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 March 31, 2003

                                       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 May 9, 2003: 2,091,425


<PAGE>

                     BEDFORD BANCSHARES, INC. AND SUBSIDIARY

                              INDEX TO FORM 10-QSB

<TABLE>
<CAPTION>

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

                        Consolidated Statements of Financial Condition at March 31,   2003(unaudited)
                        and September 30, 2002                                                                    3

                        Consolidated Statements of Income for the three and six months ended March 31,
                        2003 and 2002 (unaudited)                                                                 4

                        Consolidated Comprehensive Statements of Income for the three and six months
                        ended March 31, 2003 and 2002 (unaudited)                                                 5

                        Consolidated Statements of Cash Flows for the six months ended March 31, 2003
                        and 2002 (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>
                                                                                  March 31    September 30
                                                                                     2003         2002
                                                                                  ---------    ---------
                                                                                      (In Thousands)
                                                                                 (Unaudited)
<S>                                                                             <C>          <C>
Assets
------
Cash and cash equivalents .....................................................   $  14,117    $  15,668
Interest-bearing deposits in other banks ......................................       2,994           --
Investment securities held to maturity (estimated market value of
$2 and $518) ..................................................................           2          502
Investment securities available for sale, at market value .....................       8,321       13,589
Investment in Federal Home Loan Bank stock, at cost ...........................       2,950        2,600
Loans receivable, net .........................................................     230,705      219,634
Foreclosed real estate, net ...................................................         126           26
Property and equipment, net ...................................................       1,216        1,239
Accrued interest receivable ...................................................       1,142        1,328
Deferred income taxes .........................................................         304          355
Other assets ..................................................................         849          673
                                                                                  ---------    ---------
    Total assets ..............................................................   $ 262,726    $ 255,614
                                                                                  =========    =========

Liabilities and Stockholders' Equity
------------------------------------
Liabilities
-----------
Deposits ......................................................................   $ 178,131    $ 177,214
Advances from the Federal Home Loan Bank ......................................      57,000       52,000
Advances from borrowers for taxes and insurance ...............................         746          815
Dividends payable .............................................................         272          241
Other liabilities .............................................................         473          782
                                                                                  ---------    ---------
    Total liabilities .........................................................     236,622      231,052
                                                                                  ---------    ---------

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 2,091,425 at March 31, 2003 and 2,011,952 at September 30, 2002         209          201
Additional paid in capital ....................................................      10,624       10,089
Retained earnings, substantially restricted ...................................      15,453       14,570
Accumulated other comprehensive income (loss) .................................         105           22
Less stock acquired by ESOP and RRP ...........................................        (287)        (320)
                                                                                  ---------    ---------
    Total stockholders' equity ................................................      26,104       24,562
                                                                                  ---------    ---------
    Total liabilities and stockholders' equity ................................   $ 262,726    $ 255,614
                                                                                  =========    =========
</TABLE>

