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

Maryland(State of incorporation)

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]

Indicate by check mark whether the registrant has submittedelectronically and posted on its corporate Web site, if any, every InteractiveData File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for suchshorter period that the registrant was required to submit and post such files).N/A (not required at this time)

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). No [X] 

On July 31, 2010, 3,000,508 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, 2010 and December 31, 20093 Consolidated		Statements of Income for the three months ended June		30, 2010 and 20094Consolidated		Statements of Income for the six monthsended June		30, 2010 and 20095Consolidated		Statements of Cash Flows for the six months ended June		30, 2010 and 20096-7Notes to		Consolidated Financial Statements8-12Item 2Management’s		Discussion and Analysis of Financial Conditionand Results		of Operations13-22Item 3Quantitative		and Qualitative Disclosures About Market Risks 23Item 4Controls and		Procedures23Part II - Other		InformationItem 1Legal		Proceedings24Item 1ARisk Factors24Item 2Unregistered		Sales of Equity Securities and Use of Proceeds25Item 3Defaults Upon		Senior Securities25Item 5Other		Information25Item 6Exhibits25-28Signatures29
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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, 		2010		2009		Assets		Cash and due from banks		 $             24,057,111 		 $             15,117,190 		Federal funds sold		                40,376,765 		                28,222,472 		Interest-bearing deposits		                  6,643,490 		                12,494,003 		Investment securities available for sale		                35,142,794 		                42,767,578 		Investment securities held to maturity (approximate   		  fair value of $33,188,007 and $38,897,082)		                32,921,076 		                38,597,942 		Loans, less allowance for loan losses  		  of $874,707 and $637,761		              250,015,181 		              240,061,869 		Premises and equipment		                  6,404,673 		                  6,594,757 		Other real estate owned		                  1,378,500 		                  1,433,000 		Accrued interest receivable		                  1,363,798 		                  1,292,604 		Computer software		                     118,344 		                     135,831 		Bank owned life insurance		                  5,173,923 		                  5,089,278  		Other assets		                  1,242,512 		                  1,721,772  		 $           404,838,167 		 $           393,528,296 		Liabilities and Stockholders' Equity		Deposits  		  Noninterest-bearing		 $             77,424,803 		 $             72,431,731 		  Interest-bearing		              243,750,084 		              240,215,888  		              321,174,887 		              312,647,619 		Securities sold under agreements to repurchase		                  6,774,987 		                  7,048,176 		Note payable		                       35,170 		                       48,519 		Accrued interest payable 		                     165,431 		                     192,621 		Deferred income taxes		                     805,338 		                  1,026,786 		Other liabilities		                  1,144,830 		                     287,282  		              330,100,643 		              321,251,003 		Stockholders' equity  		  Common stock, par value $1 per share   		   authorized 10,000,000 shares, issued and outstanding  		   3,000,508 shares at June 30, 2010, and December 31, 2009		                  3,000,508 		                  3,000,508 		  Additional paid-in capital		                  8,733,438 		                  8,733,438 		  Retained earnings		                61,764,043 		                58,975,278  		                73,497,989 		                70,709,224 		  Accumulated other comprehensive income		                  1,239,535 		                  1,568,069  		                74,737,524 		                72,277,293  		 $           404,838,167 		 $           393,528,296       		See accompanying Notes to Consolidated Financial Statements
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		      		Calvin B. Taylor Bankshares, Inc. and Subsidiary 		Consolidated Statements of Income (unaudited)  		For the three months ended		June 30		2010		2009		Interest and dividend revenue  		  Loans, including fees		 $               4,101,783 		 $               3,964,295 		  U.S. Treasury and government agency securities		                     308,680 		                     396,248 		  State and municipal securities		                       13,957 		                       11,085 		  Federal funds sold 		                       16,129 		                       16,956 		  Interest-bearing deposits		                       14,015 		                       28,016 		  Equity securities		                       10,162 		                       13,929 		          Total interest and dividend revenue		                  4,464,726 		                  4,430,529   		Interest expense  		  Deposits		                     486,378 		                     641,791 		  Borrowings		                         7,291 		                         8,112 		    Total interest expense		                     493,669 		                     649,903 		    Net interest income		                  3,971,057 		                  3,780,626   		 		Provision for loan losses		                     180,000 		                     296,500 		 		    Net interest income after provision for loan losses		                  3,791,057 		                  3,484,126   		Noninterest revenue  		  Service charges on deposit accounts		                     255,800 		                     252,016 		  ATM and debit card		                     144,394 		                     134,913 		  Bank owned life insurance		                       42,757 		                       42,926 		  Gain on sale of assets		                       37,003 		                              -   		  Miscellaneous revenue		                     146,775 		                       70,360 		    Total noninterest revenue		                     626,729 		                     500,215   		Noninterest expenses  		  Salaries		                     877,636 		                     907,929 		  Employee benefits		                     272,685 		                     210,847 		  Occupancy		                     178,414 		                     180,733 		  Furniture and equipment		                     106,579 		                     111,322 		  Data processing		                       73,169 		                       69,327 		  ATM and debit card		                       35,255 		                       69,950 		  Deposit insurance premiums		                       67,233 		                     252,843 		  Other operating		                     411,929 		                     397,214 		    Total noninterest expenses		                  2,022,900 		                  2,200,165   		    Income before income taxes		                  2,394,886 		                  1,784,176 		Income taxes		                     871,500 		                     633,000 		Net income		 $               1,523,386 		 $               1,151,176   		Earnings per common share - basic and diluted		 $                        0.51 		 $                        0.38   		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 		2010		2009		Interest and dividend revenue  		  Loans, including fees		 $               8,061,953 		 $               8,027,341 		  U.S. Treasury and government agency securities		                     653,732 		                     845,412 		  State and municipal securities		                       26,282 		                       21,398 		  Federal funds sold 		                       28,085 		                       33,187 		  Interest-bearing deposits		                       33,511 		                     106,780 		  Equity securities		                       29,006 		                       40,069 		          Total