<PAGE>


                     U.S. SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                                   FORM 10-QSB
(Mark One)

         X Quarterly report under Section 13 or 15(d) of the Securities Exchange
         Act of 1934 For the quarterly period ended MARCH 31, 1999

         / / Transition report under Section 13 or 15(d) of the Exchange Act For
         the transition period from _______________ to ________________
         Commission file number 0-24887

                        PATAPSCO VALLEY BANCSHARES, INC.
--------------------------------------------------------------------------------
        (Exact Name of Small Business Issuer as Specified in Its Charter)

          MARYLAND                                             52-1996620
          --------                                             ----------
  (State or Other Jurisdiction of                          (I.R.S. Employer
  Incorporation or Organization)                          Identification No.)
                                      
          8593 BALTIMORE NATIONAL PIKE, ELLICOTT CITY, MARYLAND 21043
 ------------------------------------------------------------------------------
                    (Address of Principal Executive Offices)
                                  410-465-0900
 ------------------------------------------------------------------------------
                (Issuer's Telephone Number, Including Area Code) 

 ------------------------------------------------------------------------------
         (Former Name, Former Address and Former Fiscal Year, if Changed
                               Since Last Report)

      Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
   ---       ---

                     APPLICABLE ONLY TO ISSUERS INVOLVED IN
                        BANKRUPTCY PROCEEDINGS DURING THE
                              PRECEDING FIVE YEARS

      Check whether the registrant filed all documents and reports required to
be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by a court.   Yes       No
                                                      ---      ---

                      APPLICABLE ONLY TO CORPORATE ISSUERS

      State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 1,362,943 AS OF APRIL 30, 1999
                                                  ------------------------------

Transitional Small Business Disclosure Format (check one):    Yes      No  X
                                                                 ---      ---


                PATAPSCO VALLEY BANCSHARES, INC. AND SUBSIDIARIES

<PAGE>

                                    CONTENTS

<TABLE>
<CAPTION>

PART I - FINANCIAL INFORMATION                                                          PAGES

<S>                                                                                      <C>
         Item 1.  Financial Statements

                  Consolidated statements of financial condition at March 31, 1999
                  (unaudited) and December 31, 1998                                       3

                  Consolidated statements of operations (unaudited) for
                  three months ended March 31, 1999 and 1998                              4

                  Consolidated statements of cash flows (unaudited) for three months
                  ended March 31, 1999 and 1998                                           5-6

                  Notes to financial statements                                           7-8


         Item 2.  Management's Discussion and Analysis or Plan of Operation               9-15


PART II - OTHER INFORMATION


         Item 4.  Submission of matters to a vote of Security Holders                     16


         Item 6.  Exhibits and Reports on Form 8-K
                  (a) Exhibit 27- Financial Data Schedule
                  (b) Reports on Form 8-K                                                 16


Signatures                                                                                17

</TABLE>



                                       2
<PAGE>


                          PART I- FINANCIAL INFORMATION

                PATAPSCO VALLEY BANCSHARES INC. AND SUBSIDIARIES
                             ELLICOTT CITY, MARYLAND

                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION 

<TABLE>
<CAPTION>
                                                                               March 31,      December 31,
                                                                                 1999            1998
                                                                              ----------      ------------
                                                                              (UNAUDITED)                                 

<S>                                                                         <C>               <C>
ASSETS

Cash and due from banks                                                     $  6,659,766      $  6,933,961
Interest bearing assets in other banks                                         2,666,860         1,221,174
Federal funds sold                                                            27,376,000        17,304,000
Securities available for sale                                                 15,020,668        14,726,362
Loans held for sale                                                           16,454,022        23,718,740
Net loans, less allowance for credit losses of
  $1,437,566 and $1,424,047                                                   97,830,216        98,590,827
Premises and equipment                                                         5,032,566         5,029,296
Deferred income taxes                                                            353,806           348,806
Accrued interest receivable                                                      688,493           704,649
Prepaid income taxes                                                             259,531           331,818
Intangibles                                                                      772,348           423,099
Other assets                                                                     721,047           510,710
                                                                            ------------      ------------
                                                                            $173,835,323      $169,843,442
                                                                            ------------      ------------
                                                                            ------------      ------------
                                                
LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits
  Non-interest-bearing                                                       $36,925,543       $38,003,939
  Interest-bearing                                                           112,775,452       109,063,004
                                                                            ------------      ------------
     Total deposits                                                          149,700,995       147,066,943

Securities sold under repurchase agreements                                    4,929,015         3,800,623
Accrued interest payable                                                         775,342           787,102
Other liabilities                                                              1,589,874         1,366,336
                                                                            ------------      ------------
                                                                               7,294,231         5,954,061

      Total liabilities                                                      156,995,226       153,021,004

STOCKHOLDERS' EQUITY

  Common stock, par value $0.01 per share;
   authorized 50,000,000 shares;
   issued and outstanding 1,362,942 shares March 31, 1999
   and 1,359,990 shares December 31, 1998                                         13,629            13,600
  Surplus                                                                     11,897,991        11,817,719
  Retained earnings                                                            4,878,811         4,933,506
  Accumulated other comprehensive income                                          49,666            57,613
                                                                            ------------      ------------
     Total stockholders equity                                                16,840,097        16,822,438
                                                                            ------------      ------------
                                                                            $173,835,323      $169,843,442
                                                                            ------------      ------------
                                                                            ------------      ------------

</TABLE>


THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.


