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, 1999

                                       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 reports),  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 7, 1999: 2,269,530


<PAGE>

                     BEDFORD BANCSHARES, INC. AND SUBSIDIARY

                              INDEX TO FORM 10-QSB


PART I                 FINANCIAL INFORMATION                                PAGE
------                 ---------------------                                ----

 Item 1.    Financial Statements

            Consolidated Statements of Financial Condition at
            March 31, 1999 and September 30, 1998 (unaudited)                 1

            Consolidated Statements of Income for the three and six months
            ended March 31, 1999 and 1998 (unaudited)                         2

            Consolidated Statements of Comprehensive Income for the three
            and six months ended March 31, 1999 and 1998 (unaudited)          3

            Consolidated Statements of Cash Flows for the six months ended
            March 31, 1999 and 1998 (unaudited)                               4

            Notes to Unaudited Interim Consolidated Financial Statements      5

 Item 2.    Management's Discussion and Analysis of Financial Condition
            and Results of Operations                                         6


 PART II    OTHER INFORMATION

 Item 1.    Legal proceedings                                                11

 Item 2.    Changes in Securities                                            11

 Item 3.    Defaults upon Senior Securities                                  11

 Item 4.    Submission of Matters to a Vote of Security Holders              11

 Item 5.    Other Information                                                11

 Item 6.    Exhibits and Reports on Form 8-K                                 11

SIGNATURES                                                                   12



<PAGE>

                     BEDFORD BANCSHARES, INC. AND SUBSIDIARY
                 Consolidated Statements of Financial Condition
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                                                 March 31      September 30
                                                                                                   1999            1998
                                                                                               ----------     ------------
                                                                                                     (In Thousands)

<S>                                                                                          <C>            <C>     
Assets
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       $4,861         $5,666
Investment securities held to maturity (estimated market value of $1,317 and $2,147). . . .        1,312          2,114 
Marketable equity securities available for sale, at market value. . . . . . . . . . . . . .        4,495          4,396 
Investment securities available for sale, at market value . . . . . . . . . . . . . . . . .       13,250         12,424
Investment in Federal Home Loan Bank stock, at cost . . . . . . . . . . . . . . . . . . . .        1,550          1,550
Loans receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      132,933        129,744
Foreclosed real estate, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           83             --
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        1,103          1,160
Accrued interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          955            996
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          150             95
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          495            566 
                                                                                                --------       -------- 
    Total assets  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     $161,187       $158,711 
                                                                                                ========       ======== 

Liabilities and Stockholders' Equity
Liabilities
Deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    $110,461       $107,086 
Advances from the Federal Home Loan Bank. . . . . . . . . . . . . . . . . . . . . . . . . .      28,000         29,000
Advances from borrowers for taxes and insurance . . . . . . . . . . . . . . . . . . . . . .         504            528    
Dividends payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         205            184 
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         230            665
                                                                                                -------        -------
     Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     139,400        137,463 
                                                                                                -------        ------- 

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
  2,280,530 at March 31, 1999 and 2,297,900 at September 30, 1998. . . . . . . . . . . . . .        228            230  
Additional paid in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     10,934         10,939
Retained earnings, substantially restricted. . . . . . . . . . . . . . . . . . . . . . . . .     11,401         10,900
Accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . .        (28)            60  
Less stock acquired by ESOP and RRP. . . . . . . . . . . . . . . . . . . . . . . . . . . . .       (748)          (881)
                                                                                               --------       -------- 
     Total stockholders' equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     21,787         21,248   
                                                                                               --------       --------   
     Total liabilities and stockholders' equity. . . . . . . . . . . . . . . . . . . . . . .   $161,187       $158,711
                                                                                               ========       ========
</TABLE>

See notes to consolidated financial statements.