interest and dividend revenue		                  8,832,569 		                  9,074,187    		Interest expense  		  Deposits		                     986,238 		                  1,359,337 		  Borrowings		                       16,137 		                       16,034 		    Total interest expense		                  1,002,375 		                  1,375,371 		    Net interest income		                  7,830,194 		                  7,698,816     		Provision for loan losses		                     601,000 		                     629,600  		    Net interest income after provision for loan losses		                  7,229,194 		                  7,069,216    		Noninterest revenue  		  Service charges on deposit accounts		                     480,535 		                     500,078 		  ATM and debit card		                     266,041 		                     252,592 		  Bank owned life insurance		                       84,645 		                       86,090 		  Gain on sale of assets		                     185,239 		                              -   		  Miscellaneous revenue		                     248,461 		                     122,275 		    Total noninterest revenue		                  1,264,921 		                     961,035    		Noninterest expenses  		  Salaries		                  1,744,483 		                  1,803,659 		  Employee benefits		                     523,514 		                     430,050 		  Occupancy		                     407,256 		                     378,437 		  Furniture and equipment		                     231,249 		                     236,967 		  Data processing		                     146,395 		                     141,134 		  ATM and debit card		                       98,902 		                     148,652 		  Deposit insurance premiums		                     145,688 		                     265,397 		  Other operating		                     818,863 		                     759,089 		    Total noninterest expenses		                  4,116,350 		                  4,163,385    		    Income before income taxes		                  4,377,765 		                  3,866,866 		Income taxes		                  1,589,000 		                  1,377,000 		Net income		 $               2,788,765 		 $               2,489,866    		Earnings per common share - basic and diluted		 $                        0.93 		 $                        0.82    		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, 		2010		2009		Cash flows from operating activities  		  Interest and dividends received		 $                8,847,588 		 $                9,365,428 		  Fees and commissions received		                   1,124,678 		                      699,948 		  Interest paid		                 (1,029,565)		                 (1,492,760)		  Cash paid to suppliers and employees		                 (3,865,268)		                 (3,711,547)		  Income taxes paid		                 (1,220,956)		                 (1,464,434) 		                   3,856,477 		                   3,396,635 		Cash flows from investing activities  		  Certificates of deposit purchased, net of maturities		                   5,828,265 		                   4,292,385 		  Proceeds from maturities of investments available  		     for sale		                 13,005,000 		                 17,000,000 		  Purchase of investments available for sale		                 (5,990,653)		               (20,971,715)		  Proceeds from maturities of investments held to   		     maturity		                 16,590,000 		                 11,450,000 		  Purchase of investments held to maturity		                 (9,938,810)		               (18,337,596)		  Loans made, net of principal reductions		               (10,554,312)		                 (3,020,989)		  Proceeds from sale of repossessed loan collateral, net of  		    cost of sale		                        60,273 		                        39,501 		  Purchases of premises, equipment,  		    and computer software		                      (97,105)		                    (546,566)		  Proceeds from sale of premises and equipment		                        72,100 		                          1,400  		                   8,974,758 		               (10,093,580)   		Cash flows from financing activities  		  Net increase (decrease) in  		    Time deposits		                   1,459,136 		                   1,965,728 		    Other deposits		                   7,068,132 		                 15,612,825 		    Securities sold under agreements to repurchase		                    (273,189)		                   1,251,841 		  Payments on note payable		                      (13,349)		                      (12,573) 		  Common shares repurchased		                                -   		                    (988,884) 		                   8,240,730 		                 17,828,937    		Net increase in cash and cash equivalents		                 21,071,965 		                 11,131,992 		Cash and cash equivalents at beginning of period		                 43,489,772 		                 35,270,664 		Cash and cash equivalents at end of period		 $              64,561,737 		 $              46,402,656                      		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,		2010		2009		Reconciliation of net income to net cash provided  		  by operating activities  		  Net income		 $               2,788,765 		 $               2,489,866 		  Adjustments to reconcile net income to net cash  		    provided by operating activities  		Provision for loan losses		                     601,000 		                     629,600 		    (Gain) on sale of repossessed loan collateral		                       (5,773)		                       (1,203)		    (Gain) loss on sale of premises & equipment		                     (55,061)		                       15,580 		    Amortization of premiums and accretion of  		      discount, net		                       86,131 		                       28,379 		    Depreciation and amortization		                     287,557 		                     272,546 		    Decrease (increase) in  		      Accrued interest receivable		                     (71,194)		                     262,796 		      Cash surrender value of bank owned life insurance		                     (84,645)		                     (86,090)		      Other assets		                     525,490 		                   (147,617)		    Increase (decrease) in  		      Accrued interest payable		                     (27,190)		                   (117,389)		      Accrued income taxes		                       38,012 		                         1,208 		      Other liabilities		                   (226,615)		                       48,959 		 $               3,856,477 		 $               3,396,635     		  Composition of cash and cash equivalents  		    Cash and due from banks		 $             24,057,111 		 $             16,359,555 		    Federal funds sold 		                40,376,765 		                30,025,624 		    Interest-bearing deposits, except for time deposits		                     127,861 		                       17,477 		 $             64,561,737 		 $             46,402,656                           		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 statementsconform with accounting principles generally accepted in the United States ofAmerica and to the instructions to Form 10-Q. Interim financial statements donot include all the information and footnotes required for complete financialstatements. In the opinion of management, all adjustments considered necessaryfor a fair presentation of financial position and results of operations forthese interim periods have been made. These adjustments are of a normalrecurring nature. Results of operations for the six months ended June 30, 2010are not necessarily indicative of the results that may be expected in any otherinterim period or for the year ending December 31, 2010. For furtherinformation, refer to the audited consolidated financial statements and relatedfootnotes included in the Company's Form 10-K for the year ended December 31,2009.   Consolidation has resulted in the elimination of allsignificant intercompany accounts and transactions.

