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, 2010Commission File No. 000-50047
Calvin B. Taylor Bankshares, Inc.(Exact name of registrant as specified in itsCharter)

Maryland(State of incorporation)

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

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

Registrant's telephone number, including area code:(410) 641-1700
 
Indicate by check mark whether the registrant (1)has filed all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2)has been subject to such filing requirements for the past 90 days. Yes [X]
Indicate by check mark whether the registrant hassubmitted electronically and posted on its corporate Web site, if any, everyInteractive Data File required to be submitted and posted pursuant to Rule 405of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (orfor such shorter period that the registrant was required to submit and post suchfiles).   N/A (not required at this time)

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, a non-accelerated filer, or asmaller reporting 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 asmaller reporting company)     Smaller reporting company ____
Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Act). No [X] 

On October 31, 2010, 3,000,508 shares of theregistrant's common stock were issued and outstanding.
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******Calvin B. Taylor Bankshares, Inc. and SubsidiaryForm 10-QIndex**
Part I - 
Financial Information
Page
Item 1
Consolidated Financial Statements
Consolidated Balance Sheets as of September		30, 2010 and December 31, 2009
3 
Consolidated Statements of Income for the		three months 
ended September 30, 2010 and 2009
4
Consolidated Statements of Income for the nine		months
ended September 30, 2010 and 2009
5
Consolidated Statements of Cash Flows for the		nine months 
ended September 30, 2010 and 2009
6-7
Notes to Consolidated Financial Statements
8-12
Item 2
Management’s Discussion and Analysis of		Financial Condition
and Results of Operations
13-22
Item 3
Quantitative and Qualitative Disclosures About		Market Risks 
23
Item 4
Controls and Procedures
23
Part II - 
Other Information
Item 1
Legal Proceedings
24
Item 1A
Risk Factors
24
Item 2
Unregistered Sales of Equity Securities and		Use of Proceeds
25
Item 3
Defaults Upon Senior Securities
25
Item 5
Other Information
25
Item 6
Exhibits
25-28
Signatures
29
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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, 		2010		2009		Assets		Cash and due from banks		 $             17,802,078 		 $             15,117,190 		Federal funds sold		                39,505,701 		                28,222,472 		Interest-bearing deposits		                11,647,022 		                12,494,003 		Investment securities available for sale		                63,396,007 		                42,767,578 		Investment securities held to maturity (approximate   		  fair value of $34,065,738 and $38,897,082)		                33,750,066 		                38,597,942 		Loans, less allowance for loan losses  		  of $628,765 and $637,761		              238,211,468 		              240,061,869 		Premises and equipment		                  6,379,529 		                  6,594,757 		Other real estate owned		                  1,208,000 		                  1,433,000 		Accrued interest receivable		                  1,054,801 		                  1,292,604 		Computer software		                     103,506 		                     135,831 		Bank owned life insurance		                  5,217,854 		                  5,089,278  		Other assets		                  1,366,546 		                  1,721,772  		 $           419,642,578 		 $           393,528,296 		Liabilities and Stockholders' Equity		Deposits  		  Noninterest-bearing		 $             83,789,185 		 $             72,431,731 		  Interest-bearing		              251,372,753 		              240,215,888  		              335,161,938 		              312,647,619 		Securities sold under agreements to repurchase		                  6,999,450 		                  7,048,176 		Note payable		                       28,345 		                       48,519 		Accrued interest payable 		                     156,626 		                     192,621 		Deferred income taxes		                     880,035 		                  1,026,786 		Other liabilities		                       92,208 		                     287,282  		              343,318,602 		              321,251,003 		Stockholders' equity  		  Common stock, par value $1 per share   		   authorized 10,000,000 shares, issued and outstanding  		   3,000,508 shares at September 30, 2010,   		     and December 31, 2009		                  3,000,508 		                  3,000,508 		  Additional paid-in capital		                  8,733,438 		                  8,733,438 		  Retained earnings		                63,213,404 		                58,975,278  		                74,947,350 		                70,709,224 		  Accumulated other comprehensive income		                  1,376,626 		                  1,568,069  		                76,323,976 		                72,277,293  		 $           419,642,578 		 $           393,528,296       		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 		2010		2009		Interest and dividend revenue  		  Loans, including fees		 $               4,010,548 		 $               3,978,452 		  U.S. Treasury and government agency securities		                     273,065 		                     391,920 		  State and municipal securities		                       12,203 		                       12,672 		  Federal funds sold 		                       17,969 		                       18,085 		  Interest-bearing deposits		                       12,618 		                       26,100 		  Equity securities		                         6,315 		                       10,081 		          Total interest and dividend revenue		                  4,332,718 		                  4,437,310    		Interest expense  		  Deposits		                     475,095 		                     591,775 		  Borrowings		                         9,646 		                       10,648 		    Total interest expense		                     484,741 		                     602,423 		    Net interest income		                  3,847,977 		                  3,834,887     		Provision for loan losses		                       52,500 		                   (132,550) 		    Net interest income after provision for loan losses		                  3,795,477 		                  3,967,437    		Noninterest revenue  		  Service charges on deposit accounts		                     238,221 		                     243,108 		  ATM and debit card		                     151,000 		                     147,965 		  Bank owned life insurance		                       43,931 		                       43,962 		  Gain on sale of assets		                       (1,319)		                              -   		  Miscellaneous revenue		                       92,294 		                       77,776 		    Total noninterest revenue		                     524,127 		                     512,811    		Noninterest expenses  		  Salaries		                     882,680 		                     902,057 		  Employee benefits		                     225,225 		                     201,225 		  Occupancy		                     197,908 		                     182,149 		  Furniture and equipment		                     122,121 		                     103,669 		  Data processing		                       64,381 		                       73,915 		  ATM and debit card		                       40,252 		                       43,820 		  Deposit insurance premiums		                       72,966 		                     151,637 		  Other operating		                     405,211 		                     413,627 		    Total noninterest expenses		                  2,010,744 		                  2,072,099    		    Income before income taxes		                  2,308,860 		                  2,408,149 		Income taxes		                     859,500 		                     896,500 		Net income		 $               1,449,360 		 $               1,511,649    		Earnings per common share - basic and diluted		 $                        0.48 		 $                        0.50    		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 		2010		2009		Interest and dividend revenue  		  Loans, including fees		 $             12,072,501 		 $             12,005,793 		  U.S. Treasury and government agency securities		                     926,797 		                  1,237,332 		  State and municipal securities		                       