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, 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 August 1, 1999: 2,223,230

<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
               June 30, 1999 and September 30, 1998 (unaudited)                1

               Consolidated Statements of Income for the three and nine months
               ended June 30, 1999 and 1998 (unaudited)                        2

               Consolidated Statements of Comprehensive Income for the three
               and nine months ended June 30, 1999 and 1998 (unaudited)        3

               Consolidated Statements of Cash Flows for the nine months ended
               June 30, 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>
                                                                                              June 30     September 30
                                                                                                1999          1998
                                                                                              -------     ------------
                                                                                                    (In Thousands)

Assets
------
<S>                                                                                         <C>           <C>
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       $6,355        $5,666
Investment securities held to maturity (estimated market value of $1,313 and $2,147)  . .        1,311         2,114
Marketable equity securities available for sale, at market value  . . . . . . . . . . . .        4,539         4,396
Investment securities available for sale, at market value . . . . . . . . . . . . . . . .        8,328        12,424
Investment in Federal Home Loan Bank stock, at cost . . . . . . . . . . . . . . . . . . .        1,500         1,550
Loans receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      138,916       129,744
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        1,097         1,160
Accrued interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          913           996
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          210            95
Other assets  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          449           566
                                                                                               -------       -------
    Total assets  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     $163,618      $158,711
                                                                                               =======       =======

Liabilities and Stockholders' Equity
------------------------------------
Liabilities
-----------
Deposits  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     $113,178      $107,086
Advances from the Federal Home Loan Bank  . . . . . . . . . . . . . . . . . . . . . . . .       28,000        29,000
Advances from borrowers for taxes and insurance . . . . . . . . . . . . . . . . . . . . .          380           528
Dividends payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          201           184
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          339           665
                                                                                               -------       -------
     Total liabilities  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      142,098       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
  2,234,230 at June 30, 1999 and 2,297,900 at September 30, 1998. . . . . . . . . . . . .          223           230
Additional paid in capital  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       10,765        10,939
Retained earnings, substantially restricted   . . . . . . . . . . . . . . . . . . . . . .       11,406        10,900
Accumulated other comprehensive income  . . . . . . . . . . . . . . . . . . . . . . . . .         (126)           60
Less stock acquired by ESOP and RRP . . . . . . . . . . . . . . . . . . . . . . . . . . .         (748)         (881)
                                                                                               -------       -------
     Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       21,520        21,248
                                                                                               -------       -------
     Total liabilities and stockholders' equity . . . . . . . . . . . . . . . . . . . . .     $163,618      $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         Nine Months Ended
                                                                                 June 30                     June 30
                                                                           1999           1998         1999          1998
                                                                          ------         ------       ------        ------
                                                                           (Dollars in Thousands, Except Per Share Data)
<S>                                                                     <C>            <C>          <C>           <C>
Interest Income:
 Loans .  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      $ 2,622        $ 2,525      $ 7,826       $ 7,352
 U.S. Government Obligations including agencies . . . . . . . . . .          290            282          909           733
 Other investments, including overnight deposits  . . . . . . . . .           49            128          154           243
                                                                           -----          -----        -----         -----
  Total interest income . . . . . . . . . . . . . . . . . . . . . .        2,961          2,935        8,889         8,328
                                                                           -----          -----        -----         -----
Interest Expense:
 Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        1,098          1,122        3,326         3,423
 Borrowed funds . . . . . . . . . . . . . . . . . . . . . . . . . .          396            382        1,187           831
                                                                           -----          -----        -----         -----
  Total interest expense  . . . . . . . . . . . . . . . . . . . . .        1,494          1,504        4,513         4,254
                                                                           -----          -----        -----         -----
  Net interest income . . . . . . . . . . . . . . . . . . . . . . .        1,467          1,431        4,376         4,074
Provision for credit losses . . . . . . . . . . . . . . . . . . . .           22             30           67            90
                                                                           -----          -----        -----         -----
  Net interest income after provision for credit losses                    1,445          1,401        4,309         3,984
                                                                           -----          -----        -----         -----
Noninterest income:
 Service charges and fees on loans  . . . . . . . . . . . . . . . .          142            112          453           322
 Other customer service fees and commissions  . . . . . . . . . . .           83             82          243           227
 Other  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           16              8           73            64
                                                                           -----          -----        -----         -----
  Total noninterest income  . . . . . . . . . . . . . . . . . . . .          241            202          769           613
                                                                           -----          -----        -----         -----
Noninterest expense:
 Personnel compensation and benefits  . . . . . . . . . . . . . . .          462            432        1,390         1,334
 Occupancy and equipment  . . . . . . . . . . . . . . . . . . . . .           79             78          234           229
 Data processing  . . . . . . . . . . . . . . . . . . . . . . . . .          101             97          291           273
 Federal insurance of accounts  . . . . . . . . . . . . . . . . . .           16             16           47            48
 Advertising  . . . . . . . . . . . . . . . . . . . . . . . . . . .           26             28           86            89
 Professional fees  . . . . . . . . . . . . . . . . . . . . . . . .           41             32          168           157
 Other  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           84             83          282           261
                                                                           -----          -----        -----         -----
  Total noninterest expense . . . . . . . . . . . . . . . . . . . .          809            766        2,498         2,391
                                                                           -----          -----        -----         -----
   Income before income taxes . . . . . . . . . . . . . . . . . . .          877            837        2,580         2,206
Provision for income taxes  . . . . . . . . . . . . . . . . . . . .          333            325          979           850
                                                                           -----          -----        -----         -----
  Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . .      $   544        $   512      $ 1,601       $ 1,356
                                                                         =======        =======      =======       =======