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

Per share data   Earnings per common share are determined by dividing netincome by the weighted average number of common shares outstanding for theperiod, as follows:
 		2010		2009		Three months ended June 30		                    3,000,508 		                    3,025,055 		Six months ended June 30		                    3,000,508 		                    3,032,475 
 

2. Comprehensive IncomeComprehensive income consists of:
 		For the six months ended 		June 30, 		2010		2009		Net income		 $                 2,788,765 		 $                 2,489,866 		Unrealized loss on investment securities  		  available for sale, net of income taxes		                     (328,534)		                    (271,927)		Comprehensive income		 $                 2,460,231 		 $                 2,217,939 
 

 

 

 

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**Calvin B. Taylor Bankshares, Inc. and SubsidiaryNotes to Consolidated Financial Statements (unaudited) (continued)**
3. Investment SecuritiesInvestment securities are summarized as follows:
  			Amortized 			Unrealized			Unrealized			Fair  			cost			gains			losses			value 			June 30, 2010     			Available for sale     			  U.S. Treasury			 $         31,128,169 			 $       1,145,584 			 $               405 			 $         32,273,348  			  State and municipal			                 390,000 			                 6,159 			                     -   			                 396,159  			  Equity			              1,691,841 			             957,445 			           175,999 			              2,473,287   			 $         33,210,010 			 $       2,109,188 			 $        176,404 			 $         35,142,794  			Held to maturity     			  U.S. Treasury			 $         18,495,371 			 $          230,801 			 $                  -   			 $         18,726,172  			  U.S. Government agency			            10,000,000 			               15,817 			                  290 			            10,015,527  			  State and municipal			              4,425,705 			               21,143 			                  540 			              4,446,308   			 $         32,921,076 			 $          267,761 			 $               830 			 $         33,188,007        			December 31, 2009     			Available for sale     			  U.S. Treasury			 $         38,197,971 			 $          950,429 			 $                  -   			 $         39,148,400  			  State and municipal			                 395,000 			                 5,392 			                  270 			                 400,122  			  Equity			              1,691,841 			          1,571,962 			             44,747 			              3,219,056   			 $         40,284,812 			 $       2,527,783 			 $          45,017 			 $         42,767,578  			Held to maturity     			  U.S. Treasury			 $         25,498,390 			 $          254,672 			 $            8,999 			 $         25,744,063  			  U.S. Government agency			            10,000,000 			               30,808 			                  650 			            10,030,158  			  State and municipal			              3,099,552 			               23,309 			                     -   			              3,122,861   			 $         38,597,942 			 $          308,789 			 $            9,649 			 $         38,897,082 
 

 

 

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**Calvin B. Taylor Bankshares, Inc. and SubsidiaryNotes to Consolidated Financial Statements (unaudited) (continued)**
3. Investment Securities (Continued)

    The table below shows the gross unrealized losses and	fair value of securities that are in an unrealized loss position as of June	30, 2010, aggregated by length of time that individual securities have been	in a continuous unrealized loss position. 
 			Less than 12 months			12 months or more			Total 			Fair			Unrealized			Fair			Unrealized			Fair			Unrealized 			value			losses			value			losses			value			losses       			U. S. Treasury			 $  1,998,195 			 $          405 			 $             -   			 $             -   			 $  1,998,195 			 $         405 			U. S. Government Agency			        999,710 			             290 			                -   			                -   			        999,710 			            290 			State and municipal			        509,095 			             540 			                -   			                -   			        509,095 			            540  			Equity securities			        525,021 			      175,999 			                -   			                -   			        525,021 			     175,999   			 $  4,032,021 			 $   177,234 			 $             -   			 $             -   			 $  4,032,021 			 $  177,234 
    The debt securities for which an unrealized loss is	recorded are issues of the U. S. Treasury, the Federal Home Loan Bank (a U.	S. government agency), and general and highly rated revenue obligations of	states and municipalities. The Company has the ability and the intent to	hold these securities until they are called or mature at face value. Equity	securities for which an unrealized loss is recorded are issued by local	community banks and bank holding companies. Management believes that these	fluctuations in fair value reflect market conditions, and are not indicative	of other-than-temporary impairment of the investments.	    The amortized cost and estimated fair value of debt	securities, by contractual maturity and the amount of pledged securities,	follow. Actual maturities may differ from contractual maturities because	issuers may have the right to call or prepay obligations with or without	call or prepayment penalties.
 		June 30, 2010		December 31, 2009 		Amortized		Fair		Amortized		Fair 		cost		value		cost		value		Available for sale    		  Within one year		 $        12,201,038 		 $        12,244,580 		 $        15,106,388 		 $        15,136,254 		  After one year    		   through five years		           17,320,634 		           17,676,802 		           21,490,230 		           21,822,893  		  After ten years		             1,996,497 		             2,748,125 		             1,996,353 		             2,589,375   		 $        31,518,169 		 $        32,669,507 		 $        38,592,971 		 $        39,548,522 		Held to maturity    		  Within one year		 $        13,919,556 		 $        13,970,340 		 $        16,042,286 		 $        16,273,130 		  After one year     		   through five years		           19,001,520 		           19,217,667 		           22,555,656 		           22,623,952   		 $        32,921,076 		 $        33,188,007 		 $        38,597,942 		 $        38,897,082       		Pledged securities		 $        26,369,439 		 $        27,537,983 		 $        26,269,854 		 $        27,142,948 
Investments are pledged to secure deposits of federal and	local governments. Pledged securities also serve as collateral for	securities sold under agreements to repurchase.

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

4. Loan commitments

    Loan commitments are agreements to lend to customers as	long as there is no violation of any conditions of the contracts.	Outstanding loan commitments and letters of credit consist of:
 		June 30, 2010		December 31, 2009		Loan commitments and lines of credit  		  Construction and land development		 $               18,656,795 		 $               10,231,711  		  Other		                    8,732,465 		                  19,038,506   		 $               27,389,260 		 $               29,270,217     		Standby letters of credit		 $                 2,000,872 		 $                 1,907,736 
 

5. Assets Measured at Fair Value

    The Company values investment securities classified as	available for sale on a recurring basis and other real estate acquired	through foreclosure at fair value on a non-recurring basis. The fair value	hierarchy established in the Financial Accounting Standards Board	Codification Topic 820 titled *Fair Value Measurements* defines three	input levels for fair value measurement. Level 1 is based on quoted market	prices in active markets for identical assets. Level 2 is based on	significant observable inputs other than those in Level 1. Level 3 is based	on significant unobservable inputs. The Company values US Treasury	securities, government agency securities, and an equity investment in an	actively traded public utility under Level 1. Municipal debt securities,	equity investments in community banks, and other real estate acquired	through foreclosure are valued under Level 2. The Company has no assets	measured at fair value on a recurring or non-recurring basis that are valued	under Level 3 criteria. At June 30, 2010, values for available for sale	investment securities and other real estate owned were established as	follows:
 			Total			Level 1 Inputs			Level 2 Inputs			Investment securities available for sale (recurring)
 $      35,142,794 			 $      32,273,348 			 $        2,869,446 			Other real estate owned (non-recurring)			           1,378,500 			                       -   			           1,378,500  			 $      36,521,294 			 $      32,273,348 			 $        4,247,946 
   The fair value of financial assets and financial	liabilities, including those financial assets and financial liabilities that	are not measured and reported at fair value on a recurring basis or	non-recurring basis, and the valuation methods used in estimating the fair	value of financial instruments is disclosed in the Company’s Annual Report	on Form 10-K. It is not practicable to report quarterly the fair value of	financial assets and liabilities measured on a non-recurring basis.

