SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                   FORM 10-QSB

(Mark One)

   X     QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
------   EXCHANGE ACT OF 1934
         For the quarterly period ended March 31, 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            (I.R.S. Employer Identification No.)
   of Incorporation)


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

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

Check whether the issuer (1) 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 1,960,789 shares, $0.01 par value, common stock issued and
outstanding as of April 30, 2004.




<PAGE>



                        UNION FINANCIAL BANCSHARES, INC.

                                      INDEX

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

          Item 1.  Consolidated Financial Statements (unaudited)

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

          Consolidated Statements of Income for the three months
          ended March 31, 2004 and 2003                                 4

          Consolidated Statements of Cash Flows for the three
          months ended March 31, 2004 and 2003                          5

          Consolidated Statements of Shareholders' Equity for the
          three months ended March 31, 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                                                    23
<PAGE>

ITEM 1.    FINANCIAL STATEMENTS
UNION FINANCIAL BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2004 AND DECEMBER 31, 2003 (UNAUDITED)



<TABLE>
<CAPTION>

                                                                 March 31,     December 31,
ASSETS                                                             2004            2003
                                                                ----------      ---------
                                                                  (DOLLARS IN THOUSANDS)
<S>                                                             <C>             <C>
Cash                                                            $   2,067       $   1,515
Short term interest-bearing deposits                                4,784          27,187
                                                                ---------       ---------
Total cash and cash equivalents                                     6,851          28,702
Investment and mortgage-backed securities                         172,804         123,789
Loans, net                                                        155,201         153,301
Real estate acquired through foreclosure                            1,021             374
Office properties and equipment, net                                6,204           6,415
Federal Home Loan Bank Stock, at cost                               3,611           3,900
Federal Reserve Stock, at cost                                        539             539
Accrued interest receivable                                         1,875           1,655
Intangible assets                                                   4,689           4,848
Cash surrender value of life insurance                              5,079           5,025
Other assets                                                        1,994           2,117
                                                                ---------       ---------
TOTAL ASSETS                                                    $ 359,868       $ 330,665
                                                                =========       =========

LIABILITIES

Deposit accounts                                                $ 227,191       $ 223,131
Advances from the Federal Home Loan Bank and other borrowings      67,225          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                                          313             285
Advances from borrowers for taxes and insurance                       122              59
Other liabilities                                                   1,684             183
                                                                ---------       ---------
TOTAL LIABILITIES                                                 333,535         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 - 1,960,889
   shares at 3/31/04 and 1,969,770 at 12/31/03                         20              20
Additional paid-in capital                                         11,957          11,906
Accumulated other comprehensive gain                                  802              99
Retained earnings, substantially restricted                        14,160          13,848
Treasury stock, at cost                                              (606)           (366)
                                                                ---------       ---------
TOTAL SHAREHOLDERS' EQUITY                                         26,333          25,507
                                                                ---------       ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                      $ 359,868       $ 330,665
                                                                =========       =========
</TABLE>


See notes to consolidated financial statements.