  Basic earnings per share  . . . . . . . . . . . . . . . . . . . .      $  0.25        $  0.23      $  0.73       $  0.62
                                                                         =======        =======      =======       =======

  Diluted earnings per share  . . . . . . . . . . . . . . . . . . .      $  0.24        $  0.22      $  0.69       $  0.58
                                                                         =======        =======      =======       =======

</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         Nine Months Ended
                                                                                 June 30                     June 30
                                                                           1999           1998         1999          1998
                                                                          ------         ------       ------        ------
                                                                                      (In Thousands of Dollars)
<S>                                                                     <C>            <C>          <C>           <C>
Net Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . .       $ 544           $512        $1,601        $1,356

Other comprehensive income, net of tax effect:

    Unrealized gains (losses) on securities available for sale  . .         (98)           (22)         (186)          (17)
                                                                           ----            ---          ----           ---

Comprehensive Income  . . . . . . . . . . . . . . . . . . . . . . .       $ 446           $490        $1,415        $1,339
                                                                           ====            ===         =====         =====

</TABLE>


                                       -3-
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                                            Nine Months Ended
                                                                                                         ------ June 30 -------
                                                                                                            1999         1998
                                                                                                            ----         ----
                                                                                                         (Dollars in Thousands)

<S>                                                                                                      <C>         <C>
Operating activities:
  Net income  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    $1,601      $ 1,356
  Adjustments to reconcile net income to net cash provided by operating activities :
    Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        67           90
    Provision for depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . .       102          112
    Amortization of investment security premiums and accretion of discounts, net  . . . . . . . . . . .         6           (7)
    (Increase) decrease in deferred income taxes  . . . . . . . . . . . . . . . . . . . . . . . . . . .      (114)          (5)
    (Gain) loss on sale of loans, investments and foreclosed real estate  . . . . . . . . . . . . . . .       (21)          (3)
    (Increase) decrease in accrued interest receivable  . . . . . . . . . . . . . . . . . . . . . . . .        83         (111)
    (Increase) decrease in other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       170          (67)
    Increase (decrease) in other liabilities  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      (327)         242
                                                                                                            -----       ------
      Net cash provided by (used in) operating activities . . . . . . . . . . . . . . . . . . . . . . .     1,567        1,607
                                                                                                            -----       ------
Investing activities:
    Proceeds from the sale of investment securities available for sale  . . . . . . . . . . . . . . . .        --          992
    Proceeds from the maturities of investments . . . . . . . . . . . . . . . . . . . . . . . . . . . .    13,555        4,500
    Purchases of investment securities available for sale . . . . . . . . . . . . . . . . . . . . . . .    (8,975)     (13,266)
    Purchase (sale) of Federal Home Loan Bank stock . . . . . . . . . . . . . . . . . . . . . . . . . .       (50)        (618)
    Net increase in loans to customers  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    (9,240)      (9,480)
    Principal collected on mortgage-backed securities . . . . . . . . . . . . . . . . . . . . . . . . .         3            4
    Purchases of premises, equipment and leasehold improvements . . . . . . . . . . . . . . . . . . . .        39          (26)
    Proceeds from the sale of REO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        --          212
                                                                                                            -----       ------
      Net cash provided by (used in) investing activities . . . . . . . . . . . . . . . . . . . . . . .    (4,668)     (17,682)
                                                                                                            -----       ------
Financing activities:
    Exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        18          103
    Allocation of ESOP and RRP shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       201          189
    Dividends paid  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      (573)        (481)
    Net increase (decrease) in customer deposits  . . . . . . . . . . . . . . . . . . . . . . . . . . .     6,093        1,048
    Proceeds from (repayments of) advances and other borrowed money . . . . . . . . . . . . . . . . . .    (1,000)      15,000
    Repurchase of stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      (842)          --
    Purchase of stock by ESOP and RRP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        --          (86)
    Net increase (decrease) in advance payments from borrowers for taxes and insurance  . . . . . . . .      (148)        (206)
    Other, net  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        41          (41)
                                                                                                            -----       ------
Net cash provided by financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     3,790       15,526
                                                                                                            -----       ------
Increase (decrease) in cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . .       689         (549)
Cash and cash equivalents at beginning of period  . . . . . . . . . . . . . . . . . . . . . . . . . . .     5,666        5,446
                                                                                                            -----       ------
Cash and cash equivalents at end of period  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    $6,355      $ 4,897
                                                                                                           ======       ======

