UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q
(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, 2006

         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


                      PROVIDENT COMMUNITY BANCSHARES, INC.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its Charter)



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

               203 WEST MAIN STREET, UNION, SOUTH CAROLINA 29379
                    (Address of Principal Executive Offices)

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

                        UNION FINANCIAL BANCSHARES, INC.
--------------------------------------------------------------------------------
              (Former name, former address and former fiscal year,
                         if changed since last report)

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

                                 Yes [X] No [_]

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

Large accelerated filer [_] Accelerated filer [_] Non-accelerated filer [X]

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

                                 Yes [_] No [X]


The  Corporation had 1,897,259  shares,  $0.01 par value, of common stock issued
and outstanding as of May 3, 2006.



                                       1
<PAGE>

<TABLE>
<CAPTION>

              PROVIDENT COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES

                                      INDEX

PART I.  FINANCIAL INFORMATION                                                               PAGE
------------------------------                                                              ------
<S>                    <C>                                                                 <C>
                  Item 1.  Consolidated Financial Statements (unaudited)

                  Consolidated Balance Sheets as of March 31, 2006
                   and December 31, 2005                                                        3

                  Consolidated Statements of Income for the three months
                   ended March 31, 2006 and 2005                                                4

                  Consolidated Statements of Cash Flows for the three
                   months ended March 31, 2006 and 2005                                         5

                  Consolidated Statements of Shareholders' Equity for the
                   three months ended March 31, 2006 and 2005                                   6

                  Notes to Consolidated Financial Statements                                 7-10

                  Item 2.  Management's Discussion and Analysis of
                   Financial Condition and Results of Operations                            11-21

                  Item 3.  Quantitative and Qualitative Disclosures
                   about Market Risk                                                        21-23

                  Item 4.  Controls and Procedures                                             23

PART II. OTHER INFORMATION
--------------------------

                  Item 1.   Legal Proceedings                                                  24

                  Item 1A.  Risk Factors                                                       24

                  Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds        24

                  Item 3.   Defaults Upon Senior Securities                                    24

                  Item 4.   Submission of Matters to a Vote of Security Holders                25

                  Item 5.   Other Information                                                  25

                  Item 6.   Exhibits                                                           25

                  Signatures                                                                   26
</TABLE>

                                       2
<PAGE>

<TABLE>
<CAPTION>

Part 1.    Financial Information
PROVIDENT COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
(FORMERLY UNION FINANCIAL BANCSHARES, INC.)
CONSOLIDATED BALANCE SHEETS
March 31, 2006 and December 31, 2005 (unaudited)


                                                                                  March 31, December 31,
ASSETS                                                                              2006        2005
                                                                                  --------- ------------
                                                                                  (DOLLARS IN THOUSANDS)
<S>                                                                              <C>       <C>
Cash and due from banks                                                          $   8,004  $     8,380
Investment and mortgage-backed securities
  Held to maturity                                                                   3,198        3,204
  Available for sale                                                               132,105      143,079
                                                                                  --------- ------------
Total investment and mortgage-backed securities                                    135,303      146,283
                                                                                  --------- ------------
Loans, net                                                                         201,705      192,577
Office properties and equipment, net                                                 5,455        5,148
Federal Home Loan Bank Stock, at cost                                                2,948        3,976
Federal Reserve Stock, at cost                                                         539          539
Accrued interest receivable                                                          2,237        2,429
Intangible assets                                                                    3,417        3,576
Cash surrender value of life insurance                                               5,454        5,404
Other assets                                                                         3,113        2,730
                                                                                  --------- ------------
TOTAL ASSETS                                                                     $ 368,175  $   371,042
                                                                                  ========= ============

LIABILITIES

Deposits                                                                         $ 254,218  $   239,603
Advances from the Federal Home Loan Bank                                            49,000       75,715
Securities sold under agreements to repurchase                                      30,000       20,000
Floating rate junior subordinated deferrable interest debentures                     8,247        8,247
Accrued interest payable                                                               603          520
Advances from borrowers for taxes and insurance                                        107           33
Other liabilities                                                                    1,168        1,591
                                                                                  --------- ------------
TOTAL LIABILITIES                                                                  343,343      345,709
                                                                                  --------- ------------

Commitments and contingencies-Note 4

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 - 1,897,259 shares at 3/31/06 and 1,905,897 at 12/31/05       20           20
Additional paid-in capital                                                          12,388       12,346
Accumulated other comprehensive loss                                                (1,442)        (612)
Retained earnings, substantially restricted                                         17,425       16,916
Treasury stock, at cost                                                             (3,559)      (3,337)
                                                                                  --------- ------------
TOTAL SHAREHOLDERS' EQUITY                                                          24,832       25,333
                                                                                  --------- ------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                       $ 368,175  $   371,042
                                                                                  ========= ============
See notes to consolidated financial statements.
</TABLE>

                                        3
<PAGE>

<TABLE>
<CAPTION>

PROVIDENT COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
(FORMERLY UNION FINANCIAL BANCSHARES, INC.)
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended March 31, 2006 and 2005 (unaudited)

                                                                                    Three Months Ended
                                                                                   March 31,   March 31,
                                                                                     2006        2005
                                                                                  ----------- -----------
                                                                                   (DOLLARS IN THOUSANDS
                                                                                     EXCEPT PER SHARE)

Interest Income:
<S>                                                                              <C>         <C>
  Loans                                                                          $     3,789 $     2,823
  Deposits and federal funds sold                                                         16          58
  Mortgage-backed securities                                                             282         388
  Interest and dividends on
   investment securities                                                               1,340       1,142
                                                                                  ----------- -----------
Total Interest Income                                                                  5,427       4,411
                                                                                  ----------- -----------

Interest Expense:
  Deposit accounts                                                                     1,705       1,139
  Floating rate junior subordinated deferrable interest debentures                       168         128
  Advances from the FHLB and other borrowings                                            900         694
                                                                                  ----------- -----------
Total Interest Expense                                                                 2,773       1,961
                                                                                  ----------- -----------

Net Interest Income                                                                    2,654       2,450
  Provision for loan losses                                                              175         208
                                                                                  ----------- -----------
Net Interest Income After
   Provision for Loan Losses                                                           2,479       2,242
                                                                                  ----------- -----------

Non-Interest Income:
  Fees for financial services                                                            632         543
  Other fees, net                                                                         41          26
  Net gain on sale of investments                                                         13           8
                                                                                  ----------- -----------
Total Non-Interest Income                                                                686         577
                                                                                  ----------- -----------

Non-Interest Expense:
  Compensation and employee benefits                                                   1,087       1,015
  Occupancy and equipment                                                                486         509
  Deposit insurance premiums                                                               8           8
  Professional services                                                                  117          88
  Advertising/Public relations                                                            36          38
  Loan operations                                                                         14          42
  Intangible amortization                                                                159         159
  Items processing                                                                        51          32
  Telephone                                                                               39          46
  Other                                                                                  189         165
                                                                                  ----------- -----------
Total Non-Interest Expense                                                             2,186       2,102
                                                                                  ----------- -----------

Income Before Income Taxes                                                               979         717
Income tax expense                                                                       280         178
                                                                                  ----------- -----------
Net Income                                                                       $       699 $       539
                                                                                  =========== ===========

Basic Net Income Per Common Share                                                $      0.37 $      0.28
                                                                                  =========== ===========

Diluted Net Income Per Common Share                                              $      0.36 $      0.27
                                                                                  =========== ===========