                                       3
<PAGE>



                PATAPSCO VALLEY BANCSHARES INC. AND SUBSIDIARIES
                             ELLICOTT CITY, MARYLAND

                CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)


<TABLE>
<CAPTION>
                                                                         For Three Months Ended
                                                                                March 31,
                                                                          1999             1998
                                                                          ----             ----
<S>                                                                     <C>              <C>       
INTEREST INCOME
Loans, including fees                                                   $2,535,640       $2,513,353
U.S. Treasury securities                                                   125,125          130,686
U.S Government agency securities                                            28,183           38,105
State and municipal securities                                               2,450           13,115
Federal funds sold                                                         255,502          107,448
Other investments                                                           56,656           15,061
                                                                            ------           ------
    Total interest income                                                3,003,556        2,817,768

INTEREST EXPENSE
Deposits                                                                   946,437          810,337
Other                                                                       42,200           38,659
                                                                            ------           ------
     Total interest expense                                                988,637          848,996

     Net interest income                                                 2,014,919        1,968,772
Provision for credit losses                                                      0                0
                                                                                 -                -
      Net interest income after provision for
        credit losses                                                    2,014,919        1,968,772

NON-INTEREST INCOME
Service charges on deposit accounts                                        204,533          189,216
Mortgage banking fees and gains                                            473,927          532,359
Other fees and commissions                                                 136,074           65,135
                                                                           -------           ------
       Total non-interest income                                           814,534          786,710

NON-INTEREST EXPENSES
Salaries                                                                 1,285,027        1,004,726
Employee benefits                                                          297,179          253,725
Occupancy                                                                  227,407          169,456
Furniture and equipment                                                    216,272          167,763
Other                                                                      622,273          493,966
                                                                           -------          -------
         Total non-interest expenses                                     2,648,158        2,089,636

Income before taxes                                                        181,295          665,846
Income taxes                                                                59,187          242,125
                                                                            ------          -------
Net income                                                                 122,108          423,721
Change in unrealized loss on securities
  available for sale                                                        (7,947)         (22,385)
                                                                             ------         -------

Comprehensive  income                                                     $114,161         $401,336
                                                                          --------         --------
                                                                          --------         --------

Basic and diluted earnings per share                                        $0.09             $0.32
                                                                            -----             -----
                                                                            -----             -----
</TABLE>



THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.


                                       4
<PAGE>


                PATAPSCO VALLEY BANCSHARES INC. AND SUBSIDIARIES
                             ELLICOTT CITY, MARYLAND

                CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)




<TABLE>
<CAPTION>
                                                                               For the Three Months Ended
                                                                                       March 31,
                                                                                  1999           1998
                                                                                  ----           ----

<S>                                                                         <C>               <C>       
CASH FLOWS FROM OPERATING ACTIVITIES

Interest received                                                           $  2,755,905      $  2,695,622
Fees and commissions received                                                    812,975           786,711
Proceeds from sales of loans held for sale                                    43,074,508        24,407,300
Originations of loans held for sale                                          (35,809,790)      (41,255,649)
Interest paid                                                                 (1,000,397)         (921,294)
Cash paid to suppliers and employees                                          (2,431,237)       (2,093,456)
Income taxes paid                                                                 22,234           (96,174)
                                                                            ------------      ------------
                                                                               7,424,198       (16,476,940)

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from maturities of securities available for sale                      8,185,926         6,129,871
Purchases of securities available for sale                                    (8,493,178)       (4,044,041)
Loans made, net of principal collected                                         1,024,418        (2,074,886)
Payments of organization costs                                                   (21,037)              163
Payments of other intangibles                                                   (268,851)                0
Purchases of premises, equipment, and software                                  (273,927)         (915,227)
                                                                            ------------      ------------
                                                                                 153,351          (904,120)

CASH FLOWS FROM FINANCING  ACTIVITIES

Net increase (decrease) in time deposits                                         968,133        (1,932,523)
Net increase in other deposits                                                 1,665,919         4,433,799
Net increase in other borrowed funds                                           1,128,392         8,796,218
Dividends paid                                                                  (176,803)         (612,361)
Dividends reinvested                                                              80,301           195,616
                                                                            ------------      ------------
                                                                               3,665,942        10,880,749


Net  increase (decrease) in cash and cash equivalents                         11,243,491        (6,500,311)
Cash and equivalents at beginning of year                                     25,459,135        18,266,542
                                                                            ------------      ------------
Cash and equivalents at end of year                                         $ 36,702,626       $11,766,231
                                                                            ------------      ------------
                                                                            ------------      ------------
</TABLE>



THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.


