<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 JUNE 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: 1,365,969 AS OF JULY
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 June 30, 1999 (unaudited) and
         December 31, 1998                                                                                 3
         Consolidated statements of operations (unaudited) for six months and three months ended
         June 30, 1999 and 1998                                                                            4
         Consolidated statements of cash flows (unaudited) for six months
         ended June 30, 1999 and 1998                                                                     5-6
         Notes to financial statements                                                                    7-8

         Item 2 - Management's Discussion and Analysis or Plan of Operation                               9-16

PART II - OTHER INFORMATION

         Item 6 - Exhibits

                 (a) Exhibit 10.1 Patapsco Valley Bancshares, Inc.
                                  Incentive Stock Option Plan, as amended
                     Exhibit 10.2 Patapsco Valley Bancshares, Inc.
                                  Employee Stock Purchase Plan, as amended
                     Exhibit 27 -  Financial Data Schedule
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>

                                                                              June 30,          December 31,
ASSETS                                                                          1999                1998
                                                                             (Unaudited)
------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>               <C>
Cash and due from banks                                                       $7,359,295        $6,933,961
Interest bearing assets in other banks                                           948,313         1,221,174
Federal funds sold                                                             6,389,999        17,304,000
Securities available for sale                                                 35,083,716        14,726,362
Loans held for sale                                                           16,739,045        23,718,740
Net loans, less allowance for credit losses of
  $1,401,136 and $1,424,047                                                   99,057,981        98,590,827
Premises and equipment                                                         4,926,508         5,029,296
Deferred income taxes                                                            533,282           348,806
Accrued interest receivable                                                      878,330           704,649
Prepaid income taxes                                                             301,278           331,818
Intangibles                                                                      744,724           423,099
Other assets                                                                     673,137           510,710
                                                                            ------------      ------------
                                                                            $173,635,608      $169,843,442
                                                                            ------------      ------------
                                                                            ------------      ------------


LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------------------------------------------------------------------------------
Deposits
  Non-interest-bearing                                                       $35,990,404       $38,003,939
  Interest-bearing                                                           113,045,624       109,063,004
                                                                             -----------       -----------
     Total deposits                                                          149,036,028       147,066,943

Securities sold under repurchase agreements                                    5,590,729         3,800,623
Accrued interest payable                                                         699,995           787,102
Other liabilities                                                              1,638,644         1,366,336
                                                                             -----------       -----------
                                                                               7,929,368         5,954,061

      Total liabilities                                                      156,965,396       153,021,004

STOCKHOLDERS' EQUITY
  Common stock, par value $0.01 per share; authorized 50,000,000 shares;
   issued and outstanding 1,365,969 shares June 30, 1999 and
   1,359,990 shares December 31, 1998                                             13,660            13,600
  Surplus                                                                     11,976,657        11,817,719
  Retained earnings                                                            4,809,628         4,933,506
  Accumulated other comprehensive income                                        (129,733)           57,613
                                                                            ------------      ------------
     Total stockholders equity                                                16,670,212        16,822,438
                                                                            ------------      ------------
                                                                            $173,635,608      $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 Six Months Ended               For Three Months Ended
                                                              June 30,                            June 30,
                                                         1999             1998             1999              1998
                                                         ----             ----             ----              ----
INTEREST INCOME
<S>                                                 <C>               <C>              <C>               <C>
Loans, including fees                               $5,004,443        $5,190,077       $2,468,803        $2,676,724
U.S. Treasury securities                               227,137           247,447          102,012           116,761
U.S Government agency securities                       261,073            71,294          232,890            33,189
State and municipal securities                           4,900            24,743            2,450            11,628
Federal funds sold                                     465,777           202,203          210,275            94,755
Other investments                                      106,205            30,173           49,549            15,112
                                                       -------            ------           ------            ------
    Total interest income                            6,069,535         5,765,937        3,065,979         2,948,169