See notes to consolidated financial statements

                                       3
<PAGE>

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

<TABLE>
<CAPTION>

                                               Three Months Ended  Six Months Ended
                                                      March 31          March 31
                                                   2003     2002     2003     2002
                                                  ------   ------   ------   ------
                                           (Dollars in Thousands, Except Per Share Data)
<S>                                             <C>      <C>      <C>      <C>
Interest Income:
 Loans ........................................   $3,390   $3,538   $6,863   $7,118
 U.S. Government obligations
    including agencies.........................      143      231      393      521
 Other investments, including overnight
    deposits...................................      139      115      202      163
                                                  ------   ------   ------   ------
    Total interest income .....................    3,672    3,884    7,458    7,802
                                                  ------   ------   ------   ------
Interest Expense:
 Deposits .....................................    1,031    1,376    2,212    2,800
 Borrowed funds ...............................      656      615    1,300    1,212
                                                  ------   ------   ------   ------
    Total interest expense ....................    1,687    1,991    3,512    4,012
                                                  ------   ------   ------   ------
    Net interest income .......................    1,985    1,893    3,946    3,790
Provision for credit losses ...................       75      100      150      145
                                                  ------   ------   ------   ------
 Net interest income after provision for credit
  losses ......................................    1,910    1,793    3,796    3,645
                                                  ------   ------   ------   ------
Noninterest income:
 Service charges and fees on loans ............      428      387      802      636
 Other customer service fees and
   commissions ................................      136      119      281      243
 Other ........................................       43       64       60       78
                                                  ------   ------   ------   ------
    Total noninterest income ..................      607      570    1,143      957
                                                  ------   ------   ------   ------
Noninterest expense:
 Personnel compensation and benefits ..........      718      580    1,402    1,265
 Occupancy and equipment ......................      115      133      235      237
 Data processing ..............................      161      114      312      239
 Federal insurance of accounts ................        8        7       15       13
 Advertising ..................................       29       31       67       62
 Professional fees ............................      137       64      205      144
 Other ........................................      122      165      265      281
                                                  ------   ------   ------   ------
    Total noninterest expense .................    1,290    1,094    2,501    2,241
                                                  ------   ------   ------   ------
    Income before income taxes ................    1,227    1,269    2,438    2,361
 Provision for income taxes ...................      466      429      926      844
                                                  ------   ------   ------   ------
   Net income .................................   $  761   $  840   $1,512   $1,517
                                                  ======   ======   ======   ======

Basic earnings per share ......................   $ 0.38   $ 0.43   $ 0.76   $ 0.76
                                                  ======   ======   ======   ======

Diluted earnings per share ....................   $ 0.38   $ 0.41   $ 0.76   $ 0.73
                                                  ======   ======   ======   ======
</TABLE>

See notes to consolidated financial statements

                                       4
<PAGE>

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

<TABLE>
<CAPTION>
                                                  Three Months Ended     Six Months Ended
                                                        March 31             March 31
                                                    2003       2002       2003      2002
                                                    ----       ----      -----      ----
                                              (Dollars in Thousands, Except Per Share Data)
<S>                                            <C>        <C>        <C>       <C>
Net Income ...................................   $   761    $   840    $ 1,512   $ 1,517

Other comprehensive income, net of tax effect:

   Unrealized gains (losses) on securities
   available for sale ........................       (43)      (301)        83      (409)
                                                 -------    -------    -------   -------

Comprehensive income .........................   $   718    $   539    $ 1,595   $ 1,108
                                                 =======    =======    =======   =======

</TABLE>

                                       5
<PAGE>

                     BEDFORD BANCSHARES, INC. AND SUBSIDIARY
                      Consolidated Statements of Cash Flows
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                            Six Months Ended
                                                                                March 31
                                                                              2003        2002
                                                                          --------    --------
                                                                         (Dollars in Thousands)
<S>                                                                     <C>         <C>
Operating activities:
 Net Income ...........................................................   $  1,512    $  1,517
 Adjustments to reconcile net income to net cash provided by
 operating activities:
   Provision for credit losses ........................................        150         145
   Provision for depreciation and amortization ........................        101          93
   Amortization of investment security premiums and accretion
      Of discounts, net ...............................................         --           9
   (Increase) decrease in deferred income taxes .......................         51          23
   (Gain) loss on sale of loans, investments and foreclosed real estate        (29)        (41)
   (Increase) decrease in accrued interest receivable .................        186        (297)
   (Increase) decrease in other assets ................................       (176)         58
   Increase (decrease) in other liabilities ...........................       (309)       (351)
                                                                          --------    --------
    Net cash provided by (used in) operating activities ...............      1,486       1,156
                                                                          --------    --------
Investing activities:
   Increase in interest-bearing deposits in other banks ...............     (2,994)         --
   Proceeds from the sale of available for sale investment securities .     18,150       2,051
   Proceeds from maturities of held to maturity investment securities .        500          --
   Purchases of available for sale investment securities ..............    (12,750)    (10,500)
   Purchase of Federal Home Loan Bank stock ...........................       (350)       (300)
   Net increase in loans to customers .................................    (11,071)    (20,593)
   Principal collected on mortgage-backed securities ..................         --           1
   Purchases of premises, equipment and leasehold improvements ........        (78)        (80)
   Net (increase) decrease in foreclosed real estate ..................       (100)         68
                                                                          --------    --------
    Net cash provided by (used in) investing activities ...............     (8,693)    (29,353)
                                                                          --------    --------
Financing activities:
   Dividends paid .....................................................       (483)       (437)
   Net increase (decrease) in customer deposits .......................        917      14,136
   Proceeds from (repayments of) FHLB advances ........................      5,000      12,000
   Vesting of RRP shares ..............................................         --          42
   Repurchase of stock ................................................       (333)     (1,008)
   Stock options exercised ............................................        594         102
   Net increase (decrease) in advance payments from borrowers for
     Taxes and insurance ..............................................        (69)         18
   Other, net .........................................................         30          23
                                                                          --------    --------
    Net cash provided by financing activities .........................      5,656      24,876
                                                                          --------    --------
    Increase (decrease) in cash and cash equivalents ..................     (1,551)     (3,321)
Cash and cash equivalents at beginning of period ......................     15,668      16,761
                                                                          --------    --------
Cash and cash equivalents at end of period ............................   $ 14,117    $ 13,440
                                                                          ========    ========
</TABLE>

