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 June 30, 2008Commission File No. 000-50047
Calvin B. Taylor Bankshares, Inc.(Exact name of registrant as specified in its Charter)

Maryland(State of incorporation or organization)

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

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

Registrant's telephone number, including area code: (410)641-1700
Indicate by check mark whether the registrant (1) has filedall reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has been subjectto such filing requirements for the past 90 days. Yes [X] No ____

Indicate by check mark whether the registrant is a largeaccelerated filer, an accelerated filer, a non-accelerated filer, or a smallerreporting company. See the definitions of "large accelerated filer,""accelerated filer" and "smaller reporting company" in Rule 12b-2 of theExchange Act.

Large accelerated filer ____                                                                                     Accelerated filer [X] Non- accelerated filer ____ (Do not check if a smallerreporting company)     Smaller reporting company ____
Indicate by check mark whether the registrant is a shellcompany (as defined in Rule 12b-2 of the Act). Yes ____ No [X] On July 31, 2008, 3,067,190 shares of the registrant's commonstock were issued and outstanding.
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**Calvin B. Taylor Bankshares, Inc. and SubsidiaryForm 10-QIndex**Part I - Financial		InformationPageItem 1Consolidated		Financial StatementsConsolidated		Balance Sheets as of June 30, 2008 and December 31, 20073 Consolidated		Statements of Income for the three months ended June		30, 2008 and 20074Consolidated		Statements of Income for the six monthsended June		30, 2008 and 20075Consolidated		Statements of Cash Flows for the six months ended June		30, 2008 and 20076-7Notes to		Consolidated Financial Statements8-9Item 2Management’s		Discussion and Analysis of Financial Conditionand Results		of Operations10-17Item 3Quantitative		and Qualitative Disclosures About Market Risks 18Item 4Controls and		Procedures18Part II - Other		InformationItem 1Legal		Proceedings19Item 1ARisk Factors19Item 2Unregistered		Sales of Equity Securities and Use of Proceeds19-20Item 3Defaults Upon		Senior Securities20Item 4Submission of		Matters to a Vote of Security Holders20Item 5Other		Information20Item 6Exhibits20-23Signatures24
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		Part I - Financial Information, Item 1 Financial Statements 		Calvin B. Taylor Bankshares, Inc. and Subsidiary 		Consolidated Balance Sheets   		(unaudited)  		June 30		December 31, 		2008		2007		Assets		Cash and due from banks		 $             14,691,171 		 $             17,428,347 		Federal funds sold		                31,643,783 		                23,121,256 		Interest-bearing deposits		                  7,555,880 		                  6,012,482 		Investment securities available for sale		                  8,894,198 		                24,082,202 		Investment securities held to maturity (approximate   		  fair value of $46,533,293 and $47,302,194)		                46,058,356 		                46,679,750 		Loans, less allowance for loan losses  		  of $202,979 and $195,525		              241,574,250 		              238,076,278 		Premises and equipment		                  6,375,186 		                  6,536,469 		Accrued interest receivable		                  1,802,709 		                  1,693,173 		Bank owned life insurance		                  4,819,319 		                  4,720,770 		Income taxes receivable		                     285,441 		                     301,826  		Other assets		                     389,713 		                     493,120  		 $           364,090,006 		 $           369,145,673 		Liabilities and Stockholders' Equity		Deposits  		  Noninterest-bearing		 $             77,967,485 		 $             73,357,578 		  Interest-bearing		              202,872,018 		              215,585,969  		              280,839,503 		              288,943,547 		Securities sold under agreements to repurchase		                  4,234,004 		                  3,426,173 		Note payable		                       86,248 		                       98,090 		Accrued interest payable 		                     364,589 		                     501,909 		Deferred income taxes		                  1,385,465 		                  1,481,111 		Other liabilities		                       74,824 		                     219,080  		              286,984,633 		              294,669,910 		Stockholders' equity  		  Common stock, par value $1 per share   		   authorized 10,000,000 shares, issued and outstanding  		   3,089,932 shares at June 30, 2008, and  		   3,102,510 shares at December 31, 2007		                  3,089,932 		                  3,102,510 		  Additional paid-in capital		                11,915,551 		                12,381,413 		  Retained earnings		                60,341,597 		                57,076,461  		                75,347,080 		                72,560,384 		  Accumulated other comprehensive income		                  1,758,293 		                  1,915,379  		                77,105,373 		                74,475,763  		 $           364,090,006 		 $           369,145,673          		See accompanying Notes to Consolidated Financial Statements
 

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		Calvin B. Taylor Bankshares, Inc. and Subsidiary 		Consolidated Statements of Income (unaudited)   		For the three months ended 		June 30 		2008		2007		Interest and dividend revenue  		  Loans, including fees		 $               4,202,710 		 $               4,198,828 		  U.S. Treasury and government agency securities		                     503,184 		                     597,304 		  State and municipal securities		                         9,589 		                       17,533 		  Federal funds sold 		                     196,420 		                     526,685 		  Interest-bearing deposits		                       53,812 		                       22,772 		  Equity securities		                       18,715 		                       13,371 		          Total interest and dividend revenue		                  4,984,430 		                  5,376,493    		Interest expense  		  Deposits		                     985,875 		                  1,124,916 		  Borrowings		                         7,886 		                         7,754 		    Total interest expense		                     993,761 		                  1,132,670    		    Net interest income		                  3,990,669 		                  4,243,823     		Provision for loan losses		                         5,284 		                              -    		    Net interest income after provision for loan losses		                  3,985,385 		                  4,243,823    		Noninterest revenue  		  Service charges on deposit accounts		                     279,991 		                     270,749 		  ATM and debit card revenue		                     135,278 		                     123,841 		  Miscellaneous revenue		                     121,012 		                     111,795 		    Total noninterest revenue		                     536,281 		                     506,385    		Noninterest expenses  		  Salaries		                     892,763 		                     863,550 		  Employee benefits		                     223,356 		                     196,525 		  Occupancy		                     183,472 		                     160,173 		  Furniture and equipment		                     129,112 		                     108,019 		  Other operating		                     517,326 		                     443,386 		    Total noninterest expenses		                  1,946,029 		                  1,771,653    		    Income before income taxes		                  2,575,637 		                  2,978,555 		Income taxes		                     932,700 		                  1,083,900    		Net income		 $               1,642,937 		 $               1,894,655    		Earnings per common share - basic and diluted		 $                        0.53 		 $                        0.60       		See accompanying Notes to Consolidated Financial Statements
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		Calvin B. Taylor Bankshares, Inc. and Subsidiary 		Consolidated Statements of Income (unaudited)   		For the six months ended 		June 30 		2008		2007		Interest and dividend revenue  		  Loans, including fees		 $               8,379,255 		 $               8,351,726 		  U.S. Treasury and government agency securities		                  1,137,993 		                  1,185,875 		  State and municipal securities		                       20,800 		                       39,685 		  Federal funds sold 		                     447,894 		                     919,114 		  Interest-bearing deposits		                     121,938 		                       45,511 		  Equity securities		                       47,036 		                       41,148 		          Total interest and dividend revenue		                10,154,916 		                10,583,059    		Interest expense  		  Deposits		                  2,149,907 		                  2,147,163 		  Borrowings		                       15,089 		                       16,451 		    Total interest expense		                  2,164,996 		                  2,163,614    		    Net interest income		                  7,989,920 		                  8,419,445     		Provision for loan losses		                       76,493 		                              -    		    Net interest income after provision for loan losses		                  7,913,427 		                  8,419,445    		Noninterest revenue  		  Service charges on deposit accounts		                     522,962 		                     529,466 		  ATM and debit card revenue		                     248,817 		                     231,540 		  Miscellaneous revenue		                     232,738 		                     210,956 		    Total noninterest revenue		                  1,004,517 		                     971,962    		Noninterest expenses  		  Salaries		                  1,759,705 		                  1,709,711 		  Employee benefits		                     444,767 		                     406,019 		  Occupancy		                     371,320 		                     340,401 		  Furniture and equipment		                     240,462 		                     226,969 		  Other operating		                     981,554 		                     918,780 		    Total noninterest expenses		                  3,797,808 		                  3,601,880    		    Income before income taxes		                  5,120,136 		                  5,789,527 		Income taxes		                  1,855,000 		                  2,105,500    		Net income		 $               3,265,136 		 $               3,684,027    		Earnings per common share - basic and diluted		 $                        1.06 		 $                        1.17       		See accompanying Notes to Consolidated Financial Statements

