SECURITIES AND EXCHANGE COMMISSION
                                Washington, D.C.

                                   FORM 10-QSB

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

                  For the quarterly period ended June 30, 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 August 8, 1997: 1,142,425 shares
<PAGE>


                    BEDFORD BANCSHARES, INC. AND SUBSIDIARY

                              INDEX TO FORM 10-QSB

<TABLE>
<CAPTION>
<S>           <C>                    <C>                                                                                       <C>
              PART I                 FINANCIAL INFORMATION                                                                     PAGE
                                     ---------------------                                                                     ----

              Item 1.                Financial Statements

                                     Consolidated Statements of Financial Condition at 
                                     June 30, 1997 and September 30, 1996 (unaudited)                                             1

                                     Consolidated Statements of Income for the three and nine months
                                     ended June 30, 1997 and 1996 (unaudited)                                                     2

                                     Consolidated Statements of Cash Flows for the nine months ended
                                     June 30, 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                                                                           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

</TABLE>

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

                                                                                                    June 30           September 30
                                                                                                      1997                1996   
                                                                                                    --------          ------------
                                                                                                        (Dollars in Thousands)

<S>                                                                                                   <C>                   <C>   
Assets
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     $3,289                $3,075
Investment securities held to maturity (estimated market value of $3,804 and $5,161) . . . . . . .     3,835                 5,214
Mortgage-backed securities held for investment (estimated market value of $21 and $25) . . . . . .        21                    25
Mortgage-backed securities available for sale, at market value . . . . . . . . . . . . . . . . . .       461                   457
Marketable equity securities available for sale, at market value . . . . . . . . . . . . . . . . .     4,101                 3,879
Investment securities available for sale, at market value . . . . . . . . . . . . . . . . . . . .      4,383                 1,860
Investment in Federal Home Loan Bank stock, at cost . . . . . . . . . . . . . . . . . . . . . . .        932                   932
Loans receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    115,556               108,873
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      1,246                 1,238
Accrued interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        828                   662
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        372                   438
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       431                   548
                                                                                                    --------              --------
    Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $135,455              $127,201
                                                                                                    ========              ========

Liabilities and Stockholders' Equity
------------------------------------
Liabilities
-----------
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $100,047               $95,378
Advances from the Federal Home Loan Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    14,500                12,000
Advances from borrowers for taxes and insurance . . . . . . . . . . . . . . . . . . . . . . . . .        322                   539
Dividends payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        160                   126
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      1,243                   931
                                                                                                    --------              --------
     Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   116,272               108,974
                                                                                                    --------              --------

Stockholders' equity
--------------------
Preferred stock, par value $.10 per share, authorized 250,000; issued and outstanding, none . . .          0                     0
Common stock, par value $.10 per share, authorized 2,750,000 shares; issued and outstanding
  1,142,425 at June 30, 1997 and 1,143,669 at September 30, 1996. . . . . . . . . . . . . . . . .        114                   114
Additional paid in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    10,792                10,773
Retained earnings, substantially restricted . . . . . . . . . . . . . . . . . . . . . . . . . . .      9,470                 8,739
Unrealized loss on securities available for sale . . . . . . . . . . . . . . . . . . . . . . . . .        (7)                  (33)
Less stock acquired by ESOP and RRP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     (1,186)               (1,366)
                                                                                                    --------              --------
     Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     19,183                18,227
                                                                                                    --------              --------
     Total liabilities and stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . .   $135,455              $127,201
                                                                                                    ========              ========
</TABLE>

See notes to consolidated financial statements.



