UNITED STATES
                       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 September 30, 2004

___  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.
                        --------------------------------
        (Exact name of small business issuer as specified in its charter)

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

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

Issuer's telephone number: (864) 429-1864

Check whether the issuer (1) filed all reports required by Section 13 or 15(d)
of the Exchange Act during the past 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes__X__        No___


The Corporation had 1,967,261 shares, $0.01 par value, of common stock issued
and outstanding as of October 26, 2004.

                                       1
<PAGE>


                        UNION FINANCIAL BANCSHARES, INC.

                                      INDEX

Part I.  Financial Information                                             Page
         ---------------------                                            ------

         Item 1. Consolidated Financial Statements (unaudited)

         Consolidated Balance Sheets as of September 30, 2004
         and December 31, 2003                                                3

         Consolidated Statements of Income for the three and nine months
         ended September 30, 2004 and 2003                                    4

         Consolidated Statements of Cash Flows for the nine
         months ended September 30, 2004 and 2003                             5

         Consolidated Statements of Shareholders' Equity for the
         nine months ended September 30, 2004 and 2003                        6

         Notes to Consolidated Financial Statements                        7-12

         Item 2. Management's Discussion and Analysis of
                 Financial Condition and Results of Operations            13-19

         Item 3. Controls and Procedures                                     19

Part II. Other Information
         -----------------

         Item 1. Legal Proceedings                                           20

         Item 2. Unregistered Sales of Equity Securities and Use of
                 Proceeds                                                    20

         Item 3. Defaults Upon Senior Securities                             20

         Item 4. Submission of Matters to a Vote of Security Holders         20

         Item 5. Other Information                                           21

         Item 6. Exhibits and Reports on Form 8-K                            21

         Signatures                                                          22


                                       2
<PAGE>



Item 1. Financial Statements
UNION FINANCIAL BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
September 30, 2004 and December 31, 2003 (unaudited)

                                                    September 30,   December 31,
ASSETS                                                   2004           2003
                                                    -------------   ------------
                                               (DOLLARS IN THOUSANDS)

Cash                                                  $   2,151      $   1,515
Short term interest-bearing deposits                      2,807         27,187
                                                    -------------   ------------
Total cash and cash equivalents                           4,958         28,702
Investments and mortgage-backed securities              154,921        123,789
Loans, net                                              167,626        153,301
Real estate acquired through foreclosure                    300            374
Office properties and equipment, net                      5,830          6,415
Federal Home Loan Bank Stock, at cost                     3,313          3,900
Federal Reserve Stock, at cost                              539            539
Accrued interest receivable                               1,807          1,655
Intangible assets                                         4,371          4,848
Cash surrender value of life insurance                    5,166          5,025
Other assets                                              1,811          2,117
                                                    -------------   ------------
TOTAL ASSETS                                          $ 350,642      $ 330,665
                                                    =============   ============

LIABILITIES

Deposit accounts                                      $ 224,459      $ 223,131
Advances from the Federal Home Loan Bank and other
 borrowings                                              66,000         68,500
Securities sold under agreements to repurchase           24,000          5,000
Corporate obligated floating rate capital securities      8,000          8,000
Accrued interest on deposits                                338            285
Advances from borrowers for taxes and insurance             241             59
Other liabilities                                         1,553            183
                                                    -------------   ------------
TOTAL LIABILITIES                                       324,591        305,158
                                                    -------------   ------------

SHAREHOLDERS' EQUITY

Serial preferred stock, no par value,
 authorized - 500,000 shares, issued
 and outstanding - None                                      --             --
Common stock - $0.01 par value,
 authorized - 5,000,000 shares,
 issued and outstanding - 1,967,261 shares at 9/30/04
 and 1,969,770 at 12/20/03                                   21             20
Additional paid-in capital                               12,061         11,906
Accumulated other comprehensive income                      319             99
Retained earnings, substantially restricted              14,826         13,848
Treasury stock, at cost                                  -1,176           -366
                                                    -------------   ------------
TOTAL SHAREHOLDERS' EQUITY                               26,051         25,507
                                                    -------------   ------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY            $ 350,642      $ 330,665
                                                    =============   ============

See notes to consolidated financial statements.


                                       3
<PAGE>


<TABLE>
<CAPTION>
<S>                                          <C>          <C>         <C>           <C>
UNION FINANCIAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three and Nine Months Ended September 30, 2004 and 2003 (unaudited)

                                                Three Months Ended         Nine Months Ended
                                              September    September    September    September
                                                 30,          30,          30,          30,
                                                2004         2003         2004         2003
                                             -----------  -----------  -----------  -----------
                                              (DOLLARS IN THOUSANDS     (DOLLARS IN THOUSANDS
                                                 EXCEPT PER SHARE)         EXCEPT PER SHARE)

Interest Income:
  Loans                                      $    2,643   $    2,628   $    7,599   $    8,006
  Deposits and federal funds sold                     5           11           20           16
  Mortgage-backed securities                        463          602        1,442        2,051
  Interest and dividends on
   investment securities                          1,172          890        3,464        2,523
                                             -----------  -----------  -----------  -----------
Total Interest Income                             4,283        4,131       12,525       12,596
                                             -----------  -----------  -----------  -----------

Interest Expense:
  Deposit accounts                                  960        1,098        2,881        3,430
  Trust preferred corporate obligation              109           98          308          302
  Advances from the FHLB and other borrowings       745          869        2,191        2,686
                                             -----------  -----------  -----------  -----------
Total Interest Expense                            1,814        2,065        5,380        6,418
                                             -----------  -----------  -----------  -----------

Net Interest Income                               2,469        2,066        7,145        6,178
  Provision for loan losses                         390          120          775          545
                                             -----------  -----------  -----------  -----------
Net Interest Income After
   Provision for Loan Losses                      2,079        1,946        6,370        5,633
                                             -----------  -----------  -----------  -----------

