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


                                   FORM 10-Q

(Mark One)

[X]  QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
     THE SECURITIES EXCHANGE ACT OF 1934
     For the quarterly period ended March 31, 2005

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
     THE SECURITIES EXCHANGE ACT OF 1934
     For the transition period from ______________ to ______________


                          COMMISSION FILE NUMBER 1-5735

                        UNION FINANCIAL BANCSHARES, INC.
             (Exact name of 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)

                                 NOT APPLICABLE
------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)

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

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act.) Yes_____ No __X___

The  Corporation had 1,913,727  shares,  $0.01 par value, of common stock issued
and outstanding as of April 25, 2005.


<PAGE>


<TABLE>
<CAPTION>
                        UNION FINANCIAL BANCSHARES, INC.

                                      INDEX

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

                  Consolidated Balance Sheets as of March 31, 2005
                   and December 31, 2004                                                3

                  Consolidated Statements of Income for the three months
                   ended March 31, 2005 and 2004                                        4

                  Consolidated Statements of Cash Flows for the three
                   months ended March 31, 2005 and 2004                                 5

                  Consolidated Statements of Shareholders' Equity for the
                  three months ended March 31, 2005 and 2004                            6

                  Notes to Consolidated Financial Statements                         7-11

                  Item 2.  Management's Discussion and Analysis of
                           Financial Condition and Results of Operations             12-19

                  Item 3.  Quantitative and Qualitative Disclosures
                  about Market Risk                                                  20-21

                  Item 4.  Controls and Procedures                                   21-22

PART II.          OTHER INFORMATION
                  -----------------
                  Item 1. Legal Proceedings                                           22

                  Item 2. Unregistered Sales of Equity Securities and
                             Use of Proceeds                                          22

                  Item 3. Defaults Upon Senior Securities                             23

                  Item 4. Submission of Matters to a Vote of Security Holders         23

                  Item 5. Other Information                                           23

                  Item 6. Exhibits                                                    23

                  Signatures                                                          24

</TABLE>


<PAGE>


Item 1. Financial Statements
UNION FINANCIAL BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
March 31, 2005 and December 31, 2004 (unaudited)

<TABLE>
<CAPTION>
                                                                                March 31,    December 31,
ASSETS                                                                             2005          2004
                                                                                -----------  -----------
                                                                                  (DOLLARS IN THOUSANDS)

Cash                                                                             $   2,352     $   1,586
<S>                                                                                  <C>          <C>
Short term interest-earning deposits                                                 8,362        11,611
                                                                                 ---------     ---------
Total cash and cash equivalents                                                     10,714        13,197
Investment and mortgage-backed securities
  Held to maturity                                                                   1,625         1,630
  Available for sale                                                               142,077       141,864
                                                                                 ---------     ---------
Total investment and mortgage-backed securities                                    143,702       143,494
                                                                                 ---------     ---------
Loans, net                                                                         176,332       171,094
Office properties and equipment, net                                                 5,421         5,635
Federal Home Loan Bank Stock, at cost                                                3,561         3,522
Federal Reserve Stock, at cost                                                         539           539
Accrued interest receivable                                                          1,760         2,068
Intangible assets                                                                    4,053         4,212
Cash surrender value of life insurance                                               5,255         5,206
Other assets                                                                         3,082         2,631
                                                                                 ---------     ---------
TOTAL ASSETS                                                                     $ 354,419     $ 351,598
                                                                                 ---------     ---------
LIABILITIES

Deposit accounts                                                                 $ 236,131     $ 227,589
Advances from the Federal Home Loan Bank and other borrowings                       63,500        63,500
Securities sold under agreements to repurchase                                      20,000        24,000
Floating rate junior subordinated deferrable interest debentures                     8,247         8,247
Accrued interest on deposits                                                           362           333
Advances from borrowers for taxes and insurance                                        108            40
Other liabilities                                                                    1,519         1,870
                                                                                 ---------     ---------
TOTAL LIABILITIES                                                                  329,867       325,579
                                                                                 ---------     ---------
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 - 1,913,069 shares at
   3/31/05 and 1,957,989 at 12/31/04                                                    19            20
Additional paid-in capital                                                          12,178        12,109
Accumulated other comprehensive income(loss)                                          (873)          109
Retained earnings, substantially restricted                                         15,565        15,221
Treasury stock, at cost                                                             (2,337)       (1,440)
                                                                                 ---------     ---------
TOTAL SHAREHOLDERS' EQUITY                                                          24,552        26,019
                                                                                 ---------     ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                       $ 354,419     $ 351,598
                                                                                 =========     =========
</TABLE>


                                       3

<PAGE>



UNION FINANCIAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended March 31, 2005 and 2004 (unaudited)


