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 June 30, 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 Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.   Yes X  No
                       ---   ---

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 1,866,731 shares, $0.01 par value, of common stock issued
and outstanding as of July 26, 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 June 30, 2006
              and December 31, 2005                                                       3

             Consolidated Statements of Income for the three
              and six months ended June 30, 2006 and 2005                                 4

             Consolidated Statements of Cash Flows for the six
              months ended June 30, 2006 and 2005                                         5

             Consolidated Statements of Shareholders' Equity for the
              six months ended June 30, 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                  11-24

             Item 3.  Quantitative and Qualitative Disclosures
                       about Market Risk                                              24-26

             Item 4.  Controls and Procedures                                            26

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

             Item 1.   Legal Proceedings                                                 27

             Item 1A.  Risk Factors                                                      27

             Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds       27

             Item 3.   Defaults Upon Senior Securities                                   28

             Item 4.   Submission of Matters to a Vote of Security Holders               28

             Item 5.   Other Information                                                 28

             Item 6.   Exhibits                                                          28

             Signatures                                                                  29

</TABLE>


                                       2
<PAGE>

Part 1.    Financial Information
PROVIDENT COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
(FORMERLY UNION FINANCIAL BANCSHARES, INC.)
CONSOLIDATED BALANCE SHEETS
June 30, 2006 (unaudited) and December 31, 2005
<TABLE>
<CAPTION>

                                                                                          June 30,              December 31,
ASSETS                                                                                      2006                    2005
                                                                                     -------------------     -------------------
                                                                                               (DOLLARS IN THOUSANDS)
<S>                                                                                          <C>                    <C>
Cash and due from banks                                                            $              8,661    $              8,380
Investment and mortgage-backed securities
  Held to maturity                                                                                3,193                   3,204
  Available for sale                                                                            129,001                 143,079
                                                                                     -------------------     -------------------
Total investment and mortgage-backed securities                                                 132,194                 146,283
                                                                                     -------------------     -------------------
Loans, net                                                                                      214,303                 192,577
Office properties and equipment, net                                                              5,595                   5,148
Federal Home Loan Bank Stock, at cost                                                             3,416                   3,976
Federal Reserve Stock, at cost                                                                      539                     539
Accrued interest receivable                                                                       2,415                   2,429
Intangible assets                                                                                 3,259                   3,576
Cash surrender value of life insurance                                                            5,504                   5,404
Other assets                                                                                      3,618                   2,730
                                                                                     -------------------     -------------------
TOTAL ASSETS                                                                       $            379,504    $            371,042
                                                                                     ===================     ===================

LIABILITIES

Deposits                                                                           $            254,843    $            239,603
Advances from the Federal Home Loan Bank                                                         59,400                  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                                                                           549                     520
Advances from borrowers for taxes and insurance                                                     155                      33
Other liabilities                                                                                 2,133                   1,591
                                                                                     -------------------     -------------------
TOTAL LIABILITIES                                                                               355,327                 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 - 1,866,731 shares at 6/30/06 and 1,905,897 at 12/31/05                    20                      20
Additional paid-in capital                                                                       12,429                  12,346
Accumulated other comprehensive loss                                                             (1,998)                   (612)
Retained earnings, substantially restricted                                                      17,855                  16,916
Treasury stock, at cost                                                                          (4,129)                 (3,337)
                                                                                     -------------------     -------------------
TOTAL SHAREHOLDERS' EQUITY                                                                       24,177                  25,333
                                                                                     -------------------     -------------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                         $            379,504    $            371,042
                                                                                     ===================     ===================

See notes to consolidated financial statements.


</TABLE>


                                       3
<PAGE>

PROVIDENT COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
(FORMERLY UNION FINANCIAL BANCSHARES, INC.)
CONSOLIDATED STATEMENTS OF INCOME
Three and Six Months Ended June 30, 2006 and 2005 (unaudited)
<TABLE>
<CAPTION>

                                                                 Three Months Ended                 Six Months Ended
                                                              June 30,         June 30,         June 30,          June 30,
                                                                2006             2005             2006              2005
                                                            -------------    --------------   --------------    --------------
                                                                (DOLLARS IN THOUSANDS              (DOLLARS IN THOUSANDS
                                                                   EXCEPT PER SHARE)                  EXCEPT PER SHARE)
Interest Income:
   <S>                                                               <C>               <C>            <C>                <C>
  Loans                                                   $        4,130   $         3,042  $         7,919   $         5,865
  Deposits and federal funds sold                                     13                13               29                71
  Mortgage-backed securities                                         278               356              560               744
  Interest and dividends on
   investment securities                                           1,348             1,297            2,688             2,438
                                                            -------------    --------------   --------------    --------------
Total Interest Income                                              5,769             4,708           11,196             9,118
                                                            -------------    --------------   --------------    --------------

Interest Expense:
  Deposit accounts                                                 1,905             1,282            3,610             2,421
  Floating rate junior subordinated deferrable
   interest debentures                                               179               140              347               267
  Advances from the FHLB and other borrowings                      1,004               786            1,904             1,481
                                                            -------------    --------------   --------------    --------------
Total Interest Expense                                             3,088             2,208            5,861             4,169
                                                            -------------    --------------   --------------    --------------

