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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                  FORM 10-KSB

(Mark  One)

[X]  ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE ACT OF
     1934.

For the fiscal year ended December 31, 2002

[ ]  TRANSITION  REPORT UNDER SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934.

For the transition period from                to
                               --------------    --------------

                         Commission File Number: 0-23551

                        UNITED TENNESSEE BANKSHARES, INC.
--------------------------------------------------------------------------------
           (Name of Small Business Issuer as Specified in Its Charter)

          Tennessee                                     62-1710108
----------------------------------          ------------------------------------
 (State or Other Jurisdiction               (I.R.S. Employer Identification No.)
of Incorporation or Organization)

 344 W. Broadway, Newport, Tennessee                    37821-0249
----------------------------------------                ----------
(Address of Principal Executive Offices)                (Zip Code)

         Issuer's Telephone Number, Including Area Code: (423) 623-6088

       Securities registered under Section 12(b) of the Exchange Act: None

         Securities registered under Section 12(g) of the Exchange Act:
                          Common Stock, no par value.

Check whether the issuer:  (1) filed all reports required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing  requirements  for the past 90 days. Yes  X    No
                                                                ----     ----


Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the best of the  registrant's  knowledge,  in  definitive  proxy or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. [X]

The issuer's revenues for its most recent fiscal year were $7,626,642.

The   aggregate   market  value  of  the   outstanding   common  stock  held  by
non-affiliates  at March 25, 2003 was  approximately  $9.3 million (based on the
most recent trade  reported on the Nasdaq  SmallCap  MarketSM of $14.00 on March
25, 2003).  Solely for purposes of this calculation,  the registrant's  employee
stock ownership plan,  401(k) plan,  management  recognition  plan, stock option
plan trusts,  directors' incentive plan and directors and executive officers are
deemed to be affiliates.

The total number of outstanding shares of the issuer's common stock at March 25,
2003 was 1,311,124.

Transitional small business disclosure format (check one): Yes       No   X
                                                              -----     ------

                       DOCUMENTS INCORPORATED BY REFERENCE

     1.   2002 Annual Report to Stockholders (the "Annual Report") (Part II).

     2.   Proxy  Statement for 2003 Annual Meeting of  Stockholders  (the "Proxy
          Statement") (Part III).

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<PAGE>


                                     PART I

Item 1. Description of Business

General

United  Tennessee  Bankshares,  Inc.  United  Tennessee  Bankshares,  Inc.  (the
"Company") was  incorporated  under the laws of the State of Tennessee in August
1997 to serve as the  holding  company  for Newport  Federal  Bank (the  "Bank")
following  its  conversion  from  mutual to stock  form (the  "Conversion").  On
January 1, 1998, the Bank consummated the Conversion,  and the Company completed
its initial  offering of Common Stock through the sale and issuance of 1,454,750
shares of Common Stock at a price of $10.00 per share,  realizing gross proceeds
of $14.5 million and net proceeds of  approximately  $14.0 million.  The Company
purchased all of the Bank's  capital stock with $7.1 million of the net offering
proceeds and retained the  remainder.  Prior to January 1, 1998, the Company had
no assets or liabilities  and engaged in no business  activities.  The Company's
assets  currently  consist of its investment in the Bank, a $517,000 loan to the
Company's  employee stock  ownership plan and  approximately  $612,000 in liquid
assets.

The  Company's  executive  offices  are  located  at 344 W.  Broadway,  Newport,
Tennessee 37821-0249 and its telephone number is (423) 623-6088.

Newport  Federal Bank.  The Bank was organized in 1934 as a federally  chartered
mutual  savings  institution  under the name  Newport  Federal  Savings and Loan
Association. Effective January 1, 1998, the Bank became a stock savings bank and
changed its name to Newport  Federal Bank. The Bank currently  operates  through
three full service banking offices  located in Newport,  Tennessee.  At December
31, 2002, the Bank had total assets of $111.2 million, deposits of $93.7 million
and stockholders' equity of $14.6 million, or 13.1% of total assets.