 

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

6.  New accounting standards	    The following accounting pronouncements have been	approved by the Financial Accounting Standards Board but had not become	effective as of June 30, 2010. These pronouncements would apply to the	Company if the Company or the Bank entered into an applicable activity. *    ASU No. 2010-06, "Fair Value Measurements and Disclosures	(Topic 820) - Improving Disclosures About Fair Value Measurements."*	ASU 2010-06 requires expanded disclosures related to fair value measurements	including (i) the amounts of significant transfers of assets or liabilities	between Levels 1 and 2 of the fair value hierarchy and the reasons for the	transfers, (ii) the reasons for transfers of assets or liabilities in or out	of Level 3 of the fair value hierarchy, with significant transfers disclosed	separately, (iii) the policy for determining when transfers between levels	of the fair value hierarchy are recognized and (iv) for recurring fair value	measurements of assets and liabilities in Level 3 of the fair value	hierarchy, a gross presentation of information about purchases, sales,	issuances and settlements. ASU 2010-06 further clarifies that (i) fair value	measurement disclosures should be provided for each class of assets and	liabilities (rather than major category), which would generally be a subset	of assets or liabilities within a line item in the statement of financial	position and (ii) company’s should provide disclosures about the valuation	techniques and inputs used to measure fair value for both recurring and	nonrecurring fair value measurements for each class of assets and	liabilities included in Levels 2 and 3 of the fair value hierarchy.	Disclosures related to the gross presentation of Level 3 purchases, sales,	issuances and settlements of assets and liabilities will be required for the	Corporation beginning January 1, 2011.*    ASU No. 2010-11, "Derivatives and Hedging (Topic 815) -	Scope Exception Related to Embedded Credit Derivatives."*ASU 2010-11	clarifies that the only form of an embedded credit derivative that is exempt	from embedded derivative bifurcation requirements are those that relate to	the subordination of one financial instrument to another. Entities that have	contracts containing an embedded credit derivative feature in a form other	than such subordination may need to separately account for the embedded	credit derivative feature. The provisions of ASU 2010-11 will be effective	for the Company on July 1, 2010 and are not expected to have a significant	impact on the Corporation’s financial statements. 	    The accounting policies adopted by management are	consistent with accounting principles generally accepted in the United	States of America and are consistent with those followed by peer Banks.

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

General    Calvin B. Taylor Bankshares, Inc. (Company) was incorporatedas a Maryland corporation on October 31, 1995. The Company owns all of the stockof Calvin B. Taylor Banking Company (Bank), a commercial bank that wasestablished in 1890 and incorporated under the laws of the State of Maryland onDecember 17, 1907. The Bank operates nine banking offices in Worcester County,Maryland and one banking office in Ocean View, Delaware. The Bank'sadministrative office is located in Berlin, Maryland. The Bank is engaged in ageneral commercial and retail banking business serving individuals, businesses,and governmental units in Worcester County, Maryland, Ocean View, Delaware, andneighboring counties.    The Company currently engages in no business other thanowning and managing the Bank. The Bank employed 89 full time equivalentemployees as of June 30, 2010. The Bank hires seasonal employees during thesummer. The Company has no employees other than those hired by the Bank.

Use of estimates    The preparation of financial statements in conformity withaccounting principles generally accepted in the United State of America requiresmanagement to make estimates and assumptions that affect the reported amounts ofassets and liabilities and disclosure of contingent assets and liabilities atthe date of the financial statements. These estimates and assumptions may affectthe reported amounts of revenues and expenses during the reporting period.Actual results could differ from these estimates. 

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.

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Financial Condition   Total assets of the Company increased $11.3 million (2.87%)from December 31, 2009 to June 30, 2010. Combined deposits and customerrepurchase agreements increased $8.3 million (2.58%) during the same period.Much of the deposit and asset growth from the previous year-end to the end ofthe second quarter stems from seasonal activity, which is further discussed inthe section titled Liquidity.    Average assets and average deposits increased $14.9 millionand $13.6 million, respectively, from second quarter 2009 to second quarter2010. Management believes that some of the year-to-year growth in depositsresults from continuing market instability as a prolonged general economicrecession is followed by a sluggish recovery. Consumers often seek the safety ofconservatively run community banks when the stock market suffers a significantdownturn. Increased deposit insurance limits also give customers a greater senseof security in bank deposits.

Loan Portfolio    During the first half of 2010, the Bank’s gross loanportfolio has grown $10.2 million (4.23%). It is typical for the Bank toexperience growth in both deposits and loans by the end of the second quarter.By late June, many seasonal merchants have drawn on their working capital linesof credit and, if the tourist season is successful, they are experiencingincreased sales. Growth in the loan portfolio has been funded by increaseddeposit balances. Because loans earn at higher average rates than the cost offunds, this use of available funds has a positive effect on earnings. There isno adverse impact on the Company’s ability to meet liquidity demands resultingfrom increases in the loan portfolio.    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. Since late 2008, the local andregional economies have been adversely affected by a recession of national andinternational reach.