Dividend Per Common Share                                                        $      0.10 $      0.10
                                                                                  =========== ===========

Weighted Average Number of
  Common Shares Outstanding

Basic                                                                              1,896,210   1,928,946

Diluted                                                                            1,917,866   1,992,002


See notes to consolidated financial statements.
</TABLE>

                                       4
<PAGE>
<TABLE>
<CAPTION>


PROVIDENT COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
(FORMERLY UNION FINANCIAL BANCSHARES, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2006 and 2005 (unaudited)

                                                                                                Three Months Ended
                                                                                           March 31,        March 31,
                                                                                             2006             2005
                                                                                          ------------    --------------
                                                                                                  (IN THOUSANDS)

OPERATING ACTIVITIES:

<S>                                                                                              <C>               <C>
Net income                                                                                       $699              $539
Adjustments to reconcile net income to
  net cash provided by operating activities:
  Provision for loan losses                                                                       175               208
  Amortization of intangibles                                                                     159               159
  Depreciation expense                                                                            148               236
  Recognition of deferred income, net of costs                                                   (124)              (87)
  Deferral of fee income, net of costs                                                            122                86
  Gain on investment transactions                                                                 (13)               (8)
  Changes in operating assets and liabilities:
   Decrease in accrued interest receivable                                                        192               308
   Increase in other assets                                                                        87              (255)
   Increase (decrease) in other liabilities                                                      (349)             (283)
   Increase (decrease) in accrued interest payable                                                 83                29
                                                                                          ------------    --------------

Net cash provided by operating activities                                                       1,179               932
                                                                                          ------------    --------------

INVESTING ACTIVITIES:

Purchase of investment and mortgage-backed securities:
   Available for sale                                                                          (1,656)          (18,352)
Proceeds from sale of investment and mortgage-
    backed securities available for sale                                                        7,437             4,370
Proceeds from maturity of investment and mortgage-
    backed securities:
   Available for sale                                                                           2,026            10,078
   Held to maturity                                                                                 6                --
Principal repayments on mortgage-backed securities:
   Available for sale                                                                           1,903             2,477
Net increase in loans                                                                          (9,374)           (5,445)
(Purchase) redemption of FHLB stock                                                             1,028               (39)
Purchase of office properties and equipment                                                      (455)              (22)
                                                                                          ------------    --------------

Net cash used by investing activities                                                             915            (6,933)
                                                                                          ------------    --------------

FINANCING ACTIVITIES:

Proceeds from the dividend reinvestment plan                                                       27                26
Dividends paid in cash                                                                           (190)             (196)
Proceeds from the exercise of stock options                                                        15                43
Share repurchase program                                                                         (222)             (897)
Repayment of  term borrowings                                                                 (26,715)               --
Increase (decrease) in other borrowings                                                        10,000            (4,000)
Increase in deposit accounts                                                                   14,615             8,542
                                                                                          ------------    --------------

Net cash  provided by financing activities                                                     (2,470)            3,518
                                                                                          ------------    --------------

NET DECREASE IN CASH
   AND CASH EQUIVALENTS                                                                          (376)           (2,483)

CASH AND CASH EQUIVALENTS
   AT BEGINNING OF PERIOD                                                                       8,380            13,197
                                                                                          ------------    --------------

CASH AND CASH EQUIVALENTS
   AT END OF PERIOD                                                                            $8,004           $10,714
                                                                                          ============    ==============

SUPPLEMENTAL DISCLOSURES:

Cash paid for:
  Income taxes                                                                                    $38              $100
  Interest                                                                                      2,690             1,932

Non-cash transactions:
  Loans foreclosed                                                                                $73               $--

See notes to consolidated financial statements.
</TABLE>


                                       5
<PAGE>

PROVIDENT COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
(FORMERLY UNION FINANCIAL BANCSHARES, INC.)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)
Three Months Ended March 31, 2006 and 2005 (unaudited)

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

<S>                                         <C>         <C>     <C>         <C>          <C>             <C>        <C>
BALANCE AT DECEMBER 31, 2004                  1,957,989   $20     $12,109     $15,221      $109            ($1,440)   $26,019

Net income                                                                        539                                     539

  Other comprehensive income, net of tax
     Unrealized holding losses
     on securities available for sale
     arising during period, net
     of tax effect of $470                                                                 (988)                         (988)
     Reclassification adjustment
     for gains included
     in net income, net of tax of $2                                                          6                             6
                                              --------------------------------------------------------------------------------
  Comprehensive loss                                                                                                     (443)

Stock option activity, net                        6,206                43                                                  43

Dividend  reinvestment plan contributions         1,540                26                                                  26

Share repurchase program                        (52,666)   (1)                      1                         (897)      (897)

Cash dividend ($.10 per share)                                                   (196)                                   (196)

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

BALANCE AT MARCH 31, 2005                     1,913,069   $19     $12,178     $15,565     ($873)           ($2,337)   $24,552
                                              ================================================================================

BALANCE AT DECEMBER 31, 2005                  1,905,897   $20     $12,346     $16,916     ($612)           ($3,337)   $25,333

Net income                                                                        699                                     699

  Other comprehensive income, net of tax
     Unrealized holding losses on
     securities available for sale
     arising during period, net
     of tax effect of $777                                                                 (839)                         (839)
     Reclassification adjustment
     for gains included
     in net income, net of tax of $4                                                          9                             9
                                              --------------------------------------------------------------------------------
  Comprehensive loss                                                                                                     (131)

Stock option activity, net                        2,086                15                                                  15

Dividend  reinvestment plan contributions         1,628                27                                                  27

Share repurchase program                        (12,352)                                                      (222)      (222)

Cash dividend ($.10 per share)                                                   (190)                                   (190)

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

BALANCE AT MARCH 31, 2006                     1,897,259   $20     $12,388     $17,425   ($1,442)           ($3,559)   $24,832
                                              ================================================================================
</TABLE>


                                       6
<PAGE>


              PROVIDENT COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
                   (Formerly Union Financial Bancshares, Inc.)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

1. Subsequent Event-Name Change
   ----------------------------

On April 19, 2006,  the  Corporation  announced that it would change its name to
Provident  Community  Bancshares,  Inc. In connection with the name change,  the
Corporation began trading on Nasdaq under the ticker symbol "PCBS".

2. Presentation of Consolidated Financial Statements
   -------------------------------------------------

The  accompanying  unaudited  consolidated  financial  statements  of  Provident
Community  Bancshares,  Inc. (the "Corporation" or "Provident") were prepared in
accordance with  instructions for Form 10-Q 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 accounting
principles  generally  accepted in the United  States of America.  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 results
of  operations  for the three  months  ended March 31, 2006 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.

Recently Issued Accounting Standards

The following is a summary of recent authoritative pronouncements that
affect  accounting,  reporting,  and disclosure of financial  information by the
Corporation:

In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid
Financial  Instruments--an  amendment of FASB  Statements No. 133 and 140." This
Statement  amends SFAS No.  133,  "Accounting  for  Derivative  Instruments  and
Hedging  Activities," and SFAS No. 140,  "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities." This Statement resolves
issues addressed in SFAS No. 133  Implementation  Issue No. D1,  "Application of
Statement 133 to Beneficial Interests in Securitized Financial Assets." SFAS No.
155 is  effective  for all  financial  instruments  acquired or issued after the
beginning of an entity's first fiscal year that begins after September 15, 2006.
The  Corporation  does not believe that the adoption of SFAS No. 155 will have a
material impact on its financial position, results of operations and cash flows.

