UNITED STATES
              SECURITIES AND EXCHANGE COMMISSION
                   Washington, DC 20549

                        FORM 10-Q

[ x ]    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
         SECURITIES EXCHANGE ACT OF 1934

           For the quarterly period ended June 30, 2006

                             OR

[   ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
         THE SECURITIES EXCHANGE ACT OF 1934

         For the transition period from____________to___________

         Commission file number  0-19214
                                 _______
                UNION NATIONAL FINANCIAL CORPORATION
                ____________________________________
       (Exact Name of Registrant as Specified in its Charter)


               Pennsylvania                   23-2415179
               ____________                   __________
       (State or Other Jurisdiction of      (I.R.S. Employer
        Incorporation or Organization)    Identification Number)

           570 Lausch Lane
       Lancaster, Pennsylvania                  17601
       _______________________                  _____
       (Address of Principal                 (Zip Code)
          Executive Offices)

                          (717) 653-1441
                          ______________
                   (Registrant's Telephone Number,
                        Including Area Code)

<PAGE>

    Indicate by check mark whether the registrant:  (1) has
filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 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 [ ]

Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer.  See definition of "accelerated filer and large
accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
One):

Large accelerated filer [ ]               Accelerated filer [ ]

                    Non-accelerated filer [X]

    Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Act).

                                       Yes [ ]        No [X]

    Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.

           2,518,259 shares of $.25 (par) common stock were
           outstanding as of August 4, 2006.

<PAGE>

               UNION NATIONAL FINANCIAL CORPORATION
                            FORM 10-Q
                              INDEX

PART I - FINANCIAL INFORMATION                         PAGE NO.
         _____________________                         ________

    Item 1 -   Financial Statements
               Consolidated Statements of
               Financial Condition                         1
               Consolidated Statements of Income       2 - 3
               Consolidated Statements of
               Comprehensive Income (Loss)                 3
               Consolidated Statements of Cash Flows       4
               Notes to Consolidated Financial
               Statements                              5 - 8
    Item 2 -   Management's Discussion and Analysis
               of Financial Condition and Results
               of Operations                          8 - 20
    Item 3 -   Quantitative and Qualitative
               Disclosures About Market Risk         20 - 21
    Item 4 -   Controls and Procedures                    21


PART II - OTHER INFORMATION
          _________________
    Item 1 -   Legal Proceedings                          22
    Item 1A -  Risk Factors                               22
    Item 2 -   Unregistered Sales of Equity
               Securities and Use of Proceeds             22
    Item 3 -   Defaults Upon Senior Securities            22
    Item 4 -   Submission of Matters to a Vote
               of Security Holders                   22 - 23
    Item 5 -   Other Information                          23
    Item 6 -   Exhibits                                   23

    Signature Page                                        24


Unless the context otherwise requires, the terms "Union
National," "we," "us," and "our" refer to Union National
Financial Corporation and its consolidated subsidiaries.

<PAGE>

                   PART I - FINANCIAL INFORMATION
Item 1.  Financial Statements

<TABLE>
Union National Financial Corporation
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<CAPTION>
(Dollars in thousands, except share data)
                                  6/30/2006         12/31/2005
                                 (unaudited)         (audited)
                                 __________         __________
<S>                                 <C>                 <C>
ASSETS
Cash and Due from Banks           $  15,699          $  14,317
Interest-Bearing Deposits
 in Other Banks                         137                184
                                   ________           ________
    Total Cash and Cash Equivalents  15,836             14,501
Investment Securities Available
for Sale                            131,384            119,702
Loans Held for Sale                     387              2,147
Loans and Leases, Net of
Unearned Income                     323,634            300,213
  Less: Allowance for Loan and
  Lease Losses                       (2,817)            (2,675)
                                   ________           ________
    Net Loans and Leases            320,817            297,538
Premises and Equipment, Net           9,336              7,059
Restricted Investment in
Bank Stocks                           6,005              5,736
Bank-Owned Life Insurance            10,041              9,860
Other Assets                          7,126              5,635
                                   ________           ________
        TOTAL ASSETS              $ 500,932          $ 462,178
                                   ========           ========

LIABILITIES
Deposits:
  Noninterest-Bearing             $  48,381          $  43,643
  Interest-Bearing                  282,102            252,967
                                   ________           ________
    Total Deposits                  330,483            296,610
Short-Term Borrowings                 9,598             18,305
Long-Term Debt                      119,495            105,815
Junior Subordinated Debentures       11,341             11,341
Other Liabilities                     3,439              2,817
                                   ________           ________
        TOTAL LIABILITIES           474,356            434,888

Minority Interests in
Consolidated Subsidiaries               184                 65

STOCKHOLDERS' EQUITY
Common Stock (Par Value $.25
per share)                              737                734
  Shares: Authorized - 20,000,000;
  Issued - 2,949,681 and 2,936,798
  shares at June 30, 2006 and
  December 31, 2005, respectively
  Outstanding - 2,518,260 and 2,510,682
  shares at June 30, 2006 and
  December 31, 2005, respectively
Surplus                              13,085             12,855
Retained Earnings                    23,014             22,576
Accumulated Other Comprehensive
Loss                                 (1,845)              (447)
Treasury Stock, at cost - 431,421
and 426,116 shares at June 30, 2006
and December 31, 2005, respectively  (8,599)            (8,493)
                                   ________           ________
        TOTAL STOCKHOLDERS' EQUITY   26,392             27,225
                                   ________           ________
        TOTAL LIABILITIES and
        STOCKHOLDERS' EQUITY      $ 500,932          $ 462,178
                                   ========           ========
See notes to consolidated financial statements.
</TABLE>

<PAGE>

<TABLE>
Union National Financial Corporation
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<CAPTION>
(Dollars in thousands, except per share data)

                                 Three Months Ended June 30,
                                 ___________________________
                                      2006           2005
                                 ____________     __________
<S>                                    <C>          <C>
INTEREST INCOME
Interest and Fees on Loans and
  Leases                         $     5,720     $     4,501
Investment Securities:
  Taxable Interest                     1,175             889
  Tax-Exempt Interest                    355             309
  Dividends                              100              56
  Other                                    1               8
                                 ____________     __________
    Total Interest Income              7,351           5,763

INTEREST EXPENSE
Deposits                               1,932           1,124
Short-Term Borrowings                    103              68
Long-Term Debt                         1,411             889
Junior Subordinated Debentures           203             165
                                 ____________     __________
    Total Interest Expense             3,649           2,246
                                 ____________     __________
       Net Interest Income             3,702           3,517
PROVISION for LOAN and LEASE LOSSES      307             144
                                 ____________     __________
       Net Interest Income after
        Provision for Loan and
        Lease Losses                   3,395           3,373

OTHER OPERATING INCOME
Income from Fiduciary Activities          66              72
Service Charges on Deposit Accounts      417             411
Other Service Charges,
  Commissions, Fees                      249             226
Alternative Investment Sales
  Commissions                            184             193
Investment Securities Gains               19              14
Mortgage Banking/Brokerage Activities    824              61
Title Insurance/Settlement Income        158              -
Earnings from Bank-Owned Life
  Insurance                               90             101
Other Income                             107              66
                                 ____________     __________
  Total Other Operating Income         2,114           1,144

OTHER OPERATING EXPENSES
Salaries and Wages                     2,012           1,472
Retirement Plan and Other
  Employee Benefits                      539             408
Net Occupancy Expense                    375             219
Furniture and Equipment Expense          224             179
Professional Fees                        163             152
Data Processing Services                 209             178
Pennsylvania Shares Tax                   81              77
Advertising and Marketing Expenses       460             134
ATM Processing Expenses                  107              90
Minority Interests in Earnings of
  Subsidiaries                           139               4
Other Operating Expenses                 783             560
                                 ____________     __________
  Total Other Operating Expenses       5,092           3,473
                                 ____________     __________
    Income before Income Taxes           417           1,044
(BENEFIT) PROVISION for INCOME TAXES     (55)            185
                                 ____________     __________
NET INCOME                       $       472     $       859
                                 ============     ==========

<PAGE>
Union National Financial Corporation
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) - Continued
(Dollars in thousands, except per share data)
                                 Three Months Ended June 30,
                                       2006          2005
                                 ____________     __________
<S>                                    <C>           <C>
PER SHARE INFORMATION
Net Income - Basic               $      0.19     $      0.34
 Net Income - Assuming Dilution         0.19            0.34
 Cash Dividends                        0.160           0.152

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(Dollars in thousands)
                                 Three Months Ended June 30,
                                       2006          2005
                                 ____________     __________
Net Income                       $       472     $       859
Other Comprehensive Income (Loss),
  Net of Tax:Unrealized Holding
  Gains (Losses) on Available-
  for-Sale Investment Securities
  Arising During the Year, Net of
  Tax Benefit (Expense) of $668
  and ($442) for the three months
  ended and $685 and ($27) for the
  six months ended June 30,2006 and
  2005, respectively                  (1,298)            858

Reclassification Adjustment for
  Gains included in Net Income, Net
  of Tax of $6 and $5 for the three
  months ended and $13 and $12 for
  the six months ended June 30, 2006
  and 2005,respectively                  (13)            ( 9)
Unrealized Losses on Cash Flow Hedges,
  Net of Tax Benefit of $10 for the
  three months ended and $25 for the
  six months ended June 30, 2006
  respectively                           (19)            -
                                 ____________     __________
      Total Other Comprehensive
       Income (Loss)                  (1,330)            849
                                 ____________     __________
TOTAL COMPREHENSIVE INCOME (LOSS)$      (858)    $     1,708
                                 ============     ==========
See notes to consolidated financial statements.