                                       -1-

<PAGE>



                     BEDFORD BANCSHARES, INC. AND SUBSIDIARY
                        Consolidated Statements of Income
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                            Three Months ended  Six Months Ended
                                                                 March 31,          March 31,
                                                               1999      1998     1999    1998    
                                                            --------  -------   -------  -------    
                                                        (Dollars in Thousands, Except Per Share Data)

Interest Income:
<S>                                                          <C>      <C>       <C>     <C>    
 Loans . . . . . . . . . . . . . . . . . . . . . . . . . . .  $2,594   $2,423    $5,204  $4,827 
 U.S. Government Obligations including agencies. . . . . . .     315      234       619     451
 Other investments, including overnight deposits . . . . . .      37       68       105     115
                                                               -----    -----    ------   -----
  Total interest income. . . . . . . . . . . . . . . . . . .   2,946    2,725     5,928   5,393
                                                               -----    -----    ------   -----
Interest Expense:
 Deposits. . . . . . . . . . . . . . . . . . . . . . . . . .   1,093    1,134     2,228   2,301
 Borrowed funds. . . . . . . . . . . . . . . . . . . . . . .     395      245       791     449
                                                               -----    -----    ------   -----
  Total interest expense . . . . . . . . . . . . . . . . . .   1,488    1,379     3,019   2,750
                                                               -----    -----    ------   -----
  Net interest income. . . . . . . . . . . . . . . . . . . .   1,458    1,346     2,909   2,643
Provision for credit losses. . . . . . . . . . . . . . . . .      22       30        45      60
                                                               -----    -----    ------   -----
  Net interest income after provision for credit losses. . .   1,436    1,316     2,864   2,583
                                                               -----    -----     -----   -----
Noninterest income:
 Service charges and fees on loans . . . . . . . . . . . . .     153      115       311     210
 Other customer service fees and commissions . . . . . . . .      75       77       160     145
 Other . . . . . . . . . . . . . . . . . . . . . . . . . . .      30       32        57      56
                                                               -----    -----     -----   -----
  Total noninterest income . . . . . . . . . . . . . . . . .     258      224       528     411
                                                               -----    -----     -----   -----
Noninterest expense:
 Personnel compensation and benefits . . . . . . . . . . . .     454      438       928     902
 Occupancy and equipment . . . . . . . . . . . . . . . . . .      75       71       155     151
 Data processing . . . . . . . . . . . . . . . . . . . . . .      94       91       190     176
 Federal insurance of accounts . . . . . . . . . . . . . . .      16       16        31      32
 Advertising . . . . . . . . . . . . . . . . . . . . . . . .      31       28        60      61
 Professional fees . . . . . . . . . . . . . . . . . . . . .      64       53       127     125
 Other . . . . . . . . . . . . . . . . . . . . . . . . . . .     107       93       198     178 
                                                               -----    -----     -----   -----     
  Total noninterest expense. . . . . . . . . . . . . . . . .     841      790     1,689   1,625
                                                               -----    -----     -----   -----
  Income before income taxes . . . . . . . . . . . . . . . .     853      750     1,703   1,369
Provision for income taxes . . . . . . . . . . . . . . . . .     323      290       646     525
                                                               -----    -----    ------   -----
  Net income . . . . . . . . . . . . . . . . . . . . . . . .     530     $460    $1,057    $844
                                                               =====    =====    ======   =====

  Basic earnings per share . . . . . . . . . . . . . . . . .   $0.24    $0.21     $0.48   $0.39
                                                               =====    =====     =====   =====

  Diluted  earnings per share. . . . . . . . . . . . . . . .   $0.23    $0.20     $0.46   $0.36 
                                                               =====    =====     =====   =====
</TABLE>

See notes to consolidated financial statements.





                                       -2-

<PAGE>


                     BEDFORD BANCSHARES, INC. AND SUBSIDIARY
                 Consolidated Statements of Comprehensive Income
                                   (Unaudited)
<TABLE>
<CAPTION>

                                       Three Months ended      Six Months Ended
                                             March 31,             March 31,
                                          1999      1998        1999    1998   
                                        --------  -------      -------  -------
                                               (In Thousands of Dollars)
                                                               
<S>                                       <C>     <C>          <C>        <C>  
Net Income . . . . . . . . . . . . . . .   $530    $460        $1,057     $844 
                                                               
Other comprehensive income, net of tax effect:                 
                                                               
     Unrealized gains (losses) on                              
       securities available for sale . .    (44)     (1)          (88)       5
                                            ---     ---           ---      --- 
Comprehensive Income . . . . . . . . . .   $486    $459          $969     $849 
                                            ===     ===           ===      === 
</TABLE>                                                       
                                                          