                                       6

<PAGE>

                     BEDFORD BANCSHARES, INC. AND SUBSIDIARY
          Notes to Unaudited Interim Consolidated Financial Statements
                                 March 31, 2003


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  Central  Virginia  Financial
Services, Inc. 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 March 31, 2003
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, 2002.

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

Earnings per share are calculated as follows:

<TABLE>
<CAPTION>
                                                              Three Months Ended            Six Months Ended
                                                                    March 31                     March 31
                                                               2003          2002           2003          2002
                                                               ----          ----           ----          ----
<S>                                                        <C>           <C>          <C>             <C>
Basic Earnings Per Share:
Net Income............................................       $761,000      $840,000     $1,512,000      $1,517,000
                                                             ========      ========     ==========      ==========
Average Shares Outstanding, Net of
Unallocated ESOP Shares (29,334 and 45,334 at
March 31, 2003 and 2002, respectively)................      1,992,239     1,984,527      1,987,376       2,006,532
                                                            =========     =========      =========       =========
Basic Earnings Per Share..............................          $0.38         $0.43          $0.76           $0.76
                                                                =====         =====          =====           =====

Diluted Earnings Per Share:
Net Income............................................       $761,000      $840,000     $1,512,000      $1,517,000
                                                             ========      ========     ==========      ==========
Average Shares Outstanding, Net of unallocated ESOP
Shares (29,334 and 45,334 at March 31, 2003 and
2002,  respectively)..................................      1,992,239     1,984,527      1,987,376       2,006,532
  Dilutive effect of RRP Plan shares..................             --            --             --              --
  Dilutive effect of Stock Options....................         25,960        82,084         25,960          81,993
                                                            ---------     ---------      ---------       ---------
Average Shares Outstanding............................      2,018,199     2,066,611      2,013,336       2,088,525
                                                            =========     =========      =========       =========
Diluted Earnings Per Share............................          $0.38         $0.41          $0.76           $0.73
                                                                =====         =====          =====           =====
</TABLE>
                                       7
<PAGE>

                     BEDFORD BANCSHARES, INC. AND SUBSIDIARY
     Notes to Unaudited Interim Consolidated Financial Statements, continued
                                 March 31, 2003

NOTE 3:  PROPOSED MERGER
-------  ---------------

         On March 20,  2003,  the Board of Directors  approved an agreement  and
plan of merger pursuant to which 100% of the outstanding common stock of Bedford
Bancshares, Inc. would be acquired by FNB Corporation.  The agreement is subject
to the approval of Bedford Bancshares, Inc. and FNB Corporation shareholders and
all necessary regulatory agencies.