Union National Financial Corporation
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<CAPTION>
(Dollars in thousands, except per share data)

                                 Six Months Ended June 30,
                                 ___________________________
                                      2006           2005
                                 ____________     __________
<S>                                    <C>          <C>
INTEREST INCOME
Interest and Fees on Loans and
  Leases                         $    11,075     $     8,816
Investment Securities:
  Taxable Interest                     2,164           1,738
  Tax-Exempt Interest                    719             602
  Dividends                              176             111
  Other                                    9               9
                                 ____________     __________
    Total Interest Income             14,143          11,276

INTEREST EXPENSE
Deposits                               3,601           2,058
Short-Term Borrowings                    188             116
Long-Term Debt                         2,667           1,688
Junior Subordinated Debentures           397             318
                                 ____________     __________
    Total Interest Expense             6,853           4,180
                                 ____________     __________
       Net Interest Income             7,290           7,096
PROVISION for LOAN and LEASE LOSSES      337             268
                                 ____________     __________
       Net Interest Income after
        Provision for Loan and
        Lease Losses                   6,953           6,828

OTHER OPERATING INCOME
Income from Fiduciary Activities         143             143
Service Charges on Deposit Accounts      805             770
Other Service Charges,
  Commissions, Fees                      463             410
Alternative Investment Sales
  Commissions                            353             363
Investment Securities Gains               41              35
Mortgage Banking/Brokerage Activities  1,514             107
Title Insurance/Settlement Income        290              -
Earnings from Bank-Owned Life
  Insurance                              181             205
Other Income                             200             120
                                 ____________     __________
  Total Other Operating Income         3,990           2,153

OTHER OPERATING EXPENSES
Salaries and Wages                     3,975           2,913
Retirement Plan and Other
  Employee Benefits                    1,109             887
Net Occupancy Expense                    699             447
Furniture and Equipment Expense          408             352
Professional Fees                        348             324
Data Processing Services                 411             351
Pennsylvania Shares Tax                  108             115
Advertising and Marketing Expenses       715             209
ATM Processing Expenses                  201             176
Minority Interests in Earnings of
  Subsidiaries                           130               6
Other Operating Expenses               1,559           1,163
                                 ____________     __________
  Total Other Operating Expenses       9,663           6,943
                                 ____________     __________
    Income before Income Taxes         1,280           2,038
(BENEFIT) PROVISION for INCOME TAXES      38             357
                                 ____________     __________
NET INCOME                       $     1,242     $     1,681
                                 ============     ==========

<PAGE>
Union National Financial Corporation
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) - Continued
(Dollars in thousands, except per share data)
                                   Six Months Ended June 30,
                                       2006          2005
                                 ____________     __________
<S>                                    <C>           <C>
PER SHARE INFORMATION
Net Income - Basic               $      0.49     $      0.67
 Net Income - Assuming Dilution         0.49            0.65
 Cash Dividends                        0.320           0.305

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(Dollars in thousands)
                                   Six Months Ended June 30,
                                       2006          2005
                                 ____________     __________
Net Income                       $     1,242     $     1,681
Other Comprehensive Income (Loss),
  Net of Tax:Unrealized Holding
  Gains (Losses) on Available-
  for-Sale Investment Securities
  Arising During the Year, Net of
  Tax Benefit (Expense) of $668
  and ($442) for the three months
  ended and $685 and ($27) for the
  six months ended June 30,2006 and
  2005, respectively                  (1,331)             53

Reclassification Adjustment for
  Gains included in Net Income, Net
  of Tax of $6 and $5 for the three
  months ended and $13 and $12 for
  the six months ended June 30, 2006
  and 2005,respectively                  (28)            (23)
Unrealized Losses on Cash Flow Hedges,
  Net of Tax Benefit of $10 for the
  three months ended and $25 for the
  six months ended June 30, 2006
  respectively                           (39)            -
                                 ____________     __________
      Total Other Comprehensive
       Income (Loss)                  (1,398)             30
                                 ____________     __________
TOTAL COMPREHENSIVE INCOME (LOSS)$      (156)    $     1,711
                                 ============     ==========
See notes to consolidated financial statements.

</TABLE>

<PAGE>
<TABLE>
Union National Financial Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<CAPTION>
(Dollars in thousands)
                                   Six Months Ended June 30,
                                   _________________________
                                      2006           2005
                                   _________      _________
<S>                                   <C>            <C>
CASH FLOWS from OPERATING ACTIVITIES
Net Income                         $  1,242        $  1,681
Adjustments to Reconcile Net
  Income to Net Cash Provided
  by Operating Activities:
   Depreciation and Amortization        512             457
   Provision for Loan and Lease Losses  337             268
   Net Amortization of Investment
    Securities' Premiums                309             470
   Investment Securities Gains          (41)            (35)
   (Benefit from) Provision for
   Deferred Income Taxes               (689)            150
   Increase in Minority Interest
    Liability                           119               6
   Noncash Interest Expense              16              -
   Earnings from Bank-Owned
    Life Insurance                     (181)           (205)
   Gains on Loans Sold                 (953)            (59)
   Proceeds from Sales of Loans      34,901           2,871
   Loans Originated for Sale        (32,188)         (2,723)
   Decrease (Increase) in Accrued
   Interest Receivable                    4            (122)
   Increase in Other Assets             (87)           (629)
   Increase in Other Liabilities        571             272
                                   _________      _________
      Net Cash Provided by
       Operating Activities           3,872           2,402
                                   _________      _________

CASH FLOWS from INVESTING ACTIVITIES
Proceeds from Sales of
  Available-for-Sale Securities       6,497           6,452
Proceeds from Maturities of
  Available-for-Sale Securities       7,172           8,987
Purchases of Available-for-Sale
  Securities                        (27,677)        (23,534)
Net Purchases of Restricted
  Investments in Bank Stocks           (269)            (45)
Net Loans and Leases Made
  to Customers                      (23,616)        (19,552)
Purchases of Premises, Equipment,
  and Computer Software              (2,813)           (374)
                                   _________      _________
     Net Cash Used in Investing
       Activities                   (40,706)        (28,066)
                                   _________      _________
CASH FLOWS from FINANCING ACTIVITIES
Net Increase in Demand Deposits
  and Savings Accounts                4,738           6,691
Net Increase in Time Deposits        29,135          12,800
Net (Decrease) Increase in
  Short-Term Borrowings              (8,707)          7,965
Proceeds from Issuance of
  Long-Term Debt                     22,267          15,837
Payments on Long-Term Debt           (8,587)        (15,450)
Acquisition of Treasury Stock          (106)           (863)
Issuance of Common Stock                233             513
Cash Dividends Paid                    (804)           (774)
                                   _________      _________
      Net Cash Provided by
        Financing Activities         38,169          26,719
                                   _________      _________
Net Increase in Cash and
  Cash Equivalents                    1,335           1,055
CASH and CASH EQUIVALENTS -
  Beginning of Year                  14,501           9,843
                                   _________      _________
CASH and CASH EQUIVALENTS -
  End of Period                    $ 15,836        $ 10,898
                                   =========      =========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash Payments for:
  Interest                         $  6,691        $  3,918
  Income Taxes                          300             415

See notes to consolidated financial statements.
</TABLE>

<PAGE>
               UNION NATIONAL FINANCIAL CORPORATION
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. Financial Statements

The consolidated financial statements have been prepared
pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC"), and certain information and
footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or
omitted.  We believe the information presented is not misleading
and the disclosures are adequate. In our opinion, the
consolidated financial statements contain all adjustments
(consisting only of normal recurring accruals and adjustments)
necessary to present fairly our financial position as of June
30, 2006 and December 31, 2005, and results of operations and
cash flows for the three- and six-month periods ended June 30,
2006 and 2005. Our results of operations for interim periods are
not necessarily indicative of results expected for the full
year.  These interim financial statements should be read in
conjunction with notes to the consolidated financial statements
contained in the 2005 Annual Report to Stockholders.

2. Basis of Presentation

The consolidated financial statements include the accounts of
Union National Financial Corporation, its subsidiary Union
National Community Bank (the "bank"), and bank subsidiaries
Union National Insurance Agency, and Home Team Financial, LLC
and its subsidiary TA of Lancaster, LLC (together, "Home Team
Financial").  All material intercompany accounts and
transactions have been eliminated in consolidation.  Union
National's trust subsidiaries, Union National Capital Trust I
and Union National Capital Trust II, which were established for
the purpose of issuing $11,000,000 of trust capital securities
during 2003 and 2004, are not consolidated.

Certain reclassifications have been made to the 2005
consolidated financial statements to conform to the 2006
presentation.

3. Earnings per Share

Net income as set forth in the consolidated statements of income
is used in the computation of basic and diluted earnings per
share information. Reconciliations of shares used in the
computations of earnings per share are as follows:

<TABLE>
<CAPTION>
                                        Three Months Ended
                                              June 30,
                                         2006         2005
                                      _________     ________
<S>                                       <C>          <C>
Weighted-average common shares
 outstanding used in the computation
 of basic earnings per share          2,515,278     2,525,983

Effect of dilutive stock options         20,028        36,780
                                      _________     _________
Weighted-average common shares and
 equivalents used in the computation
 of diluted earnings per share        2,535,306     2,562,763
                                      =========     =========

Stock options not included in the
 earnings per share computation
 as their effect would have been anti-
 dilutive                                87,563        27,936
                                      =========     =========

<CAPTION>
                                           Six Months Ended
                                              June 30,
                                         2006         2005
                                      _________     ________
<S>                                      <C>           <C>
Weighted-average common shares
 outstanding used in the computation
 of basic earnings per share          2,513,665     2,523,906

Effect of dilutive stock options         19,832        44,227
                                      _________     _________
Weighted-average common shares and
 equivalents used in the computation
 of diluted earnings per share        2,533,497     2,568,133
                                      =========     =========

Stock options not included in the
 earnings per share computation
 as their effect would have been anti-
 dilutive                                90,756        26,720
                                      =========     =========
</TABLE>

4.  Share-Based Compensation

On January 1, 2006, Union National adopted Statement of
Financial Accounting Standards No. 123(R), "Share-Based
Payments" ("SFAS 123(R)") related to accounting for share-based
payments and, accordingly, compensation expense will

<PAGE>

be recognized for future share-based awards based upon an
assessment of the grant date fair value. Prior to 2006, share-
based compensation was accounted for in accordance with
Accounting Principles Board Opinion No. 25 and, thus, no
compensation expense was recognized at the grant date. Union
National is using the modified prospective method of adoption,
which permits application of SFAS 123(R) on a going-forward
basis rather than restating prior periods.   Stock compensation
expense for future share-based awards will be recognized on a
straight-line basis over the vesting period of the award.