Loan Quality and the Allowance for Loan Losses    The allowance for loan losses (ALLL)represents an amount which management believes to be adequate to absorbidentified and inherent losses in the loan portfolio as of the balance sheetdate. Valuation of the allowance is completed no less than quarterly. Thedetermination of the allowance is inherently subjective as it relies onestimates of potential loss related to specific loans, the effects of portfoliotrends, and other internal and 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. Based on thisevaluation, management applies a formula to the current portfolio which givesweight to portfolio size and loss experience for categories of real estateconstruction loans, other real estate secured loans, other loans to commercialborrowers, and other consumer loans. However, historical data may not be anaccurate predictor of loss potential in the current loan portfolio.     Management also evaluates trends in delinquencies, thecomposition of the portfolio, concentrations of credit, and changes in lendingproducts, processes, or staffing. Management further considers external factorssuch as the interest rate environment, competition, current local and nationaleconomic trends, and the results of recent independent reviews by auditors andbanking regulators. The protracted slow-down in the real-estate market hasaffected both the price and time to market residential and commercialproperties. Management closely monitors such trends and the potential effect onthe Company. The impact of the current adverse economic conditions is reflectedin historically high loan losses and provisions for loan losses in 2008, 2009,and the current year.
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    Management employs a risk rating system which 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.    Management believes that in a general economic downturn, suchas the region has experienced since mid-2008, the Bank has an increasedlikelihood of loss in unsecured loans - commercial and consumer, and in securedconsumer loans. Reserves for these segments of the portfolio are included in theformula-based portion of the ALLL. As of June 30, 2010, management reserved 110bp against all unsecured loans, and consumer loans secured by other than realestate. This reserve level was increased during the first quarter of this yearin recognition of the prolonged economic challenges to regional, national, andglobal economies. Additionally, management reserved 10% against overdrawnchecking accounts which are a distinct high risk category of unsecured loan. Thebank does not offer an approved overdraft loan product, so all overdrawn depositbalances result from unauthorized presentment of items against insufficientfunds.     Borrowers whose cash flow is impaired as a result ofprevailing economic conditions have also experienced depressed real estatevalues. Management recognizes that the combination of these circumstances –reduced revenue and depressed collateral values, may increase the likelihood ofloss in the Bank’s real estate secured loan portfolio. Management closelymonitors conditions that might indicate deterioration of collateral value onsignificant loans and, when possible, obtains additional collateral as requiredto limit the Bank’s loss exposure. The Bank foreclosed on commercial andconsumer mortgage loans during 2009 and 2010, and expects more foreclosures in2010. Foreclosures may result in loan losses, costs to hold real estate acquiredin foreclosure, and losses on the sale of real estate acquired in foreclosure.While management is unable to predict the financial consequences of futureforeclosure activity, provision for loss on likely loan foreclosures is includedin specific reserves in the ALLL.    Historically, the absence or improper execution 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, 2010, 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. Provisions for loan losses of $180,000 and $601,000 were made for thesecond quarter of 2010 and year-to-date, respectively. This compares toprovisions for loan losses of $296,500 and $629,600 for the comparable periodsin 2009. The year-to-date increases in the level of the ALLL and the provisionfor loan loss reflect the consequences of the current economy. As the recessioncontinues and borrowers suffer personal and professional financial hardship, thelikelihood of loss on previously performing loans has increased. As Managementidentifies loans with heightened loss potential, a provision for those losses isrecorded.     Management considers the June 30, 2010 allowance appropriateand adequate to absorb identified and inherent losses in the loan portfolio.However, there can be no assurance that charge-offs in future periods will notexceed the allowance for loan losses or that additional increases in the loanloss allowance will not be required. As of June 30, 2010, management hasidentified four loans with balances totaling $138,076 which are anticipated tobe wholly charged-off within the next 12 months. Specific reserves for loss havebeen provided for these balances.

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    The following is a schedule of transactions in the allowancefor loan losses. The Bank experienced net recoveries of $6,358 in the secondquarter of 2010 and net charge-offs of $364,054 in the year to date. Asdescribed earlier, management attributes the increased loan losses to theeffects of the current economic recession on some of the Bank’s customers and,subsequently, on the Bank.
		Allowance for Loan Losses  		For six months ended		For the year ended 		June 30		December 31 		2010		2009		2009		Balance at beginning of year		 $        637,761 		 $        707,152 		 $        707,152 		Loans charged-off:   		  Real estate - construction and land		                       - 		                       - 		             75,000 		  Real estate - mortgage		                       - 		           369,150 		           656,191 		  Commercial		           347,873 		             73,105 		           200,357 		  Consumer		             33,745 		             29,548 		             47,321 		        Total loan losses		           381,618 		           471,803 		           978,869 		Recoveries on loans previously charged off:   		  Real estate - construction		                       - 		                       - 		                       - 		  Real estate - mortgage		                       - 		                  318 		                  669 		  Commercial		                  178 		                  276 		             40,364 		  Consumer		             17,386 		             13,712 		             18,445 		        Total loan recoveries		             17,564 		             14,306 		             59,478     		Net loan charge-offs (recoveries)		           364,054 		           457,497 		           919,391 		Provision for loan losses charged to expense		           601,000 		           629,600 		           850,000 		Balance at end of period		 $        874,707 		 $        879,255 		 $        637,761      		Gross loans outstanding at the end of the period		 $ 250,889,888 		 $ 244,677,035 		 $ 240,699,630 		Allowance for loan losses to gross loans   		outstanding at the end of the period		0.35%		0.36%		0.26%    		Average loans outstanding during the period		 $ 246,135,146 		 $ 244,373,445 		 $ 242,095,000 		Annualized net charge-offs as a percentage of   		average loans outstanding during the period		0.30%		0.38%		0.77%
 

    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.

