SECURITIES AND EXCHANGE COMMISSION
                                Washington, D.C.

                                  FORM 10-QSB

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

                 For the quarterly period ended March 31, 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 May 5, 1997: 1,142,425 shares


<PAGE>




                    BEDFORD BANCSHARES, INC. AND SUBSIDIARY

                              INDEX TO FORM 10-QSB

<TABLE>
<CAPTION>

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

<S>                    <C>                                                              <C>
      Item 1.          Financial Statements

                       Consolidated Statements of Financial Condition at
                       March 31, 1997 and September 30, 1996 (unaudited)                  1

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

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

                       Notes to Unaudited Interim Consolidated Financial Statements       4

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


      PART II          OTHER INFORMATION

      Item 1.          Legal proceedings                                                 10

      Item 2.          Changes in Securities                                             10

      Item 3.          Defaults upon Senior Securities                                   10

      Item 4.          Submission of Matters to a Vote of Security  Holders              10

      Item 5.          Other Information                                                 10

      Item 6.          Exhibits and Reports on Form 8-K                                  10

      SIGNATURES
</TABLE>


<PAGE>

                             BEDFORD BANCSHARES, INC. AND SUBSIDIARY
                         Consolidated Statements of Financial Condition
                                          (Unaudited)
<TABLE>
<CAPTION>
                                                                                              March 31   September 30
                                                                                                 1997        1996
                                                                                              ---------- -------------
                                                                                               (Dollars in Thousands)

Assets
------
<S>                                                                                           <C>          <C>      
Cash and cash equivalents .................................................................   $   2,677    $   3,075
Investment securities held to maturity (estimated market value of $4,809 and $5,161) ......       4,834        5,214
Mortgage-backed securities held for investment (estimated market value of $23 and $25) ....          23           25
Mortgage-backed securities available for sale, at market value ............................         444          457
Marketable equity securities available for sale, at market value ..........................       4,024        3,879
Investment securities available for sale, at market value .................................       3,344        1,860
Investment in Federal Home Loan Bank stock, at cost .......................................         932          932
Loans receivable, net .....................................................................     112,478      108,873
Property and equipment, net ...............................................................       1,236        1,238
Accrued interest receivable ...............................................................         779          662
Deferred income taxes .....................................................................         399          438
Other assets ..............................................................................         336          548
                                                                                              ---------    ---------
    Total assets ..........................................................................   $ 131,506    $ 127,201
                                                                                              =========    =========

Liabilities and Stockholders' Equity
------------------------------------
Liabilities
-----------
Deposits ..................................................................................   $  97,842    $  95,378
Advances from the Federal Home Loan Bank ..................................................      14,000       12,000
Advances from borrowers for taxes and insurance ...........................................         495          539
Dividends payable .........................................................................         149          126
Other liabilities..........................................................................         185          931
                                                                                              ---------    ---------
     Total liabilities ....................................................................     112,671      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 March 31, 1997 and 1,143,669 at September 30, 1996  ........................         114          114
Additional paid in capital ................................................................      10,737       10,773
Retained earnings, substantially restricted ...............................................       9,222        8,739
Unrealized loss on securities available for sale ..........................................         (52)         (33)
Less stock acquired by ESOP and RRP .......................................................      (1,186)      (1,366)
                                                                                              ---------    ---------
     Total stockholders' equity ...........................................................      18,835       18,227
                                                                                              ---------    ---------
     Total liabilities and stockholders' equity ...........................................   $ 131,506    $ 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  Six Months Ended
                                                                   --March 31--     --March 31--
                                                                 1997     1996    1997     1996
                                                                 ----     ----    ----     ----
                                                                     (Dollars in Thousands, 
                                                                      Except Per Share Date)

