<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                             ______________________

                                  FORM 10-QSB

(Mark One)

 X   QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
---
     EXCHANGE ACT OF 1934
     For the quarterly period ended December 31, 2000
                                    -----------------

___  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.
                       -------------------------------

            Delaware                                   57-1001177
-------------------------------------------------------------------------------
(Jurisdiction of Incorporation)            (I.R.S. Employer Identification No.)


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

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

State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date: The Corporation had issued and
outstanding 1,914,577 shares, $0.01 par value, common stock as of January 31,
2001.
<PAGE>

                        UNION FINANCIAL BANCSHARES, INC.

                                     INDEX
<TABLE>
<CAPTION>
Part I.                           Financial Information                                   Page
                                  ---------------------                                   ----
<S>                                                                                       <C>

                     Item 1.  Consolidated Financial Statements (unaudited)

                     Consolidated Balance Sheets as of December 31, 2000
                     and September 30, 2000                                                  3

                     Consolidated Statements of Income for the three months
                     ended December 31, 2000 and 1999                                        4

                     Consolidated Statements of Cash Flows for the three
                     months ended December 31, 2000 and 1999                                 5

                     Consolidated Statements of Shareholders' Equity for the
                     three months ended December 31, 2000 and 1999                           6

                     Notes to Consolidated Financial Statements                              7

                     Item 2.  Management's Discussion and Analysis of
                     Financial Condition and Results of Operations                          10

Part II.             Other Information                                                      15
                     -----------------


                     Signatures                                                             16
</TABLE>
<PAGE>

Item 1.    Financial Statements
UNION FINANCIAL BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 2000 (unaudited) and September 30, 2000

<TABLE>
<CAPTION>
                                                                          December 31,       September 30,
ASSETS                                                                        2000                2000
                                                                        ----------------    ---------------
                                                                               (DOLLARS IN THOUSANDS)
<S>                                                                     <C>                 <C>
Cash                                                                    $         1,995     $        2,068
Short term interest-bearing deposits                                              9,680              2,545
                                                                        ----------------    ---------------
Total cash and cash equivalents                                                  11,675              4,613
                                                                        ----------------    ---------------
Investment and mortgage-backed securities:
  Held to maturity                                                               13,432             37,652
  Available for sale                                                             51,792             29,240
                                                                        ----------------    ---------------
Total investment and mortgage-backed securities                                  65,224             66,892
Loans , net

  Held for sale                                                                   2,930              1,801
  Held for investment                                                           164,812            166,006
                                                                        ----------------    ---------------
Total loans receivable, net                                                     167,742            167,807
Office properties and equipment, net                                              6,626              6,485
Federal Home Loan Bank Stock, at cost                                             2,625              2,625
Accrued interest receivable                                                       1,932              1,629
Mortgage servicing rights                                                           629                452
Goodwill intangible                                                               6,792              7,042
Other assets                                                                      2,699              1,519
                                                                        ----------------    ---------------
TOTAL ASSETS                                                            $       265,944     $      259,064
                                                                        ================    ===============
LIABILITIES

Deposit accounts                                                        $       182,307     $      187,974
Advances from the Federal Home Loan Bank and other borrowings                    55,967             47,687
Accrued interest on deposits                                                        399                329
Advances from borrowers for taxes and insurance                                     138                473
Other liabilities                                                                 4,681                677
                                                                        ----------------    ---------------
TOTAL LIABILITIES                                                               243,492            237,140
                                                                        ----------------    ---------------

SHAREHOLDERS' EQUITY

Serial preferred stock, no par value,
  authorized - 500,000 shares, issued
  and outstanding - None                                                              0                  0
Common stock - $0.01 par value,
  authorized - 2,500,000 shares,
   issued and outstanding - 1,914,577 shares at 12/31/00 and
    1,911,005 at 9/30/00                                                             20                 20
Additional paid-in capital                                                       11,231             11,314
Accumulated other comprehensive income                                           (1,656)            (2,050)
Retained earnings, substantially restricted                                      12,857             12,640
                                                                        ----------------    ---------------
TOTAL SHAREHOLDERS' EQUITY                                                       22,452             21,924
                                                                        ----------------    ---------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                              $       265,944     $      259,064
                                                                        ================    ===============
</TABLE>

See notes to consolidated financial statements.