INTEREST EXPENSE
Deposits                                             1,907,507         1,609,490          961,070           799,153
Other short-term borrowings                             96,834           165,575           54,634           126,916
                                                        ------           -------           ------           -------
    Total interest expense                           2,004,341         1,775,065        1,015,704           926,069

     Net interest income                             4,065,194         3,990,872        2,050,275         2,022,100
Provision for credit losses                                  0                 0                0                 0
                                                        ------           -------           ------           -------
      Net interest income after provision for
        credit losses                                4,065,194         3,990,872        2,050,275         2,022,100

NON-INTEREST INCOME
Service charges on deposit accounts                    431,847           393,647          227,314           204,431
Mortgage banking fees and gains                        870,008         1,012,866          396,081           480,507
Other fees and commissions                             272,255           127,892          136,181            62,757
                                                       -------           -------          -------            ------
       Total non-interest income                     1,574,110         1,534,405          759,576           747,695

NON-INTEREST EXPENSES
Salaries                                             2,516,116         2,084,767        1,231,089         1,080,041
Employee benefits                                      547,950           468,596          250,771           214,871
Occupancy                                              438,820           430,229          211,413           260,773
Furniture and equipment                                435,990           372,504          219,718           204,741
Other                                                1,362,740         1,006,805          740,467           512,839
                                                     ---------         ---------          -------           -------
         Total non-interest expenses                 5,301,616         4,362,901        2,653,458         2,273,265

Income before taxes                                    337,688         1,162,376          156,393           496,530
Income taxes                                           106,817           420,694           47,630           178,569
                                                       -------           -------         --------           -------
Net income                                             230,871           741,682          108,763           317,961
Change in unrealized gain (loss) on securities
  available for sale                                  (187,346)          (13,021)        (179,399)            9,364
                                                      --------           -------         --------           -------

Comprehensive  income                                  $43,525          $728,661         $(70,636)         $327,325
                                                      --------           -------         --------           -------
                                                      --------           -------         --------           -------

Basic and diluted earnings per share                     $0.17             $0.55            $0.08            $ 0.24
                                                      --------           -------         --------           -------
                                                      --------           -------         --------           -------
</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 Six Months Ended

                                                                                        June 30,
                                                                                  1999           1998
                                                                                  ----           ----

CASH FLOWS FROM OPERATING ACTIVITIES

<S>                                                                           <C>               <C>
Interest received                                                             $5,679,631        $5,699,060
Fees and commissions received                                                    704,102           521,539
Proceeds from sales of loans held for sale                                    77,782,724        75,440,705
Originations of loans held for sale                                          (69,933,021)      (91,243,953)
Interest paid                                                                 (2,091,448)       (1,867,015)
Cash paid to suppliers and employees                                          (4,750,743)       (3,888,712)
Income taxes paid                                                               (142,876)         (175,451)
                                                                                ---------         ---------
                                                                               7,248,369       (15,513,827)

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from maturities of securities available for sale                     18,182,016        14,259,894
Purchases of securities available for sale                                   (38,844,593)      (13,065,662)
Loans made, net of principal collected                                          (250,931)         (564,025)
Payments of intangibles                                                         (287,398)              196
Purchases of premises, equipment, and software                                  (372,431)       (1,434,723)
                                                                                ---------       -----------
                                                                             (21,573,337)         (804,320)

CASH FLOWS FROM FINANCING  ACTIVITIES

Net increase (decrease) in time deposits                                       4,073,297        (4,622,711)
Net increase (decrease) in other deposits                                     (2,104,212)        8,315,118
Net increase in other borrowed funds                                           1,790,106         6,154,031
Dividends paid                                                                  (354,749)         (613,768)
Dividends reinvested                                                             158,998           271,904
                                                                                 -------           -------
                                                                               3,563,440         9,504,574


Net  increase (decrease) in cash and cash equivalents                        (10,761,528)       (6,813,573)
Cash and equivalents at beginning of year                                     25,459,135        18,266,542
                                                                              ----------        ----------
Cash and equivalents at end of year                                          $14,697,607       $11,452,969
                                                                              ----------        -----------
                                                                              ----------        -----------
</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 Six Months Ended
                                                                                         June 30,
                                                                                 1999              1998
                                                                                ------            ------