<TABLE>
<CAPTION>
                                                                          Three Months Ended
                                                                        ----------------------
                                                                         March 31    March 31
                                                                          2005        2004
                                                                        -----------------------
                                                                        (DOLLARS IN THOUSANDS
                                                                           EXCEPT PER SHARE)
Interest Income:
<S>                                                                     <C>         <C>
  Loans                                                                 $ 2,823     $  2,458
  Deposits and federal funds sold                                            58           12
  Mortgage-backed securities                                                388          470
  Interest and dividends on
   investment securities                                                  1,142        1,102
                                                                       ------------------------
Total Interest Income                                                     4,411        4,042
                                                                       ------------------------
Interest Expense:
  Deposit accounts                                                        1,139          979
  Floating rate junior subordinated deferrable interest debentures          128           99
  Advances from the FHLB and other borrowings                               694          704
                                                                       ------------------------
Total Interest Expense                                                    1,961        1,782
                                                                       ------------------------
Net Interest Income                                                       2,450        2,260
  Provision for loan losses                                                 208          135
                                                                        -----------------------
Net Interest Income After
   Provision for Loan Losses                                              2,242        2,125
                                                                       ------------------------
Non-Interest Income:
  Fees for financial services                                               543          575
  Loan servicing fees                                                        15           17
  Net gain on sale of loans                                                  11           35
  Net gain on sale of investments                                             8         --
                                                                       ------------------------
Total Non-Interest Income                                                   577          627
                                                                       ------------------------
Non-Interest Expense:
  Compensation and employee benefits                                      1,015        1,015
  Occupancy and equipment                                                   509          508
  Deposit insurance premiums                                                  8            8
  Professional services                                                      88           77
  Advertising/Public relations                                               38           36
  Loan operations                                                            42           27
  Deposit premium intangible                                                159          159
  Items processing                                                           32           65
  Telephone                                                                  46           38
  Other                                                                     165          147
                                                                       ------------------------
Total Non-Interest Expense                                                2,102        2,080
                                                                       ------------------------
Income Before Income Taxes                                                  717          672
Income tax expense                                                          178          163
                                                                       ------------------------
Net Income                                                             $    539    $    509
                                                                       ========================
Basic Net Income Per Common Share                                      $   0.28    $   0.26
                                                                       ========================
Diluted Net Income Per Common Share                                    $   0.27    $   0.25
                                                                       ========================
Dividend Per Common Share                                              $   0.10    $   0.10=
                                                                       ========================
Weighted Average Number of
  Common Shares Outstanding
Basic                                                                  1,928,946    1,966,560

Diluted                                                                1,992,002    2,068,639

</TABLE>

See notes to consolidated financial statements.


                                       4

<PAGE>




UNION FINANCIAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2005 and 2004 (unaudited)


<TABLE>
<CAPTION>
                                                             Three Months Ended
                                                            March 31,   March 31,
                                                              2005        2004
                                                           ----------- ----------
                                                               (IN THOUSANDS)
OPERATING ACTIVITIES:
<S>                                                       <C>          <C>
Net income                                                $    539     $    509
Adjustments to reconcile net income to
  net cash provided by operating activities:
  Provision for loan losses                                    208          135
  Amortization of intangibles                                  159          159
  Depreciation expense                                         236          240
  Recognition of deferred income, net of costs                 (87)         (66)
  Deferral of fee income, net of costs                          86           76
  Changes in operating assets and liabilities:
   (Increase) decrease in accrued interest receivable          308         (220)
   Increase in other assets                                   (255)        (578)
   Increase (decrease) in other liabilities                   (283)       1,564
   Increase in accrued interest payable                         29           28
                                                          --------   -----------
Net cash provided by operating activities                      940        1,847
                                                            -----    -----------
INVESTING ACTIVITIES:

Purchase of investment and mortgage-backed securities:
   Available for sale                                      (18,360)     (84,500)
Proceeds from sale of investment and mortgage-
    backed securities                                        4,370         --
Proceeds from maturity of investment and mortgage-
    backed securities:
   Available for sale                                       10,078       31,734
Principal repayments on mortgage-backed securities:
   Available for sale                                        2,477        4,068
Net increase in loans                                       (5,445)      (1,660)
(Purchase) redemption of FHLB stock                            (39)         289
Purchase of office properties and equipment                    (22)         (28)
                                                           -------   ----------
Net cash used by investing activities                       (6,941)     (50,097)
                                                           ------    ----------
FINANCING ACTIVITIES:

Proceeds from the dividend reinvestment plan                    26           31
Dividends paid in cash ($0.10 per share -2005
and $0.10 per share - 2004)                                   (196)        (197)
Proceeds from the exercise of stock options                     43           20
Share repurchase program                                      (897)        (240)
Proceeds from term borrowings                                 --         24,000
Repayment of  term borrowings                               (4,000)      (1,275)
Increase in deposit accounts                                 8,542        4,060
                                                           -------   ----------
Net cash  provided by financing activities                   3,518       26,399
                                                           -------   -----------
NET DECREASE IN CASH
   AND CASH EQUIVALENTS                                     (2,483)     (21,851)
CASH AND CASH EQUIVALENTS
   AT BEGINNING OF PERIOD                                   13,197       28,702
                                                           -------   -----------
CASH AND CASH EQUIVALENTS
   AT END OF PERIOD                                       $ 10,714     $  6,851
                                                          ========   ===========
SUPPLEMENTAL DISCLOSURES:
Cash paid for:
  Income taxes                                            $    100     $   --
  Interest                                                   1,932        1,782
Non-cash transactions:
  Loans foreclosed                                        $   --       $    647
</TABLE>

See notes to consolidated financial statements.