                                       3
<PAGE>

UNION FINANCIAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three  Months Ended December 31, 2000 (unaudited) and 1999 (unaudited)


<TABLE>
<CAPTION>
                                                               Three Months Ended
                                                         December 31,      December 31,
                                                             2000              1999
                                                        --------------    --------------
                                                             (DOLLARS IN THOUSANDS)
<S>                                                     <C>               <C>
Interest Income:
  Loans                                                 $        3,827    $        3,492
  Deposits and federal funds sold                                   81                19
  Mortgage-backed securities                                       690               272
  Interest and dividends on
   investment securities                                           343               367
                                                        --------------    --------------
Total Interest Income                                            4,941             4,150
                                                        --------------    --------------

Interest Expense:
  Deposit accounts                                               2,253             1,670
  Advances from the FHLB and other borrowings                      859               703
                                                        --------------    --------------
Total Interest Expense                                           3,112             2,373
                                                        --------------    --------------

Net Interest Income                                              1,829             1,777
  Provision for loan losses                                         24                50
                                                        --------------    --------------
Net Interest Income After

   Provision for Loan Losses                                     1,805             1,727
                                                        --------------    --------------

Non Interest Income:
  Fees for financial services                                      261               263
  Loan servicing fees (costs)                                       25                24
  Net gains (losses) on sale of investments                          3                 0
  Net gains (losses) on sale of loans                              110               109
                                                        --------------    --------------
Total Non Interest Income                                          399               396
                                                        --------------    --------------

Non Interest Expense:
  Compensation and employee benefits                               738               694
  Occupancy and equipment                                          332               331
  Deposit insurance premiums                                         6                20
  Professional services                                             93                84
  Real estate operations                                            16                 5
  Goodwill amortization                                            165                99
  Other                                                            221               180
                                                        --------------    --------------
Total Non Interest Expense                                       1,571             1,413
                                                        --------------    --------------

Income Before Income Taxes                                         633               710
Income tax expense                                                 226               253
                                                        --------------    --------------
Net Income                                              $          407    $          457
                                                        ==============    ==============

Basic Net Income Per Common Share                       $         0.21    $         0.27
                                                        ==============    ==============

Diluted Net Income Per Common Share                     $         0.21    $         0.26
                                                        ==============    ==============

Weighted Average Number of
  Common Shares Outstanding

Basic                                                        1,913,373         1,709,874

Diluted                                                      1,959,521         1,760,302
</TABLE>

See notes to consolidated financial statements.

                                       4
<PAGE>

UNION FINANCIAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended December 31, 2000 (unaudited) and 1999 (unaudited)

<TABLE>
<CAPTION>
                                                                       Three Months Ended
                                                                December 31,       December 31,
                                                                    2000               1999
                                                               ----------------   ----------------
                                                                         (IN THOUSANDS)
<S>                                                            <C>                 <C>
OPERATING ACTIVITIES:

Net income                                                        $        407         $      457
Adjustments to reconcile net income to
  net cash provided by operating activities:
  Provision for loan losses                                                 24                 50
  Amortization of intangibles                                              165                 99
  Depreciation expense                                                     195                101
  Recognition of deferred income, net of costs                            (199)               (25)
  Deferral of fee income, net of costs                                     218                221
  Loans originated for sale                                              6,398              7,164
  Sale of loans                                                         (6,398)            (7,164)
  Gain on sale of loans                                                    109                109
  Changes in operating assets and liabilities:
  (Increase) decrease in accrued interest receivable                      (303)              (531)
  (Increase) decrease in other assets                                   (1,180)               173
  Increase (decrease) in other liabilities                               3,669                 43
  Increase (decrease) in accrued interest payable                           70                114
                                                               ----------------   ----------------
Net cash provided by (used by) operating activities                      3,175                811
                                                               ----------------   ----------------

INVESTING ACTIVITIES:

Purchase of investment and mortgage-backed securities:
  Held to maturity                                                           0               (982)
  Available for sale                                                      (616)                 0
Investments acquired in merger                                               0             (2,602)
Proceeds from sale of investment and mortgage-
  backed securities                                                      1,735                  0
Proceeds from maturity of investment and mortgage-
  backed securities:
  Available for sale                                                         0                  0
  Principal repayments on mortgage-backed securities:
  Held to maturity                                                         174                266
  Available for sale                                                       606                637
Loans acquired in merger                                                     0            (41,144)
Net (increase) decrease in loans                                            65             (1,974)
Net (increase) decrease in  mortgage servicing rights                     (195)               565
Purchase of FHLB stock                                                       0               (213)
Redemption of FHLB stock                                                     0                  0
Purchase of office properties and equipment                               (335)              (662)
                                                               ----------------   ----------------

