837 		                  1,979,548 		  State and municipal securities		                       31,657 		                       54,650 		  Federal funds sold 		                     669,832 		                  1,527,614 		  Interest-bearing deposits		                     209,076 		                       96,985 		  Equity securities		                       56,944 		                       50,744 		          Total interest and dividend revenue		                15,171,489 		                16,224,284    		Interest expense  		  Deposits		                  3,054,918 		                  3,369,510 		  Borrowings		                       40,627 		                       27,487 		    Total interest expense		                  3,095,545 		                  3,396,997    		    Net interest income		                12,075,944 		                12,827,287  		Provision for loan losses		                       75,015 		                              -    		    Net interest income after provision for loan losses		                12,000,929 		                12,827,287    		Noninterest revenue  		  Service charges on deposit accounts		                     803,242 		                     773,950 		  ATM and debit card		                     395,601 		                     377,049 		  Bank owned life insurance		                     150,059 		                     141,960 		  Miscellaneous revenue		                     181,251 		                     172,964 		    Total noninterest revenue		                  1,530,153 		                  1,465,923    		Noninterest expenses  		  Salaries		                  2,637,949 		                  2,586,155 		  Employee benefits		                     644,978 		                     602,606 		  Occupancy		                     560,180 		                     520,745 		  Furniture and equipment		                     352,240 		                     344,163 		  Data processing		                     207,865 		                     179,719 		  ATM and debit card		                     221,891 		                     202,932 		  Other operating		                  1,097,201 		                  1,005,719 		    Total noninterest expenses		                  5,722,304 		                  5,442,039    		    Income before income taxes		                  7,808,778 		                  8,851,171 		Income taxes		                  2,837,500 		                  3,206,000 		Net income		 $               4,971,278 		 $               5,645,171    		Earnings per common share - basic and diluted		 $                        1.61 		 $                        1.80 		Dividend per common share		 $                        1.30 		 $                           -      		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 nine months ended 		September 30, 		2008		2007		Cash flows from operating activities  		  Interest and dividends received		 $              15,369,050 		 $              15,810,513 		  Fees and commissions received		                   1,383,262 		                   1,319,628 		  Interest paid		                 (3,246,537)		                 (3,245,536)		  Cash paid to suppliers and employees		                 (5,439,087)		                 (5,190,909)		  Income taxes paid		                 (2,748,015)		                 (3,337,063) 		                   5,318,673 		                   5,356,633 		Cash flows from investing activities  		  Certificates of deposit purchased, net of maturities		                 (9,910,482)		                 (3,671,107)		  Proceeds from maturities of investments available  		     for sale		                 23,360,000 		                 16,000,000 		  Purchase of investments available for sale		               (13,438,682)		               (29,458,743)		  Proceeds from maturities of investments held to   		     maturity		                 17,000,000 		                 33,450,000 		  Purchase of investments held to maturity		               (25,000,000)		               (22,171,766)		  Loans made, net of principal collected		                   2,881,941 		                   4,422,689 		  Proceeds from sale of equipment		                                -   		                          8,224 		  Purchases of premises, equipment,  		    and computer software		                    (239,230)		                    (373,516) 		                 (5,346,453)		                 (1,794,219) 		   		   		Cash flows from financing activities  		  Net increase (decrease) in  		    Time deposits		                   5,355,891 		                 16,669,168 		    Other deposits		                   9,093,559 		                 (3,683,463)		    Securities sold under agreements to repurchase		                   2,619,801 		                    (761,816)		  Payments on note payable		                      (17,898)		                      (16,858)		  Common shares repurchased		                 (1,775,540)		                 (1,613,413) 		  Dividends Paid		                 (3,972,268)		                                -    		                 11,303,545 		                 10,593,618    		Net increase in cash and cash equivalents		                 11,275,765 		                 14,156,032 		Cash and cash equivalents at beginning of period		                 40,568,264 		                 45,771,812 		Cash and cash equivalents at end of period		 $              51,844,029 		 $              59,927,844                            		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 nine months ended 		September 30 		2008		2007		Reconciliation of net income to net cash provided  		  by operating activities  		  Net income		 $               4,971,278 		 $               5,645,171 		  Adjustments to reconcile net income to net cash  		    provided by operating activities  		Provision for loan losses		                       75,015 		                              -   		    Amortization of premiums and accretion of  		      discount, net		                   (115,289)		                   (450,380)		    Depreciation and amortization		                     431,401 		                     419,498 		Deferred income taxes		                              -   		                            118 		    (Gain) loss on disposition of assets		                              -   		                            106 		    Decrease (increase) in  		      Accrued interest receivable		                     312,799 		                       36,544 		      Cash surrender value of bank owned life insurance		                   (150,060)		                   (141,960)		      Other assets		                       72,547 		                   (156,201)		    Increase (decrease) in  		      