UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2007

Commission File Number: 000-50047

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

Address of principal executive offices: 24 North Main Street, Berlin, Maryland 21811
Issuer’s telephone number: (410) 641-1700

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES   X   NO ____

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

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

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See accompanying Notes to Consolidated Financial Statements

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1. Basis of Presentation

Cash Flows

Per share data

2. Comprehensive Income

Comprehensive income consists of:

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3. 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:

4. New accounting standards

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

    Calvin B. Taylor Bankshares, Inc. (Company) was incorporated as a Maryland corporation on October 31, 1995. The Company owns all of the stock of Calvin B. Taylor Banking Company (Bank), a commercial bank that was established in 1890 and incorporated under the laws of the State of Maryland on December 17, 1907. The Bank operates nine banking offices in Worcester County, Maryland and one banking office in Ocean View, Delaware. The Bank's administrative office is located in Berlin, Maryland. The Bank is engaged in a general commercial and retail banking business serving individuals, businesses, and governmental units in Worcester County, Maryland, Ocean View, Delaware, and neighboring counties.
    The Company currently engages in no business other than owning and managing the Bank.

    The Company’s financial condition and results of operations are sensitive to accounting measurements and estimates of inherently uncertain matters. When applying accounting policies in areas that are subjective in nature, management uses its best judgment to arrive at the carrying value of certain assets. One of the most critical accounting policies applied is related to the valuation of the loan portfolio. Management estimates the appropriate allowance for loan losses, including the timing of loan charge-offs.
    The allowance for loan losses represents a reserve for potential losses in the loan portfolio. It is one of the most difficult and subjective judgments. The adequacy of the allowance for loan losses is evaluated quarterly based on a review of the loan portfolio, with particular emphasis on non-accruing, past due, and other loans that management believes require attention. The determination of the reserve level relies on management's judgment about factors affecting loan quality, current trends in delinquencies and charge-offs, and anticipated changes in the composition and size of the portfolio, as well as an analysis of historical loan loss ratios. Management also considers external factors such as changes in the interest rate environment, the view of the Bank’s regulators, economic conditions in the Bank’s service area and beyond, and legislation that affects the banking industry.

    Total assets of the Company increased $11.2 million from December 31, 2006 to June 30, 2007. Combined deposits and customer repurchase agreements increased $8.1 million during the same period. During the second quarter of the year, the Bank typically experiences growth in deposits from seasonal business customers, summer residents and tourists. From first quarter to second quarter 2007, the Bank’s average assets and average deposits increased modestly by $5.1 million (1.42%) and $4.3 million (1.50%), respectively. Management carefully monitors deposit levels and their effect on liquidity, taking steps to retain core deposits.

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   The Company’s major sources of liquidity are loan repayments, maturities of short-term investments including federal funds sold, and increases in core deposits. Throughout the first quarter of the year, when the Bank typically experiences a decline in deposits, federal funds sold and investment securities are primary sources of liquidity. During the second quarter of the year, additional sources of liquidity become more readily available as business borrowers start repaying loans, and the Bank receives seasonal deposits. Throughout the second and third quarters the Bank maintains a high liquidity level. Funds from seasonal deposits are generally invested in short-term U.S. Treasury Bills and overnight federal funds.
   The Company has available lines of credit, including overnight federal funds, reverse repurchase agreements and letters of credit, totaling $21,000,000 as of June 30, 2007.
   Average liquid assets (cash and amounts due from banks, interest-bearing deposits in other banks, federal funds sold, and investment securities) compared to average deposits and retail repurchase agreements were 39.66% for the second quarter of 2007 compared to 38.08% for the first quarter of 2007 and 44.06% for the second quarter of 2006. Contributing to the year-to-year decrease is growth of the loan portfolio which has been funded by decreased investments in debt securities.

