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 June 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 1,948,094 shares, $0.01 par value, common stock issued and
outstanding as of July 30, 2004.


<PAGE>





                        UNION FINANCIAL BANCSHARES, INC.

                                      INDEX

<TABLE>
<CAPTION>

Part I.           Financial Information                                                           Page
                  ---------------------                                                           ----
<S>                             <C> <C>                                                                 <C>
                  Item 1.  Consolidated Financial Statements (unaudited)
                  Consolidated Balance Sheets as of June 30, 2004
                   and December 31, 2003                                                                3

                  Consolidated Statements of Income for the three and six months
                   ended June 30, 2004 and 2003                                                         4

                  Consolidated Statements of Cash Flows for the six
                   months ended June 30, 2004 and 2003                                                  5

                  Consolidated Statements of Shareholders' Equity for the
                  six months ended June 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. Changes in Securities and Small Business Issuers
                  Purchases of Equity Securities                                                       20

                  Item 3. Defaults Upon Senior Securities                                              21

                  Item 4. Submission of Matters to a Vote of Security Holders                          21

                  Item 5. Other Information                                                            21

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

                  Signatures                                                                           22


</TABLE>


<PAGE>



Item 1.    Financial Statements
UNION FINANCIAL BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
June 30, 2004 and December 31, 2003 (unaudited)
<TABLE>
<CAPTION>

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

<S>                                                                                                   <C>      <C>
Cash                                                                                                  $  2,058 $  1,515
Short term interest-bearing deposits                                                                     5,227   27,187
                                                                                                       -------- --------
Total cash and cash equivalents                                                                          7,285   28,702
Investment and mortgage-backed securities                                                              159,419  123,789
Loans , net                                                                                            161,548  153,301
Real estate acquired through foreclosure                                                                   150      374
Office properties and equipment, net                                                                     6,025    6,415
Federal Home Loan Bank Stock, at cost                                                                    3,188    3,900
Federal Reserve Stock, at cost                                                                             539      539
Accrued interest receivable                                                                              2,185    1,655
Intangible assets                                                                                        4,530    4,848
Cash surrender value of life insurance                                                                   5,135    5,025
Other assets                                                                                             3,120    2,117
                                                                                                       -------- --------
TOTAL ASSETS                                                                                          $353,124 $330,665
                                                                                                       ======== ========

LIABILITIES

Deposit accounts                                                                                      $226,871 $223,131
Advances from the Federal Home Loan Bank and other borrowings                                           63,250   68,500
Securities sold under agreements to repurchase                                                          29,000    5,000
Corporate obligated floating rate capital securities                                                     8,000    8,000
Accrued interest on deposits                                                                               353      285
Advances from borrowers for taxes and insurance                                                            202       59
Other liabilities                                                                                        1,834      183
                                                                                                       -------- --------
TOTAL LIABILITIES                                                                                      329,510  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 - 1,948,109 shares at 6/30/04 and 1,969,770 at 12/31/03                           20       20
Additional paid-in capital                                                                              11,993   11,906
Accumulated other comprehensive gain                                                                    -2,036       99
Retained earnings, substantially restricted                                                             14,513   13,848
Treasury stock, at cost                                                                                   -876     -366
                                                                                                       -------- --------
TOTAL SHAREHOLDERS' EQUITY                                                                              23,614   25,507
                                                                                                       -------- --------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                                            $353,124 $330,665
                                                                                                       ======== ========

See notes to consolidated financial statements.
</TABLE>


                                       3
<PAGE>


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

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

Interest Income:
<S>                                                                         <C>        <C>        <C>        <C>
  Loans                                                                     $    2,498 $    2,613 $    4,956 $        0
  Deposits and federal funds sold                                                    3          3         15          0
  Mortgage-backed securities                                                       509        613        979          0
  Interest and dividends on
   investment securities                                                         1,190        939      2,292          0
                                                                             ---------- ---------- ---------- ----------
Total Interest Income                                                            4,200      4,168      8,242          0
                                                                             ---------- ---------- ---------- ----------