Net cash provided by (used by) investing activities               $      1,434        ($   46,109)
                                                               ----------------   ----------------

FINANCING ACTIVITIES:

Proceeds from the dividend reinvestment plan                                 0                 50
Dividends paid in cash ($0.10 per share -2000
and $0.093 per share - 1999)                                              (160)              (126)
Proceeds from the exercise of stock options                                  0                 13
Increase in goodwill intangible                                              0             (2,476)
Proceeds from term borrowings                                            8,280              3,500
Capital acquired in merger                                                   0              5,648
Deposits acquired in acquisition                                             0             35,688
Increase (Decrease) in deposit accounts                                 (5,667)             6,903
                                                               ----------------   ----------------

Net cash (used by) provided by financing activities                      2,453             49,200
                                                               ----------------   ----------------

NET  DECREASE\INCREASE IN CASH
   AND CASH EQUIVALENTS                                                  7,062              3,902

CASH AND CASH EQUIVALENTS
   AT BEGINNING OF PERIOD                                                4,613              5,570
                                                               ----------------   ----------------

CASH AND CASH EQUIVALENTS
   AT END OF PERIOD                                               $     11,675         $    9,472
                                                               ================   ================

SUPPLEMENTAL DISCLOSURES:

Cash paid for:
  Income taxes                                                    $        672         $        0
  Interest                                                               3,042              2,373

Non-cash transactions:
  Loans foreclosed                                                $          0         $        0
</TABLE>

See notes to consolidated financial statements.

                                       5
<PAGE>

                       UNION FINANCIAL BANCSHARES, INC.
                CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
           THREE MONTHS ENDED DECEMBER 31, 2000 AND 1999 (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                       Retained       Accumulated
                                                                       Additional      Earnings          Other           Total
                                                     Common Stock       Paid-in      Substantially   Comprehensive    Shareholders'
                                                  Shares     Amount     Capital       Restricted         Income          Equity
                                                  ------     ------     -------       ----------         ------          ------
                                                                        (In Thousands, Except Share Data)
<S>                                              <C>         <C>       <C>           <C>             <C>              <C>
BALANCE AT SEPTEMBER 30, 1999                    1,357,214     $14      $ 5,484         $11,019         ($1,779)         $14,738

Net income                                                                                  457                              457

  Other comprehensive income
   Unrealized losses on securities:
     Unrealized holding losses arising during
     period                                                                                                (709)            (709)
                                                                                                        --------          -------
  Comprehensive loss                                                                                                        (252)

Options exercised                                    2,200                                   13                               13

Dividend  reinvestment plan contributions            4,621                                   50                               50

Acquisition of SC Community Bancshares             526,183       5        5,643

Cash dividend ($.093 per share)                                                            (126)                            (126)
                                                ---------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1999                     1,890,218      19       11,190          11,350          (2,488)          20,071
                                                =================================================================================

BALANCE AT SEPTEMBER 30, 2000                    1,911,005      20       11,314          12,640          (2,050)          21,924

Net income                                                                                  407                              407

  Other comprehensive income
   Unrealized gains on securities:
     Unrealized holding gains arising during
     period                                                                                                 394              394
                                                                                                        --------          -------
  Comprehensive income                                                                                                       801

Equity reclassification                                                    (113)                                            (113)

Dividend  reinvestment plan contributions            3,572                   30                                               30

Cash dividend ($.10 per share)                                                             (190)                            (190)
                                                ---------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2000                     1,914,577     $20      $11,231         $12,857         ($1,656)         $22,452
                                                =================================================================================
</TABLE>

                                      6
<PAGE>

                        UNION FINANCIAL BANCSHARES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (UNAUDITED)

1.   Presentation of Consolidated Financial Statements
     -------------------------------------------------

     The accompanying unaudited consolidated financial statements of Union
     Financial Bancshares, Inc. (the "Corporation") were prepared in accordance
     with instructions for Form 10-QSB and, therefore, do not include all
     disclosures necessary for a complete presentation of consolidated financial
     condition, results of operations, and cash flows in conformity with
     generally accepted accounting principles. However, all adjustments which
     are, in the opinion of management, necessary for the fair presentation of
     the interim consolidated financial statements have been included. All such
     adjustments are of a normal and recurring nature. The consolidated
     financial statements include the Corporation's wholly owned subsidiary,
     Provident Community Bank (the "Bank"). The results of operations for the
     three months ended December 31, 2000 are not necessarily indicative of the
     results which may be expected for the entire fiscal year. The consolidated
     balance sheet as of September 30, 2000 has been derived from the Company's
     audited financial statements presented in the annual report to
     shareholders. Certain amounts in the prior year's financial statements have
     been reclassified to conform with current year classifications.