</TABLE>

See notes to consolidated financial statements.

                                       -4-

<PAGE>

                     BEDFORD BANCSHARES, INC. AND SUBSIDIARY
          Notes to Unaudited Interim Consolidated Financial Statements
                                  June 30, 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 June 30,
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 June 30, 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            Nine Months Ended
                                                                                 June 30                      June 30
                                                                        -------------------------    --------------------------
                                                                           1999          1998            1999          1998
                                                                           ----          ----            ----          ----
<S>                                                                  <C>           <C>             <C>           <C>
Basic Earnings Per Share:
------------------------

Net Income  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $  544,000    $  512,000      $1,601,000    $1,356,000
                                                                        ==========    ==========      ==========    ==========
Average Shares Outstanding, Net of
  unallocated ESOP Shares (93,334 and 109,334
  at June 30, 1999 and 1998, respectively.) . . . . . . . . . . . . . .  2,164,391     2,180,575       2,187,429     2,188,566
                                                                        ==========    ==========      ==========    ==========
Basic Earnings Per Share  . . . . . . . . . . . . . . . . . . . . . . .      $0.25         $0.23           $0.73         $0.62
                                                                             =====         =====           =====         =====
Diluted Earnings Per Share:
--------------------------

Net Income  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $  544,000    $  512,000      $1,601,000    $1,356,000
                                                                        ==========    ==========      ==========    ==========
Average Shares Outstanding, Net of
  unallocated ESOP Shares (93,334 and 109,334
  at June 30, 1999 and 1998, respectively.) . . . . . . . . . . . . . .  2,164,391     2,180,575       2,187,429     2,188,566
    Dilutive effect of RRP Plan shares  . . . . . . . . . . . . . . . .     23,412        26,008          23,383        25,852
    Dilutive effect of Stock Options  . . . . . . . . . . . . . . . . .    103,107       121,507         102,870       120,155
                                                                        ----------    ----------      ----------    ----------
Average Shares Outstanding  . . . . . . . . . . . . . . . . . . . . . .  2,290,910     2,328,090       2,313,682     2,334,573
                                                                        ==========    ==========      ==========    ==========
Diluted Earnings Per Share  . . . . . . . . . . . . . . . . . . . . . .      $0.24         $0.22           $0.69         $0.58
                                                                             =====         =====           =====         =====

</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  $163.6  million at June 30,  1999,  an
increase of $4.9  million  from  September  30, 1998.  The asset  expansion  was
reflected in growth of the loan portfolio which increased $9.2. million. Funding
for the asset growth was  provided by a $6.1 million  increase in deposits and a
$4.8 million reduction in investment securities.

     At June 30, 1999,  nonperforming assets were $1.4 million, or .83% of total
assets,  compared to $.5 million, or .34% of total assets at September 30, 1998.
During the quarter ended June 30, 1999, four mortgage loans,  totaling $296,000,
were  classified  as  nonperforming.  These  loans are  secured  by  residential
property with appraised  values  exceeding the respective loan balances,  and as
such no material loss is  anticipated.  In addition,  $22,000 of consumer  loans
were added to the  nonperforming  category.  At June 30, 1999, the allowance for
credit losses was $828,000, up $64,000 from the level at September 30, 1998.