Accrued interest payable		                   (150,992)		                     151,461 		      Other liabilities		                   (128,026)		                   (147,724) 		 $               5,318,673 		 $               5,356,633       		  Composition of cash and cash equivalents  		    Cash and due from banks		 $             12,103,008 		 $             17,169,053 		    Federal funds sold 		                39,722,207 		                42,751,013 		    Interest-bearing deposits, except for time deposits		                       18,814 		                         7,778  		 $             51,844,029 		 $             59,927,844                                           		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 conform with accounting principles generally accepted in the	United States of America and to the instructions to Form 10-Q. Interim	financial statements do not include all the information and footnotes	required for complete financial statements. In the opinion of management,	all adjustments considered necessary for a fair presentation of financial	position and results of operations for these interim periods have been made.	These adjustments are of a normal recurring nature. Results of operations	for the nine months ended September 30, 2008 are not necessarily indicative	of the results that may be expected in any other interim period or for the	year ending December 31, 2008. 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, 2007.	    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:
 		2008		2007		Three months ended September 30		                    3,063,966 		                    3,113,341 		Nine months ended September 30		                    3,084,485 		                    3,132,836 
2. Comprehensive Income   Comprehensive income consists of:
 		For the nine months ended 		September 30 		2008		2007		Net income		 $                 4,971,278 		 $                 5,645,171 		Unrealized gain (loss) on investment securities  		  available for sale, net of income taxes		                         72,926 		                         94,659 		Comprehensive income		 $                 5,044,204 		 $                 5,739,830 
3. Loan commitments   Loan commitments are agreements to lend to customers as	long as there is no violation of any conditions of the contracts. As of	September 30, outstanding loan commitments and letters of credit consist of:
 		September 30, 2008		December 31,2007		Loan commitments		 $               33,118,815 		 $               33,362,846 		Standby letters of credit		 $                 1,839,759 		 $                 1,385,719 
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**Calvin B. Taylor Bankshares, Inc. and SubsidiaryNotes to Consolidated Financial Statements (unaudited) (continued)**
4. Assets Measured at Fair Value on a Recurring Basis   The Company values investment securities classified as	available for sale at fair value. The fair value hierarchy established in	Statement of Financial Accounting Standards No. 157, *Fair Value	Measurements,* defines three input levels for fair value measurement.	Level 1 is based on quoted market prices in active markets for identical	assets. Level 2 is based on significant observable inputs other than those	in Level 1. Level 3 is based on significant unobservable inputs. The Company	values US Treasury and government agency securities under Level 1, and	municipal debt securities and equity investments under Level 2. The Company	has no assets measured at fair value on a recurring basis that are valued	under Level 3 criteria. At September 30, 2008, values for available for sale	investment securities were established as follows:
 		Total		Level 1 Inputs		Level 2 Inputs		Investment securities available for sale		 $      32,555,778 		 $      28,342,632 		 $        4,213,146 
5.  New accounting standards	   	The following accounting pronouncements have been	approved by the Financial Accounting Standards Board but have not become	effective as of this reporting date. These pronouncements would apply to the	Company if the Company or the Bank entered into an applicable activity.	    FASB Statement No. 160, "Noncontrolling Interests in	Consolidated Financial Statements" improves the relevance, comparability,	and transparency of the financial information that a reporting entity	provides in its consolidated financial statements by establishing accounting	and reporting standards for the noncontrolling interest in a subsidiary and	for the deconsolidation of a subsidiary.  SFAS No. 160 is effective for	fiscal years beginning on or after December 15, 2008, and interim periods	within those fiscal years.  Management does not expect SFAS No. 160 to	have a material impact on the Company’s consolidated financial statements.	    FASB Statement No. 161, "Disclosures about Derivative	Instruments and Hedging Activities - an amendment of FASB Statement No. 133"	requires enhanced disclosures about an entity’s derivative and hedging	activities and thereby improves the transparency of financial reporting. The	use and complexity of derivative instruments and hedging activities have	increased significantly over the past several years. Constituents have	expressed concerns that the existing disclosure requirements in FASB	Statement No. 133, "Accounting for Derivative Instruments and Hedging	Activities," do not provide adequate information about how derivative and	hedging activities affect an entity’s financial position, financial	performance, and cash flows. This Statement is effective for financial	statements issued for fiscal years and interim periods beginning after	November 15, 2008, with early application encouraged. This Statement	encourages, but does not require, comparative disclosures for earlier	periods at initial adoption. Management does not expect SFAS No. 161 to have	a material impact on the Company’s consolidated financial statements.	    FASB Statement No. 162, "The Hierarchy of Generally	Accepted Accounting Principles" 	identifies the sources of accounting principles and the framework for	selecting the principles to be used in the preparation of financial	statements of nongovernmental entities that are presented in conformity with	generally accepted accounting principles (GAAP) in the United States (the	GAAP hierarchy). SFAS No. 162 is effective 60 days	following the SEC’s approval of the PCAOB amendments to AU Section 411, "The	Meaning of *Present Fairly in Conformity With Generally Accepted	Accounting Principles.*" Management does not expect SFAS No. 162 to have	a material impact on the Company’s consolidated financial statements.