The Bank attracts  deposits  from the general  public and invests those funds in
loans secured by first mortgages on owner-occupied  single-family  residences in
its market  area and,  to a lesser  extent,  commercial  real  estate  loans and
consumer  loans.  The Bank also  maintains a substantial  investment  portfolio,
primarily of mortgage-backed  securities issued by the Federal National Mortgage
Association  ("FNMA"),  Federal Home Loan  Mortgage  Corporation  ("FHLMC")  and
Government National Mortgage  Association  ("GNMA"),  obligations of the federal
government and agencies and investment-grade obligations of states and political
subdivisions.

The  Bank  derives  its  income  principally  from  interest  earned  on  loans,
investment  securities and other  interest-earning  assets. The Bank's principal
expenses  are  interest  expense on deposits and  noninterest  expenses  such as
employee compensation, deposit insurance and miscellaneous other expenses. Funds
for these activities are provided  principally by deposit growth,  repayments of
outstanding loans and investment  securities,  and other operating revenues and,
from  time to time,  advances  from the  Federal  Home  Loan  Bank  ("FHLB")  of
Cincinnati and other borrowings.

As a federally chartered savings  institution,  the Bank is subject to extensive
regulation  by the Office of Thrift  Supervision  ("OTS").  The  Bank's  lending
activities and other  investments  must comply with various  federal  regulatory
requirements,  and the OTS  periodically  examines the Bank for compliance  with
various  regulatory  requirements.  The Bank must also file reports with the OTS
describing  its  activities  and financial  condition.  The Bank's  deposits are
insured to applicable limits by the Savings Association  Insurance Fund ("SAIF")
of the Federal Deposit Insurance Corporation ("FDIC").  The Bank is also subject
to certain monetary reserve  requirements  promulgated by the Board of Governors
of the Federal Reserve System (the "Federal Reserve Board").

Market Area

The Bank's primary market area is Cocke County,  Tennessee.  To a lesser extent,
the Bank accepts deposits and offer loans in surrounding areas.

                                       1

<PAGE>


Cocke  County is primarily  rural,  with a population  of  approximately  34,000
persons  and  relatively  high  unemployment   levels  and  low-income   levels.
Approximately  one-third  of the county is occupied by Douglas Lake and portions
of the Cherokee National Forest and the Great Smoky Mountains  National Park. In
recent periods,  the population growth rate has been above the national rate and
equal to the state  rate  (since  1990,  15.2%  compared  with  13.1% and 16.7%,
respectively),  partially due to increased  numbers of retirees  moving into the
area.  However,  unemployment  levels have been  slightly  higher than state and
national   levels  (for  December  2002,  6.7%  compared  with  4.7%  and  6.0%,
respectively),  and income levels have been  substantially  lower than state and
national  averages  (for  2002,  $25,553  compared  with  $36,360  and  $41,994,
respectively, per person), due in part to the seasonal nature of tourism related
employment.  Over the next five  years,  demographic  trends in the  county  are
expected to be consistent with recent experience,  with the differences  between
county,   state  and  national   population  growth  rates  decreasing  and  the
differences between county, state and national income levels growing.

The economy in the Bank's  primary market area includes a variety of industries,
including  farming,  manufacturing,  services,  retail and  wholesale  trade and
tourism.  Significant  employers include ConAgra in the food processing industry
and Falcon Products in the furniture industry.

Competition

The Bank  experiences  substantial  competition both in attracting and retaining
savings deposits and in the making of mortgage and other loans.

Direct  competition for savings deposits comes from other savings  institutions,
credit unions, regional bank holding companies and commercial banks. Significant
competition for the Bank's other deposit  products and services comes from money
market mutual funds and brokerage  firms. Its direct  competitors  include three
banks, one of which is a branch of a large regional bank  headquartered  outside
its market  area,  and one branch of a credit  union  headquartered  outside its
market area.  The Bank  currently has the third largest share of deposits in its
market area of Cocke  County.  The primary  factors in  competing  for loans are
interest rates and loan  origination  fees and the quality and range of services
offered by various financial  institutions.  Competition for origination of real
estate loans normally comes from other savings  institutions,  commercial banks,
credit unions, mortgage bankers and mortgage brokers.