                                       5
<PAGE>


                PATAPSCO VALLEY BANCSHARES INC. AND SUBSIDIARIES
                             ELLICOTT CITY, MARYLAND

                CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)



<TABLE>
<CAPTION>
                                                                                For the Three Months Ended
                                                                                        March 31,
                                                                                   1999           1998
                                                                                   ----          ----

<S>                                                                           <C>             <C>     
RECONCILIATION OF NET INCOME TO NET CASH FLOWS PROVIDED
  BY OPERATING ACTIVITIES


Net income                                                                    $  122,108      $    423,721

ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
  PROVIDED BY OPERATING ACTIVITIES



Depreciation, amortization and losses                                            211,296           139,828
Deferred taxes                                                                         0            (5,328)
Increase (decrease) in;
  Deferred loan fees                                                            (263,807)           17,427
  Accrued interest payable                                                       (11,760)          (72,298)
  Income taxes payable                                                             9,134           246,926
  Other liabilities                                                              214,403            26,280
Decrease (increase) in;
  Loans held for sale                                                          7,264,718       (16,848,349)
  Accrued interest receivable                                                     16,156          (140,193)
  Prepaid taxes                                                                   72,287           (95,647)
  Other assets                                                                  (210,337)         (169,307)
                                                                              ----------      ------------
                                                                              $7,424,198      $(16,476,940)
                                                                              ----------      ------------
                                                                              ----------      ------------

</TABLE>



THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS



                                       6
<PAGE>




                PATAPSCO VALLEY BANCSHARES INC. AND SUBSIDIARIES
                             ELLICOTT CITY, MARYLAND

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)



Note 1 - PRINCIPLES OF CONSOLIDATION

                  The consolidated financial statements include the accounts of
         Patapsco Valley Bancshares Inc., ( the Company) , The Central Maryland
         Service Corporation (CMSC), Commercial and Farmers Bank ( the Bank) and
         its subsidiaries, Founders Mortgage Company, Inc., C&F Insurance
         Agency, Inc. and Rogers Avenue Realty, Inc. All inter-company accounts
         and transactions have been eliminated in the accompanying consolidated
         financial statements.

Note 2 - BASIS OF PRESENTATION

                  The accompanying unaudited consolidated financial statements
         have been prepared in accordance with generally accepted accounting
         principles for interim financial information and in accordance with the
         instructions to form 10-QSB. Accordingly, they do not include all of
         the disclosures required by generally accepted accounting principles
         for complete financial statements. In the opinion of management, all
         adjustments necessary for a fair presentation of the results of
         operations for the interim periods have been made. Such adjustments
         were normal and recurring in nature. The results of operations for the
         three months ended March 31, 1999 do not necessarily reflect of the
         results that may be expected for the entire fiscal year December 31,
         1999 or any other interim period. The consolidated financial statements
         should be read in conjunction with the consolidated financial
         statements and related notes which are incorporated in the Company's
         Annual Report for the year ended December 31, 1998.

Note 3 - EARNINGS PER SHARE

                  Earnings per share is presented in accordance with Statement
         of Financial Accounting Standards No. 128. This Statement requires dual
         presentation of basic and diluted earnings per share ( EPS ) with a
         reconciliation of the numerator and denominator of the EPS
         computations. Basic per share amounts are based on weighted average
         shares of common stock outstanding. Diluted earnings per share assume
         the conversion, exercise or issuance of all potential common stock
         instruments unless the effect is to reduce a loss or increase earnings
         per share. Average shares outstanding for the three months ended March
         31, 1998 is adjusted giving retroactive effect of a 100% stock dividend
         declared on September 15,1998. No adjustments were made to net income
         for the periods presented. The basic and diluted average shares
         outstanding for the three- month periods are as follows:

<TABLE>
<CAPTION>
                                                           Three Months Ended
                                                                March 31,
                                                         1999            1998
                                                        -----            -----


<S>                                                  <C>              <C>       
Net income                                           $  122,108       $  423,721
                                                     ----------       ----------

         Weighted average shares
           Outstanding - Basic                        1,360,996        1,344,611
Diluted securities:
           Options                                        7,300                0
                                                     ----------       ----------
         Adjusted weighted average
           Shares- Diluted                            1,368,296        1,344,611
         Basic and diluted EPS                       $     0.09       $     0.32
                                                     ----------       ----------
</TABLE>



                                       7
<PAGE>



Note 4 - SEGMENTS


                  The Company's reportable segments are strategic business units
that offer complimentary products and services to the core business of banking.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. Segment information follows:





<TABLE>
<CAPTION>

                                                                  March 31, 1999
                                                                  --------------
                                      Holding                   Mortgage        Data                                 Consolidated
                                      Company       Bank         Banking     Processing   Insurance   Eliminations      Totals
                                     --------   ------------   -----------   ----------   ---------   ------------   ------------
<S>                                  <C>        <C>            <C>            <C>         <C>         <C>            <C>
REVENUE
  Revenue from external customers    $  2,251   $  3,179,522   $   765,055    $  1,559    $ 76,185    $   206,482    $  3,818,090
  Intersegment service revenue           $437             $0            $0    $186,551          $0    $   186,988              $0
Segment profit (loss)                ($52,203)  $    197,120      ($34,120)   $ 16,084     ($4,773)                  $    122,108
Total assets                         $686,706   $172,190,004   $18,003,913    $360,061    $442,816    $17,848,177    $173,835,323
</TABLE>