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    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. The following table details the composition of nonperforming assets:
 		June 30,		June 30,		December 31, 		2010		2009		2009		Loans 90 days or more past due and still accruing   		Real estate		 $        2,116,286 		 $           583,372 		 $           787,580 		Commercial		                       -   		                       -   		                       -   		Consumer		                  1,065 		                  4,212 		                       -    		           2,117,351 		              587,584 		              787,580 		Nonaccruing loans		           1,132,597 		           1,801,010 		           1,023,083 		Total nonperforming loans		           3,249,948 		           2,388,594 		           1,810,663 		Other real estate owned		           1,378,500 		                       -   		           1,433,000 		Total nonperforming assets		 $        4,628,448 		 $        2,388,594 		 $        3,243,663     		Interest not accrued on nonaccruing loans		 $             55,433 		 $           100,964 		 $             46,467     		Interest included in net income on nonaccruing loans,   		year-to-date		 $             13,195 		 $               9,231 		 $             30,492 
 

    Not reflected in the table above, is a loan with a principalbalance of $4,500,000 which has been the subject of ongoing collection efforts.Late in 2008, the Bank was notified that there is a lienon the property securing this loan that is superior to the Bank’s liens. The Bank was not aware of this superior lien at the time the loanwas originated, and the Bank’s settlement agent did not discover the lien duringthe title examination process. The Bank filed a claim with the title companythat has insured its title and lien priority in the belief that the titlecompany would indemnify the Bank for any losses resulting from the superiorlien. In June 2010, the title company offered the Bank a payment of less thanthe full balance of the loan. The Bank has counter offered. If the title companyaccepts the Bank’s counter offer, and subject to the execution of a definitivesettlement agreement, the Bank will incur a loss of $500,000 on this loan. Ifthis negotiation fails, the Bank will continue its collection effort through anylegal means available. The cost of protracted negotiations and collections islikely to outweigh the loss if settled in the near term under the Bank’s terms.As of June 30, 2010 and December 31, 2009, this loan was 18 and 53 days pastdue, respectively. It continues to accrue as the Bank continues collectionefforts, with management reviewing the accrual status of this loan no less thanquarterly. Currently, the title company is making the interest payments.    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 following measurement methods which conform toauthoritative accounting guidance: (1) the present value of future cash flows,(2) the fair value of collateral, if repayment of the loan is expected to beprovided by underlying collateral, or (3) the loan’s observable fair value. TheBank selects and applies, on a loan-by-loan basis, the appropriate valuationmethod. Loans determined to be impaired, but for which no specific valuationallowance is made because management believes the loan is secured with adequatecollateral or the Bank will not take a loss on such loan, are grouped with otherhomogeneous loans for evaluation under formula-based criteria describedpreviously. 

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    Impaired loans including nonaccruing loans totaled $3,351,105and $2,901,859, at June 30, 2010, and December 31, 2009, respectively. 
 						June 30, 2010						December 31, 2009						Impaired loans with valuation allowances,   						including nonaccruing loans						 $             846,267 						 $           799,834 						Valuation allowances on impaired loans						 $             326,726 						 $           258,869    						Impaired loans with no valuation allowances						 $          2,504,838 						 $        2,102,025    						Total impaired loans						 $          3,351,105 						 $        2,901,859 
 

Liquidity    Liquidity represents the ability to provide steady sources offunds for loan commitments and investment activities, as well as to providesufficient funds to cover deposit withdrawals and payment of debt and operatingobligations. These funds can be obtained by converting assets to cash or byattracting new deposits. The Company’s major sources of liquidity are loanrepayments, maturities of short-term investments including federal funds sold,and increases in core deposits. Funds from seasonal deposits are generallyinvested in short-term U.S. Treasury Bills and overnight federal funds.     Due to its location in a seasonal resort area, the Banktypically experiences a decline in deposits, federal funds sold and investmentsecurities throughout the first quarter of the year when business customers areusing their deposits to meet cash flow needs. Beginning late in the secondquarter and throughout the third quarter, additional sources of liquidity becomemore readily available as business borrowers start repaying loans, and the Bankreceives deposits from seasonal business customers, summer residents andtourists.     Average liquid assets (cash and amounts due from banks,interest-bearing deposits in other banks, federal funds sold, and investmentsecurities) compared to average deposits and retail repurchase agreements were39.52% for the second quarter of 2010 compared to 38.92% for the same quarter of2009.    The Company has available lines of credit, includingovernight federal funds and reverse repurchase agreements, totaling $28,000,000as of June 30, 2010.    Average net loans to average deposits were 80.16% versus81.98% as of June 30, 2010 and 2009, respectively. Average net loans increasedby 2.27% while average deposits grew by 4.59%. Funding for loan growth wasprovided by deposit increases. Because loans earn higher average rates than theBank’s cost of funds, this results in a positive effect on earnings. Averagedeposit balance increases occurred in interest-bearing accounts, except timedeposits which dropped slightly. Average non-interest bearing deposit balancesincreased by 2.26%. Neither changes in deposit portfolio composition nor theincrease in outstanding loan balances has a negative impact on the Company’sability to meet liquidity demands.

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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, 2010, 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, 2010***,***was $1,523,386 ($.51 per share), compared to $1,151,176 ($.38 per share)for the second quarter of 2009, resulting in an increase of $372,210 or 32.33%.Year to date net income has increased $298,899 ($.11 per share) from $2,489,866($.82 per share) in 2009 to $2,788,765 ($.93 per share) in 2010. The keycomponents of net income are discussed in the following paragraphs.     For the second quarter of 2010 compared to 2009, net interestincome increased $190,431 (5.04%). Net interest income increased $131,378(1.71%) in the first six months of 2010 compared to the same period in 2009. Thedecrease in interest and dividend revenue continues a multi-year trend primarilyattributable to extremely low market rates. In 2009, immediately repricableassets such as federal funds sold saw dramatic revenue declines. During 2010,the gradual downward repricing of debt securities and certificates of deposit inother banks has caused further erosion of revenues. Interest expense decreasedin the second quarter of 2010 by $156,234 (24.04%) relative to the comparableperiod last year due to lower rates on time deposits. For the year to date,interest expense is down $372,996 (27.12%) relative to last year.    The Company’s net interest income is one of the mostimportant factors in evaluating its financial performance. Management usesinterest rate sensitivity analysis to determine the effect of rate changes. Netinterest income is projected over a one-year period to determine the effect ofan increase or decrease in the prime rate of 100 basis points. If prime were todecrease one hundred basis points, and all assets and liabilities maturingwithin that period were fully adjusted for the rate change, the Company wouldexperience a decrease of approximately 5.5% in net interest income. Conversely,if prime were to increase one hundred basis points, and all assets andliabilities maturing within that period were fully adjusted for the rate change,the Company would experience an increase in net interest income of the samepercentage. The sensitivity analysis does not consider the likelihood of theserate changes nor whether management’s reaction to this rate change would be toreprice its loans or deposits or both. 