                                       -1-

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

<TABLE>
<CAPTION>
                                                                        Three Months Ended                  Nine Months Ended
                                                                              June 30                           June 30       
                                                                     -----------------------            ------------------------

                                                                      1997              1996             1997              1996     
                                                                     ------           ------            ------            ------
                                                                                        (In Thousands)
<S>                                                                  <C>              <C>               <C>               <C>   
Interest Income:
 Loans . . . . . . . . . . . . . . . . . . . . . . . . . . .         $2,342           $2,078            $6,868            $6,211
 U.S. Government Obligations, including agencies . . . . . .            204              199               583               551
 Other investments, including overnight deposits . . . . . .             40               46               136                96
                                                                     ------           ------            ------            ------
  Total interest income. . . . . . . . . . . . . . . . . . .          2,586            2,323             7,587             6,858
                                                                     ------           ------            ------            ------
Interest Expense:
 Deposits . . . . . . . . . . . . . . . . . . . . . . . . .           1,075            1,026             3,158             3,086
 Borrowed funds . . . . . . . . . . . . . . . . . . . . . .             217               89               654               218
                                                                     ------           ------            ------            ------
  Total interest expense . . . . . . . . . . . . . . . . . .          1,292            1,115             3,812             3,304
                                                                     ------           ------            ------            ------
  Net interest income . . . . . . . . . . . . . . . . . . .           1,294            1,208             3,775             3,554
Provision for credit losses . . . . . . . . . . . . . . . .              25               -                 75                - 
                                                                     ------           ------            ------            ------
  Net interest income after provision for credit losses .             1,269            1,208             3,700             3,554
                                                                     ------           ------            ------            ------
Noninterest income:
 Service charges and fees on loans . . . . . . . . . . . . .             87              122               237               255
 Other customer service fees and commissions . . . . . . . .             58               61               178               181
 Other . . . . . . . . . . . . . . . . . . . . . . . . . . .              9                8                39                72
                                                                     ------           ------            ------            ------
  Total noninterest income . . . . . . . . . . . . . . . . .            154              191               454               508
                                                                     ------           ------            ------            ------
Noninterest expense:
 Personnel compensation and benefits . . . . . . . . . . . .            435              364             1,244             1,101
 Occupancy and equipment . . . . . . . . . . . . . . . . . .             82               89               234               254
 Data processing . . . . . . . . . . . . . . . . . . . . . .             84               74               254               232
 Federal insurance of accounts . . . . . . . . . . . . . . .             16               53                73               154
 Advertising . . . . . . . . . . . . . . . . . . . . . . . .             46               23               105                65
 Professional fees . . . . . . . . . . . . . . . . . . . . .             22               23                87                95
 Other . . . . . . . . . . . . . . . . . . . . . . . . . . .             81               89               258               263
                                                                     ------           ------            ------            ------
  Total noninterest expense . . . . . . . . . . . . . . . .             766              715             2,255             2,164
                                                                     ------           ------            ------            ------
   Income before income taxes . . . . . . . . . . . . . . .             657              684             1,899             1,898
Provision for income taxes . . . . . . . . . . . . . . . . .            250              260               721               721
                                                                     ------           ------            ------            ------
  Net income . . . . . . . . . . . . . . . . . . . . . . . .           $407             $424            $1,178            $1,177
                                                                     ======           ======            ======            ======

  Net income per share . . . . . . . . . . . . . . . . . . .          $0.38            $0.38             $1.09             $1.05
                                                                      =====            =====             =====             =====
</TABLE>

See notes to consolidated financial statements.