Net Interest Income                                                2,681             2,500            5,335             4,949
  Provision for loan losses                                          135               341              310               548
                                                            -------------    --------------   --------------    --------------
Net Interest Income After
   Provision for Loan Losses                                       2,546             2,159            5,025             4,401
                                                            -------------    --------------   --------------    --------------

Non-Interest Income:
  Fees for financial services                                        730               646            1,361             1,189
  Other  fees, net                                                    23                30               65                55
  Net gain (loss) on sale of investments                             (26)               (3)             (13)                6
                                                            -------------    --------------   --------------    --------------
Total Non-Interest Income                                            727               673            1,413             1,250
                                                            -------------    --------------   --------------    --------------

Non-Interest Expense:
  Compensation and employee benefits                               1,145               983            2,231             1,998
  Occupancy and equipment                                            527               522            1,013             1,031
  Deposit insurance premiums                                           7                 9               15                17
  Professional services                                              106               102              223               189
  Advertising/public relations                                        60                23               97                61
  Loan operations                                                     14                35               29                77
  Deposit premium intangible                                         159               159              318               318
  Items processing                                                    49                29              100                61
  Telephone                                                           51                38               90                84
  Other                                                              255               190              444               356
                                                            -------------    --------------   --------------    --------------
Total Non-Interest Expense                                         2,373             2,090            4,560             4,192
                                                            -------------    --------------   --------------    --------------

Income Before Income Taxes                                           900               742            1,878             1,459
Income tax expense                                                   261               193              540               371
                                                            -------------    --------------   --------------    --------------
Net Income                                                $          639   $           549  $         1,338   $         1,088
                                                            =============    ==============   ==============    ==============

Basic Net Income Per Common Share                         $         0.34   $          0.29  $          0.71   $          0.57
                                                            =============    ==============   ==============    ==============

Diluted Net Income Per Common Share                       $         0.33   $          0.28  $          0.70   $          0.55
                                                            =============    ==============   ==============    ==============

Weighted Average Number of
  Common Shares Outstanding

Basic                                                          1,887,582         1,907,551        1,891,873         1,918,190

Diluted                                                        1,911,663         1,970,142        1,914,748         1,981,012

See notes to consolidated financial statements.

</TABLE>

                                       4
<PAGE>

PROVIDENT COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
(FORMERLY UNION FINANCIAL BANCSHARES, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 2006 and 2005 (unaudited)
<TABLE>
<CAPTION>

                                                                              Six Months Ended
                                                                        June 30,            June 30,
                                                                          2006                2005
                                                                     ----------------   ----------------
                                                                               (IN THOUSANDS)

OPERATING ACTIVITIES:
  <S>                                                                           <C>                <C>
Net income                                                                    $1,338             $1,088
Adjustments to reconcile net income to
  net cash provided by operating activities:
  Provision for loan losses                                                      310                548
  Amortization of intangibles                                                    318                318
  Depreciation expense                                                           306                467
  Recognition of deferred income, net of costs                                  (281)              (184)
  Deferral of fee income, net of costs                                           295                173
  (Gain) loss on investment transactions                                          13                 (6)
  Changes in operating assets and liabilities:
   (Increase) decrease in accrued interest receivable                             14               (379)
   (Increase) decrease in other assets                                          (988)               148
   Increase in other liabilities                                                 664              1,132
   Increase in accrued interest payable                                           29                155
                                                                     ----------------   ----------------
Net cash provided by operating activities                                      2,018              3,460
                                                                     ----------------   ----------------

INVESTING ACTIVITIES:

Purchase of investment and mortgage-backed securities:
   Available for sale                                                         (9,218)           (41,373)
   Held to maturity                                                               --             (3,576)
Proceeds from sale of investment and mortgage-
    backed securities                                                         15,952             10,917
Proceeds from maturity of investment and mortgage-
    backed securities:
   Available for sale                                                          2,035             12,073
   Held to maturity                                                               --              3,000
Principal repayments on mortgage-backed securities:
   Available for sale                                                          3,921              2,015
Net increase in loans                                                        (22,051)           (12,990)
Purchase of FHLB stock                                                            --               (444)
Redemption of FHLB stock                                                         560                 --
Purchase of office properties and equipment                                     (753)               (94)
                                                                     ----------------   ----------------

Net cash used by investing activities                                         (9,554)           (30,472)
                                                                     ----------------   ----------------

FINANCING ACTIVITIES:

Proceeds from the dividend reinvestment plan                                      55                 52
Dividends paid in cash ($0.21 per share -2006
and $0.20 per share - 2005)                                                     (399)              (387)
Proceeds from the exercise of stock options                                       28                 51
Share repurchase program                                                        (792)            (1,086)
Increase (decrease) in other borrowings                                       (6,315)            14,000
Increase in deposit accounts                                                  15,240              8,380
                                                                     ----------------   ----------------

Net cash  provided by financing activities                                     7,817             21,010
                                                                     ----------------   ----------------

NET DECREASE IN CASH
   AND CASH EQUIVALENTS                                                          281             (6,002)