Interest Expense:
  Deposit accounts                                                                 941      1,171      1,920          0
  Trust preferred corporate obligation                                             100        101        199          0
  Advances from the FHLB and other borrowings                                      743        912      1,447          0
                                                                             ---------- ---------- ---------- ----------
Total Interest Expense                                                           1,784      2,184      3,566          0
                                                                             ---------- ---------- ---------- ----------

Net Interest Income                                                              2,416      1,984      4,676          0
  Provision for loan losses                                                        250        190        385          0
                                                                             ---------- ---------- ---------- ----------
Net Interest Income After
   Provision for Loan Losses                                                     2,166      1,794      4,291          0
                                                                             ---------- ---------- ---------- ----------

Non Interest Income:
  Fees for financial services                                                      527        468      1,021          0
  Loan servicing fees(costs)                                                        16        -55         33          0
  Net gain on sale of loans                                                          8         --         43         --
  Net gain on sale of investments                                                   --        220         --        403
                                                                             ---------- ---------- ---------- ----------
Total Non Interest Income                                                          551        633      1,097        403
                                                                             ---------- ---------- ---------- ----------

Non Interest Expense:
  Compensation and employee benefits                                               925        839      1,901          0
  Occupancy and equipment                                                          479        445        959          0
  Deposit insurance premiums                                                         8          8         16          0
  Professional services                                                             82         61        159          0
  Advertising/Public relations                                                      46         69         82          0
  Real estate operations                                                            35          4         62          0
  Deposit premium intangible                                                       159        159        318          0
  Items processing                                                                  59         53        124          0
  Telephone                                                                         39         33         77          0
  Other                                                                            149        125        282          0
                                                                             ---------- ---------- ---------- ----------
Total Non Interest Expense                                                       1,981      1,796      3,980          0
                                                                             ---------- ---------- ---------- ----------

Income Before Income Taxes                                                         736        631      1,408        403
Income tax expense                                                                 188        147        351          0
                                                                             ---------- ---------- ---------- ----------
Net Income                                                                  $      548 $      484 $    1,057 $      403
                                                                             ========== ========== ========== ==========

Basic Net Income Per Common Share                                           $     0.28 $     0.25 $     0.54 $     0.21
                                                                             ========== ========== ========== ==========

Diluted Net Income Per Common Share                                         $     0.27 $     0.23 $     0.51 $     0.19
                                                                             ========== ========== ========== ==========

Weighted Average Number of
  Common Shares Outstanding

Basic                                                                        1,949,950  1,966,738  1,958,255  1,965,619

Diluted                                                                      2,056,350  2,073,138  2,062,495  2,067,394

See notes to consolidated financial statements.
</TABLE>


                                       4
<PAGE>


UNION FINANCIAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 2004 and 2003 (unaudited)
<TABLE>
<CAPTION>

                                                                                                     Six Months Ended
                                                                                                   June 30,   June 30,
                                                                                                    2004        2003
                                                                                                  ---------- -----------
                                                                                                     (IN        (IN
                                                                                                   THOUSANDS) THOUSANDS)

OPERATING ACTIVITIES:

<S>                                                                                                  <C>             <C>
Net income                                                                                           $1,057          $0
Adjustments to reconcile net income to
  net cash provided by operating activities:
  Provision for loan losses                                                                             385           0
  Amortization of intangibles                                                                           318           0
  Depreciation expense                                                                                  482           0
  Recognition of deferred income, net of costs                                                         (165)          0
  Deferral of fee income, net of costs                                                                  191           0
  Changes in operating assets and liabilities:
   Increase in accrued interest receivable                                                             (530)          0
   Increase in other assets                                                                          (1,113)          0
   Increase in other liabilities                                                                      1,794           0
   Increase (decrease) in accrued interest payable                                                       68           0
                                                                                                  ---------- -----------

Net cash provided by operating activities                                                             2,487           0
                                                                                                  ---------- -----------

INVESTING ACTIVITIES:

Purchase of investment and mortgage-backed securities:
   Available for sale                                                                               (89,114)          0
Proceeds from sale of investment and mortgage-
    backed securities                                                                                    --           0
Proceeds from maturity of investment and mortgage-
    backed securities:
   Available for sale                                                                                41,359           0
Principal repayments on mortgage-backed securities:
   Available for sale                                                                                 9,990           0
Net (increase) decrease in loans                                                                     (8,433)          0
Purchase of FHLB stock                                                                                   --           0
Redemption of FHLB stock                                                                                712          --
Purchase of office properties and equipment                                                             (93)          0
                                                                                                  ---------- -----------

Net cash used by investing activities                                                               (45,579)          0
                                                                                                  ---------- -----------

FINANCING ACTIVITIES:

Proceeds from the dividend reinvestment plan                                                             57           0
Dividends paid in cash ($0.20 per share -2004
and $0.20 per share - 2003)                                                                            (392)          0
Proceeds from the exercise of stock options                                                              30           0
Share repurchase program                                                                               (510)          0
Proceeds from term borrowings                                                                        18,750           0
Increase in deposit accounts                                                                          3,740           0
                                                                                                  ---------- -----------

Net cash  provided by financing activities                                                           21,675           0
                                                                                                  ---------- -----------

NET (DECREASE) \ INCREASE IN CASH
   AND CASH EQUIVALENTS                                                                             (21,417)          0

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

CASH AND CASH EQUIVALENTS
   AT END OF PERIOD                                                                                  $7,285      $6,939
                                                                                                  ========== ===========

SUPPLEMENTAL DISCLOSURES:

Cash paid for:
  Income taxes                                                                                         $120        $218
  Interest                                                                                            3,498       4,353

Non-cash transactions:
  Loans foreclosed                                                                                     $647         $60

See notes to consolidated financial statements.

</TABLE>


                                       5
<PAGE>

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

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

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

Net income                                                                       981                               981

  Other comprehensive income
    Unrealized losses on securities:
       Unrealized holding losses arising
        during
        period                                                                               (764)                (764)
                                                                                     -------------        -------------
  Comprehensive income                                                                                             217

Options exercised                                 7,400              74                                             74

Dividend  reinvestment plan contributions         3,728              54                                             54

Share repurchase program                         (5,000)                                              (84)         (84)

Cash dividend ($.20 per share)                                                  (392)                             (392)

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

BALANCE AT JUNE 30, 2003                      1,969,380   $20   $11,749      $15,027         $962    ($84)      $27,674
                                             ==========================================================================

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

Net income                                                                     1,057                              1,057

  Other comprehensive income
    Unrealized losses on securities:
       Unrealized holding losses arising
        during
        period                                                                             (2,135)              (2,135)
                                                                                     -------------        -------------
  Comprehensive loss                                                                                            (1,078)

Options exercised                                 4,248              30                                             30

Dividend  reinvestment plan contributions         3,455              57                                             57

Share repurchase program                        (29,364)                                             (510)        (510)

Cash dividend ($.20 per share)                                                  (392)                             (392)

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

BALANCE AT JUNE 30, 2004                      1,948,109   $20   $11,993      $14,513      ($2,036)  ($876)     $23,614
                                             ==========================================================================
</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 six months ended June 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


                                       7
<PAGE>

         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.

         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 is 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 Company'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


                                       8
<PAGE>

         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
         requires the Company to discontinue consolidation of the trust
         preferred securities. This is not expected to have a material effect on
         the Company' s financial position or results of operations.

         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 Statement 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 Company'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 six months ended June
         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 $55,307,000 and $63,692,000 of debt securities at June
         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



                                       9
<PAGE>

         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.

         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 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 June 30, 2004 related to these items is
         summarized below:
<TABLE>
<CAPTION>

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

<S>                                                                             <C>
                  Approved loan commitments                                     $   3,257,000
                  Unadvanced portions of loans and credit lines                    34,300,000
                                                                                   ----------
                  Total loan commitments                                        $  37,557,000
                                                                                   ==========
</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 and commercial property.