<TABLE>
<CAPTION>

                                                                  March 31, 1998
                                                                  --------------
                                      Holding                   Mortgage        Data                                 Consolidated
                                      Company       Bank         Banking     Processing   Insurance   Eliminations      Totals
                                     --------   ------------   -----------   ----------   ---------   ------------   ------------
<S>                                  <C>        <C>            <C>            <C>             <C>     <C>            <C>
REVENUE
  Revenue from external customers    $  1,164   $  3,070,566   $   729,372          $0        $0      $   196,624    $  3,604,478
  Intersegment service revenue           $667             $0            $0    $171,105        $0      $   171,772              $0
Segment profit (loss)                 ($9,595)  $    435,415      ($15,639)   $ 13,540        $0                     $    423,721
Total assets                         $467,341   $150,980,544   $23,608,465    $241,754        $0      $23,585,965    $151,712,140

</TABLE>



                                       8
<PAGE>






ITEM 2   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS


                  In addition to the historical information contained herein,
the discussion in this Form 10- QSB contains certain forward-looking statements
that involve risks and uncertainties, such as statements of the Company's plans,
strategies, objectives, expectations and intentions, including, among other
statements, statements involving the Bank's projected loan and deposit growth,
loan collateral values, collectability of loans, anticipated changes in
non-interest income, payroll and branching expenses, branch and office expansion
of the Bank and its affiliates, year 2000 issue, and liquidity and capital
levels. These statements may be identified by such forward-looking terminology
as "expect," "believe," "anticipate," or by expressions of confidence such as
"continuing," or "strong," or similar statements or variations of such terms.
The Company's actual results could differ materially from those discussed herein
and involve certain risks and uncertainties. These risks and uncertainties
include, but are not limited to, general economic conditions and competition in
the geographic and business areas in which the Company and its subsidiaries
operate, inflation, fluctuations in interest rates, legislation, and government
regulation. The cautionary statements made in this Form 10-QSB should be read as
being applicable to all related forward-looking statements wherever they appear
in this Form 10-QSB.

FINANCIAL CONDITION

                  Total assets of the Company were $173,835,000 as of March 31,
1999, compared to $169,843,000 as of December 31, 1998, an increase of
$3,992,000 or 2.35%. The increase was primarily allocated to an increase in cash
and due from banks and federal funds sold of $11,243,000. These increases were
partially offset by a decline in loans held for sale of $7,265,000. The increase
in cash and due from banks and federal funds was the result of an increase in
deposit growth and a high volume of loans sold to investors during the first
quarter of 1999. These funds are being invested into new loan originations and
investment securities. In addition, the Bank's subsidiary C&F Insurance Agency,
Inc. acquired the assets of the Ellicott City branch of Fowler & Seidl, Inc. and
Center for Insurance and Related Services. The increase in total assets is part
of management's strategy to diversify the Company's services to the community
and to increase profitability.

           Total liabilities were $156,995,000 as of March 31, 1999 compared to
$153,021,000 as of December 31 1998, an increase of $3,974,000 or 2.60%. The
increase was primarily due to an increase in deposits of $2,634,000 and an
increase in securities sold under repurchase agreements of $1,128,000. This
increase was the result of the Bank opening a branch during the first quarter of
1999 and aggressively marketing for new deposits. The campaign has continued
into 1999 and all branch locations have exceeded projections in deposit growth.
The Bank is continuing its branch expansion with the signing of a lease for a
new free standing branch pad in Waverly Woods Shopping Center. This branch is
expected to open in the year 2000 and is located in a new shopping center,
anchored by a grocery store, in Woodstock, Maryland. With the current branch
expansion, the deposit growth is expected to continue.

         Stockholders' equity was $16,840,000 as of March 31, 1999, compared to
$16,822,000 as of December 31, 1998, an increase of $18,000. The increase was
due to comprehensive income for the period of $114,000 and dividends reinvested
in the amount of $80,000. These increases were partially offset by cash
dividends of $176,000.

RESULTS OF OPERATIONS

GENERAL

         Net income for the three months ended March 31, 1999 was $122,000 as
compared to $424,000 for the same period in 1998. The decrease in net income of
$302,000 for the three months ended March 31, 1999 was primarily due to an
increase in non-interest expenses. These increases were partially offset by
increases in net interest income and non-interest income.