Non-Interest Income:
  Fees for financial services                       485          437        1,507        1,325
  Loan servicing fees(costs)                         16          -47           49         -145
  Net gain on sale of loans                          30           --           72           --
  Net gain (loss) on sale of investments             -8          189           -8          591
                                             -----------  -----------  -----------  -----------
Total Non-Interest Income                           523          579        1,620        1,771
                                             -----------  -----------  -----------  -----------

Non-Interest Expense:
  Compensation and employee benefits                880          925        2,782        2,570
  Occupancy and equipment                           496          515        1,455        1,399
  Deposit insurance premiums                          8           10           24           26
  Professional services                              67           89          226          267
  Advertising/Public relations                       40           72          121          170
  Real estate operations                             48           15          111           37
  Deposit premium intangible                        159          159          477          477
  Items processing                                   67           58          190          169
  Telephone                                          34           29          111           96
  Other                                             136          126          418          373
                                             -----------  -----------  -----------  -----------
Total Non-Interest Expense                        1,935        1,998        5,915        5,584
                                             -----------  -----------  -----------  -----------

Income Before Income Taxes                          667          527        2,075        1,820
Income tax expense                                  159          101          510          413
                                             -----------  -----------  -----------  -----------
Net Income                                   $      508   $      426   $    1,565   $    1,407
                                             ===========  ===========  ===========  ===========

Basic Net Income Per Common Share            $     0.26   $     0.22   $     0.80   $     0.72
                                             ===========  ===========  ===========  ===========

Diluted Net Income Per Common Share          $     0.25   $     0.21   $     0.76   $     0.68
                                             ===========  ===========  ===========  ===========

Weighted Average Number of
  Common Shares Outstanding

Basic                                         1,954,680    1,963,396    1,957,055    1,964,870

Diluted                                       2,022,522    2,073,361    2,049,073    2,069,405

See notes to consolidated financial statements.
</TABLE>

                                       4
<PAGE>


UNION FINANCIAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2004 and 2003 (unaudited)

                                                        Nine Months Ended
                                                   September 30,   September 30,
                                                        2004            2003
                                                  --------------  --------------
                                                  (IN THOUSANDS)  (IN THOUSANDS)

OPERATING ACTIVITIES:

Net income                                               $1,565          $1,407
Adjustments to reconcile net income to
 net cash provided by operating activities:
 Provision for loan losses                                  775             545
 Amortization of intangibles                                477           1,017
 Depreciation expense                                       738             808
 Recognition of deferred income, net of costs              -250             -83
 Deferral of fee income, net of costs                       262              99
 Gain on investment transactions                            -64            -652
 Changes in operating assets and liabilities:
  (Increase) decrease in accrued interest
    receivable                                             -152              30
  (Increase) decrease in other assets                       239          -1,500
  Increase in other liabilities                           1,552             267
  Increase (decrease) in accrued interest payable            53             -75
                                                  --------------  --------------

Net cash provided by operating activities                 5,195           1,863
                                                  --------------  --------------

INVESTING ACTIVITIES:

Purchase of investment and mortgage-backed
 securities:
 Available for sale                                     -96,907        -126,925
Proceeds from sale of investment and mortgage-
 backed securities                                        4,702          28,613
Proceeds from maturity of investment and mortgage-
 backed securities:
 Available for sale                                      46,939          47,067
Principal repayments on mortgage-backed securities:
 Available for sale                                      14,346          32,155
Net (increase) decrease in loans                        -15,040           6,218
Purchase of FHLB stock                                       --            -604
Redemption of FHLB stock                                    587              --
Purchase of office properties and equipment                -153            -704
                                                  --------------  --------------

Net cash used by investing activities                   -45,526         -14,180
                                                  --------------  --------------

FINANCING ACTIVITIES:

Proceeds from the dividend reinvestment plan                 84              81
Dividends paid in cash ($0.30 per share -2004
 and $0.30 per share - 2003)                               -587            -590
Proceeds from the exercise of stock options                  72             160
Share repurchase program                                   -810            -366
Repayment of  borrowings                                     --          -8,700
Proceeds from term borrowings                            16,500              --
Increase in deposit accounts                              1,328          19,810
                                                  --------------  --------------

Net cash  provided by financing activities               16,587          10,395
                                                  --------------  --------------

NET DECREASE IN CASH
 AND CASH EQUIVALENTS                                   -23,744          -1,922

CASH AND CASH EQUIVALENTS
 AT BEGINNING OF PERIOD                                  28,702           6,939
                                                  --------------  --------------

CASH AND CASH EQUIVALENTS
 AT END OF PERIOD                                        $4,958          $5,017
                                                  ==============  ==============

SUPPLEMENTAL DISCLOSURES:

Cash paid for:
  Income taxes                                             $120            $429
  Interest                                                5,327           6,381

Non-cash transactions:
  Loans foreclosed                                         $647            $295

See notes to consolidated financial statements.


                                       5
<PAGE>


<TABLE>
<CAPTION>
<S>                                        <C>        <C>     <C>         <C>           <C>             <C>         <C>
                        UNION FINANCIAL BANCSHARES, INC.
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
            NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003 (UNAUDITED)

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

BALANCE AT DECEMBER 31, 2002                1,963,252     $20     $11,621        $14,438         $1,726    $ --            $27,805

Net income                                                                         1,407                                     1,407

 Other comprehensive income
  Unrealized losses on securities:
   Unrealized holding losses arising during
    period                                                                                       (2,281)                    (2,281)
                                                                                                                     --------------
 Comprehensive loss                                                                                                           (874)

Options exercised                              16,889                 160                                                      160

Dividend  reinvestment plan contributions       5,248                  81                                                       81

Share repurchase program                      (20,286)                                                        (366)           (366)

Cash dividend ($.30 per share)                                                      (590)                                     (590)

