SECURITIES AND EXCHANGE COMMISSION

                                Washington, D.C.

                                   FORM 10-QSB

        [X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                  For the quarterly period ended June 30, 2001

                                       OR

       [ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

          For the transition period from              to
                                         ------------    --------------

                           Commission File No. 0-24330

                            Bedford Bancshares, Inc.
             (Exact name of registrant as specified in its charter)


      Virginia                                                   54-1709924
--------------------------------------------------------------------------------
(State or other jurisdiction of                               (I.R.S. Employer
incorporation or organization)                               Identification No.)

                  125 West Main Street, Bedford, Virginia 24523
                  ---------------------------------------------
                    (Address of principal executive offices)


                                 (540) 586-2590
                                 --------------
              (Registrant's telephone number, including area code)


     Check whether issuer (1) filed all reports required to be filed by Sections
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 report(s), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No


State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date.

         Class:   Common Stock, par value $.10 per share
                  Outstanding at August 6, 2001: 2,059,777

<PAGE>

                     BEDFORD BANCSHARES, INC. AND SUBSIDIARY

                              INDEX TO FORM 10-QSB

<TABLE>
<CAPTION>
       PART I          FINANCIAL INFORMATION                                            PAGE
       ------          ---------------------                                            ----
      <S>            <C>                                                                <C>
       Item 1          Financial Statements

                       Consolidated Statements of Financial Condition at June 30,
                       2001 (unaudited) and September 30, 2000                              3

                       Consolidated Statements of Income for the three and nine
                       months ended June 30, 2001 and 2000 (unaudited)                      4

                       Comprehensive Statement of Income for the three and nine
                       months ended June 30, 2001 and 2000 (unaudited)                      5

                       Consolidated Statements of Cash Flows for the nine months
                       ended June 30, 2001 and 2000 (unaudited)                             6

                       Notes to Unaudited Interim Consolidated Financial Statements
                                                                                            7
       Item 2          Management's Discussion and Analysis of Financial
                       Condition and Results of Operations                                  8

       PART II         OTHER INFORMATION
       -------         -----------------

       Item 1          Legal Proceedings                                                   13

       Item 2          Changes in Securities                                               13

       Item 3          Defaults upon Senior Securities                                     13

       Item 4          Submission of Matters to a Vote of Security Holders                 13

       Item 5          Other Information                                                   13

       Item 6          Exhibits and Reports on Form 8-K                                    13

     SIGNATURES                                                                            14
</TABLE>

                                       2
<PAGE>

                                     BEDFORD BANCSHARES, INC. AND SUBSIDIARY
                                  Consolidated Statements of Financial Condition

<TABLE>
<CAPTION>
                                                                        June 30     September 30
                                                                           2001         2000
                                                                        ---------    ---------
                                                                             (In Thousands)
                                                                               (Unaudited)
<S>                                                                   <C>          <C>
Assets
------
Cash and cash equivalents ...........................................   $   7,617    $   5,512
Investment securities held to maturity (estimated market value of
$506 and $506) ......................................................         505          507
Marketable equity securities available for sale, at market value ....          --           50
Investment securities available for sale, at market value ...........       7,002        6,855
Investment in Federal Home Loan Bank stock, at cost .................       2,300        1,900
Loans receivable, net ...............................................     183,854      169,592
Foreclosed real estate, net .........................................          26           --
Property and equipment, net .........................................       1,367        1,365
Accrued interest receivable .........................................       1,035        1,133
Deferred income taxes ...............................................          32          270
Other assets ........................................................       1,111          357
                                                                        ---------    ---------
    Total assets ....................................................   $ 204,849    $ 187,541
                                                                        =========    =========

Liabilities and Stockholders' Equity
------------------------------------
Liabilities
-----------
Deposits ............................................................   $ 140,521    $ 129,770
Advances from the Federal Home Loan Bank ............................      40,000       34,000
Advances from borrowers for taxes and insurance .....................         418          694
Dividends payable ...................................................         232          215
Other liabilities ...................................................         268          306
                                                                        ---------    ---------
    Total liabilities ...............................................     181,439      164,985
                                                                        ---------    ---------