RECONCILIATION OF NET INCOME TO NET CASH FLOWS PROVIDED
  BY OPERATING ACTIVITIES

<S>                                                                             <C>               <C>
Net income                                                                      $230,871          $741,682

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



Depreciation, amortization and losses                                            440,992           331,757
Deferred taxes                                                                   (66,599)          (1,208)
Increase (decrease) in;
  Deferred loan fees                                                            (216,223)         (61,303)
  Accrued interest payable                                                       (87,107)          (91,950)
  Income taxes payable                                                                 0           (87,811)
  Other liabilities                                                              272,308           196,190
  Loans held for sale                                                          6,979,695       (16,816,114)
Decrease (increase) in;
  Accrued interest receivable                                                   (173,681)           (5,920)
  Prepaid taxes                                                                   30,540           334,262
  Other assets                                                                  (162,427)          (53,412)
                                                                                ---------          --------
                                                                              $7,248,369      $(15,513,827)

</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
         six months ended June 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 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 six and three months
         ending June 30, 1998 is adjusted giving retroactive effect of a 100%
         stock dividend declared on September 15,1998. No adjustments were made
         to net income for all periods presented. The basic and diluted average
         shares outstanding for the six and three month periods are as follows:

<TABLE>
<CAPTION>

                                                      Six Months        Six Months      Three Months      Three Months
                                                         Ended            Ended             Ended            Ended
                                                     JUNE 30, 1999    JUNE 30, 1998     JUNE 30, 1999    JUNE 30, 1998
                                                     -------------    -------------     -------------    -------------
<S>                                                    <C>              <C>               <C>               <C>
Net Income                                             $ 230,871        $741,682          $ 108,763         $ 317,961
                                                     -------------    -------------     -------------    -------------
                                                     -------------    -------------     -------------    -------------

         Weighted Average Shares Outstanding -       $ 1,362,475       $1,346,721        $ 1,363,952       $ 1,348,830
             Basic
Diluted Securities:
         Options                                           7,300                 0            7,300                 0
                                                           -----      -------------     -------------    -------------
         Adjusted Weighted Average Shares -
           Diluted                                     1,369,775         1,346,721        1,371,252         1,348,830
         Basic and Diluted EPS                            $ 0.17            $ 0.55           $ 0.08            $ 0.24
                                                     -------------    -------------     -------------    -------------
                                                     -------------    -------------     -------------    -------------

</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:



JUNE 30, 1999
<TABLE>
<CAPTION>

                               Holding                        Mortgage         Data                                    Consolidated
                               Company           Bank          Banking      Processing     Insurance    Elimination       Totals
                               -------           ----          -------      ----------     ---------    -----------       ------
REVENUE
<S>                            <C>         <C>            <C>                <C>         <C>                         <C>
Revenue From External          $ 4,284     $ 6,068,415    $ 1,420,484        $ 3,860     $ 146,602       -           $ 7,643,645
Customers
Intersegment Service             1,494         383,448        -              386,397       -             771,339        -
revenue
Segment profit (loss)         (81,285)         406,924      (103,005)         27,334      (34,348)       -               215,620
Total Assets                   783,048     171,563,269     17,618,282        379,051       351,075    17,074,368     173,620,357
</TABLE>
<TABLE>
<CAPTION>

JUNE 30, 1998

                               Holding                        Mortgage         Data                                    Consolidated
                               Company           Bank          Banking      Processing     Insurance    Elimination       Totals
                               -------           ----          -------      ----------     ---------    -----------       ------
        REVENUE
<S>                            <C>         <C>            <C>                <C>           <C>         <C>          <C>
Revenue from
External                       $ 2,526     $ 5,738,816    $ 1,559,000        -             -             -           $ 7,300,342
Customers