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	    FASB Statement No. 163, "Accounting for Financial	Guarantee Insurance Contracts – an Interpretation of FASB Statement No. 60"	clarifies how Statement 60 applies to financial guarantee insurance	contracts, including the recognition and measurement of premium revenue and	claim liabilities. This Statement also requires expanded disclosures about	financial guarantee insurance contracts. SFAS No. 163 is effective for	financial statements issued for fiscal years beginning after December 15,	2008, and interim periods within those fiscal years. Disclosure requirements	in paragraphs 30(g) and 31 are effective for the first period after issuance	of the Statement, including interim periods. Early adoption of the Statement	is not permitted except for the referenced paragraphs. Management does not	expect SFAS No. 163 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.
6. Restatement of prior period balances	   Certain reclassifications to the December 31, 2007,	balance sheet have been made to conform to current presentation. No totals	have changed.

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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. The Bank employed 94 full time equivalentemployees as of September 30, 2008. The Bank hires seasonal employees during thesummer. The Company has no employees other than those hired by 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.     The allowance for loan losses (ALLL) represents management’sbest estimate of inherent probable losses in the loan portfolio as of thebalance sheet date. It is one of the most difficult and subjective judgments.The adequacy of the allowance for loan losses is evaluated no less thanquarterly. The determination of the balance of the allowance for loan losses isbased on management’s judgments about the credit quality of the loan portfolioas of the review date. It should be sufficient to absorb losses in the loanportfolio as determined by management’s consideration of factors including ananalysis of historical losses, specific reserves for non-performing or past dueloans, delinquency trends, portfolio composition (including segment growth orshifting of balances between segments, products and processes, andconcentrations of credit, both regional and by relationship), lending staffexperience and changes, critical documentation and policy exceptions, riskrating analysis, interest rates and the competitive environment, economicconditions in the Bank’s service area, and results of independent reviews,including audits and regulatory examinations.    In 2007, the Company determined that the allowance for loanlosses was overstated as a result of provisions charged to earnings in yearsprior to 2003. A prior period adjustment to revalue the ALLL was recorded,resulting in the restatement of average balances and ratios previously reportedfor quarter ended September 30, 2007. The prior period adjustment has no impacton previously reported earnings. The result of the restatement of prior periodswas to increase average net loans, total assets, the net credit for deferredincome taxes, and retained earnings in each restated period. The Company’sAnnual Report on Form 10-K for the year ended December 31, 2007, filed on March17, 2008, contains details regarding the restatement. It is the belief ofmanagement that the restatement of average balances, yields and various ratiosas of September 30, 2007, will not alter conclusions drawn by those who reliedon the Company’s originally filed statements for that period.

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Financial Condition    Total assets of the Company increased $16.1 million fromDecember 31, 2007 to September 30, 2008. Combined deposits and customerrepurchase agreements increased $17.1 million during the same period. Managementbelieves that some of the growth in deposit balances results from marketinstability that is part of a continuing general economic downturn. In recentmonths, stock values have plunged, investment banks have failed and commercialmega-banks are reporting staggering losses often related to subprime lending andthe securitization of subprime loans. At such times, consumers seek the safetyof conservatively run community banks. Additionally, due to the effect ofseasonal resort business, it is normal for third quarter assets to be higherthan the beginning or end of the same year. For further discussion of seasonalactivity, see the section titled Liquidity.    Average total assets and average total deposits decreased$6.5 million and $8.7 million, respectively, from third quarter 2007 to thirdquarter 2008. Management carefully monitors deposit reductions and the resultingeffect on liquidity. Deposit decreases have been funded by reductions in theinvestment portfolio.

Loan Portfolio    From December 31, 2007 to June 30, 2008 the loan portfoliohad grown $3.5 million. During the third quarter, gross loans dropped by $6.5million resulting in a reduction of $3.0 million for the year to date. Therepayment of a single $5.0 million loan accounts for most of this decline. Fundsmade available by reductions in the loan portfolio have been invested in insureddeposits at other financial institutions. Because loans earn at higher averagerates than investments, this shift has a negative effect on earnings. There isno adverse impact on the Company’s ability to meet liquidity demands resultingfrom this shift in earning assets.    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. 