Commitments and contingent liabilities

Stockholders' equity
--------------------
Preferred stock, par value $.10 per share, authorized 250,000; issued
and outstanding, none ...............................................          --           --
Common stock, par value, $.10 per share, authorized 2,750,000
shares; issued and outstanding 2,110,160 at June 30, 2001 and
2,149,270 at September 30, 2000  ....................................         211          215
Additional paid in capital ..........................................      10,345       10,466
Retained earnings, substantially restricted .........................      13,329       12,503
Accumulated other comprehensive income (loss) .......................         (32)        (122)
Less stock acquired by ESOP and RRP .................................        (443)        (506)
                                                                        ---------    ---------
    Total stockholders' equity ......................................      23,410       22,556
                                                                        ---------    ---------
    Total liabilities and stockholders' equity ......................   $ 204,849    $ 187,541
                                                                        =========    =========
</TABLE>
See notes to consolidated financial statements

                                       3
<PAGE>

                                         BEDFORD BANCSHARES, INC. AND SUBSIDIARY
                                           Consolidated Statements of Income
                                                       (Unaudited)

<TABLE>
<CAPTION>
      .                                            Three Months Ended   Nine Months Ended
                                                         June 30             June 30
                                                     -----------------   -----------------
                                                      2001      2000      2001      2000
                                                     -------   -------   -------   -------
                                                 (Dollars in Thousands, Except Per Share Data)
<S>                                                <C>       <C>       <C>       <C>
Interest Income:
 Loans ...........................................   $ 3,560   $ 3,237   $10,506   $ 9,123
 U.S. Government Obligations including agencies ..       132       122       374       425
 Other investments, including overnight deposits .        90        71       259       207
                                                     -------   -------   -------   -------
    Total interest income ........................     3,782     3,430    11,139     9,755
                                                     -------   -------   -------   -------
Interest Expense:
 Deposits ........................................     1,507     1,304     4,474     3,666
 Borrowed funds ..................................       568       524     1,693     1,475
                                                     -------   -------   -------   -------
    Total interest expense .......................     2,075     1,828     6,167     5,141
                                                     -------   -------   -------   -------
    Net interest income ..........................     1,707     1,602     4,972     4,614
Provision for credit losses ......................        45        30       120        90
                                                     -------   -------   -------   -------
 Net interest income after provision for credit
 Losses ..........................................     1,662     1,572     4,852     4,524
                                                     -------   -------   -------   -------
Noninterest income:
 Service charges and fees on loans ...............       159       149       390       445
 Other customer service fees and
   commissions ...................................       112        90       306       297
 Other ...........................................        20        14        66        47
                                                     -------   -------   -------   -------
    Total noninterest income .....................       291       253       762       789
                                                     -------   -------   -------   -------
Noninterest expense:
 Personnel compensation and benefits .............       562       465     1,572     1,444
 Occupancy and equipment .........................       135        79       344       226
 Data Processing .................................       122       112       362       319
 Federal insurance of accounts ...................         6         6        19        32
 Advertising .....................................        40        31       103       104
 Professional fees ...............................        72        33       225       124
 Other ...........................................       107       100       320       327
                                                     -------   -------   -------   -------
    Total noninterest expense ....................     1,044       826     2,945     2,576
                                                     -------   -------   -------   -------
    Income before income taxes ...................       909       999     2,669     2,737
 Provision for income taxes ......................       345       381     1,013     1,063
                                                     -------   -------   -------   -------
   Net income ....................................   $   564   $   618   $ 1,656   $ 1,674
                                                     =======   =======   =======   =======

Basic earnings per share .........................   $  0.27   $  0.30   $  0.80   $  0.81
                                                     =======   =======   =======   =======

Diluted earnings per share .......................   $  0.26   $  0.29   $  0.77   $  0.78
                                                     =======   =======   =======   =======
</TABLE>

See notes to consolidated financial statements

                                       4
<PAGE>

                     BEDFORD BANCSHARES, INC. AND SUBSIDIARY
                       Comprehensive Statements of Income
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                 Three Months Ended  Nine Months Ended
                                                      June 30             June 30
                                                 ------------------  -----------------
                                                   2001       2000     2001      2000
                                                 -------    -------  -------   -------
                                             (Dollars in Thousands, Except Per Share Data)