In March  2006,  the FASB  issued SFAS No. 156,  "Accounting  for  Servicing  of
Financial Assets--an amendment of FASB Statement No. 140." This Statement amends
FASB No. 140,  "Accounting  for Transfers and Servicing of Financial  Assets and
Extinguishments  of Liabilities,"  with respect to the accounting for separately
recognized servicing assets and servicing liabilities.  SFAS No. 156 requires an
entity to  recognize  a  servicing  asset or  servicing  liability  each time it
undertakes  an  obligation  to  service a  financial  asset by  entering  into a
servicing  contract;  requires all separately  recognized  servicing  assets and
servicing  liabilities to be initially  measured at fair value,  if practicable;
permits an entity to choose its subsequent measurement methods for each class of
separately recognized servicing assets and servicing liabilities; at its initial
adoption,  permits a one-time reclassification of available-for-sale  securities
to trading  securities by entities with  recognized  servicing  rights,  without
calling into question the treatment of other available-for-sale securities under
Statement 115, provided that the available-for-sale securities are identified in
some  manner as  offsetting  the  entity's  exposure to changes in fair value of
servicing assets or servicing liabilities that a servicer elects to subsequently
measure at fair value;  and requires  separate  presentation of servicing assets
and servicing  liabilities  subsequently measured at fair value in the statement
of financial position and additional  disclosures for all separately  recognized
servicing assets and servicing liabilities.  An entity should adopt SFAS No. 156
as of the  beginning of its first fiscal year that begins  after  September  15,
2006.  The  Corporation  believes  the  adoption of SFAS No. 156 will not have a
material impact on its financial position, results of operations or cash flows.


                                       7

<PAGE>

Other  accounting  standards  that have been  issued or  proposed by the FASB or
other standards-setting  bodies 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  months ended March 31, 2006 and
2005 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  utilizing the
treasury stock method. Common stock equivalents included in the diluted earnings
per share  calculation  for the three  months ended March 31, 2006 and 2005 were
21,656 and 63,056, respectively.

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

Approximately  $65,862,000  and $83,170,000 of debt securities at March 31, 2006
and December 31, 2005,  respectively,  were pledged by Provident Community Bank,
N.A.  (the  "Bank")  as  collateral  to  secure  deposits  of the State of South
Carolina,  and Union, Laurens and York counties along with additional borrowings
and repurchase agreements.  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. As part of the total assets pledged,
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.

                                       8
<PAGE>

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

In the ordinary course of business,  the Bank enters into financial  instruments
with off-balance-sheet risk to meet the financing needs of its customers.  These
instruments expose the Bank to credit risk in excess of the amount recognized on
the balance sheet.

The Bank's exposure to credit loss in the event of  nonperformance  by the other
party  to  the  financial   instrument  for  commitments  to  extend  credit  is
represented by the contractual  amount of those  instruments.  The Bank uses the
same credit policies in making  commitments  and  conditional  obligations as it
does for on-balance-sheet  instruments.  Total credit exposure at March 31, 2006
related to these items is summarized below:


                  Loan Commitments:                            Contract Amount
                  -----------------                            ---------------
                  Approved loan commitments                       $  3,097,000
                  Unadvanced portions of loans and credit lines     43,287,000
                                                                  ------------
                  Total loan commitments                          $ 46,384,000
                                                                  ============


Loan  commitments  to extend credit are agreements to lend to a customer as long
as there is no violation of any  condition  established  in the  contract.  Loan
commitments  generally have fixed expiration dates or other termination  clauses
and  may  require   payment  of  a  fee.  The  Bank  evaluates  each  customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained upon
extension of credit is based on  management's  credit  evaluation of the counter
party.  Collateral  held  is  primarily  residential  and  commercial  property.
Commitments outstanding at March 31, 2006 consisted of fixed and adjustable rate
loans  at rates  ranging  from  5.5% to 7.5%.  Commitments  to  originate  loans
generally expire within 30 to 60 days.

Commitments to fund loans,  including credit lines  (principally  variable rate,
consumer  lines  secured  by  real  estate  and  overdraft  protection)  totaled
approximately  $95,212,000  at March 31, 2006. Of these lines,  the  outstanding
loan balances totaled approximately $51,925,000.

5. Floating Rate Junior Subordinated Deferrable Interest Debentures

A summary of the Trust securities issued and outstanding follows:

<TABLE>
<CAPTION>
 -------------------------------------------------------------------------------------------------------------------


                              Amount Outstanding              Prepayment           Distribution         Payment
                                At March 31,                  Option Date           Maturity           Frequency
 -------------------------------------------------------------------------------------------------------------------
            Name                2006       2005     Rate
 -------------------------------------------------------------------------------------------------------------------
<S>                         <C>        <C>         <C>              <C> <C>             <C> <C>
 Union Financial            $8,000,000 $8,000,000  8.53%   December 18, 2006   December 18, 2031          Quarterly
 Statutory Trust I
 -------------------------------------------------------------------------------------------------------------------
</TABLE>



                                       9
<PAGE>

6. Stock-Based Compensation
   ------------------------

On January 1, 2006, the Company adopted the fair value recognition provisions of
Financial  Accounting Standards Board ("FASB") Statement of Financial Accounting
Standards  ("SFAS") No. 123(R),  Accounting  for  Stock-Based  Compensation,  to
account  for  compensation  costs  under its stock  option  plans.  The  Company
previously utilized the intrinsic value method under Accounting Principles Board
Opinion No. 25,  Accounting  for Stock  Issued to Employees  (as amended)  ("APB
25").  Under the intrinsic  value method  prescribed by APB 25, no  compensation
costs  were  recognized  for the  Company's  stock  options  because  the option
exercise price in its plans equals the market price on the date of grant.  Prior
to January 1, 2006,  the Company  only  disclosed  the pro forma  effects on net
income and earnings  per share as if the fair value  recognition  provisions  of
SFAS 123(R) had been utilized.

In adopting  SFAS No. 123, the Company  elected to use the modified  prospective
method to account for the transition from the intrinsic value method to the fair
value recognition method.  Under the modified  prospective method,  compensation
cost is  recognized  from the adoption  date  forward for all new stock  options
granted and for any outstanding  unvested awards as if the fair value method had
been  applied  to those  awards as of the date of  grant.  The  following  table
illustrates the effect on net income and earnings per share as if the fair value
based method had been  applied to all  outstanding  and unvested  awards in each
period (in thousands, except per share amounts).

<TABLE>
<CAPTION>
                                                                         Three Months
                                                                         Ended March 31,
                                                                     ----------------------
                                                                       2006        2005
<S>                                                                  <C>         <C>
 Net income as reported                                              $    699    $   539

 Add: Stock-based employee compensation expense included in
 reported net income, net of related tax effects.                          12          -
                                                                     --------    -------
 Deduct: Total stock-based employee compensation expense determined
 under fair value based method for all awards, net of related tax
 effects                                                                  (12)       (48)
                                                                     ========    =======
                                                                     $    699    $   491
 Pro forma net income including stock-based compensation cost based
 on fair-value method
 Earnings per share:
   Basic -- as reported                                              $   0.37    $  0.28
   Basic -- pro forma                                                $   0.37    $  0.28
   Diluted -- as reported                                            $   0.36    $  0.27
   Diluted -- pro forma                                              $   0.36    $  0.27
</TABLE>


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

Critical Accounting Policies
----------------------------

The Corporation has adopted various accounting policies which govern the
application of accounting  principles generally accepted in the United States of
America in the preparation of financial statements.