Interest Income:
<S>                                                             <C>      <C>      <C>      <C>   
 Loans ......................................................   $2,308   $2,081   $4,526   $4,133
 U.S. Government Obligations including agencies .............      189      176      379      352
 Other investments, including overnight deposits ............       42       26       96       50
                                                                ------   ------   ------   ------
  Total interest income .....................................    2,539    2,283    5,001    4,535
                                                                ------   ------   ------   ------
Interest Expense:
 Deposits ...................................................    1,030    1,023    2,083    2,060
 Borrowed funds .............................................      222       60      437      129
                                                                ------   ------   ------   ------
  Total interest expense ....................................    1,252    1,083    2,520    2,189
                                                                ------   ------   ------   ------
  Net interest income .......................................    1,287    1,200    2,481    2,346
Provision for credit losses .................................       25        0       50        0
                                                                ------   ------   ------   ------
  Net interest income after provision for credit losses .....    1,262    1,200    2,431    2,346
                                                                ------   ------   ------   ------
Noninterest income:
  Service charges and fees on loans .........................       63       59      150      133
  Other customer service fees and commissions ...............       59       62      120      120
  Gain  on sale of loans, investments and foreclosed real 
   estate....................................................        5       30        5       30
  Other .....................................................       18       11       25       34
                                                                ------   ------   ------   ------
  Total noninterest income ..................................      145      162      300      317
                                                                ------   ------   ------   ------
Noninterest expense:
 Personnel compensation and benefits ........................      410      370      809      737
 Occupancy and equipment ....................................       80       81      152      165
 Data processing ............................................       90       79      170      158
 Federal insurance of accounts ..............................       15       51       57      101
 Advertising ................................................       25       20       59       42
 Professional fees ..........................................       38       33       65       72
 Other ......................................................       82       87      177      174
                                                                ------   ------   ------   ------
  Total noninterest expense .................................      740      721    1,489    1,449
                                                                ------   ------   ------   ------
   Income before income taxes ...............................      667      641    1,242    1,214
Provision for income taxes ..................................      253      243      471      461
                                                                ------   ------   ------   ------
  Net income ................................................   $  414   $  398   $  771   $  753
                                                                ======   ======   ======   ======

  Net income per share ......................................   $ 0.38   $ 0.35   $ 0.71   $ 0.67
                                                                ======   ======   ======   ======
</TABLE>

See notes to consolidated financial statements.




                                       -2-

<PAGE>


                    BEDFORD BANCSHARES, INC. AND SUBSIDIARY
                     Consolidated Statements of Cash Flows
                                  (Unaudited)
<TABLE>
<CAPTION>
                                                                                        Six Months Ended
                                                                                        --- March 31 ---
                                                                                        1997         1996
                                                                                        ----         ----
                                                                                      (Dollars in Thousands)
Operating activities:
<S>                                                                                    <C>        <C>    
  Net income .......................................................................   $   771    $   753
  Adjustments to reconcile net income to net cash provided by operating activities :
    Provision for credit losses ....................................................        50          0
    Provision for depreciation and amortization.....................................        65         79
    Amortization of investment security premiums and accretion of discounts, net....        (3)        (3)
    (Increase) decrease in deferred income taxes....................................        39         (8)
    (Gain) loss on sale of loans, investments and foreclosed real estate ...........        (5)       (30)
    Loans originated for sale.......................................................       185        152
    Proceeds from sale of loans originated for sale.................................      (185)      (152)
    (Increase) decrease in interest receivable......................................      (117)       102
    (Increase) decrease in other assets.............................................       212         57
    Increase (decrease) in other liabilities........................................      (723)      (366)
                                                                                       -------    -------
      Net cash provided by (used in) operating activities ..........................       289        584
                                                                                       -------    -------
Investing activities:
    Proceeds from the sale of investments...........................................         0        500
    Proceeds from the maturities of investments.....................................       400        891
    Purchases of investment securities..............................................    (1,626)    (2,093)
    Net increase in loans to customers..............................................    (3,605)    (1,873)
    Principal collected on mortgage-backed securities...............................        15          2
    Purchases of premises, equipment and leasehold improvements.....................       (63)       (58)
    Proceeds from the sale of REO ..................................................        48         83
                                                                                       -------    -------
      Net cash provided by (used in) investing activities...........................    (4,831)    (2,548)
                                                                                       -------    -------
Financing activities:
    Repurchase of stock ............................................................         0       (179)
    Proceeds - allocation of ESOP shares............................................         0         21
    Dividends paid .................................................................      (253)      (186)
    Net increase (decrease) in customer deposits....................................     2,464      2,866
    Proceeds from advances and other borrowed money.................................     2,000          0
    Purchase of stock by ESOP and RRP...............................................       (23)      (377)
    Net increase (decrease) in advance payments from borrowers for taxes and 
     insurance......................................................................       (44)       (25)
                                                                                       -------    -------
      Net cash provided by financing activities.....................................     4,144      2,120
                                                                                       -------    -------
      Increase (decrease) in cash and cash equivalents..............................      (398)       156
Cash and cash equivalents at beginning of period....................................     3,075      3,337
                                                                                       -------    -------
Cash and cash equivalents at end of period..........................................   $ 2,677    $ 3,493
                                                                                       =======    =======