                                       -2-

<PAGE>
                    BEDFORD BANCSHARES, INC. AND SUBSIDIARY
                     Consolidated Statements of Cash Flows
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                                        Nine Months Ended
                                                                                                           June 30     
                                                                                                        ----------------- 
                                                                                                        1997      1996      
                                                                                                        ----      ----      
                                                                                                         (In Thousands)
<S>                                                                                                    <C>       <C>    
Operating activities:
  Net income ......................................................................................    $1,178    $ 1,177
  Adjustments to reconcile net income to net cash provided by operating activities
    Provision for credit losses ...................................................................        75       --
    Provision for depreciation and amortization ...................................................       120        121
    Amortization of investment security premiums and accretion of discounts, net ..................        (8)        (8)
    (Increase) decrease in deferred income taxes ..................................................        66        (37)
    (Gain) loss on sale of loans, investments and foreclosed real estate ..........................        (8)       (30)
    Loans originated for sale .....................................................................      (185)      (152)
    Proceeds from sale of loans originated for sale ...............................................       185        152
    (Increase) decrease in accrued interest receivable ............................................      (166)        79
    (Increase) decrease in other assets ...........................................................       117        (13)
    Increase (decrease) in other liabilities ......................................................       345        182
                                                                                                      -------    -------
      Net cash provided by (used in) operating activities .........................................     1,719      1,471
                                                                                                      -------    -------
Investing activities:
    Proceeds from the sale of investments, available for sale .....................................     1,000        500
    Proceeds from the maturities of investments ...................................................     1,400      1,391
    Purchases of investment securities ............................................................    (3,695)    (3,596)
    Net increase in loans to customers ............................................................    (6,683)    (5,783)
    Principal collected on mortgage-backed securities .............................................        26          8
    Purchases of premises, equipment and leasehold improvements ...................................      (128)       (64)
    Proceeds from the sale of REO .................................................................        48         83
                                                                                                      -------    -------
      Net cash provided by (used in) investing activities .........................................    (8,032)    (7,461)
                                                                                                      -------    -------
Financing activities:
    Repurchase of stock ...........................................................................      --         (824)
    Proceeds - allocation of ESOP and RRP shares ..................................................      --          149
    Dividends paid ................................................................................      (402)      (401)
    Net increase (decrease) in customer deposits ..................................................     4,669      4,067
    Proceeds from advances and other borrowed money ...............................................     2,500      3,000
    Purchase of stock by ESOP and RRP .............................................................       (23)      (484)
    Net increase (decrease) in advance payments from borrowers for taxes and insurance ............      (217)      (179)
                                                                                                      -------    -------
      Net cash provided by financing activities ...................................................     6,527      5,328
                                                                                                      -------    -------
      Increase (decrease) in cash and cash equivalents ............................................       214       (662)
Cash and cash equivalents at beginning of period ..................................................     3,075      3,337
                                                                                                      -------    -------
Cash and cash equivalents at end of period ........................................................   $ 3,289    $ 2,675
                                                                                                      =======    =======

</TABLE>


See notes to consolidated financial statements.


                                       -3-

<PAGE>

          Note to Unaudited Interim Consolidated Fianancial Statements

                                  June 30, 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 its
wholly  owned  subsidiary  Bedford  Federal  Savings  Bank  (the  "Bank").   All
significant intercompany 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 periods ended June 30, 1997
and 1996 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, 1996.



                                      -4-
<PAGE>
        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                             RESULTS OF OPERATIONS


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

     Total assets of the  Corporation  were $135.5  million at June 30, 1997, an
increase of $8.3 million from September 30, 1996.  Approximately one-half of the
$6.7  million  rise in loan  receivables  was  concentrated  in the consumer and
commercial  categories,  with  mortgage  loans and home  equity  lines of credit
reflecting  an increase of $3.3  million.  In  addition,  investment  securities
available  for sale were up $2.5  million  from  September  30, 1996 to June 30,
1997.  Funding for the asset  growth was mainly  provided by  increases  in FHLB
borrowings  and  deposits.  Stockholders'  equity was $19.2  million on June 30,
1997, up $956,000 from the $18.2 million on September 30, 1996.

     At June 30,  1997,  nonperforming  assets were $ 819,000,  or .60% of total
assets,  compared to $684,000, or .54% of total assets at September 30, 1996. At
June 30, 1997 nonperforming  assets were comprised of $680,000 of mortgage loans
and $139,000 of consumer  loans.  Theses  credits are well  collateralized  and,
therefore,  the Bank anticipates no material losses from their disposition.  The
level of nonperforming  assets at June 30, 1997 is $ 13,000 lower than the level
at March 31, 1997.