                                       10
<PAGE>

Certain accounting policies involve significant judgments and assumptions
by  management  which  could have a  material  impact on the  carrying  value of
certain assets and liabilities. Management considers such accounting policies to
be  critical  accounting  policies.   The  judgments  and  assumptions  used  by
management  are based on  historical  experience  and other  factors,  which are
believed to be reasonable under the circumstances.  Because of the nature of the
judgments and assumptions  made by management,  actual results could differ from
these judgments and estimates which could have a material impact on the carrying
values  of  assets  and  liabilities  and  the  results  of  operations  of  the
Corporation.

The Corporation believes the allowance for loan losses is a critical
accounting policy that requires significant  judgments and estimates used in the
preparation of consolidated  financial statements.  Management reviews the level
of the  allowance on a monthly  basis and  establishes  the  provision  for loan
losses based on the nature and volume of the loan portfolio,  overall  portfolio
quality,   delinquency   levels,  a  review  of  specific  problem  loans,  loss
experience, economic conditions, and other factors related to the collectibility
of the loan portfolio.  A portion of the allowance is established by segregating
the loans by residential  mortgage,  commercial and consumer loans and assigning
allocation  percentages  based on historical  loss  experience  and  delinquency
trends. The applied allocation  percentages are reevaluated at least annually to
ensure  their  relevance  in  the  current  economic  environment.  Accordingly,
increases  in the size of the  loan  portfolio  and the  increased  emphasis  on
commercial  real  estate and  commercial  business  loans,  which carry a higher
degree of risk of default and, thus, a higher allocation  percentage,  increases
the allowance.  Additionally, a portion of the allowance is established based on
the level of classified assets.

Although the Corporation believes that it uses the best information
available to establish the allowance  for loan losses,  future  additions to the
allowance may be necessary  based on estimates that are susceptible to change as
a result of changes in economic conditions and other factors.  In addition,  the
Office  of  the  Comptroller  of  the  Currency,  as an  integral  part  of  its
examination  process,  will periodically review the Corporation's  allowance for
loan losses. Such agency may require the Corporation to recognize adjustments to
the allowance  based on its judgments about  information  available to it at the
time of its examination.






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

Management's discussion and analysis of financial condition and results of
operations   and  other   portions  of  this  Form  10-Q  may  contain   certain
"forward-looking statements" concerning the future operations of the Corporation
and the Bank. These  forward-looking  statements are generally identified by the
use  of the  words  "believe,"  "expect,"  "intend,"  "anticipate,"  "estimate,"
"project," or similar  expressions.  Management intends to take advantage of the
safe harbor provisions of the Private  Securities  Litigation Reform Act of 1995
and is  including  this  statement  for the  express  purpose  of  availing  the
Corporation  of  the  protections  of  such  safe  harbor  with  respect  to all
forward-looking statements contained in this report to describe future plans and
strategies.  Management's  ability  to  predict  results or the effect of future
plans or strategies is inherently  uncertain.  Factors which could effect actual
results  include  interest  rate  trends,  the general  economic  climate in the
Corporation's and the Bank's market area and the country as a whole, the ability
of the  Corporation  and the Bank to  control  costs and  expenses,  competitive
products and pricing, loan delinquency rates, the quality and composition of the
loan and investment portfolios,  changes in accounting principles and guidelines
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.

                                       11
<PAGE>

Except as required by applicable law or regulation, the Corporation does not
undertake,  and specifically  disclaims any obligation,  to release publicly the
result of any revisions  that may be made to any forward  looking  statements to
reflect events or circumstances after the date of these statements or to reflect
the occurrence of anticipated or unanticipated events.

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

Assets
------

Total assets of the Corporation decreased $2,867,000,  or 0.8%, to $368,175,000
at March 31,  2006 from  $371,042,000  at December  31,  2005.  Investments  and
mortgage-backed securities decreased approximately  $10,980,000,  or 7.51%, from
December 31, 2005 to March 31, 2006, due to the sale and maturity of securities.
Proceeds  from the maturity and sale of investment  securities  were utilized to
fund growth in higher-yielding loans.

Investment and Mortgage-Backed Securities
-----------------------------------------

Held  to Maturity-Securities  classified  as held to maturity  consisted of the
following (in thousands):
<TABLE>
<CAPTION>

                                            March 31, 2006                      December 31, 2005
                                           ---------------                      ------------------

                                     Amortized           Fair                 Amortized      Fair
                                       Cost              Value                  Cost         Value
                                      ------             ------                ------        ------
<S>                                   <C>                <C>                   <C>           <C>
Municipal Securities                  $3,198             $3,208                $3,204        $3,247
                                      ======             ======                ======        ======
</TABLE>

<TABLE>
<CAPTION>

Available for Sale-Securities  classified as available for sale consisted of the
following (in thousands):
                                                             March 31, 2006                 December 31, 2005
                                                            ---------------                ------------------

                                                         Amortized         Fair         Amortized         Fair
                                                            Cost           Value          Cost            Value
                                                          -------         -------        -------         -------
   <S>                                                    <C>             <C>            <C>             <C>
    Investment Securities:

        U.S. Agency Obligations                           $77,582         $75,560        $84,631         $83,443
        Municipal Securities                               16,098          16,704         17,328          18,180
        Other                                              13,324          13,386         14,530          14,621
                                                          -------         -------        -------         -------

      Total Investment Securities                         107,004         105,650        116,489         116,244
                                                          -------         -------        -------         -------

      Mortgage-backed Securities:

        Fannie Mae                                         17,745          17,132         17,370          16,771
        Ginnie Mae                                             63              65             67              69
        Freddie Mac                                         4,076           4,068          4,572           4,579
        Collateralized Mortgage Obligations                 5,337           5,190          5,523           5,416
                                                            -----          ------         ------           -----

      Total Mortgage-backed Securities                     27,221          26,455         27,532          26,835
                                                           ------          ------         ------          ------

      Total Available for Sale                           $134,225        $132,105       $144,021        $143,079
                                                         ========        ========       ========        ========
</TABLE>

Loans  increased  $9,128,000,  or 4.74%,  to $201,705,000 at March 31, 2006. The
Corporation   continues  to  focus  on  consumer  and  commercial  lending  with
specialized loan officers and products.

                                       12
<PAGE>



Loans receivable consisted of the following (in thousands):

                                         March 31,         December 31,
                                           2006                2005
                                        ---------           ---------
Mortgage loans:
  Fixed rate residential                  $22,120           $23,859
  Adjustable-rate residential              11,979            12,701
  Commercial real estate                   48,763            45,665
  Construction                              4,410             4,842
                                        ---------          --------
Total mortgage loans                       87,272            87,067
                                        ---------          --------
Commercial loans:
  Commercial non-real estate               44,280            39,453
  Commercial lines of credit               34,900            31,215
                                        ---------          --------
Total commercial loans                     79,180            70,668
                                        ---------          --------
Consumer loans:
  Home equity                              16,658            16,427
  Consumer and installment                 23,598            23,067
  Consumer lines of credit                    367               382
                                        ---------          --------
Total consumer loans                       40,623            39,876
                                        ---------          --------
Total loans                               207,075           197,611

Less:
  Undisbursed portion of interim
   construction loans                      (2,190)           (1,980)
   Unamortized loan discount                 (744)             (764)
  Allowance for loan losses                (2,541)           (2,394)
  Net deferred loan origination costs         105               104
                                        ---------          --------
Total, net                               $201,705          $192,577
                                        =========          ========
Weighted-average interest rate of loans     7.59%             7.64%

                                       13
<PAGE>

Other assets increased  $383,000,  or 14.03%,  to $3,113,000,  from December 31,
2005 to March 31, 2006, due to an increase in a net deferred tax receivable that
was related to the mark to market adjustment for investments available for sale.