</TABLE>


See notes to consolidated financial statements.

                                       -3-
<PAGE>


          Note to Unaudited Interim Consolidated Fianancial Statements

                                 March 31, 1997

NOTE 1: BASIS OF PRESENTATION

     The accompanying  unaudited interim consolidated  financial statements have
been  prepared in  accordance  with  generally  accepted  accounting  principles
("GAAP") for interim financial information. Accordingly, they do not include all
of the  information  and  footnotes  required by generally  accepted  accounting
principles for complete financial statements.

     The  accompanying   unaudited  interim  consolidated  financial  statements
include the accounts of Bedford  Bancshares,  Inc. (the  "Corporation")  and 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 March 31, 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 $131.5 million at March 31, 1997, an
increase of $4.3 million from  September 30, 1996. The $3.6 million rise in loan
receivables was  concentrated  in the consumer and commercial  loan  portfolios.
During the second  quarter of fiscal  1997,  a $1.5 million real estate loan was
paid-off,  which  restrained the growth of the mortgage loan portfolio.  Funding
for the asset growth was mainly  provided by increases  in FHLB  borrowings  and
deposits.  Stockholders' equity was $18.8 million on March 31, 1997, up $608,000
from the $18.2 million September 30, 1996.

     At March 31, 1997,  nonperforming  assets were  $832,000,  or .63% of total
assets,  compared to $684,000, or .54% of total assets at September 30, 1996. At
March 31, 1997 nonperforming assets were comprised of $684,000 of mortgage loans
and $148,000 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 March 31, 1997 is $371,000 lower than the level
at December 31, 1996. The decrease is attributable to the sale of the foreclosed
real estate held at  December  31,  1996,  and the  reclassification  of several
credits from nonperforming to current status during the quarter.


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

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

     General. Net income for the three months ended March 31, 1997 was $414,000,
up 4.0% from the $398,000  earned in the  comparable  period of fiscal 1996. Per
share  earnings  for the  quarters  ended  March 31, 1997 and 1996 were $.38 and
$.35,  respectively.  Net interest  income for the second quarter of fiscal 1997
was $1.3  million,  compared to net  interest  income for the second  quarter of
fiscal 1996 of $1.2 million. In addition, $25,000 was added to the allowance for
credit losses during the second quarter of fiscal 1997.