38,485 		                       34,070 		  Federal funds sold 		                       46,054 		                       51,272 		  Interest-bearing deposits		                       46,129 		                     132,880 		  Equity securities		                       35,321 		                       50,150 		          Total interest and dividend revenue		                13,165,287 		                13,511,497    		Interest expense  		  Deposits		                  1,461,333 		                  1,951,112 		  Borrowings		                       25,783 		                       26,682 		    Total interest expense		                  1,487,116 		                  1,977,794 		    Net interest income		                11,678,171 		                11,533,703     		Provision for loan losses		                     653,500 		                     497,050  		    Net interest income after provision for loan losses		                11,024,671 		                11,036,653    		Noninterest revenue  		  Service charges on deposit accounts		                     718,756 		                     743,186 		  ATM and debit card		                     417,041 		                     400,557 		  Bank owned life insurance		                     128,576 		                     130,052 		  Gain on sale of assets		                     183,920 		                              -   		  Miscellaneous revenue		                     340,756 		                     200,051 		    Total noninterest revenue		                  1,789,049 		                  1,473,846    		Noninterest expenses  		  Salaries		                  2,627,163 		                  2,705,716 		  Employee benefits		                     748,739 		                     631,275 		  Occupancy		                     605,164 		                     560,586 		  Furniture and equipment		                     353,370 		                     340,636 		  Data processing		                     210,776 		                     215,049 		  ATM and debit card		                     139,154 		                     192,472 		  Deposit insurance premiums		                     218,654 		                     417,034 		  Other operating		                  1,224,074 		                  1,172,716 		    Total noninterest expenses		                  6,127,094 		                  6,235,484    		    Income before income taxes		                  6,686,626 		                  6,275,015 		Income taxes		                  2,448,500 		                  2,273,500 		Net income		 $               4,238,126 		 $               4,001,515    		Earnings per common share - basic and diluted		 $                        1.41 		 $                        1.32    		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 		2010		2009		Cash flows from operating activities  		  Interest and dividends received		 $              13,543,626 		 $              14,029,927 		  Fees and commissions received		                   1,618,990 		                   1,344,516 		  Interest paid		                 (1,523,110)		                 (2,132,182)		  Cash paid to suppliers and employees		                 (5,806,785)		                 (5,894,557)		  Income taxes paid		                 (2,190,956)		                 (1,944,434) 		                   5,641,765 		                   5,403,270 		Cash flows from investing activities  		  Certificates of deposit purchased, net of maturities		                      826,102 		                   3,315,503 		  Proceeds from maturities of investments available  		     for sale		                 15,135,000 		                 17,200,000 		  Purchase of investments available for sale		               (36,198,861)		               (34,149,247)		  Proceeds from maturities of investments held to   		     maturity		                 23,740,000 		                 23,765,000 		  Purchase of investments held to maturity		               (18,935,424)		               (30,773,647)		  Loans made, net of principal reductions		                   1,196,901 		                   4,885,851 		  Proceeds from sale of repossessed loan collateral, net of  		    cost of sale		                      217,551 		                        39,510 		  Purchases of premises, equipment,  		    and computer software		                    (193,317)		                    (750,181)		  Proceeds from sale of premises and equipment		                        72,100 		                        20,900  		               (14,139,948)		               (16,446,311)   		Cash flows from financing activities  		  Net increase (decrease) in  		    Time deposits		                   1,404,046 		                    (795,649)		    Other deposits		                 21,110,274 		                 30,354,512 		    Securities sold under agreements to repurchase		                      (48,726)		                   1,802,953 		  Payments on note payable		                      (20,174)		                      (19,002) 		  Common shares repurchased		                                -   		                 (1,540,500) 		                 22,445,420 		                 29,802,314    		Net increase in cash and cash equivalents		                 13,947,237 		                 18,759,273 		Cash and cash equivalents at beginning of period		                 43,489,772 		                 35,270,664 		Cash and cash equivalents at end of period		 $              57,437,009 		 $              54,029,937                      		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, 		2010		2009		Reconciliation of net income to net cash provided  		  by operating activities  		  Net income		 $               4,238,126 		 $               4,001,515 		  Adjustments to reconcile net income to net cash  		    provided by operating activities  		Provision for loan losses		                     653,500 		                     497,050 		    (Gain) loss on sale of repossessed loan collateral		                         7,449 		                       (1,203)		    (Gain) on sale of premises, equipment and  		      computer software		                     (55,061)		                       (3,593)		    Amortization of premiums and accretion of  		      discount, net		                     140,537 		                       58,582 		    Depreciation and amortization		                     423,829 		                     413,818 		    Decrease (increase) in  		      Accrued interest receivable		                     237,803 		                     459,780 		      Cash surrender value of bank owned life insurance		                   (128,576)		                   (130,052)		      Other assets		                     355,227 		                     321,851 		    Increase (decrease) in  		      Accrued interest payable		                     (35,995)		                   (154,387)		      Accrued income taxes		                       37,512 		                         2,708 		      Other liabilities		                   (232,586)		                     (62,799) 		 $               5,641,765 		 $               5,403,270       		  Composition of cash and cash equivalents  		    Cash and due from banks		 $             17,802,078 		 $             19,438,917 		    Federal funds sold 		                39,505,700 		                34,442,376 		    Interest-bearing deposits, except for time deposits		                     129,231 		                     148,644  		 $             57,437,009 		 $             54,029,937       		Supplemental cash flows information:  		    Non-cash transfers from loans to other real estate owned		 $                           -   		 $                  845,000                                  		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 financialstatements conform with accounting principles generally accepted in the UnitedStates of America and to the instructions to Form 10-Q. Interim financialstatements do not include all the information and footnotes required forcomplete financial statements. In the opinion of management, all adjustmentsconsidered necessary for a fair presentation of financial position and resultsof operations for these interim periods have been made. These adjustments are ofa normal recurring nature. Results of operations for the nine months endedSeptember 30, 2010 are not necessarily indicative of the results that may beexpected in any other interim period or for the year ending December 31, 2010.For further information, refer to the audited consolidated financial statementsand related footnotes included in the Company's Form 10-K for the year endedDecember 31, 2009.    Consolidation has resulted in the elimination ofall significant intercompany accounts and transactions.