                                           -----------------------------------------------------------------------------------------

BALANCE AT SEPTEMBER 30, 2003               1,965,103     $20     $11,862        $15,255          ($555)     ($366)        $26,216
                                           =========================================================================================

BALANCE AT DECEMBER 31, 2003                1,969,770     $20     $11,906        $13,848            $99      ($366)        $25,507

Net income                                                                         1,565                                     1,565

 Other comprehensive income
  Unrealized gains on securities:
   Unrealized holding gains arising during
    period                                                                                          220                        220
                                                                                                                     -------------
 Comprehensive income                                                                                                        1,785

Stock option activity                          40,043       1          71                                                       72

Dividend  reinvestment plan contributions       5,280                  84                                                       84

Share repurchase program                      (47,832)                                                        (810)           (810)

Cash dividend ($.30 per share)                                                      (587)                                     (587)

                                           -----------------------------------------------------------------------------------------

BALANCE AT SEPTEMBER 30, 2004               1,967,261     $21     $12,061        $14,826           $319    ($1,176)        $26,051
                                           =========================================================================================
</TABLE>

                                       6
<PAGE>


                        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" or "Union Financial") 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
     subsidiaries, Provident Community Bank, N.A. (the "Bank"), a national bank,
     and Union  Financial  Statutory  Trust I (the "Trust"),  a statutory  trust
     created  under  the  laws of the  state  of  Connecticut.  The  results  of
     operations  for the three or nine months ended  September  30, 2004 are not
     necessarily  indicative of the results which may be expected for the entire
     calendar year.  Certain  amounts in the prior year's  financial  statements
     have been reclassified to conform with current year classifications.

     On July 27,  2003,  the Bank  converted  its  charter to that of a national
     bank.

     On October 21, 2003, the Board of Directors of Union Financial  changed the
     fiscal  year end of the  Corporation  from  September  30 to  December  31,
     effective December 31, 2003.

     Recently Issued Accounting Standards

     In December 2002, the Financial  Accounting Standards Board ("FASB") issued
     Statement on Financial  Accounting  Standards ("SFAS") No. 148, "Accounting
     for Stock-based  Compensation--Transition  and Disclosure", an amendment of
     FASB  Statement No. 123,  "Accounting  for  Stock-Based  Compensation",  to
     provide  alternative  methods of transition  for a voluntary  change to the
     fair  value  based   method  of   accounting   for   stock-based   employee
     compensation.  SFAS No. 148 also amends the  disclosure  provisions of SFAS
     No. 123 and Accounting  Principles  Board ("APB")  Opinion No. 28, "Interim
     Financial  Reporting",  to require disclosure in the summary of significant
     accounting  policies of the effects of an entity's  accounting  policy with
     respect to  stock-based  employee  compensation  on reported net income and
     earnings per share in annual and interim financial  statements.  While SFAS
     No. 148 does not amend SFAS No. 123 to  require  companies  to account  for
     employee  stock  options  using  the  fair  value  method,  the  disclosure
     provisions of SFAS No. 148 are applicable to all companies with stock-based
     employee  compensation,   regardless  of  whether  they  account  for  that
     compensation  using the fair value method of SFAS No. 123 or the  intrinsic
     value  method of APB  Opinion  No. 25. The  provisions  of SFAS No. 148 are
     effective  for annual  financial  statements  for fiscal years ending after
     December 15, 2002, and for financial reports containing condensed financial
     statements  for interim  period  beginning  after  December 15,  2002.  The
     Corporation has adopted the disclosure provisions of SFAS No. 148 which had
     no  impact  on  the  financial   condition  or  operating  results  of  the
     Corporation.

                                       7
<PAGE>


     In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
     Derivative  Instruments  and Hedging  Activities."  SFAS No. 149 amends and
     clarifies   accounting  for  derivative   instruments,   including  certain
     derivative  instruments  embedded in other  contracts and loan  commitments
     that relate to the  origination  of mortgage  loans held for sale,  and for
     hedging activities under SFAS No. 133. SFAS No. 149 is generally  effective
     for contracts entered into or modified after June 30, 2003. The adoption of
     SFAS No. 149 did not have a material  impact on the financial  condition or
     operating results of the Corporation.

     In May  2003,  the  FASB  issued  SFAS No.  150,  "Accounting  for  Certain
     Financial Instruments with Characteristics of both Liabilities and Equity."
     SFAS  No.  150  establishes  standards  for how an  issuer  classifies  and
     measures  certain  financial   instruments  with  characteristics  of  both
     liabilities  and equity.  It requires  that an issuer  classify a financial
     instrument  that is within  its scope as a  liability  (or an asset in some
     circumstances).  Many of those  instruments  were previously  classified as
     equity.  SFAS No. 150 is  generally  effective  for  financial  instruments
     entered into or modified after May 31, 2003, and otherwise was effective at
     the beginning of the first interim  period  beginning  after June 15, 2003.
     The  adoption  of SFAS  No.  150  did not  have a  material  impact  on the
     financial condition or operating results of the Corporation.

          In November 2002, the FASB issued FASB Interpretation  ("FIN") No. 45,
          "Guarantor's  Accounting and Disclosure  Requirements  for Guarantees,
          Including Indirect  Guarantees of Indebtedness of Others".  FIN No. 45
          requires a company, at the time it issues a guarantee, to recognize an
          initial liability for the fair value of obligations  assumed under the
          guarantee and elaborates on existing disclosure  requirements  related
          to guarantees and warranties.  The initial recognition requirements of
          FIN No. 45 are  effective  for  guarantees  issued or  modified  after
          December 31, 2002.  The  disclosure  requirements  are  effective  for
          financial  statements of periods  ending after  December 15, 2002. The
          adoption  of  FIN  No.  45  did  not  have a  material  effect  on the
          Corporation's financial position or results of operations.