Intersegment
Service                          1,850         547,956        -              358,736       -             908,542        -
Revenues

Segment profit (loss)         (29,532)         784,246       (30,279)         17,247       -             -               741,682

Total assets                   546,882     148,751,189     22,760,163        327,794           909    21,908,126     150,478,811

</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 $173,636,000 as of June 30, 1999, compared
to $169,843,000 as of December 31, 1998, an increase of $3,793,000 or 2.23
percent. The increase was primarily allocated to increases in securities
available for sale of $20,357,000, net loans of $467,000 and cash and due from
banks of $425,000 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 $10,914,000, and loans held for sale of $6,980,000. 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. While retail loan demand is currently soft, management plans to grow
this portfolio in the future by additional product promotions. 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 $156,965,000 as of June 30, 1999 compared to
$153,021,000 as of December, 1998, an increase of $3,944,000 or 2.58 percent.
The increase was primarily due to an increase in deposits of $1,969,000 and an
increase in securities sold under repurchase agreements of $1,790,000. 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 is continuing its branch expansion with
the signing of a lease for a new free standing branch pad in the 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 $16,670,000 as of June 30, 1999, compared to
$16,822,000 as of December 31, 1998, a decrease of $152,000. The decrease was
due to cash dividends of $355,000. This decrease was partially offset by
comprehensive income for the period of $44,000 and dividends reinvested in the
amount of $159,000.

                                       9

<PAGE>



RESULTS OF OPERATIONS

GENERAL

    Net income for the six and three months ended June 30, 1999 was $231,000 and
$109,000 respectively, as compared to $742,000 and $318,000 for the same periods
in 1998. The decreases in net income of $511,000 and $209,000 for the six and
three months ended June 30, 1999 respectively as compared to the same periods in
1998 was primarily due to 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 six and three months ended June 30, 1999 was
$6,070,000 and $3,066,000 respectively, compared to $5,766,000 and $2,948,000
for the same periods in 1998, an increase of $304,000 or 5.27% and $118,000 or
4.00% respectively. The increases were primarily due to an increase of
$18,809,000 and $24,055,000 in the average dollar amount of investments and
federal funds sold for the six and three months ended in June 30, 1999. In
addition, the weighted average yields on investment securities increased to
5.50% and 5.71% for the six and three months ended June 30, 1999 as compared to
5.42% and 5.66% for the same periods in 1998. The growth in investment
securities and federal funds sold were the result of deposit growth and the high
volume of loans sold to investors during the periods. Management's strategy has
been to invest the funds from the inflow of deposits into higher yielding
investments to improve profitability in the investment portfolio. These
increases were primarily offset by a decline in the average balances in net
loans and loans held for sale by $363,000 and $5,177,000 for the six and three
months ended June 30,1999, respectively, as compared to the same periods in
1998. In addition the weighted yields on loans and loans held for sale declined
to 8.76% and 8.71% for the six and three months ended June 30,1999,
respectively, as compared to 9.05% and 9.03% for the same periods in 1998.

    During 1999, the Bank has 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. Also, production in the Bank's
mortgage banking subsidiary, Founders, has declined due to a drop in residential
mortgage loan demand. The volume of loan originations is expected to improve in
the second half of 1999 as the Bank's number of commercial loan applications has
increased toward the end of the second quarter of 1999.

INTEREST EXPENSE

    Total interest expense for the six and three months ended June 30, 1999 was
$2,004,000 and $1,016,000 respectively, compared to $1,775,000 and $926,000 for
the same periods in 1998, an increase of $229,000 or 12.90% and $90,000 or 9.72%
respectively. The increases resulted primarily from increases in the average
dollar amount of deposits of $21,880,000 and $22,940,000 respectively 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 3.46% for the six and three months ended June
30,1999 as compared to 3.64% and 3.56% for the same periods in 1998.