                                       5

<PAGE>

                        UNION FINANCIAL BANCSHARES, INC.
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
             Three Months Ended March 31, 2005 and 2004 (unaudited)


<TABLE>
<CAPTION>
                                                                                                   Accumulated
                                                                                      Retained     Other                 Total
                                                                          Additional  Earnings,    Compre-   Treasury    Share-
                                                     Common Stock         Paid-in    Substantially hensive   Stock       holder
                                                   Shares      Amount     Capital     Restricted   Income    At Cost     Equity
                                                 -----------  --------   ----------   ----------  -------  ----------  -----------
<S>                                             <C>           <C>       <C>          <C>         <C>       <C>         <C>
BALANCE AT DECEMBER 31, 2003                       1,969,770     $  20     $ 11,906     $ 13,848    $  99     ($  366)    $25,507
Net income                                                                                   509                              509
Other comprehensive income, net of tax
   Unrealized holding gains arising during
     period                                                                                           703                     703
                                                                                                     ----                     ---
Comprehensive income                                                                                                        1,212

Stock option activity                                  3,045                     20                                            20

Dividend  reinvestment plan contributions              1,877                     31                                           31

Share repurchase program                             (13,803)                                                     (240)      (240)

Cash dividend ($.10 per share)                                                              (197)                            (197)
                                                 --------------------------------------------------------------------------------
BALANCE AT MARCH 31, 2004                          1,960,889     $  20     $ 11,957     $ 14,160    $ 802      ($  606)   $26,333
                                                 ================================================================================
BALANCE AT DECEMBER 31, 2004                       1,957,989     $  20     $ 12,109     $ 15,221    $ 109      ($1,440)   $26,019

Net income                                                                                   539                              539
Other comprehensive income, net of tax
  Unrealized holding losses arising during
    period                                                                                           (990)                   (990)
  Less reclassification adjustment for gains
    included in net income                                                                              8                       8
                                                                                                      ---                     ---

Comprehensive loss                                      (443)

Stock option activity                                  6,206                     43                                            43

Dividend  reinvestment plan contributions              1,540                     26                                            26

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

Cash dividend ($.10 per share)                                                              (196)                            (196)
                                                 --------------------------------------------------------------------------------
BALANCE AT MARCH 31, 2005                          1,913,069     $  19     $ 12,178     $ 15,565    ($873)    ($2,337)    $24,552
                                                 ================================================================================
</TABLE>




<PAGE>


                        UNION FINANCIAL BANCSHARES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

1. PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS

         The accompanying  unaudited  consolidated financial statements of Union
         Financial  Bancshares,  Inc. (the  "Corporation" or "Union  Financial")
         were  prepared  in  accordance  with  instructions  for Form  10-Q and,
         therefore,  do not include  all  disclosures  necessary  for a complete
         presentation   of   consolidated   financial   condition,   results  of
         operations,  and cash flows in conformity  with  accounting  principles
         generally  accepted  in the  United  States of  America.  However,  all
         adjustments which are, in the opinion of management,  necessary for the
         fair presentation of the interim consolidated financial statements have
         been  included.  All such  adjustments  are of a normal  and  recurring
         nature.  The results of operations for the three months ended March 31,
         2005  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 December 2004,  the Financial  Accounting  Standards  Board ("FASB")
         issued  Statement of Financial  Accounting  Standards  ("SFAS") No. 123
         (revised 2004),  "Share-Based  Payment" ("SFAS No.  123(R)").  SFAS No.
         123(R)  will  require  companies  to measure all  employee  stock-based
         compensation  awards  using a fair value method and record such expense
         in its  financial  statements.  In  addition,  the adoption of SFAS No.
         123(R)  requires  additional  accounting and disclosure  related to the
         income tax and cash flow effects  resulting  from  share-based  payment
         arrangements.  SFAS No.  123(R) is effective  beginning as of the first
         annual  reporting period beginning after June 15, 2005. The Corporation
         is currently evaluating the impact that the adoption of SFAS No. 123(R)
         will have on its financial  position,  results of  operations  and cash
         flows. The cumulative effect of adoption,  if any, will be measured and
         recognized in the statement of income on the date of adoption.

         In April 2005, the Securities and Exchange  Commission's  Office of the
         Chief  Accountant and its Division of Corporation  Finance has released
         Staff Accounting  Bulletin (SAB) No. 107 to provide guidance  regarding
         the application of FASB Statement No. 123 (revised 2004),  "Share-Based
         Payment". SFAS No. 123 covers a wide range of share-based  compensation
         arrangements   including   share  options,   restricted   share  plans,
         performance-based awards, share appreciation rights, and employee share
         purchase plans. SAB No. 107 provides  interpretive  guidance related to
         the  interaction  between  Statement No. 123R and certain SEC rules and
         regulations,  as well as the staff's view  regarding  the  valuation of
         share-based payment arrangements for public companies. SAB No. 107 also
         reminds  public  companies of the  importance of including  disclosures
         within  filings  made  with  the SEC  relating  to the  accounting  for
         share-based payment transactions, particularly during the transition to
         SFAS No. 123R.