Loan Quality and the Allowance for Loan Losses    The allowance for loan losses (ALLL) represents an amountwhich management believes to be adequate to absorb identified and inherentlosses in the loan portfolio as of the balance sheet date. Valuation of theallowance is completed no less than quarterly. The determination of theallowance is inherently subjective as it relies on estimates of potential lossrelated to specific loans, the effects of portfolio trends, and other internaland external factors.     The ALLL consists of (i) formula-based reserves comprised ofpotential losses in the balance of the loan portfolio segmented into homogeneouspools, (ii) specific reserves comprised of potential losses on loans thatmanagement has identified as impaired and (iii) unallocated reserves.Unallocated reserves are not associated with a specific portfolio segment or aspecific loan, but may be appropriate if properly supported and in accordancewith GAAP.    The Company evaluates loan portfolio risk for the purpose ofestablishing an adequate allowance for loan losses. In determining an adequatelevel for the formula-based portion of the ALLL, management considers historicalloss experience for major types of loans. Homogenous categories of loans areevaluated based on loss experience in the most recent five years, applied to thecurrent portfolio. This formulation gives weight to portfolio size and lossexperience for categories of real estate construction loans, other real estatesecured loans, other loans to commercial borrowers, and other consumer loans.However, historical data may not be an accurate predictor of loss potential inthe current loan portfolio. Management also evaluates trends in delinquencies,the composition of the portfolio, concentrations of credit, and changes inlending products, processes, or staffing. Management further considers externalfactors such as the interest rate environment, competition, current local andnational economic trends, and the results of recent independent reviews byauditors and banking regulators.     The ongoing slow-down in the real-estate market has affectedboth the price and time to market residential and commercial properties.Management closely monitors such trends and the potential effect on the Company,but to date in management’s opinion, they have not impacted the quality of orloss potential in the Bank’s real estate secured loan portfolio. For all periodspresented, there were no specific adjustments made to the ALLL in connectionwith management’s evaluation of these trends as management determined that theyhave not impacted the quality of the loan portfolio. Although the real estatemarket is less robust than in recent years, management does not expect losses inthe real estate portfolio due to the Bank’s conservative underwriting practices.Management closely monitors conditions that might indicate deterioration ofcollateral value on significant loans and obtains additional collateral asrequired to protect the Bank from exposure.    Management employs a risk rating system which gives weight tocollateral status (secured vs. unsecured), and to the absence or improperexecution of critical contract or collateral documents. Unsecured loans andthose loans with critical documentation exceptions, as defined by management,are considered to have greater loss exposure. Management incorporates thesefactors in the formula-based portion of the ALLL. Additionally, consideration isgiven to those segments of the loan portfolio which management deems to pose thegreatest likelihood of loss.
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    Management believes that in a general economic slow-down,such as the region is experiencing in 2008, the Bank’s greatest likelihood ofloss is in unsecured loans - commercial and consumer, and in secured consumerloans. Reserves for these segments of the portfolio are included in theformula-based portion of the ALLL. As of September 30, 2008, management reserved40 bp against unsecured loans, and 35 bp against consumer loans secured by otherthan real estate. Both of these reserves were increased during the first andthird quarters of this year in recognition of the prolonged economic challengesto regional, national, and global economies. Additionally, management identifiedoverdrawn checking accounts as a distinct risk category and reserved 10.0%against overdrawn deposit accounts as of September 30, 2008.     Historically, the absence or improper execution of a documenthas not resulted in a loss to the Bank, however, management recognizes that theBank’s loss exposure is increased until a critical contract or collateraldocumentation exception is cured. At September 30, 2008, management reserved 10bp against the outstanding balances of loans identified as having criticaldocumentation exceptions.    The provision for loan losses is a charge to earnings in thecurrent period to maintain the allowance at a level management has determined tobe appropriate. The allowance is increased by current period provisions and byrecoveries of amounts previously charged-off. The allowance is decreased whenloans are charged-off as losses, which occurs when they are deemed to beuncollectible. Adjustments made to bring the balance in the allowance to thelevel established by management may result in an increase or decrease toexpense. A provision of ($1,478) was made in the third quarter of 2008. A totalof $75,015 has been provided in 2008. No provision for loan losses was made inthe third quarter or the year to date ending September 30, 2007.     Management considers the September 30, 2008 allowanceappropriate and adequate to absorb identified and inherent losses in the loanportfolio. As of September 30, 2008, management has not identified any loanswhich are anticipated to be charged-off within the next 12 months. However,there can be no assurance that charge-offs in future periods will not exceed theallowance for loan losses or that additional increases in the loan lossallowance will not be required.    