UNITED STATESSECURITIES AND EXCHANGE
COMMISSIONWashington, DC 20549



FORM 10-Q

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



FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2007



Commission File Number: 000-50047



CALVIN B. TAYLOR BANKSHARES, INC.

I.R.S. Employer Identification No.: 52-1948274State
of incorporation: Maryland



Address of principal executive offices: 24 North Main Street,
Berlin, Maryland 21811Issuer's telephone number: (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 the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X
NO ____



Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated filer. See
definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of
the Exchange Act. Large accelerated filer ____ Accelerated filer
X Non-accelerated filer ____



Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act). YES ____ NO
X



Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable date: The
registrant





Calvin B. Taylor Bankshares, Inc. and SubsidiaryForm
10-QIndex



|Part I -  | Financial
      Information                                                  | Page 
|--------- | ---------------------------------------------------------------------------- | -----
|          |                                                                              |      
|Item 1    | Consolidated
      Financial Statements                                      |      
|          | Consolidated Balance
      Sheets as of March 31, 2007 and December 31, 2006 | 3    
|          | Consolidated
      Statements of Income for the three months                 |      
|          | ended March 31, 2007
      and 2006                                          | 4    
|          | Consolidated
      Statements of Cash Flows for the three months             |      
|          | ended March 31, 2007
      and 2006                                          | 5-6  
|          | Notes to Consolidated
      Financial Statements                             | 7-8  
|          |                                                                              |      
|Item 2    | Management's
      Discussion and Analysis of Financial Condition            |      
|          | and Results of
      Operations                                              | 9-14 
|          |                                                                              |      
|Item 3    | Quantitative and
      Qualitative Disclosures About Market Risks            | 15   
|          |                                                                              |      
|Item 4    | Controls and
      Procedures                                                | 16   
|          |                                                                              |      
|Part II - | Other
      Information                                                      |      
|          |                                                                              |      
|Item 1    | Legal
      Proceedings                                                      | 17   
|Item 1A   | Risk
Factors                                                                 | 17   
|Item 2    | Unregistered Sales of
      Equity Securities and Use of Proceeds            | 17-18
|Item 3    | Defaults Upon Senior
      Securities                                        | 18   
|Item 4    | Submission of Matters
      to a Vote of Security Holders                    | 18   
|Item 5    | Other
      Information                                                      | 18   
|Item 6    | Exhibits                                                                     | 18-21
|          |                                                                              |      
|          | Signatures                                                                   | 22   

-2-



| | Calvin B. Taylor Bankshares, Inc. and Subsidiary              |                               
| | ------------------------------------------------------------- | ------------------------------
| | Part
      I - Financial Information                          |                               
| | Consolidated
      Balance Sheets                             |                               
| |                                                               | (unaudited)                   
| |                                                               | March 31,                     
| |                                                               | 2007                          
| | Assets                                                       
| | Cash
      and due from banks                                 | $            
      17,844,984
| | Federal
      funds sold                                      | 38,384,938                    
| | Interest-bearing
      deposits                               | 2,052,846                     
| | Investment
      securities available for sale                | 11,185,214                    
| | Investment
      securities held to maturity (approximate     |                               
| | fair value of $44,326,300 and $56,031,190)                    | 44,416,076                    
| | Loans,
      less allowance for loan losses                   |                               
| | of $2,180,894 and $2,175,418                                  | 238,523,197                   
| | Premises
      and equipment                                  | 6,560,385                     
| | Accrued
      interest receivable                             | 1,426,508                     
| | Computer
      software                                       | 163,361                       
| | Bank
      owned life insurance                               | 4,577,248                     
| | Other
      assets                                            | 165,630                       
| |                                                               | $          
      365,300,387 
| | Liabilities and Stockholders' Equity                         
| | Deposits                                                      |                               
| | Noninterest-bearing                                           | $            
      76,150,400
| | Interest-bearing                                              | 211,847,569                   
| |                                                               | 287,997,969                   
| | Securities
      sold under agreements to repurchase          | 2,925,723                     
| | Note
      payable                                            | 115,202                       
| | Accrued interest payable                                      | 399,628                       
| | Deferred
      income taxes                                   | 841,996                       
| | Income
      taxes payable                                    | 924,945                       
| | Other
      liabilities                                       | 87,069                        
| |                                                               | 293,292,532                   
| | Stockholders'
      equity                                    |                               
| | Common stock, par
      value $1 per share                    |                               
| | authorized 10,000,000 shares, issued and outstanding          |                               
| | 3,145,322 shares at March 31, 2007, and                       |                               
| | 3,149,356 shares at December 31, 2006                         | 3,145,322                     
| | Additional paid-in capital                                    | 13,976,542                    
| | Retained earnings                                             | 52,843,357                    
| |                                                               | 69,965,221                    
| | Accumulated other comprehensive income                        | 2,042,634                     
| |                                                               | 72,007,855                    
| |                                                               | $          
      365,300,387 
| |                                                               |                               
| |                                                               |                               
| |                                                               |                               
| | See accompanying Notes to Consolidated Financial
  Statements