No share-based awards were granted or vested during the three-
and six-month periods ended June 30, 2006; therefore, no
compensation expense was recorded during the three months or the
six months ended June 30, 2006.  During the three months and six
months ended June 30, 2005, 25,000 stock options were granted.
The pro-forma impact to net income and earnings per share that
would occur if compensation expense had been recognized in 2005,
based on the estimated fair value of the options on the date of
the grant, is as follows:

<TABLE>
<CAPTION>
                      Three Months Ended        Six Months Ended
                            June 30, 2005         June 30, 2005
                            _____________        _______________
<S>                              <C>                    <C>
Net Income - As Reported        $859                  $1,681
Less: Share-Based
  Compensation Cost               (8)                     (8)
                            _____________        _______________
Net Income - Pro-Forma          $851                  $1,673
                            =============        ===============

Net Income Per Share:
   As Reported - Basic         $0.34                   $0.67
   As Reported - Assuming
     Dilution                  $0.34                   $0.65
   Pro-Forma - Basic           $0.34                   $0.66
   Pro-Forma - Assuming
     Dilution                  $0.33                   $0.65
</TABLE>

Union National currently has three separate stock option plans
in place. The Employee Stock Purchase Plan allows eligible
employees to purchase stock in Union National. Of the 115,762
shares reserved for issuance under this plan, options to
purchase 64,658 shares are available for grant. Options granted
under this plan have a five-year term and can be exercised at
85% of the fair market value of the stock on the date of
exercise. The other two plans are the Employee Stock Incentive
Plan and the Independent Directors' Stock Option Plan. Of the
249,506 shares reserved for issuance under the Employee Stock
Incentive Plan, options to purchase 31,920 shares are available
for grant.  No further options can be granted under the
Independent Directors' Stock Option Plan. Options granted under
these two plans have terms up to 10 years, have option prices
equal to the fair value of the shares on the date of the grant
and are exercisable six months after their grant date.

During the six months ended June 30, 2006, Union National
received proceeds of $41,000 for the exercise of options with an
intrinsic value of $16,000.  Stock option transactions for the
six months ended June 30, 2006 are summarized below:


<TABLE>
<CAPTION>
                               Stock            Weighted-Average
                              Options            Exercise Price
                             _________            ______________
<S>                             <C>                   <C>
Options Outstanding at
  December 31, 2005
(Prices range from $11.52
  to $22.14)                  202,999            $   18.22
Options Granted                     -                    -
Options Exercised              (2,989)               13.83
Options Forfeited              (3,837)               19.40
Options Expired               (11,633)               16.42
                             _________
Options Outstanding at
  June 30, 2006
(Prices range from $11.52
  to $22.14)                  184,540            $   18.20
                             =========
</TABLE>

<PAGE>


The following table presents information regarding options
outstanding as of June 30, 2006:
<TABLE>
<S>                                                <C>
Weighted-average contractual
 remaining term - options outstanding           5.8 Years
Aggregate intrinsic value -
 options outstanding                            $246,000

Options exercisable                              184,540
Weighted-average exercise
  price - options exercisable                 $    18.20
Aggregate intrinsic value -
  options exercisable                           $246,000
Weighted-average contractual
  remaining term - options exercisable          5.8 Years

</TABLE>

Intrinsic value represents the amount by which the market price
of the stock on the measurement date of June 30, 2006 exceeded
the exercise price of the option.  It is Union National's policy
to issue new shares upon the exercise of stock options.

Union National records a tax benefit and associated deferred tax
asset realized on the exercise of non-qualified stock options
and disqualifying dispositions of incentive stock options and
the Employee Stock Purchase Plan.  No tax benefit was recorded
during the three months and six months ended June 30, 2006 as
there were no such exercises or dispositions during the period.
Union National recorded a tax benefit of $15,000 and $39,000,
respectively, for exercises and dispositions during the three
months and six months ended June 30, 2005.

5.  Guarantees

Union National does not issue any guarantees that would require
liability recognition or disclosure, other than its standby
letters of credit.  Standby letters of credit written are
conditional commitments issued by Union National to guarantee
the performance of a customer to a third party.  Generally, all
letters of credit when issued have expiration dates within one
year.  The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan
facilities to customers.  Union National generally holds
collateral and/or personal guarantees supporting these
commitments.  Union National had $7,165,000 and $4,950,000 of
standby letters of credit outstanding as of June 30, 2006 and
December 31, 2005, respectively.  Management believes that the
proceeds obtained through a liquidation of collateral and the
enforcement of guarantees would be sufficient to cover the
potential amount of future payment required under the
corresponding guarantees.  The current amount of the liability
as of June 30, 2006 and December 31, 2005, for guarantees under
standby letters of credit issued is not material.

6. Recent Accounting Pronouncements

In February 2006, the Financial Accounting Standards Board
("FASB") issued SFAS No. 155, "Accounting for Certain Hybrid
Financial Instruments" ("SFAS 155").  SFAS 155 amends FASB
Statement Nos. 133 and 140, and improves the financial reporting
of certain hybrid financial instruments by requiring more
consistent accounting that eliminates exemptions and provides a
means to simplify the accounting for these instruments.
Specifically, SFAS 155 allows financial instruments that have
embedded derivatives to be accounted for as a whole (eliminating
the need to bifurcate the derivative from its host) if the
holder elects to account for the whole instrument on a fair
value basis.  SFAS 155 is effective for all financial
instruments acquired or issued after the beginning of an
entity's first fiscal year that begins after September 15, 2006.
Union National is required to adopt the provisions of SFAS 155,
as applicable, beginning January 1, 2007.  Management does not
believe the adoption of SFAS 155 will have a material impact on
Union National's consolidated financial position and results of
operations.

In March 2006, the FASB issued SFAS No. 156, "Accounting for
Servicing of Financial Assets - An Amendment of FASB Statement
No. 140" ("SFAS 156"). SFAS 156 requires that all separately
recognized servicing assets and servicing liabilities be
initially measured at fair value, if practicable. The statement
permits, but does not require, the subsequent measurement of
servicing assets and servicing liabilities at fair value. SFAS
156 is effective as of the beginning of an

<PAGE>

entity's first fiscal year that begins after September 15, 2006,
which for Union National will be as of January 1, 2007.
Management does not believe that the adoption of SFAS 156 will
have a material effect on its consolidated financial statements.

In July 2006, the FASB issued FASB Interpretation No. 48,
"Accounting for Uncertainty in Income Taxes-an interpretation of
FASB Statement No. 109" (FIN 48), which clarifies the accounting
for uncertainty in tax positions. This Interpretation requires
that companies recognize in their financial statements the
impact of a tax position, if that position is more likely than
not of being sustained on audit, based on the technical merits
of the position. The provisions of FIN 48 are effective for
fiscal years beginning after December 15, 2006, with the
cumulative effect of the change in accounting principle recorded
as an adjustment to opening retained earnings. We are currently
evaluating the impact of adopting FIN 48 on our consolidated
financial statements.


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

The following is management's discussion and analysis of the
significant changes in the results of operations, capital
resources and liquidity presented in the accompanying
consolidated financial statements for Union National Financial
Corporation ("Union National"), a bank holding company, and its
wholly-owned subsidiary, Union National Community Bank (the
"bank"). Union National's consolidated financial condition and
results of operations consist primarily of the bank's financial
condition and results of operations. Union National's trust
subsidiaries, Union National Capital Trust I and Union National
Capital Trust II, were established for the purpose of issuing
$11,000,000 of trust capital securities during 2003 and 2004.
Home Team Financial, LLC, a subsidiary of the bank, and its
subsidiary, TA of Lancaster, LLC (together, "Home Team
Financial") began operations in July 2005. Home Team Financial
operates a mortgage banking and brokerage business and also
offers title insurance and settlement services. The bank's
ownership interest in Home Team Financial is 98% with an initial
interest in net profits of 30%, which increases over succeeding
years. This discussion should be read in conjunction with the
financial tables/statistics, financial statements and notes to
financial statements appearing in our 2005 annual report.
Current performance does not guarantee, assure or indicate
similar performance in the future.

We have made forward-looking statements in this document, and in
documents that we incorporate by reference, that are subject to
risks and uncertainties. Forward-looking statements include
information concerning possible or assumed future results of
operations of Union National, the bank or the combined company.
When we use words such as "believes," "expects," "anticipates"
or similar expressions, we are making forward-looking
statements.  Shareholders should note that many factors, some of
which are discussed elsewhere in this document, our 2005 annual
report, our 2005 Form 10-K, and in the documents that we
incorporate by reference, could affect the future financial
results of Union National, the bank or the combined company and
could cause those results to differ materially from those
expressed in our forward-looking statements contained or
incorporated by reference in this document. These factors
include but are not limited to the following:

      *  operating, legal and regulatory risks;
      *  economic, political and competitive forces;
      *  rapidly changing technology; and
      *  the risk that our analyses of these risks and forces
         could be incorrect and/or that the strategies developed
         to address them could be unsuccessful.

Union National undertakes no obligation to publicly revise or
update these forward-looking statements to reflect events or
circumstances that arise after the date of this report. Readers
should carefully review the risk factors described in other
documents that Union National periodically files with the
Securities and Exchange Commission including our Form 10-K for
the year ended December 31, 2005.

Critical Accounting Policies
____________________________
The reporting of Union National's financial condition and
results of operations is impacted by the application of
accounting policies by management. Certain accounting policies
are particularly sensitive and require significant judgments,
estimates and assumptions to be made by management in matters
that are inherently uncertain.

<PAGE>
Union National's provision for loan * losses and the level of
the allowance for loan losses involve significant estimates by
management in evaluating the adequacy of the allowance for loan
losses. The allowance for loan losses is increased by a charge
to the provision for loan losses. Management's evaluation is
based on Union National's past loan loss experience, known and
inherent risks in the portfolio, adverse situations that may
affect the borrower's ability to repay (including the timing of
future payments), the estimated value of any underlying
collateral, composition of the loan portfolio, current economic
conditions and other relevant factors. While management uses
available information to make such evaluations, future
adjustments to the allowance and the provision for loan losses
may be necessary if economic conditions or loan credit quality
differ substantially from the assumptions used in making the
evaluation.

Union National carries all of its investments at fair value with
any unrealized gains, as well as losses that are considered to
be temporary, reported net of tax as an adjustment to
stockholders' equity. If management determines that impairment
in the value of an investment security is "other than
temporary," the related loss is recorded in the income
statement. In order to determine whether such unrealized losses
are other than temporary, management must regularly review
investment securities for possible impairment, analyzing factors
including but not limited to the underlying creditworthiness of
the issuing organization, the length of time for which the
market value has been less than cost, and independent analysts'
opinions about circumstances that could affect the performance
of the investment. After considering such factors, it is a
matter of judgment on the part of management to make the
determination of whether or not the decline in market value is
other than temporary.