     During the third quarter of fiscal 1999, the Corporation repurchased 46,300
shares of its  common  stock in open  market  transactions.  These  shares  were
purchased  at an average  price of $12.30 per share and will be used for general
corporate and other purposes.

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

COMPARISON OF THREE MONTHS ENDED JUNE 30, 1999 AND 1998
-------------------------------------------------------

     General.  For the three  months  ended June 30,  1999 net income  increased
$32,000,  or 6.3%,  to $544,000  from  $512,000  earned in the  comparable  1998
period.

     Interest  Income.  Total  interest  income was $3.0  million  for the three
months ended June 30, 1999,  compared to $2.9 million  earned in the  comparable
quarter  of fiscal  1998.  Although  the  average  balance  of loans  receivable
increased  $13.7  million from the third quarter of 1998 to the third quarter of
1999,  a decline of 55 basis  points in the yield on mortgage  loans  offset the
impact of the higher average volume.

                                       -6-

<PAGE>

     Interest Expense.  For the three months ended June 30, 1999, total interest
expense was $1.5 million,  the same as the level for the three months ended June
30, 1998. The average  balance of interest  bearing  liabilities  rose to $132.9
million for the third  quarter of fiscal  1999 from $125.3  million for the same
quarter of fiscal 1998. The increase was primarily in interest  bearing deposits
which averaged $104.2 million for the three months ended June 30, 1999, compared
to $98.6  million  for the third  quarter of fiscal  1998.  Lower  rates paid on
average  interest  bearing  deposits  offset the  impact of the  higher  average
volume.

     Net Interest Income. For the three months ended June 30, 1999, net interest
income was $1.5 million,  up slightly from the net interest income earned in the
same  period  of  1998.  During  the  three  months  ended  June 30,  1999,  the
Corporation's  interest rate spread and net interest  margin  decreased to 2.96%
and 3.70%, respectively, compared to 3.09% and 3.85%, respectively, for the same
period  of 1998.  A 41 basis  point  decline  in the  yield on  earning  assets,
partially  offset by a 31 basis  point  decline  in the cost of  funds,  was the
primary reason for the declines.  The lower yield on earning assets,  as well as
the decline in the cost of funds,  was reflective of the general trend in market
rates.

     Provision for Credit  Losses.  The  provision  for credit losses  decreased
$8,000, to $22,000 for the three months ended June 30, 1999 from $30,000 for the
comparable 1998 period.  Although  nonperforming  assets increased $190,000 from
March  31,  1999,  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. Noninterest income totaled $241,000 for the third
quarter of fiscal  1999,  compared  to $202,000  for the same  quarter of fiscal
1998.  The $39,000  increase was  primarily  due to service  charges and fees on
loans which were up $30,000 due  primarily to the large  dollar  amount of loans
closed during the third quarter of 1999. Such increase in non-interest income is
not indicative of future periods.

     Total Noninterest  Expense.  Total noninterest expense was $809,000 for the
three  months  ended  June 30,  1999,  up 5.6% from the level in the  comparable
quarter of fiscal  1998.  Increases  of $30,000 in  personnel  compensation  and
benefits  and  $9,000 in  professional  fees were the  primary  reasons  for the
increase.

     Provision for Income Taxes. The provision for income taxes was $333,000 for
the three months ended June 30, 1999,  up slightly  from the $325,000  provision
recorded in the three  months ended June 30,  1998.  The  increase  reflects the
higher  profitability  of the Corporation in the quarter ended June 30, 1999, as
the effective tax rate for both periods was 38%.



                                       -7-

<PAGE>


COMPARISON OF NINE MONTHS ENDED JUNE 30, 1999 AND 1998
------------------------------------------------------

     General.  For the nine  months  ended June 30,  1999 net  income  increased
$200,000,  or 18.1%,  to $1.6 million from $1.4 million earned in the comparable
1998 period.

     Interest  Income.  Total interest  income  amounted to $8.9 million for the
nine months  ended June 30, 1999,  up 6.7% from the $8.3  million  earned in the
comparable  period of fiscal 1998. The increase was attributable to expansion of
average loans  receivable  to $134.3  million for the nine months ended June 30,
1999 from $120.2  million for the same period of 1998.  In addition,  investment
securities  averaged  $13.4  million for the first nine  months of fiscal  1999,
compared  to $10.7  million  for the  comparable  period of fiscal  1998.  These
increases reflect 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 nine months ended June 30, 1999, total interest
expense  rose to $4.5  million  from the $4.3  million for the nine months ended
June 30, 1998,  primarily due to an increase in the average  balance of interest
bearing  liabilities  to $131.1 million for the first nine months of fiscal 1999
from $117.3  million for the  comparable  period of fiscal 1998.  FHLB  advances
averaged  $28.5 million for the nine months ended June 30, 1999, up $9.9 million
from the $18.6 million  average for the comparable  period of 1998. In addition,
average  interest bearing deposits for the first nine months of fiscal 1999 were
$102.6 million compared to an average of $98.7 million for the comparable period
of fiscal 1998.