-3-



| | Calvin B. Taylor Bankshares, Inc. and Subsidiary              |                                    
| | ------------------------------------------------------------- | -----------------------------------
| | Consolidated
      Statements of Income (unaudited)           |                                    
| |                                                               | For the three months ended         
| |                                                               | March 31,                          
| |                                                               | 2007                               
| | Interest
      and dividend revenue                           |                                    
| | Loans, including fees                                         | $              
      4,152,898    
| | U.S. Treasury and government agency securities                | 588,571                            
| | State and municipal securities                                | 22,152                             
| | Federal funds sold                                            | 392,429                            
| | Interest-bearing deposits                                     | 22,739                             
| | Equity securities                                             | 27,777                             
| | Total interest and dividend revenue                           | 5,206,566                          
| |                                                               |                                    
| | Interest
      expense                                        |                                    
| | Deposits                                                      | 1,022,247                          
| | Borrowings                                                    | 8,697                              
| | Total interest expense                                        | 1,030,944                          
| |                                                               |                                    
| | Net interest income                                           | 4,175,622                          
| |                                                               |                                    
| | Provision
      for loan losses                               | -                                  
| | Net interest income after provision for loan losses           | 4,175,622                          
| |                                                               |                                    
| | Noninterest
      revenue                                     |                                    
| | Service charges on deposit accounts                           | 258,717                            
| | ATM and debit card revenue                                    | 107,699                            
| | Miscellaneous revenue                                         | 99,161                             
| | Total noninterest revenue                                     | 465,577                            
| |                                                               |                                    
| | Noninterest
      expenses                                    |                                    
| | Salaries                                                      | 846,161                            
| | Employee benefits                                             | 209,494                            
| | Occupancy                                                     | 180,228                            
| | Furniture and equipment                                       | 118,950                            
| | Other operating                                               | 475,394                            
| | Total noninterest expenses                                    | 1,830,227                          
| |                                                               |                                    
| | Income before income taxes                                    | 2,810,972                          
| | Income
      taxes                                            | 1,021,600                          
| |                                                               |                                    
| | Net
      income                                              | $              
      1,789,372    
| |                                                               |                                    
| | Earnings
      per common share - basic and diluted           | $                       
      0.57
| |                                                               |                                    
| |                                                               |                                    
| | See accompanying Notes to Consolidated Financial
  Statements

-4-



| | Calvin B. Taylor Bankshares, Inc. and Subsidiary           |                                
| | ---------------------------------------------------------- | -------------------------------
| | Consolidated
      Statements of Cash Flows (unaudited)    |                                
| |                                                            | For the three months ended     
| |                                                            | March 31,                      
| |                                                            | 2007                           
| | Cash
      flows from operating activities                 |                                
| | Interest and dividends received                            | $              
      5,388,909
| | Fees and commissions received                              | 417,422                        
| | Interest paid                                              | (971,472)                      
| | Cash paid to suppliers and employees                       | (1,678,302)                    
| | Income taxes paid                                          | (42,063)                       
| |                                                            | 3,114,494                      
| | Cash
      flows from investing activities                 |                                
| | Certificates of deposit purchased, net of maturities       | -                              
| | Proceeds from maturities of investments available          |                                
| | for sale                                                   | 12,000,000                     
| | Purchase of investments available for sale                 | -                              
| | Proceeds
      from maturities of investments held to      |                                
| | maturity                                                   | 11,860,000                     
| | Purchase of investments held to maturity                   | (3,935,368)                    
| | Loans made, net of principal collected                     | (7,271,414)                    
| | Proceeds from sale of equipment                            | 1,409                          
| | Purchases of premises, equipment,                          |                                
| | and computer software                                      | (121,701)                      
| |                                                            | 12,532,926                     
| |                                                            |                                
| | Cash
      flows from financing activities                 |                                
| | Net increase (decrease) in                                 |                                
| | Time deposits                                              | 6,856,182                      
| | Other deposits                                             | (9,182,972)                    
| | Securities sold under agreements to repurchase             | (2,698,325)                    
| | Payments on note payable                                   | (5,536)                        
| | Common shares repurchased                                  | (145,224)                      
| | Dividends paid                                             | -                              
| |                                                            | (5,175,875)                    
| |                                                            |                                
| | Net
      increase (decrease) in cash and cash equivalents | 10,471,545                     
| | Cash
      and cash equivalents at beginning of period     | 45,771,812                     
| | Cash
      and cash equivalents at end of period           | $            
      56,243,357 
| |                                                            |                                