LIABILITIES

Total liabilities  decreased  $2,366,000,  or 0.7%, to $343,343,000 at March 31,
2006 from $345,709,000 at December 31, 2005. Deposits increased $14,615,000,  or
6.1%, to $254,218,000 at March 31, 2006 from  $239,603,000 at December 31, 2005.
The increase was due primarily to growth in lower cost demand accounts partially
offset by a  reduction  in higher cost  certificates  of deposit  accounts.  The
Corporation continues to target lower cost demand deposit accounts through media
advertising versus traditional higher cost certificates of deposits.

Deposit accounts were as follows (in thousands):
<TABLE>
<CAPTION>
<S>                                       <C>           <C>         <C>         <C>            <C>           <C>
                                                  March 31, 2006                           December 31, 2005
                                          ------------------------------         ---------------------------------
                                          Rate        Balance          %         Rate          Balance          %
                                          ----        -------          -         ----          -------          -
Account Type
NOW accounts:
  Commercial non-
  interest-bearing                                     $14,858       5.84%                    $14,651         6.11%
  Non-commercial                          2.49%         56,871      22.37%      1.93%          51,447        21.47%
Money market checking accounts            4.13%         23,017       9.05%      2.55%          14,414         6.02%
Regular savings                           0.58%         17,204       6.78%      0.43%          16,733         6.98%
                                                        ------     -------                   --------        ------
Total demand and savings deposits         2.23%        111,950      44.04%      1.50%          97,245        40.58%
                                                       -------     -------                   --------        ------
Savings certificates:
  Up to 3.00%                                           42,591      16.75%                     55,105        23.00%
  3.01 %- 4.00%                                         51,061      20.08%                     56,033        23.38%
  4.01 %- 5.00%                                         39,680      15.60%                     23,862         9.96%
  5.01 %- 6.00%                                          3,741       1.47%                      2,720         1.13%
  6.01 %- 7.00%                                             23       0.03%                         23         0.02%
  7.01 %- 8.00%                                             --       0.00%                         --         0.00%
                                                      --------     ------                    --------        -----
Total savings certificates                3.41%        137,096      53.93%      2.75%         137,743        57.49%
                                                      --------     ------                    --------        ------
Sweep accounts                            4.70%          5,172       2.03%      3.43%           4,615         1.93%
                                                      --------     ------                    --------        ------
Total deposit accounts                    2.90%       $254,218     100.00%      2.57%        $239,603       100.00%
                                                      ========     ======                    ========       =======
</TABLE>

At  March  31,  2006 and  December  31,  2005,  the  Bank  had  $49,000,000  and
$75,715,000,  respectively,  of advances outstanding from the FHLB. The maturity
of the advances from the FHLB is as follows (in thousands):
<TABLE>
<CAPTION>

                                                           March 31, 2006               December 31,2005
                                                           --------------               ----------------
                                                            Wtd Avg Rate                  Wtd Avg Rate
                                                            ------------                  ------------

Contractual Maturity:
<S>                                                          <C>            <C>          <C>          <C>
Within one year - fixed rate                                 $5,000         2.64%        $10,000      2.35%
Within one year - adjustable rate                             7,500         5.08%         23,215      4.08%
After one but within three years - fixed rate                 3,000         3.35%          3,000      3.35%
After one but within three years - adjustable rate            5,000         3.79%          5,000      3.79%
After three but within five years - adjustable rate          12,500         4.52%          7,500      5.30%
Greater than five years - adjustable rate                    16,000         4.45%         27,000      4.24%
                                                             ------                       ------
Total advances                                              $49,000         4.24%        $75,715      3.98%
                                                            =======                      =======
</TABLE>

The Bank pledges as  collateral  for the advances its FHLB stock and  investment
securities  and has entered into a blanket  collateral  agreement  with the FHLB
whereby the Bank maintains,  free of other  encumbrances,  qualifying  loans (as
defined) with unpaid principal  balances equal to, when discounted at 50% to 80%
of the unpaid principal  balances,  100% of total advances.  Borrowings from the
Federal  Home  Loan Bank (the  "FHLB")  decreased  $26,715,000,  or  35.28%,  to
$49,000,000 at March 31, 2006 from $75,715,000 at December 31, 2005.  Securities
sold under agreement to repurchase increased $10,000,000 to $30,000,000 at March
31, 2006 from $20,000,000 at December 31, 2005.  During this period,  securities
sold under agreement to repurchase  provided a lower cost funding alternative to
Federal Home Loan Bank advances. Borrowings were reduced with deposit growth and
reductions in investments  and  mortgage-backed  securities.  Other  liabilities
decreased  $423,000 to $1,168,000 at March 31, 2006 from  $1,591,000 at December
31, 2005, due primarily to a reduction in outstanding loan fundings.

                                       14
<PAGE>

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

Shareholders'  equity decreased $501,000,  or 1.98%, to $24,832,000 at March 31,
2006 from  $25,333,000  at  December  31, 2005 due to the  repurchase  of 12,352
shares at a cost of $222,000,  dividend payments of $0.10 per share at a cost of
$190,000 and a $830,000  increase in unrealized  losses on securities  available
for sale, offset by net income of $699,000.

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 and sale 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 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.

At March 31, 2006, the  Corporation's  investment in agency and  mortgage-backed
securities  totaled  $135,303,000,  nearly all of which is  available  for sale.
Approximately  $65,862,000  and $83,170,000 of debt securities at March 31, 2006
and December 31, 2005,  respectively,  were pledged by the Bank as collateral to
secure  deposits  of the State of South  Carolina,  and Union,  Laurens and York
counties along with additional borrowings and repurchase agreements.

Additionally, outstanding loan commitments (including commitments to fund credit
lines)  totaled  $95,212,000  at March 31, 2006.  Management of the  Corporation
anticipates  that it will have  sufficient  funds  available to meet its current
loan commitments.

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,  2006,  totaled  $109,421,000.  The  Corporation  relies  primarily on
competitive  rates,  customer  service,  and  long-standing  relationships  with
customers to retain deposits. From time to time, the Corporation will also offer
special  products  to its  customers  to increase  retention  and to attract new
deposits.  Based upon the  Corporation's  experience with deposit  retention and
current  retention  strategies,  management  believes  that,  although it is not
possible to predict  future terms and  conditions  upon  renewal,  a significant
portion of such deposits will remain with the  Corporation.  If the  Corporation
requires  funds  beyond its  ability to  generate  them  internally,  additional
sources of funds are  available  through FHLB  advances,  securities  sold under
agreements to repurchase and lines of credit. At March 31, 2006, the Corporation
had  outstanding  $49,000,000 of FHLB  borrowings and  $30,000,000 of securities
sold under  agreements to  repurchase.  At March 31, 2006, the  Corporation  had
unused short-term lines of credit to purchase federal funds from unrelated banks
totaling  $20,000,000 and the ability to borrow an additional  $22,000,000  from
FHLB and secured borrowing lines.  Lines of credit are available on a one-to-ten
day basis for general  purposes  of the  Corporation.  All of the  lenders  have
reserved the right to withdraw these lines at their option.