                                       7
<PAGE>

         In December 2003, the FASB issued FASB Interpretation No. 46 (revised),
         "Consolidation of Variable Interest Entities" ("FIN No. 46(R)"),  which
         addresses  consolidation by business  enterprises of variable  interest
         entities.  FIN No.  46(R)  requires  a variable  interest  entity to be
         consolidated  by a company if that  company is subject to a majority of
         the risk of loss from the  variable  interest  entity's  activities  or
         entitled to receive a majority of the  entity's  residual  returns,  or
         both. FIN No. 46(R) also requires  disclosures  about variable interest
         entities that a company is not required to consolidate, but in which it
         has a significant  variable  interest.  FIN No. 46(R) provides guidance
         for  determining  whether an entity  qualifies  as a variable  interest
         entity by considering,  among other considerations,  whether the entity
         lacks   sufficient   equity  or  its  equity   holders  lack   adequate
         decision-making  ability.  The  consolidation  requirements  of FIN No.
         46(R) applied  immediately to variable  interest entities created after
         January  31,  2003.  The  consolidation  requirements  applied  to  the
         Corporation's   existing   variable  interest  entities  in  the  first
         reporting  period  ending  after  December  15,  2004.  Certain  of the
         disclosure  requirements  applied to all  financial  statements  issued
         after  December 31,  2003,  regardless  of when the  variable  interest
         entity was established. In accordance with these rules, the Corporation
         deconsolidated  the Trust as of December 31, 2004,  which was formed to
         raise  capital  by issuing  trust  preferred  securities.  The full and
         unconditional  guarantee  by the  Corporation  for the trust  preferred
         securities remains in effect.

         In November  2003, the Emerging  Issues Task Force  ("EITF")  reached a
         consensus that certain quantitative and qualitative  disclosures should
         be required for debt and  marketable  equity  securities  classified as
         available for sale or held to maturity  under SFAS No. 115 and SFAS No.
         124  that  are  impaired  at the  balance  sheet  date  but  for  which
         other-than-temporary  impairment has not been recognized.  Accordingly,
         the EITF issued EITF No.  03-1,  "The  Meaning of  Other-Than-Temporary
         Impairment  and Its  Application  to Certain  Investments."  This issue
         addresses  the  meaning  of  other-than-temporary  impairment  and  its
         application to investments  classified as either  available for sale or
         held  to  maturity  under  SFAS  No.  115  and  provides   guidance  on
         quantitative and qualitative  disclosures.  The disclosure requirements
         of EITF No. 03-1 were  effective for annual  financial  statements  for
         fiscal years ending after June 15,  2004.  The  effective  date for the
         measurement and recognition guidance of EITF No. 03-1 has been delayed.
         The FASB staff has issued a proposed Board-directed FASB Staff Position
         ("FSP"), FSP EITF 03-1-a,  "Implementation Guidance for the Application
         of  Paragraph 16 of Issue No.  03-1." The  proposed  FSP would  provide
         implementation  guidance  with  respect  to debt  securities  that  are
         impaired  solely  due to  interest  rates  and/or  sector  spreads  and
         analyzed for other-than-temporary  impairment under the measurement and
         recognition  requirements  of EITF No. 03-1. The delay of the effective
         date for the measurement and recognition  requirements of EITF No. 03-1
         will be  superseded  concurrent  with the  final  issuance  of FSP EITF
         03-1-a.  Adopting the  disclosure  provisions  of EITF No. 03-1 did not
         have any impact on the Corporation's  financial  position or results of
         operations.

                                       8
<PAGE>

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

2. INCOME PER SHARE

         Basic  income per share  amounts for the three  months  ended March 31,
         2005 and 2004 were  computed  based on the weighted  average  number of
         common shares outstanding  during the period.  Diluted income per share
         adjusts for the dilutive  effect of  outstanding  common stock  options
         during the periods.

3. ASSETS PLEDGED

         Approximately  $71,549,000  and $62,396,000 of debt securities at March
         31, 2005 and December 31, 2004, 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. The
         Bank  pledges as  collateral  for Federal  Home Loan Bank  advances the
         Bank's  Federal  Home Loan Bank  stock and has  entered  into a blanket
         collateral  agreement  with the Federal Home Loan Bank whereby the Bank
         maintains,  free  of  other  encumbrances,   qualifying  mortgages  (as
         defined) with unpaid  principal  balances equal to, when  discounted at
         75% of the unpaid principal balances,  100% of total advances. The Bank
         will also  pledge  securities  to cover  additional  advances  from the
         Federal  Home Loan Bank that exceed the  qualifying  mortgages  balance
         along with security repurchase lines with various brokerage houses.

4. CONTINGENCIES AND LOAN COMMITMENTS

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

         The Bank's  exposure to credit loss in the event of  nonperformance  by
         the other party to the financial  instrument for  commitments to extend
         credit is represented by the contractual  amount of those  instruments.
         The Bank  uses the same  credit  policies  in  making  commitments  and
         conditional  obligations as it does for  on-balance-sheet  instruments.
         Total  credit  exposure  at March 31,  2005  related to these  items is
         summarized below:



                                       9
<PAGE>


    LOAN COMMITMENTS:                                         CONTRACT AMOUNT
    ----------------                                          ---------------

             Approved loan commitments                          $   2,108,000
             Unadvanced portions of loans and credit lines         35,845,000
                                                                -------------
             Total loan commitments                             $  37,953,000
                                                                =============

         Loan  commitments to extend credit are agreements to lend to a customer
         as long as there is no violation of any  condition  established  in the
         contract.  Loan  commitments  generally have fixed  expiration dates or
         other  termination  clauses and may require  payment of a fee. The Bank
         evaluates each customer's creditworthiness on a case-by-case basis. The
         amount of  collateral  obtained  upon  extension  of credit is based on
         management's credit evaluation of the counter party. Collateral held is
         primarily residential and commercial property.