     Interest  Income.  Total interest  income  amounted to $2.5 million for the
three  months  ended  March  31,  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 $112.5  million for the quarter
ended  March 31,  1997 from  $99.0  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 March 31, 1997, total interest
expense  rose to $1.3  million  from the $1.1 million for the three months ended
March 31, 1996,  primarily due to an increase in the average balance of interest
bearing liabilities to $106.5 million for the second quarter of fiscal 1997 from
$92.0 million for the same quarter of fiscal 1996.  The average  balance of FHLB
advances  increased  $10.9  million from $4.0 million for the three months ended
March 31,

                                       -5-

<PAGE>

1996 to $14.9  million for the three months ended March 31, 1997,  providing the
additional  funding  needed to support  the Bank's  loan  growth.  In  addition,
average  interest  bearing deposits totaled $91.6 million for the second quarter
of fiscal 1997, a $3.5 million  increase from the $88.1 million  average for the
comparable period of fiscal 1996.

     Net  Interest  Income.  For the three  months  ended  March 31,  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 March 31, 1997,
the Corporation's interest rate spread and net interest margin declined modestly
to 3.40% and 4.11%, respectively,  compared to 3.46% and 4.29%, 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 March 31, 1997, the
Bank,  after reviewing  nonperfoming  assets,  loan growth and  year-to-date net
charge-offs of $18,000, recorded a provision for credit losses of $25,000. There
was no provision for credit losses taken during the three months ended March 31,
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  $145,000 for the
second quarter of fiscal 1997, compared to $162,000 for the same three months of
1996.  The decline is  primarily  the result of a gain of $27,000 on the sale of
foreclosed  property in the second  quarter of 1996 versus a gain on the sale of
foreclosed property of $4,000 in the second quarter of 1997.

     Total Noninterest  Expense.  Total noninterest expense was $740,000 for the
three months ended March 31,  1997,  up $19,000 from the $721,000  total for the
comparable quarter of fiscal 1996.  Personnel  compensation and benefits totaled
$410,000 for the three  months  ended March 31,  1997,  up $40,000 from the same
quarter of 1996 primarily due to staff increases and general merit increases. In
addition,  data processing expenses were up $11,000 . A $36,000 reduction in the
cost of Federal deposit insurance helped offset these increases.

     Provision for Income Taxes. The provision for income taxes was $253,000 for
the three months  ended March 31, 1997,  compared to a provision of $243,000 for
the same quarter of fiscal 1996. The higher provision is due to the higher level
of taxable income.

COMPARISON OF SIX  MONTHS ENDED MARCH 31, 1997 AND 1996
-------------------------------------------------------

     General. Net income for the six months ended March 31, 1997 was $771,000 up
2.4% from the $753,000 earned in the comparable  period of fiscal 1996. On a per
share basis, earnings were $.71 and $.67 for the first halves of fiscal 1997 and
1996,  respectively.  Net interest  income for the first half of fiscal 1997 was
$2.5 million,  compared to net interest income for the first half of fiscal 1996
of $2.3  million.  In addition,  $50,000 was added to the  allowance  for credit
losses during the first half of fiscal 1997.

     Interest Income. Total interest income amounted to $5.0 million for the six
months March 31, 1997, up from the $4.5 million earned in the comparable  period
of fiscal 1996.  The

                                       -6-

<PAGE>


     increase was primarily  due to an increase in the average  balance of loans
receivable to $111.5  million for the six months ended March 31, 1997 from $98.6
million for the same period of 1996.  This increase  reflects the  Corporation's
continuing success in originating mortgage loans increased emphasis on expanding
the consumer and commercial loan portfolios.

     Interest  Expense.  For the six months ended March 31, 1997, total interest
expense  rose to $2.5  million  from the $2.2  million for the six months  ended
March 31, 1996,  primarily due to an increase in the average balance of interest
bearing  liabilities  to $105.5  million  for the first half of fiscal 1997 from
$91.5 million for the comparable  period of fiscal 1996. The average  balance of
FHLB advances increased $10.4 million from $4.1 million for the six months ended
March 31,  1996 to $14.5  million  for the six  months  ended  March  31,  1997,
providing the additional  funding  needed to support the Bank's loan growth.  In
addition,  average interest bearing deposits totaled $91.0 million for the first
half of fiscal 1997, a $3.6 million  increase from the $87.4 million average for
the comparable period of fiscal 1996.