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

CASH AND CASH EQUIVALENTS
   AT END OF PERIOD                                                           $8,661             $7,195
                                                                     ================   ================

SUPPLEMENTAL DISCLOSURES:

Cash paid for:
  Income taxes                                                                  $495               $515
  Interest                                                                     5,832              4,014

Non-cash transactions:
  Loans foreclosed                                                              $261                $54

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)
               Six Months Ended June 30, 2006 and 2005 (unaudited)

<TABLE>
<CAPTION>


                                                                     Retained      Accumulated
                                                          Additional Earnings,       Other        Treasury     Total
                                            Common Stock    Paid-in  Substantially Comprehensive  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                                                                  1,088                                1,088

  Other comprehensive income, net of tax
     Unrealized holding losses on
      securities available for sale
      arising during period, net of tax
      effect of $200                                                                        259                    259
     Reclassification adjustment for
      gains included in net income, net
      of tax of $2                                                                            4                      4
                                                                                   -------------          -------------
  Comprehensive income                                                                                           1,351

Stock option activity, net                  7,246                51                                                 51

Dividend reinvestment plan
 contributions                              3,101                52                                                 52

Share repurchase program                  (63,968)    (1)                       1                 (1,086)       (1,086)

Cash dividend ($.20 per share)                                               (387)                                (387)

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

BALANCE AT JUNE 30, 2005                1,904,368    $19    $12,212       $15,923          $372  ($2,526)      $26,000
                                        ===============================================================================

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

Net income                                                                  1,338                                1,338

  Other comprehensive income, net of tax
     Unrealized holding losses on
      securities available for sale
     arising during period, net of tax
      effect of $1,076                                                                   (1,377)                (1,377)
     Reclassification adjustment for
      losses included in net income,
      net of tax of $4                                                                       (9)                    (9)
                                                                                   -------------          -------------
  Comprehensive loss                                                                                               (48)

Stock option activity, net                  2,203                28                                                 28

Dividend reinvestment plan
 contributions                              3,204                55                                                 55

Share repurchase program                  (44,573)                                                  (792)         (792)

Cash dividend ($.21 per share)                                               (399)                                (399)

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

BALANCE AT JUNE 30, 2006                1,866,731    $20    $12,429       $17,855       ($1,998) ($4,129)      $24,177
                                        ===============================================================================

</TABLE>


                                       6
<PAGE>


              PROVIDENT COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
                   (FORMERLY UNION FINANCIAL BANCSHARES, INC.)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

1.       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 six months ended June 30, 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.


                                       7
<PAGE>


 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.

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 and six months ended June 30, 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 six months ended June 30, 2006 and 2005 were
22,875 and 62,822, respectively.

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

 Approximately $68,219,000 and $83,170,000 of debt securities at June 30, 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.

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.



                                       8
<PAGE>



       The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual amount of those instruments. The Bank uses the
same credit policies in making commitments and conditional obligations as it
does for on-balance-sheet instruments. Total credit exposure at June 30, 2006
related to these items is summarized below:

              Loan Commitments:                                 Contract Amount
              ----------------                                  ---------------
              Approved loan commitments                            $  2,215,000
              Unadvanced portions of loans and credit lines          44,891,000
                                                                   ------------
              Total loan commitments                               $ 47,106,000
                                                                     ==========

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 June 30, 2006 consisted of fixed and adjustable rate
loans at rates ranging from 6.5% to 8.5%. 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 $106,085,000 at June 30, 2006. Of these lines, the outstanding
loan balances totaled approximately $61,194,000.

5. Floating Rate Junior Subordinated Deferrable Interest Debentures
   ----------------------------------------------------------------

A summary of the Subordinated Deferrable Interest Debentures issued and
outstanding follows:

<TABLE>
<CAPTION>

                             Amount
                         Outstanding at
                            June 30,                                                          Distribution
                    ------------------------            Prepayment                            Payment
        Name            2006        2005      Rate      Option Date          Maturity         Frequency
------------------- ------------ ----------- ------ ------------------- -------------------   -------------
<S>                   <C>           <C>       <C>            <C>                <C>               <C>
Union Financial
 Statutory Trust I   $8,000,000  $8,000,000  8.99%    December 18, 2006   December 18, 2031     Quarterly

</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(R)), 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).

                                                     Six Months Ended
                                                          June 30,
                                                     -----------------
                                                       2006     2005
                                                     -------- --------
Net income as reported                                $ 1,338  $ 1,088

Add: Stock-based employee compensation expense
included in reported net income, net of related tax
effects.                                                   24       --

Deduct: Total stock-based employee compensation
expense determined under fair value based method for
all awards, net of related tax effects                    (24 )    (96)
                                                     -------- --------
Pro forma net income including stock-based
compensation cost based on fair-value method          $ 1,338  $   992
                                                     ======== ========
Earnings per share:
  Basic -- as reported                                $  0.71  $  0.57
                                                     ======== ========
  Basic -- pro forma                                  $  0.71  $  0.52
                                                     ======== ========
  Diluted -- as reported                              $  0.70  $  0.55
                                                     ======== ========
  Diluted -- pro forma                                $  0.70  $  0.50
                                                     ======== ========



