<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 SEPTEMBER 30, 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: 1,376,303 SHARES AS OF
OCTOBER 31,1999

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

<PAGE>

                PATAPSCO VALLEY BANCSHARES, INC. AND SUBSIDIARIES

                                    CONTENTS

<TABLE>
<CAPTION>

PART I - FINANCIAL INFORMATION                                                                  PAGES
                                                                                                -----
<S>                                                                                             <C>
         Item 1 - Financial Statements

         Consolidated statements of financial condition at September 30, 1999
         (unaudited) and December 31, 1998                                                        3
         Consolidated statements of operations (unaudited) for nine months and three months
         ended September 30, 1999 and 1998                                                        4
         Consolidated statements of cash flows (unaudited) for nine months
         ended September 30, 1999 and 1998                                                      5-6

         Notes to financial statements                                                           7-9

         Item 2 - Management's Discussion and Analysis or Plan of Operation                     10-16

PART II - OTHER INFORMATION

         Item 6 - Exhibits                                                                         17

                  (a) Exhibit 2 - Agreement and Plan of Merger by and between
                      F&M Bancorp and the Company, dated September 7, 1999, as
                      amended. Exhibit 10 - Patapsco Valley Bancshares, Inc.
                      Incentive Stock Plan, as amended. Exhibit 27 - Financial
                      Data Schedule Exhibit 99 - Stock Option Agreement, dated
                      September 7, 1999, between the Company and F&M Bancorp.
                  (b) Reports on Form 8-K

Signatures                                                                                       18

</TABLE>

                                       2

<PAGE>

                          PART I- FINANCIAL INFORMATION

                PATAPSCO VALLEY BANCSHARES INC. AND SUBSIDIARIES
                             ELLICOTT CITY, MARYLAND

                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

<TABLE>
<CAPTION>

                                                                                    September 30,      December 31,
                                                                                       1999               1998
                                                                                    (UNAUDITED)
                                                                                    -------------      ------------
<S>                                                                                <C>              <C>
ASSETS


Cash and due from banks                                                            $   6,637,260    $   6,933,961
Interest bearing assets in other banks                                                 1,105,017        1,221,174
Federal funds sold                                                                     6,073,000       17,304,000
Securities available for sale                                                         33,169,143       14,726,362
Loans held for sale                                                                   12,719,520       23,718,740
Net loans, less allowance for credit losses of
  $1,364,919 and $1,424,047                                                          106,040,946       98,590,827
Premises and equipment                                                                 4,855,290        5,029,296
Deferred income taxes                                                                    608,763          348,806
Accrued interest receivable                                                            1,101,904          704,649
Prepaid income taxes                                                                     321,538          331,818
Intangibles                                                                              681,187          423,099
Other assets                                                                             659,597          510,710
                                                                                   -------------    -------------
                                                                                   $ 173,973,165    $ 169,843,442
                                                                                   =============    =============


LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits

  Non-interest-bearing                                                             $  38,876,802    $  38,003,939
  Interest-bearing                                                                   112,755,658      109,063,004
                                                                                   -------------    -------------
     Total deposits                                                                  151,632,460      147,066,943

Securities sold under repurchase agreements                                            3,460,926        3,800,623
Accrued interest payable                                                                 748,105          787,102
Other liabilities                                                                      1,699,894        1,366,336
                                                                                   -------------    -------------
                                                                                       5,908,925        5,954,061

      Total liabilities                                                              157,541,385      153,021,004