Results of Operations
---------------------
Overview

Consolidated net income for the three months ended June 30, 2006
was $472,000 as compared to $859,000 for the three months ended
June 30, 2005.  For the second quarter of 2006, basic and
diluted earnings per share amounted to $0.19, as compared to
basic and diluted earnings per share of $0.34 for the same
period in 2005.  For the six months ended June 30, 2006,
consolidated net income was $1,242,000, as compared to
$1,681,000 for the six months ended June 30, 2005.  Basic and
diluted earnings per share for the six months ended June 30.
2006 amounted to $0.49, as compared to basic earnings per share
of $0.67 and diluted earnings per share of $0.65 for the same
period in 2005.

The following items impacted results of operations for the three
months ended and the six months ended June 30, 2006 as compared
to 2005:

      *  Net interest income increased by $242,000 (on a
         taxable-equivalent basis), or 6.5%, and $326,000 or
         4.4%, respectively.  Asset growth was largely offset by
         higher funding costs due to higher rates and a greater
         proportion of higher-cost alternative funding sources.
         The effect of customer deposit shifts on the cost of
         funds is also outpacing the effect of earnings rate
         increases on interest income.   An increase in loan fee
         income due to strong commercial loan originations in
         the quarter mitigated the constriction of net interest
         margin.
      *  The provision for loan losses increased in comparison
         to the prior year due to an increase in net charge-offs
         that amounted to $206,000 and $200,000, respectively.
      *  Other operating income, including securities gains,
         increased by $970,000 or 84.8% and $1,837,000 or 85.3%,
         respectively.  The increase included the 2006 results
         of Home Team Financial, LLC, which began operations in
         the third quarter of 2005.
      *  Other operating expenses increased by $1,619,000 or
         46.6% and $2,720,000 or 39.2%, respectively.  The
         increase included the 2006 results of Home Team
         Financial, LLC, which began operations in the third
         quarter of 2005.

The above items are quantified and discussed in further detail
under their respective sections below.  Since Home Team
Financial did not begin operations until the third quarter of
2005, inclusion of their results in 2006 caused significant
increases in consolidated other operating income and expenses in
comparison to the prior year.  Accordingly, the discussion below
excludes the results of Home Team Financial from the various
income statement lines, in order to provide comparability
between periods.  Home Team Financial contributed, net of income
taxes, earnings of $56,000

* Loans include leases that meet the criteria for direct
financing leases under SFAS No. 13.  Loans and lease financing
receivables are, throughout the remainder of Management's
Discussion and Analysis, together referred to as "loans."

<PAGE>

for the three months ended and $48,000 for the six months ended
June 30, 2006 to consolidated net income.

Net income as a percent of average stockholders' equity, also
known as return on average equity ("ROE") and net income as a
percent of average realized stockholders' equity, which excludes
the impact of accumulated other comprehensive income (loss),
were as follows on an annualized basis:

<TABLE>
                         Three Months            Six Months
                        Ended June 30,         Ended June 30,
                       ________________       _______________
                        2006       2005       2006      2005
                       _____      ______     _____     ______
<S>                     <C>         <C>       <C>        <C>
ROE                    6.71%      12.38%     9.02%     12.45%
ROE (Realized Equity)  6.51%      12.59%     8.78%     12.60%

</TABLE>

For Union National, accumulated other comprehensive income
(loss) is the amount of net unrealized losses on
available-for-sale investment securities and cash flow hedges,
net of tax.

Overall loan balances increased by $23,421,000 or 7.8% over
loans outstanding at the preceding year-end, primarily resulting
from an increase in commercial loans, commercial lines of
credit, and leases, partially offset by a slight decline in
residential mortgage loans.

Outlook

The economy in the bank's market may be positively or negatively
impacted by national events and may be subject to overall
national economic trends.  The overall effects of past economic
conditions, as well as other factors, can be seen by a mild
lessening of certain borrowers' financial strength and higher
interest rates.  Management is monitoring these general and
specific trends closely.  Their various effects are discussed
later under the section on Loan Quality and Credit Risk.

Management currently expects very strong growth in loans and
leases, and moderate deposit growth for 2006, driven largely by
the development of new commercial business relationships and the
opening of two Gold Cafe branch offices that feature innovative
delivery of branch banking services in an upscale coffee house
setting.  The first Gold Cafe branch opened for business in
April 2006, and construction of the second Gold Cafe branch,
which will be in a leased facility, began in May. Currently,
capital expenditures are estimated at approximately $350,000 for
furniture, equipment, and leasehold improvements during the
remaining months of 2006 for the Gold Cafe branch. The impact to
the results of operations for the remaining months of 2006 as
compared to the costs expensed for these offices in 2005 is
currently estimated to be an increase in operating expenses of
$350,000 ($231,000 after tax).  Based upon projected incremental
loan generation, fee and commission income, and deposit growth
resulting from the additional branches, each branch is expected
to begin operating at breakeven in approximately its third year
of operation.

The expansion of our commercial banking business continues to be
a strategic focus for Union National.  The leasing department
that Union National established during 2005 to augment other
commercial products and services that are currently offered has
been experiencing rapid growth.  As of June 30, 2006, net leases
outstanding totaled $6,073,000, compared to $3,721,000 as of
December 31, 2005. Management continues to develop and promote
additional loan and deposit products, to implement various sales
strategies and to offer incentives to employees to generate loan
and deposit growth.  Increased lending volume from these
activities and from the new branches is expected to have a
positive impact on net interest income and other operating
income for the remainder of 2006. In addition, Union National
has engaged a marketing firm to assist in implementation of a
deposit acquisition program during the remainder of 2006 in
order to maximize funding of asset growth with growth in core
deposits.

With the inclusion of a full year of Home Team Financial's
operations in 2006, as compared with only six months in 2005,
increases in net interest income and other income related to
mortgage origination, brokerage, title insurance, and settlement
fees are expected to occur accordingly.  Operating expenses of
Home Team Financial will also be generally higher in 2006, due
to the inclusion of a full year of activity, as well as
additions to their loan origination staff and an increase in
lease expense due to the relocation of Home Team Financial to
expanded facilities in mid 2006.  Home Team Financial is
expected to contribute a greater amount of net income to Union
National's results of operations in the remaining six months of
2006 in comparison to the same period of 2005.


<PAGE>

Union National moved its corporate offices into a new leased
facility at 570 Lausch Lane in Manheim Township during the first
and second quarters of 2006.  Union National has leased this
space over an initial term of 15 years and occupies two floors
of the three-story building.  The remaining floor of office
space is currently available for sublease. The lease transaction
is classified as an operating lease and requires initial annual
lease payments of $483,000 plus reimbursement of the landlord's
operating costs.  Offsetting these costs, including the
anticipated sublease payments, are various consolidations of
Union National's current facilities that have been completed
during 2006.  In addition, Home Team Financial has leased the
office portion of the bank's branch location in Mount Joy,
Pennsylvania, that became available due to the relocation of
some of Union National's corporate functions to the Lausch Lane
facility, thereby eliminating rent expense previously paid to
third parties.  The combined impact of all the changes in leases
and premises to the results of operations for the remaining
months of 2006 is currently estimated to be a net cost of
approximately $172,000 ($115,000 after tax) as compared to the
same period of 2005.

As of June 30, 2006, the bank's total risk-based capital ratio
was 9.6%, which was below the regulatory requirement of 10.0% to
be designated a well-capitalized bank, resulting in the bank's
designation as an adequately-capitalized bank.  This lower
capital designation for the bank reduces its access to certain
liquidity resources; specifically, the acquisition of brokered
certificates of deposit ("brokered CDs") as a funding resource
is restricted.  The restriction is expected to be temporary as
the bank is expected to return to a well-capitalized designation
no later than the filing of its third quarter 2006 Federal
Deposit Insurance Corporation ("FDIC") call report.  This call
report will reflect Union National Community Bank's issuance of
$6,000,000 of additional junior subordinated debentures on July
28, 2006 in order to fund asset growth and enhance the bank's
risk-based capital position.  The issuance of the junior
subordinated debentures increased the bank's risk-based capital
ratio to approximately 11.0%, which exceeds the 10.0% level
required for designation as a well-capitalized bank.

As of June 30, 2006, the consolidated capital ratio of Union
National Financial Corporation, excluding the effects of other
comprehensive income (loss) on stockholders' equity, was 5.64%,
which was below the Corporation's policy limit of 5.75%.  The
expected future asset growth resulting from the implementation
of Union National's strategic initiatives as described above may
require additional capital resources in 2006 or future years.
Union National is analyzing various capital-enhancing options
including but not limited to issuance of common stock; however,
no option has been chosen as of the date of this report.



Net Interest Income/Funding Sources

Net interest income is the amount by which interest income on
loans and investments exceeds interest incurred on deposits and
borrowings.  Net interest income is Union National's primary
source of revenue.  The amount of net interest income is
affected by changes in interest rates and by changes in the
volume and mix of interest-sensitive assets and liabilities.
For analytical and discussion purposes, net interest income and
corresponding yields are presented on a taxable-equivalent
basis.  Income from tax-exempt assets, primarily loans to or
securities issued by state and local governments, is adjusted by
an amount equivalent to the federal income taxes which would
have been paid if the income received on these assets was
taxable at the statutory rate of 34%.