     Net Interest Income.  For the six months ended March 31, 1997, net interest
income was $2.5 million, up 5.8% from the net interest income earned in the same
period of 1996.  During the six months ended March 31, 1997,  the  Corporation's
interest  rate  spread  and net  interest  margin  declined  to 3.24% and 3.98%,
respectively,  compared to 3.36% and 4.22%,  respectively for the same period of
1996.  The lower margin and spread are primarily due to a lower yield on earning
assets in the first half of 1997.

     Provision for Credit  Losses.  For the six months ended March 31, 1997, the
Bank,  after  reviewing  nonperfoming  assets,  loan growth and the level of net
charge-offs,  recorded a provision  for credit  losses of $50,000.  There was no
provision  for credit  losses  taken during the six months ended March 31, 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 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 $300,000 for the first
six months of fiscal  1997,  compared to  $317,000  for the same period of 1996.
During the six months March 31, 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.  The  decrease  in the  gain on the  foreclosed  property  was
partially offset by a $17,000 increase in service charges and fees on loans.

     Total Noninterest Expense. Total noninterest expense was $1,489,000 for the
six months ended March 31, 1997,  up $40,000 from the  $1,449,000  total for the
comparable  period of fiscal 1996.  Personnel  compensation and benefits totaled
$809,000  for the six months  ended  March  1997,  up $72,000  from the same six
months of 1996,  primarily due to staff  increases,  general merit increases and
higher  benefits  costs.  In addition,  data  processing  expenses  reflected an
increase of $12,000 and advertising expenses were up $17,000, principally due to
the introduction of the "Anytime Banking System," which provides  customers with
telephone access to their accounts.

     Provision for Income Taxes. The provision for income taxes was $471,000 for
the six months  ended March 31,  1997,  compared  to  $461,000  for the same six
months of fiscal 1996. The increase was due to the increase in taxable income.

                                       -7-

<PAGE>



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

The  following  table  presents  the  Bank's   compliance  with  its  regulatory
requirements of March 31, 1997. (Dollar amounts in thousands).
<TABLE>
<CAPTION>
                                                                   March 31, 1997
                                                            -----------------------------
                                                                              Percentage
                                                             Amount           of assets
                                                            ---------        ------------

<S>                                                         <C>                 <C>   
GAAP Capital .............................................  $  16,542           12.53%
                                                            =========           ===== 

Tangible capital..........................................  $  16,542           12.53%
Tangible capital requirement .............................       1981            1.50%
                                                            ---------           ----- 
Excess ...................................................  $  14,561           11.03%
                                                            =========           ===== 


Core capital..............................................  $  16,542           12.53%
Core capital requirement .................................       3961            3.00%
                                                            ---------           ----- 
Excess....................................................  $  12,581            9.53%
                                                            =========            ==== 


Total risk-based capital (1)  ............................  $  17,106           23.17%
Total risk-based capital requirement (1)  ................      5,907            8.00%
                                                            ---------           ----- 
Excess ...................................................  $  11,199           15.17%
                                                            ==========          ===== 

</TABLE>

------------------
(1)  Based on risk-weighted assets of $73,837,000



     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 March 31, 1997,  such borrowed  funds
totaled  $14.0  million.  Loan  payments  and maturing  investments  are greatly
influenced by general interest rates, economic conditions and competition.

     The  Bank  is  required  under  Federal  regulations  to  maintain  certain
specified  levels of "liquid  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 7.83% and and its  short-term  liquidity was 2.91% at
March 31, 1997.

     The amount of certificate accounts which are scheduled to mature during the
next twelve months ending March 31, 1998, is approximately $36.7 million. To the
extent  that these  deposits do not remain at the Bank upon  maturity,  the Bank
believes that it can replace these funds with other deposits,  excess liquidity,
FHLB advances,  or other  borrowings.  It has been the Bank's  experience that a
substantial portion of such maturing deposits remain at the Bank.