-5-



| | Calvin B. Taylor Bankshares, Inc. and Subsidiary              |                                
| | ------------------------------------------------------------- | -------------------------------
| | Consolidated
      Statements of Cash Flows (unaudited)       |                                
| |                                                               | For the three months ended     
| |                                                               | March 31,                      
| |                                                               | 2007                           
| | Reconciliation
      of net income to net cash provided       |                                
| | by operating activities                                       |                                
| | Net income                                                    | $              
      1,789,372
| | Adjustments to reconcile net income to net cash               |                                
| | provided by operating activities                              |                                
| | Depreciation and amortization                                 | 136,166                        
| | Amortization of premiums and accretion of                     |                                
| | discount, net                                                 | (83,784)                       
| | (Gain) loss on disposition of assets                          | (1,400)                        
| | Decrease (increase) in                                        |                                
| | Accrued interest receivable                                   | 266,114                        
| | Cash surrender value of bank owned life insurance             | (46,989)                       
| | Other assets                                                  | 216,606                        
| | Increase (decrease) in                                        |                                
| | Accrued interest payable                                      | 59,473                         
| | Accrued income taxes                                          | 924,945                        
| | Other liabilities                                             | (146,009)                      
| |                                                               | $              
      3,114,494
| |                                                               |                                
| |                                                               |                                
| | Composition of cash and cash equivalents                      |                                
| | Cash and due from banks                                       | $            
      17,844,984 
| | Federal funds
    sold                                        | 38,384,938                     
| | Interest-bearing deposits, except for time deposits           | 13,435                         
| |                                                               | $            
      56,243,357 
| |                                                               |                                
| |                                                               |                                
| |                                                               |                                
| |                                                               |                                
| |                                                               |                                
| |                                                               |                                
| |                                                               |                                
| |                                                               |                                
| |                                                               |                                
| |                                                               |                                
| |                                                               |                                
| |                                                               |                                
| |                                                               |                                
| |                                                               |                                
| |                                                               |                                
| |                                                               |                                
| | See accompanying Notes to Consolidated Financial
  Statements

-6-



Calvin B. Taylor Bankshares, Inc. and SubsidiaryNotes to Consolidated
Financial Statements (unaudited)

1. Basis of Presentation

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

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



Cash Flows

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



Per share data

Earnings per common share are determined by dividing net income
by the weighted average number of common shares outstanding for the period, as
follows:

| |                             | 2007      | 2006     
| | --------------------------- | --------- | ---------
| | Three months ended March 31 | 3,145,715 | 3,186,656

2. Comprehensive Income

Comprehensive income consists of:

| |                                          | For the three months ended    
| | ---------------------------------------- | ------------------------------
| |                                          | March 31,                     
| |                                          | 2007                          
| | Net income                               | $           
        1,789,372
| | Unrealized gain on investment securities |                               
| | available for sale, net of income taxes  | 194,151                       
| | Comprehensive income                     | $             
      1,983,523



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 March 31,
outstanding loan commitments and letters of credit consist of:

| |                           | 2007                         | 2006                        
| | ------------------------- | ---------------------------- | ----------------------------
| | Loan commitments          | $         
      31,339,927  | $         
      42,553,092 
| | Standby letters of credit | $           
      1,782,252 | $           
      1,112,769

-7-



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

4. New accounting standards

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

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

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

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

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

-8-



Calvin B. Taylor Bankshares, Inc. and SubsidiaryPart I. Financial
Information

Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations

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



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



General

Calvin B. Taylor Bankshares, Inc. (Company) was incorporated as
a Maryland corporation on October 31, 1995. The Company owns all of the stock of
Calvin B. Taylor Banking Company (Bank), a commercial bank that was established
in 1890 and incorporated under the laws of the State of Maryland on December 17,
1907. The Bank operates nine banking offices in Worcester County, Maryland and
one banking office in Ocean View, Delaware. The Bank's administrative office is
located in Berlin, Maryland. The Bank is engaged in a general commercial and
retail banking business serving individuals, businesses, and governmental units
in Worcester County, Maryland, Ocean View, Delaware, and neighboring
counties.