                                       10
<PAGE>


Subsequent Event
----------------

On July 21, 2006, the Corporation completed a private placement of $4 million in
trust preferred securities. In connection with the sale of the trust preferred
securities, the Corporation issued $4,124,000 aggregate principal amount of
Fixed/Floating Rate Junior Subordinated Debt Securities due 2036. The Company
intends to use the proceeds from the issuance of the trust preferred securities
for general corporate purposes and to increase the regulatory capital of the
Bank. The trust preferred securities will bear a rate equal to 7.393% for the
first five years following the offering. After the first five years, the
securities will bear a rate equal to 174 basis points over the three-month
LIBOR. The Subordinated Debt Securities bear an identical interest rate. The
trust preferred securities were issued by a statutory business trust formed by
the Corporation and were sold in a private placement pursuant to an applicable
exemption from registration under the Securities Act of 1933, as amended.

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.

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.



                                       11
<PAGE>



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.

 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 increased $8,462,000, or 2.28%, to $379,504,000
at June 30, 2006 from $371,042,000 at December 31, 2005. Investments and
mortgage-backed securities decreased approximately $14,089,000, or 9.63%, from
December 31, 2005 to June 30, 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>

                                        June 30, 2006               December 31, 2005
                                       --------------              ------------------

                                       Amortized    Fair       Amortized       Fair
                                         Cost       Value        Cost          Value
                                      ---------- ------------ ------------ --------------
<S>                                       <C>          <C>          <C>          <C>
Municipal Securities                   $3,193        $3,165       $3,204       $3,247
                                      ========== ============  =========== ==============

</TABLE>


                                       12
<PAGE>



Available for Sale-Securities classified as available for sale consisted of the
following (in thousands):
<TABLE>
<CAPTION>

                                            June 30, 2006         December 31, 2005
                                            -------------         -----------------

                                       Amortized    Fair       Amortized       Fair
                                         Cost       Value        Cost          Value
                                      ---------- ------------ ------------ --------------
  <S>                                      <C>          <C>          <C>          <C>
Investment Securities:
   U.S. Agency Obligations              $80,566      $78,182      $84,631        $83,443
   Municipal Securities                  10,602       10,910       17,328         18,180
   Other                                 15,317       15,327       14,530         14,621
                                      ---------- ------------ ------------ --------------
Total Investment Securities             106,485      104,419      116,489        116,244
                                      ---------- ------------ ------------ --------------
Mortgage-backed Securities:
  Fannie Mae                             16,897       16,070       17,370         16,771
  Ginnie Mae                                 60           62           67             69
  Freddie Mac                             3,799        3,779        4,572          4,579
  Collateralized Mortgage Obligations     4,834        4,671        5,523          5,416
                                      ---------- ------------ ------------ --------------
Total Mortgage-backed Securities         25,590       24,582       27,532         26,835
                                      ---------- ------------ ------------ --------------
Total Available for Sale               $132,075     $129,001     $144,021       $143,079
                                      ---------- ------------ ------------ --------------

</TABLE>

Loans increased $21,726,000, or 11.28%, to $214,303,000 at June 30, 2006. The
Corporation continues to focus on consumer and commercial lending with
specialized loan officers and products.

                                       13
<PAGE>



Loans receivable consisted of the following (in thousands):

                                                  June 30,         December 31,
                                                  --------         -----------
                                                   2006               2005
                                                   ----               ----

Mortgage loans:
  Fixed rate residential                          $20,848            $23,859
  Adjustable-rate residential                      10,701             12,701
  Commercial real estate                           51,489             45,665
  Construction                                      6,684              4,842
                                                  --------         -----------
Total mortgage loans                               89,722             87,067
                                                  --------         -----------
Commercial loans:
  Commercial non-real estate                       43,591             39,453
  Commercial lines of credit                       43,785             31,215
                                                  --------         -----------
Total commercial loans                             87,376             70,668
                                                  --------         -----------
Consumer loans:
  Home equity                                      17,047             16,427
  Consumer and installment                         26,505             23,067
  Consumer lines of credit                            362                382
                                                  --------         -----------
Total consumer loans                               43,914             39,876
                                                  --------         -----------
Total loans                                       221,012            197,611
                                                  --------         -----------
Less:
  Undisbursed portion of interim
   construction loans                              (3,510)            (1,980)
   Unamortized loan discount                         (704)              (764)
  Allowance for loan losses                        (2,574)            (2,394)
  Net deferred loan origination costs                  79                104
                                                  --------         -----------
Total, net                                       $214,303           $192,577
                                                  --------         -----------
Weighted-average interest rate of loans              7.88%              7.64%


Other assets increased $888,000, or 32.53%, to $3,618,000, from December 31,
2005 to June 30, 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 increased $9,618,000, or 2.78%, to $355,327,000 at June 30,
2006 from $345,709,000 at December 31, 2005. Deposits increased $15,240,000, or
6.36%, to $254,843,000 at June 30, 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.