The Bank's  principal  primary  competition  comes from  financial  institutions
headquartered in its primary market area and from various  non-local  commercial
banks  that have  branch  offices  located  in its  primary  market  area.  Many
competing financial institutions have financial resources  substantially greater
than the Bank's and offer a wider  variety of  deposit  and loan  products.  The
Bank's  principal  competitive  strategy has been to emphasize  quality customer
service.

Lending Activities

The Bank  principally  originates  loans  secured by mortgages on  single-family
residences  in its primary  market area.  It also makes  commercial  real estate
loans and a variety of consumer loans.

With certain limited  exceptions,  the maximum amount that a savings institution
may lend to any borrower (including certain related entities of the borrower) at
one time  may not  exceed  15% of the  unimpaired  capital  and  surplus  of the
institution,  plus an additional 10% of unimpaired capital and surplus for loans
fully  secured by readily  marketable  collateral.  At December  31,  2002,  the
maximum  amount that the Bank could have lent to any one borrower  without prior
OTS approval under those  regulations was  approximately  $3.2 million.  At that
date, the largest aggregate amount of loans that the Bank had outstanding to any
one  borrower  was  $1.4  million.   The  Bank  had  a  total  of  five  lending
relationships  with  aggregate  loan amounts over $500,000 at December 31, 2002,
and none of these loans were nonperforming.  For additional information, see "--
Regulation of the Bank -- Limits on Loans to One Borrower."


                                       2
<PAGE>


Loan Portfolio Composition. The following table sets forth information about the
composition of the Bank's loan portfolio by type of loan at the dates indicated.
At December 31, 2002, the Bank had no  concentrations  of loans exceeding 10% of
gross loans other than as disclosed below.
<TABLE>
<CAPTION>

                                                                          At December 31,
                                               -------------------------------------------------------------------
                                                      2002                     2001                    2000
                                               --------------------    --------------------    -------------------

                                               Amount        %           Amount        %       Amount         %
                                               ------       ---          ------       ---      ------        ----
                                                                         (Dollars in thousands)
<S>                                            <C>         <C>        <C>            <C>      <C>          <C>
Real estate loans:
  One- to four-family residential...........   $62,772      77.6%     $ 57,086        76.1%   $53,887       76.0%
  Commercial................................       8,617    10.6         8,461        11.3      9,777       13.8
  Construction..............................       3,932     4.9         3,997         5.3      2,589        3.7

Consumer loans:
  Automobile................................     1,354       1.7         1,260         1.7      1,402        2.0
  Loans to depositors, secured by deposits..     1,264       1.6         1,380         1.8      1,250        1.8
  Home equity and second mortgage...........       948       1.2           959         1.3      1,155        1.6
  Other.....................................     2,055       2.4         1,865         2.5        834        1.1
                                               -------      ----      --------        ----    -------       ----
                                                80,942     100.0%       75,008       100.0%    70,894      100.0%
                                               -------     =====      --------       =====    -------      =====

Less:
  Loans in process..........................     1,406                   1,737                  1,030
  Deferred fees and discounts...............       372                     352                    326
  Allowance for loan losses.................       803                     719                    660
                                               -------                --------                -------
    Total...................................   $78,361                $ 72,200                $68,878
                                               =======                ========                =======
</TABLE>


Loan Maturity Schedule.  The following table sets forth information about dollar
amounts of loans  maturing in the Bank's  portfolio  based on their  contractual
terms to maturity,  including scheduled repayments of principal, at December 31,
2002. Demand loans,  loans having no stated schedule of repayments and no stated
maturity and  overdrafts are reported as due in one year or less. The table does
not include any estimate of prepayments, which significantly shorten the average
life of all mortgage loans and may cause the repayment experience of the Bank to
differ from that shown below.