     In January  2003,  the FASB issued FIN No. 46,  "Consolidation  of Variable
     Interest  Entities." FIN No. 46 requires a variable  interest  entity to be
     consolidated  by a company if that  company is subject to a majority of the
     risk of loss from the variable interest entity's  activities or entitled to
     receive a majority of the entity's  residual  returns,  or both. FIN No. 46
     also requires  disclosures  about variable interest entities that a company
     is not required to consolidate,  but in which it has a significant variable
     interest.  FIN No. 46 provides  guidance for determining  whether an entity
     qualifies  as a  variable  interest  entity  by  considering,  among  other
     considerations,  whether the entity lacks  sufficient  equity or its equity
     holders  lack   adequate   decision-making   ability.   The   consolidation
     requirements  of FIN  No.  46  applied  immediately  to  variable  interest
     entities  created after January 31, 2003.  The  consolidation  requirements
     applied to  existing  entities in the first  fiscal year or interim  period
     beginning  after  June 15,  2003.  Certain of the  disclosure  requirements
     applied  in  all  financial  statements  issued  after  January  31,  2003,
     regardless  of when the  variable  interest  entity  was  established.  The
     adoption of FIN No. 46 did not have a material effect on the  Corporation's
     financial position or results of operations.


                                       8
<PAGE>


     In March 2004, the FASB issued an exposure draft on "Share-Based  Payment".
     The proposed  statement  addresses the accounting for transactions in which
     an  enterprise  receives  employee  services  in  exchange  for  a)  equity
     instruments of the enterprise or b) liabilities  that are based on the fair
     value of the enterprises's equity instruments or that may be settled by the
     issuance  of  such  equity  instruments.   This  proposed  statement  would
     eliminate the ability to account for share-based compensation  transactions
     using APB Opinion No. 25,  "Accounting for Stock Issued to Employees",  and
     generally  would require  instead that such  transactions  be accounted for
     using a  fair-value-based  method.  This  statement,  if approved,  will be
     effective for awards that are granted, modified, or settled in fiscal years
     beginning  after a) December  15, 2004 for public  entities  and  nonpublic
     entities  that used the  fair-value-based  method of  accounting  under the
     original  provisions of SFAS No.123 for recognition or pro forma disclosure
     purposes and b) December 15, 2005 for all other nonpublic entities. Earlier
     application  is encouraged  provided that  financial  statements  for those
     earlier years have not yet been issued.  Retrospective  application of this
     statement is not permitted.  The adoption of this  statement,  if approved,
     will not have any impact on the Corporation's financial position or results
     of operations.

     Additional  accounting  standards  that have been issued or proposed by the
     FASB that do not require  adoption  until a future date are not expected to
     have a  material  impact  on the  consolidated  financial  statements  upon
     adoption.

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

     Basic  income  per  share  amounts  for the  three  and nine  months  ended
     September  30, 2004 and 2003 were  computed  based on the weighted  average
     number of common shares outstanding  during the period.  Diluted income per
     share adjusts for the dilutive  effect of outstanding  common stock options
     during the periods.

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

     Approximately  $56,766,000  and $63,692,000 of debt securities at September
     30, 2004 and December 31, 2003,  respectively,  were pledged by the Bank as
     collateral to secure  deposits of the State of South  Carolina,  and Union,
     Laurens and York counties.  The Bank pledges as collateral for 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.  The Bank will also
     pledge  securities to cover additional  advances from the Federal Home Loan
     Bank that  exceed the  qualifying  mortgages  balance  along with  security
     repurchase lines with various brokerage houses.


                                       9
<PAGE>


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

     In the  ordinary  course  of  business,  the  Bank  enters  into  financial
     instruments with  off-balance-sheet risk to meet the financing needs of its
     customers.  These  instruments  expose the Bank to credit risk in excess of
     the amount recognized on 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
     September 30, 2004 related to these items is summarized below:

     Loan Commitments:                                           Contract Amount
     -----------------                                           ---------------

           Approved loan commitments                              $  2,567,000
           Unadvanced portions of loans and credit lines            34,081,000
                                                                  ------------
           Total loan commitments                                 $ 36,648,000
                                                                  ============

     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 and commercial property.

     Commitments  outstanding  at  September  30,  2004  consisted  of fixed and
     adjustable  rate loans at rates ranging from 5.0% to 6.5%.  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
     $71,567,000  at September 30, 2004. Of these lines,  the  outstanding  loan
     balances totaled approximately $37,486,000.


                                       10
<PAGE>

     5. Corporation Obligated Floating Rate Capital Securities
        ------------------------------------------------------

     On December 18, 2001, the Trust issued  $8,000,000 of floating rate capital
     securities  through  a pooled  trust  preferred  securities  offering.  The
     proceeds from this issuance,  along with the Corporation's $248,000 capital
     contribution  for the  Trust's  common  securities,  were  used to  acquire
     $8,248,000  aggregate  principal amount of the Corporation's  floating rate
     junior  subordinated  deferrable  interest debentures due December 18, 2031
     (the  "Debentures"),  which  constitute  the sole asset of the  Trust.  The
     interest rate on the Debentures and the capital  securities is variable and
     adjustable  quarterly at 3.60% over the  three-month  LIBOR.  A rate cap of
     12.50% is effective through December 18, 2006. The Corporation has, through
     the Trust agreement  establishing the Trust, the Guarantee  Agreement,  the
     notes and the related  Debentures,  taken together,  fully  irrevocably and
     unconditionally guaranteed all of the Trust's obligations under the capital
     securities.

