<PAGE> 1

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549


                                 FORM 10-QSB 

(Mark One)

  X   QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT
----- OF 1934 For the quarterly period ended March 31, 1999

      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 1-5735


                       UNION FINANCIAL BANCSHARES, INC.
                       --------------------------------


Delaware                                                        57-1001177
--------------------------------------------------------------------------------
(Jurisdiction of Incorporation)             (I.R.S. Employer Identification No.)

203 West Main Street, Union, South Carolina                           29379
-------------------------------------------                      ---------------
(Address of Principal Executive Offices)                            (Zip Code)

Registrant's telephone number, including area code (864)429-1864

     Check whether the issuer: (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
               -----      -----

State the number of shares outstanding of each of the issuer's classes of common
stock,  as of the  latest  practicable  date:  The  Corporation  had  issued and
outstanding  1,349,153  shares,  $0.01 par value,  common  stock as of March 31,
1999.



<PAGE> 2



                       UNION FINANCIAL BANCSHARES, INC.


                                    INDEX

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

            Item 1.  Consolidated Financial Statements (unaudited)

            Consolidated Balance Sheets as of March 31, 1999
             and September 30, 1998                                            3

            Consolidated Statements of Income for the three and six months
             ended March 31, 1999 and 1998                                     4

            Consolidated Statements of Cash Flows for the six
             months ended March 31, 1999 and 1998                              5

            Consolidated Statements of Shareholders' Equity for the
            six months ended March 31, 1999 and 1998                           6

            Notes to Consolidated Financial Statements                       7-9

            Item 2.  Management's Discussion and Analysis of
             Financial Condition and Results of Operations                 10-13


PART II.    OTHER INFORMATION                                              14-16
            -----------------

            Signatures                                                        18
















<PAGE> 3
<TABLE>
<CAPTION>


Item 1.    Financial Statements                                                         
UNION FINANCIAL BANCSHARES, INC.                                                                
CONSOLIDATED BALANCE SHEETS                                                             
March 31, 1999 (unaudited) and September 30, 1998

                                                               
                                                                
                                                                     MARCH 31,                 SEPTEMBER 30,
ASSETS                                                                 1999                        1998
                                                               -------------------         --------------------
                                                                           (DOLLARS IN THOUSANDS)
                                                                
<S>                                                            <C>                          <C>  
Cash                                                           $        1,988               $       2,469
Short term interest-bearing deposits                                    3,704                       1,124
                                                                --------------               -------------
Total cash and cash equivalents                                         5,692                       3,593
                                                                --------------               -------------
Investment and mortgage-backed securities:                                                              
  Held to maturity                                                      2,410                       2,699
  Available for sale                                                   36,598                      26,856
                                                                --------------               -------------
Total investment and mortgage-backed securities                        39,008                      29,555
Loans , net                                                             
  Held for sale                                                         9,074                      37,584
  Held for investment                                                 122,665                     104,618
                                                                --------------               -------------      
Total loans receivable, net                                           131,739                     142,202
Office properties and equipment, net                                    4,280                       4,020
Federal Home Loan Bank Stock, at cost                                   1,733                       2,023
Accrued interest receivable                                             1,332                       1,197
Mortgage servicing rights                                               4,103                       3,270
Other assets                                                            4,335                       3,426
                                                                --------------               -------------
TOTAL ASSETS                                                   $      192,222               $     189,286
                                                                ==============               =============  
                                                                
LIABILITIES                                                             
                                                                
Deposit accounts                                               $      146,325               $     129,873
Securities sold under repurchase agreements                             5,559                         895
Advances from the Federal Home Loan Bank and other borrowings          24,569                      41,441
Accrued interest on deposits                                              256                         336
Advances from borrowers for taxes and insurance                           130                         496
Other liabilities                                                          14                         945
                                                                --------------               -------------
TOTAL LIABILITIES                                                     176,853                     173,986
                                                                --------------               -------------
                                                                
SHAREHOLDERS' EQUITY                                                            
                                                                
Serial preferred stock, no par value,                                                           
  authorized - 500,000 shares, issued                                                             
  and outstanding - None                                                    0                           0
Common stock - $0.01 par value,
  authorized - 2,500,000 shares,
  issued and outstanding - 1,349,153 shares at 3/31/99 and 1,278,250
  at 9/30/98                                                               13                          13
Additional paid-in capital                                              4,440                       4,471
Accumulated other comprehensive income                                   (411)                        148
Retained earnings, substantially restricted                            11,327                      10,668
                                                                --------------               -------------
TOTAL SHAREHOLDERS' EQUITY                                             15,369                      15,300
                                                                --------------               -------------
                                                                
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                     $      192,222               $     189,286
                                                                ==============               =============
                                                                
See notes to consolidated financial statements.                                                         

</TABLE>

                                                      3



<PAGE> 4


<TABLE>
<CAPTION>

UNION FINANCIAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS AND SIX MONTHS ENDED MARCH 31, 1999 (UNAUDITED) AND 1998 (UNAUDITED)