     In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
                                                 -------------------------
     Instruments and Hedging Activities. All derivatives are to be measured at
     ----------------------------------
     fair value and recognized in the balance sheet as assets and liabilities.
     SFAS No. 138,"Accounting for Certain Derivative Instruments and Certain
     Hedging Activities" was issued June 2000 and amends the accounting and
     reporting standards of SFAS no. 133 for certain derivative instruments and
     hedging activities. The two statements are to be adopted concurrently and
     are effective for fiscal years and quarters beginning after June 15, 2000.
     Adoption of SFAS no. 133 and SFAS 138 did not have a material impact on the
     presentation for the Corporation's financial results or financial position.

     Additional proposed guidance addresses the accounting treatment for
     goodwill generated in a purchase business combination transaction. Proposed
     guidance by the FASB requires goodwill to be carried at fair value and will
     no longer be amortized on a straight line basis. Management does not know
     the impact of the proposed pronouncement on the Corporation's financial
     condition.

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

     Income per share amounts for the three months ended December 31, 2000 and
     1999 were computed based on the weighted average number of common shares
     outstanding adjusted for the dilutive effect of outstanding common stock
     options during the periods.

                                       7
<PAGE>

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

     Approximately $12,535,000 and $12,535,000 of debt securities at December
     31, 2000 and September 30, 2000, respectively, were pledged by the Bank as
     collateral to secure deposits of the State of South Carolina, Laurens
     County and certain other liabilities. 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.

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

     The Bank is a party to financial instruments with off-balance-sheet risk in
     the normal course of business to meet the financing needs of its customers.
     These instruments expose the Bank to credit risk in excess of the amount
     recognized on the balance sheet.

     The Bank's exposure to credit loss in the event of nonperformance by the
     other party to the financial instrument for commitments to extend credit is
     represented by the contractual amount of those instruments. The Bank uses
     the same credit policies in making commitments and conditional obligations
     as it does for on-balance-sheet instruments. Total credit exposure at
     December 31, 2000 related to these items is summarized below:

     Loan Commitments:                                   Contract Amount
     -----------------                                   ---------------
          Unadvanced portions of loans                     $ 9,201,000
          Total loan commitments                           $ 9,201,000
                                                           -----------

     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 property. Interest rates on loan commitments are a combination
     of fixed and variable.

     Commitments outstanding at December 31, 2000 consist of fixed and
     adjustable rate loans of approximately $9,201,000 at rates ranging from 7%
     to 9%. 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
     $21,596,000 at December 31, 2000. Of these lines, the outstanding loan
     balances totaled approximately $12,395,000. The Bank also has commitments
     to fund warehouse lines of credit for various mortgage banking

                                       8
<PAGE>

     companies totaling $750,000, which had an outstanding balance at December
     31, 2000 of approximately $ 194,000. At December 31, 2000, the Bank had
     loan commitments to sell $3,797,000 in fixed rate residential loans which
     had not been closed to Freddie Mac for the months of January-March, 2001.

5.   Acquisition of South Carolina Community Bancshares, Inc.
     --------------------------------------------------------

     On November 12, 1999, the Corporation completed the acquisition of South
     Carolina Community Bancshares, Inc. and its wholly owned subsidiary,
     Community Federal Savings Bank. The Corporation issued a total of 526,183
     shares and paid a total of $3,582,081 to the shareholders of South Carolina
     Community Bancshares, Inc. The transaction was accounted for under the
     purchase method of accounting. The two offices of Community Federal Savings
     Bank became offices of Provident Community Bank. At September 30, 1999,
     South Carolina Community Bancshares, Inc. had total assets of $46.6
     million, loans of $40.2 million and deposits of $35.9 million.
     Approximately $4.7 million in goodwill was created with the transaction and
     will be amortized straight-line over 15 years.