NOTE 4:  STOCK OPTIONS
-------  -------------

         The  Company  established  two stock  option  plans  during  1995,  for
directors,  officers and  employees.  The exercise price under both plans is the
fair market value on the date of the grants. One is a non-incentive stock option
plan and the other is an incentive stock option plan. Rights to exercise options
granted vest at the rate of 20% per year,  beginning on the first anniversary of
the grant. A summary of the stock option activity is as follows:

                                      Weighted
                                      Average
                                      Exercise Available   Options    Vested and
                                       Price   For Grant Outstanding Exercisable
--------------------------------------------------------------------------------
Balance at September 30, 2002           $6.11   20,994     128,060     128,060
  Granted                                  --       --          --          --
  Vested                                   --       --          --          --
  Exercised                              6.32              (93,988)    (93,988)
--------------------------------------------------------------------------------
Balance at March 31, 2003               $5.50   20,994      34,072      34,072
--------------------------------------------------------------------------------

                                        8
<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  include changes in interest  rates,  the ability to control costs
and expenses, and general economic conditions.

CRITICAL ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS
-----------------------------------------------------

         The financial  statements of Bedford  Bancshares,  Inc. are prepared in
accordance with accounting  principles  generally accepted in the United States.
The  preparation  of these  financial  statements  requires  management  to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenue and  expenses,  as well as the  disclosure  of  contingent  liabilities.
Management  continually  evaluates its estimates and judgments,  including those
related to the allowance for loan losses and income taxes.  Management bases its
estimates  and  judgments on  historical  experience  and other factors that are
believed to be reasonable  under the  circumstances.  Actual  results may differ
from these  estimates  under  different  assumptions or  conditions.  Management
believes  that,  of its  significant  accounting  policies,  the  most  critical
accounting  policies it applies are those  related to the  valuation of the loan
portfolio.

         A variety  of  factors  impact  carrying  value of the loan  portfolio,
including  the  calculation  of the  allowance  for loan  losses,  valuation  of
amortization  of loan fees, and deferred  origination  costs.  The allowance for
loan losses is the most  difficult  and  subjective  judgment.  The allowance is
established  and maintained at a level that  management  believes is adequate to
cover losses resulting from the inability of borrowers to make required payments
on loans.  Estimates for loan losses  determined by analyzing  risks  associated
with specific loans and the loan portfolio,  current trends in delinquencies and
charge-offs,  the view of regulators, and changes in the size and composition of
the loan  portfolio.  The analysis also requires  consideration  of the economic
climate and  direction,  changes in the  interest  rate  environment,  which may
impact a borrower's ability to pay,  legislation  impacting the banking industry
and economic conditions specific to our service area. Because the calculation of
the allowance  for loan losses  relies on estimates  and  judgments  relating to
inherently uncertain events, results may differ from our estimates.

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

         At March 31, 2003,  consolidated  assets  totaled  $262.7  million,  an
increase of $7.1 million from September 30, 2002. Assets increased primarily due
to the growth in the loan

                                       9
<PAGE>

portfolio,  which totaled $230.7 million at March 31, 2003, an increase of $11.1
million from  September 30, 2002.  The funding for the loan growth was primarily
provided by a $5.3 million decrease in investment  securities available for sale
and a $5.0 million increase in FHLB advances.

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

         General. Net income for the three months ended March 31, 2003 decreased
$79,000,  or 9.4%, to $761,000 from $840,000 for the comparable 2002 period. Net
income for the six months  ended  March 31,  2003,  was  $1,512,000,  relatively
unchanged from the $1,517,000  earned in the  comparable  2002 period.  For both
periods,  increases in net interest income and noninterest income were offset by
increases in noninterest expenses.

         Interest  Income.  Interest  income  totaled $3.7 million for the three
months  ended March 31,  2003,  a $212,000  decrease  from $3.9  million for the
comparable  2002  period.  A 115 basis  point  decline  in the yield on the loan
portfolio  combined  with a 139 basis point  decline in the yield on  investment
securities  accounted for most of the decrease.  Partially  offsetting the yield
decline was a 14.5% increase in the level of average loans outstanding.