   Net income for the three months ended June 30, 2007, was $1,894,655 or $.60 per share, compared to $1,818,161 or $.57 per share for the second quarter of 2006. This represents an increase of $76,494 or 4.21% from the prior year. Year to date net income has increased $102,465 or $.05 per share from $3,581,562 or $1.12 per share in 2006 to $3,684,027 or $1.17 per share in 2007. The key components of net income are discussed in the following paragraphs.
   For the first six months of 2007 compared to 2006, net interest income increased $288,302 (3.55%). Net interest income increased $135,947 (3.31%)in the second quarter 2007 compared to the second quarter 2006. This increase is attributable to a shift in earning assets from investment securities to higher yielding loans, while the expense increase is due to the movement of deposits from noninterest-bearing and lower rate interest-bearing deposits to higher rate time deposits.
   The tax-equivalent quarterly yield on interest-earning assets increased by 67 basis points from 5.84% for second quarter 2006 to 6.51% in 2007. The quarterly yield on interest-bearing liabilities increased by 74 basis points from 1.36% in 2006 to 2.10% in 2007. In combination, these shifts contributed to an increase in net margin on interest-earning assets of 21 basis points.

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

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   The Company’s net interest income is one of the most important factors in evaluating its financial performance. Management uses interest sensitivity analysis to determine the effect of rate changes. Net interest income is projected over a one-year period to determine the effect of an increase or decrease in the prime rate of 100 basis points. If prime were to decrease one hundred basis points, and all assets and liabilities maturing within that period were fully adjusted for the rate change, the Company would experience a decrease of approximately 5.6% in net interest income. Conversely, if prime were to increase one hundred basis points, and all assets and liabilities maturing within that period were fully adjusted for the rate change, the Company would experience a corresponding increase in net interest income. The sensitivity analysis does not consider the likelihood of these rate changes nor whether management’s reaction to this rate change would be to reprice its loans or deposits.
   No provision for loan losses was charged to expense during the first six months of 2007 or 2006. Net loan charged-off (recovered) were ($5,476) during the first half of 2007 versus ($69) in the same period in 2006.
   Noninterest revenue for the second quarter of 2007 is $21,906 (4.15%) less than last year. Noninterest revenue for the year-to-date is $31,955 (3.18%) less than last year. For both the quarter and the year-to-date, increased ATM and VISA debit card revenue helped to offset declines in deposit account service charges which are volume-related. Included in miscellaneous revenue is the increase in cash surrender value of bank owned life insurance, which is $15,394 (19.61%) higher in the first six months of 2007 than in the same period for 2006.
   Noninterest expense for the second quarter of 2007 is $5,353 (.30%) less than last year. During the quarter, increased salary and benefit expense is offset by lower occupancy, furniture and equipment, and other operating expenses. Noninterest expense for the year-to-date is $55,382 (1.56%) more than last year. Included in this is a $10,377 (10.80%) increase in ATM/Debit Card processing fees which relates primarily to volume of transactions. Other notable variances in this category are due to the timing of routine period expenses that are recognized on a cash basis.
   The Bank employed 98 full time equivalent employees as of June 30, 2007. The Bank hires seasonal employees during the summer, and employs year-round part-time employees to meet peak-time demands. The Company has no employees other than those hired by the Bank.
   Income taxes are $98,500 higher this year than last, on a pre-tax income increase of $200,965. The Company’s effective tax rate has increased from 35.91% through June 2006 to 36.37% through June 2007. This results from the decrease of tax preferenced revenues in actual dollars and as a percentage of total revenues. Additionally, the Company’s marginal federal statutory rate has increased due to annualized taxable income exceeding $10 million.