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

Per share data    Earnings per common share are determined bydividing net income by the weighted average number of common shares outstandingfor the period, as follows:
 		2010		2009		Three months ended September 30		                    3,000,508 		                    3,011,098 		Nine months ended September 30		                    3,000,508 		                    3,025,271 
2. Comprehensive Income   Comprehensive income consists of:
 		For the nine months ended 		September 30, 		2010		2009		Net income		 $                 4,238,126 		 $                 4,001,515 		Unrealized loss on investment securities  		  available for sale, net of income taxes		                     (191,443)		                     (611,842)		Comprehensive income		 $                 4,046,683 		 $                 3,389,673 
 

 

 

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**Calvin B. Taylor Bankshares, Inc. and SubsidiaryNotes to Consolidated Financial Statements (unaudited)(continued)**
3. Investment Securities	   	Investment securities are summarized as follows:

 
  			Amortized 			Unrealized			Unrealized			Fair  			cost			gains			losses			value 			September 30, 2010     			Available for sale     			  U.S. Treasury			 $         59,193,537 			 $       1,301,245 			 $            1,600 			 $         60,493,182  			  State and municipal			                 366,057  						                 6,750 			               1,484 			                 371,323  			 			  Equity			              1,691,841 			          1,053,164 			           213,503 			              2,531,502   			 $         61,251,435 			 $       2,361,159 			 $        216,587 			 $         63,396,007  			Held to maturity     			  U.S. Treasury			 $         19,487,841 			 $          272,627 			 $                  -   			 $         19,760,468  			  U.S. Government agency			            10,003,128 			               21,550 			                     -   			            10,024,678  			  State and municipal			              4,259,097 			               21,664 			                  169 			              4,280,592   			 $         33,750,066 			 $          315,841 			 $               169 			 $         34,065,738        			December 31, 2009     			Available for sale     			  U.S. Treasury			 $         38,197,971 			 $          950,429 			 $                  -   			 $         39,148,400  			  State and municipal			                 395,000  						                 5,392 			                  270 			                 400,122  			 			  Equity			              1,691,841 			          1,571,962 			             44,747 			              3,219,056   			 $         40,284,812 			 $       2,527,783 			 $          45,017 			 $         42,767,578  			Held to maturity     			  U.S. Treasury			 $         25,498,390 			 $          254,672 			 $            8,999 			 $         25,744,063  			  U.S. Government agency			            10,000,000 			               30,808 			                  650 			            10,030,158  			  State and municipal			              3,099,552 			               23,309 			                    -   			              3,122,861   			 $         38,597,942 			 $          308,789 			 $            9,649 			 $         38,897,082 
	 

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**Calvin B. Taylor Bankshares, Inc. and SubsidiaryNotes to Consolidated Financial Statements (unaudited)(continued)**
3. Investment Securities (Continued)	   	The table below shows the gross unrealized	losses and fair value of securities that are in an unrealized loss position	as of September 30, 2010, aggregated by length of time that individual	securities have been in a continuous unrealized loss position. 
 			Less than 12 months			12 months or more			Total 			Fair			Unrealized			Fair			Unrealized			Fair			Unrealized 			value			losses			value			losses			value			losses       			U. S. Treasury			 $  9,014,154 			 $       1,600 			 $             -   			 $             -   			 $  9,014,154 			 $      1,600 			State and municipal			        365,366 			          1,653 			                -   			                -   			        365,366 			         1,653  			Equity securities			        243,748 			      148,069 			       243,770 			         65,434 			        487,518 			     213,503   			 $  9,623,268 			 $   151,322 			 $    243,770 			 $      65,434 			 $  9,867,038 			 $  216,756 
    The debt securities for which an unrealized	loss is recorded are issues of the U. S. Treasury and general and highly	rated revenue obligations of states and municipalities. The Company has the	ability and the intent to hold these securities until they are called or	mature at face value. Equity securities for which an unrealized loss is	recorded are issued by four local community banks or bank holding companies.	Management believes that these fluctuations in fair value reflect market	conditions, and are not indicative of other-than-temporary impairment of the	investments.	    The amortized cost and estimated fair value of	debt securities, by contractual maturity and the amount of pledged	securities, follow. Actual maturities may differ from contractual maturities	because issuers may have the right to call or prepay obligations with or	without call or prepayment penalties.
 		September 30, 2010		December 31, 2009 		Amortized		Fair		Amortized		Fair 		cost		value		cost		value     		Available for sale    		  Within one year		$       38,197,449 		 $       38,382,547 		 $       15,106,388 		 $       15,136,254 		  After one year    		   through five years		           19,365,576 		           19,584,458 		           21,490,230 		           21,822,893  		  After ten years		            1,996,569 		            2,897,500 		            1,996,353 		            2,589,375   		 $       59,559,594 		 $       60,864,505 		 $       38,592,971 		 $       39,548,522      		Held to maturity    		  Within one year		 $       11,942,919 		 $       11,983,392 		 $       16,042,286 		 $       16,273,130 		  After one year     		   through five years		          21,807,147 		          22,082,346 		          22,555,656 		          22,623,952   		 $       33,750,066 		 $       34,065,738 		 $       38,597,942 		 $       38,897,082       		Pledged securities		 $       26,593,298 		 $       27,902,281 		 $       26,269,854 		 $       27,142,948 
    Investments are pledged to secure deposits of	federal and local governments. Pledged securities also serve as collateral	for securities sold under agreements to repurchase.

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**Calvin B. Taylor Bankshares, Inc. and SubsidiaryNotes to Consolidated Financial Statements (unaudited)(continued)**
4. 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:
 		September 30, 2010		December 31, 2009		Loan commitments and lines of credit  		  Construction and land development		 $               7,825,746 		 $             10,231,711  		  Other		                22,011,027 		                19,038,506   		 $             29,836,773 		 $             29,270,217     		Standby letters of credit		 $               1,742,979 		 $               1,907,736 
5. Assets Measured at Fair Value   The Company values investment securities	classified as available for sale on a recurring basis and other real estate	acquired through foreclosure at fair value on a non-recurring basis. The	fair value hierarchy established in the Financial Accounting Standards Board	Codification Topic 820 titled *Fair Value Measurements* defines three	input levels for fair value measurement. Level 1 is based on quoted market	prices in active markets for identical assets. Level 2 is based on	significant observable inputs other than those in Level 1. Level 3 is based	on significant unobservable inputs. The Company values US Treasury	securities, government agency securities, and an equity investment in an	actively traded public utility under Level 1. Municipal debt securities,	equity investments in community banks, and other real estate acquired	through foreclosure are valued under Level 2. The Company has no assets	measured at fair value on a recurring or non-recurring basis that are valued	under Level 3 criteria. At September 30, 2010, values for available for sale	investment securities and other real estate owned were established as	follows:
 			Total			Level 1 Inputs			Level 2 Inputs			Investment securities available for sale (recurring)			 $      63,396,007 			 $      60,493,182 			 $        2,902,825  			Other real estate owned (non-recurring)			           1,208,000 			                       -   			           1,208,000   			 $      64,604,007 			 $      60,493,182 			 $        4,110,825 
The fair value of financial assets and	financial liabilities, including those financial assets and financial	liabilities that are not measured and reported at fair value on a recurring	basis or non-recurring basis, and the valuation methods used in estimating	the fair value of financial instruments is disclosed in the Company’s Annual	Report on Form 10-K. It is not practicable to report quarterly the fair	value of financial assets and liabilities measured on a non-recurring basis.