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		Calvin B. Taylor Bankshares, Inc. and Subsidiary 		Consolidated Statements of Cash Flows (unaudited)   		For the six months ended 		June 30 		2008		2007		Cash flows from operating activities  		  Interest and dividends received		 $                9,955,388 		 $              10,304,624 		  Fees and commissions received		                      911,169 		                      871,657 		  Interest paid		                 (2,302,316)		                 (1,979,337)		  Cash paid to suppliers and employees		                 (3,570,478)		                 (3,455,930)		  Income taxes paid		                 (1,838,615)		                 (2,302,063) 		                   3,155,148 		                   3,438,951 		Cash flows from investing activities  		  Certificates of deposit purchased, net of maturities		                 (1,514,507)		                      395,787 		  Proceeds from maturities of investments available  		     for sale		                 17,000,000 		                 12,000,000 		  Purchase of investments available for sale		                 (1,980,283)		               (13,692,486)		  Proceeds from maturities of investments held to   		     maturity		                 13,810,000 		                 25,760,000 		  Purchase of investments held to maturity		               (13,183,013)		               (10,989,737)		  Loans made, net of principal collected		                 (3,574,465)		                    (270,714)		  Proceeds from sale of equipment		                                -   		                          5,824 		  Purchases of premises, equipment,  		    and computer software		                    (112,144)		                    (265,852) 		                 10,445,588 		                 12,942,822  		   		   		Cash flows from financing activities  		  Net increase (decrease) in  		    Time deposits		                 (6,890,769)		                 11,467,308 		    Other deposits		                 (1,213,275)		                 (2,033,152)		    Securities sold under agreements to repurchase		                      807,831 		                 (1,314,343)		  Payments on note payable		                      (11,842)		                      (11,154) 		  Common shares repurchased		                    (478,440)		                    (610,974) 		                 (7,786,495)		                   7,497,685    		Net increase in cash and cash equivalents		                   5,814,241 		                 23,879,458 		Cash and cash equivalents at beginning of period		                 40,568,264 		                 45,771,812 		Cash and cash equivalents at end of period		 $              46,382,505 		 $              69,651,270          		See accompanying Notes to Consolidated Financial Statements

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		Calvin B. Taylor Bankshares, Inc. and Subsidiary 		Consolidated Statements of Cash Flows (unaudited)   		For the six months ended 		June 30 		2008		2007		Reconciliation of net income to net cash provided  		  by operating activities  		  Net income		 $               3,265,136 		 $               3,684,027 		  Adjustments to reconcile net income to net cash  		    provided by operating activities  		Provision for loan losses		                       76,493 		                              -   		    Amortization of premiums and accretion of  		      discount, net		                     (90,043)		                   (187,607)		    Depreciation and amortization		                     285,933 		                     278,098 		Deferred income taxes		                              -   		                            118 		    (Gain) loss on disposition of assets		                              -   		                       (1,508)		    Decrease (increase) in  		      Accrued interest receivable		                   (109,536)		                     (90,893)		      Cash surrender value of bank owned life insurance		                     (98,549)		                     (93,913)		      Other assets		                     107,290 		                   (100,565)		    Increase (decrease) in  		      Accrued interest payable		                   (137,320)		                       98,806 		      Accrued income taxes		                              -   		                            113 		      Other liabilities		                   (144,256)		                   (147,725) 		 $               3,155,148 		 $               3,438,951       		  Composition of cash and cash equivalents  		    Cash and due from banks		 $             14,691,171 		 $             22,347,697 		    Federal funds sold 		                31,643,783 		                47,181,770 		    Interest-bearing deposits, except for time deposits		                       47,551 		                     121,803  		 $             46,382,505 		 $             69,651,270                                           		See accompanying Notes to Consolidated Financial Statements
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**Calvin B. Taylor Bankshares, Inc. and SubsidiaryNotes to Consolidated Financial Statements (unaudited)**
1. Basis of Presentation   	The accompanying unaudited consolidated financial	statements conform with accounting principles generally accepted in the	United States of America and with the instructions to Form 10-Q. Interim	financial statements do not include all the information and footnotes	required for complete financial statements. In the opinion of management,	all adjustments considered necessary for a fair presentation of financial	position and results of operations for these interim periods have been made.	These adjustments are of a normal recurring nature. Results of operations	for the six months ended June 30, 2008 are not necessarily indicative of the	results that may be expected in any other interim period or for the year	ending December 31, 2008. For further information, refer to the audited	consolidated financial statements and related footnotes included in the	Company's Form 10-K for the year ended December 31, 2007.	    Consolidation has resulted in the elimination of all	significant intercompany accounts and transactions.