                                       9
<PAGE>

INTEREST INCOME

         Total interest income for the three months ended March 31, 1999 was
$3,004,000 compared to $2,818,000 for the same period in 1998, an increase of
$186,000 or 6.60%. The increase was primarily due to an increase in the average
dollar amount of loans held for sale and federal funds sold of $6,175,000 and
$13,516,000, respectively. The growth in loans held for sale is attributed to
the Bank's new mortgage banking subsidiary, Founders. The increase in the
average balance of federal funds sold was due to deposit growth and the high
volume of loans sold to investors during the period. These increases were
partially offset by a decline in the average dollar amount of loans by
$1,679,000 for the three months ended March 31, 1999 as compared to the same
period in 1998. In addition, the weighted average yield on interest earning
assets declined to 7.81% for the three months ended March 31, 1999 from 8.43%
the same period in 1998. With the continued increases in loan originations,
including Founder's loans held for sale, and investment securities, management
expects total interest income will continue to increase.

INTEREST EXPENSE

         Total interest expense for the three months ended March 31, 1999 was
$989,000, compared to $849,000 for the same period in 1998,an increase of
$140,000 or 16.51%. The increase resulted primarily from increase in the average
dollar amount of interest-bearing deposits of $19,108,000 as the Bank conducted
an aggressive marketing campaign, advertising the Bank and its' various new
deposit products. In addition, the Bank has opened two new branches since March
1998, which have contributed to the deposit growth. The average yield paid on
interest-bearing deposits was 3.51% the three month period, compared to 3.65%
for the same period in 1998.

              The increase was also the result of an increase in the average
dollar amount of securities sold under repurchase agreements of $1,273,000 for
the three month period ended March 31, 1999 as compared to the same period in
1998. The Bank sells securities under repurchase agreements as a form of cash
management service to commercial account customers. The weighted average rate
paid on interest-bearing liabilities was 3.52% for the three months ended March
31, 1999, as compared to 3.70% for the same period in 1998.

PROVISION FOR LOAN LOSSES

         For the three months ended March 31, 1999 and 1998 no provision for
loan losses was charged to expense. The Bank recorded $14,000 in net recoveries
for the three months ended March 31,1999 as compared to $648 in net charge-offs
for the same period in 1998.

         While management believes that, based on information currently
available, the Bank's allowance for loan losses is sufficient to cover losses
inherent in its loan portfolio at this time, no assurances can be given that the
Bank's level of allowance for loan losses will be sufficient to cover future
loan losses incurred by the Bank or that future adjustments to the allowance for
loan losses will not be necessary if economic and other conditions differ
substantially from the economic and other conditions at the time management
determined the current level of the allowance for loan losses.

         The Bank's allowance for loan losses is established through a provision
for loan losses based on management's evaluation of the risks inherent in its
loan portfolio and the general economy. The allowance for loan losses is
maintained at the amount management considers adequate to cover estimated losses
in loans receivable that are deemed probable and estimable based on information
currently known to management. The allowance is based upon a number of factors,
including current economic conditions, actual loss experience, diversification
and size of the portfolio, adequacy of the collateral, the amount of
non-performing loans and industry trends. In addition, various regulatory
agencies, as an integral part of their examination process, periodically review
the Bank's allowance for loan losses. Such agencies may require the Bank to make
additional provision for estimated loan losses based upon judgments different
from those of management.



                                       10
<PAGE>

         The Company has seen a recent decrease in principal balances of loans
past 90 days due and non-accrual since December 1998 to $1,664,000. Included in
these loans are three commercial real estate loans and one residential mortgage
loan totaling $1,075,000, which management believes are subject to risk of
little loss based on collateral values. However, management cannot be certain
that collateral values will be maintained. One of the commercial real estate
loans totaling $330,000 is a purchased participation from another local
commercial bank where the loan was receiving regular payments through bankruptcy
proceedings. Management is waiting for the approval from the courts for
liquidation of the collateral for full payoff of the loan. Of the two other
commercial real estate loans totaling $599,000, one is under contract and may
cause a slight loss, but both are expected to repay in the second quarter of
1999. The residential mortgage loan totaling $146,000 is also expected to repay
over the next three months.

NON-INTEREST INCOME

         Non-interest income for the three months ended March 31, 1999 was
$815,000 as compared to $787,000 for the same period in 1998. This increase was
attributed to a $15,000 increase in service charges on deposit accounts. These
increases follow an increased level of fees collected for checks drawn against
insufficient funds, because of increases in deposit accounts and due to the
introduction of new checking account programs that have monthly fees. Other fees
and commissions increased by $71,000 primarily due to commissions received by
the Bank's new insurance agency. These increases were partially off-set by a
decline in mortgage banking fees and gains of $58,000. With the continued
expansion of the Bank's branch network and the continued expansion of Founders
and C&F Insurance Agency, management expects to see increased levels of
non-interest income.

NON-INTEREST EXPENSE

         Total non-interest expense for the three months ended March 31, 1999
was $2,648,000 as compared to $2,090,000 for the same period in 1998.

         A significant portion of the increase in non-interest expense is
related to the increases in salaries and related benefits of $324,000 for the
three month period in 1999 as compared to the same period in 1998. The Company
has added a significant number of employees to the payroll as a result of the
expansion in the Bank, Founders, CMSC, and C&F Insurance. Salaries and benefits
also include cost of living increases and benefit cost increases. Employee
expenses continue to increase as the reflection of the full year salaries for
the employees added in 1998 and as the Company continues to expand.