         Commitments outstanding at June 30, 2004 consist 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 $71,080,000 at June 30, 2004. Of these lines, the
         outstanding loan balances totaled approximately $36,780,000. The Bank
         also has commitments to fund warehouse lines of credit for various
         mortgage banking companies totaling $3,000,000, none of which was
         outstanding at June 30, 2004.


                                       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 Debenture, 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>

                                   Amount                                                           Distribution
                             Outstanding at June             Prepayment                               Payment
                                     30,                     Option Date           Maturity          Frequency
                                     ---                     -----------           --------          ---------
           Name                2004       2003    Rate
           ----                ----       ----    ----
<S>                         <C>        <C>        <C>               <C> <C>             <C> <C>
 Union Financial
 Statutory Trust I          $8,000,000 $8,000,000 5.13%    December 18, 2006 - December 18, 2031 -       Quarterly
</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
         Trust's activities. The Corporation expects assets to increase by



                                       11
<PAGE>
         $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 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 $22,459,000, or 6.79%, to
         $353,124,000 at June 30, 2004 from $330,665,000 at December 31, 2003.
         Investments and mortgage-backed securities increased approximately
         $35,630,000, or 28.78%, from December 31, 2003 to June 30, 2004, due to
         the purchase of shorter-term mortgage backed securities and municipal
         securities for tax benefits that was funded primarily with additional
         borrowings.

         Loans increased $8,247,000, or 5.38%, to $161,548,000 at June 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 $8,866,000,
         or 9.78%, while outstanding residential mortgage loans decreased
         $1,555,000 or 2.34%. Real estate acquired through foreclosure decreased
         $224,000, or 59.89%, to $150,000 at June 30, 2004 from $374,000 at
         December 31, 2003. The decrease was due to the disposition of four real
         estate properties during the first six months of the year.


                                       13
<PAGE>

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

         Total liabilities increased $24,352,000, or 7.98%, to $329,510,000 at
         June 30, 2004 from $305,158,000 at December 31, 2003. Deposits
         increased $3,740,000, or 1.68%, to $226,871,000 at June 30, 2004 from
         $223,131,000 at December 31, 2003. The increase was due primarily to
         growth in demand accounts as a result of deposit growth from the new
         banking center located in York County.

         Borrowings from the Federal Home Loan Bank (FHLB) decreased $5,250,000,
         or 7.66%, to $63,250,000 at June 30, 2004 from $68,500,000 at December
         31, 2003. Securities sold under agreement to repurchase increased
         $24,000,000 to $29,000,000 at June 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 quarter. Other
         liabilities increased $1,651,000 to $1,834,000 at June 30, 2004 from
         $183,000 at December 31, 2003, due primarily to an increase in loan
         suspense fundings.

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

         Shareholders' equity decreased $1,893,000, or 7.42%, to $23,614,000 at
         June 30, 2004 from $25,507,000 at December 31, 2003 due to a $2,135,000
         increase in unrealized losses in securities available for sale, the
         repurchase of 29,364 shares at a cost of $510,000 and the payment of
         $0.20 per share quarterly dividends, offset by net income.

         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.

         During the six months ended June 30, 2004, the Corporation's loan
         originations totaled $37,967,000. At June 30, 2004, the Corporation's
         investment in agency and mortgage-backed securities totaled


                                       14
<PAGE>

         $159,419,000. Additionally, outstanding loan commitments (including
         commitments to fund credit lines) totaled $37,557,000 at June 30, 2004.
         Management of the Corporation anticipates that it will have sufficient
         funds available to meet its current loan commitments.

         During the six months ended June 30, 2004, total deposits increased
         $3,740,000. 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 June 30, 2004, totaled $96,114,000. 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 competitive 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 June 30, 2004, the Corporation had $63,250,000 of FHLB
         borrowings and $29,000,000 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 June 30, 2004, 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                                              $  5,322     $28,280   $22,958
         Tangible capital to adjusted total assets                         1.50%       7.97%     6.47%


         Core capital                                                   $14,192     $28,280   $14,088
         Core capital to adjusted total assets                             4.00%       7.97%     3.97%

         Risk based capital                                             $15,491     $30,167   $14,676
         Risk based capital to risk weighted assets                        8.00%      15.58%     7.58%
</TABLE>

         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% shares of the

                                       15
<PAGE>

         Corporation's common stock. The shares will 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 June 30, 2004,
         the Corporation repurchased 15,561 shares. As of June 30, 2004, the
         Corporation had repurchased a total of 49,650 shares under this
         authorization.