The Company currently engages in no business other than owning
and managing the Bank.

Critical Accounting Policies

The Company's financial condition and results of operations are
sensitive to accounting measurements and estimates of inherently uncertain
matters. When applying accounting policies in areas that are subjective in
nature, management uses its best judgment to arrive at the carrying value of
certain assets. One of the most critical accounting policies applied is related
to the valuation of the loan portfolio. Management estimates the appropriate
allowance for loan losses, including the timing of loan charge-offs.

The allowance for loan losses represents a reserve for
potential losses in the loan portfolio. It is one of the most difficult and
subjective judgments. The adequacy of the allowance for loan losses is evaluated
quarterly based on a review of the loan portfolio, with particular emphasis on
non-accruing, past due, and other loans that management believes require
attention. The determination of the reserve level relies on management's
judgment about factors affecting loan quality, current trends in delinquencies
and charge-offs, and anticipated changes in the composition and size of the
portfolio, as well as an analysis of historical loan loss ratios. Management
also considers external factors such as changes in the interest rate
environment, the view of the Bank's regulators, economic conditions in the
Bank's service area and beyond, and legislation that affects the banking
industry.



Financial Condition

Total assets of the Company decreased $2.2 million from
December 31, 2006 to March 31, 2007. Combined deposits and customer repurchase
agreements decreased $5.0 million during the same period. Average deposits for
the first quarter of 2007 are $9.3 million less than they were in the last
quarter of 2006. Historically, during the first quarter of the year, the Bank
experiences a decline in deposits since business customers are using their
deposits to meet cash flow needs related to the local summer tourism industry.
Generally, this situation reverses late in the second quarter of the year as the
Bank receives deposits from seasonal business customers, summer residents and
tourists. Seasonal deposit volume peaks in the third quarter and begins to fall
off in the last quarter of each year.

-9-





Average total assets and average total deposits decreased $11.4
million and $11.8 million, respectively, from first quarter 2006 to first
quarter 2007. Management carefully monitors deposit reductions and the resulting
effect on liquidity. Deposit decreases have been funded by reductions in the
investment portfolio.

During the first three months of 2007, the Bank's gross loan
portfolio increased $7.3 million. Funding for these loans was provided by
reduction of the investment portfolio. As loans earn at higher average rates
than investments, this shift has a positive effect on earnings. The increase in
loans does not negatively impact the Company's ability to meet liquidity
demands.

Based on its quarterly review of the consolidated loan
portfolio, the Company determined that an allowance of $2.2 million was adequate
as of March 31, 2007. Historically, the Company has low levels of loan
delinquencies and charge-offs. Loans delinquent ninety days or more and still
accruing interest totaled $155,117 or .06% of the portfolio at March 31, 2007,
and $239,620 or .10% of the portfolio at December 31, 2006. There were no
nonaccrual loans as of March 31, 2007 or December 31, 2006.

The Company makes loans to customers located primarily in the
Delmarva region. Although the loan portfolio is diversified, its performance
will be influenced by the economy of the region.

Liquidity

The Company's major sources of liquidity are loan repayments,
maturities of short-term investments including federal funds sold, and increases
in core deposits. Throughout the first quarter of the year, when the Bank
typically experiences a decline in deposits, federal funds sold and investment
securities are primary sources of liquidity. During the second quarter of the
year, additional sources of liquidity become more readily available as business
borrowers start repaying loans, and the Bank receives seasonal deposits.
Throughout the second and third quarters the Bank maintains a high liquidity
level. Funds from seasonal deposits are generally invested in short-term U.S.
Treasury Bills and overnight federal funds.

The Company has available lines of credit, including overnight
federal funds, reverse repurchase agreements and letters of credit, totaling
$21,000,000 as of March 31, 2007.