         Commitments  outstanding  at March  31,  2005  consisted  of fixed  and
         adjustable  rate loans at rates ranging from 5.0% to 6.5%.  Commitments
         to originate loans generally expire within 30 to 60 days.

         Commitments to fund credit lines (principally  variable rate,  consumer
         lines  secured  by  real  estate  and  overdraft   protection)  totaled
         approximately  $78,844,000  at March  31,  2005.  Of these  lines,  the
         outstanding loan balances totaled approximately $42,999,000.

5. FLOATING RATE JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES

         On December 18,  2001,  the Trust issued  $8,000,000  of floating  rate
         capital  securities   through  a  pooled  trust  preferred   securities
         offering. The proceeds from this issuance, along with the Corporation's
         $247,000 capital  contribution for the Trust's common securities,  were
         used  to  acquire   $8,247,000   aggregate   principal  amount  of  the
         Corporation's  floating rate junior  subordinated  deferrable  interest
         debentures due December 18, 2031 (the  "Debentures"),  which constitute
         the sole asset of the Trust.  The interest rate on the  Debentures  and
         the capital  securities is variable and  adjustable  quarterly at 3.60%
         over the three-month  LIBOR. A rate cap of 12.50% is effective  through
         December 18, 2006. The  Corporation  has,  through the Trust  agreement
         establishing  the Trust,  the  Guarantee  Agreement,  the notes and the
         related   Debentures,    taken   together,    fully   irrevocably   and
         unconditionally  guaranteed  all of the Trust's  obligations  under the
         capital securities.



                                       10
<PAGE>



                  A summary of the Trust securities issued and outstanding
                  follows:

<TABLE>
<CAPTION>

                                   AMOUNT
                                OUTSTANDING AT
                                   MARCH 31,                                                            DISTRIBUTIN
                           --------------------------             PREPAYMENT                            PAYMENT
     NAME                      2005            2004      RATE      OPTION DATE          MATURITY        FREQUENCY
------------------------   --------------  ----------    -----    ------------------ -----------------  -----------
<S>                          <C>             <C>         <C>       <C>                 <C>               <C>
     Union Financial         $8,000,000      $8,000,000  6.11%    December 18, 2006   December 18, 2031  Quarterly
     Statutory Trust I
 -------------------------------------------------------------------------------------------------------------------
</TABLE>


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

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



                                       11
<PAGE>








ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

         FORWARD LOOKING STATEMENTS

         Management's discussion and analysis of financial condition and results
         of operations and other portions of this Form 10-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, and changes in federal and state regulation.  These
         factors  should  be  considered  in  evaluating   the   forward-looking
         statements, and undue reliance should not be placed on such statements.

         FINANCIAL CONDITION

         ASSETS

         Total assets of the  Corporation  increased  $2,821,000,  or 0.80%,  to
         $354,419,000 at March 31, 2005 from  $351,598,000 at December 31, 2004.
         Investment  and  mortgage-backed   securities  increased  approximately
         $208,000,  or 0.14%,  from December 31, 2004 to March 31, 2005,  due to
         the purchase of shorter-term agency securities.

         Loans  increased  $5,238,000,  or 3.06%,  to  $176,332,000 at March 31,
         2005.  The  Corporation  continues to focus on consumer and  commercial
         lending with reduced emphasis on residential  mortgage loans.  Consumer
         and  commercial   loans   outstanding   during  this  period  increased
         $6,445,000,  or 5.89%,  while  outstanding  residential  mortgage loans
         decreased  $2,638,000 or 4.25%.  Short term interest  earning  deposits
         decreased $3,249,000, or 27.98%, to $8,362,000,  from December 31, 2004
         to March 31, 2005, as these  deposits were used to fund growth in loans
         and  investments.  Other  assets  increased  $451,000,  or  17.14%,  to
         $3,082,000,  from  December  31,  2004 to  March  31,  2005,  due to an
         increase  in a  deferred  tax  receivable  that  was  generated  by the
         quarterly mark to market adjustment for investments available for sale.


                                       12
<PAGE>



         LIABILITIES

         Total liabilities  increased  $4,288,000,  or 1.32%, to $329,867,000 at
         March  31,  2005 from  $325,579,000  at  December  31,  2004.  Deposits
         increased $8,542,000,  or 3.75%, to $236,131,000 at March 31, 2005 from
         $227,589,000  at December 31, 2004.  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 versus  traditional higher
         cost certificates of deposits.

         Securities sold under agreement to repurchase  decreased  $4,000,000 to
         $20,000,000 at March 31, 2005 from  $24,000,000 at December 31, 2004 as
         these borrowings were paid down with the additional growth in deposits.
         Other  liabilities  decreased  $351,000 to $1,519,000 at March 31, 2005
         from  $1,870,000 at December 31, 2004,  due primarily to a reduction in
         accrued liabilities.

         SHAREHOLDERS' EQUITY

         Shareholders' equity decreased $1,467,000,  or 5.64%, to $24,552,000 at
         March 31, 2005 from  $26,019,000 at December 31, 2004 due to a $982,000
         increase in  unrealized  losses on securities  available for sale,  the
         repurchase  of 52,666 shares at a cost of $897,000 and the payment of a
         $0.10 per share quarterly dividend at a cost of $196,000, offset by net
         income of $539,000.