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**Calvin B. Taylor Bankshares, Inc. and SubsidiaryNotes to Consolidated Financial Statements (unaudited)(continued)**	6. New accounting standards	   	The following accounting pronouncements have	been approved by the Financial Accounting Standards Board but had not become	effective as of September 30, 2010. These pronouncements would apply to the	Company if the Company or the Bank entered into an applicable activity. *    ASU No. 2010-06, "Fair Value Measurements and	Disclosures (Topic 820) - Improving Disclosures About Fair Value	Measurements."*ASU 2010-06 requires expanded disclosures related to fair	value measurements including (i) the amounts of significant transfers of	assets or liabilities between Levels 1 and 2 of the fair value hierarchy and	the reasons for the transfers, (ii) the reasons for transfers of assets or	liabilities in or out of Level 3 of the fair value hierarchy, with	significant transfers disclosed separately, (iii) the policy for determining	when transfers between levels of the fair value hierarchy are recognized and	(iv) for recurring fair value measurements of assets and liabilities in	Level 3 of the fair value hierarchy, a gross presentation of information	about purchases, sales, issuances and settlements. ASU 2010-06 further	clarifies that (i) fair value measurement disclosures should be provided for	each class of assets and liabilities (rather than major category), which	would generally be a subset of assets or liabilities within a line item in	the statement of financial position and (ii) company’s should provide	disclosures about the valuation techniques and inputs used to measure fair	value for both recurring and nonrecurring fair value measurements for each	class of assets and liabilities included in Levels 2 and 3 of the fair value	hierarchy. Disclosures related to the gross presentation of Level 3	purchases, sales, issuances and settlements of assets and liabilities will	be required for the Corporation beginning January 1, 2011.*    ASU No. 2010-20, "Receivables (Topic 310) –	Disclosures about the Credit Quality of Financing Receivables and the	Allowance for Credit Losses."*ASU 2010-20 requires expanded disclosures	designed to facilitate financial statement users’ evaluation of (i) the	nature of inherent credit risk in the company’s portfolio of financing	receivables (which includes loans), (ii) how that risk is analyzed and	assessed in arriving at an adequate level of the allowance for credit	losses, and (iii) changes and reasons for changes in the allowance for	credit losses. Disclosures must be disaggregated by portfolio segment, which	is the level at which the company develops and documents its systematic	method for determining an allowance for credit losses, and class of	financing receivable, which is generally a further disaggregation of	portfolio segment. The required disclosures include but are not limited to,	a rollforward of the allowance for credit losses as well as information	about modified, impaired, nonaccrual, and past due loans, as well as credit	quality indicators. ASU 2010-20 will be effective for the Company’s	financial statements as of December 31, 2010, as it relates to disclosures	required as of the end of a reporting period. Disclosures that relate to	activity during a reporting period will be required for the Company’s	financial statements that include periods beginning on or after January 1,	2011.**    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 Information**

Item 2. Management's Discussion and Analysis ofFinancial Condition and Results 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 conditionand results 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) wasincorporated as a Maryland corporation on October 31, 1995. The Company owns allof the stock of Calvin B. Taylor Banking Company (Bank), a commercial bank thatwas established in 1890 and incorporated under the laws of the State of Marylandon December 17, 1907. The Bank operates nine banking offices in WorcesterCounty, 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 otherthan owning and managing the Bank. The Bank employed 91 full time equivalentemployees as of September 30, 2010. The Bank hires seasonal employees during thesummer. The Company has no employees other than those hired by the Bank.

Use of estimates    The preparation of financial statements inconformity with accounting principles generally accepted in the United State ofAmerica requires management to make estimates and assumptions that affect thereported amounts of assets and liabilities and disclosure of contingent assetsand liabilities at the date of the financial statements. These estimates andassumptions may affect the reported amounts of revenues and expenses during thereporting period. Actual results could differ from these estimates. 

Critical Accounting Policies    The Company’s financial condition and results ofoperations are sensitive to accounting measurements and estimates of inherentlyuncertain matters. When applying accounting policies in areas that aresubjective in nature, management uses its best judgment to arrive at thecarrying value of certain assets. One of the most critical accounting policiesapplied is related to the valuation of the loan portfolio.     The allowance for loan losses (ALLL) representsmanagement’s best estimate of inherent probable losses in the loan portfolio asof the balance sheet date. It is one of the most difficult and subjectivejudgments. The adequacy of the allowance for loan losses is evaluated no lessthan quarterly. The determination of the balance of the allowance for loanlosses is based on management’s judgments about the credit quality of the loanportfolio as of the review date. It should be sufficient to absorb losses in theloan portfolio as determined by management’s consideration of factors includingan analysis of historical losses, specific reserves for non-performing or pastdue loans, delinquency trends, portfolio composition (including segment growthor shifting 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.

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Financial Condition    Total assets of the Company increased $26.1 million(6.64%) from December 31, 2009 to September 30, 2010. Combined deposits andcustomer repurchase agreements increased $22.5 million (7.03%) during the sameperiod. Much of the deposit and asset growth from the previous year-end to theend of the third quarter stems from seasonal activity, which is furtherdiscussed in the section titled Liquidity.    Average assets and average deposits increased $14.6million and $12.7 million, respectively, from third quarter 2009 to thirdquarter 2010. Management believes that some of the year-to-year growth indeposits results from continuing market instability as a prolonged generaleconomic recession is followed by a sluggish recovery. Consumers often seek thesafety of conservatively run community banks when the stock market suffers asignificant downturn. Increased deposit insurance limits also give customers agreater sense of security in bank deposits.

Loan Portfolio    During the first nine months of 2010, the Bank’sgross loan portfolio has dropped by $1.9 million (.77%). It is typical for theBank to experience growth in both deposits and loans by the end of the secondquarter. By late June, many seasonal merchants have drawn on their workingcapital lines of credit and, if the tourist season is successful, they areexperiencing increased sales. Throughout the third quarter, seasonal merchantspay down their lines of credit. Due to the challenges of the current economy,management has been proactive in monitoring the repayment of seasonal lines.    The Company makes loans to customers locatedprimarily in the Delmarva region. Although the loan portfolio is diversified,its performance will be influenced by the economy of the region. Since late2008, the local and regional economies have been adversely affected by arecession of national and international reach. Although economists consider thatthe recession ended in mid-2009, the Bank continues to experience higher thanusual loan delinquencies and losses due to the after effects of the recessionand the slow pace of recovery.

Loan Quality and the Allowance for Loan Losses    The allowance for loan losses (ALLL) represents anamount which management believes to be adequate to absorb identified andinherent losses in the loan portfolio as of the balance sheet date. Valuation ofthe allowance 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 reservescomprised of potential losses in the balance of the loan portfolio segmentedinto homogeneous pools, (ii) specific reserves comprised of potential losses onloans that management 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 thepurpose of establishing an adequate allowance for loan losses. In determining anadequate level for the formula-based portion of the ALLL, management considershistorical loss experience for major types of loans. Homogenous categories ofloans are evaluated based on loss experience in the most recent three years.Based on this evaluation, management applies a formula to the current portfoliowhich gives weight to portfolio size and loss experience for categories of realestate construction loans, other real estate secured loans, other loans tocommercial borrowers, and other consumer loans. However, historical data may notbe an accurate predictor of loss potential in the 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 protracted slow-down in the real-estatemarket has affected both the price and time to market residential and commercialproperties. Management closely monitors such trends and the potential effect onthe Company. The impact of the current adverse economic conditions is reflectedin historically high loan losses and provisions for loan losses in 2008, 2009,and the current year.