                                       15
<PAGE>

Capital Management
------------------

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

Quantitative  measures  established by  regulations  to ensure capital  adequacy
require the Bank and the  Corporation to maintain  minimum amounts and ratios of
total and Tier 1  capital  to  risk-weighted  assets,  and of Tier 1 capital  to
average assets (as defined in the regulations). Management believes, as of March
31,  2006,  that  the  Bank  and  the  Corporation  meet  the  capital  adequacy
requirements to which they are subject.

As of March 31,  2006,  the Bank was  "well  capitalized"  under the  regulatory
framework for prompt corrective action based on its capital ratio  calculations.
In  order  to be  "well  capitalized",  the Bank  must  maintain  minimum  total
risk-based,  Tier 1 risk-based,  and Tier 1 leverage  ratios as set forth in the
following table.

Under present regulations of the Office of the Comptroller of the Currency,  the
Bank must have core capital (leverage  requirement)  equal to 4.0% of assets, of
which 1.5% must be tangible capital,  excluding intangible assets. The Bank must
also maintain risk-based regulatory capital as a percent of risk weighted assets
at least equal to 8.0%. In measuring compliance with capital standards,  certain
adjustments must be made to capital and total assets.
The following tables present the total risk-based,  Tier 1 risk-based and Tier 1
leverage requirements for the Corporation and the Bank (dollars in thousands).

<TABLE>
<CAPTION>
<S>                               <C>            <C>         <C>             <C>        <C>            <C>
                                                                March 31, 2006
                                                                --------------


                                          Actual              Regulatory Minimum       "Well Capitalized"
                                     ----------------         ------------------        ----------------

                                  Amount         Ratio        Amount        Ratio      Amount        Ratio
                                  ------         -----        ------        -----      ------        -----

                                    $             %            $              %           $            %
Leverage ratio

 Corporation                      30,556         8.33%       14,665          4.00%         n/a          n/a
 Bank                             30,535         8.33%       14,661          4.00%      18,327         5.00%

Tier 1 capital ratio

 Corporation                      30,556        12.70%        9,628          4.00%         n/a           n/a
 Bank                             30,535        12.69%        9,624          4.00%      14,436          6.00%

Total risk-based capital ratio

 Corporation                      33,097        13.75%       19,255           8.00%        n/a           n/a
 Bank                             33,076        13.75%       19,248           8.00%     24,060         10.00%
</TABLE>


                                       16
<PAGE>

During fiscal 2003, the Corporation implemented a share repurchase program under
which the Board of Directors of the Corporation  authorized the repurchase of up
to 5% of the outstanding shares or 98,000 shares. The program was expanded by an
additional  5%, or 98,000  shares,  in fiscal 2004 and by an  additional  5%, or
95,000 shares in fiscal 2005.  The shares are to be  repurchased  either through
open market purchases or privately negotiated transactions and will be made from
time to time  depending  on market  conditions  and other  factors.  Repurchased
shares  will be held in treasury  and will be  available  for the  Corporation's
benefit  plans.  During the three months ended March 31, 2006,  the  Corporation
repurchased 12,352 shares. As of March 31, 2006, the Corporation had repurchased
a  total  of  203,905   shares   under  these   authorizations.   Of  the  three
authorizations,   87,095  shares   remain  to  be  purchased   under  the  third
authorization.

Off-Balance Sheet Risk
----------------------

In the normal  course of  operations,  the  Corporation  engages in a variety of
financial  transactions that, in accordance with generally  accepted  accounting
principles,  are not recorded in its financial  statements.  These  transactions
involve,  to varying  degrees,  elements of credit,  interest rate and liquidity
risk. Such  transactions  are used primarily to manage  customer's  requests for
funding  and  take the  form of  legally  binding  agreements  to lend  money to
customers  at  predetermined  interest  rates  for a  specified  period of time.
Outstanding  loan  commitments  (including  commitments  to fund  credit  lines)
totaled  $95,212,000 at March 31, 2006.  Each  customer's  credit  worthiness is
evaluated on a case-by-case basis. The amount of collateral obtained,  if deemed
necessary by the  Corporation  upon extension of credit,  is based on the credit
evaluation  of  the  borrower.   Collateral  varies  but  may  include  accounts
receivable, inventory, property, plant and equipment, commercial and residential
real estate.  The credit risk on these commitments is managed by subjecting each
customer to normal underwriting and risk management processes.

For the period  ended  March 31,  2006,  the  Corporation  did not engage in any
off-balance  sheet  transactions  reasonably likely to have a material effect on
its financial condition, results of operation and cash flows.



                                       17
<PAGE>


Results of Operations for the Three Months Ended March 31, 2006 and 2005
------------------------------------------------------------------------

General
-------

Net income increased $160,000, or 29.68%, to $699,000 for the three months ended
March 31, 2006 as compared to $539,000  for the same period in 2005 as increases
in net interest income and non-interest  income and a reduction in the provision
for loan losses were partially offset by an increase in non-interest expense.
<TABLE>
<CAPTION>

Average Yields and Rates
------------------------
    (Dollars in Thousands)
                                                                             Quarter Ended March 31,
                                                                         -------------------------------
                                                                  2006                                   2005
                                                                  ----                                   ----
                                                Average                  Average         Average                   Average
                                                Balance      Interest   Yield/cost       Balance       Interest  Yield/cost
                                                -------      --------   ----------       -------       --------  ----------

Interest-earning assets:
<S>   <C>                                      <C>           <C>             <C>        <C>           <C>            <C>
Loans (1)                                      $197,481      $3,789          7.67%      $173,713      $2,823         6.50%
Mortgage-backed securities                       26,810         282          4.21%        37,758         388         4.11%
Investment securities                           118,276       1,340          4.53%       109,920       1,142         4.15%
Other interest-earning assets                     1,500          16          4.26%        10,165          58         2.29%
                                                -------       -----          ----        -------       -----         ----
Total interest-earning assets                   344,067       5,427          6.31%       331,556       4,411         5.32%

Non-interest-earning assets                      26,831                                   25,895
                                                 ------                                   ------

Total assets                                   $370,898                                 $357,451
                                               ========                                 ========
Interest-bearing liabilities:
Deposits                                       $244,745      $1,705          2.79%      $232,489      $1,139         1.96%
Floating rate junior subordinated
deferrable interest debentures                    8,247         168          8.17%         8,247         128         6.19%
FHLB advances and other borrowings               91,291         900          3.95%        89,652         694         3.10%
                                                -------       -----          ----        -------       -----         ----

Total interest-bearing liabilities              344,283       2,773          3.22%       330,388       1,961         2.37%
                                                              -----          =====                     -----         =====
Non-interest-bearing liabilities                  1,533                                    1,777
Total liabilities                               345,816                                  332,165
Shareholders' equity                             25,082                                   25,286
                                                 ------                                   ------
Total liabilities and shareholders'
equity                                         $370,898                                 $357,451
                                               ========                                 ========
Net interest income/spread                                   $2,654          3.09%                    $2,450         2.95%
                                                             ======                                   ======
Net yield on earning assets                                                  3.09%                                   2.96%
</TABLE>

(1) Average balances of loans include non-accrual loans.