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

COMPARISON OF THREE  MONTHS ENDED JUNE 30, 1997 AND 1996
--------------------------------------------------------

     General.  Net income for the three months ended June 30, 1997 was $407,000,
down 4.0% from the $424,000 earned in the comparable  period of fiscal 1996. Per
share  earnings of $.38 were  recorded for both the quarter  ended June 30, 1997
and June 30, 1996. Net interest  income for the third quarter of fiscal 1997 was
$1.3  million,  compared to net interest  income for the third quarter of fiscal
1996 of $1.2 million. In addition, $25,000 was added to the allowance for credit
losses during the third quarter of fiscal 1997.

     Interest  Income.  Total interest  income  amounted to $2.6 million for the
three  months  ended  June 30,  1997,  up from the $2.3  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 $114.1  million for the quarter
ended June 30,  1997,  from $100.9  million  for the same  period of 1996.  This
increase reflects the Corporation's  continuing success in originating  mortgage
loans and increased  emphasis on expanding  the consumer  loan , primarily  home
equity loans, and commercial loan portfolios.

     Interest Expense.  For the three months ended June 30, 1997, total interest
expense was $1.3  million,  compared to $1.1  million for the three months ended
June 30, 1996,  primarily due to an increase in the average  balance of interest
bearing  liabilities to $108.1 million for the third quarter of fiscal 1997 from
$93.9 million for the same quarter of fiscal 1996.  The average  balance of FHLB
advances  increased  $8.4 from $6.0  million for the three months ended June 30,
1996 to $14.4  million for the three months ended June 30, 1997,  providing  the
additional  funding  needed to support  the Bank's  loan  growth.  In  addition,
average  interest  bearing  deposits

                                       -5-
<PAGE>

totaled  $93.7  million for the third  quarter of fiscal  1997,  a $5.8  million
increase  from the $87.9  million  average for the  comparable  period of fiscal
1996.

     Net Interest Income. For the three months ended June 30, 1997, net interest
income was $1.3 million,  up slightly from the net interest income earned in the
same  period  of  1996.  During  the  three  months  ended  June 30,  1997,  the
Corporation's  interest rate spread and net interest margin declined modestly to
3.28% and 4.03%, respectively, compared to 3.36% and 4.22%, respectively for the
same  period of 1996.  A slight  decline in the yield on earning  assets was the
primary reason for the decreases.

     Provision for Credit Losses.  For the three months ended June 30, 1997, the
Bank,   after  reviewing   nonperfoming   assets,   loan  portfolio  growth  and
year-to-date  net  charge-offs  ,  recorded a  provision  for  credit  losses of
$25,000.  There was no provision for credit losses taken during the three months
ended June 30, 1996.  The  determination  of the adequacy of the  allowance  for
credit losses  involves  subjective  judgements  regarding  future events,  and,
therefore,  there can be no assurance that additions to the allowance for credit
losses will not be  required  in future  periods.  Management  will  continue to
evaluate  the level of the  allowance  for credit  losses  based on, among other
things, growth of the loan portfolio,  loan delinquency rates and general market
conditions. There can be no assurance,  however, that additional provisions will
be required in future periods.

     Total Noninterest Income. Noninterest income totaled $154,000 for the third
quarter of fiscal 1997,  compared to $191,000 for the same three months of 1996.
The decline is  primarily  the result of a decrease in loan fees earned due to a
moderation in mortgage  loan  closings when  comparing the third quarter of 1997
with the same period of 1996.

     Total Noninterest  Expense.  Total noninterest expense was $766,000 for the
three  months ended June 30,  1997,  up $51,000 from the $715,000  total for the
comparable quarter of fiscal 1996.  Personnel  compensation and benefits totaled
$435,000  for the three  months  ended June 30,  1997,  up $71,000 from the same
quarter of 1996 primarily due to staff  increases,  general merit  increases and
higher benefits costs. In addition,  advertising expenses were up $23,000 due to
home equity line and  certificate of deposit  promotions.  These  increases were
partially offset by a reduction in the cost of Federal Deposit Insurance.