<S>                                            <C>        <C>       <C>       <C>
Net Income ...................................   $   564    $   618   $ 1,656   $ 1,674

Other comprehensive income, net of tax effect:

   Unrealized gains (losses) on securities
   available for sale ........................       (52)        30        90       (37)
                                                 -------    -------   -------   -------

Comprehensive income .........................   $   512    $   648   $ 1,746   $ 1,637
                                                 =======    =======   =======   =======
</TABLE>

                                       5
<PAGE>
                                         BEDFORD BANCSHARES, INC. AND SUBSIDIARY
                                          Consolidated Statements of Cash Flows
                                                       (Unaudited)

<TABLE>
<CAPTION>
                                                                             Nine Months Ended
                                                                                  June 30
                                                                             -----------------
                                                                             2001        2000
                                                                             ----        ----
<S>                                                                     <C>         <C>
Operating activities:
 Net Income ...........................................................   $  1,656    $  1,674
 Adjustments to reconcile net income to net cash provided by
 operating activities:
   Provision for credit losses ........................................        120          90
   Provision for depreciation and amortization ........................        154         107
   Amortization of investment security premiums and accretion of
   discounts, net .....................................................          4           3
   (Increase) decrease in deferred income taxes .......................        238         (86)
   (Gain) loss on sale of loans, investments and foreclosed real estate        (26)         --
   (Increase) decrease in accrued interest receivable .................         98        (187)
   (Increase) decrease in other assets ................................       (753)        (64)
   Increase (decrease) in other liabilities ...........................        (36)       (882)
                                                                          --------    --------
    Net cash provided by (used in) operating activities ...............      1,455         655
                                                                          --------    --------
Investing activities:
   Proceeds from the sale of available for sale investment securities .      2,500       4,664
   Proceeds from the sale of marketable equity securities .............         59          --
   Proceeds from maturities of available for sale investment securities      2,500         509
   Purchases of available for sale investment securities ..............     (5,000)     (1,500)
   Purchase of Federal Home Loan Bank stock ...........................       (400)       (400)
   Net increase in loans to customers .................................    (14,382)    (20,595)
   Principal collected on mortgage-backed securities ..................          2           2
   Purchases of premises, equipment and leasehold improvements ........       (156)       (198)
   Proceeds from the sale of REO ......................................         --        (313)
                                                                          --------    --------
    Net cash provided by (used in) investing activities ...............    (14,877)    (17,831)
                                                                          --------    --------
Financing activities:
   Exercise of stock options ..........................................         22          --
   Allocation of ESOP and RRP shares ..................................         91         134
   Dividends paid .....................................................       (664)       (605)
   Net increase (decrease) in customer deposits .......................     10,751      10,604
   Proceeds from (repayments of) advances and other borrowed money ....      6,000      10,000
   Repurchase of stock ................................................       (414)       (264)
   Net increase (decrease) in advance payments from borrower for taxes
   and insurance ......................................................       (276)       (153)
   Other, net .........................................................         17           9
                                                                          --------    --------
    Net cash provided by financing activities .........................     15,527      19,725
                                                                          --------    --------
    Increase (decrease) in cash and cash equivalents ..................      2,105       2,549
Cash and cash equivalents at beginning of period ......................      5,512       2,744
                                                                          --------    --------
Cash and cash equivalents at end of period ............................   $  7,617    $  5,293
                                                                          ========    ========
</TABLE>

                                        6
<PAGE>

                     BEDFORD BANCSHARES, INC. AND SUBSIDIARY
          Notes to Unaudited Interim Consolidated Financial Statements
                                  June 30, 2001


NOTE 1:  BASIS OF PRESENTATION
------------------------------

         The accompanying  unaudited interim  consolidated  financial statements
have been prepared in accordance with generally accepted  accounting  principles
("GAAP") for interim financial information. Accordingly, they do not include all
of the  information  and  footnotes  required by generally  accepted  accounting
principles for complete financial statements.

         The accompanying  unaudited interim  consolidated  financial statements
include  the  accounts  of  Bedford   Bancshares,   Inc.,and  its  wholly  owned
subsidiaries Bedford Federal Savings Bank and CVFS. All significant intercompany
balances and transactions have been eliminated in consolidation.