         For the six months ended March 31, 2003,  interest  income totaled $7.4
million,  a $344,000  decrease  from the $7.8  million for the  comparable  2002
period. A decrease of 122 basis points in the yield on average loans outstanding
combined  with a 110 basis  point  decline  in the yield on  average  investment
securities  were the primary  factors in the lower  interest  income.  The yield
declines were partially  offset by a 15.7%  increase in the average  outstanding
loan balance.

         Interest  Expense.  Interest expense totaled $1.7 million for the three
months ended March 31, 2003, a $304,000  decrease  from the $2.0 million for the
comparable 2002 period.  Although average interest bearing liabilities of $216.2
million in the second quarter of fiscal 2003 reflected an increase of 13.1% from
the average for the comparable quarter of fiscal 2002, a 105 basis point decline
in their cost more than  offset the growth and  resulted  in the lower  interest
expense.

         For the six months ended March 31, 2003,  interest expense totaled $3.5
million, a $500,000 decrease from $4.0 million for the comparable 2002 period. A
107 basis point decline in the cost of average interest bearing liabilities more
than offset an increase of 16.1% in average bearing  liabilities  when comparing
the six months ended March 31, 2003 to the same six months of fiscal 2002.

         Net Interest  Income.  For the three  months ended March 31, 2003,  net
interest income was $2.0 million, up $92,000 from the net interest income earned
in the same period of 2002.  Although  interest income for the period  declined,
interest expense declined at a faster pace, resulting in the higher level of net
interest  income.  For the three months  ended March 31, 2003,  the net interest
spread and margin  were 2.66% and  3.15%,  respectively,  compared  to 2.77% and
3.41%, respectively, for the same period of 2002.

                                       10
<PAGE>

         For the six months ended March 31, 2003,  net interest  income was $3.9
million,  up $156,000 from the net interest  income earned in the same period of
2002.  For the six months  ended March 31,  2003,  average  earning  assets were
$250.8  million,  up 16.0% from the average for the same period of 2002. For the
six months ended March 31, 2003,  the net interest  spread and margin were 2.66%
and  3.15%,  respectively,  compared  to 2.86% and 3.51% for the same  period of
2002.

         Provision  for Loan Losses.  The  provision for loan losses was $75,000
for the three  months  ended March 31,  2003,  compared to $100,000 for the same
2002  period.  For the six months  ended March 31, 2003 the  provision  for loan
losses was $150,000 compared to $145,000 for the same period of 2002. Based upon
the quality of the Bank's loan portfolio,  the relatively  stable local economy,
and the level of  nonperforming  assets,  management  believes the allowance for
loan  losses is adequate to absorb any  anticipated  credit  losses at March 31,
2003.  However,  assessment  of the  adequacy of the  allowance  for loan losses
involves subjective judgments and thus there can be no assurance that additional
provisions for loan losses will not be required.

         Noninterest  Income.  For  the  three  months  ended  March  31,  2003,
noninterest income was $607,000, up $37,000 from the $570,000 for the comparable
2002 period.  Service  charges and fees on loans were up $41,000 to $428,000 for
the second  quarter of fiscal 2003 from  $387,000 for the  comparable  period of
fiscal 2002, due primarily to a higher level of fees  associated with commercial
loan originations. Other customer service fees and commissions increased $17,000
to $136,000  in the second  quarter of fiscal  2003 from  $119,000  for the same
quarter of fiscal  2002 due  primarily  to the  increase  number of  transaction
accounts.  Other  noninterest  income decreased $21,000 to $43,000 for the three
months  ended March 31, 2003 from  $64,000  for the  comparable  2002 period due
primarily  to the  $29,000  gain  realized  on the  sale of  available  for sale
securities in the second quarter of fiscal 2002.