                                                                    THREE MONTHS ENDED                       SIX MONTHS ENDED
                                                              MARCH 31,           MARCH 31,           MARCH 31,           MARCH 31,
                                                                1999                1998                1999                1998
                                                         ----------------    ----------------   ----------------    ----------------
                                                                (DOLLARS IN THOUSANDS)                 (DOLLARS IN THOUSANDS)

<S>                                                    <C>                 <C>                 <C>                 <C>             
INTEREST INCOME:
  Loans                                                $          2,631    $          2,908    $          5,569    $          5,800
  Deposits and federal funds sold                                    31                  33                  50                  60
  Mortgage-backed securities                                        391                 133                 747                 255
  Interest and dividends on
   investment securities                                            226                 208                 434                 435
                                                        ----------------    ----------------    ----------------    ----------------
TOTAL INTEREST INCOME                                             3,279               3,282               6,800               6,550
                                                        ----------------    ----------------    ----------------    ----------------

INTEREST EXPENSE:
  Deposit accounts                                                1,454               1,352               2,868               2,656
  Advances from the FHLB and other borrowings                       407                 499                 968               1,006
                                                        ----------------    ----------------    ----------------    ----------------
TOTAL INTEREST EXPENSE                                            1,861               1,851               3,836               3,662
                                                        ----------------    ----------------    ----------------    ----------------

NET INTEREST INCOME                                               1,418               1,431               2,964               2,888
  Provision for loan losses                                          30                  19                  45                  64
                                                        ----------------    ----------------    ----------------    ----------------
NET INTEREST INCOME AFTER
   PROVISION FOR LOAN LOSSES                                      1,388               1,412               2,919               2,824
                                                        ----------------    ----------------    ----------------    ----------------

NON INTEREST INCOME:
  Fees for financial services                                       206                 187                 388                 376
  Loan servicing fees (costs)                                        (3)                (14)                (75)                 (8)
  Net gains on sale of loans                                        231                  99                 374                 174
  Net gains on sale of investments                                    7                   0                   7                   0
                                                        ----------------    ----------------    ----------------    ----------------
TOTAL NON INTEREST INCOME                                           441                 272                 694                 542
                                                        ----------------    ----------------    ----------------    ----------------

NON INTEREST EXPENSE:
  Compensation and employee benefits                                600                 563               1,182               1,118
  Occupancy and equipment                                           252                 235                 535                 459
  Deposit insurance premiums                                         17                  16                  42                  32
  Professional services                                              62                  65                 137                 154
  Real estate operations                                             (3)                  2                   2                   5
  Other                                                             264                 178                 503                 400
                                                        ----------------    ----------------    ----------------    ----------------
TOTAL NON INTEREST EXPENSE                                        1,192               1,059               2,401               2,168
                                                        ----------------    ----------------    ----------------    ----------------

INCOME BEFORE INCOME TAXES                                          637                 625               1,212               1,198
Income tax expense                                                  232                 229                 439                 442
                                                        ----------------    ----------------    ----------------    ----------------
NET INCOME                                             $            405    $            396    $            773    $            756
                                                        ================    ================    ================    ================

BASIC NET INCOME PER COMMON SHARE                      $           0.31    $           0.31                0.59    $           0.60
                                                        ================    ================    ================    ================

DILUTED NET INCOME PER COMMON SHARE                    $           0.29    $           0.29                0.56    $           0.56
                                                        ================    ================    ================    ================

WEIGHTED AVERAGE NUMBER OF
  COMMON SHARES OUTSTANDING

BASIC                                                         1,325,594           1,258,672           1,302,722           1,253,813

DILUTED                                                       1,411,013           1,344,091           1,389,939           1,344,053

See notes to consolidated financial statements.

</TABLE>



                                                                 4




<PAGE> 5


<TABLE>
<CAPTION>

UNION FINANCIAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended March 31, 1999 (unaudited) and 1998 (unaudited)

                                                                                                     Six Months Ended
                                                                                               March 31,              March 31,
                                                                                                 1999                    1998
                                                                                        --------------------    -------------------
                                                                                                       (IN THOUSANDS)

OPERATING ACTIVITIES:

<S>                                                                                           <C>                     <C> 
Net income                                                                                       $773                   $756
Adjustments to reconcile net income to
  net cash provided by operating activities:
  Provision for loan losses                                                                        45                     65
  Amortization of intangibles                                                                     115                    106
  Depreciation expense                                                                            163                     91
  Recognition of deferred income, net of costs                                                    (55)                    (8)
  Deferral of fee income, net of costs                                                             18                    179
  Loans originated for sale                                                                   (81,611)               (62,782)
  Sale of loans                                                                                86,529                 62,782
  (Gain) loss on sale of loans                                                                   (381)                  (174)
  Changes in operating assets and liabilities:                                                             
   Decrease (increase) in accrued interest receivable                                            (135)                   144
   Decrease (increase)  in other assets                                                           164                   (647)
   Decrease (increase)  in Deposit Premium Intangible                                          (1,073)                     0
   Increase (decrease) in other liabilities                                                    (1,297)                  (246)
   Increase (decrease) in accrued interest payable                                                (80)                   (17)
                                                                                  --------------------    -------------------