     Net  Interest  Income.  Net  interest  income was $4.4 million for the nine
months  ended June 30, 1999,  up 7.4% from the $4.1  million  earned in the same
period of fiscal 1998. The  Corporation's  interest rate spread and net interest
margin were 2.99% and 3.73% for the first nine months of fiscal 1999,  down from
the 3.11% and 3.88%,  respectively,  for the same  period of fiscal  1998.  A 34
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.  Both  the  lower  yield on  earning  assets  and  cost of  funds  are
indicative of general market trends.

     Provision for Credit  Losses.  For the nine months ended June 30, 1999, the
Bank's provision for credit losses was $67,000, compared to $90,000 for the same
period of fiscal 1998.  Although  nonperforming  assets increased  $190,000 from
March  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  nine  months  ended  June  30,  1999,
noninterest income totaled $769,000, compared to $613,000 for the same period of
1998.  Service  charges and fees on loans were up $131,000  primarily due to the
large increase in the dollar volume of loans closed during the nine months ended
June 30,  1999,  compared  to the same nine  months of 1998.  Such  increase  in
noninterest income is not indicative of future periods.

     Total Noninterest  Expense.  Total noninterest expense was $2.5 million for
the nine

                                       -8-

<PAGE>

months ended June 30, 1999,  up $107,000,  or 4.5%, from  the $2.4 million total
for the comparable period of fiscal 1998.

     Provision for Income Taxes. The provision for income taxes was $979,000 for
the nine months ended June 30, 1999, compared to $850,000 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 June 30, 1999. (Dollar amounts in thousands).

                                                               June 30, 1999
                                                          ----------------------
                                                                      Percentage
                                                                       of assets
                                                                       ---------
GAAP Capital . . . . . . . . . . . . . . . . . . . . . . .  $20,641       11.90%
                                                            =======       ======
Tangible capital . . . . . . . . . . . . . . . . . . . . .  $20,766       12.67%
Tangible capital requirement . . . . . . . . . . . . . . .    2,459        1.50
                                                            -------       ------
Excess . . . . . . . . . . . . . . . . . . . . . . . . . .  $18,307       11.17%
                                                            =======       ======

Core capital . . . . . . . . . . . . . . . . . . . . . . .  $20,766       12.67%
Core capital requirement . . . . . . . . . . . . . . . . .    6,558        4.00
                                                            -------       ------
Excess . . . . . . . . . . . . . . . . . . . . . . . . . .  $14,208        8.67%
                                                            =======       ======

Total risk-based capital (1). . . . . . . . . . . . . . . . $21,520       22.06%
Total risk-based capital requirement (1). . . . . . . . . .   7,803        8.00
                                                            -------       ------
Excess  . . . . . . . . . . . . . . . . . . . . . . . . . . $13,717       14.06%
                                                            =======       ======

------------------------------------------------
(1)  Based on risk-weighted assets of $97,532


     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  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 June 30, 1999,  such  borrowed  funds  totaled $28.0
million. Loan payments and maturing


                                       -9-

<PAGE>

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 June 30, 1999,  the Bank's
regulatory liquidity was 15.8%.

     The amount of certificate accounts which are scheduled to mature during the
next twelve months ending June 30, 2000, is approximately  $42.0 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,  1999,  the Bank had  loan  commitments  outstanding  of $10.7
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.

     During  fiscal 1998,  the  Corporation  established  a Y2K  Committee  (the
"Committee") and adopted a Y2K Compliance Plan (the "Plan").  The purpose of the
Committee and Plan are to identify the systems that could be affected by the Y2K
issue  and to  determine  the  activity  required  to  prepare  for  the  proper
recognition and processing of date sensitive  information on or after January 1,
2000. The Federal  Financial  Institutions  Examination  Council has recommended
that the plan include five phases: Awareness, Assessment, Renovation, Validation
and  Implementation.  The phases are intended to help the  Corporation  identify
risks,   develop  an  action  plan,   perform   adequate  testing  and  complete
certification that its processing systems will be Y2K compliant.