     A summary of the Trust securities issued and outstanding follows:
<TABLE>
<CAPTION>
<S>                       <C>         <C>         <C>    <C>                <C>                <C>
-----------------------------------------------------------------------------------------------------------
                                    Amount
                                Outstanding at                                                 Distribution
                                 September 30,               Prepayment                          Payment
          Name                2004        2003     Rate      Option Date          Maturity      Frequency
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
Union Financial Statutory  $8,000,000  $8,000,000  5.13%  December 18, 2006  December 18, 2031  Quarterly
 Trust I
-----------------------------------------------------------------------------------------------------------
</TABLE>

     The stated  maturity of the  Debentures  is December 18, 2031. In addition,
     the  Debentures  are  subject  to  redemption  at par at the  option of the
     Corporation,  subject to prior regulatory approval,  in whole or in part on
     any interest  payment date after December 18, 2006. The Debentures are also
     subject to redemption prior to December 18, 2006 at 107.5% of par after the
     occurrence  of certain  events that would either have a negative tax effect
     on the Trust or the  Corporation or would result in the Trust being treated
     as an  investment  company  that is  required  to be  registered  under the
     Investment Company Act of 1940.

     The  Corporation  has the right,  at one or more times,  to defer  interest
     payments on the Debentures for up to twenty consecutive  quarterly periods.
     During  any  deferral  period,  each  installment  of  interest  that would
     otherwise have been due and payable will bear  additional  interest (to the
     extent  payment  of such  interest  would be  legally  enforceable)  at the
     applicable  distribution rate, compounded quarterly.  Additionally,  during
     any deferral  period,  the Corporation will be prohibited from declaring or
     paying cash dividends on its common stock.


For the purposes of these financial  statements the Trust's operations have been
consolidated.

Beginning with the first  reporting  period ending after December 15, 2004, as a
result of the adoption of FIN No. 46, the Corporation  will no longer be allowed
to consolidate the


                                       11
<PAGE>


Trust's  activities.  The Corporation expects assets to increase by $248,000 and
no impact on the income statement as a result of the adoption of this standard.


                                       12
<PAGE>


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

          Forward Looking Statements
          --------------------------

          Management's  discussion  and  analysis  of  financial  condition  and
          results  of  operations  and other  portions  of this Form  10-QSB may
          contain  certain  "forward-looking  statements"  concerning the future
          operations  of the  Corporation  and the Bank.  These  forward-looking
          statements are generally identified by the use of the words "believe,"
          "expect," "intend,"  "anticipate,"  "estimate,"  "project," or similar
          expressions.  Management  intends to take advantage of the safe harbor
          provisions of the Private Securities Litigation Reform Act of 1995 and
          is including  this  statement for the express  purpose of availing the
          Corporation of the protections of such safe harbor with respect to all
          forward-looking statements contained in this report to describe future
          plans and strategies.  Management's  ability to predict results or the
          effect of future plans or strategies is inherently uncertain.  Factors
          which could effect actual results  include  interest rate trends,  the
          general  economic climate in the  Corporation's  and the Bank's market
          area and the country as a whole,  the ability of the  Corporation  and
          the Bank to  control  costs and  expenses,  competitive  products  and
          pricing,  loan  delinquency  rates,  and  changes in federal and state
          regulation.  These factors  should be  considered  in  evaluating  the
          forward-looking statements, and undue reliance should not be placed on
          such statements.

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

          Assets
          ------

          Total assets of the Corporation  increased  $19,977,000,  or 6.04%, to
          $350,642,000  at September 30, 2004 from  $330,665,000 at December 31,
          2003.    Investment   and   mortgage-backed    securities    increased
          approximately  $31,132,000,  or  25.15%,  from  December  31,  2003 to
          September  30, 2004,  due to the purchase of  shorter-term  agency and
          municipal  securities for tax benefits that was funded  primarily with
          additional borrowings.

          Loans  increased  $14,325,000,  or 9.34%, to $167,626,000 at September
          30,  2004.  The  Corporation   continues  to  focus  on  consumer  and
          commercial  lending  with  reduced  emphasis on  residential  mortgage
          loans.  Consumer and commercial loans  outstanding  during this period
          increased  $16,734,000,   or  18.45%,  while  outstanding  residential
          mortgage loans  decreased  $3,394,000 or 5.11%.  Real estate  acquired
          through  foreclosure  decreased  $74,000,  or 19.79%,  to  $300,000 at
          September  30, 2004 from  $374,000 at December 31, 2003.  The decrease
          was due to the disposition of four real estate  properties  during the
          year offset by the addition of two real estate properties.

          Liabilities
          -----------


                                       13
<PAGE>


          Total liabilities increased $19,433,000,  or 6.37%, to $324,591,000 at
          September 30, 2004 from  $305,158,000  at December 31, 2003.  Deposits
          increased $1,328,000,  or 0.60%, to $224,459,000 at September 30, 2004
          from $223,131,000 at December 31, 2003. The increase was due primarily
          to  growth  in  lower  cost  demand  accounts  partially  offset  by a
          reduction in higher cost certificates of deposit accounts.

          Borrowings   from  the  Federal   Home  Loan  Bank  (FHLB)   decreased
          $2,500,000,  or 3.65%,  to  $66,000,000  at  September  30,  2004 from
          $68,500,000 at December 31, 2003.  Securities  sold under agreement to
          repurchase increased  $19,000,000 to $24,000,000 at September 30, 2004
          from $5,000,000 at December 31, 2003.  During this period,  securities
          sold under  agreement  to  repurchase  provided  a lower cost  funding
          alternative  to  Federal  Home Loan Bank  advances.  The  increase  in
          repurchase  agreements  funded the additional loan growth and security
          purchases  for the year.  Other  liabilities  increased  $1,370,000 to
          $1,553,000  at September  30, 2004 from $183,000 at December 31, 2003,
          due  primarily  to an  increase  in accrued  liabilities.  The accrued
          liabilities  balances at December 31, 2003  represented  a three month
          period as a result of the  conversion  from a September 30 fiscal year
          to a December 31 calendar year.