         In the opinion of  management,  all  adjustments  (consisting of normal
recurring  accruals)  considered  necessary for the fair  presentation have been
included.  The results of operations  for the interim period ended June 30, 2001
is not  necessarily  indicative  of the results  which may be  expected  for any
future  period.  For  further  information,   refer  to  consolidated  financial
statements and footnotes thereto included in the Corporation's  Annual Report on
Form 10-KSB for the year ended September 30, 2000.

NOTE 2:  EARNINGS PER SHARE
---------------------------

Earnings per share are calculated as follows:

<TABLE>
<CAPTION>
                                                              Three Months Ended            Nine Months Ended
                                                                   June 30                        June 30
                                                            -----------------------      -------------------------
                                                              2001          2000           2001            2000
                                                            ---------     ---------      ---------       ---------
<S>                                                      <C>           <C>          <C>             <C>
Basic Earnings Per Share:
Net Income............................................       $564,000      $618,000     $1,656,000      $1,674,000
                                                             ========      ========     ==========      ==========
Average Shares Outstanding, Net of
Unallocated ESOP Shares (61,334 and 77,334
at June 30, 2001 and 2000, respectively)..............      2,050,367     2,071,937      2,069,099       2,078,569
                                                            =========     =========      =========       =========
Basic Earnings Per Share..............................          $0.27         $0.30          $0.80           $0.81
                                                                =====         =====          =====           =====

Diluted Earnings Per Share;
Net Income............................................       $564,000      $618,000     $1,656,000      $1,674,000
                                                             ========      ========     ==========      ==========
Average Shares Outstanding, Net of
unallocated ESOP Shares (61,334 and 77,334
at June 30, 2001 and 2000, respectively)..............      2,050,367     2,071,937      2,069,099       2,078,569
  Dilutive effect of RRP Plan shares..................            782           793            782           1,117
  Dilutive effect of Stock Options....................         85,902        55,378         85,902          59,167
                                                            ---------     ---------      ---------       ---------
Average Shares Outstanding............................      2,137,051     2,128,108      2,155,783       2,138,853
                                                            =========     =========      =========       =========
Diluted Earnings Per Share............................          $0.26         $0.29          $0.77           $0.78
                                                                =====         =====          =====           =====
</TABLE>
                                       7
<PAGE>

         MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                              RESULTS OF OPERATIONS



FORWARD-LOOKING STATEMENTS
--------------------------

         The Private  Securities  Litigation  Reform Act of 1995  contains  safe
harbor  provisions  regarding  forward-looking  statements.  When  used  in this
discussion, the words, "believes", "anticipates", "contemplates", "expects", and
similar expressions are intended to identify  forward-looking  statements.  Such
statements  are subject to certain  risks and  uncertainties,  which could cause
actual  results to differ  materially  from  those  projected.  Those  risks and
uncertainties  that may affect the operations  performance,  development and the
results of the Corporation's business include the following: changes in interest
rates,  risks associated with the effect of opening a new branch, the ability to
control costs and expenses, and general economic conditions.

FINANCIAL CONDITION
-------------------

         At June 30,  2001,  consolidated  assets  totaled  $204.8  million,  an
increase of $17.3 million from September 30, 2000.  Assets  increased  primarily
due to the growth in the loan portfolio, which increased $14.3 million. The loan
growth was funded primarily by a $10.8 million rise in deposits and a $6 million
increase in FHLB advances.

RESULTS OF OPERATIONS
---------------------

         General.  Net income for the three months ended June 30, 2001 decreased
$54,000, or 8.7%, to $564,000 from $618,000 for the comparable 2000 period.. Net
income for the nine months ended June 30, 2001,  was  $1,656,000,  a decrease of
$18,000,  or 1.1%,  from the $1,674,000  earned in the  comparable  2000 period.
During  the  three  and nine  months  ended  June 30,  2001,  the  Corporation's
performance was impacted by the decline in interest rates and higher noninterest
expenses  primarily  related to  compensation  and  benefits,  and occupancy and
equipment  expenditures.  Although demand for mortgage financing remained strong
during the  periods,  net  interest  margin and spread  declined  12 and 8 basis
points  for  the  three   months  ended  June  30,  2001  to  3.51%  and  2.77%,
respectively, as a result of the lower rate environment. Similarly, net interest
margin and spread  declined 9 and 14 basis points for the nine months ended June
30, 2001, to 3.50% and 2.73%, respectively.  If the Federal reserve continues to
reduce short-term  interest rates as currently  predicted,  the Corporation does
not expect their  interest rate spreads and margins to  significantly  change in
the fourth quarter of fiscal 2001.