         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 of  securities  and
         interest payments.

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

         During the three months ended March 31, 2005,  the  Corporation's  loan
         originations totaled $12,592,000.  At March 31, 2005, the Corporation's
         investment   in   agency   and   mortgage-backed   securities   totaled
         $143,702,000.  Additionally,  outstanding loan  commitments  (including
         commitments  to fund credit  lines)  totaled  $37,953,000  at March 31,
         2005.  Management  of the  Corporation  anticipates  that it will  have
         sufficient funds available to meet its current loan commitments.

         During the three months ended March 31, 2005, total deposits  increased
         $8,542,000.  The Corporation closely monitors its liquidity position on
         a daily basis.  Certificates of deposit,  which are scheduled to mature
         in one year or less  from  March 31,  2005,  totaled  $95,881,000.  The
         Corporation  relies primarily on competitive  rates,  customer service,
         and long-standing relationships with customers to retain deposits. From
         time to time, the Corporation  will also offer special  products to its
         customers to increase retention and to attract new deposits. Based upon
         the  Corporation's   experience  with  deposit  retention  and  current
         retention  strategies,  management  believes  that,  although it is not
         possible  to  predict  future  terms and  conditions  upon  renewal,  a
         significant  portion of such deposits will remain with the Corporation.
         If the  Corporation  requires funds beyond its ability to generate them
         internally,  additional  sources of funds are  available  through  FHLB
         advances and securities sold under  agreements to repurchase.  At March
         31, 2005,  the  Corporation  had  $63,500,000  of FHLB  borrowings  and
         $20,000,000 of securities sold under agreements to repurchase. At March
         31, 2005,  the  Corporation  had unused  short-term  lines of credit to
         purchase federal funds from unrelated banks totaling $24,000,000. These
         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.

                                       13
<PAGE>

         CAPITAL MANAGEMENT

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

          Quantitative  measures  established  by  regulations to ensure capital
          adequacy  require the Bank and the  Corporation  to  maintain  minimum
          amounts  and  ratios  of total  and Tier 1  capital  to  risk-weighted
          assets,  and of Tier 1 capital  to average  assets (as  defined in the
          regulations). Management believes, as of March 31, 2005, that the Bank
          and the Corporation  meet the capital  adequacy  requirements to which
          they are subject.

                                       14
<PAGE>

          As of March 31, 2005 and 2004, 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.  There are
          no conditions or events since March 31, 2005 that management  believes
          have changed the Bank's classification.

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

         The following  tables present the total  risk-based,  Tier 1 risk-based
         and  Tier 1  leverage  requirements  for the  Corporation  and the Bank
         (dollars in thousands).

<TABLE>
<CAPTION>
                                          ACTUAL                  REGULATORY  MINIMUM      "WELL CAPITALIZED"
                                  -----------------------      -------------------------  ---------------------
                                   AMOUNT         RATIO         AMOUNT          RATIO      AMOUNT      RATIO
                                  --------       ---------     ----------      ---------  ---------   ---------
                                      $              %              $              %         $           %
  Leverage ratio
<S>                                <C>             <C>           <C>             <C>
  Corporation                      29,174          8.25%         14,151          4.00%       n/a         n/a
  Bank                             28,305          8.00%         14,151          4.00%     17,688       5.00%
  Tier 1 capital ratio
  Corporation                      29,174         14.11%          8,270          4.00%       n/a         n/a
  Bank                             28,305         13.68%          8,274          4.00%     12,411       6.00%
  Total risk-based capital
   ratio
  Corporation                      31,344         15.16%         16,540          8.00%       n/a          n/a
  Bank                             30,475         14.73%         16,548          8.00%     20,685       10.00%
</TABLE>


          During fiscal 2003,  the  Corporation  implemented a share  repurchase
          program  under  which  the  Corporation  may  repurchase  up 5% of the
          outstanding  shares or 98,000  shares.  The program was expanded by an
          additional 5% in fiscal 2004. The shares are to be repurchased  either
          through open market purchases or privately negotiated transactions and
          will be made from time to time  depending  on  market  conditions  and
          other factors. Repurchased shares will be held in treasury and will be
          available for the Corporation's  benefit plans. The repurchase program
          is expected to improve the  Corporation's  operating  performance on a
          per share basis, enhance, in the long term, the market price per share
          of the  Corporation's  common stock and increase the  liquidity of the
          Corporation's  common stock.  During the quarter ended March 31, 2005,
          the Corporation  repurchased  52,666 shares. As of March 31, 2005, the
          Corporation  had  repurchased  a total of  135,651  shares  under this
          authorization.

                                       15
<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  $37,953,000  at  March  31,2005.   Management  of  the
         Corporation anticipates that it will have sufficient funds available to
         meet its current loan commitments. 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.

         At March 31, 2005, the undisbursed  portion of  construction  loans was
         $2,249,000  and the  unused  portion of credit  lines was  $33,596,000.
         Funding for these commitments is expected to be provided from deposits,
         loan and  mortgage-backed  securities  principal  repayments,  maturing
         investments and income generated from operations.

         For the period ended March 31, 2005, 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.


                                       16
<PAGE>
         RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
         MARCH 31, 2005 AND 2004

         GENERAL

         Net income  increased  $30,000,  or 5.89%,  to  $539,000  for the three
         months  ended  March 31, 2005 as compared to the same period in 2004 as
         an increase in net interest income was partially offset by increases in
         provision  for  loan  losses  and  non-interest  expense  along  with a
         reduction in non-interest income.