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

Interest income  increased  $1,016,000,  or 23.03%,  to $5,427,000 for the three
months  ended March 31,  2006 as  compared to the same period in 2005.  Interest
income on loans  increased by 34.22%,  or $966,000,  to $3,789,000 for the three
months ended March 31, 2006 from $2,823,000 for the three months ended March 31,
2005,  due primarily to  increasing  market  interest  rates along with a higher
average  balance  of loans  with a  higher  average  rate  due to our  increased
emphasis on commercial and consumer loan originations.  Interest on deposits and
federal funds sold,  combined  with  interest and  dividends on  investment  and
mortgage-backed  securities  increased  $50,000,  or 3.15%, for the three months
ended March 31, 2006 to  $1,638,000  from  $1,588,000  during the same period in
2005 due to higher yields,  from higher market interest  rates,  offset by lower
average balances.

                                       18
<PAGE>

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

Interest  expense  increased  $812,000,  or 41.41%,  to $2,773,000 for the three
months  ended March 31, 2006 as  compared  to the three  months  ended March 31,
2005.  Interest expense on deposit accounts  increased  $566,000,  or 49.69%, to
$1,705,000 for the three months ended March 31, 2006 from $1,139,000  during the
same period in 2005 due to higher  averages  balances  and cost of deposits as a
result of higher  market  rates  offset by growth in lower  costing  transaction
accounts. The Corporation continues to target lower cost demand deposit accounts
versus  traditional  higher cost  certificates of deposits.  Interest expense on
borrowings  increased $206,000,  or 29.68%, for the three months ended March 31,
2006 as compared to the same period in the  previous  year due to higher  market
interest rates. Interest expense on floating rate junior subordinated deferrable
interest  debentures  increased  $40,000,  or 31.25%,  to $168,000 for the three
months ended March 31, 2006 from $128,000  during the same period in 2005 due to
higher market interest rates.

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

    During the three months ended March 31, 2006,  the provision for loan losses
was $175,000 as compared to $208,000  for the same period in the previous  year,
which a decrease in net charge-offs,  offset by loan growth.  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.
Non-accruing  loans  decreased  $120,000 from $1,246,000 at December 31, 2005 to
$1,126,000 at March 31, 2006.  Loans 30-89 days past due and still  accruing was
$5,315,000 at March 31, 2006  compared to  $1,909,000 at December 31, 2005.  The
delinquent  loans  for the  three  months  ended  March 31,  2006  included  one
commercial  loan for  $2,550,000  that is now  current.  During the three months
ended March 31, 2006, bad debt  charge-offs,  net of recoveries,  was $28,000 as
compared to $63,000 for the same period in the previous year. The  Corporation's
loan  loss  allowance  at  March  31,  2006  was  approximately   1.24%  of  the
Corporation's  outstanding  loan portfolio and 171.92% of  non-performing  loans
compared to 1.23% of the Corporation's outstanding loan portfolio and 162.86% of
non-performing loans at December 31, 2005.




                                       19
<PAGE>


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

                Balance at beginning of period                  $2,394
                Provision for loan losses                          175
                Charge-offs, net                                   (28)
                                                                ------
                Balance at end of period                        $2,541
                                                                ======





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

                                                              March 31, 2006    December 31, 2005
                                                              --------------    -----------------
         Non-accruing loans which are
         contractually past due 90 days
          or more:

<S>                                                                 <C>                  <C>
         Real estate                                                $   343              $    461
         Commercial                                                     366                   436
         Consumer                                                       417                   349
                                                                     ------                ------
         Total                                                      $ 1,126              $  1,246
                                                                     ======                ======

         Percentage of loans receivable                                0.55%                 0.64%
                                                                      =====                 =====

         Percentage of allowance for loan losses
         to total loans outstanding                                    1.24%                 1.23%
                                                                      =====                 =====
         Allowance for loan losses                                  $ 2,541              $  2,394
                                                                     ======                ======
         Real estate acquired through
         foreclosure and repossessed assets                         $   352              $    224
                                                                    =======                ======
</TABLE>

The  allowance  for  loan  loss  calculation  includes  a  segmentation  of loan
categories  subdivided by residential  mortgage,  commercial and consumer loans.
Each category is rated for all loans  including  performing  groups.  The weight
assigned  to  each  performing  group  is  developed  from  previous  loan  loss
experience and as the loss experience  changes,  the category weight is adjusted
accordingly. In addition to loan loss experience, management's evaluation of the
loan portfolio  includes the market value of the underlying  collateral,  growth
and  composition  of  the  loan  portfolio,   delinquency  trends  and  economic
conditions.  Management  evaluates the carrying value of loans  periodically and
the allowance for loan loss calculation will adjust accordingly.

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

Total  non-interest  income increased  $109,000,  or 18.89%, to $686,000 for the
three  months  ended  March 31,  2006 from  $577,000  for the same period in the
previous year. Fees from financial  services  increased  $89,000,  or 16.39%, to
$632,000 for the three  months  ended March 31, 2006 from  $543,000 for the same
period in the previous  year.  The increase was from an increase in  transaction
accounts along with higher fees generated from third party investment  brokerage
and financing receivables programs due to an increase in product volumes.


                                       20
<PAGE>


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

For the three months ended March 31, 2006, total non-interest  expense increased
$84,000,  or 4.0%, to $2,186,000  from  $2,102,000  for the same period in 2005.
Compensation and employee benefits  increased  $72,000,  or 7.09%, to $1,087,000
for the three months ended March 31, 2006 from $1,015,000 for the same period in
2005 due primarily to higher  compensation  and benefits  costs for normal merit
salary increases and additional staff due to the opening of a new banking center
location in  Simpsonville,  South  Carolina.  Occupancy  and  equipment  expense
decreased  $23,000,  or 4.52%,  to $486,000 for the three months ended March 31,
2006  from  $509,000  for the  same  period  in 2005 due to  primarily  to lower
depreciation  expense.  Professional  services  expense  increased  $29,000,  or
32.95%,  to $117,000  for the three months ended March 31, 2006 from $88,000 for
the same  period  in 2005 due to  higher  legal  expenses  primarily  due to the
changing the name of the holding  company during the first quarter of 2006. Loan
operations expense decreased $28,000, or 66.67%, to $14,000 for the three months
ended  March 31, 2006 from  $42,000  for the same  period in 2005,  due to lower
costs associated with foreclosures.  Items processing expense increased $19,000,
or 59.38%, to $51,000 for the three months ended March 31, 2006 from $32,000 for
the same period in 2005 due to transaction  accounts increasing to $95.1 million
at March  31,  2006  from  $73.6  million  at March 31,  2005.  The  Corporation
continues to target lower cost demand deposit accounts through media advertising
versus traditional higher cost certificates of deposits. Other expense increased
$24,000,  or 14.55%,  to $189,000 for the three months ended March 31, 2006 from
$165,000 for the same period in 2005 due to higher  postage  expense from a rate
increase  and higher  forms and  supplies  expense  from two new banking  center
openings.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk
         -----------------------------------------------------------

The  Corporation  is  committed  to  following a program of asset and  liability
management  in an  effort to  manage  the  fluctuations  in  earnings  caused by
movements in interest rates. A significant  portion of the Corporation's  income
results  from the spread  between  the yield  realized  on its  interest-earning
assets  and the rate of  interest  paid on its  deposits  and other  borrowings.
Differences  in the timing and volume of repricing  assets versus the timing and
volume of repricing  liabilities  expose the  Corporation to interest rate risk.
Management's  policies  are  directed  at  minimizing  the impact on earnings of
movements in interest rates.