         For the six months  ended March 31, 2003,  noninterest  income was $1.1
million,  compared to $957,000 for the same period of 2002.  Service charges and
fees on  loans  were up  $166,000  due to  origination  of both  commercial  and
mortgage loans during the period.  Other customer  service fees and  commissions
were up $38,000  due to a higher  number of  transaction  accounts,  while other
noninterest  income was down $18,000 due primarily to gains realized on the sale
of available for sale securities in fiscal 2002.

         Noninterest  Expense.  Noninterest expense totaled $1.3 million for the
three months  ended March 31, 2003,  compared to $1.1 million for the same three
months of fiscal 2002.  Personnel  compensation and benefits was up $138,000 due
primarily  to  expenses  related  to the fair  market  value of ESOP  shares and
general merit increases.  Occupancy and equipment  expense decreased $18,000 due
to lower equipment related expenses.  Data processing expense was up $47,000 due
to charges for system upgrades.  Professional fees were up $73,000 due to higher
legal expenses and investment  banking fees. Other noninterest  expense declined
$43,000 due primarily to the  write-off in the second  quarter of fiscal 2002 of
$33,000 of uncollectible NOW account overdrafts.

         For the six  months  ended  March 31,  2003,  noninterest  expense  was
$2,501,000,  compared to $2,241,000 for the comparable period of 2002. Personnel
compensation  and

                                       11
<PAGE>

benefits  was up $137,000 due to expenses  associated  with the increase in fair
market value of ESOP shares and general merit increases. Data processing charges
were up $73,000 due to system  upgrades.  Professional  fees were up $61,000 due
primarily to higher legal expenses and investment banking fees.

         Provision for Income Taxes. The provision for income taxes was $466,000
for the three  months  ended  March  31,  2003,  up  $37,000  from the  $429,000
provision  recorded in the same three months of fiscal 2002.  The primary reason
for the increase was a tax credit received in the second quarter of fiscal 2002.

         For the six months ended March 31, 2003, the provision for income taxes
was $926,000,  up 9.7% from the $844,000 provision for the same period of fiscal
2002. A tax credit received in the second quarter of fiscal 2002 was the primary
reason for the increase.

                                       12

<PAGE>

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

The following table presents the Bank's  compliance with its regulatory  capital
requirements of March 31, 2003. (Dollar amounts in thousands).


                                                             March 31, 2003
                                                         -----------------------
                                                                     Percentage
                                                                      of assets
                                                                    ------------

GAAP Capital........................................   $23,326            8.89%
                                                       =======            =====

Tangible capital....................................   $23,221            8.85%
Tangible capital requirement........................    $3,935            1.50%
                                                        ------            -----
Excess..............................................   $19,286            7.35%
                                                       =======            =====

Core capital........................................   $23,221            8.85%
Core capital requirement............................    10,494            4.00%
                                                        ------            -----
Excess..............................................   $12,727            4.85%
                                                       =======            =====

Total risk-based capital (1)........................   $24,530           14.76%
Total risk-based capital requirement (1)............    13,298            8.00%
                                                        ------            -----
Excess..............................................   $11,232            6.76%
                                                       =======            =====
-----------------------------
(1)  Based on risk-weighted assets of $166,224

     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  Federal  Home Loan Bank  ("FHLB") of Atlanta.  As of March 31,  2003,  such
borrowed funds totaled $57 million. Loan payments and prepayments,  deposits and
borrowings are greatly influenced by general interest rates, economic conditions
and competition.

         The amount of certificate  accounts scheduled to mature during the next
twelve months  ending March 31, 2003, is  approximately  $49.1  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  March  31,  2003,  we had  loan  commitments  outstanding  of $46.4
million.  These commitments will be funded from deposit inflows, loan repayments
and borrowings.  In addition, the Bank had entered into an agreement to purchase
$10 million of available for sale securities.