During the current year and the two previous calendar years,
Union National has experienced growth in assets that has
outpaced growth in deposits, requiring the increased use of
alternative sources of funding.  In addition, there has been a
gradual shift in the bank's funding sources towards relatively
higher-cost financing sources including borrowings from the
Federal Home Loan Bank of Pittsburgh ("FHLB"), brokered CDs, and
issuance of junior subordinated debentures.  Management utilized
outstanding long-term FHLB advances of $119,495,000 as of June
30, 2006, as compared to total FHLB borrowings of $118,815,000
as of December 31, 2005, which consisted of short-term advances
of $10,000,000, long-term advances of $105,815,000, and
$3,000,000 outstanding under a $15,000,000 line of credit.
Long-term advances totaled $89,017,000 and short-term advances
totaled $2,180,000 as of June 30, 2005.  The long-term advances
have maturities that range from July 2006 to December 2013.  The
average interest rate on total FHLB borrowings increased to
4.81% at June 30, 2006 as compared to 4.31% at December 31, 2005
and 3.99% at June 30, 2005. Union National has also obtained
funding through the use of brokered CDs, which were obtained
through various sources where Union National bids for these
funds.  As of June 30, 2006 and December 31, 2005, Union
National had $30,140,000 and

<PAGE>

$26,123,000, respectively, in brokered CDs outstanding, compared
to $29,938,000 as of June 30, 2005.  The average interest rate
on total brokered CDs was 4.78% at June 30, 2006 as compared to
4.32% at December 31, 2005 and 3.49% at June 30, 2005.

During 2004 and 2003, Union National obtained net funding of
$11,000,000 from the issuance of junior subordinated debentures
to trust subsidiaries that then issued trust capital securities.
In October 2004, $3,000,000 of net funding was obtained through
the issuance of debentures that are at a fixed rate of 5.28% for
an initial period of approximately three years.  In December
2003, $8,000,000 of net funding was obtained through the
issuance of floating-rate debentures that provide for quarterly
distributions at a variable annual coupon rate that is reset
quarterly, based on three-month London Interbank Offered Rate
("LIBOR") plus 2.85%.  The coupon rate was 8.0% at June 30, 2006
and 7.09% at December 31, 2005.  As noted in the "Outlook"
section above, on July 28, 2006, the bank issued $6,000,000 of
additional subordinated debentures due September 15, 2021, with
a 5-year initial fixed rate of 7.17% in order to fund growth and
to raise the bank's risk-based capital ratio above the 10%
well-capitalized level.

The terms and amounts of the FHLB borrowings, brokered CDs, and
the issuance of the junior subordinated debentures, when
combined with Union National's overall balance sheet structure,
maintain Union National within its interest rate risk policies.
The change in mix of funding sources together with related cost
of those funding sources and a shift in the mix of customer
deposits contributed to a constriction in the net interest
margin as described below.  The bank uses derivatives to
mitigate the effects of fluctuating interest rates on net
interest income.  In July 2006, Union National entered into an
interest rate cap arrangement with a notional amount of $10
million and a cap rate of 5.50%, indexed to the 3-month LIBOR
rate.

In comparing the three months ended and the six months ended
June 30, 2006 to the same periods of 2005, the net effect of
volume growth in average earning assets and interest-bearing
liabilities on net interest income was an increase of $380,000
and $828,000, respectively.  Growth in average earning assets
was funded primarily by increased deposit balances and
additional borrowings.  Average earning assets increased by
13.8% both for the three months ended and for the six months
ended June 30, 2006, as compared to the same periods of 2005.

The overall interest rate on average total earning assets for
the three months ended and the six months ended June 30, 2006
was 6.88% and 6.74%, respectively, as compared to 6.14% and
6.11%, respectively, for the same periods of last year.  The
overall interest rate on average interest-bearing liabilities
was 3.62% and 3.48%, respectively, for the three months ended
and the six months ended June 30, 2006, compared to 2.57% and
2.45%, respectively, for the three months and the six months
ended June 30, 2005.  The net effect of these interest rate
changes on net interest income was a decrease of $138,000 for
the three months ended June 30, 2006, and a decrease of $502,000
for the six months ended June 30, 2006, compared to the same
periods of 2005.  The net interest margin percentage for the
three months ended and the six months ended June 30, 2006 was
3.58% and 3.59%, respectively, as compared to 3.83% and 3.92%
for the same periods of 2005.  The net effect of the above
volume growth and interest rate changes on net interest income
on a taxable-equivalent-yield basis for the second quarter of
2006 was an increase of $242,000 as compared to the same period
of 2005; for the six months ended June 30, 2006, the net effect
was an increase of $326,000 as compared to the prior year.

For the remainder of 2006, it is currently anticipated that
Union National's net interest margin percentage will remain
below prior year levels due to the flat and inverted treasury
yield curve, combined with the effects of changes in the mix of
customer deposits and alternative funding sources described
above. However, income on higher earning asset balances in
comparison to the prior year, together with current year
expected growth in earning assets, should more than offset the
constriction in net interest margin, resulting in net interest
income for the remainder of 2006 that reflects a moderate
increase over the net interest income earned during the same
period of 2005.  Union National's net interest income may be
impacted by future actions of the Federal Reserve Bank.

Provision for Loan Losses

The loan loss provision is an estimated expense charged to
earnings to provide for losses attributable to uncollectible
loans, based on management's analysis of the adequacy of the
allowance for loan losses.  The provision for loan losses was
$307,000 and $337,000, respectively, for the three months ended
and the six months ended June 30, 2006, as compared to $144,000
and $268,000, respectively, for the three months ended and the
six months ended June 30, 2005. For the three months ended and
the six month ended June 30, 2006, Union National had net
charge-offs of $219,000 and

<PAGE>

$195,000, respectively, compared to net charge-offs of $13,000
and net recoveries of $5,000, respectively, for the three months
ended and the six months ended June 30, 2005.  The higher
provision for loan losses in 2006 can be primarily attributed to
net charge-offs and higher growth in outstanding loan balances
in 2006 compared to 2005.  Future adjustments to the allowance,
and consequently the provision for loan losses, may be necessary
if economic conditions or loan credit quality differ
substantially from the assumptions used in making management's
evaluation of the level of the allowance for loan losses as
compared to the balance of outstanding loans.  See the
discussion on Credit Risk and Loan Quality/Allowance for Loan
Losses.

Other Operating Income

Other Operating Income (including investment securities gains)
increased by $970,000 or 84.8% for the second quarter of 2006 as
compared to the same period of 2005. For the six months ended
June 30, 2006, the increase was $1,837,000 or 85.3%.  The effect
of Home Team Financial's results on consolidated Other Operating
Income was an increase of $969,000 for the second quarter and
$1,766,000 for the six months ended June 30, 2006, primarily
from mortgage banking/brokerage activities.  The increase in
other operating income not attributable to Home Team Financial
for the three-month and six-month periods was primarily a result
of increases (decreases) in the following items:

<TABLE>
<CAPTION>
(Dollars in thousands)
                                       Three Months Ended
                                       __________________
                                      June 30, 2006 vs. 2005
                                      ______________________
<S>                                              <C>
Overdraft fees                           $   17
Other service charges on deposit accounts        (11)
Debit card interchange income                     24
Secondary market loan origination fees            15
Other service charges, commission, fees          (16)
ATM cash service fees                             55
Mortgage banking activities of the bank          (48)
Settlement commission income                     (16)
Earnings from bank-owned life insurance          (11)
Other, net                                        (8)
                                              ________
Total increase in other operating income
  not attributable to Home Team Financial    $     1
                                              ========



<CAPTION>
(Dollars in thousands)
                                         Six Months Ended
                                        __________________
                                      June 30, 2006 vs. 2005
                                      ______________________
<S>                                              <C>
Overdraft fees                           $   57
Other service charges on deposit accounts        (22)
Debit card interchange income                     49
Secondary market loan origination fees            15
Other service charges, commission, fees          (11)
ATM cash service fees                            104
Mortgage banking activities of the bank          (69)
Settlement commission income                     (23)
Earnings from bank-owned life insurance          (24)
Other, net                                        (5)
                                              ________
Total increase in other operating income
  not attributable to Home Team Financial    $    71
                                              ========
</TABLE>


Overdraft fees have increased as a result of the bank's
"Overdraft Privilege" product, which permits customers to
overdraw their accounts subject to certain limits.  Other
service charges on deposit accounts decreased primarily as a
result of the introduction of the bank's "Three for Free"
promotion, whereby a customer may select from any one of three
types of accounts which are not subject to service charges. The
increase in debit card interchange income reflects the bank's
sales focus promoting debit card usage.  During the second
quarter of 2006, Union National earned fees from originating
loans on behalf of an investor bank in the commercial secondary
market.  The bank does not service or retain an interest in
these loans.  The ATM cash service fees relate to an arrangement
with a local ATM company where Union National provides cash for
its ATM machines.  These service fees fluctuate with interest
rates and the cash balances on hand at the ATM company.
Mortgage banking activities and settlement commission income
have been largely supplanted by the activities of Home Team
Financial and its title insurance subsidiary, TA of Lancaster,
LLC.  Earnings from bank-owned life insurance has decreased due
to lower interest rates on the investments within the policies.

Other Operating Expenses

Other Operating Expenses increased by $1,619,000 or 46.6% for
the second quarter of 2006 as compared to the same period of
2005. For the six months ended June 30, 2006, the increase was
$2,720,000 or 39.2% as compared to the first six months of 2005.
The effect of Home Team Financial's results on consolidated
Other Operating Expenses was an increase of $786,000 for the
second quarter and $1,613,000 for the six months ended June 30,
2006, primarily from mortgage banking/brokerage activities.  The
increase in other operating expenses not attributable to Home
Team Financial for the three-month and six-month periods was
primarily a result of increases (decreases) in the following
items:
<PAGE>
<TABLE>
<CAPTION>
(Dollars in thousands)
                                    Three Months Ended
                                    ___________________
                                  June 30, 2006 vs. 2005
                                  _______________________
<S>                                          <C>
Salaries and wages                        $   271
Employee benefit costs                         82
Net occupancy expense                         138
Furniture and equipment expense                29
Advertising and marketing expenses            161
ATM processing expenses                        17
Data processing services                       16
Supplies expense                               25
Other, net                                     94
                                           ________
Total increase in other
  operating expenses not
  attributable to Home Team Financial     $   833
                                           ========
<CAPTION>
(Dollars in thousands)
                                      Six Months Ended
                                    ___________________
                                  June 30, 2006 vs. 2005
                                  _______________________
<S>                                          <C>
Salaries and wages                        $   449
Employee benefit costs                        122
Net occupancy expense                         212
Furniture and equipment expense                (3)
Advertising and marketing expenses            146
ATM processing expenses                        25
Data processing services                       35
Supplies expense                               28
Other, net                                     93
                                           ________
Total increase in other
  operating expenses not
  attributable to Home Team Financial     $ 1,107
                                           ========

</TABLE>

The increase in salaries and wages resulted from Gold Cafe staff
additions prior to the April opening of the branch ($67,000 and
$134,000), annual salary increases ($60,000 and $120,000),
additional commercial and business banking staff positions
($41,000 and $79,000), other staff additions ($74,000 and
$148,000) and staff promotion bonuses paid in the first quarter
of 2006 ($0 and $26,000).  Employee benefit cost increases
resulting from the higher salaries and wages described above, as
well as higher health insurance costs, were partially offset by
a decrease in accrued profit sharing expense based upon first
quarter results.  Net occupancy expense increased primarily due
to occupancy of the Lausch Lane office facility ($147,000 and
$213,000) and depreciation on the Gold Cafe building ($10,000 in
both periods), partially offset by termination of an office
lease ($18,000 and $26,000) enabled by the move of employees
into the Lausch Lane office.  Furniture and equipment expense
increased primarily due to depreciation of the furniture and
equipment at Lausch Lane and the Gold Cafe.  Advertising and
marketing costs were incurred during the second quarter related
to the opening of the Gold Cafe branch location and promotion of
the Gold Cafe brand.  Also, the bank engaged a marketing firm to
assist in implementation of a deposit acquisition program
beginning in the second quarter.  ATM processing services
increased due to higher usage of ATMs by bank customers.  Data
processing services expense increased due to modest increases in
fees charged by the bank's third party data processing service
provider.  Supplies expense increased due to the purchase of
supplies for use at the Gold Cafe branch and at the Lausch Lane
facility.  There were also numerous smaller increases in various
other expense categories that were not individually significant.


