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 December 31, 1997

                                       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 February 5, 1998: 1,142,425 shares

<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
                              December 31, 1997 and September 30, 1997 (unaudited)                                1

                              Consolidated Statements of Income for the three months
                              ended December 31, 1997 and 1996 (unaudited)                                        2

                              Consolidated Statements of Cash Flows for the three months ended
                              December 31, 1997 and 1996 (unaudited)                                              3

                              Notes to Unaudited Interim Consolidated Financial Statements                        4

       Item 2.                Management's Discussion and Analysis of Financial Condition
                              and Results of Operations                                                           5


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

       Item 1.                Legal proceedings                                                                   9

       Item 2.                Changes in Securities                                                               9

       Item 3.                Defaults upon Senior Securities                                                     9

       Item 4.                Submission of Matters to a Vote of Security Holders                                 9

       Item 5.                Other Information                                                                   9

       Item 6.                Exhibits and Reports on Form 8-K                                                    9

SIGNATURES
</TABLE>


<PAGE>

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

<TABLE>
<CAPTION>
                                                                                            December 31  September 30
                                                                                                1997        1997
                                                                                            -------------------------
                                                                                                 (In Thousands)

Assets
------
<S>                                                                                           <C>        <C>     
Cash and cash equivalents .................................................................   $  3,394   $  5,446
Investment securities held for investment (estimated market value of $3,591 and $4,581) ...      3,599      4,596
Mortgage-backed securities held for investment (estimated market value of $19 and $20) ....         19         20
Marketable equity securities available for sale, at market value ..........................      4,239      4,238
Investment securities available for sale, at market value .................................      4,531      5,006
Investment in Federal Home Loan Bank stock, at cost .......................................        932        932
Loans receivable, net .....................................................................    117,692    116,093
Foreclosed real estate, net ...............................................................         --        212
Property and equipment, net ...............................................................      1,193      1,214
Accrued interest receivable ...............................................................        807        847
Deferred income taxes .....................................................................         49         58
Other assets ..............................................................................        453        427
                                                                                              --------   --------
    Total assets ..........................................................................    136,908    139,089
                                                                                              ========   ========

Liabilities and Stockholders' Equity
------------------------------------
Liabilities
-----------
Deposits...................................................................................    103,387    103,612
Advances from the Federal Home Loan Bank ..................................................     13,000     15,000
Advances from borrowers for taxes and insurance ...........................................        246        502
Dividends payable .........................................................................        160        160
Other liabilities .........................................................................        234        194
                                                                                              --------   --------
     Total liabilities ....................................................................    117,027    119,468
                                                                                              --------   --------

Commitments and contingent liabilities

Stockholders' equity
--------------------
Preferred stock, par value $.10 per share, authorized 250,000; issues and outstanding, none         --         --
Common stock, par value $.10 per share, authorized 2,750,000 shares; issued and outstanding
  1,142,425 at December 31, 1997 and September 30, 1997 ...................................        114        114
Additional paid in capital ................................................................     10,884     10,836
Retained earnings, substantially restricted ...............................................      9,958      9,763
Unrealized (loss) gain on securities available for sale ...................................         28         22
Less stock acquired by ESOP and RRP                                                             (1,103)    (1,114)
                                                                                              --------   --------
     Total stockholders' equity ...........................................................     19,881     19,621
                                                                                              --------   --------
     Total liabilities and stockholders' equity ...........................................   $136,908   $139,089
                                                                                              ========   ========
</TABLE>


See notes to consolidated financial statements.



                                       -1-

<PAGE>

                     BEDFORD BANCSHARES, INC. AND SUBSIDIARY
                        Consolidated Statements of Income
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                     Three Months Ended
                                                                        December 31
                                                                   1997             1996
                                                                  ------           ------
                                                                  (Dollars in Thousands,
                                                                  Except Per Share Data)
<S>                                                               <C>              <C>   
Interest Income:
 Loans ....................................................       $2,404           $2,218
 U.S. Government Obligations including agencies ...........          217              190
 Other investments, including overnight deposits ..........           47               54 
                                                                  ------           ------
  Total interest income ...................................        2,668            2,462
                                                                  ------           ------
Interest Expense:                                                                 
 Deposits .................................................        1,167            1,053
 Borrowed funds ...........................................          204              215
                                                                  ------           ------
  Total interest expense ..................................        1,371            1,268
                                                                  ------           ------
  Net interest income .....................................        1,297            1,194
Provision for credit losses ...............................           30               25
                                                                  ------           ------
  Net interest income after provision for credit losses ...        1,267            1,169
                                                                  ------           ------
Noninterest income:                                                               
 Service charges and fees on loans ........................           95               87
 Other customer service fees and commissions ..............           68               61
 Other ....................................................           24                7
                                                                  ------           ------
  Total noninterest income ................................          187              155
                                                                  ------           ------
Noninterest expense:                                                              
 Personnel compensation and benefits ......................          463              396
 Occupancy and equipment ..................................           80               72
 Data processing ..........................................           85               79
 Federal insurance of accounts ............................           16               42
 Advertising ..............................................           33               34
 Professional fees ........................................           72               30
 Net cost of (gain on) operations of foreclosed real estate           --                2
 Other ....................................................           86               94
                                                                  ------           ------
  Total noninterest expense ...............................          835              749
                                                                  ------           ------
   Income before income taxes .............................          619              575
Provision for income taxes ................................          235              218
                                                                  ------           ------
  Net income ..............................................       $  384           $  357
                                                                  ======           ======
                                                                                  