                                       13
<PAGE>

CONTROLS AND PROCEDURES

     (a)  Evaluation  of  disclosure  controls  and  procedures.  Based on their
          evaluation as of a date within 90 days of the filing of this Quarterly
          Report on Form 10-QSB,  the Registrant's  principal  executive officer
          and principal  financial  officer have concluded that the Registrant's
          disclosure controls and procedures ( as defined in Rules 13a-14(c) and
          15d-14(c)  under the  Securities  Exchange Act of 1934 (the  "Exchange
          Act")  are  effective  to  ensure  that  information  required  to  be
          disclosed by the Company in reports that it files or submits under the
          Exchange Act is recorded,  processed,  summarized and reported  within
          the time periods specified in Securities and Exchange Commission rules
          and forms.


     (b)  Changes in internal controls. There were no significant changes in the
          Registrant's   internal  controls  or  in  other  factors  that  could
          significantly  affect these  controls  subsequent to the date of their
          evaluation,   including   any   corrective   actions  with  regard  to
          significant deficiencies and material weaknesses.


                                       14
<PAGE>

                     BEDFORD BANCSHARES, INC. AND SUBSIDIARY
                              Key Operating Ratios

<TABLE>
<CAPTION>
                                                     Three Months Ended      Six Months Ended
                                                         March 31               March 31
                                                         --------               --------
                                                     2003(1)   2002(1)       2003(1)   2002(1)
                                                     -------   -------       -------   -------
                                                                  (Unaudited)
<S>                                                <C>        <C>           <C>       <C>
Basic earnings per share .......................     $0.38      $0.43         $0.76     $0.76
Diluted earnings per share......................     $0.38      $0.41         $0.76     $0.73
Return on average assets........................      1.17%      1.46%         1.17%     1.36%
Return on average equity........................     12.02%     14.32%        11.94%    12.93%
Interest rate spread............................      2.66%      2.77%         2.66%     2.86%
Net interest margin.............................      3.15%      3.41%         3.15%     3.51%
Noninterest expense to average assets...........      1.99%      1.90%         1.93%     2.01%
Net charge-offs to average outstanding loans....       .03%       .05%          .04%      .03%
</TABLE>



                                                         March 31   September 30
                                                           2003         2002
                                                           ----         ----
                                                         (Dollars in thousands)
                                                       (Unaudited)
Nonaccrual loans.......................................   $1,171        $630
Repossessed real estate................................      126          26
                                                             ---          --
Total nonperforming assets.............................   $1,297        $656
                                                          ======        ====


Allowance for credit losses to nonperforming assets....   100.90%     182.01%
Nonperforming loans to total loans.....................     0.51%       0.29%
Nonperforming assets to total assets...................     0.49%       0.26%


Book value per share ..................................   $12.48      $12.21
                                                          ======      ======
------------------------
(1)  The ratios for the three- and six-month periods are annualized

                                       15
<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 March 31, 2003.
                    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
                  ---------------------------------------------------
                   The annual meeting of  shareholders  of the  Corporation  was
                   held on January 23, 2003 and the following  items were  acted
                   upon:
                   Election of Directors  Jennie T.  Allman,  George N. Cooper,
                   and William P. Pickett for terms of three  years.  They  were
                   elected as indicated below:

                                                 Votes       Votes
                                                  For       Withheld
                                                  ---       --------
                        Jennie T. Allman       1,672,387      5,251
                        George N. Cooper       1,671,703      5,935
                        William P. Pickett     1,671,966      5,672

                    Ratification of the appointment of BDO Seidman,  LLP, as the
                    Corporation's   auditors  for  the  2003  fiscal  year.  BDO
                    Seidman, LLP, was ratified as follows:

                                                 Votes       Votes
                                                  For       Against    Abstain
                                                  ---       --------   -------
                                               1,663,050     12,914    1 ,674

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

Item 6.           Exhibits and Reports on Form 8-K
                  --------------------------------
<TABLE>
<CAPTION>
                <S>  <C>
                  (a)  List of Exhibits:
                       2.1  Agreement and Plan of Merger, dated as of March 20, 2003,
                            between Bedford Bancshares, Inc., and FNB Corporation *
                       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 Harold K. Neal**
                      99.0  Certification  pursuant  to  18  U.S.C. Section 1350,
                            as adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

                  (b) Reports on Form 8-K
                      On March 24, 2003, the registrant filed a Form 8-K
                      disclosing the signing of a definitive merger agreement with FNB Corporation.