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    The tax-equivalent quarterly yield on interest-earning assetsdecreased by 4 basis points from 5.17% for second quarter 2009 to 5.13% in 2010.The quarterly yield on interest-bearing liabilities decreased by 31 basis pointsfrom 1.12% in 2009 to .81% in 2010. In combination, these shifts contribute to adecrease in net margin on interest-earning assets of 49 basis points.    The following table presents information including averagebalances of interest-earning assets and interest-bearing liabilities, the amountof related interest income and interest expense, and the resulting yields bycategory of interest-earning asset and interest-bearing liability. In thistable, dividends and interest on tax-exempt securities and loans are reported ona fully taxable equivalent basis, which is a non-GAAP measure as defined in SECRegulation G and Item 10 of SEC Regulation S-K. Management believes that thesemeasures provide better yield comparability as a tool for managing net interestincome.
		Average Balances, Interest, and Yields		For the quarter ended		For the quarter ended		June 30, 2010		June 30, 2009		Average  		Average  		balance		Interest		Yield		balance		Interest		Yield      		Assets      		  Federal funds sold		 $   33,845,165 		 $        16,129 		0.19%		 $   34,243,326 		 $        16,956 		0.20%		  Interest-bearing deposits		        6,881,897 		           14,015 		0.82%		      10,736,142 		           28,016 		1.05%		  Investment securities		      64,660,854 		         363,879 		2.26%		      62,061,340 		         453,877 		2.93%		  Loans, net of allowance		    249,022,106 		      4,136,416 		6.66%		    243,492,267 		      4,018,705 		6.62%		    Total interest-earning assets		    354,410,022 		      4,530,439 		5.13%		    350,533,075 		      4,517,554 		5.17%		Noninterest-bearing cash		      19,514,507   		      10,790,225   		Other assets		      15,779,339   		      13,469,191   		        Total assets		 $ 389,703,868   		 $ 374,792,491         		Liabilities and Stockholders' Equity      		Interest-bearing deposits      		  NOW 		 $   55,898,114 		           56,514 		0.41%		 $   49,940,208 		           27,331 		0.22%		  Money market		      36,311,278 		           45,091 		0.50%		      33,228,034 		           41,051 		0.50%		  Savings		      47,959,025 		           59,420 		0.50%		      43,726,854 		           53,922 		0.49%		  Other time		      99,418,035 		         325,353 		1.31%		    100,633,809 		         519,487 		2.07%		    Total interest-bearing deposits		    239,586,452 		         486,378  				0.81%		    227,528,905 		         641,791  				1.13%		Securities sold under agreements to repurchase & federal funds purchased		        5,411,273 		             6,696 		0.50%		        5,751,306 		             7,126 		0.50%		Borrowed funds		             37,518 		                595 		6.36%		             63,638 		                986 		6.21%		    Total interest-bearing liabilities		    245,035,243 		         493,669  				0.81%		    233,343,849 		         649,903  				1.12%		Noninterest-bearing deposits		      71,067,292   		      69,497,742   		    316,102,535 		         493,669 		0.63%		    302,841,591 		         649,903 		0.86%		Other liabilities		           580,806   		           535,249   		Stockholders' equity		      73,020,527   		      71,415,651   		        Total liabilities and      		        stockholders' equity		 $ 389,703,868   		 $ 374,792,491   		Net interest spread  		4.32%  		4.05%		Net interest income 		 $   4,036,770   		 $   3,867,651  		Net margin on interest-earning assets  		4.57%  		4.43%      		Tax equivalent adjustment in:      		    Investment income 		 $        31,080   		 $        32,615  		    Loan income 		 $        34,633   		 $        54,410  
 

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    Provisions for loan losses of $180,000 and $296,500 wererecorded during the second quarter of 2010 and 2009, respectively. Net loanscharged-off were $364,054 and $457,497 during the first half of 2010 and 2009,respectively. Management attributes the continued loan losses to the generallypoor state of the economy which has had an adverse effect on certain borrowingcustomers. See Loan Quality and the Allowance for Loan Losses for a discussionof the provision for loan losses.    Noninterest revenue for the second quarter of 2010 is$126,514 (25.29%) higher than the comparable period last year. Noninterestrevenue for the year-to-date is $303,886 (31.62%) more than last year. Thefavorable variances in both the quarter and the year-to-date are largely due togains on the sale of old coins with high precious metal content that had beenstored in the Bank’s vault for decades, as well as gains on the sale of realproperty to the State of Delaware for road expansion and related right of ways.    Noninterest expense for the second quarter of 2010 is$177,265 (8.06%), less than last year including a $185,610 reduction in FDICpremium expense. Noninterest expense year-to-date is $47,035 (1.13%) less thanlast year including a $119,709 decrease in FDIC premiums. In 2009, FDICinsurance premiums included the accrual of a special assessment to restore thedeposit insurance fund to target levels. This special assessment is not expectedto repeat in 2010.    Income taxes for the six months ended June 30, 2010 are$212,000 (15.40%) higher than the same period last year, on a pre-tax incomeincrease of $510,899 (13.21%%). 

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, which is currently $250,000 per depositor.The Bank solicits these accounts from individuals, businesses, associations andorganizations, and governmental authorities. The Bank offers individualcustomers up to $50 million in FDIC insured deposits through the Certificate ofDeposit Account Registry Services® network.     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. The Bankoffers a remote capture service that enables commercial customers toelectronically capture check images and make on-line deposits. The Bank alsooffers non-deposit products including retail repurchase agreements and discountbrokerage services through a correspondent bank. 