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

Per share data   	Earnings per common share are determined by dividing net	income by the weighted average number of common shares outstanding for the	period, as follows:
 		2008		2007		Three months ended June 30		                    3,091,956 		                    3,139,456 		Six months ended June 30		                    3,094,857 		                    3,142,584    
2. Comprehensive Income   Comprehensive income consists of:
 		For the six months ended 		June 30 		2008		2007		Net income		 $                 3,265,136 		 $                 3,684,027 		Unrealized gain (loss) on investment securities  		  available for sale, net of income taxes		                     (157,086)		                         51,405 		Comprehensive income		 $                 3,108,050 		 $                 3,735,432 
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 June	30, outstanding loan commitments and letters of credit consist of:
 		June 30, 2008		December 31,2007		Loan commitments		 $               26,711,718 		 $               33,523,485 		Standby letters of credit		 $                 2,203,902 		 $                 1,582,050 
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**Calvin B. Taylor Bankshares, Inc. and SubsidiaryNotes to Consolidated Financial Statements (unaudited) (continued)**
4. Assets Measured at Fair Value on a Recurring Basis	   	The Company values investment securities classified as	available for sale at fair value. The fair value hierarchy established in	Statement of Financial Accounting Standards No. 157, *Fair Value	Measurements,* defines three input levels for fair value measurement.	Level 1 is based on quoted market prices in active markets for identical	assets. Level 2 is based on significant observable inputs other than those	in Level 1. Level 3 is based on significant unobservable inputs. The Company	values US Treasury and government agency securities under Level 1, and	municipal debt securities and equity investments under Level 2. The Company	has no assets measured at fair value on a recurring basis that are valued	under Level 3 criteria. At June 30, 2008, values for available for sale	investment securities were established as follows:
 		Total		Level 1 Inputs		Level 2 Inputs		Investment securities available for sale		 $        8,894,198 		 $        4,849,773 		 $        4,044,425 
5. New accounting standards	   	The following accounting pronouncements have been	approved by the Financial Accounting Standards Board but have not become	effective as of this reporting date. These pronouncements would apply to the	Company if the Company or the Bank entered into an applicable activity.	   	FASB Statement No. 160, "Noncontrolling Interests in	Consolidated Financial Statements" improves the relevance, comparability,	and transparency of the financial information that a reporting entity	provides in its consolidated financial statements by establishing accounting	and reporting standards for the noncontrolling interest in a subsidiary and	for the deconsolidation of a subsidiary.  SFAS No. 160 is effective for	fiscal years beginning on or after December 15, 2008, and interim periods	within those fiscal years.  Management does not expect SFAS No. 160 to	have a material impact on the Company’s consolidated financial statements.	    FASB Statement No. 161, "Disclosures about Derivative	Instruments and Hedging Activities - an amendment of FASB Statement No. 133"	requires enhanced disclosures about an entity’s derivative and hedging	activities and thereby improves the transparency of financial reporting. The	use and complexity of derivative instruments and hedging activities have	increased significantly over the past several years. Constituents have	expressed concerns that the existing disclosure requirements in FASB	Statement No. 133, "Accounting for Derivative Instruments and Hedging	Activities," do not provide adequate information about how derivative and	hedging activities affect an entity’s financial position, financial	performance, and cash flows. This Statement is effective for financial	statements issued for fiscal years and interim periods beginning after	November 15, 2008, with early application encouraged. This Statement	encourages, but does not require, comparative disclosures for earlier	periods at initial adoption. Management does not expect SFAS No. 161 to have	a material impact on the Company’s consolidated financial statements.	    The accounting policies adopted by management are consistent with	accounting principles generally accepted in the United States of America and	are consistent with those followed by peer Banks.

6. Restatement of prior period balances	   	Certain reclassifications to the December 31, 2007,	balance sheet have been made to conform to current presentation. No totals	have changed.
** **
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**Calvin B. Taylor Bankshares, Inc. and SubsidiaryPart I. Financial InformationItem 2. Management's Discussion and Analysis of Financial Condition andResults of Operations
*    This Report contains statements which constituteforward-looking statements within the meaning of Section 27A of the SecuritiesAct of 1933 and the Securities Exchange Act of 1934. These statements appear ina number of places in this Report and include all statements regarding theintent, belief or current expectations of the Company, its directors, or itsofficers with respect to, among other things: (i) the Company's financing plans;(ii) trends affecting the Company's financial condition or results ofoperations; (iii) the Company's growth strategy and operating strategy; and (iv)the declaration and payment of dividends. Investors are cautioned that any suchforward-looking statements are not guarantees of future performance and involverisks and uncertainties, and that actual results may differ materially fromthose projected in the forward-looking statements as a result of various factorsdiscussed herein and those factors discussed in detail in the Company's filingswith the Securities and Exchange Commission.*
    The following discussion of the financial condition andresults of operations of the Registrant (the Company) should be read inconjunction with the Company's financial statements and related notes and otherstatistical information included elsewhere herein.

General    Calvin B. Taylor Bankshares, Inc. (Company) was incorporatedas a Maryland corporation on October 31, 1995. The Company owns all of the stockof Calvin B. Taylor Banking Company (Bank), a commercial bank that wasestablished in 1890 and incorporated under the laws of the State of Maryland onDecember 17, 1907. The Bank operates nine banking offices in Worcester County,Maryland and one banking office in Ocean View, Delaware. The Bank'sadministrative office is located in Berlin, Maryland. The Bank is engaged in ageneral commercial and retail banking business serving individuals, businesses,and governmental units in Worcester County, Maryland, Ocean View, Delaware, andneighboring counties.    The Company currently engages in no business other thanowning and managing the Bank. The Bank employed 92 full time equivalentemployees as of June 30, 2008. The Bank hires seasonal employees during thesummer. The Company has no employees other than those hired by the Bank.

Critical Accounting Policies    The Company’s financial condition and results of operationsare sensitive to accounting measurements and estimates of inherently uncertainmatters. When applying accounting policies in areas that are subjective innature, management uses its best judgment to arrive at the carrying value ofcertain assets. One of the most critical accounting policies applied is relatedto the valuation of the loan portfolio.     The allowance for loan losses (ALLL) represents management’sbest estimate of inherent probable losses in the loan portfolio as of thebalance sheet date. It is one of the most difficult and subjective judgments.The adequacy of the allowance for loan losses is evaluated no less thanquarterly. The determination of the balance of the allowance for loan losses isbased on management’s judgments about the credit quality of the loan portfolioas of the review date. It should be sufficient to absorb losses in the loanportfolio as determined by management’s consideration of factors including ananalysis of historical losses, specific reserves for non-performing or past dueloans, delinquency trends, portfolio composition (including segment growth orshifting of balances between segments, products and processes, andconcentrations of credit, both regional and by relationship), lending staffexperience and changes, critical documentation and policy exceptions, riskrating analysis, interest rates and the competitive environment, economicconditions in the Bank’s service area, and results of independent reviews,including audits and regulatory examinations.    In 2007, the Company determined that the allowance for loanlosses was overstated as a result of provisions charged to earnings in yearsprior to 2003. A prior period adjustment to revalue the ALLL was recorded,resulting in the restatement of average balances and ratios previously reportedfor quarter ended June 30, 2007. The prior period adjustment has no impact onpreviously reported earnings. The result of the restatement of prior periods wasto increase average net loans, total assets, the net credit for deferred incometaxes, and retained earnings in each restated period. The Company’s AnnualReport on Form 10-K for the year ended December 31, 2007, filed on March 17,2008, contains details regarding the restatement. It is the belief of managementthat the restatement of average balances, yields and various ratios as of June30, 2007, will not alter conclusions drawn by those who relied on the Company’soriginally filed statements for that period.