     The bank has  conducted a  comprehensive  review of its  computer  systems,
including  its core  processing  systems  maintained  by a third  party  service
bureau,  to identify  the systems  that could be affected by the Y2K issue.  The
Corporation  has maintained  ongoing contact with its third party service bureau
throughout  the  Renovation  phase,  which  included  program  changes and other
modifications necessary for Y2K readiness. The Corporation is currently in Phase
five,  Implementation,  the point at which the Corporation begins to process its
transactions  and other data on systems and  software  that have been deemed Y2K
compliant.  This phase is targeted  for  completion  by September  30, 1999.  In
addition,   the  bank  is  required  by  their  Federal  regulators  to  develop
contingency plans 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.  These detailed  contingency  plans are in the
process  of  being  tested  and  reviewed  by both  the  bank's  management  and
regulators to ensure their readiness and reliability. As part of the contingency
plan, the  Corporation  has contracted to purchase two electric  generators at a
cost of  approximately  $30,000.  The cost of such equipment will be capitalized
and depreciated over

                                      -10-

<PAGE>

 the life of the equipment.

     Based on  current  estimates,  the  bank  expects  to  spend  approximately
$125,000 to $150,000 in preparing for the century date change.  Included in that
amount are costs  necessary to modify its  computer  information  systems,  both
internal and vendor  maintained,  to enable proper  processing  of  transactions
relative to the year 2000 and beyond.  Also  included is the cost of  equipment,
training and customer communications  necessary to adequately address the bank's
Y2K  requirements  and  readiness.  The bank does not expect  the  amounts to be
expensed to have a material  impact on its financial  position or results of its
operations.  For the nine  months  ended June 30,  1999,  the bank had  recorded
$27,000 of expense related to the Y2K issue.

     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  successfully  completed by the Year 2000, in which case the Corporation
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 Corporation.


                                      -11-

<PAGE>

                     BEDFORD BANCSHARES, INC. AND SUBSIDIARY
                              Key Operating Ratios

<TABLE>
<CAPTION>
                                                    Three Months Ended           Nine Months Ended
                                                         June 30                       June 30
                                                         -------                       -------
                                                 1999(1)         1998(1)       1999(1)        1998(1)
                                                 -------         -------       -------        -------
                                                                      (Unaudited)

<S>                                              <C>             <C>           <C>            <C>
Basic earnings per share   . . . . . . . . .      $0.25           $0.23         $0.73          $0.62
Diluted earnings per share . . . . . . . . .      $0.24           $0.22         $0.69          $0.58
Return on average assets . . . . . . . . . .       1.31%           1.33%         1.32%          1.25%
Return on average equity . . . . . . . . . .       9.88%           9.95%         9.81%          8.96%
Interest rate spread . . . . . . . . . . . .       2.96%           3.09%         2.99%          3.11%
Net interest margin  . . . . . . . . . . . .       3.70%           3.85%         3.73%          3.88%
Noninterest expense to average assets. . . .       1.96%           1.99%         2.06%          2.20%

</TABLE>


<TABLE>
<CAPTION>
                                                           June 30    September 30
                                                             1999          1998
                                                             ----          ----
                                                           (DOLLARS IN THOUSANDS)
                                                                 (Unaudited)
<S>                                                       <C>           <C>
Nonaccrual loans . . . . . . . . . . . . . . . . . . .      $1,358        $  532
Foreclosed real estate . . . . . . . . . . . . . . . .          --            --
                                                            ------        ------
Total nonperforming assets . . . . . . . . . . . . . .      $1,358        $  532
                                                            ======        ======


Allowance for credit losses to nonperforming assets. .       61.00%        143.8%
Nonperforming loans to total loans . . . . . . . . . .        0.98%         0.41%
Nonperforming assets to total assets . . . . . . . . .        0.83%         0.34%


Book value per share (2). . . . . . . . . . . . . . . .     $ 9.63        $ 9.25

</TABLE>


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


                                      -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 June 30, 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
          ---------------------------------------------------
               Not applicable.



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: August 5, 1999                          By: /s/ Harold K. Neal
                                                  ------------------------------
                                                   Harold K. Neal
                                                   President and
                                                   Chief Executive Officer
                                                   (Principal Executive Officer)


Date: August 5, 1999                          By: /s/ James W. Smith
                                                  ------------------------------
                                                  James W. Smith
                                                  Vice President and Treasurer
                                                  (Principal Accounting and
                                                    Financial officer)


                                      -14-