          Shareholders' Equity
          --------------------

          Shareholders'  equity increased $544,000,  or 2.13%, to $26,051,000 at
          September  30, 2004 from  $25,507,000  at December 31, 2003 due to net
          income of $1,565,000  and a $220,000  increase in unrealized  gains on
          securities  available  for sale,  offset by the  repurchase  of 47,832
          shares  at a cost of  $810,000  and the  payment  of $0.30  per  share
          quarterly dividends.


          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  deposits,  loan  repayments,  borrowings,  maturity of
          securities and interest payments.

          While  maturities and scheduled  amortization  of loans and securities
          are  predictable  sources  of funds,  deposit  outflows  and  mortgage
          prepayments are greatly influenced by general interest rates, economic
          conditions and competition.  The primary  investing  activities of the
          Corporation are the origination of commercial and consumer loans,  and
          the purchase of investment,  municipal and mortgage-backed securities.
          These  activities  are funded  primarily  by  principal  and  interest
          payments  on  loans  and  investment   securities,   deposit   growth,
          securities sold under  agreements to repurchase and the utilization of
          FHLB advances.


                                       14
<PAGE>


          During the nine months ended  September  30, 2004,  the  Corporation's
          loan  originations  totaled  $56,165,000.  At September 30, 2004,  the
          Corporation's  investment  in agency  and  mortgage-backed  securities
          totaled  $154,921,000.   Additionally,  outstanding  loan  commitments
          (including  commitments to fund credit lines)  totaled  $36,648,000 at
          September 30, 2004. Management of the Corporation  anticipates that it
          will  have  sufficient  funds  available  to  meet  its  current  loan
          commitments.

          During the nine  months  ended  September  30,  2004,  total  deposits
          increased  $1,328,000.  The Corporation closely monitors its liquidity
          position  on  a  daily  basis.  Certificates  of  deposit,  which  are
          scheduled  to  mature  in one year or less from  September  30,  2004,
          totaled  $97,046,000.  The Corporation relies primarily on competitive
          rates,   customer  service,   and  long-standing   relationships  with
          customers to retain deposits.  From time to time, the Corporation will
          also offer special products to its customers to increase retention and
          to attract new deposits.  Based upon the Corporation's experience with
          deposit  retention  and  current  retention   strategies,   management
          believes that, although it is not possible to predict future terms and
          conditions upon renewal,  a significant  portion of such deposits will
          remain with the Corporation.  If the Corporation requires funds beyond
          its ability to generate them internally,  additional  sources of funds
          are  available   through  FHLB  advances  and  securities  sold  under
          agreements to repurchase.  At September 30, 2004, the  Corporation had
          $66,000,000  of FHLB  borrowings and  $24,000,000  of securities  sold
          under agreements to repurchase.

          Capital Management

          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.

          As of September 30, 2004, the Bank's capital  position,  as calculated
          under  regulatory  guidelines,  exceeds these minimum  requirements as
          follows (dollars in thousands):

                                                Requirement    Actual    Excess

     Tangible capital                             $ 5,200     $29,124   $23,924
     Tangible capital to adjusted total assets      1.50%       8.40%     6.90%

     Core capital                                 $13,868     $29,124   $15,256
     Core capital to adjusted total assets          4.00%       8.40%     4.40%

     Risk based capital                           $15,824     $31,224   $15,400
     Risk based capital to risk weighted assets     8.00%      15.79%     7.79%


          On January  29,  2003,  the  Corporation  announced  that the Board of
          Directors  had approved a stock  repurchase  program  authorizing  the
          Corporation  to  repurchase  up to  98,000,  or 5% of the  outstanding
          shares  of  the  Corporation's  common  stock.  The  shares  are to be
          repurchased   either  through  open  market   purchases  or  privately
          negotiated  transactions  and will be made from time to time depending
          on market  conditions  and other factors.  Repurchased  shares will be
          held in treasury and will be available for the  Corporation's  benefit
          plans. The repurchase program is expected to improve the Corporation's
          operating performance on a per share basis, enhance, in the long term,
          the  market  price per  share of the  Corporation's  common  stock and
          increase the liquidity of the Corporation's  common stock.  During the
          quarter ending September 30, 2004, the Corporation  repurchased 18,468
          shares.  As of September 30, 2004, the  Corporation  had repurchased a
          total of 68,118 shares under this authorization.


                                       15
<PAGE>


          Results of operations for the nine months ended September 30, 2004 and
          ----------------------------------------------------------------------
          2003
          ----

          General
          -------

          Net income increased  $158,000,  or 11.23%, to $1,565,000 for the nine
          months ended September 30, 2004 as compared to the same period in 2003
          as an  increase  in  net  interest  income  was  partially  offset  by
          increases in provision for loan losses and non-interest  expense along
          with a reduction in non-interest income.

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

          Interest income  decreased  $71,000,  or 0.56%, to $12,525,000 for the
          nine months ended September 30, 2004 as compared to the same period in
          2003.  Interest income on loans  decreased by 5.08%,  or $407,000,  to
          $7,599,000  for  the  nine  months  ended   September  30,  2004  from
          $8,006,000 for the nine months ended September 30, 2003, due primarily
          to  declining  market  interest  rates  along  with a smaller  average
          balance  of loans  due to our  decreased  emphasis  on  mortgage  loan
          originations.  Interest on deposits and federal  funds sold,  combined
          with  interest  and  dividends  on  investment   and   mortgage-backed
          securities  increased  $336,000,  or 7.32%,  for the nine months ended
          September  30,  2004 to  $4,926,000  from  $4,590,000  during the same
          period  in  2003.   The  increase  was  due   primarily  to  increased
          investments  in  mortgage-backed   securities  and  government  agency
          securities,  offset by decreased yields due to the lower interest rate
          environment.