         Occupancy and furniture and equipment expense increased by $106,000 for
the three months ended in 1999 as compared to the same period in 1998. The
increase is due to the Company expanding its facilities, making improvements to
existing facilities and upgrading equipment. Absent unforeseen circumstances,
these increases are expected to continue as new branches are opened and a full
year of depreciation costs and equipment service contracts are realized. With
more facilities and equipment, the Company will also require more maintenance,
and the additional investment will be depreciated over the estimated useful life
of the asset.

         Other expenses increased by $128,000 for the three months ended March
31, 1999 as compared to the same period in 1998. Increases were noted in
marketing and stationery and supplies. These areas of increased expense include
costs associated with the promotion and establishment of Founders and the new
branches. In addition, the Company had adopted a full-scale marketing program
including direct mail, cable television commercials, newspaper advertising and
product promotion. Marketing plays a significant role in banking today, more so
than in the past. As the banking industry continues to consolidate, both banking
and non-banking companies are competing much more aggressively. Direct
competition for deposits comes from other commercial banks, savings banks,
savings and loan associations, and credit unions as well as brokerage houses,
mutual funds and the securities market. The Company also competes with the same
banking entities for loans as well as with mortgage banking 



                                       11
<PAGE>

companies and institutional lenders.

INCOME TAX

         The Company's income tax expense was $59,000 for the three months ended
March 31, 1999 as compared to $242,000 for the same period in 1998. The changes
were primarily the result of the variations in pre-tax income. The effective tax
rate for the three months ended March 31, 1999 was 32.65% as compared to 36.36%
in the same period in 1998.

LIQUIDITY MANAGEMENT

         Liquidity describes the ability of the Company to meet financial
obligations that arise out of the ordinary course of business. Liquidity is
primarily needed to meet borrower and depositor withdrawal requirements and to
fund current and planned expenditures. The Company maintains its asset liquidity
position internally through short-term investments, the maturity distribution of
the investment portfolio, loan repayments, proceeds from the sale of loans held
for sale and income from earning assets. A primary source of cash is from the
proceeds from the sale of loans held for sale. In addition, the Company relies
on the proceeds from maturity of securities available for sale and the
investment portfolio contains readily marketable securities that could be
converted to cash. On the liability side of the balance sheet, liquidity is
affected by the timing of maturing liabilities and the ability to generate new
deposits or borrowings as needed. The Company may borrow up to $32,300,000 under
secured lines of credit with the Federal Home Loan Bank of Atlanta and has
available lines of credit of $2,500,000 in overnight federal funds and
$1,000,000 in short-term credit from other correspondent banks. The increase in
federal funds sold of $10,072,000 or 58.21% from December 31, 1998 to March 31,
1999 was primarily the result of an increase in growth in deposits of 1.79% and
a reduction in loans held for sale of 30.63%. The Company believes that it has
adequate liquidity sources to meet all anticipated liquidity needs over the next
twelve months. While management plans to continue to rely on the secured lines
of credit from the Federal Home Loan Bank of Atlanta, management knows of no
trend or event which will have a material impact on the Company's ability to
maintain liquidity at satisfactory levels.

CAPITAL RESOURCES AND ADEQUACY

         One measure of capital adequacy is the leverage ratio, which is
calculated by dividing average total assets for the most recent quarter into
Tier l capital. The regulatory minimum for this ratio is 4%, with 6% being the
regulatory minimum for well-capitalized companies. The leverage capital ratio as
of March 31, 1998 was 9.04%.

         Another measure of capital adequacy is the risk-based capital ratio, or
the ratio of total capital to risk adjusted assets. Total capital is composed of
both core capital (Tier l) and supplemental capital (Tier 2), including
adjustments for off balance sheet items, such as letters of credit, and the
different degrees of risk among various assets. Regulators require a minimum
risk-based capital ratio of 8 percent. As of March 31, 1999, the total
risk-based capital ratio was 13.44%. According to FDIC capital guidelines, the
Bank is considered to be "well capitalized ."

         The Bank opened a new branch in January 1999 and the Bank's subsidiary,
C & F Insurance Agency, Inc. purchased the assets of a local insurance agency in
February 1999. Founders is planning to continue to expand. The funding sources
for these projects are primarily cash, federal funds and maturities of
investment securities. Management knows of no other trend or event that will
have a material impact on capital.


                                       12
<PAGE>


Year 2000 Conversion and Compliance

THIS IS A YEAR 2000 READINESS DISCLOSURE UNDER THE YEAR 2000 INFORMATION AND
READINESS DISCLOSURE ACT OF 1998

         The Year 2000 problem is the result of computer programs being written
and microcontrollers using two digits (rather than four) to define the
applicable year. Any of the Company's programs that have time-sensitive software
or embedded technology may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in system failure or miscalculations.