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    Management employs a risk rating system which givesweight to collateral status (secured vs. unsecured), and to the absence orimproper execution of critical contract or collateral documents. Unsecured loansand those loans with critical documentation exceptions, as defined bymanagement, are considered to have greater loss exposure. Managementincorporates these factors in the formula-based portion of the ALLL.Additionally, consideration is given to those segments of the loan portfoliowhich management deems to pose the greatest likelihood of loss.    Management believes that in a general economicdownturn, such as the region has experienced since mid-2008, the Bank has anincreased likelihood of loss in unsecured loans - commercial and consumer, andin secured consumer loans. Reserves for these segments of the portfolio areincluded in the formula-based portion of the ALLL. As of September 30, 2010,management reserved 115 bp against all unsecured loans, and consumer loanssecured by other than real estate. This reserve level has been increasedquarterly for the past year in recognition of the prolonged economic challengesin our service area. Additionally, management reserved 10% against overdrawnchecking accounts which are a distinct high risk category of unsecured loan. TheBank does not offer an approved overdraft loan product, so all overdrawn depositbalances result from unauthorized presentment of items against insufficientfunds.     Borrowers whose cash flow is impaired as a resultof prevailing economic conditions have also experienced depressed real estatevalues. Management recognizes that the combination of these circumstances –reduced revenue and depressed collateral values, may increase the likelihood ofloss in the Bank’s real estate secured loan portfolio. Management closelymonitors conditions that might indicate deterioration of collateral value onsignificant loans and, when possible, obtains additional collateral as requiredto limit the Bank’s loss exposure. The Bank foreclosed on commercial andconsumer mortgage loans during 2009 and 2010, and expects more foreclosures in2010. Foreclosures may result in loan losses, costs to hold real estate acquiredin foreclosure, and losses on the sale of real estate acquired in foreclosure.While management is unable to predict the financial consequences of futureforeclosure activity, provision for loss on likely loan foreclosures is includedin specific reserves in the ALLL.    Historically, the absence or improper execution ofa document has not resulted in a loss to the Bank, however, managementrecognizes that the Bank’s loss exposure is increased until a critical contractor collateral documentation exception is cured. At September 30, 2010,Management reserved 10 bp against the outstanding balances of loans identifiedas having critical documentation exceptions.    The provision for loan losses is a charge toearnings in the current period to maintain the allowance at a level managementhas determined to be appropriate. The allowance is increased by current periodprovisions and by recoveries of amounts previously charged-off. The allowance isdecreased when loans are charged-off as losses, which occurs when they aredeemed to be uncollectible. Adjustments made to bring the balance in theallowance to the level established by management may result in an increase ordecrease to expense. Provisions for loan losses of $52,500 and $653,500 weremade for the third quarter of 2010 and year-to-date, respectively. This comparesto provisions for loan losses of (132,500) and $497,050 for the comparableperiods in 2009. The year-to-date increases in the level of the ALLL and theprovision for loan loss reflect the consequences of the current economy. Duringthis slow recovery period, borrowers continue to suffer personal andprofessional financial hardship, increasing the likelihood of loss on previouslyperforming loans. As Management identifies loans with heightened loss potential,a provision for those losses is recorded.     Management considers the September 30, 2010allowance appropriate and adequate to absorb identified and inherent losses inthe loan portfolio. However, there can be no assurance that charge-offs infuture periods will not exceed the allowance for loan losses or that additionalincreases in the loan loss allowance will not be required. As of September 30,2010, management has not identified any loans which are anticipated to be whollycharged-off within the next 12 months. 

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    The following is a schedule of transactions in theallowance for loan losses. The Bank experienced net charge-offs of $298,442 inthe third quarter of 2010 and $662,496 for the year to date. As describedearlier, management attributes the increased loan losses to the effects of thecurrent economic recession on some of the Bank’s customers and, subsequently, onthe Bank.
		Allowance for Loan Losses   		For nine months ended 		For the year ended 		September 30 		December 31 		2010		2009 		2009		Balance at beginning of year		 $        637,761 		 $        707,152  		 $        707,152 		Loans charged-off:    		  Real estate    		  Construction, land development, and land		           100,000 		             75,000  		             75,000 		  Other mortgages		           190,093 		           399,704  		           656,191 		  Commercial		           353,251 		             83,105  		           200,357 		  Consumer		             45,866 		             38,120  		             47,321 		        Total loan losses		           689,210 		           595,929  		           978,869 		Recoveries on loans previously charged off:    		  Real estate    		  Construction, land development, and land		                       - 		                       -  		                       - 		  Other mortgages		               1,000 		                  669  		                  669 		  Commercial		                  774 		                  276  		             40,364 		  Consumer		             24,940 		             16,386  		             18,445 		        Total loan recoveries		             26,714 		             17,331  		             59,478      		Net loan charge-offs (recoveries)		           662,496 		           578,598  		           919,391 		Provision for loan losses charged to expense		           653,500 		           497,050  		           850,000 		Balance at end of period		 $        628,765 		 $        625,604  		 $        637,761       		Gross loans outstanding at the end of the period		 $ 238,840,233 		 $ 235,919,585  		 $ 240,699,630 		Allowance for loan losses to gross loans    		outstanding at the end of the period		0.26%		0.27% 		0.26%     		Average loans outstanding during the period		 $ 244,677,984 		 $ 239,930,765  		 $ 242,095,000 		Annualized net charge-offs as a percentage of    		average loans outstanding during the period		0.36%		0.32% 		0.77%
    The accrual of interest on a loan is discontinuedwhen principal or interest is ninety days past due or when the loan isdetermined to be impaired, unless collateral is sufficient to discharge the debtin full and the loan is in process of collection. When a loan is placed innonaccruing status, any interest previously accrued but unpaid, is reversed frominterest income. Interest payments received on nonaccrual loans may be recordedas cash basis income, or as a reduction of principal, depending on management’sjudgment on a loan by loan basis. Accrual of interest may be restored when allprincipal and interest are current and management believes that future paymentswill be received in accordance with the loan agreement.

 

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    Nonperforming loans are loans past due 90 or moredays and still accruing plus nonaccrual loans. Nonperforming assets arecomprised of nonperforming loans combined with real estate acquired inforeclosure and held for sale. The following table details the composition ofnonperforming assets:
 		September 30,		September 30,		December 31, 		2010		2009		2009		Loans 90 days or more past due and still accruing   		Real estate   		Construction, land development, and land		 $           409,939 		 $                    -   		 $                    -   		Residential 1 to 4 family		                97,404 		                38,651 		                62,532 		Second mortgages		                       -   		                       -   		                87,245 		Commercial properties		           1,421,434 		              952,218 		              637,803 		Commercial		                       -   		                       -   		                       -   		Consumer		                     781  				                  4,420 		                       -    		           1,929,558 		              995,289 		              787,580 		Nonaccruing loans		           2,873,392 		           1,450,876 		           1,023,083 		Total nonperforming loans		           4,802,950 		           2,446,165 		           1,810,663 		Other real estate owned		           1,208,000 		              829,500 		           1,433,000 		Total nonperforming assets		 $        6,010,950 		 $        3,275,665 		 $        3,243,663     		Interest not accrued on nonaccruing loans		 $           126,989 		 $             55,698 		 $             46,467     		Interest included in net income on nonaccruing loans,   		year-to-date		 $             70,460 		 $             24,307 		 $             30,492 
    Not reflected in the tableabove, is a loan which has been the subject of ongoing collection efforts. Latein 2008, when the loan had a principal balance of $4,500,000, the Bank wasnotified that there was a lien on the property securing this loan that wassuperior to the Bank's first and third liens. The Bank was not aware of thissuperior lien at the time the loan was originated, and the Bank's settlementagent did not discover the lien during the title examination process. The Bankfiled a claim with the title company that has insured its title and lienpriority in the belief that the title company would indemnify the Bank for anylosses resulting from the superior lien. For the next twenty-one months, theBank engaged in a series of negotiations and mediations to settle the matter.    On October 25, 2010 a definitive agreement (Agreement) wasexecuted by all parties who have a financial interest in this event. As a resultof the Agreement, the Bank has been restored to a first lien position butincurred a loss of $100,000 that is reflected in this quarterly report. Concurrently, the Bank paid real estate taxes of $582,472 on the collateralproperty and has added that amount to the loan resulting in a first lien balanceof $4,032,472. The title agent has escrowed funds to pay interest for a periodof one year from the date of the Agreement.  The Bank does not anticipateany additional loss on this credit as it believes its first lien is wellsecured.  As of September 30, 2010 and December 31, 2009, this loan was 18and 53 days past due, respectively.