The  Corporation's   Asset/Liability   Committee  makes  pricing  and  marketing
decisions  on  deposit  and loan  products  in  conjunction  with  managing  the
Corporation's  interest rate risk. In addition,  the  Asset/Liability  Committee
reviews  the  Corporation's  securities  portfolio,   FHLB  advances  and  other
borrowings as well as the Corporation's asset and liability policies.

The primary objective of  Asset/Liability  management at the Corporation is
to manage  interest rate risk and achieve  reasonable  stability in net interest
income throughout  interest rate cycles in order to maintain adequate liquidity.
This is achieved by  maintaining  the proper balance of  rate-sensitive  earning
assets   and   rate-sensitive   costing   liabilities.   The   relationship   of
rate-sensitive  earning  assets to  rate-sensitive  costing  liabilities  is the
principal factor in projecting the effect that  fluctuating  interest rates will
have on future net interest income.  Rate-sensitive  assets and interest-bearing
liabilities  are those that can be repriced  to current  market  rates  within a
relatively  short time  period.  Management  monitors  the rate  sensitivity  of
earning assets and  interest-bearing  liabilities  over the entire life of these
instruments.

                                       21
<PAGE>


The  Corporation  has  established  policies  and  monitors  results  to control
interest rate  sensitivity.  Although the Corporation  utilizes measures such as
static  gap,  which  is  simply  the  measurement  of  the  difference   between
interest-sensitive  assets and  interest-sensitive  liabilities  repricing for a
particular  time period,  just as important a process is the  evaluation  of how
particular  assets and  liabilities are impacted by changes in interest rates or
selected  indices  as they  reprice.  Asset/liability  modeling  techniques  are
utilized by the  Corporation to assess  varying  interest rate and balance sheet
mix assumptions.

Net  Interest  Income  Simulation   Analysis.   We  analyze  our  interest  rate
sensitivity  position to manage the risk associated with interest rate movements
through  the use of  interest  income  simulation.  The  matching  of assets and
liabilities  may be  analyzed by  examining  the extent to which such assets and
liabilities  are  "interest  sensitive."  An  asset or  liability  is said to be
interest  rate  sensitive  within a specific  time  period if it will  mature or
reprice within that time period.

Our goal is to manage asset and  liability  positions to moderate the effects of
interest rate fluctuations on net interest income.  Interest income  simulations
utilizing  interest  rate shocks are  completed  quarterly  and presented to the
Asset/Liability  Committee. The simulations provide an estimate of the impact of
changes in interest rates on net interest  income under a range of  assumptions.
The interest  rate shocks are compared to board  approved  policy limits and are
reviewed by the  Asset/Liability  Committee on a quarterly basis. The simulation
incorporates  assumptions  regarding  the  potential  timing in the repricing of
certain  assets and  liabilities  when  market  rates  change and the changes in
spreads between  different  market rates. The simulation  analysis  incorporates
management's  current  assessment  of the risk that pricing  margins will change
adversely over time due to competition or other factors.

Simulation  analysis is only an estimate of our interest rate risk exposure at a
particular point in time. We continually  review the potential effect changes in
interest rates could have on the repayment of rate sensitive  assets and funding
requirements of rate sensitive liabilities.

The table below sets forth an  approximation  of our exposure as a percentage of
estimated  net interest  income for the next twelve month period using  interest
income  simulation.  The  simulation  uses  projected  repricing  of assets  and
liabilities on the basis of contractual  maturities,  anticipated repayments and
scheduled rate  adjustments.  Prepayment rates can have a significant  impact on
interest income simulation.  When interest rates rise, prepayments tend to slow.
When interest rates fall, prepayments tend to rise.



                                       22
<PAGE>

The following table reflects  changes in estimated net interest income from rate
shocks of (+) or (-) 100 and 200 basis  points in a rising and falling  interest
rate environment for the Corporation.

                                                    At                   At
                                                 March 31,          December 31,
      Change in Rates (Basis Points)               2006                 2005
      ------------------------------               ----                 ----
               +200                                +6.04%              +5.88%
               +100                                +3.30%              +3.24%
               -100                                (4.24%)             (4.97%)
               -200                                (9.87%)             (7.72%)

The Corporation  improved  slightly in rising interest rate environments for the
period ending March 31, 2006 as compared to the period ending  December 31, 2005
due primarily to significant growth in prime based loan products.

The 200 and 100 basis  point  change in rates in the above  table is  assumed to
occur evenly over the following twelve months.  Based on the scenario above, net
interest  income would be  positively  affected in the  twelve-month  periods if
rates rose by 100 and 200 basis points, but would be adversely affected if rates
declined by 100 and 200 basis points.

Item 4. 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.

There has been no change in the  Corporation's  internal  control over financial
reporting  identified  in  connection  with  the  evaluation  required  by  Rule
13(a)-15(e) that occurred during the Corporation's  last fiscal quarter that has
materially   affected  or  is  reasonably  likely  to  materially   affect,  the
Corporation's internal control over financial reporting.



                                       23
<PAGE>


PART II - OTHER INFORMATION

Item  1.      Legal Proceedings
              -----------------

The Corporation is not involved in any legal  proceedings.  The Bank 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  1A.     Risk Factors
              ------------

There have been no material  changes with respect to the Risk Factors  disclosed
in the Corporation's form 10-K.

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

The  following  table  provides  certain   information  with  regard  to  shares
repurchased by the Corporation during the first quarter of 2006.
<TABLE>
<CAPTION>

                                                                                     (c)
                                                                             Total Number of Shares          (d)
                               (a)                                           Purchased as part of       Maximum Number of
                            Total Number                 (b)                 Publicly                   Shares that may
                            of Shares               Average Price            Announced                  be purchased
           Period           Purchased               Paid per share           Programs                   under Program
           ------           ---------               --------------           --------                   -------------
<S>         <C>                 <C>                      <C>                     <C>                          <C>
    January 1, 2006             12,000                   $18.04                  12,000                       87,447
    through January
    31, 2006

    February 1, 2006                --                       --                      --                       87,447
    through February 28,
    2006

    March 1, 2006 through          352                   $16.75                     352                      87,095
    March 31, 2006

      Total                     12,352                   $18.00                  12,352                          N/A
</TABLE>

In November 2004, the Corporation  implemented a share repurchase  program under
which the  Corporation  may  repurchase  up to 5% of the  outstanding  shares or
98,000  shares.  In May 2005,  the program was expanded by an  additional  5% or
95,000  shares.  The  repurchase  program will continue until it is completed or
terminated by the Board of Directors.

Item  3.     Defaults Upon Senior Securities
             -------------------------------

                     Not applicable.



                                       24
<PAGE>



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

                     None

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

                     None

Item  6.     Exhibits
             --------

             3(a)    Certificate of Ownership

             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



                                       25

<PAGE>



                                   SIGNATURES

         Pursuant  to the  requirements  of the  Securities  Exchange  Act,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned, thereunto duly authorized.


                                        PROVIDENT COMMUNITY BANCSHARES, INC.
                                                  (REGISTRANT)



Date: May 9, 2006                       By: /s/ Dwight V. Neese
      -----------                           ------------------------------------
                                            Dwight V. Neese, CEO


Date: May 9, 2006                       By: /s/ Richard H. Flake
      -----------                           ------------------------------------
                                             Richard H. Flake, CFO





                                       26