Average liquid assets (cash and amounts due from banks,
interest-bearing deposits in other banks, federal funds sold, and investment
securities) compared to average deposits and retail repurchase agreements were
38.08% for the first quarter of 2007 compared to 47.36% for the first quarter of
2006. Contributing to the year-to-year decrease is growth of the loan portfolio
which has been funded by decreased investments in debt securities.



Results of Operations

Net income for the three months ended March 31, 2007,was $1,789,372 or $.57 per share, compared to $1,763,401 or $.55 per
share for the first quarter of 2006. This represents an increase of $25,971 or
1.47% from the prior year. The key components of net income are discussed in the
following paragraphs.

In the first three months of 2007 compared to 2006, total
interest and dividend revenues increased $532,609 (11.40%), while total interest
expense increased $380,254 (58.44%). The result is an increase in net interest
income of $152,355 (3.79%). The revenue increase is attributable to a shift in
earning assets from investment securities to higher yielding loans, while the
expense increase is due to the movement of deposits from noninterest-bearing and
lower rate interest-bearing deposits to higher rate time deposits.

The tax-equivalent quarterly yield on interest-earning assets
increased by 82 basis points from 5.65% for first quarter 2006 to 6.47% in 2007.
The quarterly yield on interest-bearing liabilities increased by 77 basis points
from 1.18% in 2006 to 1.95% in 2007. In combination, these shifts contribute to
an increase in net margin on interest-earning assets of 33 basis points.

-10-



The following table presents information including average
balances of interest-earning assets and interest-bearing liabilities, the amount
of related interest income and interest expense, and the resulting yields by
category of interest-earning asset and interest-bearing liability. In this
table, dividends and interest on tax-exempt securities and loans are reported on
a fully taxable equivalent basis, which is a non-GAAP measure as defined in SEC
Regulation G and Item 10 of SEC Regulation S-K. Management believes that these
measures provide better yield comparability as a tool for managing net interest
income.



|Average Balances, Interest, and
      Yields                                  
|------------------------------------------------------------------------------
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Assets                                                                        
|Federal funds sold                                                            
|Interest-bearing deposits                                                     
|Investment securities                                                         
|Loans, net of allowance                                                       
|Total interest-earning assets                                                 
|Noninterest-bearing cash                                                      
|Other assets                                                                  
|Total assets                                                                  
|                                                                              
|Liabilities and Stockholders' Equity                                          
|Interest-bearing deposits                                                     
|NOW                                                                           
|Money market                                                                  
|Savings                                                                       
|Other time                                                                    
|Total interest-bearing deposits                                               
|Securities sold under agreements to repurchase & federal
      funds purchased
|Borrowed funds                                                                
|Total interest-bearing liabilities                                            
|Noninterest-bearing deposits                                                  
|                                                                              
|Other liabilities                                                             
|Stockholders' equity                                                          
|Total liabilities
    and                                                     
|stockholders'
    equity                                                      
|Net interest spread                                                           
|Net interest income                                                           
|Net margin on interest-earning assets                                         
|                                                                              
|Tax equivalent adjustment in:                                                 
|Investment income                                                             
|Loan income                                                                   

-11-





The Company's net interest income is one of the most important
factors in evaluating its financial performance. Management uses interest
sensitivity analysis to determine the effect of rate changes. Net interest
income is projected over a one-year period to determine the effect of an
increase or decrease in the prime rate of 100 basis points. If prime were to
decrease one hundred basis points, and all assets and liabilities maturing
within that period were fully adjusted for the rate change, the Company would
experience a decrease of approximately 5.6% in net interest income. Conversely,
if prime were to increase one hundred basis points, and all assets and
liabilities maturing within that period were fully adjusted for the rate change,
the Company would experience a corresponding increase in net interest income.
The sensitivity analysis does not consider the likelihood of these rate changes
nor whether management's reaction to this rate change would be to reprice its
loans or deposits.

No provision for loan losses was charged to expense during the
first quarter of 2007 or 2006. Net loan charged-off (recovered) were ($5,476)
during the first three months of 2007 versus ($69) in the same period in 2006.

Noninterest revenue for the first quarter of 2007 is $10,049
less than last year. Increased ATM and VISA debit card revenue helped to offset
declines in deposit account service charges.