                                       -3-


<PAGE>


                     BEDFORD BANCSHARES, INC. AND SUBSIDIARY
                      Consolidated Statements of Cash Flows
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                        Six Months Ended
                                                                                      ------ March 31 -------
                                                                                        1999            1998
                                                                                        ----            ----
                                                                                        (Dollars in Thousands)
<S>                                                                                   <C>             <C>    
Operating activities:
  Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,057            $844
  Adjustments to reconcile net income to net cash provided by operating activities :
    Provision for credit losses. . . . . . . . . . . . . . . . . . . . . . . . . . . .     45              60
    Provision for depreciation and amortization. . . . . . . . . . . . . . . . . . . .     69              65
    Amortization of investment security premiums and accretion of discounts, net . . .      4             (12)
    (Increase) decrease in deferred income taxes . . . . . . . . . . . . . . . . . . .    (55)             -- 
    (Gain) loss on sale of loans, investments and foreclosed real estate . . . . . . .    (21)             (2)
    (Increase) decrease in accrued interest receivable . . . . . . . . . . . . . . . .     41             (42)
    (Increase) decrease in other assets. . . . . . . . . . . . . . . . . . . . . . . .     71            (166)
    Increase (decrease) in other liabilities . . . . . . . . . . . . . . . . . . . . .   (435)            (28)
                                                                                        -----          ------  
      Net cash provided by (used in) operating activities  . . . . . . . . . . . . . .    776             719 
                                                                                        -----          ------ 
Investing activities:
    Proceeds from the sale of investments. . . . . . . . . . . . . . . . . . . . . . .     --             992 
    Proceeds from the maturities of investments. . . . . . . . . . . . . . . . . . . .  6,800           2,500 
    Purchases of investment securities . . . . . . . . . . . . . . . . . . . . . . . . (7,099)         (5,568)
    Purchase of Federal Home Loan Bank stock . . . . . . . . . . . . . . . . . . . . .     --            (368)
    Net increase in loans to customers . . . . . . . . . . . . . . . . . . . . . . . . (3,234)         (4,891)
    Principal collected on mortgage-backed securities. . . . . . . . . . . . . . . . .      1               3 
    Purchases of premises, equipment and leasehold improvements. . . . . . . . . . . .    (12)             (8)
    Proceeds from the sale of REO. . . . . . . . . . . . . . . . . . . . . . . . . . .     --             212 
                                                                                        -----          ------ 
      Net cash provided by (used in) investing activities. . . . . . . . . . . . . . . (3,544)         (7,128)
                                                                                        -----          ------ 
Financing activities:
    Exercise of stock options. . . . . . . . . . . . . . . . . . . . . . . . . . . . .     18             103 
    Allocation of ESOP and RRP shares  . . . . . . . . . . . . . . . . . . . . . . . .     201            189 
    Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    (368)          (288)
    Net increase (decrease) in customer deposits . . . . . . . . . . . . . . . . . . .   3,375           2,415 
    Proceeds from (repayments of) advances and other borrowed money. . . . . . . . . .  (1,000)         11,000 
    Repurchase of stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    (272)             -- 
    Purchase of stock by ESOP and RRP. . . . . . . . . . . . . . . . . . . . . . . . .      --             (86)
    Net increase (decrease) in advance payments from borrowers for taxes and insurance     (24)            (58)
    Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      33             (29)
                                                                                         -----          ------ 
Net cash provided by financing activities. . . . . . . . . . . . . . . . . . . . . . .   1,963          13,246 
                                                                                         -----          ------ 
Increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . .    (805)          6,837 
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . . .   5,666           5,446 
                                                                                         -----          ------ 
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . . .  $4,861         $12,283 
                                                                                         =====          ====== 
</TABLE>

See notes to consolidated financial statements.



                                       -4-


<PAGE>


                     BEDFORD BANCSHARES, INC. AND SUBSIDIARY
          Notes to Unaudited Interim Consolidated Financial Statements
                                 March 31, 1999

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. (the "Corporation") and Bedford
Federal Savings Bank (the "Bank"), a wholly owned subsidiary of the Corporation.
All significant  intercompany  balances and transactions have been eliminated in
consolidation.  During the second quarter of fiscal 1999, the Corporation formed
a new service  subsidiary  Central Virginia  Financial  Services  ("CVFS").  The
formation  of CVFS  provides  the  Corporation  the  opportunity  to enter  into
financial  services  not  considered  to be  traditional  banking  services,  in
particular the sale and marketing of insurance related products. As of March 31,
1999, CVFS had not been capitalized.

     In the  opinion  of  management,  all  adjustments  (consisting  of  normal
recurring  accruals)  considered  necessary for the fair presentations have been
included.  The results of operations for the interim period ended March 31, 1999
are 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, 1998.