The following is a schedule of transactions in the allowancefor loan losses. The Bank experienced net charge-offs of $787 last year and$71,065 in the current year to date. Management does not detect any meaningfultrend in this increase. Rather, these are natural swings of activity in a loanportfolio that experiences minimal losses.		Allowance for Loan Losses    		For nine months ended 		For the year ended  		September 30 		December 31  		2008		2007 		2007 		Balance at beginning of year		 $        195,525 		 $        196,083  		 $        196,083  		Loans charged-off:     		  Commercial		             59,199 		                       -  		                       -  		  Real estate - construction		                       - 		                       -  		                       -  		  Real estate - mortgage		                       - 		                       -  		                       -  		  Consumer		             12,216 		               6,263  		               6,263  		        Total loan losses		             71,415 		               6,263  		               6,263  		Recoveries on loans previously charged off:     		  Commercial		                       - 		                       -  		                       -  		  Real estate - construction		                       - 		                       -  		                       -  		  Real estate - mortgage		                       - 		                       -  		                       -  		  Consumer		                  350 		               5,476  		               5,705  		        Total loan recoveries		                  350 		               5,476  		               5,705        		Net loan charge-offs (recoveries)		             71,065 		                  787  		                  558  		Provision for loan losses charged to expense		             75,015 		                       -  		                       -  		Balance at end of period		 $        199,475 		 $        195,296  		 $        195,525        		Average loans outstanding during the period		 $ 238,446,661 		 $ 233,543,038  		 $ 235,013,815        		Annualized net charge-offs as a percentage of     		average loans outstanding during the period		0.04%		0.00% 		0.00% 

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    The accrual of interest on a loan is discontinued whenprincipal or interest is ninety days past due or when the loan is determined tobe impaired, unless collateral is sufficient to discharge the debt in full andthe loan is in process of collection. When a loan is placed in nonaccruingstatus, any interest previously accrued but unpaid, is reversed from interestincome. Interest payments received on nonaccrual loans may be recorded as cashbasis income, or as a reduction of principal, depending on management’s judgmenton a loan by loan basis. Accrual of interest may be restored when all principaland interest are current and management believes that future payments will bereceived in accordance with the loan agreement.    Nonperforming loans are loans past due 90 or more days andstill accruing plus nonaccrual loans. Nonperforming assets are comprised ofnonperforming loans combined with real estate acquired in foreclosure and heldfor sale. There were no nonperforming assets other than nonperforming loans asof September 30, 2008 or December 31, 2007, as shown in the following table.
 		September 30,		September 30,		December 31, 		2008		2007		2007		Loans 90 days or more past due and still accruing		 $           224,280 		 $           432,856 		 $               9,100 		Nonaccruing loans		                15,978 		                         - 		                40,916 		        Total nonperforming loans		 $           240,258 		 $           432,856 		 $             50,016     		Interest not accrued on nonaccruing loans		 $                    84 		 $                    -   		 $               1,509     		Interest included in net income on nonaccruing loans,   		year-to-date		 $               1,540 		 $                    -   		 $                    -   
    Loans are considered impaired when, based on currentinformation, management considers it unlikely that collection of principal andinterest payments will be made according to contractual terms. Generally, loansare not reviewed for impairment until the accrual of interest has beendiscontinued, although management may categorize a performing loan as impairedbased on knowledge of the borrower’s financial condition, devaluation ofcollateral, or other circumstances that are deemed relevant to loan collection.Impaired loans may have specific reserves, or valuation allowances, allocated tothem in the ALLL. Estimates of loss reserves on impaired loans may be determinedbased on any of the three measurement methods described in Financial AccountingStandard 114 (FAS 114): (1) the present value of future cash flows, (2) the fairvalue of collateral, if repayment of the loan is expected to be provided byunderlying collateral, or (3) the loan’s observable fair value. The Bank selectsand applies, on a loan-by-loan basis, the appropriate valuation method. Loansdetermined to be impaired, but for which no specific valuation allowance is madebecause management believes the loan is secured with adequate collateral or theBank will not take a loss on such loan, are grouped with other homogeneous loansfor evaluation under formula-based criteria described previously.     Impaired loans including nonaccruing loans totaled $592,127and $595,774, at September 30, 2008 and December 31, 2007, respectively.Principal balances of impaired loans include $419,770 and $436,802 which isguaranteed by a government agency at September 30, 2008 and December 31, 2007,respectively.