 

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Financial Condition   Total assets of the Company decreased $5.1 million fromDecember 31, 2007 to June 30, 2008. Combined deposits and customer repurchaseagreements decreased $7.3 million during the same period. Management believesthat the reduction of deposit balances results from a continuing generaleconomic downturn, combined with competition for deposits among local andregional banks. For further discussion of seasonal activity, see the sectiontitled Liquidity.    Average total assets and average total deposits decreased$11.0 million and $13.5 million, respectively, from second quarter 2007 tosecond quarter 2008. Management carefully monitors deposit reductions and theresulting effect on liquidity. Deposit decreases have been funded by reductionsin the investment portfolio.

Loan Portfolio    During the first half of 2008, the Bank’s gross loanportfolio increased $3.5 million. Funding for these loans was provided byreduction of the investment portfolio, including federal funds sold. As loansearn at higher average rates than investments, this shift has a positive effecton earnings. The increase in loans does not negatively impact the Company’sability to meet liquidity demands.    The Company makes loans to customers located primarily in theDelmarva region. Although the loan portfolio is diversified, its performancewill be influenced by the economy of the region. 

Loan Quality and the Allowance for Loan Losses    The allowance for loan losses (ALLL) represents an amountwhich management believes to be adequate to absorb identified and inherentlosses in the loan portfolio as of the balance sheet date. Valuation of theallowance is completed no less than quarterly. The determination of theallowance is inherently subjective as it relies on estimates of potential lossrelated to specific loans, the effects of portfolio trends, and other internaland external factors.     The ALLL consists of (i) formula-based reserves comprised ofpotential losses in the balance of the loan portfolio segmented into homogeneouspools, (ii) specific reserves comprised of potential losses on loans thatmanagement has identified as impaired and (iii) unallocated reserves.Unallocated reserves are not associated with a specific portfolio segment or aspecific loan, but may be appropriate if properly supported and in accordancewith GAAP.    The Company evaluates loan portfolio risk for the purpose ofestablishing an adequate allowance for loan losses. In determining an adequatelevel for the formula-based portion of the ALLL, management considers historicalloss experience for major types of loans. Homogenous categories of loans areevaluated based on loss experience in the most recent five years, applied to thecurrent portfolio. This formulation gives weight to portfolio size and lossexperience for categories of real estate construction loans, other real estatesecured loans, other loans to commercial borrowers, and other consumer loans.However, historical data may not be an accurate predictor of loss potential inthe current loan portfolio. Management also evaluates trends in delinquencies,the composition of the portfolio, concentrations of credit, and changes inlending products, processes, or staffing. Management further considers externalfactors such as the interest rate environment, competition, current local andnational economic trends, and the results of recent independent reviews byauditors and banking regulators.     The ongoing slow-down in the real-estate market has affectedboth the price and time to market residential and commercial properties.Management closely monitors such trends and the potential effect on the Company,but to date in management’s opinion, they have not impacted the quality of orloss potential in the Bank’s real estate secured loan portfolio. For all periodspresented, there were no specific adjustments made to the ALLL in connectionwith management’s evaluation of these trends as management determined that theyhave not impacted the quality of the loan portfolio. Although the real estatemarket is less robust than in recent years, management does not expect losses inthe real estate portfolio due to the Bank’s conservative underwriting practices.Management closely monitors conditions that might indicate deterioration ofcollateral value on significant loans and obtains additional collateral asrequired to protect the Bank from exposure.    Management employs a risk rating system which gives weight tocollateral status (secured vs. unsecured), and to the absence or improperexecution of critical contract or collateral documents. Unsecured loans andthose loans with critical documentation exceptions, as defined by management,are considered to have greater loss exposure. Management incorporates thesefactors in the formula-based portion of the ALLL. Additionally, consideration isgiven to those segments of the loan portfolio which management deems to pose thegreatest likelihood of loss.