Net cash provided by (used by) operating activities                                             3,175                    249
                                                                                  --------------------    -------------------

INVESTING ACTIVITIES:

Purchase of investment and mortgage-backed securities:
   Available for sale                                                                         (18,930)                (4,728)
Proceeds from sale of investment and mortgage-
    backed securities                                                                           2,090                      0
Proceeds from maturity of investment and mortgage-
    backed securities:
   Available for sale                                                                           4,657                  6,724
Principal repayments on mortgage-backed securities:
   Held to maturity                                                                               165                     40
   Available for sale                                                                           2,565                    783
Loan originations                                                                             (20,056)               (37,707)
Principal repayments of loans                                                                  25,296                 18,947
Proceeds from sale of real estate acquired in settlement of loans                                   4                     22
Purchase of mortgage servicing rights                                                            (833)                (1,335)
Purchase of FHLB stock                                                                              0                     (3)
Redemption of FHLB stock                                                                          290                      0
Purchase of office properties and equipment                                                      (423)                  (275)
                                                                                  --------------------    -------------------

Net cash provided by (used by) investing activities                                           ($5,175)              ($17,532)
                                                                                  --------------------    -------------------

FINANCING ACTIVITIES:

Proceeds from the exercise of stock options                                                         0                     39
Proceeds from the dividend reinvestment plan                                                       97                    169
Dividends paid in cash ($0.093  per share - 1999
  and $0.093 per share - 1998)                                                                   (242)                  (198)
Proceeds from FHLB advances and other borrowings                                                    0                 59,100
Repayment of FHLB advances and other borrowings                                               (16,872)               (54,937)
Increase (Decrease) in securities sold under repurchase agreements                              4,664                    802
Acquired deposits from purchased branch                                                        12,622                      0
Increase (Decrease) in deposit accounts                                                         3,830                  9,385
                                                                                  --------------------    -------------------

Net cash (used by) provided by financing activities                                             4,099                 14,360
                                                                                  --------------------    -------------------

NET  DECREASE \ INCREASE IN CASH
   AND CASH EQUIVALENTS                                                                         2,099                 (2,923)

CASH AND CASH EQUIVALENTS
   AT BEGINNING OF PERIOD                                                                       3,593                  7,821
                                                                                  --------------------    -------------------

CASH AND CASH EQUIVALENTS
   AT END OF PERIOD                                                                            $5,692                 $4,898
                                                                                  ====================    ===================

SUPPLEMENTAL DISCLOSURES:

Cash paid for:
  Income taxes                                                                                   $803                   $240
  Interest                                                                                      3,916                  2,673

Non-cash transactions:
  Loans foreclosed                                                                                  0                      0

See notes to consolidated financial statements.

</TABLE>


                                                              5






<PAGE> 6
<TABLE>
<CAPTION>


                                                UNION FINANCIAL BANCSHARES, INC.
                                         CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                      SIX MONTHS ENDED MARCH 31, 1999 AND 1998 (UNAUDITED)

                                                                                       Retained        Accumulated
                                                                      Additional       Earnings           Other           Total
                                                 Common Stock           Paid-in     Substantially    Comprehensive    Shareholders'
                                               Shares      Amount       Capital       Restricted          Income          Equity
                                               ------      ------       -------       ----------          ------          ------
                                                                          (In Thousands, Except Share Data)

<S>                                          <C>             <C>        <C>          <C>                  <C>           <C>    
BALANCE AT SEPTEMBER 30, 1997                1,241,550       $12        $3,989       $ 9,589              ($63)         $13,527

Net income                                                                               756                                756

  Other comprehensive income
    Unrealized gains on securities:
       Unrealized holding gains arising
        during period                                                                                       (50)
                                                                                                             --
    Other comprehensive income                                                                              (50)            (50)
                                                                                                                             --
  Comprehensive income                                                                                                      706

Options exercised                                6,120                      27                                               27

Dividend  reinvestment plan contributions       17,977         0           231                                              231

Cash dividend ($.09 per share)                                                          (198)                              (198)

                                         -------------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 1998                   1,265,647         12         4,247        10,147               (113)         14,293
                                         ===========================================================================================

BALANCE AT SEPTEMBER 30, 1998               1,278,250         13         4,475        10,664                148           5,300

Net income                                                                               773                                773

  Other comprehensive income
    Unrealized losses on securities:
       Unrealized holding losses arising
        during period                                                                                     (559)
                                                                                                           ---
    Other comprehensive income                                                                            (559)           (559)
                                                                                                                            ---
  Comprehensive income                                                                                                      214