         Interest  Income.  Interest  income  totaled $3.8 million for the three
months ended June 30, 2001,  a $352,000  increase  from the $3.4 million for the
comparable 2000 period. A $14.0 million increase in average loans receivable was
the primary reason for the increase.

                                       8
<PAGE>

         For the nine months ended June 30, 2001,  interest income totaled $11.1
million,  a $1.4 million  increase from the $9.8 million for the comparable 2000
period.  An increase of $19.0 million in average loans  receivable  for the nine
months  ended June 30, 2001  compared  to the same nine months of 2000  combined
with a 22 basis  improvement in the yield on average loans  receivable  were the
primary factors for the higher interest income.

         Interest  Expense.  Interest expense totaled $2.1 million for the three
months ended June 30, 2001,  a $247,000  increase  from the $1.8 million for the
comparable  2000 period.  A 23 basis point rise in the cost of average  interest
bearing  deposits  plus an  increase  of $11.5  million in the  average  volume,
combined with a $5.8 million  increase in average FHLB advances were the primary
reasons for the increase.

         For the nine months ended June 30, 2001,  interest expense totaled $6.2
million,  a $1.1 million  increase from the $5.1 million for the comparable 2000
period.  Interest on deposits reflected an $808,000 increase, due to both higher
average  volume and higher  average  cost,  and interest on FHLB advances was up
$218,000 due primarily to an increase in average borrowings.

         Net Interest  Income.  For the three  months  ended June 30, 2001,  net
interest  income was $1.7  million,  up $105,000  from the net  interest  income
earned in the same period of 2000. A 10.3% rise in the level of average interest
earning assets was the primary reason for the increase in net interest income.

         For the nine months ended June 30, 2001,  net interest  income was $5.0
million,  up $358,000 from the net interest  income earned in the same period of
2000.  For the nine months  ended June 30,  2001,  average  earning  assets were
$189.1 million, up 10.9% from the average for the same period of 2000.

         Provision  for Loan Losses.  The  provision for loan losses was $45,000
for the three months ended June 30, 2001,  compared to $30,000 for the same 2000
period.  For the nine months ended June 30, 2001 the  provision  for loan losses
was  $120,000  compared to $90,000  for the same  period of 2000.  For the three
months  ended  June  30,  2001,  the  Company  experienced  growth  of  14.1% in
commercial  loans.  Additionally,  for the nine months ended June 30, 2001,  the
Company experienced growth of 12.0% in installment loans and 40.4% in commercial
loans.  Management  performs regular  assessments of the credit risk in the loan
portfolio based on information available at such times,  including the loan mix,
level of our  nonperforming  loans and  assets,  trends in the local real estate
market, and current and potential charge-offs.

         Noninterest   Income.  For  the  three  months  ended  June  30,  2001,
noninterest  income was $291,000,  up 15.0% from the $253,000 for the comparable
2000 period.  Service  charges and fees on loans were up $10,000 to $159,000 for
the third  quarter of fiscal 2001 from  $149,000  for the  comparable  period of
fiscal 2000 due primarily to a higher dollar amount of loans being closed. Other
customer  service  fees and  commissions  were up $22,000  due  primarily  to an
increase in income from transaction accounts. Other noninterest income increased
$6,000 to $21,000 for the three  months ended June 30, 2001 from $14,000 for the
comparable  2000 period due to a $11,000  gain on the sale of  maketable  equity
available for sale.

                                       9
<PAGE>

         For the  nine  months  ended  June 30,  2001,  noninterest  income  was
$762,000  compared to $789,000 for the same period of 2000.  Service charges and
fees on loans was down  $55,000  due to the lower  number and  dollar  amount of
loans  closed.  Other  noninterest  income  was  up  $19,000  due  to  increased
commissions  on the  sale of  mortgage  insurance  and the  gain on the  sale of
available for sale securities.