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    Management believes that in a general economic slow-down,such as the region is experiencing in early 2008, the Bank’s greatest likelihoodof loss is in unsecured loans - commercial and consumer, and in secured consumerloans. Reserves for these segments of the portfolio are included in theformula-based portion of the ALLL. As of June 30, 2008, management reserved 35bp against unsecured loans, and 30 bp against consumer loans secured by otherthan real estate. Both of these reserves were increased during the first quarterof this year, from 25 bp at December 31, 2007 to current levels.     Historically, the absence or improper execution of a documenthas not resulted in a loss to the Bank, however, management recognizes that theBank’s loss exposure is increased until a critical contract or collateraldocumentation exception is cured. At June 30, 2008, management reserved 10 bpagainst the outstanding balances of loans identified as having criticaldocumentation exceptions.    The provision for loan losses is a charge to earnings in thecurrent period to maintain the allowance at a level management has determined tobe appropriate. The allowance is increased by current period provisions and byrecoveries of amounts previously charged-off. The allowance is decreased whenloans are charged-off as losses, which occurs when they are deemed to beuncollectible. Adjustments made to bring the balance in the allowance to thelevel established by management may result in an increase or decrease toexpense. A provision of $5,284 was made in the second quarter of 2008. A totalof $76,493 has been provided in 2008. No provision for loan losses was made inthe second quarter or the year to date ending June 30, 2007.     Management considers the June 30, 2008 allowance appropriateand adequate to absorb identified and inherent losses in the loan portfolio. Asof June 30, 2008, management has not identified any loans which are anticipatedto be charged-off within the next 12 months. However, there can be no assurancethat charge-offs in future periods will not exceed the allowance for loan lossesor that additional increases in the loan loss allowance will not be required.    The following is a schedule of transactions in the allowancefor loan losses. The Bank experienced net recoveries last year and netcharge-offs in the current year to date. Management does not detect anymeaningful trend in the year-to-year relationship of net charge-offs to netrecoveries. Rather, these are natural swings of activity in a loan portfoliothat experiences minimal losses.
		Allowance for Loan Losses 		For six months ended 		June 30 		2008		2007		Balance at beginning of year		 $           195,525 		 $           196,083 		Loans charged-off:  		  Commercial		                59,199 		                         -  		  Real estate - construction		                         - 		                         - 		  Real estate - mortgage		                         - 		                         - 		  Consumer		                10,000 		                  2,913 		        Total loan losses		                69,199 		                  2,913 		Recoveries on loans previously charged off:  		  Commercial		                         - 		                         - 		  Real estate - construction		                         - 		                         - 		  Real estate - mortgage		                         - 		                         - 		  Consumer		                     160 		                  5,476 		        Total loan recoveries		                     160 		                  5,476    		Net loan charge-offs (recoveries)		                69,039 		                (2,563)		Provision for loan losses charged to expense		                76,493 		                         - 		Balance at end of period		 $           202,979 		 $           198,646    		Average loans outstanding during the period
 $    242,945,890 		 $    237,406,348    		Annualized net charge-offs as a percentage of  		average loans outstanding during the period		0.06%		0.00%
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    The accrual of interest on a loan is discontinued whenprincipal or interest is ninety days past due or when the loan is determined tobe impaired, unless collateral is sufficient to discharge the debt in full andthe loan is in process of collection. When a loan is placed in nonaccruingstatus, any interest previously accrued but unpaid, is reversed from interestincome. Interest payments received on nonaccrual loans may be recorded as cashbasis income, or as a reduction of principal, depending on management’s judgmenton a loan by loan basis. Accrual of interest may be restored when all principaland interest are current and management believes that future payments will bereceived in accordance with the loan agreement.    Nonperforming loans are loans past due 90 or more days andstill accruing plus nonaccrual loans. Nonperforming assets are comprised ofnonperforming loans combined with real estate acquired in foreclosure and heldfor sale. There were no nonperforming assets other than nonperforming loans asof June 30, 2008 or December 31, 2007, as shown in the following table.
 		June 30,		December 31, 		2008		2007		Loans 90 days or more past due and still accruing		 $             50,847 		 $               9,100 		Nonaccruing loans		                20,831 		                40,916 		        Total nonperforming loans		 $             71,678 		 $             50,016    		Interest not accrued on nonaccruing loans		 $                  154 		 $               1,509    		Interest included in net income on nonaccruing loans,  		year-to-date		 $               1,140 		 $                    -   
    Loans are considered impaired when, based on currentinformation, management considers it unlikely that collection of principal andinterest payments will be made according to contractual terms. Generally, loansare not reviewed for impairment until the accrual of interest has beendiscontinued, although management may categorize a performing loan as impairedbased on knowledge of the borrower’s financial condition, devaluation ofcollateral, or other circumstances that are deemed relevant to loan collection.Impaired loans may have specific reserves, or valuation allowances, allocated tothem in the ALLL. Estimates of loss reserves on impaired loans may be determinedbased on any of the three measurement methods described in Financial AccountingStandard 114 (FAS 114): (1) the present value of future cash flows, (2) the fairvalue of collateral, if repayment of the loan is expected to be provided byunderlying collateral, or (3) the loan’s observable fair price. The Bank selectsand applies, on a loan-by-loan basis, the appropriate valuation method. Loansdetermined to be impaired, but for which no specific valuation allowance is madebecause management believes the loan is secured with adequate collateral or theBank will not take a loss on such loan, are grouped with other homogeneous loansfor evaluation under formula-based criteria described previously.     Impaired loans including nonaccruing loans totaled $545,543and $595,774, at June 30, 2008 and December 31, 2007, respectively. Principalbalances of impaired loans include $419,770 and $436,802 which is guaranteed bya government agency at June 30, 2008 and December 31, 2007, respectively.
 				June 30, 2008				December 31, 2007				Impaired loans with valuation allowances,   				including nonaccruing loans				 $                  545,543 				 $                  595,774 				Valuation allowances on impaired loans				 $                  115,358 				 $                  138,514    				Impaired loans with no valuation allowances				 $                           -   				 $                           -   
 

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Liquidity    Liquidity represents the ability to provide steady sources offunds for loan commitments and investment activities, as well as to providesufficient funds to cover deposit withdrawals and payment of debt and operatingobligations. These funds can be obtained by converting assets to cash or byattracting new deposits. The Company’s major sources of liquidity are loanrepayments, maturities of short-term investments including federal funds sold,and increases in core deposits. Funds from seasonal deposits are generallyinvested in short-term U.S. Treasury Bills and overnight federal funds.     Due to its location in a seasonal resort area, the Banktypically experiences a decline in deposits, federal funds sold and investmentsecurities throughout the first quarter of the year when businesscustomers are using their deposits to meet cash flow needs. Late in the secondquarter, additional sources of liquidity become more readily available asbusiness borrowers start repaying loans, and the Bank receives deposits fromseasonal business customers, summer residents and tourists. During the secondquarter of 2008, this traditional pattern did not apply. Management believesthat customers affected by the continuing economic downturn are not able tosustain previous levels of savings.     Average liquid assets (cash and amounts due from banks,interest-bearing deposits in other banks, federal funds sold, and investmentsecurities) compared to average deposits and retail repurchase agreements were35.70% for the second quarter of 2008 compared to 39.66% for the second quarterof 2007.    The Company has available lines of credit, includingovernight federal funds, reverse repurchase agreements and letters of credit,totaling $27,000,000 as of June 30, 2008.    Average net loans to average deposits were 87.83% versus81.85% as of June 30, 2008 and 2007, respectively. Average loans increased by2.31% while average deposits fell by 4.65%. Funding for loan growth andreductions in deposit balances was provided by a reduction of the investmentportfolio. As loans earn at higher average rates than investments, this shifthas a positive effect on earnings. Average deposit balance reductions occurredin both interest-bearing and non-interest bearing accounts. While earnings arereduced by the shift of demand and savings deposits to higher rate timedeposits, neither this movement nor the increase in loans has a negative impacton the Company’s ability to meet liquidity demands.