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    Loans are considered impaired when, based oncurrent information, management considers it unlikely that collection ofprincipal and interest payments will be made according to contractual terms.Generally, loans are not reviewed for impairment until the accrual of interesthas been discontinued, although management may categorize a performing loan asimpaired based on knowledge of the borrower’s financial condition, devaluationof collateral, or other circumstances that are deemed relevant to loancollection. Impaired loans may have specific reserves, or valuation allowances,allocated to them in the ALLL. Estimates of loss reserves on impaired loans maybe determined based on any of the three following measurement methods whichconform to authoritative accounting guidance: (1) the present value of futurecash flows, (2) the fair value of collateral, if repayment of the loan isexpected to be provided by underlying collateral, or (3) the loan’s observablefair value. The Bank selects and applies, on a loan-by-loan basis, theappropriate valuation method. Loans determined to be impaired, but for which nospecific valuation allowance is made because management believes the loan issecured with adequate collateral or the Bank will not take a loss on such loan,are grouped with other homogeneous loans for evaluation under formula-basedcriteria described previously.     Impaired loans including nonaccruing loans totaled$2,873,392 and $2,901,859, at September 30, 2010, and December 31, 2009,respectively. 
 September 30, 2010December 31, 2009Impaired loans with valuation allowances,   including nonaccruing loans $             650,033							 $           799,834							Valuation allowances on impaired loans $             130,007							 $           258,869							   Impaired loans with no valuation allowances $          2,223,359							 $        2,102,025							   Total impaired loans $          2,873,392							 $        2,901,859							
Liquidity    Liquidity represents the ability to provide steadysources of funds for loan commitments and investment activities, as well as toprovide sufficient funds to cover deposit withdrawals and payment of debt andoperating obligations. These funds can be obtained by converting assets to cashor by attracting 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, theBank typically experiences a decline in deposits, federal funds sold andinvestment securities throughout the first quarter of the year when businesscustomers are using their deposits to meet cash flow needs. Beginning late inthe second quarter and throughout the third quarter, additional sources ofliquidity become more readily available as business borrowers start repayingloans, and the Bank receives deposits from seasonal business customers, summerresidents and tourists.     Average liquid assets (cash and amounts due frombanks, interest-bearing deposits in other banks, federal funds sold, andinvestment securities) compared to average deposits and retail repurchaseagreements were 46.06% for the third quarter of 2010 compared to 45.16% for thesame quarter of 2009.    The Company has available lines of credit,including overnight federal funds and reverse repurchase agreements, totaling$28,000,000 as of September 30, 2010.    Average net loans to average deposits were 72.94%versus 74.36% as of September 30, 2010 and 2009, respectively. Average net loansincreased by 1.95% while average deposits grew by 3.94%. Funding for loan growthwas provided by deposit increases. Because loans earn higher average rates thanthe Bank’s cost of funds, this results in a positive effect on earnings. Averagedeposit balance increases occurred in all categories of interest-bearingaccounts. Average non-interest bearing deposit balances decreased 2.61%. Neitherchanges in deposit portfolio composition nor the increase in outstanding loanbalances has a negative impact on the Company’s ability to meet liquiditydemands.

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Interest Rate Sensitivity    The primary objective of asset/liability managementis to ensure 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 theresponsiveness of interest-bearing assets and liabilities to changes in marketinterest rates. The rate-sensitive position, or gap, is the difference in thevolume of rate-sensitive assets and liabilities at a given time interval. Thegeneral objective of gap management is to actively manage rate-sensitive assetsand liabilities 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 oneither side of the balance sheet. On the asset side, management exercises somecontrol over maturities. Also, loans are written to provide repricingopportunities on fixed rate notes. The Company's investment portfolio, includingfederal funds sold, provides the most flexible and fastest control over ratesensitivity since it can generally be restructured more quickly than the loanportfolio.    On the liability side, deposit products arestructured to offer incentives to attain the desired maturity distribution.Competitive factors sometimes make control over deposits more difficult and,therefore, less effective as an interest rate sensitivity management tool.    The asset mix of the balance sheet is continuallyevaluated in terms of several variables: yield, credit quality, appropriatefunding sources, and liquidity. Management of the liability mix of the balancesheet focuses on expanding the various funding sources.    As of September 30, 2010, the Company wascumulatively asset-sensitive for all time horizons. For asset-sensitiveinstitutions, if interest rates should decrease, the net interest margins shoulddecline. Since all interest rates and yields do not adjust at the same velocity,the gap is only a general indicator of rate sensitivity.
** **
Results of Operations   Net income for the three months ended September 30,2010***,***was $1,449,360 ($.48 per share), compared to $1,511,649($.50 per share) for the same quarter of 2009, resulting in a decrease of$62,289 or 4.12%. Year to date net income has increased $236,611 ($.09 pershare) from $4,001,515 ($1.32 per share) in 2009 to 4,238,126 ($1.41 per share)in 2010. The key components of net income are discussed in the followingparagraphs.    For the third quarter of 2010 compared to 2009, netinterest income increased $13,090 (.34%). Net interest income increased $144,468(1.25%) in the first nine months of 2010 compared to the same period in 2009.The decrease in interest and dividend revenue continues a multi-year trendprimarily attributable to extremely low market rates. In 2009, immediatelyrepricable assets such as federal funds sold saw dramatic revenue declines.During 2010, the gradual downward repricing of debt securities and certificatesof deposit in other banks has caused further erosion of revenues. Interestexpense decreased in the third quarter of 2010 by $117,682 (19.53%) relative tothe comparable period last year primarily due to lower rates on time deposits.For the year to date, interest expense is down $490,678 (24.81%) relative tolast year.    The Company’s net interest income is one of themost important factors in evaluating its financial performance. Management usesinterest rate 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 5.1% 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. 