<TABLE>
<CAPTION>
                                                                 Due after
                                          Due within             1 Through            Due After
                                            1 Year                5 Years              5 Years          Total
                                           ------                 -------             -------           -----
                                                                  (In thousands)
<S>                                     <C>                   <C>                   <C>                <C>

Real estate loans:
   One- to four-family residential....  $   1,255             $   3,139             $  58,378          $ 62,772
   Commercial.........................        259                 4,567                 3,791             8,617
   Construction.......................      3,932                    --                    --             3,932
Consumer loans........................      3,477                 1,810                   334             5,621
                                        ---------             ---------             ---------          --------
      Total...........................  $   8,923             $   9,516             $  62,503          $ 80,942
                                        =========             =========             =========          ========

</TABLE>


                                       3
<PAGE>


Loan Portfolio  Sensitivity.  The following table sets forth  information  about
dollar  amounts of loans due one year or more after  December  31, 2002 that had
predetermined  interest  rates and that had  adjustable  interest  rates at that
date.

                                         Predetermined       Floating or
                                             Rate          Adjustable Rates
                                         -------------     ----------------
                                                   (In thousands)

Real estate loans:
  One- to four-family residential........  $   8,947         $  52,570
  Commercial.............................      1,533             6,825
  Construction...........................         --                --
  Consumer loans.........................      2,144                --
                                           ---------         ---------
       Total.............................  $  12,624         $  59,395
                                           =========         =========


Scheduled  contractual  principal  repayments of loans do not reflect the actual
life of such assets.  The average life of loans is substantially less than their
contractual terms because of prepayments.  In addition,  due-on-sale  clauses on
loans  generally give the Bank the right to declare a loan  immediately  due and
payable in the event,  among  other  things,  that the  borrower  sells the real
property subject to the mortgage and the loan is not repaid. The average life of
mortgage  loans tends to increase  when current  mortgage  loan market rates are
substantially  higher than rates on  existing  mortgage  loans and,  conversely,
decrease when current  mortgage loan market rates are  substantially  lower than
rates on existing mortgage loans.

Loan  Originations,   Purchases  and  Sales.  The  following  table  sets  forth
information about its loan originations  during the periods indicated.  The Bank
does not purchase or sell loans.


                                                  Year Ended December 31,
                                            ----------------------------------
                                            2002          2001            2000
                                            ----          ----            ----
                                                       (In thousands)
Loans originated:
  Real estate loans:
    One- to four-family residential......$18,706      $ 18,737       $  13,196
    Commercial...........................  1,484           815           1,596
    Construction.........................  4,599         4,800           3,831
  Consumer loans.........................  2,985         2,972           2,361
                                          ------       -------       ---------
     Total loans originated .............$27,774      $ 27,324       $  20,984
                                         =======      ========       =========


One- to Four-Family  Residential  Lending. The Bank's principal lending activity
consists  of  the   origination  of  loans  secured  by  mortgages  on  existing
single-family  residences in its primary market area.  The Bank also  originates
significant  amounts  of loans  for the  construction  of such  residences.  The
purchase price or appraised value of most of such residences  generally has been
between $50,000 and $100,000, with original loan amounts averaging approximately
$60,000.  At December 31, 2002,  $62.8  million,  or 77.6%,  of total loans were
secured by one- to four-family residences,  a substantial majority of which were
existing,  and  owner-occupied,  single-family  residences in its primary market
area. At December 31, 2002, $55.5 million,  or 88.5%, of its one- to four-family
residential loans had adjustable  interest rates, and $7.2 million, or 11.5% had
fixed rates.  During the year ended December 31, 2002, the Bank originated $15.7
million  of  adjustable-rate  loans,  which  was  approximately  83.80% of total
mortgage loan originations for that period, and at that date it had $2.9 million
of loan commitments, 78.9% of which were for adjustable rate loans.