                                       9
<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 report contain certain "forward-
     looking statements" concerning the future operations of the Corporation.
     Management desires 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 our Annual Report. We have used "forward-looking
     statements" 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 affect actual results include
     interest rate trends, the general economic climate in the Corporation's
     market area and the country as a whole, the ability of the Corporation to
     control costs and expenses, the ability of the Corporation to efficiently
     incorporate acquisitions into its operations, 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
     -------------------

     Total assets of the Corporation increased $6,880,000 or 2.66% to
     $265,944,000 at December 31, 2000 from $259,064,000 at September 30, 2000
     due primarily to higher short term investments. Investments and mortgage-
     backed securities decreased approximately $1,668,000 or 2.49% during the
     three months ended December 31, 2000 due to the sale of a fixed rate
     mortgage backed security in order to reduce interest rate risk exposure.
     During the quarter ended December 31, 2000 the Corporation reclassified
     approximately $24,000,000 in mortgage backed securities from held to
     maturity to available for sale as part of the adoption of FASB 133,
     Accounting for Derivative Instruments and Hedging Activities. The purpose
     ------------------------------------------------------------
     of this transfer is allow for the possible sale of the fixed rate
     securities in order to reduce interest rate risk exposure. Loans decreased
     $65,000 or .04% to $167,742,000 for the three months ended December 31,
     2000. The decrease in loans was due to higher principal reductions along
     with reductions in residential mortgage loan production. The decrease in
     residential mortgage production was offset by higher consumer and
     commercial lending resulting in an increase on the yield for earning
     assets. Deposits decreased $5,667,000 or 3.01% to $182,307,000 for the
     three months ended December 31, 2000. The decrease was due to reductions in
     certificates of deposit primarily as a result of startup institutions
     paying high deposit rates. Borrowings increased $8,280,000 or 17.36% to
     $55,967,000 at December 31, 2000 from $47,687,000. Since deposits
     decreased, the Corporation relied on additional borrowings to fund asset
     growth. Shareholders' equity increased $528,000 or 2.41% to $22,452,000
     from $21,924,000 due to net income year to

                                      10
<PAGE>

     date and improvement in valuations for securities available for sale.

     Liquidity
     ---------

     Liquidity is the ability to meet demand for loan disbursements, deposit
     withdrawals, repayment of debt, payment of interest on deposits and other
     operating expenses. The primary sources of liquidity are savings deposits,
     loan sales and repayments, borrowings, maturity of securities and interest
     payments.

     The OTS imposes a minimum level of liquidity on the Bank which is currently
     4% of with-drawable deposits plus short-term borrowings.  The liquidity
     level of the Bank as measured for regulatory purposes was 24.89% as of
     December 31, 2000. As in the past, management expects that the Bank can
     meet its obligations to fund outstanding loan commitments  while
     maintaining liquidity in excess of regulatory requirements.

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

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

     As of December 31, 2000, the Bank's capital position, as calculated under
     regulatory guidelines, exceeds these minimum requirements as follows
     (dollars in thousands):
<TABLE>
<CAPTION>
                                                    Requirement    Actual    Excess
-----------------------------------------------------------------------------------
<S>                                                <C>           <C>       <C>
     Tangible capital                                  $ 3,915   $17,157   $13,242
     Tangible capital to adjusted total assets            1.50%     6.57%     5.07%

     Core capital                                      $10,439   $17,157   $ 6,718
     Core capital to adjusted total assets                4.00%     6.57%     2.57%

     Risk based capital                                $11,568   $18,460   $ 6,892
     Risk based capital to risk weighted assets           8.00%    12.76%     4.76%
</TABLE>

     The reported capital requirements are based on information reported in the
     OTS December 31, 2000 quarterly thrift financial report.

     Results of operations for the three months ended December 31, 2000 and 1999
     ---------------------------------------------------------------------------

     General
     -------

     Net income decreased $50,000 or 10.94% to $407,000 for the three months
     ended December
                                      11
<PAGE>

     31, 2000 as compared to the same period in 1999 due primarily to rising
     deposit and borrowing costs and an increase in non interest expense of
     $158,000 or 11.18% ,offset by an increase in interest income of $791,000 or
     19.06%. All current year comparative references reflect the acquisition of
     South Carolina Community Bancshares from the acquisition date, November 12,
     1999.

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

     Interest income increased $791,000 or 19.06% for the three months ended
     December 31, 2000 as compared to the same period in 1999. Interest income
     on loans increased 9.59% or $335,000 to $3,827,000 for the three months
     ended December 31, 2000 from $3,492,000 for the three months ended December
     31,1999 due primarily to higher earning assets from the growth of the
     consumer and commercial loan portfolios. Interest and dividends on
     investment and mortgage-backed securities increased $394,000 or 61.65% for
     the three months ended December 31, 2000 to $1,033,000 from $639,000 during
     the same period in 1999. The increase was due primarily to an increase in
     the level of purchases in mortgage-backed securities made during the last
     quarter of the previous fiscal year.