STOCKHOLDERS' EQUITY

  Common stock, par value $0.01 per share; authorized 50,000,000 shares; issued
   and outstanding 1,371,102 shares September 30, 1999 and
   1,359,990 shares December 31, 1998                                                     13,711           13,600
  Surplus                                                                             12,100,941       11,817,719
  Retained earnings                                                                    4,646,714        4,933,506
  Accumulated other comprehensive income                                                (329,586)          57,613
                                                                                   -------------    -------------
     Total stockholders equity                                                        16,431,780       16,822,438
                                                                                   -------------    -------------
                                                                                   $ 173,973,165    $ 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 Nine Months Ended      For Three Months Ended
                                                         September 30,              September 30,
                                                     1999           1998           1999           1998
                                                 -----------    -----------    -----------    -----------
<S>                                              <C>            <C>            <C>            <C>
INTEREST INCOME
Loans, including fees                            $ 7,486,082    $ 7,900,981    $ 2,481,638    $ 2,710,904
Mortgage-backed securities                            10,633              0         10,633              0
U.S. Treasury securities                             325,290        381,535         98,153        134,088
U.S Government agency securities                     658,795         95,289        397,722         23,995
State and municipal securities                         7,350         36,370          2,450         11,627
Federal funds sold                                   599,849        293,759        134,072         91,556
Other investments                                    138,951         46,986         32,747         16,813
                                                 -----------    -----------    -----------    -----------
    Total interest income                          9,226,950      8,754,920      3,157,415      2,988,983

INTEREST EXPENSE
Deposits                                           2,885,973      2,494,899        978,466        885,409
Other short-term borrowings                          143,038        227,298         46,204         61,723
                                                 -----------    -----------    -----------    -----------
    Total interest expense                         3,029,011      2,722,197      1,024,670        947,132

     Net interest income                           6,197,939      6,032,723      2,132,745      2,041,851
Provision for credit losses                                0              0              0              0
                                                 -----------    -----------    -----------    -----------
      Net interest income after provision for
        credit losses                              6,197,939      6,032,723      2,132,745      2,041,851

NON-INTEREST INCOME
Service charges on deposit accounts                  660,358        599,390        228,511        205,743
Mortgage banking fees and gains                    1,200,487      1,260,521        330,479        247,655
Other fees and commissions                           454,132        179,079        181,877         51,187
                                                 -----------    -----------    -----------    -----------
       Total non-interest income                   2,314,977      2,038,990        740,867        504,585

NON-INTEREST EXPENSES
Salaries                                           3,742,663      3,031,174      1,226,547        946,407
Employee benefits                                    871,880        697,456        323,930        228,860
Occupancy                                            699,973        622,228        261,153        191,999
Furniture and equipment                              653,553        620,800        217,563        248,296
Merger expenses                                      117,115              0        117,115              0
Other                                              2,044,278      1,647,934        681,538        641,129
                                                 -----------    -----------    -----------    -----------
         Total non-interest expenses               8,129,462      6,619,592      2,827,846      2,256,691

Income before taxes                                  383,454      1,452,121         45,766        289,745
Income taxes                                         137,662        525,612         30,845        104,918
                                                 -----------    -----------    -----------    -----------
Net income                                           245,792        926,509         14,921        184,827
Change in unrealized gain (loss) on securities
  available for sale                                (387,199)       (11,955)      (199,853)         1,066
                                                 -----------    -----------    -----------    -----------

Comprehensive income (loss)                      $  (141,407)   $   914,554    $  (184,932)   $   185,893
                                                 ===========    ===========    ===========    ===========

Basic and diluted earnings per share             $      0.18    $      0.68    $      0.01    $      0.14
                                                 ===========    ===========    ===========    ===========

</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 Nine Months Ended
                                                                     September 30,
                                                                 1999             1998
                                                            -------------    -------------
<S>                                                         <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES

Interest received                                           $   8,664,098    $   8,679,748
Fees and commissions received                                   2,314,977          778,469
Proceeds from sales of loans held for sale                    106,631,998      119,897,232
Originations of loans held for sale                           (95,632,778)    (132,509,176)
Interest paid                                                  (3,068,008)      (2,691,152)
Cash paid to suppliers and employees                           (7,479,362)      (5,778,640)
Income taxes paid                                                 (31,247)        (384,387)
                                                            -------------    -------------
                                                               11,399,678      (12,007,906)

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from maturities of securities available for sale      26,098,144       19,592,147
Mortgage-backed paydowns                                           85,176                0
Purchases of securities available for sale                    (45,256,923)     (18,949,262)
Loans made, net of principal collected                         (7,284,522)      (3,523,955)
Payments of intangibles                                          (266,882)            (505)
Proceeds from sales of other real estate                                0           23,581
Purchases of premises, equipment, and software                   (395,098)      (2,821,255)
                                                            -------------    -------------
                                                              (27,020,105)      (5,679,249)