Dividend  reinvestment plan contributions      6,813           0            97                                               97 

Five percent stock dividend                   64,090

Cash dividend ($.093 per share)                                                         (242)                              (242)
                                         -------------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 1999                  1,349,153         $13        $4,572       $11,195             ($411)         $15,369
                                         ===========================================================================================
</TABLE>



                                                                6

<PAGE> 7

                       UNION FINANCIAL BANCSHARES, INC.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)

1.    Presentation of Consolidated Financial Statements
      -------------------------------------------------

      The  accompanying  unaudited  consolidated  financial  statements of Union
      Financial Bancshares, Inc. (the "Corporation") were prepared in accordance
      with  instructions  for Form  10-QSB  and,  therefore,  do not include all
      disclosures   necessary  for  a  complete   presentation  of  consolidated
      financial condition,  results of operations,  and cash flows in conformity
      with generally accepted accounting  principles.  However,  all adjustments
      which  are,  in  the  opinion  of  management,   necessary  for  the  fair
      presentation of the interim  consolidated  financial  statements have been
      included.  All such adjustments are of a normal and recurring nature.  The
      consolidated  financial  statements include the Corporation's wholly owned
      subsidiary,   Provident  Community  Bank  (the  "Bank").  The  results  of
      operations  for the six months  ended March 31,  1999 are not  necessarily
      indicative  of the  results  which may be expected  for the entire  fiscal
      year.  The  consolidated  balance  sheet as of September 30, 1998 has been
      derived from the Company's audited financial  statements  presented in the
      annual  report  to  shareholders.  Certain  amounts  in the  prior  year's
      financial  statements have been  reclassified to conform with current year
      classifications.

      In March 1998, the Accounting  Standards  Executive Committee of the AICPA
      issued  Statement of Position 98-1,  "Accounting  for the Cost of Computer
      Software  Developed  or  Obtained  for  Internal  Use" (SOP  98-1),  which
      provided guidance as to when it is or is not appropriate to capitalize the
      cost of software  developed  or obtained  for  internal  use. SOP 98- 1 is
      effective  for  financial  statements  for fiscal  years  beginning  after
      December 15, 1998 with early adoption encouraged. The Corporation does not
      anticipate  the  adoption  of SOP 98-1 will have a material  effect on its
      financial statements.

      SFAS No.  131,  Disclosure  about  Segments of an  Enterprise  and Related
                      ----------------------------------------------------------
      Information-  This  statement  establishes  standards  for the way  public
      -----------
      enterprises are to report  information about operating  segments in annual
      financial  statements  and requires those  enterprises to report  selected
      information  about operating  segments in interim financial reports issued
      to shareholders.  Statement 131 is effective for financial  statements for
      periods  beginning  after  December  15,  1997.  In the  initial  year  of
      application,  interim  disclosures  will not be needed.  The Company  will
      adopt this standard in its September 30, 1999 financial statements.

      SFAS  No.  132,   Employers'   Disclosures   about   Pensions   and  other
                        --------------------------------------------------------
      Post-Retirement Benefits- This statement deals principally with employers'
      ------------------------
      disclosures about defined benefit plans and other post-retirement  benefit
      plans.  This  statement  is  effective  for the Bank for the  fiscal  year
      beginning October 1, 1998. The adoption of SFAS 132 will not have a impact
      on the  financial  


                                       7

<PAGE> 8



      statements  of the  Corporation  due to the  disclosure requirements only.


      SFAS  No.  133,   Accounting  for  Derivative   Instruments   and  Hedging
                        --------------------------------------------------------
      Activities-This  statement establishes  accounting and reporting standards
      ----------
      for derivative instruments and for hedging activities. It requires that an
      entity  recognize all  derivatives  as either assets or liabilities in the
      balance sheet and measure those  instruments at fair value. The accounting
      for changes in the fair value of a derivative  depends on the intended use
      of the derivative.  The statement is effective for the Bank for the fiscal
      year beginning October 1, 1999 and may not be applied retroactively.

      SFAS No. 134, Accounting for Mortgage-Backed Securities Retained after the
                    ------------------------------------------------------------
      Securitization  of  Mortgage  Loans  Held for Sale by a  Mortgage  Banking
      --------------------------------------------------------------------------
      Enterprise-This  statement is effective  for the first  quarter  beginning
      ----------
      after December 15, 1998. This statement conforms the subsequent accounting
      for securities  retained after the  securitization  of mortgage loans by a
      mortgage banking enterprise with the subsequent  accounting for securities
      retained  after  the  securitization  of other  types of  assets  by a non
      mortgage banking enterprise. The adoption of this standard is not expected
      to have a material effect on the Bank's financial statements.

2.    Income Per Share
      ----------------

      Effective January 29, 1998, the Corporation declared a three-for-two stock
      split in the form of a 50%  stock  dividend  of the  Corporation's  common
      stock. The weighted average number of shares and all other share data have
      been restated for all periods presented to reflect this stock split.