         The Company currently believes that, with modifications to existing
information technology ("IT") and non-IT systems and converting to new IT and
non-IT software or systems, the Year 2000 problem will not pose a significant
operational problem for the Company's computer systems. There can be no
assurance that the systems of other companies or governments will be timely
converted or that any such failure to convert by another company or government
would not have a material adverse effect on the Company. The Year 2000 issue
could disrupt the Company's normal business operations. The most likely worst
case Year 2000 scenario foreseeable at this time includes the inability to
systematically process various types of customer transactions. This could affect
the Company's ability to accept deposits or process withdrawals, originate new
loans or accept loan payments. This could have a material adverse effect on the
Company. The contingency plan addresses alternative methods to enable the
Company to continue to offer basic services to the Company's customers.

         The Company developed a Year 2000 implementation and testing plan (the
"Plan") in accordance with guidelines set forth by the Federal Financial
Institutions Examination Council (the "FFIEC"). The Company expects that its
Year 2000 activities will continue during 1999 and that all phases of its Plan
will be completed by the deadlines established by the FFIEC in its eight
interagency statements concerning Year 2000. The Plan has five primary phases:

         1. AWARENESS - This phase is ongoing and is designed to inform the
Company's Board of Directors and management, employees, customers and vendors of
the impact of the Year 2000 Issue. The Company implemented by September 30,
1998, its customer awareness program that includes appropriate communications
channels to effectively respond to customer inquiries. Customer awareness will
be ongoing.

         2. ASSESSMENT - During this phase an inventory was conducted of all
known Company processes that could reasonably be expected to be impacted by the
Year 2000 problem. The review included information technology and communication
systems such as personal computers, local area networks and servers, ATM modems,
printers, copy machines, facsimile machines, telephones and the operating
systems and software for these systems. It also included non-information
technology systems, such as heating, air conditioning and vault controls, alarm
systems, surveillance systems, time clocks, coin and currency counters, and
postage meters. The assessment phase of the Plan was completed by September 30,
1997.

         3. RENOVATION AND/OR REPLACEMENT - This phase includes programming code
enhancements, hardware and software upgrades, system replacements, vendor
certification and any other changes necessary to make any hardware, software and
other equipment Year 2000 compliant. The Company is actively working with
vendors and suppliers to determine that their operation, products and services
are Year 2000 capable or to monitor their progress toward Year 2000 capability.
The Company has obtained written assurances of current Year 2000 compliance from
14% of its vendors and service providers which have long term written contracts
with the Company. The Company has reviewed the products and services supplied by
all of its material vendors and has been informed that these products and
services either are or are expected to be Year 2000 compliant prior to January
1, 2000. The Company was able to substantially complete the validation for the
Year 2000 compliance of the products and 



                                       13
<PAGE>

services supplied by its material vendors by March 31, 1999. Any material
vendors that are determined not to be Year 2000 compliant, the Company will
enter into new relationships with other vendors who have achieved Year 2000
readiness prior to January 1, 2000. The renovation phase of the Plan was largely
completed by December 31, 1998, and is expected to be fully complete by June 30,
1999.

         4. VALIDATION AND TESTING - The next phase of the Plan is to complete a
comprehensive testing of all known processes. The Company has met or expects to
meet the following key milestones:

         June 30, 1998 - completion of written validation strategies and plans.

         September 1, 1998 - commence validation of internal mission critical
systems, including those programmed in-house and those purchased from software
vendors.

         December 31, 1998 - validation of internal mission-critical systems was
substantially complete.

         March 31, 1999 - validation of service providers for mission critical
systems is expected to be substantially complete. External testing with material
third-parties is expected to have begun.

         June 30, 1999 - validation of mission-critical systems should be
complete and implementation is expected to be substantially complete.

         5. IMPLEMENTATION - This phase will occur when Year 2000 processing
commences. On some applications the Company is already entering dates greater
than December 31, 1999 into its systems. In these situations no adverse events
have been noted. The significant part of the implementation phase will occur
after December 31, 1999.

CONTINGENCY PLANS

         The Plan calls for the development of contingency plans for at-risk
systems. The Company has completed the first phase of its business resumption
contingency planning process and expects the remaining phases to be completed by
June 30, 1999. This effort will be made in conjunction with the Company's
disaster recovery initiatives. The Contingency Plans are being developed to
provide continuity of business in the event some, or all, of the applications,
hardware, or software is not year 2000 ready by the year 2000 or an unexpected
failure occurs. The contingency plan identifies workarounds for processing
business should a failure occur.

CUSTOMER RISK

         The Company's credit risk associated with borrowers may increase to the
extent borrowers fail to adequately address Year 2000 issues. The Company may be
subject to increased liquidity risk to the extent of deposit withdrawals. It is
not possible to quantify the potential impact of such risks or losses at this
time and there is no assurance that the failure of customers to achieve Year
2000 compliance would not have a material adverse affect on the Company.