  Basic earnings per share ................................       $ 0.35           $ 0.33
                                                                  ======           ======
                                                                                  
  Diluted  earnings per share .............................       $ 0.33           $ 0.32
                                                                  ======           ======

</TABLE>
                                                                        
See notes to consolidated financial statements.




                                       -2-

<PAGE>

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

<TABLE>
<CAPTION>

                                                                                        Three Months Ended
                                                                                           December 31,
                                                                                         1997        1996
                                                                                        --------   --------
                                                                                      (Dollars in Thousands)
<S>                                                                                     <C>        <C>    
Operating activities:  
 Net income ..........................................................................  $   384    $   357
 Adjustments to reconcile net income to net cash provided by operating activities
  Provision for credit losses .......................................................        30         25
  Provision for depreciation and amortization .......................................        37         34
  Amortization of investment security premiums and accretion of discounts, net ......        (3)         1
  (Increase) decrease in deferred income taxes ......................................         9         49
  Loans originated for sale .........................................................        --         --
  Proceeds from sale of loans originated for sale ...................................        --         --
  (Increase) decrease in accrued interest receivable ................................        40         53
  (Increase) decrease in other assets ...............................................       (26)       123
  Increase (decrease) in other liabilities ..........................................        40       (541)
                                                                                        -------    -------
     Net cash provided by (used in) operating activities ...........................        511        101
                                                                                        -------    -------
Investing activities:
  Proceeds from the maturities of investments .......................................     1,000         --
  Proceeds from the sales of investments ............................................       992         --
  Purchases of investment securities ................................................      (500)       (57)
  Net increase in loans to customers ................................................    (1,599)    (2,741)
  Net proceeds from the sale of foreclosed real estate ..............................       200         --
  Principal collected on ortgage-backed securities ..................................         1         10
  Purchases of premises, equipment and leasehold improvements .......................       (16)       (36)
  Purchase of foreclosed real estate ................................................        --        (43)
                                                                                        -------    -------
      Net cash provided by (used in) investment activities ..........................        78     (2,867)
                                                                                        -------    -------
Financing activities:
  Dividends paid ....................................................................      (160)      (126)
  Net increase (decrease) in customer deposits ......................................      (225)       906
  Proceeds from advances and other borrowed money ...................................    (2,000)     2,000
  Net increase (decrease) in advance payments from borrowers for taxes and insurance.      (256)      (227)
                                                                                        -------    -------
      Net cash provided by financing activities .....................................    (2,641)     2,553
                                                                                        -------    -------
      Increase (decrease) in cash and cash equivalents ..............................    (2,052)      (213)
Cash and cash equivalents at beginning of period ....................................     5,446      3,075
                                                                                        -------    -------
Cash and cash equivalents at end of period ..........................................   $ 3,394    $ 2,862
                                                                                        =======    =======
</TABLE>

See notes to consolidated financial statements.

                                      -3-


<PAGE>




          Note to Unaudited Interim Consolidated Financial Statements

                                December 31, 1997

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.

     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 December 31,
1997 is not necessarily  indicative of the results which may may be expected for
any future  period.  For futher  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, 1997.

     For the quarter ended December 31, 1997, the Corporation  adopted Statement
of Financial  Accounting Standards ("SFAS") 128, Earnings Per Share. SFAS 128 is
effective for financial statements, including interim periods issued for periods
ending  after  December  15,  1977.  SFAS 128  provides a  different  method for
calculating  earnings  per  share  than  was  used in  accordance  with  APB 15,
"Earnings Per Share." SFAS 128 provides for the calculation of basic and diluted
earnings  per share.  Basic  earnings  per share  includes  no  dilution  and is
computed by dividing  income  available to common  shareholders  by the weighted
average number of common shares outstanding for the period. Diluted earnings per
share reflects the potential dilution of securities that could share in earnings
of an entity, similar to fully diluted earnings per share.