      Effective  January 31, 1999, the Corporation  declared a stock dividend of
      5% per share on common stock.  The weighted  average  number of shares for
      the current period reflect this dividend.

      Income per share amounts for the three and months ended March 31, 1999 and
      1998 were computed  based on the weighted  average number of common shares
      outstanding  adjusted for the dilutive effect of outstanding  common stock
      options during the periods.

3.    Assets Pledged
      --------------

      Approximately  $13,532,000 and $10,383,000 of debt securities at March 31,
      1999 and  September  30, 1998,  respectively,  were pledged by the Bank as
      collateral  to secure  deposits  of the State of South  Carolina,  Laurens
      County and certain  other  liabilities.  The Bank pledges as collateral to
      Federal Home Loan Bank  advances  the Bank's  Federal Home Loan Bank stock
      and has entered into a blanket collateral  agreement with the Federal Home
      Loan  Bank  whereby  the  Bank  maintains,  free  of  other  encumbrances,
      qualifying mortgages (as defined) with unpaid principal balances equal to,
      when  discounted at 75% of the unpaid  principal  balances,  100% of total
      advances.

                                       8

<PAGE> 9


4.    Contingencies and Loan Commitments
      ----------------------------------

      The Bank is a party to financial instruments with  off-balance-sheet  risk
      in the  normal  course  of  business  to meet the  financing  needs of its
      customers.  These instruments  expose the Bank to credit risk in excess of
      the amount recognized in the balance sheet.

      The Bank's exposure to credit loss in the event of  nonperformance  by the
      other party to the financial  instrument for  commitments to extend credit
      is represented by the contractual  amount of those  instruments.  The Bank
      uses the same  credit  policies  in  making  commitments  and  conditional
      obligations  as it does for  on-balance-sheet  instruments.  Total  credit
      exposure at March 31, 1999 related to these items is summarized below:

<TABLE>
<CAPTION>

      Loan Commitments:                                    Contract Amount
      ----------------                                     ---------------
            <S>                                             <C>        
            Approved loan commitments                       $ 1,346,000
            Unadvanced portions of loans                      6,104,000
                                                            -----------
            Total loan commitments                          $ 7,450,000
                                                            -----------
</TABLE>

      Loan  commitments to extend credit are agreements to lend to a customer as
      long  as  there  is no  violation  of  any  condition  established  in the
      contract.  Loan commitments generally have fixed expiration dates or other
      termination  clauses and may require  payment of a fee. The Bank evaluates
      each customer's  creditworthiness  on a case-by-case  basis. The amount of
      collateral  obtained  upon  extension  of credit is based on  management's
      credit  evaluation  of the counter  party.  Collateral  held is  primarily
      residential property. Interest rates on loan commitments are a combination
      of fixed and variable.

      Commitments  outstanding at March 31, 1999 consist of fixed and adjustable
      rate loans of  approximately  $7,450,000  at rates  ranging from 7% to 9%.
      Commitments to originate loans generally expire within 30 to 60 days.

      Commitments  to fund credit lines  (principally  variable  rate,  consumer
      lines   secured  by  real  estate  and   overdraft   protection)   totaled
      approximately  $16,160,000.  Of these lines, the outstanding loan balances
      totaled approximately  $10,056,000.  The Bank also has commitments to fund
      warehouse lines of credit for various mortgage banking companies  totaling
      $750,000,   which  had  an  outstanding  balance  at  March  31,  1999  of
      approximately  $298,000.  At March 31, 1999, the Bank had loan commitments
      to sell  $21,500,000  in fixed rate  residential  loans which had not been
      closed to Freddie Mac for the months of April-June, 1999.

      On February 8, 1999, the  Corporation,  through its subsidiary,  Provident
      Community Bank,  assumed certain  liabilities of the CCB/American  Federal
      Union,  South Carolina banking center.  Provident  Community Bank acquired
      $12,622,000 in deposit  liabilities in the transaction.  The total premium
      paid for the acquisition was  approximately  $1,073,000.  The premium paid
      will be amortized using  straight-line  amortization  over a period of ten
      years.