         Results of operations for the six months ended June 30, 2004 and 2003
         ---------------------------------------------------------------------

         General
         -------

         Net income increased $75,000, or 7.64%, to $1,057,000 for the six
         months ended June 30, 2004 as compared to the same period in 2003 as an
         increase in net interest income was partially offset by increases in
         non-interest expense.

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

         Interest income decreased $223,000, or 2.63%, for the six months ended
         June 30, 2004 as compared to the same period in 2003. Interest income
         on loans decreased by 7.85%, or $422,000, to $4,956,000 for the six
         months ended June 30, 2004 from $5,378,000 for the six months ended
         June 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 $199,000, or 6.45%, for the six
         months ended June 30, 2004 to $3,286,000 from $3,087,000 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 $787,000, or 18.08%, for the six months
         ended June 30, 2004 as compared to the six months ended June 30, 2003.
         Interest expense on deposit accounts decreased $412,000, or 17.67%, to
         $1,920,000 for the six months ended June 30, 2004 from $2,332,000
         during the same period in 2003 due to lower cost of deposits as a
         result of lower rates. The Corporation continues to target lower cost
         demand deposit accounts from traditional higher cost certificate of
         deposits. Interest expense on borrowings decreased $370,000, or 20.36%,
         for the six months ended June 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 six months ended June 30, 2004, the provision for loan
         losses was $385,000 as compared to $425,000 for the same period in the
         previous year, primarily due to improved asset quality, offset by
         increased charge-offs and a loan portfolio with greater risk. During
         the six months ended June 30, 2004, non-accrual loans decreased
         $1,874,000 from $2,829,000 at December 31, 2003 to $955,000 at June 30,
         2004. Loans 30-89 days past due and still accruing also decreased
         $4,215,000 from $7,636,000 at December 31, 2003 to $3,421,000 at June
         30, 2004. During the six months ended June 30, 2004, bad debt
         charge-offs, net of recoveries, was $881,000 as compared to $143,000
         for the same period in the previous year. The increase in bad debt
         charge-offs over the previous year includes approximately $737,000 from
         two commercial loans that were written down due to a reduction in the
         market value of the supporting loan collateral. 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 probable loan losses inherent in the
         portfolio. The Corporation's loan loss allowance at June 30, 2004 was
         approximately 1.15% of the Corporation's outstanding loan portfolio and
         197.59% 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 provision 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 weights 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 provision 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                                       385
         Charge-offs, net                                              - 881
                                                                       -----
         Balance at end of quarter                                     $1,887
                                                                       ======


                                       17
<PAGE>

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

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

<S>                                                                   <C>                          <C>
         Real Estate                                                  $   412                      $    896
         Commercial                                                       430                         1,720
         Consumer                                                         113                           213
                                                                       ------                        ------
         Total                                                        $   955                       $ 2,829
                                                                       ======                        ======
         Percentage of loans receivable, net                             0.59%                         1.85 %
                                                                        =====                        ======
         Percentage of allowance for loan losses
         to total loans outstanding                                      1.15%                         1.51 %
                                                                        =====                        ======

         Allowance for loan losses                                     $1,887                        $2,368
                                                                       ======                        ======

         Real estate acquired through
          foreclosure and repossessed
          assets, net of allowances                                  $   150                       $   373
                                                                     =======                       =======
</TABLE>