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

     Interest expense increased $739,000 or 31.14% for the three months ended
     December 31, 2000 as compared to the three months ended December 3, 1999
     due primarily to higher deposit and borrowing rates. Interest expense on
     deposit accounts increased $583,000 or 34.91% to $2,253,000 for the three
     months ended December 31, 2000 from $1,670,000 during the same period in
     1999. Interest expense on borrowings increased $156,000 or 22.19% for the
     three months ended December 31, 2000 as compared to the three months ended
     December 31, 1999 due primarily to rising rates and higher borrowing levels
     during the period.

     Provision for Loan Loss
     -----------------------

     During the three months ended December 31, 2000, provisions for loan losses
     were $24,000 as compared to $50,000 for the same period in the previous
     year.  Management believes the Bank's loan loss allowance is adequate to
     absorb estimated future loan losses.  The Bank's loan loss allowances at
     December 31, 2000 were approximately .78% of the Bank's outstanding loan
     portfolio, net of loans held for sale compared to .66% for the same period
     in the previous year.

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

                                      12
<PAGE>

<TABLE>
<CAPTION>

                                                  December 31, 2000     September 30, 2000
                                                  -----------------     -------------------
    <S>                                           <C>                     <C>

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

    Real Estate:
     Residential                                       $1,034                  $  763
    Commercial                                            252                     247
     Construction                                          --                      --
    Non-mortgage                                           35                     106
                                                       ------                  ------
    Total                                              $1,321                  $1,116
                                                       ======                  ------

    Percentage of loans receivable, net                  0.78%                   0.66%
                                                       ======                  ======

    Allowance for loan losses                          $1,303                  $1,360
                                                       ======                  ======

    Real estate acquired through
     foreclosure and repossessed
     assets, net of allowances                         $  376                  $  460
                                                       ======                  ======
</TABLE>

     Non Interest Income and Expense
     --------------------------------

     Total non interest income increased $3,000 or .76% to $399,000 for the
     three months ended December 31, 2000 from $396,000 for the same period in
     the previous year. Loan servicing fee income for the three months ended
     December 31, 2000 was $25,000 compared to loan service fee income of
     $24,000 for the three months ended December 31, 1999. Gain on sale of loans
     increased $1,000 or .92% to $110,000 for the three months ended December
     31, 2000 from $109,000 for the same period in the previous year. Gain on
     sale of investments increased $3,000 compared to $0 for the same period in
     the previous year. Fees from financial services decreased $2,000 to
     $261,000 for the three months ended December 31, 2000 from $263,000 for the
     same period in the previous year.

     For the three months ended December 31, 2000, total non interest expense
     increased $158,000 or 11.18% to $1,571,000 from $1,413,000 for the same
     period in 1999. All expenses were affected by the acquisition of South
     Carolina Community Bancshares which was finalized on November 12, 1999.
     Compensation and employee benefits increased $44,000 or 6.34% to $738,000
     for the three month period ended December 31, 2000 from $694,000 for the
     same period in 1999 due primarily to compensation increases along with the
     full quarter impact of additional staff resulting from the acquisition.
     Occupancy and equipment expense increased $1,000 or .30% to $332,000 for
     the three months ended December 31, 2000 from $331,000 for the same period
     in 1999 due to higher depreciation

                                      13
<PAGE>

     expense. Professional services expenses increased $9,000 or 10.71% to
     $93,000 for the three month period ended December 31, 2000 from $84,000 for
     the same period in 1999 due to higher consulting fee expense. Goodwill
     amortization increased from $99,000 at December 31, 1999 to $165,000 at
     December 31, 2000. The increase was due to the additional amortization
     expense required for the merger. Other operating expense for the three
     months ended December 31, 2000 increased $41,000 to $221,000 from $180,000
     for the same period in 1999 due to increases in telephone, printing and
     other general and administrative costs.

                                      14
<PAGE>

PART II - OTHER INFORMATION

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

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

Item 2.     Changes in Securities
            ---------------------

               Not applicable.

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

               Not applicable.

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

               None

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

               None

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

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

               None

                                      15
<PAGE>

                                   SIGNATURES
                                   ----------

In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.


                       UNION FINANCIAL BANCSHARES, INC.
                       --------------------------------
                                  (Registrant)



Date:     2/6/01                           By: /s/ Dwight V. Neese,
     --------------                           --------------------------------
                                              Dwight V. Neese, CEO


Date:     2/6/01                           By: /s/ Richard H. Flake
     --------------                           --------------------------------
                                                   Richard H. Flake, CFO


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