                                       14
<PAGE>


Deposit accounts were as follows (in thousands):

<TABLE>
<CAPTION>

                                   June 30, 2006                December 31, 2005
                                  ---------------              ------------------
                               Rate     Balance      %       Rate    Balance       %
                               ----     -------     ---      ----    -------      ---

Account Type
------------
NOW accounts:
   <S>                           <C>      <C>        <C>     <C>      <C>          <C>
  Commercial non-
  interest-bearing               --     $15,095     5.92%     --     $14,651       6.11%
  Non-commercial               2.57%     54,166    21.26%   1.93%     51,447      21.47%
Money market checking
 accounts                      4.48%     24,961     9.79%   2.55%     14,414       6.02%
Regular savings                0.61%     16,530     6.49%   0.43%     16,733       6.98%
                                        -------    -----             -------      -----
Total demand and savings
 deposits                      2.76%    110,752    43.46%   1.50%     97,245      40.58%
                                        -------    -----             -------      -----
Savings certificates:
  Up to 3.00%                            37,539    14.73%             55,105      23.00%
  3.01 %- 4.00%                          42,082    16.51%             56,033      23.38%
  4.01 %- 5.00%                          46,781    18.36%             23,862       9.96%
  5.01 %- 6.00%                          12,159     4.77%              2,720       1.13%
  6.01 %- 7.00%                              23     0.01%                 23       0.02%
  7.01 %- 8.00%                              --     0.00%                 --       0.00%
                                        -------    -----             -------      -----
Total savings certificates     3.55%    138,584    54.38%   2.75%    137,743      57.49%
                                        -------    -----             -------      -----

Sweep accounts                 5.09%      5,507     2.16%   3.43%      4,615       1.93%
                               ----     -------    -----             -------      -----

Total deposit accounts         3.03%   $254,843   100.00%   2.57%   $239,603     100.00%
                                        =======   ======             =======     ======

</TABLE>

At June 30, 2006 and December 31, 2005, the Bank had $59,400,000 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>


                                                      June 30, 2006         December 31,2005
                                                      -------------         ----------------
                                                       Wtd Avg Rate            Wtd Avg Rate
                                                       ------------            ------------

Contractual Maturity:
<S>                                                    <C>       <C>       <C>            <C>
Within one year - fixed rate                           $  -        - %     $10,000        2.35%
Within one year - adjustable rate                    27,900      5.44%      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   12,500      4.69%       5,000        3.79%
After three but within five years - adjustable rate       -        - %       7,500        5.30%
Greater than five years - adjustable rate            16,000      4.45%      27,000        4.24%
                                                  ---------             ----------
Total advances                                      $59,400      4.91%     $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 $16,315,000, or 21.55%, to
$59,400,000 at June 30, 2006 from $75,715,000 at December 31, 2005. Securities
sold under agreement to repurchase increased $10,000,000 to $30,000,000 at June
30, 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
increased $542,000 to $2,133,000 at June 30, 2006 from $1,591,000 at December
31, 2005, due primarily to an increase in outstanding loan fundings.



                                       15
<PAGE>


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

Shareholders' equity decreased $1,156,000, or 4.56%, to $24,177,000 at June 30,
2006 from $25,333,000 at December 31, 2005 due to the repurchase of 44,573
shares at a cost of $792,000, dividend payments of $0.21 per share at a cost of
$399,000 and a $1,386,000 increase in unrealized losses on securities available
for sale, offset by net income of $1,338,000.

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 June 30, 2006, the Corporation's investment in agency and mortgage-backed
securities totaled $132,194,000, nearly all of which is available for sale.
Approximately $68,219,000 and $83,170,000 of debt securities at June 30, 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 $106,085,000 at June 30, 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
June 30, 2006, totaled $103,048,000. 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


                                       16
<PAGE>

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 June 30, 2006, the Corporation
had outstanding $59,400,000 of FHLB borrowings and $30,000,000 of securities
sold under agreements to repurchase. At June 30, 2006, the Corporation had
unused short-term lines of credit to purchase federal funds from unrelated banks
totaling $17,000,000 and the ability to borrow an additional $7,500,000 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.

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 June
30, 2006, that the Bank and the Corporation meet the capital adequacy
requirements to which they are subject.

As of June 30, 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.



                                       17
<PAGE>


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>

                                                        June 30, 2006
                                                        -------------

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

                               Amount      Ratio      Amount      Ratio    Amount       Ratio
                              -------      -----     -------      -----   -------       -----
                                    $          %           $          %         $           %
Leverage ratio
  <S>                         <C>          <C>        <C>          <C>       <C>         <C>
 Corporation                  30,917       8.39%     14,733       4.00%      n/a         n/a

 Bank                         30,566       8.32%     14,701       4.00%   18,377        5.00%

Tier 1 capital ratio

 Corporation                  30,917      12.03%     10,279       4.00%      n/a         n/a

 Bank                         30,566      11.91%     10,268       4.00%   15,402        6.00%

Total risk-based capital
  ratio

 Corporation                  33,492      13.03%     20,557       8.00%      n/a         n/a

 Bank                         33,141      12.91%     20,536       8.00%   25,670       10.00%

</TABLE>

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 six months ended June 30, 2006, the Corporation
repurchased 44,573 shares. As of June 30, 2006, the Corporation had repurchased
a total of 236,126 shares under these authorizations. Of the three
authorizations, 54,874 shares remain to be purchased under the third
authorization.