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

     Earnings per share calculated in accordance with SFAS 128 is as follows:
<TABLE>
<CAPTION>

                                                  Three Months Ended              Six Months Ended
                                                        March 31                      March 31
                                                -----------------------      -------------------------      
                                                  1999          1998            1999          1998
                                                  ----          ----            ----          ----
<S>                                           <C>            <C>             <C>           <C>      
Basic Earnings Per Share:
Net Income . . . . . . . . . . . . . . . . . . . $530,000      $460,000      $1,057,000      $844,000
                                                =========     =========       =========     =========
Average Shares Outstanding, Net of
  unallocated ESOP Shares (93,334 and 109,334
  at March 31, 1999 and 1998, respectively.) . .2,193,205     2,178,112       2,198,948     2,176,580
                                                =========     =========       =========     =========
Basic Earnings Per Share . . . . . . . . . . . .    $0.24         $0.21           $0.48         $0.39
                                                =========     =========       =========     =========
Diluted Earnings Per Share:
Net Income . . . . . . . . . . . . . . . . . . . $530,000      $460,000      $1,057,000      $844,000
                                                =========     =========       =========     =========
Average Shares Outstanding, Net of
  unallocated ESOP Shares (93,334 and 109,334
  at March 31, 1999 and 1998, respectively.) . .2,193,205     2,178,112       2,198,948     2,176,580
    Dilutive effect of RRP Plan shares . . . . .   21,464        24,012          21,464        24,012
    Dilutive effect of Stock Options . . . . . .  103,186       118,798         103,186       118,798
                                                ---------     ---------       ---------     ---------
Average Shares Outstanding . . . . . . . . . . .2,317,855     2,320,922       2,323,598     2,319,390
                                                =========     =========       =========     =========
Diluted Earnings Per Share . . . . . . . . . . .    $0.23         $0.20           $0.46         $0.36
                                                =========     =========       =========     =========  
</TABLE>





                                       -5-


<PAGE>


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

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

           Certain  statements  in this  quarterly  report  on Form  10-QSB  are
forward-looking  and may be  identified  by the use of words such as  "believe",
"expect", "anticipate", "should", "planned", "estimated", and "potential". These
statements are based on the  Corporation's  current  expectations.  A variety of
factors could cause the  Corporation's  actual  results and experience to differ
materially from the anticipated results or other expectations  expressed in such
forward-looking  statements.  The risks and  uncertainties  that may  affect the
operations, performance,  development, and results of the Corporation's business
include   interest  rate   movements,   competition   from  both  financial  and
non-financial  institutions,  the timing and  occurrence (or  nonoccurrence)  of
transactions  and  events  that  may be  subject  to  circumstances  beyond  the
Corporation's control, and general economic conditions.

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

           The Corporation's assets totaled $161.2 million at March 31, 1999, an
increase of $2.5  million  from  September  30, 1998.  The asset  expansion  was
reflected in growth of the loan portfolio which increased $3.2 million.  Funding
for the asset  growth was provided by a $3.4  million  increase in deposits,  as
FHLB borrowings were reduced by $1.0 million.

           At March 31, 1999, nonperforming assets were $1.1 million, or .67% of
total assets,  compared to $.5 million, or .34% of total assets at September 30,
1998. During the quarter ended March 31, 1999, four commercial loans to the same
borrower were classified as nonperforming.  These loans, totaling $663,000,  are
90% guaranteed by the Farmers Home Administration,  with the Bank's 10% exposure
collateralized by equipment and livestock.  As such,  management  anticipates no
material  loss.  Offsetting  this  increase  were net  decreases  of $560,000 in
non-performing   mortgage  and  $15,000  in  consumer  loans.  The  decrease  in
nonperforming  mortgage loans was due to the  reclassification to current status
of $580,000 of these loans.  At March 31, 1999,  the allowance for credit losses
was $804,000, up $40,000 from the level at September 30, 1998.

           During the second quarter of fiscal 1999, the Corporation repurchased
20,720 shares of its common stock in open market transactions. These shares were
purchased  at an average  price of $12.84 per share and will be used for general
corporate and other purposes.