Income Taxes

Union National recognized an income tax benefit of $55,000 for
the second quarter of 2006, as compared to expense of $185,000
for the same period of last year. For the six months ended June
30, 2006, income tax expense was $38,000 as compared to $357,000
last year. Union National's effective tax rates were as follows:
<TABLE>
<CAPTION>
                       Three Months Ended    Six Months Ended
                      __________________     ________________
<S>                           <C>                  <C>
June 30, 2006               -13.2%                 3.0%
June 30, 2005                17.7%                17.5%

</TABLE>

The effective tax rate for Union National is below the statutory
rate due to tax-exempt earnings on investments, loans and
bank-owned life insurance and the impact of tax credits. The
decrease in the 2006 effective tax rate resulted primarily from
higher interest income from tax-exempt investment securities and
loans as a percentage of pre-tax income. During the second
quarter of 2006, tax-exempt income exceeded book pre-tax income,
resulting in a credit to income tax expense.  As of June 30,
2006, Union National had a net deferred tax asset of $2,483,000.
The realization of deferred tax assets is dependent on future
earnings of Union National.  Management currently anticipates
future earnings will be adequate to utilize deferred tax assets.

<PAGE>

Financial Condition
___________________
Loan Quality and Credit Risk

Other than as described herein, management does not believe
there are any trends, events or uncertainties that are
reasonably expected to have a material impact on future results
of operations, liquidity or capital resources.  Further, based
on known information, management believes that the effects of
current and past economic conditions and other unfavorable
business conditions may impact certain borrowers' abilities to
comply with their repayment terms.  For certain commercial
loans, management has determined that it is probable that all
interest and principal payments due according to the contractual
terms of the loan agreements will not be collected.  These loans
are considered to be impaired as defined by current accounting
principles generally accepted in the United States of America
("GAAP").  At June 30, 2006, the recorded investment in loans
that are considered to be impaired under GAAP was $3,843,000 as
compared to $3,270,000 at December 31, 2005.  The increase is
the result of the identification of one additional impaired
commercial loan, which is well-secured with real estate and is
expected to be current before the end of 2006.  This was
partially offset by charge-offs and payments made by the
borrowers on certain commercial loans that were identified as
impaired loans at December 31, 2005.

The measure of impairment is primarily based on the fair value
of collateral securing these loans, which is primarily real
estate and equipment.  The related allowance for loan losses on
the above impaired commercial loans amounted to $141,000 at June
30, 2006, and $251,000 at December 31, 2005.  Management
currently believes that probable losses on these loans have
already been provided for in the allowance for loan losses.  As
of June 30, 2006, impaired loans with balances of $1,045,000
were included with total nonperforming loans detailed below, and
at December 31, 2005 impaired loans with balances of $745,000
were nonperforming.  Nonperforming loans below include consumer
and residential mortgage loans which are evaluated collectively
for impairment and other commercial loans that are not
considered impaired.  In addition, under Union National's
current internal risk rating system loans with a rating of
"substandard" that were not nonperforming or impaired amounted
to $2,469,000 at June 30, 2006, and $0 at December 31, 2005.
The aforementioned substandard loans as of June 30, 2006
consisted of two commercial credits, both of which are expected
to continue to service their debt obligations and both of which
are well-secured, primarily with real estate.  Management
considers impaired and substandard loans to be potential problem
loans and currently expects that an additional amount of these
loans may be classified as nonperforming during the remainder of
2006.  Management has increased its monitoring of these
borrowers' financial strength.

At June 30, 2006, total nonperforming loans amounted to
$1,746,000, or 0.5% of net loans, as compared to a level of
$2,112,000, or 0.7%, at December 31, 2005.  These loans are
essentially collateralized with real estate.  Historically, the
percentage of nonperforming loans to net loans as of December
31, for the previous five-year period was an average of 0.8%.

<TABLE>
Schedule of Nonperforming Assets:
<CAPTION>
(Dollars in thousands)

                                      June 30,    December 31,
                                       2006          2005
                                     _________    ___________
<S>                                     <C>           <C>
Nonaccruing Loans                    $ 1,585       $ 1,814
Accruing Loans - 90 days or more
  past due                               161           298
Restructured Accruing Loans               -             -
                                     _________    ___________
  Total Nonperforming Loans            1,746         2,112
Foreclosed Real Estate                    60            -
                                     _________    ___________
  Total Nonperforming Assets         $ 1,806     $   2,112
                                     =========    ===========


Nonperforming Loans
   as a % of Net Loans                   0.6 %         0.7 %
                                         ===           ===
Allowance for Loan Losses
   as a % of Nonperforming Loans         161 %         127 %
                                         ===           ===
</TABLE>

Allowance for Loan Losses

<PAGE>

The allowance for loan losses is maintained at a level believed
adequate by management to absorb estimated probable loan losses.
Management is responsible for the adequacy of the allowance for
loan losses, which is formally reviewed by management on a
quarterly basis.

The allowance is increased by provisions charged to operating
expense and reduced by net charge-offs.  Management's evaluation
of the adequacy of the allowance is based on Union National's
past loan loss experience, known and inherent risks in the
portfolio, adverse situations that may affect the borrower's
ability to repay (including the timing of future payments), the
estimated value of any underlying collateral, composition of the
loan portfolio, current economic conditions and other relevant
factors.  While management uses available information to make
such evaluations, future adjustments to the allowance may be
necessary if economic conditions differ substantially from the
assumptions used in making the evaluation.  In addition, various
regulatory agencies, as an integral part of their examination
process, review the bank's allowance for loan losses.  Such
agencies may require the bank to recognize additions to the
allowance based on their judgment of information available to
them at the time of their examination.  Management determined
that no adjustment to the allowance for loan losses was
necessary as a result of the Office of the Comptroller of the
Currency's ("OCC") most recent examination.

Management believes, based on information currently available,
that the current allowance for loan losses of $2,817,000 is
adequate to meet potential loan losses.  In addition, management
expects loan charge-offs, net of recoveries for the remainder of
2006 to be less than or comparable to the level of net loan
charge-offs for the same period of 2005.

<TABLE>
Analysis of Allowance for Loan Losses:
<CAPTION>

                            Three Months Ended  Six Months Ended
                                  June 30,          June 30,

(Dollars in thousands)      2006      2005      2006      2005
                           _______   ______    _____     ______
<S>                          <C>       <C>      <C>        <C>
Average Total Loans
  Outstanding
  (Net of Unearned
  Income)               $ 307,768  $ 273,448  $305,075 $269,309
                          ========   =======   =======  =======
Allowance for Loan Losses,
  Beginning of Period   $   2,729  $   2,430  $  2,675 $  2,288
Loans Charged-Off
  During Period               225         14       245       17
Recoveries of Loans
  Previously Charged-Off        6          1        50       22
                          --------   -------   -------  -------
Net Loans Charged-Off
  (Recovered)                 219         13       195       (5)
Addition to Provision for
  Loan Losses
   Charged to Operations      307        144       337      268
                          --------   -------   -------  -------

Allowance for Loan Losses,
   End of Period        $   2,817  $   2,561  $  2,817 $  2,561
                          ========   =======   =======  =======
Ratio of Net Loans
  Charged-Off (Recovered)
  to Average Loans Outstanding
  (Annualized)               0.28%      0.02%     0.13%    0.00%
                          ========   =======   =======  =======
Ratio of Allowance for Loan
  Losses to Net Loans at
  End of Period                                   0.87%    0.91%
                                               =======  =======

</TABLE>

Investment Securities

In addition to the credit risk present in the loan portfolio,
Union National also has credit risk associated with its
investment security holdings. Based on recent national economic
trends and other factors, Union National has increased its
monitoring of its corporate debt securities and changes in their
credit ratings as published by national statistical rating
organizations. As of June 30, 2006, Union National had a total
of 127 debt securities of various types that had aggregated
unrealized losses of $3,562,000 that amounted to 3.24% of the
amortized cost basis of these securities. Except for losses on
corporate securities pertaining to major corporations in the
auto industry, management believes that the unrealized losses
primarily reflect changes in interest rates subsequent to the
acquisition of specific securities. With respect to major auto
industry corporate debt securities, amortized cost totals
$2,036,000 and fair value totals $1,905,000 on four securities
with unrealized losses amounting to $131,000. These losses
primarily represent a decline in credit strength of the
corporations; however, with consideration given to independent
analyst reports, management believes that these corporations
have the ability to service the debt for the foreseeable future
and that all amounts will be collected at

<PAGE>

maturity. Based on management's assessment of the total
investment portfolio at June 30, 2006, Union National did not
hold any security that had a fair value decline that is
currently expected to be other than temporary. Consequently, any
declines in a specific security's fair value below amortized
cost have been provided for in other comprehensive income
(loss). In addition, there are no significant concentrations of
investments (greater than 10% of stockholders' equity) in any
individual security issuer.