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**Capital Resources and Adequacy    Total stockholders’ equity increased $2,460,231 from December31, 2009 to June 30, 2010. This increase is attributable to comprehensive incomerecorded during the period, as detailed in Note 2 of the Notes to FinancialStatements.     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, 2010 and December 31, 2009 were 31.1% and 31.6%, respectively. Both aresubstantially in excess of regulatory minimum requirements.    The Company and the Bank did not seek assistance under thefederally funded Troubled Asset Relief Program (TARP)developed in the last quarter of 2008. Neither the Company nor the Bank willbenefit directly from TARP funds. The Bank has not engaged in subprimemortgage lending, and has no investments in mortgage backed securities.   Late in 2008, the Company and the Bank elected to participatein the Temporary Liquidity Guarantee Program (TLG). A component of TLG, theTransaction Account Guarantee Program (TAG), provides additional insuranceprotection to holders of transaction accounts with rates not exceeding .50%. TheCompany’s participation in this program may have contributed to an increase indeposits in the Bank as investors seek the safety of insured deposits incommunity banks. Deposit insurance premiums have increased as a result of thehigher deposit balances, the higher insurance limits, participation in TAG, andhigher insurance rates. Management does not expect to pass all of the additionalinsurance premium costs on to customers. Effective July 1, 2010, the Bank willno longer participate in TAG due to the rate limitations (maximum .25%) imposedon banks that do extend their participation and the term (up to 18 months) overwhich rate restrictions might apply. Deposits will continue to be insured up tothe limits provided under standard FDIC deposit insurance rules. Management doesnot expect withdrawal from the TAG program to have a significant effect ondeposit balances.   In the most stable economic times, the Company cannotreliably predict the effect of changing government policies on earnings, or loanand deposit levels. Management expects 2010 to see a continuation of higher thanusual fees associated with loan collection, and additional loan defaults. Thefull impact of the dramatic developments of 2008 and 2009 on future results ofoperation of the Company and the Bank, are uncertain. Although some key economicindicators are stabilizing or improving in early 2010, management recognizesthat loan defaults may continue into the early months of a recovery as customersstruggle to stabilize business or personal finances and property values remainat levels well below the market peak in mid-2008. 

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, 2010, the Company’s interest rate sensitivity, asmeasured by gap analysis, showed the Company was asset-sensitive with a one-yearcumulative gap of 22.57%, 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, 2010. 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, 2010,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 riskduring the normal conduct of business. There has been no material increase inany level of risk incurred by the Company or the Bank during the quarter coveredby this report. Following are descriptions of the significant categories of riskmost relevant to the Company.

    Credit risk is the risk to the Company’s earnings orcapital from the potential of an obligor failing to fulfill its contractualcommitment to the Company. Credit risk is most closely associated with theCompany’s lending activities.    Interest rate risk is the risk to earnings or capitalfrom the potential movement in interest rates. It is the sensitivity of theCompany’s future earnings to interest rate changes.    Liquidity risk is the risk to earnings or capital fromthe Company’s inability to meet its obligations when they come due withoutincurring unacceptable losses or costs.    Market risk is the risk to earnings or capital fromchanges in the value of portfolios of financial instruments. For the Company,market risk is the risk of a decline in market value of its securitiesportfolio.    Transaction risk is the risk to earnings or capitalarising from problems with service or product delivery. Transaction risk is therisk 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 capitalfrom noncompliance with laws, rules, and regulations. Compliance risk is one ofthe greatest risks the Company faces.    Reputation risk is the risk to earnings or capitalfrom negative public opinion. Customer and public relations are critical to theCompany’s success. Accordingly, the Company’s reputation is extremely importantand anything that would impair that reputation is a significant risk.    Strategic risk is the risk to earnings or capitalarising from adverse business decisions or improper implementation of thosedecisions.

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Item 2 Unregistered Sales of Equity Securities and Use ofProceeds		    The Company publicly announced on August 14, 2003,		that it would repurchase up to 10% of its outstanding equity stock at		that time, which equated to a total of 324,000 common shares available		for repurchase. As of January 1, 2005, and again on May 18, 2007, this		plan was renewed by public announcement, making up to 10% of the		Company’s outstanding equity stock available for repurchase at the time		of each renewal. On January 13, 2010, as part of its capital planning,		the Board of Directors voted to suspend until June 30, 2010, the stock		repurchase program. On June 9, 2010, the Board voted to extend the		program suspension until December 31, 2010. 		    There is no final expiration date for this program.		No other stock repurchase plan or program existed or exists		simultaneously, nor has any other plan or program expired during the		duration of this program. Common shares repurchased under this plan have		been retired.
Item 3 Defaults Upon Senior Securities
Not applicable

Item 4 (Removed and Reserved)
Item 5 Other information		There is no information required to be disclosed in a report on Form		8-K during the period covered by this report, which has not been		reported.
Item 6 Exhibits and Reports on Form 8-K
a) Exhibits

31. Certifications of Principal Executive Officer and				Principal Financial Officer pursuant to Section 302 of the				Sarbanes-Oxley Act of 2002.				32. Certification of Principal Executive Officer and				Principal Financial Officer pursuant to Section 906 of the				Sarbanes-Oxley Act of 2002.

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Exhibit 31.1Rule 13a-14(a) Certification of the Chief Executive OfficerPursuant 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. 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 officer and I are responsible for	establishing and maintaining disclosure controls and procedures (as defined	in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over	financial reporting (as defined in Exchange Act Rules 13a-15(f) and	15d-15(f)) for the registrant and we have:

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

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

a) all significant deficiencies and material weaknesses in the			design or operation of internal control over financial reporting			which are reasonably likely to adversely affect the registrant’s			ability to record, process, summarize and report financial			information; and			b) any fraud, whether or not material, that involves management			or other employees who have a significant role in the registrant’s			internal control over financial reporting.
**Calvin B. Taylor Bankshares, Inc.**
Date: August 6, 2010
By: /s/ Raymond M. Thompson 			Raymond M. Thompson			Chief Executive Officer
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Exhibit 31.2Rule 13a-14(a) Certification of the Chief Financial OfficerPursuant 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. 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 6, 2010
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, 2010,of Calvin B. Taylor Bankshares, Inc:

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

(2) The information contained in the Report fairly presents, in			all material respects, the financial condition and results of			operations of the Registrant.

 
**Calvin B. Taylor Bankshares, Inc.**
Date: August 6, 2010
By: /s/ Raymond M. Thompson 			Raymond M. Thompson			Chief Executive Officer
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 6, 2010
By: /s/ Raymond M. Thompson 			Raymond M. Thompson			Chief Executive Officer
By: /s/ Jennifer G. Hawkins 			Jennifer G. Hawkins			Treasurer (Principal Financial Officer)
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