                    -----------------------
                    *    Incorporated by reference to the registrant's  Form 8-K
                         filed  with  the  SEC  on  March  24,  2003  (File  No.
                         000-24330)
                    **   Incorporated  by  reference  to the  Registrant's  Form
                         10-KSB filed with the SEC on December 9, 1994 (File No.
                         000-24330).
</TABLE>

                                       16
<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:    May 14, 2003                        By:   /s/ Harold K. Neal
                                                   -----------------------------
                                                   Harold K. Neal
                                                   President and
                                                   Chief Executive Officer
                                                   (Principal Executive Officer)


Date:    May 14 , 2003                        By:  /s/ James W. Smith
                                                   -----------------------------
                                                   James W. Smith
                                                   Vice President and Treasurer
                                                   (Principal Accounting and
                                                      Financial Officer)



                                       17

<PAGE>


                            SECTION 302 CERTIFICATION

         I,  James W.  Smith,  Vice  President,  Treasurer  and Chief  Financial
Officer, certify that:

1.   I have reviewed this quarterly report on Form 10-QSB of Bedford Bancshares,
     Inc.:

2.   Based on my knowledge,  this  quarterly  report does not contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this quarterly report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in this  quarterly  report,  fairly  present  in all
     material respects the financial  condition,  results of operations and cash
     flows of the  registrant  as of, and for,  the  periods  presented  in this
     quarterly report;

4.   The  registrant's  other  certifying  officer  and  I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     (a)  designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated  subsidiaries,  is made know to us by others within those
          entities,  particularly  during  the  period in which  this  quarterly
          report is being prepared:

     (b)  evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this quarterly report (the "Evaluation Date"):

     (c)  presented  in  this  quarterly   report  our  conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date.

5.   The registrant's  other certifying  officer and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent functions):

     (a)  all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified  for the  registrant's  auditors any  material  weakness in
          internal controls; and

     (b)  any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

6.   The  registrant's  other  certifying  officer and I have  indicated in this
     quarterly  report  whether  there  were  significant  changes  in  internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls  subsequent to the date of our most recent  evaluation,  including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

Date:  May 14, 2003                           /s/ James W. Smith
                                              ----------------------------------
                                              James W. Smith
                                              Vice President, Treasurer and
                                              Chief Financial Officer


                                       18
<PAGE>

                            SECTION 302 CERTIFICATION

         I, Harold K. Neal, President and Chief Executive Officer, certify that:

1.   I have reviewed this quarterly report on Form 10-QSB of Bedford Bancshares,
     Inc.:

2.   Based on my knowledge,  this  quarterly  report does not contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this quarterly report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in this  quarterly  report,  fairly  present  in all
     material respects the financial  condition,  results of operations and cash
     flows of the  registrant  as of, and for,  the  periods  presented  in this
     quarterly report;

4.   The  registrant's  other  certifying  officer  and  I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     (a)  designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated  subsidiaries,  is made know to us by others within those
          entities,  particularly  during  the  period in which  this  quarterly
          report is being prepared:

     (b)  evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this quarterly report (the "Evaluation Date"):

     (c)  presented  in  this  quarterly   report  our  conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date.

5.   The registrant's  other certifying  officer and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent functions):

     (a)  all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified  for the  registrant's  auditors any  material  weakness in
          internal controls; and

     (b)  any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

6.   The  registrant's  other  certifying  officer and I have  indicated in this
     quarterly  report  whether  there  were  significant  changes  in  internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls  subsequent to the date of our most recent  evaluation,  including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

Date:  May 14, 2003                        /s/ Harold K. Neal
                                           -------------------------------------
                                           Harold K. Neal
                                           President and Chief Executive Officer


                                       19