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

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Results of Operations    Net income for the three months ended June 30, 2008***,***was $1,642,937 or $.53 per share, compared to $1,894,655 or $.60 pershare for the second quarter of 2007. This represents a decrease of $251,718 or13.29% from the prior year. Year to date net income has decreased $418,891 or$.11 per share from $3,684,027 or $1.17 in 2007 to $3,265,136 or $1.06 in 2008.The key components of net income are discussed in the following paragraphs.     For the first six months of 2008 compared to 2007, netinterest income decreased $429,525 (5.10%). Net interest income decreased$253,154 (5.97%) in the second quarter of 2008 compared to the second quarter of2007. The decrease in revenue is primarily attributable to market ratereductions which have resulted in the downward repricing of overnight federalfunds. Interest expense in the second quarter of 2008 was $138,909 (12.26%) lessthan in the comparable period last year, due to lower demand deposit and savingsbalances and lower rates on time deposits.    The Company’s net interest income is one of the mostimportant factors in evaluating its financial performance. Management usesinterest sensitivity analysis to determine the effect of rate changes. Netinterest income is projected over a one-year period to determine the effect ofan increase or decrease in the prime rate of 100 basis points. If prime were todecrease one hundred basis points, and all assets and liabilities maturingwithin that period were fully adjusted for the rate change, the Company wouldexperience a decrease of approximately 7.2% in net interest income. Conversely,if prime were to increase one hundred basis points, and all assets andliabilities maturing within that period were fully adjusted for the rate change,the Company would experience an increase in net interest income of the samepercentage. The sensitivity analysis does not consider the likelihood of theserate changes nor whether management’s reaction to this rate change would be toreprice its loans or deposits or both.     The tax-equivalent quarterly yield on interest-earning assetsdecreased by 34 basis points from 6.47% for second quarter 2007 to 6.13% in2008. The quarterly yield on interest-bearing liabilities decreased by 21 basispoints from 2.10% in 2007 to 1.89% in 2008. In combination, these shiftscontribute to a decrease in net margin on interest-earning assets of 21 basispoints.    The following table presents information including averagebalances of interest-earning assets and interest-bearing liabilities, the amountof related interest income and interest expense, and the resulting yields bycategory of interest-earning asset and interest-bearing liability. In thistable, dividends and interest on tax-exempt securities and loans are reported ona fully taxable equivalent basis, which is a non-GAAP measure as defined in SECRegulation G and Item 10 of SEC Regulation S-K. Management believes that thesemeasures provide better yield comparability as a tool for managing net interestincome.

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		Average Balances, Interest, and Yields		For the quarter ended		For the quarter ended		June 30, 2008		June 30, 2007		Average  		Average  		balance		Interest		Yield		balance		Interest		Yield      		Assets      		  Federal funds sold		 $   36,853,798 		 $      196,420 		2.14%		 $   40,680,165 		 $      526,685 		5.19%		  Interest-bearing deposits		        6,187,025 		           53,812 		3.50%		        2,021,169 		           22,772 		4.52%		  Investment securities		      47,007,470 		         573,601 		4.91%		      57,593,773 		         670,450 		4.67%		  Loans, net of allowance		    242,688,085 		      4,244,251 		7.03%		    237,204,789 		      4,226,327 		7.15%		    Total interest-earning assets		    332,736,378 		      5,068,084 		6.13%		    337,499,896 		      5,446,234 		6.47%		Noninterest-bearing cash		        9,982,276   		      16,068,149   		Other assets		      13,275,910   		      13,462,537   		        Total assets		 $ 355,994,564   		 $ 367,030,582         		Liabilities and Stockholders' Equity      		Interest-bearing deposits      		  NOW 		 $   49,985,477 		           49,790 		0.40%		 $   50,648,543 		           44,620 		0.35%		  Money market		      30,608,620 		           71,854 		0.94%		      34,237,355 		           80,852 		0.95%		  Savings		      40,745,123 		           75,144 		0.74%		      44,869,370 		           82,849 		0.74%		  Other time		      85,698,618 		         789,087 		3.70%		      82,776,690 		         916,595 		4.44%		    Total interest-bearing deposits		    207,037,838 		         985,875  				1.92%		    212,531,958 		      1,124,916 		2.12%		Securities sold under agreements to repurchase & federal funds purchased		        3,853,559 		             6,532 		0.68%		        3,593,834 		             6,053 		0.68%		Borrowed funds		             88,308 		             1,354 		6.17%		           111,525 		             1,701 		6.12%		    Total interest-bearing liabilities		    210,979,705 		         993,761  				1.89%		    216,237,317 		      1,132,670 		2.10%		Noninterest-bearing deposits		      69,272,622   		      77,266,064   		    280,252,327 		         993,761 		1.43%		    293,503,381 		      1,132,670 		1.55%		Other liabilities		           856,698   		        1,392,217   		Stockholders' equity		      74,885,539   		      72,134,984   		        Total liabilities and      		        stockholders' equity		 $ 355,994,564   		 $ 367,030,582   		Net interest spread  		4.24%  		4.37%		Net interest income 		 $   4,074,323   		 $   4,313,564  		Net margin on interest-earning assets  		4.92%  		5.13%      		Tax equivalent adjustment in:      		    Investment income 		 $        42,113   		 $        42,242  		    Loan income 		 $        41,541   		 $        27,499  
    A provision for loan losses of $5,284 was charged to expenseduring the second quarter of 2008. There was no provision charged to expense inthe second quarter of 2007. Net loans charged-off (recovered) were $69,039 and(2,563) during the first half of 2008 and 2007, respectively. Management doesnot detect any meaningful trend in the year-to-year relationship of netcharge-offs to net recoveries. Rather, these are natural swings of activity in aloan portfolio that experiences minimal losses. See Loan Quality and theAllowance for Loan Losses for a discussion of the provision for loan losses.    Noninterest revenue for the second quarter of 2008 is $29,896(5.90%) higher than the comparable period last year. Noninterest revenue for theyear-to-date is $32,555 (3.35%) more than last year. For both the quarter andthe year-to-date, increased ATM and VISA debit card revenues as well asincreases in various miscellaneous fees such as wire transfer fees and savingsservice charges helped to offset declines in deposit account service charges.All increases are volume related.