CASH FLOWS FROM FINANCING ACTIVITIES

Net increase in time deposits                                   2,318,732        8,721,393
Net increase in other deposits                                  2,246,785        2,441,975
Net increase (decrease) in other borrowed funds                  (339,697)         612,909
Shares issued                                                      46,000                0
Dividends paid                                                   (532,585)        (789,133)
Dividends reinvested                                              237,334          353,450
                                                            -------------    -------------

                                                                3,976,569       11,340,594

Net increase (decrease) in cash and cash equivalents          (11,643,858)      (6,346,561)
Cash and equivalents at beginning of year                      25,459,135       18,266,542
                                                            -------------    -------------
Cash and equivalents at end of year                         $  13,815,277    $  11,919,981
                                                            =============    =============

</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 Nine Months Ended
                                                                  September 30,
                                                               1999            1998
                                                          ------------    ------------
<S>                                                       <C>             <C>
RECONCILIATION OF NET INCOME TO NET CASH FLOWS PROVIDED
  BY OPERATING ACTIVITIES

Net income                                                 $   245,792    $    926,509

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

Depreciation, amortization and losses                          577,898         437,688
Deferred taxes                                                 (16,333)         (1,210)
Increase (decrease) in;
  Deferred loan fees                                          (165,597)         45,007
  Accrued interest payable                                     (38,997)         31,045
  Income taxes payable                                         112,468         (87,811)
  Other liabilities                                            221,090         441,668
  Loans held for sale                                       10,999,220     (13,872,465)
Decrease (increase) in;
  Accrued interest receivable                                 (397,255)       (121,146)
  Prepaid taxes                                                 10,280         230,246
  Other assets                                                (148,888)        (37,437)
                                                          ------------    ------------
                                                           $11,399,678    $(12,007,906)
                                                          ------------    ------------
                                                          ------------    ------------

</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
         nine months ended September 30, 1999 do not necessarily reflect 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 are 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. No adjustments were made to net income for all periods
         presented. The basic and diluted average shares outstanding for the
         nine and three-month periods are as follows:

<TABLE>
<CAPTION>

                                                  Nine Months   Nine Months   Three Months Three Months
                                                     Ended        Ended         Ended        Ended
                                                 SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
                                                     1999         1998         1999         1998
                                                 ----------   ----------   ----------   ----------
<S>                                              <C>          <C>          <C>          <C>
Net Income                                       $  245,792   $  926,509   $   14,921   $  184,827
                                                 ==========   ==========   ==========   ==========
         Weighted Average Shares Outstanding -    1,364,654    1,352,463    1,369,014    1,354,476
             Basic
Diluted Securities:
         Options                                      7,273        1,757        7,148        2,113
                                                 ----------   ----------   ----------   ----------
         Adjusted Weighted Average Shares -       1,371,927    1,354,220    1,376,162    1,356,589
           Diluted

         Basic and Diluted EPS                        $0.18        $0.68        $0.01        $0.14
                                                 ==========   ==========   ==========   ==========

</TABLE>

                                       7

<PAGE>

                PATAPSCO VALLEY BANCSHARES INC. AND SUBSIDIARIES
                             ELLICOTT CITY, MARYLAND

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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>

SEPTEMBER 30, 1999

                              Holding                       Mortgage        Data                                      Consolidated
                              Company         Bank          Banking       Processing     Insurance    Elimination        Totals
                          ------------    ------------   ------------    ------------   ------------  ------------   ------------
<S>                       <C>             <C>            <C>             <C>            <C>             <C>          <C>
REVENUE

Revenue From External     $      6,731    $  9,308,994   $  1,988,411        $ 25,194       $212,597          --     $ 11,541,927
Customers
Intersegment Service
revenue                          2,249         556,406           --           565,179           --       1,123,834           --
Segment profit
(loss)                        (236,146)        738,921       (214,186)         25,923        (68,720)         --          245,792
Total Assets                   715,342     172,258,065     13,463,430         376,777        304,936    13,145,385    173,973,165