    The increases were partially offset by decreases of $2,544,000 and
$4,521,000 in the average dollar amount of borrowings for the six and three
month periods in 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. There was $5,214,000 in outstanding
Federal Home Loan Bank borrowings as of June 30, 1998. The weighted average
rates paid on interest-bearing liabilities were 3.48% and 3.44% for the six and
three months ended June 30, 1999, respectively as compared to 3.70% and 3.71%
for the same periods in 1998.

                                10

<PAGE>

PROVISION FOR LOAN LOSSES

    For the six and three months ended June 30, 1999 and 1998 no provision for
loan losses was charged to expense. The Bank recorded $23,000 and $36,000 in net
charge-offs for the six and three months ended June 30,1999 as compared to
$157,000 and $156,000 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.

    The Company continues to experience a decline in principal balances of loans
past 90 days due and on non-accrual status. As of June 30, 1999, the loans
delinquent greater than 90 days or on non-accrual status totaled $769,000, a
delinquency ratio of 1.03%. 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. During the second quarter of 1999, the Bank experienced a $50,000 loss on
a commercial loan that was under contract as of March 1999.

NON-INTEREST INCOME

    Non-interest income for the six and three months ended June 30, 1999 was
$1,574,000 and $760,000, respectively as compared to $1,534,000 and $748,000 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 $147,000 in the first half of 1999. These increases were
partially off-set 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. With the continued expansion of the Bank's branch network and
the continued expansion of C&F Insurance, management expects to see increased
levels of non-interest income.

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<PAGE>


NON-INTEREST EXPENSE

    Total non-interest expense for the six and three months ended June 30, 1999
was $5,302,000 and $2,653,000 as compared to $4,363,000 and $2,273,000 for the
same periods in 1998.

    A significant portion of the increase in non-interest expense is related to
the increases in salaries and related benefits of $511,000 and $187,000 for the
six 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, as the Company continues to
expand.

    Occupancy and furniture and equipment expense increased by $72,000 for the
six months and decreased by $34,000 for the 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. Although occupancy and furniture and equipment expense
declined in the three months ended June 30, 1999, these expenses are expected to
continue to increase 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 $356,000 and $228,000 for the six and three
months ended June 30, 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.

    Given the increases in non-interest expense, management is exploring
additional alternatives to decrease these expenses in order to maximize income.

INCOME TAX

    The Company's income tax expense was $107,000 and $48,000 for the six and
three months ended June 30, 1999 as compared to $421,000 and $179,000 for the
same periods in 1998. The changes were primarily the result of the variations in
pre-tax income. The effective tax rate for the six and three months ended June
30, 1999 was 31.63% and 30.46% as compared to 36.19% and 35.96% in the same
periods 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

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<PAGE>



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 $10,914,000 or 63.07%
from December 31, 1998 to June 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 1.34% and a reduction in
loans held for sale of 29.43 %. 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 June 30, 1999 was 8.62%.

    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 June 30, 1999, the total risk-based
capital ratio was 13.90%. 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 also planning 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.


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

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<PAGE>


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 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 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.

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<PAGE>




                  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 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 35% of these customers was completed by June 30,1999. The
Company expects to complete the reassessment by September and expects the risk
posed to the Company to remain 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

                                      15

<PAGE>



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 half 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 six months ended June 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.

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                           PART II - OTHER INFORMATION




Item 6 - Exhibits and Reports on Form 8-K

         (a)  Exhibits

             EXHIBIT NO.

                 10.1    Patapsco Valley Bancshares, Inc. Incentive Stock option
                         Plan, as Amended on June 15, 1999.

                 10.2    Patapsco Valley Bancshares, Inc. Employee Stock
                         Purchase Plan, As amended on June 15, 1999.

                  27     Financial Data Schedule

                                      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.




8/10/99                                    /s/ John S. Whiteside
--------------                             -------------------------------------
Date                                       John S. Whiteside
                                           President and Chief Executive Officer






8/10/99                                    /s/ Barbara M. Broczkowski
--------------                             -------------------------------------
Date                                       Barbara M. Broczkowski,
                                           Vice President and Chief
                                           Financial Officer


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