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

COMPARISON OF THREE MONTHS ENDED MARCH 31, 1999 AND 1998
--------------------------------------------------------

           General.  For the three  months  ended  March 31, 1999 net income was
$530,000,  up 15.2% from the $460,000 earned in the comparable  period of fiscal
1998.  Net  interest  income  for the  second  quarter  of fiscal  1999 was $1.5
million,  compared  to $1.3  million  for the same  quarter of fiscal  1998.  In
addition, $22,000 was added to the allowance for credit losses during the second
quarter of fiscal 1999,  compared to $30,000 for the comparable period of fiscal
1998.


                                       -6-

<PAGE>

           Interest Income. Total interest income was $2.9 million for the three
months ended March 31, 1999,  compared to $2.7 million  earned in the comparable
quarter of fiscal 1998.  The  $221,000  increase  was  primarily  due to a $14.6
million  rise in the  average  balance of loans  receivable  and a $3.4  million
increase in average investment securities from the averages for the three months
ended March 31, 1998.

           Interest  Expense.  For the three months ended March 31, 1999,  total
interest expense rose to $1.5 million from the $1.4 million for the three months
ended March 31,  1998,  primarily  due to an increase in the average  balance of
interest bearing  liabilities to $130.9 million for the second quarter of fiscal
1999 from $114.4  million for the same quarter of fiscal 1998.  The increase was
primarily in FHLB  advances  which  averaged  $28.8 million for the three months
ended March 31, 1999, compared to $15.9 million for the second quarter of fiscal
1998.

           Net Interest  Income.  For the three months ended March 31, 1999, net
interest  income was $1.5  million,  up $112,000  from the net  interest  income
earned in the same period of 1998. During the three months ended March 31, 1999,
the  Corporation's  interest  rate spread and net interest  margin  decreased to
3.04% and 3.75%, respectively,  compared to 3.12% and 3.87%,  respectively,  for
the same  period of 1998.  A 33 basis  point  decline  in the  yield on  earning
assets,  partially  offset by a 25 basis point decline in the cost of funds, was
the primary reason for the declines.

           Provision  for  Credit  Losses.   The  provision  for  credit  losses
decreased  $8,000,  to $22,000  for the three  months  ended March 31, 1999 from
$30,000 for the comparable 1998 period.  Although nonperforming assets increased
$166,000  from December 31, 1998,  management  believes the allowance for credit
losses is sufficient since these loans are adequately secured. Management of the
Bank performs regular assessments of the credit risk in the loan portfolio based
on  information  available  at such  times,  including  the levels of the Bank's
nonperforming  loans and  assets,  trends in the local real estate  market,  and
current  and  potential  charge-offs.  The  assessmentof  the  adequacy  of  the
allowance  for credit  losses  involves  subjective  judgment  regarding  future
events,  and there can be no assurance  that  additional  provisions  for credit
losses will not be required in future periods.

           Total Noninterest Income. Noninterest income totaled $258,000 for the
second  quarter of fiscal  1999,  compared to $224,000  for the same  quarter of
fiscal 1998.  The $34,000  increase was primarily due to fees on mortgage  loans
introduced  in the third  quarter  of fiscal  1998 and  enhancements  to the fee
structure  applicable to consumer loans. Such increase in noninterest  income is
not indicative of future periods.

           Total Noninterest Expense. Total noninterest expense was $841,000 for
the three months ended March 31, 1999, up 6.5% from the level in the  comparable
quarter of fiscal  1998.  Increases  of $16,000 in  personnel  compensation  and
benefits,  $11,000 in  professional  fees and $14,000 in other expenses were the
primary reasons for the increase.

           Provision  for Income  Taxes.  The  provision  for  income  taxes was
$323,000  for the three  months  ended  March  31,  1999,  up from the  $290,000
provision  recorded in the three  months  ended  March 31,  1998.  The  increase
reflects the higher  profitability of the Corporation in the quarter ended March
31, 1999, as the effective tax rate for both periods was 38%.




                                       -7-
<PAGE>

COMPARISON OF SIX MONTHS ENDED MARCH 31, 1999 AND 1998
------------------------------------------------------

           General.  For the six months ended March 31, 1999 net income was $1.1
million,  up 25.2% from the $844,000  earned in the comparable  period of fiscal
1998.  Net  interest  income  for the first six  months of fiscal  1999 was $2.9
million, compared to net interest income for the six months ended March 31, 1998
of $2.6 million. For the first six months of fiscal 1999, noninterest income was
$528,000 compared to $411,000 for the same period of 1998.  Noninterest  expense
totaled $1.7 million for the six months ended March 31, 1999,  up slightly  from
the $1.6 million for the comparable period of fiscal 1998.