     At March  31,  1997,  the Bank had  loan  commitments  outstanding  of $4.1
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  Six Months Ended
                                                                March 31            March 31
                                                           -----------------  ------------------
                                                            1997(1)   1996(1)  1997(1)   1996(1)
                                                           --------  -------  --------- --------
                                                                         (Unaudited)


<S>                                                        <C>      <C>      <C>      <C>   
Earnings per common share ................................ $ 0.38   $ 0.35   $ 0.71   $ 0.67
Return on average assets .................................   1.26 %   1.37 %   1.18 %   1.30 %
Return on average equity .................................   8.81 %   8.45 %   8.27 %   8.01 %
Interest rate spread .....................................   3.40 %   3.46 %   3.24 %   3.36 %
Net interest margin ......................................   4.11 %   4.29 %   3.98 %   4.22 %
Noninterest expense to average assets ....................   2.26 %   2.48 %   2.28 %   2.51 %
Net charge-offs to average outstanding loans .............   0.06 %     --     0.06 %     --

</TABLE>

<TABLE>
<CAPTION>
                                                             March 31   September 30
                                                                1997       1996
                                                             ---------  -------------
                                                             (DOLLARS IN THOUSANDS)
                                                                       (Unaudited)
<S>                                                           <C>         <C>   
Nonaccrual and 90 days past due loans .....................   $   832     $  684
Repossessed real estate ...................................        --         --
                                                              -------     ------
Total nonperforming assets ................................   $   832     $  684
                                                              =======     ======


Allowance for credit losses to nonperforming assets .......     76.55 %    95.03%
Nonperforming loans to total loans ........................       .74%       .63%
Nonperforming assets to total assets ......................       .63%       .54%

Book value per share (2)
------------------------
Excluding unallocated ESOP shares .........................   $ 17.42     $16.95
Including unallocated ESOP shares .........................   $ 16.49     $15.94
                                                              =======     ======
</TABLE>

--------------
(1)    The ratios for the three- and six-month periods are annualized.
(2)    At March 31,  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 material  nature at March 31, 1997.  From time to time,
         the Corporation is a party to legal  proceedings in the ordinary course
         of business wherein it enforces its security interest in loans.

Item 2.  Changes in Securities
         ---------------------

              Not applicable.

Item 3.  Defaults upon Senior Securities
         -------------------------------

              Not applicable.

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

              The annual meeting of  shareholders of the Corporation was held on
         January 23, 1997, and the following items were acted upon:

              Election of Directors George N. Cooper,  William P. Pickett and W.
         Henry Walton, Sr., for terms of three years ending in 2000 and  William
         T. Powell for a term of two years  ending  1999.  All four were elected
         as indicated below:

                                Votes for  Votes withheld    Broker non-votes
                                ---------  --------------    ----------------
         George N. Cooper        907,851        10,803           43,971
         William P. Pickett      909,701         8,953           43,971
         W. Henry Walton, Sr.    908,701         9,953           43,971
         William T. Powell       907,601        11,053           43,971

              Ratification  of  the  appointment  of  BDO  Seidman,LLP,  as  the
         Corporation's  auditors for the  1997  fiscal  year.  BDO  Seidman,LLP,
         was ratified as indicated below:

                  Votes for     Votes against     Abstain      Broker non-votes
                  ---------     -------------     -------      ----------------
                     913,574          0            5,080            43,971

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: May 12, 1997                       By: /s/ Harold K. Neal
                                             --------------------------------
                                             Harold K. Neal
                                             President and
                                             Chief Executive Officer
                                             (Principal Executive Officer)


Date: May 12, 1997                       By: /s/ James W. Smith
                                             ---------------------------------
                                             James W. Smith
                                             Vice President and Treasurer
                                             (Principal Accounting and 
                                                  Financial officer)






                                      -12-