                                       4
<PAGE>


The Bank's one- to four-family residential mortgage loans may have adjustable or
fixed rates of interest.  These loans  generally are for terms of up to 30 years
for  adjustable-rate  loans and 15 years for  fixed-rate  loans,  amortized on a
monthly  basis,  with  principal and interest due each month.  Residential  real
estate loans often remain  outstanding  for  significantly  shorter periods than
their contractual terms. Borrowers may refinance or prepay loans at their option
without penalty.  These loans customarily contain "due-on-sale"  clauses,  which
permit the Bank to accelerate  repayment of a loan upon transfer of ownership of
the mortgaged property.

While it is not the  Bank's  policy to sell its loans in the  secondary  market,
one- to four-family  residential  mortgage loans  generally are  underwritten in
accordance   with   applicable   underwriting   guidelines   and   documentation
requirements  published  by the FNMA and FHLMC for loans to be eligible for sale
to them,  except,  as to approximately 95% of these loans, with respect to their
requirements  related to  mortgaged  properties  (for  example,  in light of the
Bank's  experience in its market area,  the Bank often does not require homes to
have air  conditioning  or a  complete  survey  or  independent  appraisal,  and
occasionally does not require contractors to be licensed).

The Bank's lending policies generally limit the maximum  loan-to-value  ratio on
one-  to  four-family  residential  mortgage  loans  secured  by  owner-occupied
properties to 95% of the lesser of the appraised value or purchase  price,  with
private  mortgage  insurance  or  other  enhancement   required  on  loans  with
loan-to-value  ratios in  excess  of 85%.  The  maximum  loan-to-value  ratio on
mortgage loans secured by non-owner-occupied  properties generally is limited to
80%.

The Bank's  adjustable-rate,  one- to  four-family  residential  mortgage  loans
generally  are indexed to the weekly  average rate on U.S.  Treasury  securities
adjusted to a constant maturity of one year. The rates at which interest accrues
on these loans typically are adjustable annually,  often after an initial period
of up to five years before the first rate adjustment, generally with limitations
on  adjustments  of  two  percentage  points  per  adjustment  period,  and  six
percentage points over the life of the loan, and an interest rate floor equal to
the  initial  interest  rate  on  the  loan.  While  its  adjustable-rate  loans
frequently are originated with initially  discounted  interest rates, such loans
are underwritten and borrowers are qualified based on the fully indexed interest
rate. The Bank's adjustable-rate loans do not permit negative amortization.

Adjustable-rate  loans  help the Bank to reduce its  exposure  to  increases  in
prevailing market interest rates. However, there are unquantifiable credit risks
resulting from potential  increases in costs to borrowers in the event of upward
repricing of adjustable-rate loans. It is possible that during periods of rising
interest rates, the risk of default on adjustable-rate loans may increase due to
increases in interest costs to borrowers.  Further,  adjustable-rate loans which
provide  for  initial  rates of interest  below the fully  indexed  rates may be
subject to increased risk of delinquency or default as the higher, fully indexed
rate of  interest  subsequently  replaces  the  lower,  initial  rate.  Further,
although adjustable-rate loans allow the Bank to increase the sensitivity of its
interest-earning  assets  to  changes  in  interest  rates,  the  extent of this
interest  sensitivity  is limited by the initial  fixed-rate  period  before the
first  adjustment  and  the  periodic  and  lifetime  interest  rate  adjustment
limitations and the ability of borrowers to refinance the loans. Accordingly, no
assurance  can be given  that  yields on its  adjustable-rate  loans  will fully
adjust  to   compensate   for   increases   in  its  cost  of  funds.   Finally,
adjustable-rate  loans  increase the Bank's  exposure to decreases in prevailing
market interest rates,  although decreases in its cost of funds and its interest
rate adjustment limitations and floor tend to offset this effect.