Noninterest expense for the first quarter of 2007 is $60,735,
or 3.43%, more than last year, of which $42,697 falls in the category of "other
operating" expense. Most of the notable variances in this category are due to
the timing of routine period expenses that are recognized on a cash basis.

The Bank employed 95 full time equivalent employees as of March
31, 2007. The Bank hires seasonal employees during the summer. The Company has
no employees other than those hired by the Bank.

Income taxes are $55,600 higher than the same quarter last
year, on a pre-tax income increase of $81,571. The Company's effective tax rate
has increased from 35.4% for the first quarter of 2006 to 36.3% for the first
quarter of 2007. This results from the decrease of tax preferenced revenues in
actual dollars and as a percentage of total revenues. Additionally, the
Company's marginal federal statutory rate has increased due to annualized
taxable income exceeding $10 million.



Plans of Operation

The Bank offers a full range of deposit services including
checking, NOW, Money Market, and savings accounts, and time deposits including
certificates of deposit. The transaction accounts and time certificates are
tailored to the Bank's principal market areas at rates competitive to those
offered in the area. In addition, the Bank offers certain retirement account
services, such as Individual Retirements Accounts ("IRAs"). All deposits are
insured by the Federal Deposit Insurance Corporation (the "FDIC") up to the
maximum amount allowed by law (generally, $100,000 for non-IRA accounts per
depositor and $250,000 for IRAs per depositor, subject to aggregation rules).
The Bank solicits these accounts from individuals, businesses, associations and
organizations, and governmental authorities.

The Company, through the Bank, offers a full range of short- to
medium-term commercial and personal loans. Commercial loans include both secured
and unsecured loans for working capital (including inventory and receivables),
business expansion (including acquisition of real estate and improvements), and
purchase of equipment and machinery. Consumer loans include secured and
unsecured loans for financing automobiles, home improvements, education, and
personal investments. The Company originates commercial and residential mortgage
loans and real estate construction and acquisition loans. These lending
activities are subject to a variety of lending limits imposed by state and
federal law. The Bank may not make any loans to any director or executive
officer (except for commercial loans to directors who are not officers or
employees) unless the Board of Directors of the Bank approves the loans. The
Board of Directors reviews such loans every six months.

Other bank services include cash management services, 24-hour
ATM's, debit cards, safe deposit boxes, travelers' checks, direct deposit of
payroll and social security, and automatic drafts for various accounts. The Bank
offers bank-by-phone and Internet banking services, including electronic
bill-payment, to both commercial and retail customers. The Bank also offers
non-deposit products including retail repurchase agreements and discount
brokerage services through a correspondent bank.

-12-



Capital Resources and Adequacy

Total stockholders' equity increased $1,838,299 from December
31, 2006 to March 31, 2007. This increase is attributable to comprehensive
income recorded during the period, as detailed in Note 2 of the Notes to
Financial Statements, reduced by $145,224 used to repurchase and retire 4,034
shares of common stock. Stock repurchases were at a price of $36.00 per
share.

Under the capital guidelines of the Federal Reserve Board and
the FDIC, the Company and Bank are currently required to maintain a minimum
risk-based total capital ratio of 8%, with at least 4% being Tier 1 capital.
Tier 1 capital consists of stockholders' equity less accumulated other
comprehensive income. In addition, the Company and the Bank must maintain a
minimum 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 than
the highest-rated institutions.

Tier one risk-based capital ratios of the Company as of March
31, 2007 and December 31, 2006 were 31.7% and 32.2%, respectively. Both are
substantially in excess of regulatory minimum requirements.



Website Access to SEC Reports

The Bank maintains an Internet website at

Item 3. Quantitative and Qualitative Disclosures About
Market Risk

The Company's principal market risk exposure relates to
interest rates on interest-earning assets and interest-bearing liabilities.
Unlike most industrial companies, the assets and liabilities of financial
institutions such as the Company and the Bank are primarily monetary in nature.
Therefore, interest rates have a more significant effect on the Company's
performance than do the effects of changes in the general rate of inflation and
change in prices. In addition, interest rates do not necessarily move in the
same direction or in the same magnitude as the prices of goods and services. As
discussed previously, management monitors and seeks to manage the relationships
between interest sensitive assets and liabilities in order to protect against
wide interest rate fluctuations, including those resulting from inflation.