           Interest  Income.  Total interest income amounted to $5.9 million for
the six months ended March 31, 1999, up 9.9% from the $5.4 million earned in the
comparable  period of fiscal 1998. The increase was attributable to expansion of
average loans  receivable  to $132.7  million for the six months ended March 31,
1999 from $118.4  million for the same period of 1998.  In addition,  investment
securities averaged $13.7 million for the first half of fiscal 1999, compared to
$9.6 million for the comparable  period of fiscal 1998.  These increases  relect
the Bank's continued success in originating  mortgage loans and expansion of the
consumer and commercial loan  portfolios,  as well as effective  asset/liability
management strategies.

           Interest  Expense.  For the six months  ended March 31,  1999,  total
interest  expense  rose to $3.0 million from the $2.8 million for the six months
ended March 31,  1998,  primarily  due to an increase in the average  balance of
interest  bearing  liabilities  to $130.3  million  for the first six  months of
fiscal 1999 from $113.3 million for the comparable  period of fiscal 1998.  FHLB
advances  averaged  $28.4  million for the first half of fiscal  1999,  up $13.8
million from the $14.6  million  average for the  comparable  period of 1998. In
addition,  average  interest  bearing deposits for the first half of fiscal 1999
were $101.8  million  compared to an average of $98.7 million for the comparable
period of fiscal 1998.

           Net Interest Income. Net interest income was $2.9 million for the six
months ended March 31, 1999,  up 10.1% from the $2.7 million  earned in the same
period of fiscal 1998. The  Corporation's  interest rate spread and net interest
margin were 3.01% and 3.76% for the first six months of fiscal  1999,  down from
the 3.13% and 3.90%,  respectively,  for the same  period of fiscal  1998.  A 33
basis  point  decline in the yield on earning  assets  partially  offset by a 21
basis  point  decline  in the  cost of  funds  was the  primary  reason  for the
declines.

           Provision for Credit Losses. For the six months ended March 31, 1999,
the Bank's provision for credit losses was $45,000,  compared to $60,000 for the
same period of fiscal 1998.  Although  nonperforming  assets increased  $166,000
from December 31, 1998,  management  believes the allowance for credit losses is
sufficient  since these loans are  adequately  secured.  Management  of the Bank
performs  regular  assessments of the credit risk in the loan portfolio based on
information  available  at  such  times,  including  the  levels  of the  Bank's
nonperforming  loans and  assets,  trends in the local real estate  market,  and
current  and  potential  charge-offs.  The  assessment  of the  adequacy  of the
allowance  for credit  losses  involves  subjective  judgment  regarding  future
events,  and there can be no assurance  that  additional  provisions  for credit
losses will not be required in future periods.

           Total  Noninterest  Income.  For the first six months of fiscal 1999,
noninterest income totaled $528,000, compared to $411,000 for the same period of
1998. Service charges and fees on

                                       -8-

<PAGE>

loans were up $101,000 primarily due to fees introduced in the second quarter of
fiscal 1998.  Other customer  service fees and  commissions  rose $15,000 due to
higher income on checking. Such increase in noninterest income is not indicative
of future periods.

           Total Noninterest Expense. Total noninterest expense was $1.7 million
for the six months  ended March 31,  1999,  up $64,000,  or 3.9%,  from the $1.6
million total for the comparable period of fiscal 1998.  Personnel  compensation
and  benefits  totaled  $928,000  for the six months  ended March 31,  1999,  up
$26,000 from the first half of fiscal 1998,  primarily  due to merit  increases.
Other expenses were up $20,000, or 11.2%, due to costs associated with year 2000
expenditures.  (please refer to "THE YEAR 2000 ISSUE" herein).

           Provision  for Income  Taxes.  The  provision  for  income  taxes was
$646,000 for the six months  ended March 31, 1999,  compared to $525,000 for the
same period of fiscal  1998.  The  increase  was due to the  increase in taxable
income as the effective tax rate for both periods was 38%.

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

The following table presents the Bank's  compliance with its regulatory  capital
requirements of March 31, 1999. (Dollar amounts in thousands).