         INTEREST INCOME

         Interest  income  increased  $369,000,  or 9.13%, to $4,411,000 for the
         three  months  ended  March 31,  2005 as compared to the same period in
         2004.  Interest  income on loans increased by 14.85%,  or $365,000,  to
         $2,823,000  for the three months  ended March 31, 2005 from  $2,458,000
         for the three months ended March 31, 2004,  due primarily to increasing
         market  interest rates along with a higher average balance of loans 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
         $4,000,  or  0.25%,  for the  three  months  ended  March  31,  2005 to
         $1,588,000 from $1,584,000 during the same period in 2004 due to higher
         yields,  offset by lower average balances.  Total investment securities
         as of March 31, 2005 have  decreased by  $29,102,000,  or 16.84%,  when
         compared to the same  period in 2004 while  total loans have  increased
         $21,131,000, or 13.61% during the same period.

         INTEREST EXPENSE

         Interest expense increased  $179,000,  or 10.04%, to $1,961,000 for the
         three months ended March 31, 2005 as compared to the three months ended
         March  31,  2004.   Interest  expense  on  deposit  accounts  increased
         $160,000, or 16.34%, to $1,139,000 for the three months ended March 31,
         2005 from $979,000 during the same period in 2004 due to higher cost of
         deposits as a result of higher  market  rates offset by growth in lower
         costing transaction accounts. The Corporation continues to target lower
         cost  demand   deposit   accounts   versus   traditional   higher  cost
         certificates  of deposits.  Interest  expense on  borrowings  decreased
         $10,000,  or  1.42%,  for the three  months  ended  March  31,  2005 as
         compared to the same period in the previous year due to lower borrowing
         levels  offset by higher market  interest  rates.  Interest  expense on
         floating  rate  junior  subordinated   deferrable  interest  debentures
         increased  $29,000,  or 29.29%,  to $128,000 for the three months ended
         March  31,  2005 from  $99,000  during  the same  period in 2004 due to
         higher market rates.


                                       17
<PAGE>

         PROVISION FOR LOAN LOSSES

         During the three months ended March 31, 2005,  the  provision  for loan
         losses was  $208,000 as compared to $135,000 for the same period in the
         previous year,  primarily due to net growth in loans of 13.61% over the
         previous  year.  The  increase  in  the  provision  also  reflects  the
         Corporation's   continued   movement  from  longer  term,   fixed  rate
         residential  mortgage loans to shorter term, floating rate consumer and
         commercial  loans.  Consumer  and  commercial  loans carry  higher risk
         weighted  rates in the reserve  calculation  as compared to residential
         mortgage  loans.  The provision was also affected by an  improvement in
         asset quality. Classified loans decreased $1,498,000 from $6,029,000 at
         March 31,  2004 to  $4,531,000  at March 31,  2005.  In  addition,  non
         performing  loans decreased  $452,000 from $1,441,000 at March 31, 2004
         to  $989,000  at March 31,  2005.  Loans  30-89 days past due and still
         accruing also decreased  $514,000 from  $4,844,000 at March 31, 2004 to
         $4,330,000  at March 31,  2005.  The  reduction in  delinquent  and non
         performing loans was a result of increased  emphasis and focus from the
         Credit  Administration  area of the Bank. During the three months ended
         March 31, 2005, bad debt charge-offs, net of recoveries, was $63,000 as
         compared  to  $219,000  for  the  same  period  in the  previous  year.
         Management  believes the Corporation's  loan loss allowance is adequate
         to  absorb  possible  loan  losses  inherent  in  the  portfolio.   The
         Corporation's  loan loss allowance at March 31, 2005 was  approximately
         1.23% of the  Corporation's  outstanding  loan portfolio and 172.99% of
         non-performing loans compared to 1.46% of the Corporation's outstanding
         loan portfolio and 94.19% of non-performing loans at March 31, 2004.

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

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

         Balance at beginning of year                                 $2,026
         Provision for loan losses                                       208
         Charge-offs, net                                                 63
                                                                      ------
                                                                      $2,171
                                                                      ======


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

                                   MARCH 31, 2005          DECEMBER 31, 2004
                                   --------------          -----------------
Non-accruing loans which are
contractually past due 90 days
or more:

Real Estate                          $ 325                      $   217
Commercial                             339                          142
Consumer                               325                          391
                                     -----                      -------
Total                                $ 989                      $   750
                                     ======                     =======

                                   MARCH 31, 2005          DECEMBER 31, 2004
                                   --------------          -----------------

Percentage of loans
    receivable, net                   0.56%                       0.44%
                                    ======                       =====
Percentage of allowance
    for loan losses
    to total loans outstanding        1.24%                      1.18%
                                    ======                      =====
Allowance for loan losses           $2,171                      $2,026
                                    ======                      ======

Real estate acquired through
foreclosure and repossessed
assets, net of allowances            $ 265                      $  364
                                    ======                      ======




                                      18
<PAGE>

         NON-INTEREST INCOME

         Total non-interest  income decreased $50,000, or 7.97%, to $577,000 for
         the three months ended March 31, 2005 from $627,000 for the same period
         in the previous year. Fees from financial  services  decreased $32,000,
         or 5.57%,  to $543,000  for the three  months ended March 31, 2005 from
         $575,000 for the same period in the previous year. The decrease was due
         primarily to lower fees generated from third party investment brokerage
         and  financing  receivables  programs  due to a  reduction  in  product
         volumes.  Gain on sale of loans for the three  months  ended  March 31,
         2005  was  $11,000  compared  to  $35,000  for the same  period  in the
         previous year due to lower residential loan originations as a result of
         the rising interest rate environment along with the Corporation's shift
         in focus to consumer/commercial loans. The sales represent loans funded
         and sold through a third party on a servicing released basis.