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    Noninterest expense for the secondquarter of 2008 is $174,376, (9.84%), more than last year. Noninterest expenseyear-to-date is $195,928, (5.44%) more than last year. The most notable increaseis $88,742 (4.19%) in combined salaries and employee benefits for the six monthperiod. This results from annual salary increases and cost of group insurance.Occupancy, furniture and equipment, and other operating expenses have increaseddue to higher property taxes and utility costs and timing of routine periodexpenses that are recognized on a cash basis.    Income taxes for the six months ended June 30, 2008 are$250,500 lower than the same period last year, on a pre-tax income decrease of$669,391. This is consistent with the Company’s effective tax rate of 36.23%.
Plans of Operation    The Bank offers a full range of deposit services includingchecking, NOW, Money Market, and savings accounts, and time deposits includingcertificates of deposit. The transaction, savings, and certificate of depositaccounts are tailored to the Bank’s principal market areas at rates competitiveto those offered in the area. The Bank also offers Individual RetirementAccounts (IRA), Health Savings Accounts, and Education Savings Accounts. Alldeposits are insured by the Federal Deposit Insurance Corporation (FDIC) up tothe maximum amount allowed by law (generally, $100,000 per depositor, except for$250,000 per depositor for certain retirement accounts, subject to aggregationrules). 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®.    The Bank also offers a full range of short- to medium-termcommercial and personal loans. Commercial loans include both secured andunsecured loans for working capital (including inventory and receivables),business expansion (including acquisition of real estate and improvements), andpurchase of equipment and machinery. Consumer loans include secured andunsecured loans for financing automobiles, home improvements, education, andpersonal investments. The Bank originates commercial and residential mortgageloans and real estate construction and acquisition loans. These lendingactivities are subject to a variety of lending limits imposed by state andfederal law. The Bank lends to directors and officers of the Company and theBank under terms comparable to those offered to other borrowers entering intosimilar loan transactions. The Board of Directors approves all loans to officersand directors and reviews these loans every six months.    Other bank services include cash management services, 24-hourATM’s, debit cards, safe deposit boxes, travelers’ checks, direct deposit ofpayroll and social security funds, and automatic drafts for various accounts.The Bank offers bank-by-phone and Internet banking services, includingelectronic bill-payment, to both commercial and retail customers. Early in 2008,the Bank began offering a remote capture service that enables commercialcustomers to electronically capture check images and make on-line deposits. TheBank also offers non-deposit products including retail repurchase agreements anddiscount brokerage services through a correspondent bank. 

Capital Resources and Adequacy    Total stockholders’ equity increased $2,629,610 from December31, 2007 to June 30, 2008. This increase is attributable to comprehensive incomerecorded during the period, as detailed in Note 2 of the Notes to FinancialStatements, reduced by $478,440 used to repurchase and retire 12,578 shares ofcommon stock.     Under the capital guidelines of the Federal Reserve Board andthe FDIC, the Company and Bank are currently required to maintain a minimumrisk-based total capital ratio of 8%, with at least 4% being Tier 1 capital.Tier 1 capital consists of stockholders' equity less accumulated othercomprehensive income. In addition, the Company and the Bank must maintain aminimum Tier 1 leverage ratio (Tier 1 capital to total assets) of at least 4%,but this minimum ratio is increased by 100 to 200 basis points for other thanthe highest-rated institutions.    Tier one risk-based capital ratios of the Company as of June30, 2008 and December 31, 2007 were 33.7% and 33.1%, respectively. Both aresubstantially in excess of regulatory minimum requirements. 

Website Access to SEC Reports    The Bank maintains an Internet website at www.taylorbank.com. The Company’s periodic SEC reports, includingannual reports on Form 10-K, quarterly reports on Form 10-Q, and current reportson Form 8-K, are accessible through this website. Access to these filings isfree of charge. The reports are available as soon as practicable after they arefiled electronically with the SEC. 
 

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**Item 3. Quantitative and Qualitative Disclosures AboutMarket Risk    The Company’s principal market risk exposure relates tointerest rates on interest-earning assets and interest-bearing liabilities.Unlike most industrial companies, the assets and liabilities of financialinstitutions such as the Company and the Bank are primarily monetary in nature.Therefore, interest rates have a more significant effect on the Company'sperformance than do the effects of changes in the general rate of inflation andchange in prices. In addition, interest rates do not necessarily move in thesame direction or in the same magnitude as the prices of goods and services. Asdiscussed previously, management monitors and seeks to manage the relationshipsbetween interest sensitive assets and liabilities in order to protect againstwide interest rate fluctuations, including those resulting from inflation.     At June 30, 2008, the Company’s interest rate sensitivity, asmeasured by gap analysis, showed the Company was asset-sensitive with a one-yearcumulative gap of 29.07%, as a percentage of interest-earning assets. Generallyasset-sensitivity indicates that assets reprice more quickly than liabilitiesand in a rising rate environment net interest income typically increases.Conversely, if interest rates decrease, net interest income would decline. TheBank has classified its demand mortgage and commercial loans as immediatelyrepriceable. Unlike loans tied to prime, these rates do not necessarily changeas prime changes since the decision to call the loans and change the rates restswith management. 
**Item 4. Controls and procedures    Disclosure controls and procedures are designed andmaintained by the Company to ensure that information required to be disclosed inthe Company’s publicly filed reports is recorded, processed, summarized andreported in a timely manner. Such information must be available to management,including the Chief Executive Officer (CEO) and Treasurer, to allow them to maketimely decisions about required disclosures. Even a well-designed and maintainedcontrol system can provide only reasonable, not absolute, assurance that itsobjectives are achieved. Inherent limitations in any system of controls includeflawed judgment, errors, omissions, or intentional circumvention of controls.    The Company’s management, including the CEO and Treasurer,performed an evaluation of the effectiveness of the design and operation of theCompany’s disclosure controls and procedures as of June 30, 2008. Based on thatevaluation, the Company’s management, including the CEO and Treasurer, hasconcluded that the Company’s disclosure controls and procedures are effective.The projection of an evaluation of controls to future periods is subject to therisk that procedures may become inadequate due to changes in conditionsincluding the degree of compliance with procedures.
**Changes in Internal Controls    During the quarter ended on the date of this report, therewere no significant changes in the Company’s internal control over financialreporting that have had or are reasonably likely to have a material effect onthe Company’s internal control over financial reporting. As of June 30, 2008,the Company’s management, including the CEO and Treasurer, has concluded thatthe Company’s internal controls over financial reporting are effective. 

 

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**Calvin B. Taylor Bankshares, Inc. and SubsidiaryPart II. Other Information**
Item 1 Legal Proceedings           Not applicable

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

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

Item 2 Unregistered Sales of Equity Securities and Use ofProceeds           		(c) The following table presents information about		the Company’s repurchase of its equity securities during the calendar		quarter ended on the date of this report.
    				(c) Total number				(d) Maximum number  				(a) Total				(b) Average		of Shares Puchased		of Shares that may 				Number				Price Paid				as Part of a Publicly				yet be Purchased				Period				of Shares				per Share				Announced Program				Under the Program				April				                  325 				             				36.69				                                   325 				265,994				May				               1,250 				               39.00 				                                1,250 				264,744 				June				               1,462 				               37.70 				                                1,462 				263,282				Totals				               3,037 				               38.13 				                                3,037  
 

 

 

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

Item 3 Defaults Upon Senior Securities            Not applicable

Item 4 Submission of Matters to a Vote of Security Holders		            The Company held its annual meeting on May 14, 2008,		during which the items detailed in the proxy statement dated March 14,		2008, were approved. This includes the reelection of the Board of		Directors.