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

          Interest expense  decreased  $1,038,000,  or 16.17%, to $5,380,000 for
          the nine  months  ended  September  30,  2004 as  compared to the nine
          months ended September 30, 2003.  Interest expense on deposit accounts
          decreased $549,000, or 16.01%, to $2,881,000 for the nine months ended
          September 30, 2004 from $3,430,000  during the same period in 2003 due
          to lower cost of deposits as a result of deposit composition and lower
          market rates.  The  Corporation  continues to target lower cost demand
          deposit  accounts  from  traditional   higher  cost   certificates  of
          deposits.  Interest  expense  on  borrowings  decreased  $495,000,  or
          18.43%,  for the nine months ended  September  30, 2004 as compared to
          the same period in the previous year due to lower  borrowing rates due
          to the use of securities sold under agreement to repurchase instead of
          FHLB advances and the lower interest rate environment.


                                       16
<PAGE>

          Provision for Loan Losses
          -------------------------

          During the nine months ended  September  30, 2004,  the  provision for
          loan losses was  $775,000 as compared to $545,000  for the same period
          in the previous  year,  primarily due to increased  charge-offs  and a
          loan  portfolio  consisting  of a higher  percentage  of consumer  and
          commercial  loans  which  generally  carry  greater  risk  offset by a
          decrease in non-accrual loans.  During the nine months ended September
          30, 2004,  non-accrual  loans decreased  $1,543,000 from $2,829,000 at
          December 31, 2003 to  $1,286,000  at September  30, 2004.  Loans 30-89
          days  past due and  still  accruing  also  decreased  $6,422,000  from
          $7,636,000  at December 31, 2003 to  $1,214,000 at September 30, 2004.
          The reduction in delinquent  and non  performing  loans is a result of
          increased  emphasis and focus from the Credit  Administration  area of
          the Bank  that  was  brought  about  from the  charter  change  in the
          previous  year.  During the nine months ended  September 30, 2004, bad
          debt  charge-offs,  net of  recoveries,  was $1,058,000 as compared to
          $254,000 for the same period in the previous year. The increase in bad
          debt  charge-offs  over  the  previous  year  includes   approximately
          $859,000  from two  commercial  loans that were  written down due to a
          reduction in the market value of the supporting loan  collateral.  The
          increase in the provision  also reflects the  Corporation's  continued
          movement from longer term,  fixed rate  residential  mortgage loans to
          shorter term,  floating rate consumer and commercial  loans.  Consumer
          and  commercial  loans carry higher risk weighted rates in the reserve
          calculation  as compared to  residential  mortgage  loans.  Management
          believes the  Corporation's  loan loss allowance is adequate to absorb
          possible loan losses inherent in the portfolio. The Corporation's loan
          loss  allowance at September 30, 2004 was  approximately  1.24% of the
          Corporation's outstanding loan portfolio and 163.30% of non-performing
          loans  compared  to  1.51%  of  the  Corporation's   outstanding  loan
          portfolio and 80.85% of non-performing loans at December 31, 2003.

          The allowance for loan loss  calculation  includes a  segmentation  of
          loan  categories  subdivided by residential  mortgage,  commercial and
          consumer  loans.  Each  category  is  rated  for all  loans  including
          performing  groups.  The weight assigned to each  performing  group is
          developed  from  previous  loan  loss   experience  and  as  the  loss
          experience changes,  the category weight is adjusted  accordingly.  In
          addition, as the loan categories increase and decrease in balance, the
          allowance for loan loss calculation will adjust accordingly.


          The  changes  in  the  allowance  for  loan  losses  consisted  of the
          following (in thousands):

          ----------------------------------------------------------
          Balance at beginning of year                       $2,383
          ----------------------------------------------------------
          Provision for loan losses                             775
          ----------------------------------------------------------
          Charge-offs, net                                   (1,058)
                                                            --------
          ----------------------------------------------------------
                                                             $2,100
                                                            ========
          ----------------------------------------------------------

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


                                       17
<PAGE>

                                           September 30, 2004  December 31, 2003
                                           ------------------  -----------------
Non-accruing loans which are
contractually past due 90 days
 or more:

Real Estate                                       $  299             $  896
Commercial                                           886              1,720
Consumer                                             101                213
                                                 --------           --------
Total                                             $1,286             $2,829
                                                 ========           ========

Percentage of loans receivable, net                0.77%              1.85%
                                                 ========           ========

Percentage of allowance for loan losses
to total loans outstanding                         1.24%              1.51%
                                                 ========           ========

Allowance for loan losses                         $2,100             $2,368
                                                 ========           ========
Real estate acquired through
 foreclosure and repossessed
 assets, net of allowances                        $  300             $  374
                                                 ========           ========


Non-Interest Income
-------------------

     Total non-interest income decreased  $151,000,  or 8.53%, to $1,620,000 for
     the nine  months  ended  September  30, 2004 from  $1,771,000  for the same
     period in the previous year due primarily to $591,000 from the gain on sale
     of  investments  in 2003 compared to a loss on sale of securities of $8,000
     for the current year. Fees from financial services increased  $182,000,  or
     13.74%,  to  $1,507,000  for the nine months ended  September 30, 2004 from
     $1,325,000  for the same period in the previous  year. The increase was due
     primarily to increases in demand  deposit  accounts over the previous year.
     Loan  servicing  fees for the nine  months  ended  September  30,  2004 was
     $49,000  compared to loan servicing costs of ($145,000) for the same period
     in the previous  year.  The increase in loan  servicing fees was due to the
     amortization  of servicing  expense with all costs being fully amortized in
     the previous year. Mortgage banking fees from the gain on sale of loans for
     the nine months ended September 30, 2004 was $72,000 compared to $0 for the
     same period in the previous  year as the  Corporation  sold  $7,512,000  in
     fixed rate mortgage loans during the year as part of its interest rate risk
     strategies. The sales represent loans funded and sold through a third party
     on a servicing released basis.