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

         Total non-interest income decreased $96,000, or 8.05%, to $1,097,000
         for the six months ended June 30, 2004 from $1,193,000 for the same
         period in the previous year due primarily to $403,000 from the gain on
         sale of investments in 2003 compared to $0 for the current year. Fees
         from financial services increased $133,000, or 14.98%, to $1,021,000
         for the six months ended June 30, 2004 from $888,000 for the same
         period in the previous year. The increase was due primarily to
         increases in demand deposit accounts over the previous year. Mortgage
         banking fees from the gain on sale of loans for the six months ended
         June 30, 2004 was $43,000 compared to $0 for the same period in the
         previous year as the Corporation sold $5,221,000 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 six months ended June 30, 2004, total non-interest expense
         increased $394,000, or 10.99%, to $3,980,000 from $3,586,000 for the
         same period in 2003. On June 16, 2003, the Corporation opened the York
         County regional banking center and therefore, expense categories for
         2004 reflect additions for the new banking center. Compensation and
         employee benefits increased $256,000, or 15.56%, to $1,901,000 for the
         six month period ended June 30, 2004 from $1,645,000 for the same
         period in 2003, due primarily to staff additions resulting from the new
         branch. Occupancy and equipment expense increased $75,000, or 8.48%, to
         $959,000 for the six months ended June 30, 2004 from $884,000 for the
         same period in 2003, due to higher rent expense due to the new office.
         Professional services expense decreased $19,000, or 10.67%, to $159,000
         for the six months ended June 30, 2004 from $178,000 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 $16,000, or 16.33%, to $82,000
         for the six months ended June 30, 2004 from $98,000 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 $40,000, or 181.82%, to $62,000
         for the six months ended June 30, 2004 from $22,000 for the same period
         in 2003, due to higher disposition costs associated with foreclosed
         real estate properties. Items processing expense increased $13,000, or
         11.71%, to $124,000 for the six months ended June 30, 2004 from
         $111,000 for the same period in 2003, due to an increase in demand
         accounts. Telephone expense increased $10,000, or 14.93%, to $77,000
         for the six months ended June 30, 2004 from $67,000 for the same period
         in 2003, due to additional expense from the new office. Other expense
         increased $35,000, or 14.17%, to $ 282,000 for the six months ended
         June 30, 2004 from $247,000 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. Changes in Securities and Small Business Issuers Purchases of
                  Equity Securities
                  --------------------------------------------------------------

         The Corporation has the right, at one or more times, unless an event of
         default exists under the floating rate junior subordinated deferrable
         interest debentures due December 18, 2031 (the "Debentures"), to defer
         interest payments on the Debentures for up to 20 consecutive quarterly
         periods. During this time, the Corporation will be prohibited from
         declaring or paying cash dividends on its common stock.

         The following table provides certain information with regard to shares
         repurchased by the Corporation during the second quarter of 2004.
<TABLE>
<CAPTION>

                                                                    (c)                   (d)
                                                                Total Number of         Maximum Number of
                           (a)                                  Shares Purchased as     Shares that may be
                         Total Number of      (b)               part of Publicly        purchased under
                         Shares           Average Price Paid    Announced               Program
       Period            Purchased            per share         Programs
---------------------------------------------------------------------------------------------------
<S>  <C>                    <C>                <C>                  <C>                     <C>
April 1, 2004
 through April
 30, 2004                   8,143              $17.06               8,143                   55,768
---------------------------------------------------------------------------------------------------

May 1, 2004
 through May 31,
 2004                       5,299              $17.45               5,299                   50,469
---------------------------------------------------------------------------------------------------

June 1, 2004
 through June 30,
 2004                       2,119              $18.00               2,119                   48,350
---------------------------------------------------------------------------------------------------

Total                      15,561              $17.32              15,561                      N/A
---------------------------------------------------------------------------------------------------
</TABLE>

(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.


                                       20
<PAGE>

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

         Not applicable.

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

         None

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

         Reports on Form 8-K
         -------------------

              On April 20, 2004, Union Financial Bancshares, Inc. furnished
              a Form 8-K announcing its financial results for the quarter
              ended March 31, 2004. The press release announcing financial
              results was attached by exhibit.

                                       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: August 5, 2004                                 By: /s/   Dwight V. Neese
      --------------                                 -------------------------
                                                     Dwight V. Neese, CEO

Date: August 5, 2004                                 By: /s/   Richard H. Flake
      --------------                                 ---------------------------
                                                     Richard H. Flake, CFO



                                       22