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   Total stockholders’ equity increased $3,124,458 from December 31, 2006 to June 30, 2007. This increase is attributable to comprehensive income recorded during the period, as detailed in Note 2 of the Notes to Financial Statements, reduced by $610,974 used to repurchase and retire 16,434 shares of common stock. Stock repurchases were at prices ranging from $36.00 to $38.50 per share.
   Under the capital guidelines of the Federal Reserve Board and the FDIC, the Company and Bank are currently required to maintain a minimum risk-based total capital ratio of 8%, with at least 4% being Tier 1 capital. Tier 1 capital consists of stockholders' equity less accumulated other comprehensive income. In addition, the Company and the Bank must maintain a minimum Tier 1 leverage ratio (Tier 1 capital to total assets) of at least 4%, but this minimum ratio is increased by 100 to 200 basis points for other than the highest-rated institutions.
   Tier one risk-based capital ratios of the Company as of June 30, 2007 and December 31, 2006 were 32.3% and 32.2%, respectively. Both are substantially in excess of regulatory minimum requirements.

   The following is a clarification of the method by which the Company establishes fair value of debt securities, as disclosed in its Annual Report as of December 31, 2006, 2005, and 2004:

   The Company’s principal market risk exposure relates to interest rates on interest-earning assets and interest-bearing liabilities. Unlike most industrial companies, the assets and liabilities of financial institutions such as the Company and the Bank are primarily monetary in nature. Therefore, interest rates have a more significant effect on the Company's performance than do the effects of changes in the general rate of inflation and change in prices. In addition, interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services. As discussed previously, management monitors and seeks to manage the relationships between interest sensitive assets and liabilities in order to protect against wide interest rate fluctuations, including those resulting from inflation.
   At June 30, 2007, the Company’s interest rate sensitivity, as measured by gap analysis, showed the Company was asset-sensitive with a one-year cumulative gap of 26.78%, as a percentage of interest-earning assets. Generally asset-sensitivity indicates that assets reprice more quickly than liabilities and in a rising rate environment net interest income typically increases. Conversely, if interest rates decrease, net interest income would decline. The Bank has classified its demand mortgage and commercial loans as immediately repriceable. Unlike loans tied to prime, these rates do not necessarily change as prime changes since the decision to call the loans and change the rates rests with management.

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   Disclosure controls and procedures are designed and maintained by the Company to ensure that information required to be disclosed in the Company’s publicly filed reports is recorded, processed, summarized and reported in a timely manner. Such information must be available to management, including the Chief Executive Officer (CEO) and Treasurer, to allow them to make timely decisions about required disclosures. Even a well-designed and maintained control system can provide only reasonable, not absolute, assurance that its objectives are achieved. Inherent limitations in any system of controls include flawed judgment, errors, omissions, or intentional circumvention of controls.
   The Company’s management, including the CEO and Treasurer, performed an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of June 30, 2007. Based on that evaluation, the Company’s management, including the CEO and Treasurer, has concluded that the Company’s disclosure controls and procedures are effective. The projection of an evaluation of controls to future periods is subject to the risk that procedures may become inadequate due to changes in conditions including the degree of compliance with procedures.

   During the quarter ended on the date of this report, there were no significant changes in the Company’s internal control over financial reporting that have had or are reasonably likely to have a material affect on the Company’s internal control over financial reporting. As of June 30, 2007, the Company’s management, including the CEO and Treasurer, has concluded that the Company’s internal controls over financial reporting are effective.

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Item 1 Legal Proceedings

Item 1A Risk Factors

Item 2 Unregistered Sales of Equity Securities and Use of Proceeds

Item 3 Defaults Upon Senior Securities

Item 4 Submission of Matters to a Vote of Security Holders

Item 5 Other information

Item 6 Exhibits

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SIGNATURES

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

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

I, Raymond M. Thompson, certify that:

I have reviewed this quarterly report on Form 10-Q of Calvin B. Taylor Bankshares, Inc.;

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

I, Jennifer G. Hawkins, certify that:

I have reviewed this quarterly report on Form 10-Q of Calvin B. Taylor Bankshares, Inc.;

Exhibit 32
Certification - Pursuant to 18 U.S.C. 1350
(Section 906 of the Sarbanes-Oxley Act of 2002)

We, the undersigned, certify that to the best of our knowledge, based upon a review of the Quarterly Report on Form 10-Q for the period ended June 30, 2007 of the Registrant (the "Report"):