                                       3
<PAGE>

UNION FINANCIAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 2004 AND 2003 (UNAUDITED)
<TABLE>
<CAPTION>

                                                               Three Months Ended
                                                           March 31           March 31
                                                             2004              2003
                                                         -----------       -----------
                                                            (DOLLARS IN THOUSANDS
                                                               EXCEPT PER SHARE)
INTEREST INCOME:
<S>                                                      <C>               <C>
  Loans                                                  $     2,458       $     2,765
  Deposits and federal funds sold                                 12                 2
  Mortgage-backed securities                                     470               836
  Interest and dividends on
   investment securities                                       1,102               694
                                                         -----------       -----------
TOTAL INTEREST INCOME                                          4,042             4,297
                                                         -----------       -----------
INTEREST EXPENSE:
  Deposit accounts                                               979             1,161
  Trust preferred corporate obligation                            99               103
  Advances from the FHLB and other borrowings                    704               905
                                                         -----------       -----------
TOTAL INTEREST EXPENSE                                         1,782             2,169
                                                         -----------       -----------
NET INTEREST INCOME                                            2,260             2,128
  Provision for loan losses                                      135               235
                                                         -----------       -----------
NET INTEREST INCOME AFTER
   PROVISION FOR LOAN LOSSES                                   2,125             1,893
                                                         -----------       -----------
NON INTEREST INCOME:
  Fees for financial services                                    494               420
  Loan servicing fees (costs)                                     17               (43)
  Net gain on sale of loans                                       35              --
  Net gain on sale of investments                               --                 182
                                                         -----------       -----------
TOTAL NON INTEREST INCOME                                        546               559
                                                         -----------       -----------
NON INTEREST EXPENSE:
  Compensation and employee benefits                             976               806
  Occupancy and equipment                                        480               439
  Deposit insurance premiums                                       8                 8
  Professional services                                           77               117
  Advertising/Public relations                                    36                29
  Real estate operations                                          27                18
  Deposit premium intangible                                     159               159
  Items processing                                                65                58
  Telephone                                                       38                34
  Other                                                          133               122
                                                         -----------       -----------
Total Non Interest Expense                                     1,999             1,790
                                                         -----------       -----------
INCOME BEFORE INCOME TAXES                                       672               662
Income tax expense                                               163               165
                                                         -----------       -----------
NET INCOME                                               $       509       $       497
                                                         ===========       ===========
BASIC NET INCOME PER COMMON SHARE                        $      0.26       $      0.25
                                                         ===========       ===========
DILUTED NET INCOME PER COMMON SHARE                      $      0.25       $      0.24
                                                         ===========       ===========
WEIGHTED AVERAGE NUMBER OF
  COMMON SHARES OUTSTANDING

BASIC                                                      1,966,560         1,964,488

DILUTED                                                    2,068,639         2,061,586
</TABLE>
See notes to consolidated financial statements.

                                       4

<PAGE>

UNION FINANCIAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2004 AND 2003 (UNAUDITED)


<TABLE>
<CAPTION>
                                                                 Three Months Ended
                                                              March 31,       March 31,
                                                                2004            2003
                                                          ---------------  --------------
                                                           (IN THOUSANDS)  (IN THOUSANDS)
OPERATING ACTIVITIES:
<S>                                                          <C>             <C>
Net income (loss)                                            $    509        $    498
Adjustments to reconcile net income to
  net cash provided by operating activities:
  Provision for loan losses                                       135             235
  Amortization of intangibles                                     159             159
  Depreciation expense                                            240             348
  Recognition of deferred income, net of costs                    (66)            (56)
  Deferral of fee income, net of costs                             76              56
  Changes in operating assets and liabilities:
   (Increase) decrease in accrued interest receivable            (220)             91
   (Increase) decrease in other assets                           (578)           (770)
   Increase (decrease) in other liabilities                     1,564           1,366
   Increase (decrease) in accrued interest payable                 28            --
                                                             --------        --------
Net cash provided by operating activities                       1,847           1,927
                                                             --------        --------
INVESTING ACTIVITIES:

Purchase of investment and mortgage-backed securities:
   Available for sale                                         (84,500)        (36,990)
Proceeds from sale of investment and mortgage-
    backed securities                                            --            10,526
Proceeds from maturity of investment and mortgage-
    backed securities:
   Available for sale                                          31,734             116
Principal repayments on mortgage-backed securities:
   Available for sale                                           4,068           8,618
Net (increase) decrease in loans                               (1,900)          5,006
Redemption of FHLB stock                                          289            --
Purchase of office properties and equipment                       (28)           (272)
                                                             --------        --------
Net cash provided (used) by investing activities              (50,337)        (12,996)
                                                             --------        --------
FINANCING ACTIVITIES:

Proceeds from the dividend reinvestment plan                       31              27
Dividends paid in cash ($0.10 per share -2004
and $0.10 per share - 2003)                                      (197)           (196)
Proceeds from the exercise of stock options                        20               2
Proceeds from term borrowings                                  24,000            --
Repayment of  term borrowings                                  (1,275)           (975)
Increase in deposit accounts                                    4,060          12,645
                                                             --------        --------
Net cash  provided by financing activities                     26,639          11,503
                                                             --------        --------
NET (DECREASE) \ INCREASE IN CASH
   AND CASH EQUIVALENTS                                       (21,851)            434

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

CASH AND CASH EQUIVALENTS
   AT END OF PERIOD                                          $  6,851        $  7,373
                                                             ========        ========
SUPPLEMENTAL DISCLOSURES:

Cash paid for:
  Income taxes                                               $   --          $    275
  Interest                                                      1,782           2,169

Non-cash transactions:
  Loans foreclosed                                           $    647        $     57

</TABLE>



See notes to consolidated financial statements.


                                       5
<PAGE>


UNION FINANCIAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
THREE MONTHS ENDED March 31, 2004 AND 2003 (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                        Retained
                                                                          Additional    Earnings
                                                     Common Stock           Paid-in   Substantially
                                               Shares           Amount      Capital    Restricted
                                          ------------------  ----------    --------  -------------
                                          (IN THOUSANDS, EXCEPT SHARE DATA)

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

Net income                                                                                    497

  Other comprehensive income
    Unrealized gains on securities:
       Unrealized holding gains arising during
        period
  Comprehensive income

Options exercised                                       300                        2

Dividend  reinvestment plan contributions             1,886                       27

Cash dividend ($.10 per share)                                                               (195)

                                          ---------------------------------------------------------------
BALANCE AT MARCH 31, 2003                         1,965,438          $20     $11,650      $14,740
                                          ===============================================================
BALANCE AT DECEMBER 31, 2003                      1,969,770          $20     $11,906      $13,848

Net income                                                                                    509

  Other comprehensive income
    Unrealized gains on securities:
       Unrealized holding gains arising during
        period
  Comprehensive income

Options exercised                                     3,045                       20

Dividend  reinvestment plan contributions             1,877                       31

Share repurchase program                            (13,803)

Cash dividend ($.10 per share)                                                               (197)
                                          ---------------------------------------------------------------
BALANCE AT MARCH 31, 2004                         1,960,889          $20     $11,957      $14,160
                                          ===============================================================

<CAPTION>
                                           Accumulated
                                              Other                Treasury        Total
                                          Comprehensive             Stock       Shareholders'
                                              Income               At Cost        Equity
                                         ------------------       ----------   ------------
<S>                                                   <C>               <C>         <C>
BALANCE AT DECEMBER 31, 2002                          $1,726            $ --        $27,805

Net income                                                                              497

  Other comprehensive income
    Unrealized gains on securities:
       Unrealized holding gains arising during
        period                                          (197)                          (197)
  Comprehensive income                                                                  300

Options exercised                                                                         2

Dividend  reinvestment plan contributions                                                27

Cash dividend ($.10 per share)                                                         (195)
                                          --------------------------------------------------
BALANCE AT MARCH 31, 2003                             $1,529            $ --        $27,939
                                          ==================================================
BALANCE AT DECEMBER 31, 2003                             $99           ($366)       $25,507

Net income                                                                              509

  Other comprehensive income
    Unrealized gains on securities:
       Unrealized holding gains arising during
        period                                          703                            703
  Comprehensive income                                                                1,212

Options exercised                                                                        20

Dividend  reinvestment plan contributions                                                31

Share repurchase program                                                (240)          (240)

Cash dividend ($.10 per share)                                                         (197)
                                          --------------------------------------------------
BALANCE AT MARCH 31, 2004                               $802           ($606)       $26,333
                                          ==================================================
</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 (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  months  ended  March  31,  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 was  granted  approval  to  change  from a
         Federal savings bank to a national bank.