                                       18
<PAGE>


     Non-Interest Expense
     --------------------

     For the nine months ended September 30, 2004,  total  non-interest  expense
     increased  $331,000,  or 5.93%,  to $5,915,000 from $5,584,000 for the same
     period in 2003. On June 16, 2003,  the  Corporation  opened its York County
     regional banking center and therefore,  expense categories for 2004 reflect
     additions for the new banking center.  Compensation  and employee  benefits
     increased $212,000, or 8.25%, to $2,782,000 for the nine month period ended
     September  30,  2004  from  $2,570,000  for the same  period  in 2003,  due
     primarily to staff additions  resulting from the new branch.  Occupancy and
     equipment expense increased  $56,000,  or 4.00%, to $1,455,000 for the nine
     months  ended  September  30, 2004 from  $1,399,000  for the same period in
     2003,  due to  higher  rent  expense  due to the new  office.  Professional
     services expense  decreased  $41,000,  or 15.36%,  to $226,000 for the nine
     months ended  September  30, 2004 from $267,000 for the same period in 2003
     due to lower legal  expenses as a result of  previous  year costs  incurred
     from the Corporation's  conversion to a national bank charter.  Advertising
     expense decreased $49,000, or 28.82%, to $121,000 for the nine months ended
     September  30, 2004 from  $170,000 for the same period in 2003,  due to the
     previous year promotional  costs incurred related to the new banking center
     opening.

     Real estate operations costs increased $74,000, or 200.00%, to $111,000 for
     the nine months ended  September  30, 2004 from $37,000 for the same period
     in 2003, due to higher  disposition  costs  associated with foreclosed real
     estate properties.  Items processing expense increased $21,000,  or 12.43%,
     to $190,000 for the nine months ended  September 30, 2004 from $169,000 for
     the same period in 2003, due to an increase in demand  accounts.  Telephone
     expense increased $15,000, or 15.63%, to $111,000 for the nine months ended
     September  30,  2004  from  $96,000  for the same  period  in 2003,  due to
     additional expense from the new office. Other expense increased $45,000, or
     12.06%,  to $418,000  for the nine  months  ended  September  30, 2004 from
     $373,000  for the same  period in 2003,  due  primarily  to higher  general
     expenses that resulted from the new office opening in York County.

     Item 3. Controls and Procedures
             -----------------------

     The  Corporation's   management,   including  the  Corporation's  principal
     executive  officer and  principal  financial  officer,  have  evaluated the
     effectiveness of the Corporation's "disclosure controls and procedures," as
     such term is defined in Rule  13a-15(e)  promulgated  under the  Securities
     Exchange Act of 1934, as amended,  (the "Exchange  Act").  Based upon their
     evaluation, the principal executive officer and principal financial officer
     concluded  that,  as of the end of the period  covered by this report,  the
     Corporation's  disclosure  controls and  procedures  were effective for the
     purpose of ensuring  that the  information  required to be disclosed in the
     reports that the  Corporation  files or submits under the Exchange Act with
     the  Securities  and  Exchange  Commission  (the  "SEC")  (1) is  recorded,
     processed, summarized and reported within the time periods specified in the
     SEC's  rules and forms,  and (2) is  accumulated  and  communicated  to the
     Corporation's  management,  including its principal executive and principal
     financial  officers,  as  appropriate to allow timely  decisions  regarding
     required disclosure.


                                       19
<PAGE>

     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
     are  immaterial  to the  Corporation's  financial  condition and results of
     operations.

     Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
             -----------------------------------------------------------

     The following  table  provides  certain  information  with regard to shares
     repurchased by the Corporation during the third quarter of 2004.
<TABLE>
<CAPTION>
<S>                  <C>                <C>                   <C>                    <C>
--------------------------------------------------------------------------------------------------------
                                                                     (c)
                                                               Total Number of               (d)
                           (a)                                 Shares Purchased       Maximum Number of
                      Total Number of           (b)            as part of Publicly    Shares that may be
                      Shares             Average Price Paid    Announced              purchased under
Period                Purchased          per share             Programs               Program
--------------------------------------------------------------------------------------------------------
July 1, 2004 through         15                $16.51                   15                  48,335
July 31, 2004
--------------------------------------------------------------------------------------------------------
August 1, 2004            5,644                $16.04                5,644                  42,691
through August 31,
2004
--------------------------------------------------------------------------------------------------------
September 1, 2004        12,809                $16.31                12,809                 29,882
through September 30,
2004
--------------------------------------------------------------------------------------------------------
Total                    18,468                $16.23                18,468                    N/A
--------------------------------------------------------------------------------------------------------

(1) On January 29, 2003, the  Corporation  announced that the Board of Directors
had  approved  a  stock  repurchase  program   authorizing  the  Corporation  to
repurchase up to 98,000 shares of the Corporation's common stock. The repurchase
program  will  continue  until it is  completed  or  terminated  by the Board of
Directors.
</TABLE>


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

        Not applicable.

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

        None


                                       20
<PAGE>


Item 5. Other Information
        -----------------

        None

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

        Exhibits
        --------

 31(a)  Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer

 31(b)  Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer

 32(a)  Chief Executive Officer  Certification  Pursuant to Section 906 of the
        Sarbanes- Oxley Act of 2002

 32(b)  Chief Financial Officer  Certification  Pursuant to Section 906 of the
        Sarbanes- Oxley Act of 2002



                                       21
<PAGE>

                                   SIGNATURES
                                   ----------

     In accordance  with the  requirements  of the Exchange Act, the  registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                        UNION FINANCIAL BANCSHARES, INC.
                        --------------------------------
                                  (Registrant)




    Date: October 29, 2004                      By: /s/ Dwight V. Neese
          ----------------                          -------------------
                                                    Dwight V. Neese, CEO

    Date: October 29, 2004                      By: /s/ Richard H. Flake
          ----------------                          --------------------
                                                    Richard H. Flake, CFO




                                       22