                                       9

<PAGE> 10



ITEM 2.     MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF  FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS

      Financial Condition
      -------------------

      At March 31, 1999 total assets of the Corporation  increased $2,936,000 or
      1.55% to $192,222,000 from $189,286,000 at September 30, 1998. Investments
      and  mortgage-backed  securities  increased  approximately  $9,453,000  or
      31.98%  during the six months ended March 31,  1999.  The increase was due
      primarily to increased loan  prepayments of fixed-rate loans that resulted
      in a $10,463,000  reduction in loans.  This  decrease in loans  receivable
      funded  the  increase  in  investments  and  mortgage-backed   securities.
      Deposits  increased  $16,452,000  or  12.67% to  $146,325,000  for the six
      months ended March 31,  1999.  Approximately  $12,622,000  or 76.7% of the
      deposit increase was a result of the CCB/American  Federal branch purchase
      that was  consummated  on February  8, 1999.  The  remaining  growth was a
      result of various deposit  promotion  programs with continued  emphasis on
      core deposits.  These funds were used to repay  borrowings which decreased
      $16,872,000   or  40.71%  from   $41,441,000  at  September  30,  1998  to
      $24,569,000  at March 31,  1999.  At March 31,  1999,  mortgage  servicing
      rights  increased  $833,000 or 25.47% to  $4,103,000  from  $3,270,000  at
      September 30, 1998. In conjunction with this increase,  loans serviced for
      others  increased from  $164,396,000 at September 30, 1998 to $234,214,000
      at March 31, 1999.

      Liquidity
      ---------

      Liquidity  is the ability to meet demand for loan  disbursements,  deposit
      withdrawals,  repayment of debt, payment of interest on deposits and other
      operating expenses. The primary sources of liquidity are savings deposits,
      loan repayments, borrowings and interest payments.

      The OTS  imposes  a  minimum  level  of  liquidity  on the  Bank  which is
      currently 4% of  withdrawable  deposits plus  short-term  borrowings.  The
      liquidity level of the Bank as measured for regulatory purposes was 15.36%
      as of March 31, 1999. As in the past, management expects that the Bank can
      meet its obligations to fund outstanding mortgage loan commitments,  which
      were approximately  $1,346,000, as described in Note 4 to the Consolidated
      Financial  Statements,  and other loan  commitments  as of March 31, 1999,
      while maintaining liquidity in excess of regulatory requirements.

      Capital Resources
      -----------------

      The capital  requirement  of the Bank  consists of three  components:  (1)
      tangible  capital,  (2) core capital and (3) risk based capital.  Tangible
      capital must equal or exceed 1.5% of adjusted  total assets.  Core capital
      must be a minimum of 4% of adjusted  total  assets and risk based  capital
      must be a minimum of 8% of risk weighted assets.


                                         10


<PAGE> 11

      As of March 31, 1999, the Bank's  capital  position,  as calculated  under
      regulatory  guidelines,  exceeds  these  minimum  requirements  as follows
      (dollars in thousands):
<TABLE>
<CAPTION>

                                                         REQUIREMENT     ACTUAL       EXCESS
----------------------------------------------------------------------------------------------

      <S>                                                   <C>         <C>           <C>   
      Tangible capital                                      $2,855      $12,752       $9,897
      Tangible capital to adjusted total assets               1.50%        6.70%        5.20%

      Core capital                                          $7,614      $12,752       $5,138
      Core capital to adjusted total assets                   4.00%        6.70%       2.70%

      Risk based capital                                    $8,464      $13,594       $5,130
      Risk based capital to risk weighted assets              8.00%       12.85%        4.85%

</TABLE>

      The reported capital requirements are based on information reported in the
      OTS March 31, 1999 quarterly thrift financial report.

      RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED MARCH 31, 1999 AND 1998
      ----------------------------------------------------------------------

      General
      -------

      Net income increased $17,000 or 2.20% to $773,000 for the six months ended
      March 31, 1999 as compared to the same period in 1998. Non interest income
      increased  $152,000 or 28.04% and net interest  income after provision for
      loan losses increased $95,000 or 3.36%.

      Interest Income
      ---------------

      Interest  income  increased  $250,000  or 3.68% for the six  months  ended
      March 31, 1999 as compared to the same period in 1998.  Interest income on
      loans decreased  3.98%or  $231,000 to $5,569,000  for the six months ended
      March 31, 1999  from  $5,800,000  for the six months ended March 31, 1998.
      Interest  income  on  overnight  deposits and federal funds sold had a net
      decrease of $10,000  for the six months  ended  March 31, 1999 as compared
      to  the  same  period  in the prior  year due  primarily  to lower  rates.
      Interest  and  dividends  on  investment  and  mortgage-backed  securities
      increased $491,000 or 192.94% for the six months  ended March 31,  1999 to
      $1,181,000  from $690,000 during the same period in 1998. The increase was
      due primarily to an increase in the level of purchases in  investment  and
      mortgage-backed  securities  made  during  the first  two  quarters of the
      fiscal  year. This increase in purchases was a direct result of lower loan
      volumes and higher loan prepayments made during this period.

      Interest Expense
      ----------------

      The  Corporation  experienced an overall  increase of $174,000 or 4.54% in
      interest expense  for the  six  months ended March 31, 1999 as compared to
      the six months  ended  March 31,


                                        11
<PAGE> 12

  
      1998 due primarily to the growth in  the  deposit  base.  Interest expense
      on deposit accounts increased $212,000 or 7.98% to $2,868,000 for  the six
      months  ended  March  31, 1999 from  $2,656,000  during the same period in
      1998.  Interest expense  on borrowings decreased $38,000  or 3.78% for the
      six months ended March 31,  1999 as compared to the six months ended March
      31, 1998.  The decrease  was  due to lower volumes in FHLB advances during
      the period.