         On  October  21,  2003,  the  Board of  Directors  of  Union  Financial
         Bancshares,  Inc.  changed  the  fiscal  year end of the  Company  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

                                       7
<PAGE>


         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.

         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.

                                       8

<PAGE>



         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
         requires  the  Company  to  discontinue   consolidation  of  the  trust
         preferred  securities.  This  did not  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 encourage  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.

                                       9
<PAGE>

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

         Basic  income per share  amounts for the three  months  ended March 31,
         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  $61,019,000  and $63,692,000 of debt securities at March
         31, 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.

         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 March 31,  2004  related to these  items is
         summarized below:

        Loan Commitments:                                       Contract
        ----------------                                         Amount
                                                             -------------
        Approved loan commitments                            $   4,005,000
        Unadvanced portions of loans and credit lines           28,377,000
                                                             -------------
        Total loan commitments                               $  32,382,000
                                                             =============

         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


                                       10

<PAGE>


         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  March  31,  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  $68,669,000  at March  31,  2004.  Of these  lines,  the
         outstanding loan balances totaled approximately  $36,287,000.  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 March 31, 2004.

         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,  with an initial rate of 5.60%. 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
                               OUTSTANDING AT
                                   MARCH 31,                                                           DISTRIBUTION
                            ------------------------           PREPAYMENT                                PAYMENT
            NAME                2004         2003    RATE      OPTION DATE          MATURITY            FREQUENCY
 ------------------------   ------------------------ ------ ------------------  -----------------     --------------
<S>                         <C>          <C>        <C>     <C>                  <C>                 <C>
Union Financial Statutory
Trust I                     $8,000,000   $8,000,000  4.71%   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



                                       11
<PAGE>

         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.  All deferrals  will end on an interest  payment date and will
         not extend beyond  December 18, 2031,  the stated  maturity date of the
         Debentures.   If  the  Corporation  defers  interest  payments  on  the
         Debentures,  the Trust will also  defer  distributions  on the  capital
         securities.  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 Trusts  operations
         have been consolidated.

         Beginning  with the first  reporting  period ending after  December 15,
         2004,  as a result of the adoption of FIN 46, the  Corporation  will no
         longer  be  allowed  to  consolidate   the  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  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  $29,203,000,  or 8.83%, to
         $359,868,000 at March 31, 2004 from  $330,665,000 at December 31, 2003.
         Investments  and  mortgage-backed  securities  increased  approximately
         $49,015,000,  or 39.60%,  from December 31, 2003 to March 31, 2004, due
         to  the  purchase  of  shorter-term   mortgage  backed  securities  and
         municipal  securities  for tax benefits that was funded  primarily with
         additional  borrowings.  The  securities  purchases  offset  lower loan
         demand.

                                       13
<PAGE>


         Loans  increased  $1,900,000,  or 1.24%,  to  $155,201,000 at March 31,
         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
         $2,974,000,  or 3.28%,  while  outstanding  residential  mortgage loans
         decreased $1,511,000 or 2.27%. Real estate acquired through foreclosure
         increased  $647,000,  or 173.0%,  to  $1,021,000 at March 31, 2004 from
         $374,000 at December 31, 2003. The increase was due to the  foreclosure
         of a manufacturing facility that is currently under contract to be sold
         during the second quarter of 2004.

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

         Total liabilities increased  $28,377,000,  or 9.30%, to $333,535,000 at
         March  31,  2004 from  $305,158,000  at  December  31,  2003.  Deposits
         increased $4,060,000,  or 1.82%, to $227,191,000 at March 31, 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 $1,275,000,
         or 1.86%, to $67,225,000 at March 31, 2004 from $68,500,000 at December
         31,  2003.  Securities  sold under  agreement to  repurchase  increased
         $24,000,000 or 480.0% to $29,000,000 at March 31, 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 decrease in borrowings  from FHLB
         was due to the transfer of  borrowings to  repurchase  agreements.  The
         increase in repurchase agreements funded the additional loan growth and
         security  purchases  for  the  quarter.   Other  liabilities  increased
         $1,501,000,  or 820.22%,  to $1,684,000 at March 31, 2004 from $183,000
         at December 31, 2003, due to a reduction in current and deferred income
         taxes payable due to the loss recorded during the previous quarter.