</TABLE>

<TABLE>
<CAPTION>

SEPTEMBER 30,1998

                               Holding                        Mortgage          Data                                    Consolidated
                               Company          Bank          Banking        Processing     Insurance   Elimination        Totals
                             ------------    ------------   ------------    ------------   ----------   ------------   ------------
<S>                       <C>             <C>            <C>                  <C>              <C>     <C>          <C>
REVENUE

Revenue from
External                  $      4,188    $  8,637,495   $  2,151,660            --              567         --     $ 10,793,910
Customers
Intersegment
Service                          2,990         892,569           --           541,683           --      1,437,242           --
Revenues
Segment profit (loss)          (79,032)      1,117,720       (141,680)         29,034            467         --          926,509
Total assets                   594,959     151,047,101     19,947,378         339,581          1,379   19,061,201    152,869,197

</TABLE>

                                       8

<PAGE>

Note 5-MERGER

    On September 7, 1999 the Company entered into a definitive agreement to be
acquired by F&M Bancorp. The agreement provides for a fixed exchange ratio of
1.18 shares of F&M's common stock for each share of the Company's common stock.
The transaction has a value of approximately $32 per share (as of November 2,
1999) of the Company's common stock. The transaction is intended to be tax-free
to the shareholders of the Company's and will be accounted for as a pooling of
interest.

                                       9

<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 allowance for loan losses, loan collateral
values, year 2000 issue, and the proposed acquisition by F&M Bancorp. 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 $173,973,000 as of September 30, 1999,
compared to $169,843,000 as of December 31, 1998, an increase of $4,130,000 or
2.43 percent. The increase was primarily in securities available for sale of
$18,443,000 and net loans of $7,450,000 as a result of increases in deposits and
securities sold under repurchase agreements. These increases were slightly
offset by declines in federal funds sold of $11,231,000 and loans held for sale
of $10,999,000. The increase in securities available for sale was the result of
excess cash and federal funds sold invested in higher yielding investments in
order to increase profitability in the investment portfolio. The increase in net
loans is due to the emphasis on services to small and medium size businesses and
professional practices. 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 $157,541,000 as of September 30, 1999 compared to
$153,021,000 as of December, 1998, an increase of $4,520,000 or 2.95 percent.
The increase was primarily due to an increase in deposits of $4,566,000. The
increase in deposits was the result of the Bank opening a branch during the
first quarter of 1999 and aggressively marketing for new deposits. Primarily as
a result of the advertising campaign, all branch locations have exceeded
projections in deposit growth. The Bank has also signed a lease for a new
freestanding branch pad in the Waverly Woods Shopping Center.

    Stockholders' equity was $16,432,000 as of September 30, 1999, compared to
$16,822,000 as of December 31, 1998, a decrease of $390,000. The decrease was
due to cash dividends of $532,000 and by comprehensive loss for the period of
$141,000. This decrease was partially offset by dividends reinvested in the
amount of $237,000 and shares issued of $46,000.

                                       10

<PAGE>

RESULTS OF OPERATIONS

GENERAL

    Net income for the nine and three months ended September 30, 1999 was
$246,000 and $15,000 respectively, as compared to $927,000 and $185,000 for the
same periods in 1998. The decreases in net income of $681,000 and $170,000 for
the nine and three months ended September 30, 1999 respectively as compared to
the same periods in 1998 was primarily due to one time merger related expenses
and an increase in non-interest expenses. These increases were slightly offset
by increases in net interest income and non-interest income.

INTEREST INCOME

    Total interest income for the nine and three months ended September 30, 1999
was $9,227,000 and $3,157,000 respectively, compared to $8,755,000 and
$2,989,000 for the same periods in 1998, an increase of $472,000 or 5.39% and
$168,000 or 5.62% respectively. The increases were primarily due to an increase
of $20,770,000 and $23,968,000 in the average dollar amount of investments and
federal funds sold for the nine and three months ended in September 30, 1999. In
addition, the Bank purchased $1,937,000 in mortgage-backed securities during the
third quarter of 1999 with weighted average yield of 5.83%. The weighted average
yields on investment securities increased to 5.49% and 5.96% for the nine and
three months ended September 30, 1999 as compared to 5.33% and 5.28% for the
same periods in 1998. The growth in investment securities, mortgage-backed
securities and federal funds sold were the result of deposit growth and the high
volume of loans sold to investors during the periods.