      Provision for Loan Loss
      -----------------------

      During the six months  ended March 31,  1999,  provisions  for loan losses
      were  $45,000 as compared  to $64,000 for the same period in the  previous
      year.  The decrease in loan loss  provisions  are due to the low volume of
      loan charge offs along with low level of delinquent  loans to total loans.
      Management believes the Bank's loan loss allowances are adequate to absorb
      estimated future loan losses. The Bank's loan loss allowances at March 31,
      1999 were approximately .74% of the Bank's outstanding loan portfolio, net
      of loans  held  for sale  compared  to .84%  for the  same  period  in the
      previous year.

      The  following  table sets forth  information  with  respect to the Bank's
      non-performing assets at the dates indicated (dollars in thousands):
<TABLE>
<CAPTION>

                                           MARCH 31, 1999     SEPTEMBER 30, 1998
                                           --------------     ------------------

      Non-accruing loans which are
      contractually past due 90 days
       or more:

      <S>                                      <C>                  <C>  
      Real Estate:
       Residential                             $ 237                $ 581
       Commercial                                 --                   --
       Construction                               --                   --
      Non-mortgage                               184                  115
                                                 ---                -----
      Total                                    $ 411                $ 696
                                               =====                =====

      Percentage of loans receivable, net       0.36%                0.49%
                                                ====                =====

      Allowance for loan losses                 $843                $ 827
                                                ====                =====

      Real estate acquired through
       foreclosure and repossessed
       assets, net of allowances                 $75                $  10
                                                 ===                =====
</TABLE>




                                       12

<PAGE> 13



      Non Interest Income and Expense
      -------------------------------

      Total non interest income increased $152,000 or 28.04% to $694,000 for the
      six months  ended March 31, 1999 from  $542,000 for the same period in the
      previous year. The increase in non-interest  income from the previous year
      was due to increased  gain on sale of loans through the mortgage  division
      of the bank.  Gains on sale of loans was $374,000 for the six months ended
      March 31, 1999 as compared to a gain on sale of loans of $174,000  for the
      six months ended March 31, 1998.  The increased  gain on sale of loans was
      partially  offset by negative loan service fee income of ($75,000) for the
      six months ended March 31, 1999 compared to negative service fee income of
      ($8,000)  for the six months  ended March 31,  1998.  The  increase in the
      negative income is due to higher premium  amortization expense as a result
      of higher loan prepayments.

      For the six  months  ended  March 31,  1999,  total non  interest  expense
      increased  $233,000 or 10.75% to $2,401,000  from  $2,168,000 for the same
      period in 1998.  Compensation and employee  benefits  increased $64,000 or
      5.72% to  $1,182,000  for the six months  period ended March 31, 1999 from
      $1,118,000  for the same period in 1998.  Occupancy and equipment  expense
      increased $76,000 or 16.56% to $535,000 for the six months ended March 31,
      1999 from  $459,000  for the same  period in 1998.  Professional  services
      expenses  decreased $17,000 or 11.04% to $137,000 for the six month period
      ended  March  31,  1999 from  $154,000  for the same  period in 1998.  The
      increase in compensation  and employee  benefits was due primarily to cost
      of living  increases along with additional  staffing for the growth in the
      mortgage  operation.  The increase in occupancy and equipment expenses was
      due to  higher  data  processing  costs  along  with  higher  depreciation
      expense.  Deposit  insurance  premiums  for the six months ended March 31,
      1999 increased $10,000 to $42,000 from $32,000 for the same period in 1998
      due to an increase in the deposit base.  Other  operating  expense for the
      six months  ended March 31,  1999  increased  $103,000  to  $503,000  from
      $400,000  for the same period in 1998.  The  increase  in other  operating
      expenses  was due to continued  expansion in the mortgage  division of the
      bank along with increased deposit premium amortization expense as a result
      of the current year branch acquisition.
















                                      13

<PAGE> 14



                         PART II - OTHER INFORMATION

ITEM 1.     Legal Proceedings
            -----------------

                  The  Corporation  is  involved  in  various  claims  and legal
                  actions  arising in the normal course of business.  Management
                  believes that these  proceedings will not result in a material
                  loss to the Corporation.

ITEM 2.     Changes in Securities
            ---------------------

                  Not applicable.

ITEM 3.     Defaults upon Senior Securities
            -------------------------------

                  Not applicable.