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

         Shareholders'  equity increased  $826,000,  or 3.24%, to $26,333,000 at
         March 31, 2004 from  $25,507,000 at December 31, 2003 due to net income
         for the  quarter  and an increase  in  unrealized  gains in  securities
         available for sale, offset by the repurchase of 13,803 shares at a cost
         of $240,000 and the payment of $0.10 per share quarterly dividends.


                                       14
<PAGE>

         Liquidity
         ---------

         Liquidity is the ability to meet demand for loan disbursements, deposit
         withdrawals,  repayment  of debt,  payment of interest on deposits  and
         other operating expenses.  The primary sources of liquidity are savings
         deposits,  loan  repayments,  borrowings,  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 three months ended March 31, 2004,  the  Corporation's  loan
         originations totaled $22,104,000.  At March 31, 2004, the Corporation's
         investment   in   agency   and   mortgage-backed   securities   totaled
         $172,804,000.  Additionally,  outstanding loan  commitments  (including
         commitments  to fund credit  lines)  totaled  $32,382,000  at March 31,
         2004.  Management  of the  Corporation  anticipates  that it will  have
         sufficient funds available to meet its current loan commitments.

         During the three months ended March 31, 2004, total deposits  increased
         $4,060,000.  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  March 31,  2004,  totaled  $101,153,000.  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 March 31, 2004,

                                       15
<PAGE>


         the  Corporation  had $67,225,000 of FHLB borrowings and $29,000,000 of
         securities sold under agreements to repurchase.

         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
         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 March 31, 2004,
         the Corporation  repurchased  13,803 shares.  As of March 31, 2004, the
         Corporation  had  repurchased  a total  of  34,089  shares  under  this
         authorization.

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

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

         As of March 31, 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                                 $    5,101        $   28,554        $   23,453

Tangible capital to adjusted total assets              1.50%             8.40%             6.90%

Core capital                                     $   13,603        $   28,554        $   14,951

Core capital to adjusted total assets                  4.00%             8.40%             4.40%

Risk based capital                               $   14,721        $   30,854        $   16,133

Risk based capital to risk weighted assets             8.00%            16.77%             8.77%
</TABLE>



                                       16
<PAGE>


         Results of operations for the three months ended March 31, 2004
         and 2003
         -----------------------------------------------------------------------

         General
         -------

         Net income  increased  $12,000,  or 2.41%,  to  $509,000  for the three
         months  ended  March 31, 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  $255,000,  or 5.93%,  for the three months
         ended March 31,  2004 as compared to the same period in 2003.  Interest
         income on loans decreased by 11.10%, or $307,000, to $2,458,000 for the
         three months ended March 31, 2004 from  $2,765,000 for the three months
         ended March 31, 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 $52,000,  or 3.39%, for the
         three months ended March 31, 2004 to $1,584,000 from $1,532,000  during
         the same period in 2003.  The increase  was due  primarily to increased
         investments in mortgage-backed securities and municipal securities.



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

         Interest expense decreased  $387,000,  or 17.84%,  for the three months
         ended March 31, 2004 as  compared to the three  months  ended March 31,
         2003.  Interest  expense on deposit  accounts  decreased  $182,000,  or
         15.68%,  to  $979,000  for the three  months  ended March 31, 2004 from
         $1,161,000 during the same period in 2003. The Corporation continues to
         target lower cost demand deposit accounts from traditional  higher cost
         certificate  of  deposits.  Interest  expense on  borrowings  decreased
         $201,000,  or 22.21%,  for the three  months  ended  March 31,  2004 as
         compared to the same period in the previous year due to lower borrowing
         rates and the use of  securities  sold under  agreement  to  repurchase
         instead of FHLB advances.