                                                  March 31, 1999
                                          --------------------------------
                                                             Percentage  
                                                             of assets
                                                             ---------

GAAP Capital . . . . . . . . . . . . . . . . $20,208           11.90 %
                                             =======          ======
Tangible capital . . . . . . . . . . . . . . $20,235           12.54 %
Tangible capital requirement . . . . . . . .   2,420            1.50
                                             -------          ------
Excess . . . . . . . . . . . . . . . . . . . $17,815           11.04 %
                                             =======          ======
Core capital . . . . . . . . . . . . . . . . $20,235           12.54 %
Core capital requirement . . . . . . . . . .   6,454            4.00
                                             -------          ------
Excess . . . . . . . . . . . . . . . . . . . $13,781            8.54 %
                                             =======          ======
Total risk-based capital (1) . . . . . . . . $20,932           22.13 %      
Total risk-based capital requirement (1) . .   7,566            8.00
                                             -------          ------
Excess . . . . . . . . . . . . . . . . . . . $13,366           14.13 %    
                                             =======          ======
----------------------------------------------------------
        (1)  Based on risk-weighted assets of $94,576


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


                                       -9-

<PAGE>

LIQUIDITY
---------

     The Bank's liquidity is a measure of its ability to fund loans, pay deposit
withdrawals, and other cash outflows in an efficient, cost effective manner. The
Bank's  primary  sources of funds are deposits and  scheduled  amortization  and
prepayment of loans. During the past several years, the Bank has used such funds
primarily to fund maturing time deposits, pay savings withdrawals,  fund lending
commitments,  purchase new investments,  and increase liquidity.  The Bank funds
its operations internally but also borrows funds from the Federal Home Loan Bank
("FHLB") of Atlanta.  As of March 31, 1999,  such  borrowed  funds totaled $28.0
million.  Loan  payments  and maturing  investments  are greatly  influenced  by
general interest rates, economic conditions and competition.

     The  Bank  is  required  under  Federal  regulations  to  maintain  certain
specified  levels of  "liquid  assets,"  which  include  certain  United  States
government  obligations  and other  approved  investments.  Current  regulations
require  the Bank to  maintain  liquid  assets  of not less than 4% of net with-
drawable  accounts plus  short-term  borrowings.  At March 31, 1999,  the Bank's
regulatory liquidity was 21%.

     The amount of certificate accounts which are scheduled to mature during the
next twelve months ending March 31, 2000, is approximately $39.2 million. To the
extent  that these  deposits do not remain at the Bank upon  maturity,  the Bank
believes that it can replace these funds with other deposits,  excess liquidity,
FHLB advances,  or other  borrowings.  It has been the Bank's  experience that a
substantial portion of such maturing deposits remain at the Bank.

     At March  31,  1999,  the Bank had loan  commitments  outstanding  of $14.9
million.  These  commitments are funded primarily from current excess liquidity,
deposit inflows, borrowings or loan and investment repayments.

THE YEAR 2000 ISSUE
-------------------

     The Year  2000("Y2K")  issue  relates  to  whether  computer  systems  will
properly  recognize and process date sensitive  information on and after January
1, 2000.  Systems that do not properly recognize such information could generate
erroneous data or fail. The Bank is heavily dependent on computer systems in the
conduct of substantially all of its business activities.

     The  Corportion  has  both  a  Y2K  Committee  and  a Y2K  Plan  that  were
established  and  adopted  in 1998.  The Plan , as  recommended  by the  Federal
Financial Institutions Examination Council, is based on five phases:  Awareness,
Assessment,  Renovation, Validation and Implementation. The Company continues in
the Validation  phase,  or testing  phase,  which is scheduled for completion by
June 30, 1999 and is proceeding on time.  The  Implementation  Phase is targeted
for completion by September 30, 1999. The Bank is required by Federal regulators
to develop and test a comprehensive  contingency  plan that would be used in the
event that any of its mission  critical  computer  systems  fail to meet the Y2K
requirements,  or if other  systems  that the Bank  depends  upon for  automated
processing of its ongoing transactions, such as electrical or data transmission,
should fail. The  contingency  plan is currently  being  developed and should be
completed by by September 30, 1999.

     For the six months  ended March 31,  1999,  the  Corporation  has  expensed
$17,000 of Y2K related costs. As part of the  contingency  plan, the Corporation
is evaluating the purchase of

                                      -10-

<PAGE>

electric  generators.  The  cost of such  equipment  would  be  capitalized  and
depreciated over the useful life of the equipment. The Corporation has projected
that the total cost of the Y2K project will range between $125,000 and $150,000.
To date the total expense of the Y2K project has been $38,000.