     Provision for Income Taxes. The provision for income taxes was $250,000 for
the three months  ended June 30,  1997,  compared to a provision of $260,000 for
the same quarter of fiscal  1996.  The  slightly  lower  provision is due to the
modest decline in taxable income.

COMPARISON OF NINE  MONTHS ENDED JUNE 30, 1997 AND 1996
-------------------------------------------------------

     General. Net income for the nine months ended June 30, 1997 was $1,178,000,
compared to $1,177,000  earned in the comparable period of fiscal 1996. On a per
share basis,  earnings  were $1.09 and $1.05 for the first nine months of fiscal
1997 and 1996, respectively.  Net interest income for the nine months ended June
30, 1997 was $3.8 million, compared to $3.6 million for the first nine months of
fiscal 1996.  In addition,  $75,000 was added to the allowance for credit losses
during the first nine months of fiscal 1997.

     Interest  Income.  Total interest  income  amounted to $7.6 million for the
nine  months  ended  June  30,  1997,  up from the $6.9  million  earned  in the
comparable  period of fiscal 1996. The increase was primarily due to an increase
in the average balance of loans receivable to $112.4 

                                      -6-
<PAGE>


million for the nine months ended June 30, 1997 from $99.3  million for the same
period of 1996. This increase reflects the Corporation's  continuing  success in
originating  mortgage loans and increased emphasis on expanding the consumer and
commercial loan portfolios.

     Interest  Expense.  For the nine months ended June 30, 1997, total interest
expense  rose to $3.8  million  from the $3.3  million for the nine months ended
June 30, 1996,  primarily due to an increase in the average  balance of interest
bearing  liabilities  to $106.3 million for the first nine months of fiscal 1997
from $92.3 million for the comparable period of fiscal 1996. The average balance
of FHLB  advances  increased  $9.7 million from $4.8 million for the nine months
ended June 30, 1996 to $14.5  million for the nine months  ended June 30,  1997,
providing the additional  funding  needed to support the Bank's loan growth.  In
addition,  average interest bearing deposits totaled $91.9 million for the first
nine months of fiscal  1997,  a $4.4  million  increase  from the $87.5  million
average for the comparable period of fiscal 1996.

     Net Interest Income.  For the nine months ended June 30, 1997, net interest
income was $3.8 million, up 6.2% from the net interest income earned in the same
period of 1996.  During the nine months ended June 30, 1997,  the  Corporation's
interest  rate  spread  and net  interest  margin  declined  to 3.25% and 4.00%,
respectively,  compared to 3.37% and 4.22%,  respectively for the same period of
1996. The lower margin and spread are primarily due to a slightly lower yield on
earning assets.

     Provision for Credit  Losses.  For the nine months ended June 30, 1997, the
Bank,  after  reviewing  nonperfoming  assets,  loan growth and the level of net
charge-offs,  recorded a a provision for credit losses of $75,000.  There was no
provision  for credit  losses  taken during the nine months ended June 30, 1996.
The  determination  of the adequacy of the allowance for credit losses  involves
subjective  judgements regarding future events, and, therefore,  there can be no
assurance that additions to the allowance for credit losses will not be required
in  future  periods.  Management  will  continue  to  evaluate  the level of the
allowance  for credit  losses based on, among other  things,  growth of the loan
portfolio, loan delinquency rates and general market conditions. There can be no
assurance,  however,  that  additional  provisions  will be  required  in future
periods.

     Total Noninterest Income. Noninterest income totaled $454,000 for the first
nine months of fiscal  1997,  compared to $508,000  for the same period of 1996.
During the nine months ended June 30, 1996, the  Corporation  realized a gain of
$27,000 on the sale of foreclosed property,  compared to a gain of $4,000 in the
same period of 1997.