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

Item 6 Exhibits and Reports on Form 8-K		            a) Exhibits					                   					31. Certifications of Principal Executive					Officer and Principal Financial Officer pursuant to Section					302 of the Sarbanes-Oxley Act of 2002.					                   					32. Certification of Principal Executive					Officer and Principal Financial Officer pursuant to Section					906 of the Sarbanes-Oxley Act of 2002.
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Exhibit 31.1Certification - Pursuant to Section 302 of the Sarbanes-OxleyAct of 2002

I, Raymond M. Thompson, certify that:I have reviewed this quarterly report on Form 10-Q of Calvin B. TaylorBankshares, Inc.;	1. Based on my knowledge, this report does not contain any untrue	statement of a material fact or omit to state a material fact necessary to	make the statements made, in light of the circumstances under which such	statements were made, not misleading with respect to the period covered by	this report;	2. Based on my knowledge, the financial statements, and other financial	information included in this report, fairly present in all material respects	the financial condition, results of operations and cash flows of the	registrant as of, and for, the periods presented in this report;	3. The registrant’s other certifying officers and I are responsible for	establishing and maintaining disclosure controls and procedures (as defined	in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over	financial reporting (as defined in Exchange Act Rules 13a-15(f) and	15d-15(f)) for the registrant and we have:			a) designed such disclosure controls and procedures, or caused			such disclosure controls and procedures to be designed under our			supervision, to ensure that material information relating to the			registrant, including its consolidated subsidiary, is made known to			us by others within those entities, particularly during the period			in which this report is being prepared;			>b) designed such internal control over financial reporting, or			caused such internal control over financial reporting to be designed			under our supervision, to provide reasonable assurance regarding the			reliability of financial reporting and the preparation of financial			statements for external purposes in accordance with generally			accepted accounting principles;			c) evaluated the effectiveness of the registrant’s disclosure			controls and procedures and presented in this report our conclusions			about the effectiveness of the disclosure controls and procedures,			as of the end of the period covered by this report based on such			evaluation; and			d) disclosed in this report any change in the registrant’s			internal control over financial reporting that occurred during the			most recent fiscal quarter that has or is reasonably likely to			materially affect the registrant’s internal control over financial			reporting; and
4. The registrant’s other certifying officers and I have disclosed, based	on our most recent evaluation of internal control over financial reporting,	to the registrant’s auditors and the audit committee of the registrant’s	board of directors (or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the			design or operation of internal control over financial reporting			which are reasonably likely to adversely affect the registrant’s			ability to record, process, summarize and report financial			information; and			b) any fraud, whether or not material, that involves management			or other employees who have a significant role in the registrant’s			internal control over financial reporting.
  **Calvin B. Taylor Bankshares, Inc.   
Date: August 5, 2008_______
By:
/s/ Raymond M. Thompson  
Raymond M. Thompson  
Chief Executive Officer
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Exhibit 31.2Certification - Pursuant to Section 302 of the Sarbanes-OxleyAct of 2002

I, Jennifer G. Hawkins, certify that:I have reviewed this quarterly report on Form 10-Q of Calvin B. TaylorBankshares, Inc.;	1. Based on my knowledge, this report does not contain any untrue	statement of a material fact or omit to state a material fact necessary to	make the statements made, in light of the circumstances under which such	statements were made, not misleading with respect to the period covered by	this report;	2. Based on my knowledge, the financial statements, and other financial	information included in this report, fairly present in all material respects	the financial condition, results of operations and cash flows of the	registrant as of, and for, the periods presented in this report;	3. The registrant’s other certifying officers and I are responsible for	establishing and maintaining disclosure controls and procedures (as defined	in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over	financial reporting (as defined in Exchange Act Rules 13a-15(f) and	15d-15(f)) for the registrant and we have:			a) designed such disclosure controls and procedures, or caused			such disclosure controls and procedures to be designed under our			supervision, to ensure that material information relating to the			registrant, including its consolidated subsidiary, is made known to			us by others within those entities, particularly during the period			in which this report is being prepared;			>b) designed such internal control over financial reporting, or			caused such internal control over financial reporting to be designed			under our supervision, to provide reasonable assurance regarding the			reliability of financial reporting and the preparation of financial			statements for external purposes in accordance with generally			accepted accounting principles;			c) evaluated the effectiveness of the registrant’s disclosure			controls and procedures and presented in this report our conclusions			about the effectiveness of the disclosure controls and procedures,			as of the end of the period covered by this report based on such			evaluation; and			d) disclosed in this report any change in the registrant’s			internal control over financial reporting that occurred during the			most recent fiscal quarter that has or is reasonably likely to			materially affect the registrant’s internal control over financial			reporting; and
4. The registrant’s other certifying officers and I have disclosed, based	on our most recent evaluation of internal control over financial reporting,	to the registrant’s auditors and the audit committee of the registrant’s	board of directors (or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the			design or operation of internal control over financial reporting			which are reasonably likely to adversely affect the registrant’s			ability to record, process, summarize and report financial			information; and			b) any fraud, whether or not material, that involves management			or other employees who have a significant role in the registrant’s			internal control over financial reporting.
  **Calvin B. Taylor Bankshares, Inc.   
Date: August 5, 2008_______
By:
/s/ Jennifer G. Hawkins  
Jennifer G. Hawkins  
Treasurer (Principal Financial Officer)
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Exhibit 32Certification - Pursuant to 18 U.S.C. 1350(Section 906 of the Sarbanes-Oxley Act of 2002)

We, the undersigned, certify that to the best of our knowledge, based upon areview of the Quarterly Report on Form 10-Q for the period ended June 30, 2008of the Registrant (the "Report"):

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

(2) The information contained in the Report fairly presents, in			all material respects, the financial condition and results of			operations of the Registrant.
  **Calvin B. Taylor Bankshares, Inc.      
Date: August 5, 2008_______
By:
/s/ Raymond M. Thompson  
Raymond M. Thompson  
Chief Executive Officer      
Date: August 5, 2008_______
By:
/s/ Jennifer G. Hawkins  
Jennifer G. Hawkins  
Treasurer (Principal Financial Officer)
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SIGNATURES

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

 
  **Calvin B. Taylor Bankshares, Inc.      
Date: August 5, 2008_______
By:
/s/ Raymond M. Thompson  
Raymond M. Thompson  
Chief Executive Officer      
Date: August 5, 2008_______
By:
/s/ Jennifer G. Hawkins  
Jennifer G. Hawkins  
Treasurer (Principal Financial Officer)
- 24 -****************