    The increase in interest income was primarily offset by a decline in the
average balances in loans held for sale by $2,100,000 and $4,223,000 for the
nine and three months ended September 30,1999, respectively, as compared to the
same periods in 1998. In addition the weighted yields on loans held for sale
declined to 6.77% and 6.98% for the nine and three months ended September
30,1999, respectively, as compared to 6.78% and 7.90% for the same periods in
1998. The decline in production in the Bank's mortgage banking subsidiary,
Founders, was due to a drop in residential mortgage loan demand.

    During the first half of 1999, the Bank experienced higher than normal
principal repayments due to the decline in interest rates, causing higher rate
loans to either pay-off or refinance at a lower rate. The volume of loan
originations has improved as the Bank's average loan balance increased by
$3,200,000 during the third quarter of 1999.

INTEREST EXPENSE

    Total interest expense for the nine and three months ended September 30,
1999 was $3,029,000 and $1,025,000 respectively, compared to $2,722,000 and
$947,000 for the same periods in 1998, an increase of $307,000 or 11.28% and
$78,000 or 8.24% respectively. The increases resulted primarily from increases
in the average dollar amount of deposits of $21,531,000 and $25,519,000 for the
nine and three months ended September 30, 1999 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 June, 1998,
which have contributed to the deposit growth. The average rates paid on deposits
were 3.44% and 3.41% for the nine and three months ended September 30,1999 as
compared to 3.69% and 3.97% for the same periods in 1998.

    The increases were partially offset by decreases of $1,888,000 and
$2,604,000 in the average dollar amount of borrowings for the nine and three
months ended September 30, 1999, as compared to the same periods in 1998. The
decrease was due to the Bank borrowing from the Federal Home Loan Bank during
1998 in order to fund new loan originations at Founders. The weighted average
rates paid on total interest-bearing liabilities were 3.46% and 3.43% for the
nine and three months ended September 30, 1999, respectively as compared to
3.74% and 3.93% for the same periods in 1998.

                                       11

<PAGE>

PROVISION FOR LOAN LOSSES

    For the nine and three months ended September 30, 1999 and 1998 no provision
for loan losses was charged to expense. The Bank recorded $59,000 and $36,000 in
net charge-offs for the nine and three months ended September 30,1999 as
compared to $174,000 and $17,000 for the same periods 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 losses 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.

    As of September 30, 1999, the loans delinquent greater than 90 days or on
non-accrual status totaled $849,000, a delinquency ratio of 1.38%. Included in
these loans is one commercial loan totaling $330,000 and one mortgage loan
totaling $146,000 which management believes are subject to little risk of loss
based on collateral values. However, management cannot be certain that
collateral values will be maintained. The commercial loan is a purchased
participation from another local commercial bank. The bank is currently in
negotiations with the bankruptcy court that could lead to a refinancing of the
existing obligations to be supported by a multi year lease by a well-known oil
company. The mortgage loan has an active purchaser that is currently waiting for
financing approval from an independent third party.

NON-INTEREST INCOME

    Non-interest income for the nine and three months ended September 30, 1999
was $2,315,000 and $741,000, respectively as compared to $2,039,000 and $505,000
for the same period in 1998. The Bank has experienced an 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. In addition, the Bank's subsidiary, C&F Insurance
Agency, Inc. had commissions totaling $213,000 in the nine months ended
September 30,1999. The increase in non-interest income for the nine months in
1999 was partially offset by a decline in mortgage banking fees and gains due to
decrease in Founders' loan origination volume and an increase in the cost to
originate a loan.

NON-INTEREST EXPENSE

    Total non-interest expense for the nine and three months ended September 30,
1999 was $8,129,000 and $2,828,000 as compared to $6,620,000 and $2,257,000 for
the same periods in 1998.