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    The tax-equivalent quarterly yield oninterest-earning assets decreased by 23 basis points from 4.83% for thirdquarter 2009 to 4.60% in 2010. The quarterly yield on interest-bearingliabilities decreased by 24 basis points from 1.00% in 2009 to .76% in 2010. Incombination, these shifts contribute to a decrease in net margin oninterest-earning assets of 9 basis points.    The following table presents information includingaverage balances of interest-earning assets and interest-bearing liabilities,the amount of related interest income and interest expense, and the resultingyields by category of interest-earning asset and interest-bearing liability. Inthis table, dividends and interest on tax-exempt securities and loans arereported on a fully taxable equivalent basis, which is a non-GAAP measure asdefined in SEC Regulation G and Item 10 of SEC Regulation S-K. Managementbelieves that these measures provide better yield comparability as a tool formanaging net interest income.
		Average Balances, Interest, and Yields		For the quarter ended		For the quarter ended		September 30, 2010		September 30, 2009		Average  		Average  		balance		Interest		Yield		balance		Interest		Yield      		Assets      		  Federal funds sold		 $   40,193,477 		 $        17,969 		0.18%		 $   37,585,106 		 $        18,085 		0.19%		  Interest-bearing deposits		        9,830,702 		           12,618 		0.51%		      12,284,308 		           26,100 		0.84%		  Investment securities		      85,785,352 		         319,144 		1.48%		      81,079,391 		         446,496 		2.18%		  Loans, net of allowance		    243,879,944 		      4,054,827 		6.60%		    239,223,663 		      4,019,226 		6.67%		    Total interest-earning assets		    379,689,475 		      4,404,558 		4.60%		    370,172,468 		      4,509,907 		4.83%		Noninterest-bearing cash		      21,567,998   		      17,849,768   		Other assets		      15,620,477   		      14,254,239   		        Total assets		 $ 416,877,950   		 $ 402,276,475         		Liabilities and Stockholders' Equity      		Interest-bearing deposits      		  NOW 		 $   58,830,531 		           59,925 		0.40%		 $   51,424,450 		           37,201 		0.29%		  Money market		      39,344,234 		           49,089 		0.50%		      36,663,323 		           45,981 		0.50%		  Savings		      48,572,626 		           52,798 		0.43%		      45,026,198 		           56,096 		0.49%		  Other time		      99,842,805 		         313,283 		1.24%		      98,448,988 		         452,497 		1.82%		    Total interest-bearing deposits		    246,590,196 		         475,095 		0.76%		    231,562,959 		         591,775 		1.01%		Securities sold under agreements to repurchase & federal funds purchased		        7,311,711 		             9,153 		0.50%		        7,777,915 		             9,758 		0.50%		Borrowed funds		             30,727 		                493 		6.37%		             57,311 		                890 		6.16%		    Total interest-bearing liabilities		    253,932,634 		         484,741 		0.76%		    239,398,185 		         602,423 		1.00%		Noninterest-bearing deposits		      87,778,354   		      90,127,491   		    341,710,988 		         484,741 		0.56%		    329,525,676 		         602,423 		0.73%		Other liabilities		           628,646   		           545,485   		Stockholders' equity		      74,538,316   		      72,205,314   		        Total liabilities and      		        stockholders' equity		 $ 416,877,950   		 $ 402,276,475   		Net interest spread  		3.84%  		3.83%		Net interest income 		 $   3,919,817   		 $   3,907,484  		Net margin on interest-earning assets  		4.10%  		4.19%      		Tax equivalent adjustment in:      		    Investment income 		 $        27,561   		 $        31,823  		    Loan income 		 $        44,279   		 $        40,774  
 

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    Provisions for loan losses of $52,500 and($132,550) were recorded during the third quarter of 2010 and 2009,respectively. Provisions for loan losses of $653,500 and 497,050 were recordedfor the nine months ending September 30, 2010 and 2009, respectively. Net loanscharged-off were $662,496 and $578,598 during the first nine months of 2010 and2009, respectively. Management attributes the continued loan losses to thegenerally poor state of the economy which has had an adverse effect on certainborrowing customers. See Loan Quality and the Allowance for Loan Losses for adiscussion of the provision for loan losses.    Noninterest revenue for the third quarter of 2010is $11,316 (2.21%) higher than the comparable period last year. Noninterestrevenue for the year-to-date is $315,203 (21.39%) more than last year. Thefavorable variances in both the quarter and the year-to-date are largely due togains on the sale of old coins with high precious metal content that had beenstored in the Bank’s vault for decades, as well as gains on the sale of realproperty to the State of Delaware for road expansion and related right of ways.    Noninterest expense for the third quarter of 2010is $61,355 (2.96%), less than last year including a $78,671 reduction in FDICpremium expense. Noninterest expense year-to-date is $108,390 (1.74%) less thanlast year including a $198,380 decrease in FDIC premiums. In 2009, FDICinsurance premiums included the accrual of a special assessment to restore thedeposit insurance fund to target levels. This special assessment is not expectedto repeat in 2010.    Income taxes for the nine months ended September30, 2010 are $175,000 (7.70%) higher than the same period last year, on apre-tax income increase of $411,611 (6.56%). 

Plans of Operation    The Bank offers a full range of deposit servicesincluding checking, NOW, Money Market, and savings accounts, and time depositsincluding certificates of deposit. The transaction, savings, and certificate ofdeposit accounts are tailored to the Bank’s principal market areas at ratescompetitive to those offered in the area. The Bank also offers IndividualRetirement Accounts (IRA), Health Savings Accounts, and Education SavingsAccounts. All deposits are insured by the Federal Deposit Insurance Corporation(FDIC) up to the maximum amount allowed by law, which is currently $250,000 perdepositor. 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.     The Bank also offers a full range of short- tomedium-term commercial and personal loans. Commercial loans include both securedand unsecured 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 managementservices, 24-hour ATM’s, debit cards, safe deposit boxes, travelers’ checks,direct deposit of payroll and social security funds, and automatic drafts forvarious accounts. The Bank offers bank-by-phone and Internet banking services,including electronic bill-payment, to both commercial and retail customers. TheBank offers a remote capture service that enables commercial customers toelectronically capture check images and make on-line deposits. The Bank alsooffers retail repurchase agreements, a non-deposit product which is not insuredby FDIC. 