 		September 30, 2008		December 31, 2007		Impaired loans with valuation allowances,   		including nonaccruing loans		 $                  542,854 		 $                  595,774 		Valuation allowances on impaired loans		 $                  114,013 		 $                  138,514    		Impaired loans with no valuation allowances		 $                    49,273 		 $                           -   
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Liquidity    Liquidity represents the ability to provide steady sources offunds for loan commitments and investment activities, as well as to providesufficient funds to cover deposit withdrawals and payment of debt and operatingobligations. These funds can be obtained by converting assets to cash or byattracting new deposits. The Company’s major sources of liquidity are loanrepayments, maturities of short-term investments including federal funds sold,and increases in core deposits. Funds from seasonal deposits are generallyinvested in short-term U.S. Treasury Bills and overnight federal funds.     Due to its location in a seasonal resort area, the Banktypically experiences a decline in deposits, federal funds sold and investmentsecurities throughout the first quarter of the year when business customers areusing their deposits to meet cash flow needs. Beginning late in the secondquarter and throughout the third quarter, additional sources of liquidity becomemore readily available as business borrowers start repaying loans, and the Bankreceives deposits from seasonal business customers, summer residents andtourists. In keeping with this pattern, average assets grew by $22,985,662(6.46%) from $355,994,564 for the second quarter to $378,980,226 for the thirdquarter of 2008. Average deposits grew by $20,790,020 (7.52%) from $276,310,460for the second quarter to $297,100,480 for the third quarter of 2008.     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 were41.92% for the third quarter of 2008 compared to 44.50% for the same quarter of2007.    The Company has available lines of credit, includingovernight federal funds, reverse repurchase agreements and letters of credit,totaling $27,000,000 as of September 30, 2008.    Average net loans to average deposits were 80.19% versus76.31% as of September 30, 2008 and 2007, respectively. Average loans increasedby 2.10% while average deposits fell by 2.83%. Funding for loan growth andreductions in deposit balances was provided by a reduction of the investmentportfolio and federal funds sold. As loans earn at higher average rates thaninvestments, this shift has a positive effect on earnings. Average depositbalance reductions occurred in both interest-bearing and non-interest bearingaccounts. While earnings are reduced by the shift of demand and savings depositsto higher rate time deposits, neither this movement nor the increase in loanshas a negative impact on the Company’s ability to meet liquidity demands.

Interest Rate Sensitivity    The primary objective of asset/liability management is toensure the steady growth of the Company's primary source of earnings, netinterest income. Net interest income can fluctuate with significant interestrate movements. To lessen the impact of these margin swings, the balance sheetshould be structured so that repricing opportunities exist for both assets andliabilities in roughly equivalent amounts at approximately the same timeintervals. Imbalances in these repricing opportunities at any point in timeconstitute interest rate sensitivity.    Interest rate sensitivity refers to the responsiveness ofinterest-bearing assets and liabilities to changes in market interest rates. Therate-sensitive position, or gap, is the difference in the volume ofrate-sensitive assets and liabilities at a given time interval. The generalobjective of gap management is to actively manage rate-sensitive assets andliabilities to reduce the impact of interest rate fluctuations on the netinterest margin. Management generally attempts to maintain a balance betweenrate-sensitive assets and liabilities as the exposure period is lengthened tominimize the overall interest rate risk to the Company.    Interest rate sensitivity may be controlled on either side ofthe balance sheet. On the asset side, management exercises some control overmaturities. Also, loans are written to provide repricing opportunities on fixedrate notes. The Company's investment portfolio, including federal funds sold,provides the most flexible and fastest control over rate sensitivity since itcan generally be restructured more quickly than the loan portfolio.    On the liability side, deposit products are structured tooffer incentives to attain the maturity distribution desired. Competitivefactors sometimes make control over deposits more difficult and, therefore, lesseffective as an interest rate sensitivity management tool.    The asset mix of the balance sheet is continually evaluatedin terms of several variables: yield, credit quality, appropriate fundingsources, and liquidity. Management of the liability mix of the balance sheetfocuses on expanding the various funding sources.    As of September 30, 2008, the Company was cumulativelyasset-sensitive for all time horizons. For asset-sensitive institutions, ifinterest rates should decrease, the net interest margins should decline. Sinceall interest rates and yields do not adjust at the same velocity, the gap isonly a general indicator of rate sensitivity.

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Results of Operations    Net income for the three months ended September 30, 2008,was $1,706,142 or $.56 per share, compared to $1,961,144 or $.63 pershare for the third quarter of 2007. This represents a decrease of $255,002 or13.00% from the prior year. Year to date net income has decreased $673,893 or$.19 per share from $5,645,171 or $1.80 in 2007 to $4,971,278 or $1.61 in 2008.The key components of net income are discussed in the following paragraphs.     For the first nine months of 2008 compared to 2007, netinterest income decreased $751,343 (5.86%). Net interest income decreased$321,818 (7.30%) in the third quarter of 2008 compared to the third quarter of2007. The decrease in revenue is primarily attributable to market ratereductions which have resulted in the downward repricing of overnight federalfunds. Interest expense in the third quarter of 2008 was $302,834 (24.55%) lessthan in the comparable period last year, due to lower rates on time deposits.    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 5.9% 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 an increase in net interest income of the samepercentage. The sensitivity analysis does not consider the likelihood of theserate changes nor whether management’s reaction to this rate change would be toreprice its loans or deposits or both.     The tax-equivalent quarterly yield on interest-earning assetsdecreased by 65 basis points from 6.40% for third quarter 2007 to 5.75% in 2008.The quarterly yield on interest-bearing liabilities decreased by 50 basis pointsfrom 2.20% in 2007 to 1.70% in 2008. In combination, these shifts contribute toa decrease in net margin on interest-earning assets of 32 basis points.    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.