                                       18
<PAGE>


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 $106,085,000 at June 30, 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 June 30, 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.

Results of operations for the three months ended June 30, 2006 and 2005
-----------------------------------------------------------------------

General
-------

Net income increased $90,000, or 16.39%, to $639,000 for the three months ended
June 30, 2006 as compared to $549,000 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.

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

Interest income increased $1,061,000, or 22.54%, to $5,769,000 for the three
months ended June 30, 2006 as compared to the same period in 2005. Interest
income on loans increased by 35.77%, or $1,088,000, to $4,130,000 for the three
months ended June 30, 2006 from $3,042,000 for the three months ended June 30,
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 decreased $27,000, or 1.62%, for the three months
ended June 30, 2006 to $1,639,000 from $1,666,000 during the same period in 2005
due to lower average balances offset by higher yields from higher market
interest rates.

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

Interest expense increased $880,000, or 39.86%, to $3,088,000 for the three
months ended June 30, 2006 as compared to the three months ended June 30, 2005.
Interest expense on deposit accounts increased $623,000, or 48.60%, to
$1,905,000 for the three months ended June 30, 2006 from $1,282,000 during the
same period in 2005 due to higher average balances and cost of deposits as a


                                       19
<PAGE>


result of higher market rates. The Corporation continues to target lower cost
demand deposit accounts versus traditional higher cost certificates of deposits
in order to reduce overall funding costs. Interest expense on borrowings
increased $218,000, or 27.74%, for the three months ended June 30, 2006 as
compared to the same period in the previous year due to higher market interest
rates, offset by lower average balances. Interest expense on floating rate
junior subordinated deferrable interest debentures increased $39,000, or 27.86%,
to $179,000 for the three months ended June 30, 2006 from $140,000 during the
same period in 2005 due to higher market interest rates.

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

During the three months ended June 30, 2006, the provision for loan losses was
$135,000 as compared to $341,000 for the same period in the previous year with a
decrease in classified loans partially offset by loan growth. Classified loans
decreased $1,064,000 from $3,388,000 at December 31, 2005 to $2,324,000 at June
30, 2006. Loans 30-89 days past due and still accruing was $3,708,000 at June
30, 2006 compared to $1,909,000 at December 31, 2005. The delinquent loans for
the three months ended June 30, 2006 increased $1,799,000 from December 31, 2005
due primarily to an increase in 3 delinquencies for commercial loans. Since the
quarter end, approximately 50% of the commercial loans have been brought
current. During the three months ended June 30, 2006, bad debt charge-offs, net
of recoveries, was $102,000 as compared to $46,000 for the same period in the
previous year.

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

Total non-interest income increased $54,000, or 8.02%, to $727,000 for the three
months ended June 30, 2006 from $673,000 for the same period in the previous
year. Fees from financial services increased $84,000, or 13.0%, to $730,000 for
the three months ended June 30, 2006 from $646,000 for the same period in the
previous year. The increase was from an increase in transaction accounts along
with higher consumer and commercial loan fees from an increase in average
outstanding loan balances.

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

For the three months ended June 30, 2006, total non-interest expense increased
$283,000, or 13.54%, to $2,373,000 from $2,090,000 for the same period in 2005.
Compensation and employee benefits increased $162,000, or 16.48%, to $1,145,000
for the three months ended June 30, 2006 from $983,000 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 in March, 2006. Advertising/public
relations expense increased $37,000, or 160.87%, to $60,000 for the three months
ended June 30, 2006 from $23,000 for the same period in 2005 due primarily to
product and promotion expenses for the new banking center location. Loan
operations expense decreased $21,000, or 60.0%, to $14,000 for the three months
ended June 30, 2006 from $35,000 for the same period in 2005, due to lower costs


                                       20
<PAGE>


associated with loan foreclosures. Items processing expense increased $20,000,
or 68.97%, to $49,000 for the three months ended June 30, 2006 from $29,000 for
the same period in 2005 due to transaction accounts increasing to $94.5 million
at June 30, 2006 from $81.7 million at June 30, 2005. The Corporation continues
to target lower cost demand deposit accounts through media advertising versus
traditional higher cost certificates of deposits. Telephone expense increased
$13,000, or 34.21%, to $51,000 for the three months ended June 30, 2006 from
$38,000 for the same period in 2005 due to higher expense from two new banking
center openings. Other expense increased $65,000, or 34.21%, to $255,000 for the
three months ended June 30, 2006 from $190,000 for the same period in 2005 due
to higher loan expense from increased production and higher forms and supplies
expense from two new banking center openings.

Results of operations for the six months ended June 30, 2006 and 2005
---------------------------------------------------------------------

General
-------

Net income increased $250,000, or 22.98%, to $1,338,000 for the six months ended
June 30, 2006 as compared to $1,088,000 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.