         NON-INTEREST EXPENSE

         For the three months ended March 31, 2005, total  non-interest  expense
         increased $22,000, or 1.06%, to $2,102,000 from $2,080,000 for the same
         period  in  2004.   Compensation  and  employee  benefits  remained  at
         $1,015,000  for the three month  period  ended March 31, 2005 and March
         31, 2004,  as  increases  in benefits  costs were offset by lower third
         party  brokerage  expenses.  Professional  services  expense  increased
         $11,000,  or 14.29%,  to $88,000 for the three  months  ended March 31,
         2005 from  $77,000  for the same  period  in 2004 due to  higher  audit
         expense. Loan operations costs increased $15,000, or 55.56%, to $42,000
         for the three  months  ended March 31,  2005 from  $27,000 for the same
         period in 2004, due to higher costs associated with foreclosures. Items
         processing  expense  decreased  $33,000,  or 50.77%, to $32,000 for the
         three  months  ended March 31, 2005 from $65,000 for the same period in
         2004. The Corporation entered into a new items processing contract that
         was  effective  January 1, 2005 that  reduced the long term expense for
         demand accounts.  Telephone  expense  increased  $8,000,  or 21.05%, to
         $46,000 for the three  months ended March 31, 2005 from $38,000 for the
         same period in 2004, due to installation  charges  incurred for two new
         banking center systems.  Other expense increased $18,000, or 12.24%, to
         $165,000 for the three  months  ended March 31, 2005 from  $147,000 for
         the same period in 2004, due primarily to higher expenses for corporate
         charitable  contributions and dues as a result of increased emphasis on
         community development.



                                       19
<PAGE>

         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 Bank's  securities  portfolio,
          FHLB  advances  and other  borrowings  as well as the Bank's asset and
          liability policies.

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

          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.


                                       20
<PAGE>

          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.

                  The following table reflects changes in estimated net interest
         income from rate shocks of 1%-2% in a rising and falling  interest rate
         environment for the Corporation.

                                             AT MARCH 31, 2005

                           200 basis point increase in rates       +4.57%
                           100 basis point increase in rates       +3.15%
                           100 basis point decrease in rates       -3.71%

          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 period if rates rose by 100 and 200 basis points, but
          would be adversely affected if rates declined by 100 basis points.


                                       21
<PAGE>

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.

PART II - OTHER INFORMATION

         ITEM  1.  LEGAL PROCEEDINGS

         The Corporation is involved in various claims and legal actions arising
         in the  normal  course of  business.  Management  believes  that  these
         proceedings are immaterial to the Corporation's financial condition and
         results of operations.

         ITEM  2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

         The following table provides certain  information with regard to shares
         repurchased by the Corporation during the first quarter of 2005.


<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
                                   (a)                 (b)                  (c)                        (d)
                                                                       Total Number of Shares
                                                                       Purchased as part of     Maximum Number of
                         Total Number of                               Publicly                 Shares that may
                         Shares              Average Price             Announced                be purchased
       Period            Purchased           Paid per share            Programs                 under Program
------------------------------------------------------------------------------------------------------------------
<S>                      <C>                   <C>                       <C>                    <C>
January 1, 2005 through
January 31, 2005                                                                                113015
------------------------------------------------------------------------------------------------------------------
February 1, 2005
through February 28,
2005                      45300               $17.00                     45300                    67715
------------------------------------------------------------------------------------------------------------------
March 1, 2005 through
March 31, 2005             7366               $17.26                      7366                    60349
------------------------------------------------------------------------------------------------------------------
Total                     52666               $17.04                     52666                     N/A
------------------------------------------------------------------------------------------------------------------
</TABLE>



         During fiscal 2003,  the  Corporation  implemented  a share  repurchase
         program  under  which  the  Corporation  may  repurchase  up 5% of  the
         outstanding  shares or 98,000  shares.  The program was  expanded by an
         additional  5% in fiscal 2004.  The  repurchase  program will  continue
         until it is completed or terminated by the Board of Directors.

                                       22
<PAGE>

ITEM  3. DEFAULTS UPON SENIOR SECURITIES

                  Not applicable.

ITEM  4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

                  None

ITEM  5. OTHER INFORMATION

                  None

ITEM  6. EXHIBITS

3         Bylaws of Union Financial Bancshares, Inc.

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




                                       23

<PAGE>




                                   SIGNATURES

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


                        UNION FINANCIAL BANCSHARES, INC.
                                  (REGISTRANT)



Date: MAY 9, 2005                       By:   /S/ DWIGHT V. NEESE
----------------------------            ----------------------------
                                               Dwight V. Neese, CEO


Date: MAY 9, 2005
---------------------------             By:    Richard H. Flake
                                        ----------------------------
                                               Richard H. Flake, CFO


                                       24