                                       -4-


<PAGE>

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

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

     Total assets of the Corporation were $136.9 million at December 31, 1997, a
decrease of $2.2 million from  September 30, 1997.  The $2.1 million  decline in
cash and cash equivalents primarily reflects the $2 million reduction in Federal
Home Loan bank borrowings.  Net loans increased $1.6 million as investments were
reduced $1.5 million providing funding for the loan growth. Stockholders' equity
was $19.9  million on December 31, 1997,  up $260,000  from the $19.6 million on
September 30, 1997.

     At December 31, 1997,  nonperforming assets were $735,000, or .54% of total
assets,  compared to $730,000,  or .52% of total  assets at September  30, 1997.
During the quarter  ended  December  31,  1997,  nonperforming  loans  increased
$217,000 due primarily to the addition of one large  consumer  loan. The loan is
well secured and no material  loss is  anticipated.  The $212,000 of  foreclosed
property  held at September 30, 1997 was sold during the first quarter of fiscal
1998.  No material  gain or loss was  realized  from the sale of the  foreclosed
property. On December 31, 1997, the allowance for credit losses totaled $709,000
and equaled 96.37% of nonperforming assets.

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

COMPARISON OF THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996
-----------------------------------------------------------

     General.  Net income  for the three  months  ended  December  31,  1997 was
$384,000,  up 7.6% from the $357,000  earned in the comparable  period of fiscal
1997. Net interest income for the first quarter of fiscal 1998 was $1.3 million,
compared  to net  interest  income for the first  quarter of fiscal 1997 of $1.2
million.  In  addition,  $30,000 was added to the  allowance  for credit  losses
during the first quarter of fiscal 1998,  compared to $25,000 for the comparable
period of fiscal 1997.

     Interest  Income.  Total interest  income  amounted to $2.7 million for the
three  months ended  December  31, 1997 up from the $2.5  million  earned in the
comparable quarter of fiscal 1996. The increase was primarily due to an increase
in the average  balance of loans  receivable  to $116.8  million for the quarter
ended December 31, 1997 from $110.5 million for the same period of 1996.

     Interest  Expense.  For the three  months ended  December  31, 1997,  total
interest expense rose to $1.4 million from the $1.3 million for the three months
ended December 31, 1996,  primarily due to an increase in the average balance of
interest  bearing  liabilities to $111.1 million for the first quarter of fiscal
1998 from $104.5 million for the same quarter of fiscal 1997.  Average  interest
bearing  deposits  were $97.8  million  for the first  quarter  of fiscal  1998,
compared  to an average  of $90.3  million  for the same three  months of fiscal
1997.

     Net Interest  Income.  For the three months  ended  December 31, 1997,  net
interest  income was $1.3  million,  up $103,000  from the net  interest  income
earned in the same period of 1996.  During the three months  ended  December 31,
1997, the  Corporation's  interest rate spread and net interest margin increased
to 3.13% and 3.92%,  respectively,  compare to 3.07% and 3.84%, respectively for
the same period of 1996.

                                       -5-

<PAGE>



     Provision for Credit Losses.  For the three months ended December 31, 1997,
the Bank recorded a provision for credit losses of $30,000, compared $25,000 for
the same period of fiscal 1997. As discussed in the Financial Condition Section,
we added one consumer loan in the amount of $185,000 and several small  consumer
loans, totaling a net $38,000, to the nonperforming category.

     Total Noninterest Income. Noninterest income totaled $187,000 for the first
quarter of fiscal  1998,  compared  to $155,000  for the same  quarter of fiscal
1997. The increase was primarily  attributable to an increase in income from the
sale of mortgage  insurance,  coupled with moderate increases in service charges
and fees on loans and other customer service fees.

     Total Noninterest  Expense.  Total noninterest expense was $835,000 for the
three months ended December 31, 1997, up $86,000 from the $749,000 total for the
comparable quarter of fiscal 1997.  Personnel  compensation and benefits totaled
$463,000 for the three months ended  December 31, 1997, up $67,000 from the same
quarter of 1996  primarily due to benefit plans based on the market value of the
Company's  common stock,  merit  increases and increases in other  benefits.  In
addition,  professional fees totaled $72,000 for the three months ended December
31, 1997, compared to $30,000 for the same three months of 1996 due primarily to
consulting fees associated with the Corporation's  three year strategic business
plan.

     Provision for Income Taxes. The provision for income taxes was $235,000 for
the three  months  ended  December  31,  1997,  up from the  $218,000  provision
recorded in the three months ended December 31, 1996. The increased reflects the
higher profitability of the Company in the quarter ended December 31, 1997.

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

The  following  table  presents  the  Bank's   compliance  with  its  regulatory
requirements of December 31, 1997. (Dollar amounts in thousands).