         The Company implemented a due diligence process which identifies,
assesses, and establishes controls for Year 2000 risk posed by customers as
funds takers, funds providers and capital market/asset management counter
parties. The process included identifying material customers (commercial
customers with outstanding credit over $100,000 (over 44% of the Bank's loan
portfolio) or deposits over $1,000,000; evaluating their Year 2000 readiness;
assessing their Year 2000 risk to the Company; and implementing appropriate
controls to manage and mitigate their Year 2000 related risk to the Company.

         The Company's method of assessing its material customers' Year 2000
preparedness included one or more of the following: mailing surveys, telephone
calls and/or personal interviews with appropriate staff at the borrower's
location. Each material customer's assessment was reviewed to determine the
level 



                                       14
<PAGE>

of Year 2000 preparedness and the risk posed to the Company. Based on this
review, each customer will receive the appropriate type and level of
reassessment using similar techniques. Each customer was reassessed either
monthly, quarterly, or at least once prior to March 31, 1999, depending on the
level of preparedness and level of risk posed to the Company. The Company
expects to continue to reassess material customers thoughout the rest of 1999,
using similar techniques, to ensure the level of Year 2000 preparedness and risk
posed to the Company remains acceptable.

         The Company has completed its customer assessment. While the Company
believes that close to 90% of the customers reviewed require continued
monitoring of their Year 2000 readiness, the Company also believes that no
customer presents a material risk to the Company. The Company also has changed
its lending process to include in its evaluation of a borrower's risk an
assessment of the borrower's Year 2000 preparedness. Customers and potential
customers are required to sign a Year 2000 Disclosure & Acknowledgment
agreement. This agreement states that the customer is aware of the Year 2000
issue, that the customer has a comprehensive business plan appropriate for the
business to address all Year 2000 issues, and that the customer must provide the
Company with copies of its Year 2000 program and report on its progress upon
request. In addition, a Year 2000 addendum has been added to all commercial loan
agreements whereby the borrower agrees to become Year 2000 compliant, that the
borrower has a Year 2000 business plan, that the borrower will inform the
Company about the borrower's Year 2000 status and that non-compliance with the
borrower's Year 2000 plan shall be deemed non-compliance with the borrower's
loan agreement.

YEAR 2000 COSTS

         The Company spent approximately $45,000 in the first quarter of 1999 on
annual software maintenance agreements. These agreements include periodic
software upgrades, which have or will ensure that the processing of dates up to
and beyond the year 2000 is handled properly. For the three months ended March
31, 1999, the Company did not incur additional expenses for upgrades, training
and testing. The Company's ongoing data processing and information technology
budget has been sufficient to fund the Company's Year 2000 costs, and the
Company expects that Year 2000 costs will continue to be covered by its ongoing
data processing and information technology budget. The Company plans to fund
these budget items and costs from operations. Based on current analysis and
projections, management believes that the cost to ensure compliance with the
Plan will not have a material impact on the Company's consolidated financial
statements. While the Company has incurred an opportunity cost for implementing
the Plan, the Company has not deferred any specific projects as a result of this
implementation.


                                       15
<PAGE>


PART II. OTHER INFORMATION

Item 4.  Submission of Matters to a Vote of Security Holders

At the Company's Annual Meeting of Stockholders held on April 20, 1999, the
stockholders elected three individuals to serve as Directors until the 2002
Annual Meeting of Stockholders, and one individual to serve as a Director until
the 2000 Annual Meeting of Stockholders, and until their successors are duly
elected and qualify. The Company submitted the matter to a vote through the
solicitation of proxies. The results of the election are as follows:

<TABLE>
<CAPTION>
Class I Nominees (Term Expires 2002)                  For               Withhold

<S>                                                 <C>                   <C>  
John F. Feezer,III                                  1,053,227             9,549
Kevin P. Huffman                                    1,058,758             4,018
Eugene William Iager, Sr.                           1,059,457             3,319

Class II Nominee (term Expires 2000)

Richard H. Pettingill                               1,040,116           22,660
</TABLE>


The following directors, whose terms did not expire in 1999, will continue in
office: Ronald L. Eyre, Fred T. Lewis, Howard E. Harrison, III, and John S.
Whiteside.



Item 6.  Exhibits and Reports on Form 8-K


             (a)  Exhibits

                Exhibit
                 Number
                -------

                  27          Financial Data Schedule


         (b) The Company filed a Current Report, on February 18,1999, pursuant
to item 5, in which the Company disclosed that its bank subsidiary purchased the
Ellicott City branch of Fowler Insurance, Inc. (formerly Fowler & Seidl, Inc.),
a full line independent insurance agency.



                                       16
<PAGE>


SIGNATURES


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




                                 PATAPSCO VALLEY BANCSHARES, INC.





   Date: 5-7-99                  By: /s/ JOHN S. WHITESIDE
        ---------------             --------------------------------------------
                                     John S. Whiteside
                                     President and Chief Executive Officer





  Date:  5-7-99                  By: /s/ BARBARA M. BROCZKOWSKI
        ---------------             --------------------------------------------
                                     Barbara M. Broczkowski
                                     Vice President and Chief Financial Officer


                                       17