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

            The Annual Meeting of the  Stockholders  of the Corporation was held
            on  January  20,  1999.  The  results  of the  vote  on the  matters
            presented at the meeting is as follows:

            1.    The following individuals were elected as directors,  each for
                  a three-year term:

<TABLE>
<CAPTION>
                                          Vote For          Vote Withheld
                                          --------          -------------


                  <S>                     <C>                     <C>   
                  David G. Russell        781,115                 60,463
                                          -------                 ------
                  Carl L. Mason           781,115                 60,463
                                          -------                 ------
                  William M. Graham       756,473                 85,105
                                          -------                 ------

                  Broker non-votes          1,071
                    totaled                 -----
</TABLE>

            2. Approval to increase shares available under the 1995 stock option
               plan:

                  For 735,394;      Against 51,676;   Abstain 54,509;
                      -------               ------            ------
               
            3.    The appointment of Elliott,  Davis & Company, LLP, as auditors
                  for the Corporation  for the fiscal year ending  September 30,
                  1999 was ratified by the shareholders by the following vote:

                  For 811,726;      Against 16,479;   Abstain 13,374;
                      -------               ------            ------

                                            14

<PAGE> 15




ITEM 5.     Other Information
            -----------------

YEAR 2000
---------

The approach of the year 2000 ("Year 2000") presents significant issues for many
financial,  information,  and operational systems. Many systems in use today may
not be able to interpret dates after December 31, 1999,  appropriately,  because
such systems allow only two digits to indicate the year in a date. The Year 2000
problems  may occur in  computer  programs,  computer  hardware,  or  electronic
devices that utilize  computer  chips to process any  information  that contains
dates. Therefore,  the issue is not limited to dates in computer programs but is
a complex  combination  of problems  that may exist in computer  programs,  data
files,  computer  hardware,  and other devices essential to the operation of the
business.  Further,  companies must consider the potential impact that Year 2000
may have on services provided by third parties.

Substantially all of the Year 2000 risk is related to the Bank's activities. The
Bank has a formal Year 2000 Plan which includes a Year 2000 Task Force. The Plan
has been reviewed by the senior management and the Board of Directors.  Included
in the Plan is a listing of all systems (whether in-house or  provided/supported
by third parties) which may be impacted by Year 2000 and a categorization of the
systems  by their  potential  impact  on Bank  operations.  The Task  Force  has
received Year 2000 plans from third  parties  identified  during the  assessment
phase of the Year 2000 Plan.  For systems that have been  classified as critical
to  the  operations  of  the  Bank,   contingency  plans  have  been  developed.
Contingency  plans may include  utilization  of alternate  third party  vendors,
alternate  processing methods and software,  or manual  processing.  To date, no
critical  problems  are  anticipated.  The plans have various  activation  dates
(e.g.,  the date on which a third  party  processor  fails to meet its Year 2000
compliance  deadline).  In addition to addressing its own Year 2000 issues,  the
Bank is in the process of assessing  the impact of the Year 2000 on  significant
commercial borrowers. The Bank will continue discussing the Year 2000 compliance
activities with commercial borrowers and will not lend to borrowers who have not
addressed Year 2000  procedures.  The Bank's Year 2000 readiness is reviewed and
monitored by the Office of Thrift Supervision ("OTS").

The Bank's core  processing  systems are outsourced  through a contract with The
BISYS Group, Inc.  ("BISYS").  BISYS has developed a Year 2000 Plan and provides
the Bank with periodic updates.  BISYS also has held Year 2000 workshops,  whose
objectives  have been to  assist  the Bank in the  development  of its Year 2000
Plan, to provide updates on the BISYS Year 2000 plan, and training on the use of
the BISYS Year 2000 test  facility,  whose function is to allow BISYS clients to
test their systems'  compatibility  with the BISYS system.  BISYS  completed all
program  maintenance  associated  with Year 2000 prior to October 31, 1998.  The
Bank began completed its initial testing phase of the BISYS system for Year 2000
compliance.  During the testing phase, no significant  problems were found.  The
Bank will  continue  testing the BISYS system during their next testing phase to
ensure  overall  compliance  for Year  2000.  Like the  Bank,  BISYS  Year  2000
activities are subject to OTS oversight.

                                      15

<PAGE> 16




The incremental  cost  associated  with the Bank's  compliance is expected to be
less than  $50,000.  The  majority of all hardware  upgrades  began in 1995 as a
result of the Bank's plan to increase efficiencies and eliminate obsolescence of
some  system  components.  Should  the Bank or any of its  third  party  service
providers  fail to  complete  Year 2000  measures in a timely  manner,  it would
likely  have a  material  adverse  effect,  whose  amount  cannot be  reasonably
estimated at this time.

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

                  Exhibits
                  --------

                  27    Financial Data Schedule



























                                      16

<PAGE> 16


                                  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 FINANCIAL BANCSHARES, INC.
                    --------------------------------------
                                 (REGISTRANT)



Date:   5-6-99                    By: /s/ Dwight V. Neese
     -----------                      --------------------------    
                                      Dwight V. Neese, CEO


Date:   5-6-99                    By: /s/ Richard H. Flake, CFO
     -----------                      --------------------------    
                                      Richard H. Flake, CFO
















                                      18