Liquidity

Union National's objective is to maintain adequate liquidity to
fund needs at a reasonable cost and to provide contingency plans
to meet unanticipated funding needs or a loss of funding
sources, while minimizing interest rate risk.  Adequate
liquidity provides resources for credit needs of borrowers, for
depositor withdrawals and for funding corporate operations.
Sources of liquidity are as follows:
      *  proceeds from the sale or maturity of investment
         securities;
      *  overnight correspondent bank borrowings on various
         credit lines and borrowing capacity available from the
         FHLB;
      *  acquisition of brokered certificates of deposit (CDs)
         and CDs issued through the CDARS program as discussed
         below;
      *  payments on loans and mortgage-backed securities; and
      *  a growing core deposit base.

Management believes that its core deposits are fairly stable
even in periods of changing interest rates.  Liquidity
management is governed by policies and measured on a quarterly
basis.  Liquidity generally remains stable and exceeds Union
National's minimum defined levels.  At June 30, 2006, the bank's
total risk-based capital ratio was 9.6%, which was below the
regulatory requirement of 10.0% to be designated a
well-capitalized bank.  The issuance of $6,000,000 of additional
junior subordinated debentures on July 28, 2006 raised the
bank's risk-based capital ratio to approximately 11.0%, which
exceeds the 10.0% level required for designation as a
well-capitalized bank.  See further discussion regarding the
temporary effect on the bank's funding resources under
"Outlook", above.

There are no known trends, except the anticipated loan and
deposit growth and expansion plans previously discussed in the
Results of Operations section, or any known demands,
commitments, events or uncertainties that will result in, or
that are reasonably likely to result in, liquidity increasing or
decreasing in any material way.  The expected future asset
growth resulting from the implementation of Union National's
strategic initiatives as described above may require additional
capital resources in 2006 or future years.  Union National is
analyzing various capital-enhancing options including but not
limited to issuance of common stock; however, no option has been
chosen as of the date of this report.

Membership in the FHLB provides the bank with additional
liquidity alternatives such as short- or long-term funding on
fixed- or variable-rate terms.  As of June 30, 2006, the bank
had outstanding long-term FHLB advances totaling $119,495,000
from its available credit of $181,683,000 at the FHLB.  This
compares to short-term advances of $10,000,000, long-term
advances of $105,815,000, and $3,000,000 outstanding under a
$15,000,000 line of credit as of December 31, 2005; and
short-term advances of $2,180,000 and long-term advances of
$89,017,000 as of June 30, 2005.  The long-term advances have
maturities that range from July 2006 to December 2013.  As of
June 30, 2006, advances of $33,020,000 are due in the next
twelve months and advances of $30,000,000 are currently
convertible by the FHLB on a quarterly basis, depending on
current interest rate levels.  The FHLB's convertible fixed-rate
advances allow the FHLB the periodic option to convert to a
LIBOR adjustable-rate advance.  Upon the FHLB's conversion, the
bank has the option to repay the respective advances in full.
See section on Market Risk - Interest Rate Risk for further
analysis of these advances.

Union National also obtains funding through the use of brokered
CDs, which are obtained through various sources where Union
National bids for these funds.  As of June 30, 2006 and December
31, 2005, Union National had $30,140,000 and $26,123,000,
respectively, in brokered CDs outstanding.  Union National's
policy limit for FHLB advances and certain brokered CDs is 40%
of total assets.  As of June 30, 2006 and December 31, 2005, the
ratio of aggregated FHLB advances and brokered CDs to total
assets was 29.9% and 30.7%, respectively.

Off-Balance Sheet Commitments

<PAGE>

Union National is party to financial instruments with
off-balance sheet risk in the normal course of business to meet
the financing needs of its customers.  These financial
instruments include commitments to extend credit and standby
letters of credit.  Total commitments to extend credit amounted
to $145,934,000 at June 30, 2006 as compared to $136,459,000 at
December 31, 2005.  Total standby letters of credit amounted to
$7,165,000 at June 30, 2006 as compared to $4,950,000 at
December 31, 2005.  In addition, Union National, in the conduct
of business operations, routinely enters into contracts for
services. These contracts may require payment for services to be
provided in the future and may also contain penalty clauses for
the early termination of the contracts.  There has been no
material change in such contracts since December 31, 2005.

Stockholders' Equity

Union National and the bank maintain capital ratios that are
well above the minimum total capital levels required by federal
regulatory authorities.  As discussed above under "Results of
Operations", 2006 initiatives that have impacted capital
resources of Union National include two new branch office
locations and the new corporate office center.  Since the second
Gold Cafe is a leased facility, the capital requirements for the
remainder of 2006 are expected to be limited to the investment
in furniture and equipment, currently expected to be
approximately $350,000, and the lease payments, additional
staff, and operating costs associated with the office.

At June 30, 2006, the bank's total risk-based capital ratio was
9.6%, which was below the regulatory requirement of 10.0% to be
designated a well-capitalized bank.  The issuance of $6,000,000
of additional junior subordinated debentures on July 28, 2006
increased the bank's risk-based capital ratio to approximately
11.0%, which exceeds the 10.0% level required for designation as
a well-capitalized bank.  See further discussion regarding the
temporary effect on the bank's funding resources under
"Outlook", above.  The expected future asset growth resulting
from the implementation of Union National's strategic
initiatives as described in the "Outlook" section above may
require additional capital resources in 2006 or future years.
Union National is analyzing various capital-enhancing options
including but not limited to issuance of common stock; however,
no option has been chosen as of the date of this report.

Union National and the bank are subject to various regulatory
capital requirements administered by the federal banking
agencies.  Failure to meet the minimum capital requirements can
initiate certain mandatory and possibly additional discretionary
actions by regulators that, if undertaken, could have a direct
material effect on Union National's financial statements.  Under
capital adequacy guidelines and the regulatory framework for
prompt corrective action, Union National and the bank must meet
specific capital guidelines that involve quantitative measures
of their assets, liabilities and certain off-balance sheet items
as calculated under regulatory accounting practices.  The
capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk
weightings and other factors.

Quantitative measures established by regulation to ensure
capital adequacy require Union National and the bank to maintain
minimum amounts and ratios (set forth below) of Tier 1 capital
to average assets and of total capital (as defined in the
regulations) to risk-weighted assets. Except for the temporary
decline in the bank's risk-based capital designation, which was
remedied on July 28, 2006 as described above, management
believes, as of June 30, 2006, that Union National and the bank
meet all capital adequacy requirements to which they are
subject.

Union National and the bank maintained the following regulatory
capital levels and leverage and risk-based capital ratios as of:

<TABLE>
<CAPTION>
(Dollars in thousands)
                          June 30, 2006     December 31, 2005
                          Amount     %         Amount     %
                          ______________    __________________
<S>                         <C>      <C>        <C>       <C>
Union National
  Financial Corporation
Leverage Ratio:
    Tier I Capital to
    Average Total Assets $ 37,512   7.84%     $ 36,457   8.09%
    Minimum Required for
    Capital Adequacy
    Purposes               19,139   4.00        18,021   4.00
Risk-based Capital Ratios:
    Tier I Capital Ratio -
    Actual                 37,512   9.01        36,457   9.70
    Minimum Required for
    Capital Adequacy
    Purposes               16,647   4.00        15,032   4.00
    Total Capital Ratio -
    Actual                 42,001  10.09        41,289  10.99
    Minimum Required for
    Capital Adequacy
    Purposes               33,294   8.00        30,064   8.00

Union National Community Bank
Leverage Ratio:
    Tier I Capital to
    Average Total Assets $ 37,037   7.76%     $ 36,398   8.10%
    Minimum Required for
    Capital Adequacy
    Purposes               19,091   4.00        17,965   4.00
    To Be Well-Capitalized
    Under Prompt Corrective
    Action Provisions      23,864   5.00        22,456   5.00

Risk-based Capital Ratios:
    Tier I Capital Ratio -
    Actual                 37,037   8.92        36,398   9.71
    Minimum Required for
    Capital Adequacy
    Purposes               16,611   4.00        14,992   4.00
    To Be Well-Capitalized
    Under Prompt Corrective
    Action Provisions      24,917   6.00        22,488   6.00

    Total Capital Ratio -
    Actual                 39,854   9.60        39,073  10.43
    Minimum Required for
    Capital Adequacy
    Purposes               33,223   8.00        29,984   8.00
    To Be Well-Capitalized
    Under Prompt Corrective
    Action Provisions      41,529  10.00        37,480  10.00

</TABLE>

Additionally, banking regulations limit the amount of
investments, loans, extensions of credit and advances the bank
can make to Union National at any time to 10% of the bank's
total regulatory capital. At June 30, 2006, this limitation
amounted to approximately $3,985,000. These regulations also
require that any such investment, loan, extension of credit or
advance be secured by securities having a market value in excess
of the amount thereof.

Included in Tier 1 regulatory capital of Union National
Financial Corporation detailed above is $9,412,000 of trust
capital securities issued through Union National Capital Trust I
and Union National Capital Trust II, wholly-owned subsidiaries
of Union National.  The balance of the trust capital securities,
$1,588,000, is included in Tier II regulatory capital above.
These securities would become callable if the Federal Reserve
makes a determination that trust capital securities can no
longer be considered in regulatory capital.

Regulatory Activity
___________________
From time to time, various types of federal and state
legislation have been proposed that could result in additional
regulation of, and restrictions on, the business of Union
National and the bank.  As a consequence of the extensive
regulation of commercial banking activities in the United
States, Union National's and the bank's business is particularly
susceptible to being affected by federal and state legislation
and regulations that may increase the cost of doing business.
Specifically, Union National is susceptible to changes in tax
law that may increase the cost of doing business or impact Union
National's ability to realize the value of deferred tax assets.

The Sarbanes-Oxley Act, enacted in July 2002, represents a
comprehensive revision of laws affecting corporate governance,
accounting obligations and corporate reporting.  Many of the
provisions of this act have already been implemented by Union
National and Union National will need to comply with the
provisions of Section 404 of the Sarbanes-Oxley Act during 2007.
In accordance with Section 404, Union National will be required
to report on its internal control over financial reporting as of
December 31, 2007.  To allow for proper reporting on the
internal control over financial reporting, Union National will
need to identify, document and test key controls over the
financial reporting process.  There may be significant external
and internal costs associated with complying with the provisions
of Section 404. The full impact of the Sarbanes-Oxley Act and
the increased costs related to Union National's compliance are
still uncertain and evolving.