Noninterest  Expense.  Noninterest  expense  totaled  $1.0 million for the three
months  ended June 30,  2001,  compared to $826,000 for the same three months of
fiscal 2000.  Personnel  compensation  and benefits rose  $97,000,  to $562,000,
primarily  due to an increase in staffing  and an increase in benefit  cost that
reflects  the  increase  in the  market  value of the  Company's  common  stock.
Occupancy  and  equipment  expense  was up $56,000  due  primarily  to  expenses
associated  with the  operation  of the New London  branch,  which was opened in
September of 2000, and expenses related to technology upgrades.  Data processing
expense  was up $10,000  due  primarily  to  increases  in  transaction  volume.
Professional fees were up $39,000 primarily due to higher legal expenses.

         For the nine months  ended June 30,  2001,  noninterest  expenses  were
$2,945,000,  compared to $2,576,000 for the comparable period of 2000. Personnel
compensation and benefits were up $128,000 due to staffing  increases and higher
benefits costs. Occupancy and equipment expense was up $118,000 due primarily to
expenses  associated  with  the  New  London  office  and  expenses  related  to
technology  upgrades.  Data processing  expenses were up $43,000 to increases in
volume and  professional  fees were up $101,000  due  primarily  to higher legal
expenses.

         Provision for Income Taxes. The provision for income taxes was $345,000
for the three  months  ended  June 30,  2001,  down  $36,000  from the  $381,000
provision  recorded in the same three months of fiscal 2000.  The primary reason
for the decrease was the lower level of taxable income.

         For the nine months ended June 30, 2001, the provision for income taxes
was $1.01  million,  down 4.7% from the  $1.06  million  provision  for the same
period of fiscal 2000. A lower level of taxable income is the primary reason for
the decline.

                                       10

<PAGE>

CAPITAL COMPLIANCE
------------------

The following table presents the Bank's  compliance with its regulatory  capital
requirements of June 30, 2001. (Dollar amounts in thousands).

                                                              June 30, 2001
                                                         -----------------------
                                                                    Percentage
                                                                     of assets
                                                                    ----------

GAAP Capital......................................       $20,479         9.97%
                                                         =======         =====

Tangible capital..................................       $20,511        10.02%
Tangible capital requirement......................        $3,069         1.50%
                                                          ------         -----
Excess............................................       $17,442         8.52%
                                                         =======         =====

Core capital......................................       $20,511        10.02%
Core capital requirement..........................         8,185         4.00%
                                                           -----         -----
Excess............................................       $12,326         6.02%
                                                         =======         =====

Total risk-based capital (1)......................       $21,385        16.47%
Total risk-based capital requirement (1)..........        10,388         8.00%
                                                          ------         -----
Excess............................................       $10,997         8.47%
                                                         =======         =====
-------------------
(1)  Based on risk-weighted assets of $129,855

     Management  believes  that under current  regulations,  we will continue to
     meet our minimum capital  requirements in the  foreseeable  future.  Events
     beyond our control,  such as changes in interest rates or a downturn in the
     economy in areas in which we operate could adversely affect future earnings
     and  as  a  result,   our  ability  to  meet  our  future  minimum  capital
     requirements.

LIQUIDITY
---------

         Our  liquidity  is a measure of our ability to fund loans,  pay deposit
withdrawals and other cash outflows in an efficient,  cost effective manner. Our
primary sources of funds are deposits, and scheduled amortization and prepayment
of loans.  In addition,  we supplement our funding needs by borrowing funds from
the FHLB of Atlanta,  (the  "FHLB").   As of June 30, 2001,  such borrowed funds
totaled $40 million. Loan payments and prepayments,  deposits and borrowings are
greatly   influenced  by  general  interest  rates,   economic   conditions  and
competition.

         The amount of certificate accounts which are scheduled to mature during
the next twelve months ending June 30, 2001, is approximately  $60.8 million. To
the extent that these deposits do not remain with us upon  maturity,  we believe
that we can replace  these  funds with other  deposits,  FHLB  advances or other
borrowings.  It has been  our  experience  that a  substantial  portion  of such
maturing deposits remain with us.