                                       17
<PAGE>

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

         During the three months ended March 31, 2004,  the  provision  for loan
         losses was  $135,000 as compared to $235,000 for the same period in the
         previous year.  During this same period,  non-accrual  loans  decreased
         $1,388,000  from $2,829,000 at December 31, 2003 to $1,441,000 at March
         31, 2004.  Loans 30-89 days past due and still  accruing also decreased
         $2,792,000  from $7,636,000 at December 31, 2003 to $4,844,000 at March
         31, 2004.  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  March  31,  2004  was  approximately  1.44% of the
         Corporation's  outstanding loan portfolio and 92.77% 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 quarter       $ 2,368

         Provision for loan losses                 135

         (Charge-offs) recoveries, net            (219)
                                               -------
         Balance at end of quarter             $ 2,284
                                               =======

                                       18
<PAGE>


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


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

Real Estate                                   $  518        $  896
Commercial                                       674         1,720
Consumer                                         249           213
                                              ------        ------
Total                                         $1,441        $2,829
                                              ======        ======
Percentage of loans receivable, net             0.93%         1.85%
                                              ======        ======
Percentage of allowance for loan losses
to total loans outstanding                      1.44%         1.51%
                                              ======        ======
Allowance for loan losses                     $2,284        $2,368
                                              ======        ======
Real estate acquired through
 foreclosure and repossessed
 assets, net of allowances                    $1,021        $  374
                                              ======        ======


         Real estate acquired through foreclosure increased $647,000, or 173.0%,
         to $1,021,000 at March 31, 2004 from $374,000 at December 31, 2003. The
         increase was due to the foreclosure of a manufacturing facility that is
         currently under contract to be sold during the second quarter of 2004.

         Loans  30-89 days past due and still  accruing  at March 31,  2004 were
         $4,844,000 compared to $7,636,000 at December 31, 2003. These loans are
         supported by mortgages,  equipment,  and automobiles that should reduce
         the risk of loss for the Corporation.

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

         Total non-interest  income decreased $13,000, or 2.33%, to $546,000 for
         the three months ended March 31, 2004 from $559,000 for the same period
         in the  previous  year due  primarily to the  previous  year  including
         $182,000  from the gain on sale of  investments  compared to $0 for the
         current  year.  Fees from  financial  services  increased  $74,000,  or
         17.62%,  to  $494,000  for the three  months  ended March 31, 2004 from
         $420,000 for the same period in the previous year. The increase was due
         primarily  to increases in demand  deposit  accounts  over the previous
         year.  Gain on sale of loans for the three  months ended March 31, 2004
         was $35,000  compared to $0 for the same period in the previous year as
         the Corporation sold $2,608,000 in fixed rate mortgage loans during the
         quarter.

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

         For the three months ended March 31, 2004, total  non-interest  expense
         increased  $209,000,  or 11.68%,  to $1,999,000 from $1,790,000 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  $170,000,  or 21.09%, to $976,000 for the
         three month  period  ended March 31,  2004 from  $806,000  for the same
         period in 2003, due primarily to staff additions resulting from the new
         branch opening.  Occupancy and equipment expense increased $41,000,  or
         9.34%,  to  $480,000  for the three  months  ended  March 31, 2004 from
         $439,000 for the same period in 2003, due to higher rent expense due to
         the new office.  Professional  services expense decreased  $40,000,  or
         34.19%,  to $77,000  for the three  months  ended  March 31,  2004 from
         $117,000  for the same period in 2003 due to lower legal  expenses as a
         result of previous year costs incurred from the Corporation's change to
         a national bank  charter.  Advertising  expense  increased  $7,000,  or
         24.14%,  to $36,000  for the three  months  ended  March 31,  2004 from
         $29,000 for the same period in 2003, due to ongoing  promotional  costs
         incurred related to the new banking center opening.