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		Average Balances, Interest, and Yields		For the quarter ended		For the quarter ended		September 30, 2008		September 30, 2007 - Restated		Average  		Average  		balance		Interest		Yield		balance		Interest		Yield      		Assets      		  Federal funds sold		 $   43,752,965 		 $      221,938 		2.02%		 $   47,006,543 		 $      608,500 		5.14%		  Interest-bearing deposits		      10,899,809 		           87,138 		3.18%		        4,071,750 		           51,474 		5.02%		  Investment securities		      60,345,351 		         608,017 		4.01%		      70,316,915 		         867,151 		4.89%		  Loans, net of allowance		    238,243,801 		      4,186,781 		6.99%		    233,344,041 		      4,197,629 		7.14%		    Total interest-earning assets		    353,241,926 		      5,103,874 		5.75%		    354,739,249 		      5,724,754 		6.40%		Noninterest-bearing cash		      12,096,712   		      17,044,550   		Other assets		      13,641,588   		      13,685,396   		        Total assets		 $ 378,980,226   		 $ 385,469,195         		Liabilities and Stockholders' Equity      		Interest-bearing deposits      		  NOW 		 $   48,928,744 		           56,726 		0.46%		 $   51,798,447 		           46,082 		0.35%		  Money market		      32,345,651 		           77,261 		0.95%		      32,766,614 		           77,517 		0.94%		  Savings		      41,724,294 		           77,858 		0.74%		      44,127,495 		           82,274 		0.74%		  Other time		      88,782,767 		         693,166 		3.11%		      88,056,153 		      1,016,474 		4.58%		    Total interest-bearing deposits		    211,781,456 		         905,011  				1.70%		    216,748,709 		      1,222,347 		2.24%		Securities sold under agreements to repurchase & federal funds purchased		        6,102,057 		           24,274 		1.58%		        5,353,325 		             9,421 		0.70%		Borrowed funds		             82,283 		             1,264 		6.11%		           105,956 		             1,615 		6.05%		    Total interest-bearing liabilities		    217,965,796 		         930,549  				1.70%		    222,207,990 		      1,233,383 		2.20%		Noninterest-bearing deposits		      85,319,024   		      89,017,589   		    303,284,820 		         930,549 		1.22%		    311,225,579 		      1,233,383 		1.57%		Other liabilities		        1,509,882   		        1,200,621   		Stockholders' equity		      74,185,524   		      73,042,995   		        Total liabilities and      		        stockholders' equity		 $ 378,980,226   		 $ 385,469,195   		Net interest spread  		4.05%  		4.20%		Net interest income 		 $   4,173,325   		 $   4,491,371  		Net margin on interest-earning assets  		4.70%  		5.02%      		Tax equivalent adjustment in:      		    Investment income 		 $        41,408   		 $        48,917  		    Loan income 		 $        45,893   		 $        34,612  
    Provisions for loan losses of ($1,478) and $75,015 wererecorded during the three and nine months periods ended September 30, 2008.There was no provision recorded in the three and nine months periods endedSeptember 30, 2007. Net loans charged-off were $71,065 and $787 during the firstthree quarters of 2008 and 2007, respectively. Management does not detect anymeaningful trend in the year-to-year relationship of net charge-offs to netrecoveries. Rather, these are natural swings of activity in a loan portfoliothat experiences minimal losses. See Loan Quality and the Allowance for LoanLosses for a discussion of the provision for loan losses.    Noninterest revenue for the third quarter of 2008 is $31,675(6.41%) higher thanthe comparable period last year. Noninterest revenue for the year-to-date is$64,230 (4.38%) more than last year. For both the quarter and the year-to-date,increased ATM and VISA debit card revenues are volume related. Increased servicecharges on deposit accounts and miscellaneous fees such as wire transfer feesreflect fee increases as well as increased volume.

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    Noninterest expense for the third quarter of 2008 is $84,337(4.58%), more than last year. Noninterest expense year-to-date is $280,265(5.15%) more than last year. The increase of $28,146 (15.66%) in data processingexpenses for the nine month period is due to (1) increased software maintenancecontract costs resulting from expanded product offerings and services, and (2)computer consulting fees. Other operating expenses include increasedcorrespondent bank fees that result from carrying lower reserve balances andincreased legal fees.     Income taxes for the nine months ended September 30, 2008 are$368,500 lower than the same period last year, on a pre-tax income decrease of$1,042,393. This is consistent with the Company’s effective tax rate of 36.33%.