                                            December 31, 1997
                                           ---------------------
                                                      Percentage
                                                      of assets 
                                                      ----------

GAAP Capital ...........................   $17,681      12.88%
                                           =======      =====

Tangible capital .......................   $17,681      12.88%
Tangible capital requirement ...........     2,059       1.50
                                           -------      ----- 
  Excess ...............................   $15,622      11.38%
                                           =======      =====

Core capital ...........................   $17,681      12.88%
Core capital requirement ...............     4,119       3.00
                                           -------      ----- 
  Excess ...............................   $13,562       9.88%
                                           =======      =====

Total risk-based capital (1) ...........   $18,290      25.37%
Total risk-based capital requirement (1)     5,767       8.00
                                           -------      ----- 
  Excess ...............................   $12,523      17.37
                                           =======      =====


-----------------------------------
(1)  Based on risk-weighted assets of $72,093
-----------------------------------

                                       -6-

<PAGE>

     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.

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  source 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 December 31, 1997, such borrowed funds totaled $13.0
million.  Loan  payments  and maturing  investments  are greatly  influenced  by
general interest rates, economic conditions and competition.

     The OTS adopted a new liquidity rule  effective  Novenber 24, 1997. The new
rule lowers liquidity  requirements for savings associations from 5 to 4 percent
of the  association's  liquidity base. In addition,  the liquidity base has been
reduced by modifying  the  definition  of net  withdrawable  accounts to exclude
accounts  with  maturities  exceeding  one  year.  Another  change  removes  the
requirement that certain  obligations must mature in five years or less in order
to qualify as a liquid asset. The new rule also eliminates a separate limit that
required  savings  associations  to hold assets equal to 1 percent of a thrift's
liquidity  base in cash or short term liquid  assets.  At December 31, 1997, the
Bank's regulatory liquidity as measured by the new requirement was 10.12%.

     The amount of certificate accounts which are scheduled to mature during the
next twelve months ending December 31, 19987, is approximately $40.8 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 December 31, 1997,  the Bank had loan  commitments  outstanding of $ 5.7
million and a $500,000  commitment  to purchase an  investment  security.  Funds
required to fulfill these  commitments are derived primarily from current excess
liquidity, deposit inflows, borrowings or loan and investment repayments.



                                       -7-

<PAGE>



                     BEDFORD BANCSHARES, INC. AND SUBSIDIARY
                              Key Operating Ratios
                                   (Unaudited)

                                                         For the
                                                    Three Months Ended
                                                        December 31 
                                                   --------------------
                                                 1997(1)           1996(1) 
                                               -----------       -----------
                                                        (Unaudited)

Earnings per common share ..................   $   0.35          $   0.33
                                               ========          ========
Return on average assets ...................       1.11%             1.10%
Return on average equity ...................       7.76%             7.72%
Interest rate spread .......................       3.13%             3.07%
Net interest margin ........................       3.92%             3.84%
Noninterest expense to average assets ......       2.41%             2.31%
Net charge-offs to average outstanding loans         --                --
                                                           

<TABLE>
<CAPTION>
                                                           At                      At
                                                      December 31             September 30
                                                          1997                    1997 
                                                      -----------             ------------
                                                              (Dollars in Thousands)

<S>                                                      <C>                    <C>    
Nonaccrual and 90 days past due loans .............      $   735                $   518
Foreclosed real estate ............................          --                     212
                                                         -------                -------
Total nonperforming assets ........................      $   735                $   730
                                                         =======                =======
                                                                               
                                                                               
Allowance for credit losses to nonperforming assets        96.37%                 92.81%
Nonperforming loans to total loans ................         0.62%                  0.45%
Nonperforming assets to total assets ..............         0.54%                  0.52%
                                                                               
Book value per share ..............................      $ 17.40                  17.17
                                                         =======                =======
                                                                 
</TABLE>

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


                                       -8-
<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 December 31,  1997.  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
         ---------------------------------------------------

              Not applicable.

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

              Not applicable.

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

         (a) Exhibits

             Exhibit 11: Statement regarding computation of earnings per share.
             Exhibit 27: Financial Data Schedule (electronic filing only)

         (b) Reports on Form 8-K

             Not applicable.




                                       -9-

<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: February 12, 1998                   By: /s/ Harold K. Neal
                                              ----------------------
                                              Harold K. Neal
                                              President and
                                              Chief Executive Officer
                                              (Principal Executive Officer)


Date: February 12, 1998                   By: /s/ Harold K. Neal
                                              ----------------------
                                              James W. Smith
                                              Vice President and Treasurer
                                              (Principal Accounting and
                                                   Financial officer)






                                      -10-