         Real estate  operations costs increased  $9,000,  or 50.00%, to $27,000
         for the three  months  ended March 31,  2004 from  $18,000 for the same
         period  in  2003,  due to  higher  disposition  costs  associated  with
         foreclosed  real  estate  properties.  NOW  account  expense  increased
         $7,000, or 12.07%, to $65,000 for the three months ended March 31, 2004
         from $58,000 for the same period in 2003,  due to an increase in demand
         accounts. Telephone expense increased $4,000, or 11.76%, to $38,000 for
         the three  months ended March 31, 2004 from $34,000 for the same period
         in 2003, due to additional  expense from the new office.  Other expense
         increased  $11,000,  or 9.02%,  to $ 133,000 for the three months ended
         March 31, 2004 from $122,000 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
         repurchases by the Corporation in the first quarter of 2004.



<TABLE>
<CAPTION>

                                 (a)                     (b)                       (c)                      (d)
                       --------------------- -------------------------  ------------------------ ------------------
                                                                       Total Number of Shares   Maximum Number of
                       Total Number                                    Purchased as part of     Shares that may
                       of                                              Publicly                 be  purchased
                       Shares                Average Price             Announced                under
       Period          Purchased             Paid  per share           Programs                 Program
-------------------------------------------------------------------------------------------------------------------
<S>                    <C>                   <C>                       <C>                      <C>
January 1, 2004                  --                  --                        --                  77,714(1)
through January 31,
2004
-------------------------------------------------------------------------------------------------------------------
February 1, 2004
through February 29,
2004                          5,400              $17.54                     5,400                  72,314
-------------------------------------------------------------------------------------------------------------------
March 1, 2004 through
March 31, 2004                8,403              $17.30                     8,403                  63,911
-------------------------------------------------------------------------------------------------------------------
Total                        13,803              $17.39                    13,803                    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
                  ---------------------------------------------------

                  The Annual Meeting of the  Stockholders of the Corporation was
                  held on  January  28,  2004.  The  results  of the vote on the
                  matters presented at the meeting is as follows:

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

                                                Votes For       Votes Withheld
                                                ---------       ---------------
                           Mason G. Alexander   1,456,648           39,903
                           James W. Edwards     1,457,316           39,235


                  2.       The  appointment of Elliott  Davis,  LLC, as auditors
                           for the  Corporation for the year ending December 31,
                           2004  was  ratified  by  the   shareholders   by  the
                           following vote:

                           For 1,449,225        Against 35,185   Abstain  12,141
                               ---------                ------            ------

                  3.       Proposal to amend the  Corporation's  Certificate  of
                           Incorporation  to increase  the number of  authorized
                           shares  of  common  stock  to  5,000,000  shares  was
                           approved by the following vote:

                           For 1,351,875        Against 124,506   Abstain 20,170
                               ---------                --------          ------

         Item  5. Other Information
                  -----------------
                  None

         Item  6. Exhibits and Reports on Form 8-K
                  ---------------------------------
<TABLE>
<CAPTION>
                  Exhibits

<S>               <C>
         3        Certificate of Amendment to Certificate of Incorporation
         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(c)    Chief Executive Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
         32(d)    Chief Financial Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
</TABLE>


                                       21
<PAGE>

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

                  On  January  28,  2004,  Union  Financial   Bancshares,   Inc.
                  furnished a Form 8-K announcing its financial  results for the
                  quarter ended December 31, 2003. The press release  announcing
                  financial results was attached by exhibit.



                                       22
<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: April 30, 2004                            By: /s/ Dwight V. Neese
     ---------------                                -------------------------
                                                        Dwight V. Neese, CEO


Date: April 30, 2004                            By: /s/ Richard H. Flake
      --------------                                --------------------------
                                                        Richard H. Flake, CF0



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