         At June 30, 2001, we had loan commitments outstanding of $22.7 million.
These  commitments  will be funded from deposit  inflows,  loan  repayments  and
borrowings.

                                       11
<PAGE>

                     BEDFORD BANCSHARES, INC. AND SUBSIDIARY
                              Key Operating Ratios

<TABLE>
<CAPTION>
                                                            Three Months Ended          Nine Months Ended
                                                                  June 30                     June 30
                                                                  -------                     -------
                                                           2001(1)       2000(1)       2001(1)        2000(1)
                                                           -------       -------       -------        -------
                                                                              (Unaudited)


<S>                                                     <C>            <C>           <C>            <C>
Basic earnings per share .......................           $0.27          $0.30         $0.80          $0.81
Diluted earnings per share......................           $0.26          $0.29         $0.77          $0.78
Return on average assets........................            1.12%          1.35%         1.13%          1.27%
Return on average equity........................            9.67%         11.34%         9.57%         10.40%
Interest rate spread............................            2.77%          2.85%         2.73%          2.87%
Net interest margin.............................            3.51%          3.63%         3.51%          3.60%
Noninterest expense to average assets...........            2.08%          1.81%         2.01%          1.95%
Net charge-offs to average outstanding loans....
                                                            0.04%          0.04%         0.02%          0.05%

</TABLE>


<TABLE>
<CAPTION>
                                                             June 30       September 30
                                                              2001              2000
                                                            --------       ------------
                                                               (Dollars in thousands)
                                                                   (Unaudited)
<S>                                                        <C>              <C>
Nonaccrual loans..........................................     $416             $960
Repossessed real estate...................................       26               --
                                                               ----             ----
Total nonperforming assets................................     $442             $960
                                                               ====             ====


Allowance for credit losses to nonperforming assets.......   212.42%           88.55%
Nonperforming loans to total loans........................     0.23%            0.57%
Nonperforming assets to total assets......................     0.22%            0.51%


Book value per share .....................................   $11.09           $10.49
                                                             ======           ======
</TABLE>

------------------------
(1)  The ratios for the three- and nine-month periods are annualized

                                       12
<PAGE>

                           PART II - OTHER INFORMATION
                           ---------------------------


Item 1.           Legal Proceedings
                  -----------------

                    Neither  the  Corporation  nor the Bank was  engaged  in any
                    legal  proceedings  of a material  nature at June 30,  2001.
                    From  time to  time,  the  Corporation  is a part  to  legal
                    proceedings  in the ordinary  course of business  wherein it
                    enforces its security interest in loans.

Item 2.           Changes in Securities
                  ---------------------
                     Not applicable.

Item 3.           Defaults upon Senior Securities
                  -------------------------------
                     Not applicable.

Item 4.           Submission of Matters to a Vote of Security Holders
                  ---------------------------------------------------
                     Not applicable.

Item 5.           Other Information
                  -----------------
                     Not applicable.

Item 6.           Exhibits and Reports on Form 8-K
                  --------------------------------
                  (a)  List of Exhibits:
                       3(i)  Restated Articles of Incorporation of Bedford
                             Bancshares, Inc.*
                       3(ii) Bylaws of Bedford Bancshares, Inc.*
                       4     Specimen of Stock Certificate*
                      10.1   1994 Stock Option Plan*
                      10.2   Recognition and Retention Plan and Trust Agreement
                      10.3   Employment Agreement between the Registrant and
                             H. K. Neal*
                  (b)  Reports on Form 8-K
                       Not applicable.


                  *Incorporated  by  reference to the  Registrant's  Form 10-KSB
                    filed with the SEC on December 9, 1994.

                                       13

<PAGE>

                     BEDFORD BANCSHARES, INC. AND SUBSIDIARY

                                   SIGNATURES


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



                                         BEDFORD BANCSHARES, INC.

Date:    August 7, 2001                   By: /s/ Harold K. Neal
                                             ------------------
                                                  Harold K. Neal
                                                  President and
                                                  Chief Executive Officer
                                                  (Principal Executive Officer)


Date:    August 7, 2001                   By:  /s/ James W. Smith
                                               ------------------
                                                  James W. Smith
                                                  Vice President and Treasurer
                                                  (Principal Accounting and
                                                     Financial Officer)


                                       14