Average Yields and Rates
------------------------
 (dollars in thousands)

<TABLE>
<CAPTION>
                                                        Period Ended June 30,
                                                        ----------------------
                                               2006                               2005
                                               ----                                ----

                                   Average                   Average    Average                Average
                                   Balance   Interest      Yield/Cost   Balance   Interest     Yield/Cost
                                  ---------- --------      ---------- ----------  --------     ----------
Interest-earning assets:
<S>                                  <C>       <C>             <C>        <C>        <C>          <C>
Loans (1)                          $201,029   $7,919         7.88%     $173,824    $5,865         6.75%
Mortgage-backed securities           26,916      560         4.16%       36,137       744         4.12%
Investment securities               111,556    2,583         4.63%      115,456     2,346         4.06%
Other interest-earning assets         5,321      134         5.04%       13,714       163         2.38%
                                  ---------- --------      ---------- ----------  --------     ----------
Total interest-earning assets       344,822   11,196         6.49%      339,131     9,118         5.38%
                                             --------       =========             --------     ==========
Non-interest-earning assets          26,769                              23,806
                                  ----------                          ----------
Total assets                       $371,591                            $362,937
                                  ==========                          ==========
Interest-bearing liabilities:
Deposits                            247,871    3,610         2.91%      232,387     2,421         2.08%
Floating rate junior
 subordinated deferrable
 interest debentures                  8,247      347         8.42%        8,247       267         6.48%
FHLB advances and other
 borrowings                          87,877    1,904         4.33%       94,770     1,481         3.13%
                                  ---------- --------      ---------- ----------  --------     ----------
Total interest-bearing
 liabilities                        343,995    5,861         3.41%      335,404     4,169         2.49%
                                             --------       =========             --------     ==========
Non-interest-bearing liabilities      2,163                               2,085
Total liabilities                   346,158                             337,489
Shareholders' equity                 25,433                              25,448
                                  ----------                          ----------
Total liabilities and
 shareholders' equity              $371,591                            $362,937
                                  ==========                          ==========
Net interest income/spread                    $5,335         3.08%                 $4,949         2.89%
                                             ========                             ========
Net yield on earning assets                                  3.09%                                2.92%

</TABLE>

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



                                       21
<PAGE>



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

Interest income increased $2,078,000, or 22.79%, to $11,196,000 for the six
months ended June 30, 2006 as compared to the same period in 2005. Interest
income on loans increased by 35.02%, or $2,054,000, to $7,919,000 for the six
months ended June 30, 2006 from $5,865,000 for the six months ended June 30,
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 $24,000, or 0.74%, for the six months ended
June 30, 2006 to $3,277,000 from $3,253,000 during the same period in 2005 due
to higher yields, from higher market interest rates, offset by lower average
balances.

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

Interest expense increased $1,692,000, or 40.59%, to $5,861,000 for the six
months ended June 30, 2006 as compared to the six months ended June 30, 2005.
Interest expense on deposit accounts increased $1,189,000, or 49.11%, to
$3,610,000 for the six months ended June 30, 2006 from $2,421,000 during the
same period in 2005 due to higher averages balances and cost of deposits as a
result of higher market rates. The Corporation continues to target lower cost
demand deposit accounts versus traditional higher cost certificates of deposits.
Interest expense on borrowings increased $423,000, or 28.56%, for the six months
ended June 30, 2006 as compared to the same period in the previous year due to
higher market interest rates, offset by lower average balances. Interest expense
on floating rate junior subordinated deferrable interest debentures increased
$80,000, or 29.96%, to $347,000 for the six months ended June 30, 2006 from
$267,000 during the same period in 2005 due to higher market interest rates.

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

During the six months ended June 30, 2006, the provision for loan losses was
$310,000 as compared to $548,000 for the same period in the previous year with a
decrease in classified loans partially 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. Real
estate acquired in foreclosure and loans classified as substandard and doubtful
decreased $1,064,000 from $3,388,000 at December 31, 2005 to $2,324,000 at June
30, 2006. During the six months ended June 30, 2006, bad debt charge-offs, net
of recoveries, was $130,000 as compared to $108,000 for the same period in the
previous year. The Corporation's loan loss allowance at June 30, 2006 was
approximately 1.19% of the Corporation's outstanding loan portfolio and 178.38%
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.



                                       22
<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                          310
       Charge-offs, net                                  (130)
       Balance at end of period                        $2,574

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


                                         June 30, 2006      December 31, 2005
                                      ------------------    -----------------

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

Real estate                              $        438     $          461
Commercial                                        263                436
Consumer                                          450                349
                                      -----------------     ---------------
Total                                    $      1,151     $        1,246
                                      =================    ================
Percentage of loans receivable                   0.52%              0.64%
                                      =================    ================
Percentage of allowance for loan losses
to total loans outstanding                       1.19%              1.23%
                                      =================    ================
Allowance for loan losses                $      2,574     $        2,394
                                      =================    ================
Real estate acquired through
foreclosure and repossessed assets       $        407     $          224
                                      =================    ================

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 $163,000, or 13.04%, to $1,413,000 for the
six months ended June 30, 2006 from $1,250,000 for the same period in the
previous year. Fees from financial services increased $172,000, or 14.47%, to
$1,361,000 for the six months ended June 30, 2006 from $1,189,000 for the same
period in the previous year. The increase was due to higher service fees as a
result of an increase in transaction accounts.