We cannot predict what other legislation might be enacted or
what regulations might be adopted, or if enacted or adopted, the
effect thereof on our operations.  Other than the cost of the
compliance with the Sarbanes-Oxley Act described above,
management is not aware of any current specific recommendations
by regulatory authorities or proposed legislation, which if
implemented, would have a material adverse effect upon
liquidity, capital resources or results of operations.

<PAGE>

However, the general cost of compliance with numerous federal
and state laws and regulations does have, and in the future may
have, a negative impact on Union National's results of
operations.

Further, the business of Union National is affected by the state
of the financial services industry in general. The bank is
routinely examined by the OCC and no material adverse impact is
anticipated on current or future operations and financial
position as a result of this process. The last Community
Reinvestment Act performance evaluation by the OCC resulted in a
"satisfactory" rating of the bank's record of meeting the credit
needs of its entire community.


Item 3. Quantitative and Qualitative Disclosures About Market
Risk

Market Risk - Interest Rate Risk
________________________________
As a financial institution, Union National's primary component
of market risk is interest rate volatility.  Fluctuations in
interest rates will ultimately impact the level of income and
expense recorded on a large portion of Union National's assets
and liabilities.  The nature of Union National's current
operations is such that Union National is not subject to foreign
currency exchange or commodity price risk.  Union National does
not own any trading assets.

The objectives of interest rate risk management are to maintain
or increase net interest income over a broad range of market
interest rate movements.  The Asset and Liability Management
Committee is responsible for managing interest rate risk using
policies approved by Union National's Board of Directors.  Union
National manages interest rate risk by changing the mix or
repricing characteristics of its investment securities portfolio
and borrowings from the FHLB and by the promotion or development
of specific loan and deposit products, as well as the use of
derivatives in a collar transaction to mitigate the impact of
changing rates.  Union National retains an outside consulting
group to assist in monitoring its interest rate risk using a net
interest income simulation model on a quarterly basis.  The
simulation model measures the sensitivity of future net interest
income to hypothetical changes in market interest rates.

In an effort to assess market risk, Union National utilizes a
simulation model to determine the effect of gradual increases or
decreases in market interest rates on net interest income and
net income.  The aforementioned assumptions are revised based on
defined scenarios of assumed speed and direction changes of
market interest rates.  These assumptions are inherently
uncertain due to the timing, magnitude and frequency of rate
changes and changes in market conditions, as well as management
strategies, among other factors.  Because it is difficult to
accurately quantify into assumptions the reaction of depositors
and borrowers to market interest rate changes, the actual net
interest income and net income results may differ from simulated
results.  While assumptions are developed based upon current
economic and local market conditions, management cannot make any
assurances as to the predictive nature of these assumptions.

The simulation model assumes a hypothetical gradual shift in
market interest rates over a twelve-month period.  This is based
on a review of historical changes in market interest rates and
the level and curve of current interest rates.  The simulated
results represent the hypothetical effects to Union National's
net interest income and net income.  Projections for loan and
deposit growth are ignored in the simulation model.  The
simulation model includes all of Union National's earning assets
and interest-bearing liabilities and assumes a parallel and
prorated shift in interest rates over a twelve-month period.
The results of the simulation model could change significantly
if there was not a parallel shift in interest rates, therefore
reflecting a change in the assumed shape of the interest rate
yield curve.

The simulation model currently indicates that a hypothetical
two-percent general decline in prevailing market interest rates
over a one-year period would cause the bank's net interest
income over the next twelve months to decline less than 2% as
compared to the constant rate scenario.  In addition, a
hypothetical two-percent general rise in rates would have no
impact on the bank's net interest income over the next twelve
months.  These computations do not contemplate any actions
management or the Asset Liability Management Committee could
undertake in response to changes in market conditions or market
interest rates.

Union National is managing its interest rate risk position in
2006 by the following:

      *  increasing its use of adjustable- and floating-rate
         loans for new or refinanced commercial and agricultural
         loans;
      *  use of derivatives including a collar transaction and
       an interest rate cap arrangement to mitigate the impact
<PAGE>

         of fluctuations in rates;
      *  repositioning of its investment security portfolio into
         certain types of mortgage-backed and asset-backed
         securities to better prepare for any future increase in
         interest rates;
      *  managing and expanding the bank's core deposit base
         including deposits obtained in the bank's commercial
         cash management programs and premium money market
         accounts; and
      *  adding to or restructuring of fixed-rate and
         floating-rate advances from the FHLB or brokered CDs.

The above strategies and actions impact interest rate risk and
are all included in Union National's quarterly simulation models
in order to determine future asset and liability management
strategies.  See the related discussions in the section on Net
Interest Income/Funding Sources.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures
________________________________________________
Union National maintains controls and procedures designed to
ensure that information required to be disclosed in the reports
that the company files or submits under the Securities Exchange
Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the rules and forms of the
Securities and Exchange Commission. Based upon their evaluation
of those controls and procedures as of June 30, 2006, Union
National's Chief Executive Officer and Chief Financial Officer
concluded that the disclosure controls and procedures were
adequate.

Changes in Internal Controls
____________________________
During the six months ended June 30, 2006, there were no changes
in our internal controls over financial reporting that have
materially affected, or are reasonable likely to materially
affect, these controls.

<PAGE>
                  PART II - OTHER INFORMATION

Item 1. Legal Proceedings

Management is not aware of any litigation that would have a
material adverse effect on the consolidated financial position
of Union National.  There are no proceedings pending other than
the ordinary routine litigation incident to the business of
Union National and its subsidiary, Union National Community
Bank.  In addition, no material proceedings are pending or are
known to be threatened or contemplated against Union National
and the bank by government authorities.

Item 1A.  Risk Factors

During the six months ended June 30, 2006 and through the date
of this report, there have been no known material changes to the
risk factors described in our Annual Report on Form 10-K for the
year ended December 31, 2005.

Item 2.  Unregistered Sales of Equity Securities and Use of
Proceeds
<TABLE>

                ISSUER PURCHASES OF EQUITY SECURITIES
<CAPTION>
                                                      (c)
                                                Total Number of
                                                      Shares
                        (a)                       Purchased as
                       Total          (b)            Part of
                     Number of      Average         Publicly
                      Shares       Price Paid    Announced Plans
     Period          Purchased      per Share      or Programs*
________________________________________________________________
<S>                     <C>            <C>            <C>
April 1, 2006 to
April 30, 2006          515           $19.81          515

May 1, 2006 to
May 31, 2006            633           $20.01          633

June 1, 2006 to
June 30, 2006         1,001           $20.13        1,001

Total                 2,149           $20.02        2,149

                    ========                       =======

    *On April 21, 2005, the Board of Directors of Union National
authorized and approved a plan to purchase up to 100,000 shares
of its outstanding common stock in open market or privately
negotiated transactions.

                                         (d)
                                    Maximum Number
                                    of Shares that
                                      May Yet Be
                                      Purchased
                                      Under the
                                       Plans or
     Period                            Programs*
________________________________________________________________
<S>                                      <C>

April 1, 2006 to
April 30, 2006                          55,102

May 1, 2006 to
May 31, 2006                            54,469

June 1, 2006 to
June 30, 2006                           53,468

Total

*On April 21, 2005, the Board of Directors of Union National
authorized and approved a plan to purchase up to 100,000 shares
of its outstanding common stock in open market or privately
negotiated transactions.

</TABLE>

Item 3.  Defaults Upon Senior Securities

         None.

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

         (a)  The Annual Meeting of Shareholders was held at
              10:00 a.m. on April 26, 2006, at The Eden Resort
              Inn, 222 Eden Road, Lancaster, Pennsylvania,
              17601-4216.

         (b)  -  (c)  The following matters were voted upon:

Four Class A Directors were elected as follows:
<TABLE>
                                    Votes         Votes to
                                     Cast        "Withhold
Re-elected          Term Expires    "For"__       Authority"
__________          ____________    _________    __________
<S>                      <C>           <C>           <C>
Mark D. Gainer           2009        2,034,179      12,902
Darwin A. Nissley        2009        2,044,010       3,071
James R. Godfrey         2009        2,040,495       6,586
Nancy Shaub Colarik      2009        2,041,183       5,898

Directors whose term continued after the meeting:

  Class B Directors
 __________________
Carl R. Hallgren          2007
Lloyd C. Pickell          2007
Michael A. Frey           2007

  Class C Directors
 __________________
Kevin D. Dolan            2008
William E. Eby            2008
Benjamin W. Piersol, Jr.  2008
William M. Nies           2008

</TABLE>

Item 5.  Other Information

     None.

Item 6.  Exhibits:

    a) Exhibits

    Exhibit No. 4.1 - Indenture Dated as of July 28, 2006, Union
    National
    Community Bank, as Issuer; Wilmington Trust Company, as
Trustee;
    Fixed/Floating Rate Junior Subordinated Debentures Due 2021

    Exhibit No. 31.1 - Certification of Principal Executive
    Officer Pursuant to
    Exchange Act Rules 13a-14(a)/15d-14(a) as added by Section
    302 of the Sarbanes-Oxley Act of 2002

    Exhibit No. 31.2 - Certification of Principal Financial
    Officer Pursuant to
    Exchange Act Rules 13a-14(a)/15d-14(a) as added by Section
    302 of the Sarbanes-Oxley Act of 2002

    Exhibit No. 32 - Certification of Principal Executive
    Officer and Principal Financial Officer Pursuant to 18
    U.S.C. Section 1350 as Added by Section 906 of the
    Sarbanes-Oxley Act of 2002

<PAGE>


                          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.

                           Union National Financial Corporation
                                      (Registrant)


                             By  /s/ Mark D. Gainer
                                 ___________________
                                 Mark D. Gainer
                                 Chairman/President/Chief
                          Executive Officer
                                 (Principal Executive Officer)

                                 Date: August 14, 2006



                             By  /s/ Clement M. Hoober
                                 ______________________
                                 Clement M. Hoober
                                 Treasurer/Chief Financial
                                 Officer
                                 (Principal Financial and
                                 Accounting Officer)

                                 Date: August 14, 2006