     Total Noninterest Expense. Total noninterest expense was $2,255,000 for the
nine months ended June 30, 1997,  up $91,000 from the  $2,164,000  total for the
comparable  period of fiscal 1996.  Personnel  compensation and benefits totaled
$1,244,000  for the nine months ended June 30, 1997,  up $143,000  from the same
nine months of 1996,  primarily due to staff increases,  general merit increases
and higher benefits costs. In addition, advertising expenses were up $40,000 due
to several product  promotions  during the first nine months of 1997.  Partially
offsetting  these items was a $81,000  reduction in the cost of Federal  Deposit
Insurance which amounted to $73,000 for the first nine months of 1997,  compared
to $154,000 for the same period of 1996.

     Provision for Income Taxes. The provision for income taxes was $721,000 for
both the nine months  ended June 30, 1997 and 1996,  as there was  virtually  no
change in the amount of taxable income for the two periods. 

                                      -7-
<PAGE>


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

The  following  table  presents  the  Bank's   compliance  with  its  regulatory
requirements of June 30, 1997.
(Dollar amounts in thousands).

<TABLE>
<CAPTION>
                                                                                                  June 30, 1997
                                                                                                  -------------
                                                                                                              Percentage
                                                                                             Amount            of assets
                                                                                             ------            ---------

<S>                                                                                         <C>                   <C>   
GAAP Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . .  . . . . . . .         $16,916               12.45%
                                                                                            =======               ===== 

Tangible capital . . . . . . . . . . . . . . . . . . . . . . . . . .  . . . . . . .         $16,916               12.45%
Tangible capital requirement . . . . . . . . . . . . . . . . . . . .  . . . . . . .           2,038                1.50%
                                                                                            -------               ----- 
Excess . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  . . . . . . .         $14,878               10.95%
                                                                                            =======               ===== 


Core capital . . . . . . . . . . . . . . . . . . . . . . . . . . . .  . . . . . . .         $16,916               12.45%
Core capital requirement . . . . . . . . . . . . . . . . . . . . . .  . . . . . . .           4,076                3.00%
                                                                                            -------               ----- 
Excess . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  . . . . . . .         $12,840                9.45%
                                                                                            =======                ==== 


Total risk-based capital (1). . . . . . . . . . . . . . . . . . . . .. . . . . . .          $17,517               22.92%
Total risk-based capital requirement (1). . . . . . . . . . . . . . .. . . . . . .            6,115                8.00%
                                                                                            -------               ----- 
Excess . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  . . . . . . .         $11,402               14.92%
                                                                                            =======               ===== 

</TABLE>

(1)  Based on risk-weighted assets of $76,432



     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.

     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 has, at times,  borrowed funds from the Federal
Home Loan Bank ("FHLB") of Atlanta.  As of June 30, 1997,  such  borrowed  funds
totaled  $14.5  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  investments,"  which include certain United States
government  obligations  and other  approved  investments.  Current  regulations
require  the  Bank  to  maintain  liquid  assets  of  not  less  than  5% of net
withdrawable accounts plus short-term borrowings.  Short-term liquid assets must
consist of 

                                      -8-
<PAGE>


not less than 1% of such accounts and borrowings,  which amount is also included
within the 5% requirement.  Those levels may be changed from time to time by the
regulators  to  reflect  current  economic  conditions.  The Bank has  generally
maintained  liquidity  far in  excess of  regulatory  requirements.  The  Bank's
regulatory  liquidity  was 7.53% and and its  short-term  liquidity was 2.61% at
June 30, 1997.

     The amount of certificate accounts which are scheduled to mature during the
next twelve months ending June 30, 1998, is approximately  $42.2 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 June 30, 1997, the Bank had loan commitments outstanding of $4.3 million
and no commitments to purchase  mortgage-backed or investment securities.  Funds
required to fill these  commitments  are primarily  derived from current  excess
liquidity, deposit inflows, borrowings, or loan and investment repayments.