 

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**Capital Resources and Adequacy    Total stockholders’ equity increased $4,046,683from December 31, 2009 to September 30, 2010. This increase is attributable tocomprehensive income recorded during the period, as detailed in Note 2 of theNotes to Financial Statements.     Under the capital guidelines of the Federal ReserveBoard and the FDIC, the Company and Bank are currently required to maintain aminimum risk-based total capital ratio of 8%, with at least 4% being Tier 1capital. 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 Companyas of September 30, 2010 and December 31, 2009 were 33.9% and 31.6%,respectively. Both are substantially in excess of regulatory minimumrequirements.    Late in 2008, the Company and the Bank elected toparticipate in the Temporary Liquidity Guarantee Program (TLG). A component ofTLG, the Transaction Account Guarantee Program (TAG), provides additionalinsurance protection to holders of transaction accounts with rates not exceedinga legislated limit. The Company’s participation in this program may havecontributed to an increase in deposits in the Bank as investors seek the safetyof insured deposits in community banks. Deposit insurance premiums haveincreased as a result of the higher deposit balances, the higher insurancelimits, participation in TAG, and higher insurance rates. Management does notexpect to pass all of the additional insurance premium costs on to customers.Effective July 1, 2010, the Bank no longer participates in TAG due to the ratelimitations imposed on banks that extended their participation. Deposits in theBank continue to be insured up to the limits provided under standard FDICdeposit insurance rules. Management does not expect withdrawal from the TAGprogram to have a significant effect on deposit balances.   In the most stable economic times, the Companycannot reliably predict the effect of changing government policies on earnings,or loan and deposit levels. Management expects 2010 to see a continuation ofhigher than usual fees associated with loan collection, and additional loandefaults. The full impact of the dramatic developments of 2008 and 2009 onfuture results of operation of the Company and the Bank, are uncertain. Althoughsome key economic indicators are stabilizing or improving in early 2010,management recognizes that loan defaults may continue into the early months of arecovery as customers struggle to stabilize business or personal finances andproperty values remain at levels well below the market peak in mid-2008. 

Website Access to SEC Reports       The Bank maintains an Internet website atwww.taylorbank.com. TheCompany’s periodic SEC reports, including annual reports on Form 10-K, quarterlyreports on Form 10-Q, and current reports on Form 8-K, are accessible throughthis website. Access to these filings is free of charge. The reports areavailable as soon as practicable after they are filed electronically with theSEC. 
 

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** 

Item 3. Quantitative and Qualitative DisclosuresAbout Market Risk    The Company’s principal market risk exposurerelates to interest rates on interest-earning assets and interest-bearingliabilities. Unlike most industrial companies, the assets and liabilities offinancial institutions such as the Company and the Bank are primarily monetaryin nature. Therefore, interest rates have a more significant effect on theCompany's performance than do the effects of changes in the general rate ofinflation and change in prices. In addition, interest rates do not necessarilymove in the same direction or in the same magnitude as the prices of goods andservices. As discussed previously, management monitors and seeks to manage therelationships between interest sensitive assets and liabilities in order toprotect against wide interest rate fluctuations, including those resulting frominflation.     At September 30, 2010, the Company’s interest ratesensitivity, as measured by gap analysis, showed the Company was asset-sensitivewith a one-year cumulative gap of 23.48%, 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 andTreasurer, performed an evaluation of the effectiveness of the design andoperation of the Company’s disclosure controls and procedures as of September30, 2010. Based on that evaluation, the Company’s management, including the CEOand Treasurer, has concluded that the Company’s disclosure controls andprocedures are effective. The projection of an evaluation of controls to futureperiods is subject to the risk that procedures may become inadequate due tochanges in conditions including the degree of compliance with procedures.
**Changes in Internal Controls    During the quarter ended on the date of thisreport, there were no significant changes in the Company’s internal control overfinancial reporting that have had or are reasonably likely to have a materialeffect on the Company’s internal control over financial reporting. As ofSeptember 30, 2010, the Company’s management, including the CEO and Treasurer,has concluded that the Company’s internal controls over financial reporting areeffective. 

 

 

 

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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 varioustypes of risk during the normal conduct of business. There has been no materialincrease in any level of risk incurred by the Company or the Bank during thequarter covered by this report. Following are descriptions of the significantcategories of risk most relevant to the Company.

Credit risk is the risk to the Company’searnings or capital from the potential of an obligor failing to fulfill itscontractual commitment to the Company. Credit risk is most closely associatedwith the Company’s lending activities.

Interest rate risk is the risk to earningsor capital from the potential movement in interest rates. It is the sensitivityof the Company’s future earnings to interest rate changes.

Liquidity risk is the risk to earnings orcapital from the Company’s inability to meet its obligations when they come duewithout incurring unacceptable losses or costs.

Market risk is the risk to earnings orcapital from changes in the value of portfolios of financial instruments. Forthe Company, market risk is the risk of a decline in market value of itssecurities portfolio.

Transaction risk is the risk to earnings orcapital arising from problems with service or product delivery. Transaction riskis the risk of a failure in the Company’s operating processes, such asautomation, employee integrity, or internal controls.

Compliance risk is the risk to earnings orcapital from noncompliance with laws, rules, and regulations. Compliance risk isone of the greatest risks the Company faces.

Reputation risk is the risk to earnings orcapital from negative public opinion. Customer and public relations are criticalto the Company’s success. Accordingly, the Company’s reputation is extremelyimportant and anything that would impair that reputation is a significant risk.

Strategic risk is the risk to earnings orcapital arising from adverse business decisions or improper implementation ofthose decisions.

 

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Item 2 Unregistered Sales of Equity Securitiesand Use of Proceeds		   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. On January 13, 2010, as part of its capital		planning, the Board of Directors voted to suspend until June 30, 2010,		the stock repurchase program. On June 9, 2010, the Board voted to extend		the program suspension until December 31, 2010. 		    There is no final 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		duration of this program. Common shares repurchased under this plan have		been retired.

Item 3 Defaults Upon Senior Securities   Not applicable

Item 4 (Removed and Reserved)
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 31.1Rule 13a-14(a) Certification of the Chief ExecutiveOfficerPursuant to Section 302 of the Sarbanes-Oxley Act of2002

I, Raymond M. Thompson, certify that:

I have reviewed this quarterly report on Form 10-Q ofCalvin B. Taylor Bankshares, 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 officer 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 officer 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, 2010
By: /s/ Raymond M. Thompson 			Raymond M. Thompson			Chief Executive Officer
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Exhibit 31.2Rule 13a-14(a) Certification of the Chief FinancialOfficerPursuant to Section 302 of the Sarbanes-Oxley Act of2002

I, Jennifer G. Hawkins, certify that:

I have reviewed this quarterly report on Form 10-Q ofCalvin B. Taylor Bankshares, 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, 2010
By: /s/ Jennifer G. Hawkins 			Jennifer G. Hawkins			Treasurer (Principal Financial Officer and			Principal Accounting 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 ourknowledge, based upon a review of the Quarterly Report on Form 10-Q for theperiod ended September 30, 2010, of Calvin B. Taylor Bankshares, Inc.:

(1) The referenced 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, 2010
By: /s/ Raymond M. Thompson 			Raymond M. Thompson			Chief Executive Officer
By: /s/ Jennifer G. Hawkins 			Jennifer G. Hawkins			Treasurer (Principal Financial Officer and			Principal Accounting Officer)			
 

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SIGNATURES

    Pursuant to the requirements of the SecuritiesExchange Act of 1934, the Registrant has duly caused this report to be signed onits behalf by the undersigned thereunto duly authorized.
** 

Calvin B. Taylor Bankshares, Inc.

Date: November 5, 2010
By: /s/ Raymond M. Thompson 			Raymond M. Thompson			Chief Executive Officer
By: /s/ Jennifer G. Hawkins 			Jennifer G. Hawkins			Treasurer (Principal Financial Officer and			Principal Accounting Officer)

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