At March 31, 2007, the Company's interest rate sensitivity, as
measured by gap analysis, showed the Company was asset-sensitive with a one-year
cumulative gap of 29.63%, as a percentage of interest-earning assets. Generally
asset-sensitivity indicates that assets reprice more quickly than liabilities
and in a rising rate environment net interest income typically increases.
Conversely, if interest rates decrease, net interest income would decline. The
Bank has classified its demand mortgage and commercial loans as immediately
repriceable. Unlike loans tied to prime, these rates do not necessarily change
as prime changes since the decision to call the loans and change the rates rests
with management.

-13-





Item 4. Controls and procedures

Disclosure controls and procedures are designed and maintained
by the Company to ensure that information required to be disclosed in the
Company's publicly filed reports is recorded, processed, summarized and reported
in a timely manner. Such information must be available to management, including
the Chief Executive Officer (CEO) and Treasurer, to allow them to make timely
decisions about required disclosures. Even a well-designed and maintained
control system can provide only reasonable, not absolute, assurance that its
objectives are achieved. Inherent limitations in any system of controls include
flawed 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 the
Company's disclosure controls and procedures as of March 31, 2007. Based on that
evaluation, the Company's management, including the CEO and Treasurer, has
concluded that the Company's disclosure controls and procedures are effective.
The projection of an evaluation of controls to future periods is subject to the
risk that procedures may become inadequate due to changes in conditions
including the degree of compliance with procedures.



Changes in Internal Controls

During the quarter ended on the date of this report, there were
no significant changes in the Company's internal control over financial
reporting that have had or are reasonably likely to have a material affect on
the Company's internal control over financial reporting. As of March 31, 2007,
the Company's management, including the CEO and Treasurer, has concluded that
the Company's internal controls over financial reporting are effective.

-14-



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 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 of
Proceeds

( c ) The following table presents information about the
Company's repurchase of its equity securities during the calendar quarter ended
on the date of this Form 10-Q.



| |          |           |             | (c)
      Total number      | (d)
      Maximum number
| | -------- | --------- | ----------- | --------------------------- | ------------------------
| |          | (a) Total | (b) Average | of
      Shares Puchased    | of
      Shares that may
| |          | Number    | Price Paid  | as
      Part of a Publicly | yet
      be Purchased  
| | Period   | of Shares | per Share   | Announced
      Program     | Under
      the Program 
| | January  | 3,500     | N/A         | 3,500                       | 258,226                 
| | February | 367       | 36.00       | 367                         | 257,859                 
| | March    | 167       | 36.00       | 167                         | 257,692                 
| | Totals   | 4,034     | 36.00       | 4,034                       |                         

-15-



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, this plan was renewed, by public announcement, making up to 10%
of the Company's outstanding equity stock at that time, which equated to a total
of 320,848 common shares, available for repurchase. 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           
Not applicable



Item 5 Other
information           
Not applicable



Item 6 Exhibits and Reports on Form 8-K



-16-



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

I, Raymond M. Thompson, certify that:

I have reviewed this quarterly report on Form 10-Q of Calvin 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:May 4, 2007_______ | By: | /s/ Raymond M. Thompson          
|                        |     | Chief Executive
Officer          

-17-



Exhibit 31.2Certification - Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002

I, Jennifer G. Hawkins, certify that:

I have reviewed this quarterly report on Form 10-Q of Calvin 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:May 4, 2007_______ | By: | /s/ Jennifer G. Hawkins                  
|                        |     | Treasurer (Principal Financial
  Officer)

-18-



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 a
review of the Quarterly Report on Form 10-Q for the period ended March 31, 2007
of 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:May 4, 2007_______ | By: | /s/ Raymond M. Thompson                  
|                        |     | Chief Executive Officer                  
|                        |     |                                          
|                        |     |                                          
|Date:May 4, 2007_______ | By: | /s/ Jennifer G. Hawkins                  
|                        |     | Treasurer (Principal Financial
  Officer)





-19-



SIGNATURES

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





|                        |     | Calvin B. Taylor Bankshares, Inc.        
|----------------------- | --- | -----------------------------------------
|                        |     |                                          
|                        |     |                                          
|Date:May 4, 2007_______ | By: | /s/ Raymond M. Thompson                  
|                        |     | Chief Executive Officer                  
|                        |     |                                          
|                        |     |                                          
|Date:May 4, 2007_______ | By: | /s/ Jennifer G. Hawkins                  
|                        |     | Treasurer (Principal Financial
  Officer)





-20-