IMPACT OF INFLATION AND CHANGING PRICES
---------------------------------------

     The consolidated financial statements of the Corporation and notes thereto,
presented  elsewhere  herein,  have been prepared in accordance with GAAP, which
requires the measurement of financial position and operating results in terms of
historical  dollars without  considering the relative  purchasing power of money
over  time due to  inflation.  The  impact  of  inflation  is  reflected  in the
increased  cost  of  the  Corporation's   operations.   Unlike  most  industrial
companies,  nearly all of the  assets and  liabilities  of the  Corporation  are
financial.   As  a  result,   interest  rates  have  a  greater  impact  on  the
Corporation's  performance  than do the general  levels of  inflation.  Interest
rates do not necessarily move in the same direction or to the same extent as the
prices of goods and services.

                                      -9-
<PAGE>

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


                                                                       Three Months Ended                 Nine Months Ended
                                                                           June 30                            June 30    
                                                                           -------                            -------    
                                                                      1997(1)          1996(1)        1997(1)        1996(1) 
                                                                      -------          -------        -------        ------- 
                                                                                           (Unaudited)


<S>                                                                  <C>               <C>            <C>            <C>   
Earnings per common share . . . . . . . .. . .. . . . . . . .        $0.38             $0.38          $1.09          $1.05 
Return on average assets . . . . . . . . . . . . . . . . . . .        1.22  %           1.42  %        1.19  %        1.34  %
Return on average equity . . . . . . . . . . . . . . . . . . .        8.52  %           9.12  %        8.36  %        8.38  %
Interest rate spread . . . . . . . . . . . . . . . . . . . . .        3.28  %           3.36  %        3.25  %        3.37  %
Net interest margin . . . . . . . . . . . . . . . . . . . . .         4.03  %           4.22  %        4.00  %        4.22  %
Noninterest expense to average assets . . . . . . . . . . . .         2.29  %           2.39  %        2.28  %        2.47  %
Net charge-offs to average outstanding loans . . . . . . . . .        0.01  %           ---            0.06  %        --- 

</TABLE>

<TABLE>
<CAPTION>

                                                                   June 30        September 30
                                                                     1997             1996        
                                                                     ----             ----        
                                                                    (DOLLARS IN THOUSANDS)
                                                                 (Unaudited)      (Unaudited)
<S>                                                                 <C>                <C>   
Nonaccrual and 90 days past due loans . . . . . . . . . . . .       $ 819              $ 684 
Repossessed real estate . . . . . . . . . . . . . . . . . . .           -                  -   
                                                                    -----              ----- 
Total nonperforming assets . . . . . . . . . . . . . . . . . .      $ 819              $ 684 
                                                                    =====              ===== 


Allowance for credit losses to nonperforming assets . . . . .       79.88 %            95.03 %     
Nonperforming loans to total loans . . . . . . . . . . . . . .        .71 %              .63 %     
Nonperforming assets to total assets . . . . . . . . . . . . .        .60 %              .54 %     

Book value per share (2)
Excluding unallocated ESOP shares . . . . . . . . . . . . . .      $17.75             $16.95 
Including unallocated ESOP shares . . . . . . . . . . . . . .      $16.79             $15.94
                                                                   ======             ======
</TABLE>

--------------
(1)  The ratios for the three- and nine-month periods are annualized
(2)  At June 30,  1997 and  September  30,1996,  there  were  60,847  and 62,667
     unallocated ESOP shares, respectively.






                                      -10-



<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 June 30,  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.


                                      -11-

<PAGE>


                    BEDFORD BANCSHARES, INC. AND SUBSIDIARY

                                   SIGNATURES


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



                                              BEDFORD BANCSHARES, INC.


Date: August 6, 1997                      By: /s/ Harold K. Neal
                                              ------------------
                                              Harold K. Neal
                                              President and
                                              Chief Executive Officer
                                              (Principal Executive Officer)


Date: August 6, 1997                      By: /s/ James W. Smith
                                              ------------------
                                              James W. Smith
                                              Vice President and Treasurer
                                              (Principal Accounting and 
                                                   Financial officer)



                                      -12-