     Successful   and  timely   completion  of  the  Y2K  project  is  based  on
management's best estimates  derived from various  assumptions of future events,
which are  inherently  uncertain,  including  the  testing  results  of the core
processing system  maintained by a third party service bureau,  and readiness of
all vendors,  suppliers and  customers.  No assurance can be given that the Plan
will be sucessfully  completed by the Year 2000, in which case the Company could
incur data processing delays,  mistakes or failures.  These delays,  mistakes or
failures could have a significant adverse impact on the financial  statements of
the Company.

                                      -11-
<PAGE>


                     BEDFORD BANCSHARES, INC. AND SUBSIDIARY
                              Key Operating Ratios
<TABLE>
<CAPTION>

                                            Three Months Ended    Six Months Ended
                                                 March 31            March 31
                                            -------------------  ------------------      
                                              1999      1998       1999     1998
                                              ----      ----       ----     ----
                                                           (Unaudited)


<S>                                          <C>       <C>       <C>      <C>  
Basic earnings per share  (2). . . . . . . .   $0.24     $0.21     $0.48    $0.39
Diluted earnings per share (2) . . . . . . .   $0.23     $0.20     $0.46    $0.36
Return on average assets . . . . . . . . . .    1.32 %    1.28 %    1.32 %   1.20 %
Return on average equity . . . . . . . . . .    9.75 %    9.13 %    9.78 %   8.45 %
Interest rate spread . . . . . . . . . . . .    3.04 %    3.12 %    3.01 %   3.13 %
Net interest margin. . . . . . . . . . . . .    3.75 %    3.87 %    3.75 %   3.90 %
Noninterest expense to average assets. . . .    2.10 %    2.26 %    2.11 %   2.28 %
Net charge-offs to average outstanding loans      -- %    0.06 %      -- %   0.06 %
</TABLE>


                                  March 31       September 30
                                    1999             1998
                                  ---------     ------------
                                    (DOLLARS IN THOUSANDS)
                                         (Unaudited)
Nonaccrual loans . . . . . . . .      $1,085             $532
Repossessed real estate. . . . .          83               --
                                       -----            -----
Total nonperforming assets . . .      $1,168             $532
                                       =====            =====


Allowance for credit losses to nonperforming assets. .  68.8 %      143.8 %
Nonperforming loans to total loans . . . . . . . . . .  0.82 %       0.41 %
Nonperforming assets to total assets . . . . . . . . .  0.67 %       0.34 %


Book value per share (2) . . . . . . . . . . . . . . . $9.55        $9.25     


--------------

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

(2)  All per share data has been adjusted to reflect the 2-for-1 stock  dividend
     paid June 15, 1998.


                                      -12-
<PAGE>


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


Item 1.   Legal Proceeedings
          ------------------

     Neither the Corporation  nor the Bank was engaged in any legal  proceedings
of a material  nature at March 31, 1999. From time to time, the Corporation is a
party 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
     27,1999 and the following items were acted upon:
    
     Election of Directors  Harry W. Garrett,  Jr., and Harold K. Neal for terms
     of three years ending in 2002. All were elected as indicated below:

                                        Votes               Votes
                                         For               Withheld
                                         ---               --------
          Harry W. Garrett, Jr.        1,939,785            9,580
          Harold K. Neal               1,943,423            5,943

     Ratification of the appointment of BDO Seidman,  LLP, as the  Corporation's
     auditors  for the 1998 fiscal  year.  BDO  SEIDMAN,  LLP,  was  ratified as
     follows:

                                        Votes          Votes
                                         For          Against      Abstain
                                         ---          -------      -------
                                     1,910,301        33,200        5,864


Item 5.   Other Information
          -----------------     

     Not applicable.

Item 6.   Exhibits and Reports on Form 8-K
          --------------------------------

     (a)  Exhibit

          Exhibit 27: Financial Data Schedule (electronic filing only)

     (b)  Reports on Form 8-K 

          Not applicable.


                                      -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: May 7, 1999                           By: /s/ Harold K. Neal
                                                --------------------------------
                                                Harold K. Neal
                                                President and
                                                Chief Executive Officer
                                                (Principal Executive Officer)


Date: May 7, 1999                           By: /s/ James W. Smith
                                                --------------------------------
                                                James W. Smith
                                                Vice President and Treasurer
                                                (Principal Accounting and
                                                     Financial officer)
























                                      -14-