                                       23
<PAGE>


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

For the six months ended June 30, 2006, total non-interest expense increased
$368,000, or 8.78%, to $4,560,000 from $4,192,000 for the same period in 2005.
Compensation and employee benefits increased $233,000, or 11.66%, to $2,231,000
for the six months ended June 30, 2006 from $1,998,000 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 in March, 2006. Occupancy and equipment
expense decreased $18,000, or 1.75%, to $1,013,000 for the six months ended June
30, 2006 from $1,031,000 for the same period in 2005 due to primarily to lower
depreciation expense. Professional services expense increased $34,000, or
17.99%, to $223,000 for the six months ended June 30, 2006 from $189,000 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.
Advertising/public relations expense increased $36,000, or 59.02%, to $97,000
for the six months ended June 30, 2006 from $61,000 for the same period in 2005
due primarily to product and promotion expenses for the new banking center
location. Loan operations expense decreased $48,000, or 62.34%, to $29,000 for
the six months ended June 30, 2006 from $77,000 for the same period in 2005, due
to lower costs associated with foreclosures. Items processing expense increased
$39,000, or 63.93%, to $100,000 for the six months ended June 30, 2006 from
$61,000 for the same period in 2005 due to transaction accounts increasing to
$94.5 million at June 30, 2006 from $81.7 million at June 30, 2005. The
Corporation continues to target lower cost demand deposit accounts through media
advertising versus traditional higher cost certificates of deposits. Other
expense increased $88,000, or 24.72%, to $444,000 for the six months ended June
30, 2006 from $356,000 for the same period in 2005 due to higher loan expense
from increased production 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.



                                       24
<PAGE>


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.

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.


                                       25
<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
                                            June 30,          December 31,
      Change in Rates (Basis Points          2006                2005
      -----------------------------          ----                ----

                    +200                    +6.49%              +5.88%
                    +100                    +3.35%              +3.24%
                    (100)                   (4.43%)             (4.97%)
                    (200)                   (8.42%)             (7.72%)

The Corporation improved slightly in rising interest rate environments for the
period ending June 30, 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.


                                       26
<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
          ------------

In addition to the other information set forth in this report, you should
carefully consider the factors discussed in Part I, "Item 1A. Risk Factors" in
our Annual Report on Form 10-K for the year ended December 31, 2005, which could
materially affect our business, financial condition or future results. The risks
described in our Annual Report on Form 10-K are not the only risks that we face.
Additional risks and uncertainties not currently known to us or that we
currently deem to be immaterial also may materially adversely affect our
business, financial condition and/or operating results.

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 second quarter of 2006.

<TABLE>
<CAPTION>

                                                                (C)
                                                           Total Number of
                                                              Shares                  (d)
                         (a)                               Purchased as          Maximum Number of
                     Total Number             (b)         part of Publicly       Shares that may
                      of Shares         Average Price        Announced           be purchased
     Period           Purchased         Paid per share       Programs            under  Program
------------------ ---------------- -------------------- -------------------- -------------------------
<S>                       <C>                <C>                 <C>                    <C>
April 1, 2006
through April
30, 2006                   --                   --                   --                87,095
------------------ ---------------- -------------------- -------------------- -------------------------
May 1, 2006
through May 31,
2006                      441               $17.99                  441                86,654
------------------ ---------------- -------------------- -------------------- -------------------------
June 1, 2006
through June 30,
2006                   31,780               $17.68               31,780                54,874
------------------ ---------------- -------------------- -------------------- -------------------------
  Total                32,221               $17.69               32,221                  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.


                                       27
<PAGE>


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

               Not applicable.

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

         The Annual Meeting of the Stockholders of the Corporation was
         held on April 19, 2006. The results of the vote on the matters
         presented at the meeting is as follows:


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

                                    Votes For           Votes Withheld
                                    ---------           --------------
                Louis M. Jordan     1,282,112              224,387
                Dwight V. Neese     1,199,536              306,963
                Philip C. Wilkins   1,209,611              296,888

          2>   The appointment of Elliott Davis, LLC, as auditors for the
               Corporation for the year ending December 31, 2006 was ratified by
               the stockholders by the following vote:

               For 1,497,638             Against 4,000           Abstain 4,861
                   ---------                     -----                   -----

          3>   A vote was taken to approve the Provident Community Bancshares,
               Inc. 2006 Equity Incentive Plan and the vote was as follows:

               For 848,875               Against 268,946         Abstain 26,231
                   -------                       -------                 ------

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

                None

Item  6. Exhibits
         --------
         3(a)     Amended and Restated Certificate of Incorporation

         3(b)     Bylaws

         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




                                       28
<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: August 8, 2006                                 By: /s/ Dwight V. Neese
      ---------------------                             --------------------
                                                          Dwight V. Neese, CEO


Date: August 8, 2006                                 By: /s/ Richard H. Flake
     ----------------------                              --------------------
                                                          Richard H. Flake, CFO



                                       29