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, savings, and certificate of depositaccounts are tailored to the Bank’s principal market areas at rates competitiveto those offered in the area. The Bank also offers Individual RetirementAccounts (IRA), Health Savings Accounts, and Education Savings Accounts. Alldeposits are insured by the Federal Deposit Insurance Corporation (FDIC) up tothe maximum amount allowed by law (generally, $100,000 per depositor, except for$250,000 per depositor for certain retirement accounts, subject to aggregationrules and a temporary insurance limit increase as described in the nextparagraph). The Bank solicits these accounts from individuals, businesses,associations and organizations, and governmental authorities. The Bank offersindividual customers up to $50 million in FDIC insured deposits through theCertificate of Deposit Account Registry Services® network.     Effective October 3, 2008, FDIC deposit insurance has beentemporarily increased from $100,000 to $250,000 per depositor through December31, 2009.    The Bank also offers a full range of short- to medium-termcommercial and personal loans. Commercial loans include both secured andunsecured loans for working capital (including inventory and receivables),business expansion (including acquisition of real estate and improvements), andpurchase of equipment and machinery. Consumer loans include secured andunsecured loans for financing automobiles, home improvements, education, andpersonal investments. The Bank originates commercial and residential mortgageloans and real estate construction and acquisition loans. These lendingactivities are subject to a variety of lending limits imposed by state andfederal law. The Bank lends to directors and officers of the Company and theBank under terms comparable to those offered to other borrowers entering intosimilar loan transactions. The Board of Directors approves all loans to officersand directors and reviews these 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 funds, and automatic drafts for various accounts.The Bank offers bank-by-phone and Internet banking services, includingelectronic bill-payment, to both commercial and retail customers. Early in 2008,the Bank began offering a remote capture service that enables commercialcustomers to electronically capture check images and make on-line deposits. TheBank also offers non-deposit products including retail repurchase agreements anddiscount brokerage services through a correspondent bank. 

Capital Resources and Adequacy    Total stockholders’ equity decreased $703,604 from December31, 2007 to September 30, 2008. This decrease is attributable to comprehensiveincome recorded during the period, as detailed in Note 2 of the Notes toFinancial Statements, reduced by $1,775,540 used to repurchase and retire 47,220shares of common stock, and cash dividends paid to shareholders of $3,972,268.    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 ofSeptember 30, 2008 and December 31, 2007 were 32.8% and 33.1%, respectively.Both are substantially in excess of regulatory minimum requirements.     Management does not anticipate participating in the troubledasset relief program (TARP) implemented by the government as a way to relievefinancial institutions stressed by investments in defaulting mortgages. The Bankhas not engaged in subprime mortgage lending, and has no investments in mortgagebacked securities.

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. 
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**Item 3. Quantitative and Qualitative Disclosures AboutMarket 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 September 30, 2008, the Company’s interest ratesensitivity, as measured by gap analysis, showed the Company was asset-sensitivewith a one-year cumulative gap of 29.22%, as a percentage of interest-earningassets. Generally asset-sensitivity indicates that assets reprice more quicklythan liabilities and in a rising rate environment net interest income typicallyincreases. Conversely, if interest rates decrease, net interest income woulddecline. The Bank has classified its demand mortgage and commercial loans asimmediately repriceable. Unlike loans tied to prime, these rates do notnecessarily change as prime changes since the decision to call the loans andchange the rates rests with management. 
**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 September 30, 2008. Based onthat evaluation, 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 effect onthe Company’s internal control over financial reporting. As of September 30,2008, the Company’s management, including the CEO and Treasurer, has concludedthat the 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 Proceedings           Not 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 failing 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 report.
    		(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		July		             22,742 		               37.04 		                              22,742 		240,540		August		             11,600 		               38.24 		                              11,600 		228,940 		September		                  300 		               37.00 		                                   300 		228,640		Totals		             34,642 		               37.44 		                              34,642  
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    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 available for repurchase at the time		of each 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 Securities           Not applicable

Item 4 Submission of Matters to a Vote of Security Holders		           		There have been no matters submitted to a vote of		security holders during the period covered by this report.

Item 5 Other information		           		There is no information required to be disclosed in a		report on Form 8-K during the period covered by this report, which has		not been reported.

Item 6 Exhibits and Reports on Form 8-K		           		a) 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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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: November 5, 2008_______
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: November 5, 2008_______
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, 2008of 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: November 5, 2008_______
By:
/s/ Raymond M. Thompson  
Raymond M. Thompson  
Chief Executive Officer      
Date: November 5, 2008_______
By:
/s/ Jennifer G. Hawkins  
Jennifer G. Hawkins  
Treasurer (Principal Financial Officer)
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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: November 5, 2008_______
By:
/s/ Raymond M. Thompson  
Raymond M. Thompson  
Chief Executive Officer      
Date: November 5, 2008_______
By:
/s/ Jennifer G. Hawkins  
Jennifer G. Hawkins  
Treasurer (Principal Financial Officer)
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