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<PAGE>

    A significant portion of the increase in non-interest expense is related to
the increases in salaries and related benefits of $886,000 and $375,000 for the
nine and three month periods in 1999 as compared to the same periods in 1998.
The Company has added a significant number of employees to the payroll as a
result of the expansion in the Bank, Founders, C&F Insurance, and CMSC. 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 1999.

    Occupancy and furniture and equipment expense increased by $410,000 and
$38,000 for the nine and three months ended in 1999 as compared to the same
periods in 1998. The increases are due to the Company expanding its facilities,
making improvements to existing facilities and upgrading equipment.

    Merger related expenses totaled $117,000 as of September 30,1999. These
expenses are one time expenses that are directly related to the proposed
acquisition of the Company by F&M Bancorp.

    Other expenses increased by $110,000 and $40,000 for the nine and three
months in 1999 as compared to the same periods in 1998. Increases were noted in
marketing, telephone, professional services, and stationery and supplies. These
areas of increased expense include costs associated with the promotion and
establishment of new locations for Founders, C&F Insurance, 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 companies and
institutional lenders.

INCOME TAX

    The Company's income tax expense was $138,000 and $31,000 for the nine and
three months ended September 30, 1999 as compared to $526,000 and $105,000 for
the same periods in 1998. The changes were primarily the result of the
variations in pre-tax income and non-deductible merger related expenses.

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 decrease in
federal funds sold of $11,231,000 or 64.90% from December 31, 1998 to September
30, 1999 was primarily the result of the funds being invested in securities
available for sale. In addition, these purchases were funded by an increase in
growth in deposits of 3.10% and a reduction in loans held for sale of 46.37 %.

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

                                       13

<PAGE>

6% being the regulatory minimum for well-capitalized companies. The leverage
capital ratio as of September 30, 1999 was 8.59%.

    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 September 30, 1999, the total
risk-based capital ratio was 13.45%. According to FDIC capital guidelines, the
Bank is considered to be "well capitalized."

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 the completed 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.

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<PAGE>

         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
             services supplied by its material vendors by March 31, 1999. For
             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 was 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
             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 was substantially completed. External testing
                  with material third parties was started.

                  June 30, 1999 - validation of mission-critical systems was
                  completed and implementation was substantially completed.

         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 its business resumption contingency planning
process 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

                                       15

<PAGE>

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 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 throughout the rest of 1999,
using similar techniques, to ensure the level of Year 2000 preparedness and risk
posed to the Company remains acceptable. As part of the continued monitoring
process, another assessment of material customers was begun in May. The
reassessment of 90% of these material customers was completed by September 30,
1999. The Company has since completed the reassessment and believes the 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 $49,893 in 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 nine months ended September 30, 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.

                                       16

<PAGE>

                                 PART II - OTHER

INFORMATION

Item 6 - Exhibits and Reports on Form 8-K

     (a) Exhibits

      EXHIBIT NO.
      -----------

         2        Agreement and Plan of Merger by and between F&M Bancorp and
                  the Company, dated September 7, 1999, as amended.

         10       Patapsco Valley Bancshares, Inc. Incentive Stock Option Plan,
                  as amended.


         27       Financial Data Schedule

         99       Stock Option Agreement, dated September 7, 1999, between the
                  Company and F&M Bancorp.

     (b) The Company filed a Current Report on Form 8-K on September 7, 1999,
         under Item 5, to announce that the Company has entered into a
         definitive agreement to be acquired by F&M Bancorp.

                                       17

<PAGE>

SIGNATURES

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

                                         PATAPSCO VALLEY BANCSHARES, INC.

11/9/99                                  /s/ John S. Whiteside
-----------------------------            ---------------------------------------
Date                                     John S. Whiteside
                                         President and Chief Executive Officer


11/9/99                                  /s/ Barbara M. Broczkowski
-----------------------------            ---------------------------------------
Date                                     Barbara M. Broczkowski,
                                         Vice President and Chief Financial
                                         Officer

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