Construction  Lending.  The Bank offers loans to individuals for construction of
one- to  four-family  owner-occupied  residences  located in its primary  market
area, with such loans usually converting to permanent  financing upon completion
of construction.  At December 31, 2002, the Bank's loan portfolio  included $3.9
million of loans secured by  properties  under  construction,  all of which were
construction/permanent  loans  structured  to become  permanent  loans  upon the
completion  of  construction.  From time to time,  the Bank also offers loans to
qualified  builders  for the  construction  of one-  to  four-family  residences
located in the Bank's primary  market area.  Because such homes are intended for
resale,  the Bank  generally  does not cover such loans by  permanent  financing
commitments.  All construction loans are secured by a first lien on the property
under  construction.  Loan proceeds are disbursed in increments as  construction
progresses  and  as  inspections  warrant.   Construction/permanent   loans  are
underwritten  in accordance with the same  requirements as permanent  mortgages,
except  the  loans  generally  provide  for  disbursement  in  stages  during  a
construction period of up to six months, during which period the borrower may or
may not be required to make monthly payments.  Borrowers must satisfy all credit
requirements that would apply to its permanent  mortgage loan financing prior to
receiving construction financing for the subject property.

                                       5
<PAGE>


Construction  financing  involves a higher degree of risk of loss than long-term
financing  on  existing,  improved,  occupied  real  estate.  Risk  of loss on a
construction  loan  depends  upon the  accuracy of the  initial  estimate of the
property's value at completion of construction and the estimated cost (including
interest) of construction.

During the  construction  phase, a number of factors could cause delays and cost
overruns.  If the estimate of construction costs is inaccurate,  the Bank may be
required  to advance  funds  beyond the amount  originally  committed  to permit
completion of construction. If the estimate of value is inaccurate, the Bank may
be confronted,  with a property  having a value which is  insufficient to assure
full  repayment.  The  ability of a builder to sell  completed  residences  will
depend on, among other  things,  demand,  pricing,  availability  of  comparable
properties and economic conditions.  The Bank has tried to minimize this risk by
limiting  construction  lending to qualified borrowers in its market area and by
limiting the aggregate amount of outstanding construction loans.

Commercial  Real  Estate  Lending.   The  Bank  originates  limited  amounts  of
commercial  real estate  loans in order to benefit  from the higher  origination
fees and interest  rates,  as well as shorter  terms to maturity,  than could be
obtained from  single-family  mortgage loans. The Bank's  commercial real estate
loans are  secured  by  churches,  restaurants,  offices,  apartments  and other
income-producing  commercial  properties.  At December  31,  2002,  the Bank had
approximately  167 of these  loans  totaling  $8.6  million,  with a median loan
balance  of  approximately  $52,000,  none  of  which  had a  balance  exceeding
$900,000. One of these loans was classified as substandard,  with an outstanding
balance of  $466,000 at  December  31,  2002.  For  information  about its asset
classification policies and nonperforming assets, see " -- Asset Classification,
Allowance for Losses and Nonperforming Assets."

The Bank's  commercial  real  estate  loans  generally  are  limited to original
balances not exceeding  $500,000 on properties in its primary market area,  with
terms of up to 25 years. These loans generally have annually adjustable interest
rates,  with  limitations  on  adjustments  of two percent per year, and maximum
loan-to-value ratios of 80%.

The following  paragraphs set forth information about the Bank's commercial real
estate loans with outstanding  balances exceeding $500,000 at December 31, 2002.
None  of  these  loans  was  classified  as  substandard,  doubtful  or  loss or
designated  as  special  mention  at that  date.  For  information  about  asset
classification  policies of the Bank, see "Asset  Classification,  Allowance for
Losses and Nonperforming Assets."

          Residential  real estate  development  property in Jefferson and Cocke
          County,  Tennessee.  In  December  2000,  the Bank  approved a line of
          credit for  $900,000  secured by developed  residential  lots in Cocke
          County, Tennessee and unimproved land in Jefferson County,  Tennessee.
          The bank advanced  $275,000 on the line of credit for the purchase and
          an additional  $625,000 for the  development of the unimproved land in
          Jefferson County. The total outstanding  balance on the line of credit
          was  $890,000 at December  31,  2002.  The loan will mature in January
          2004.

          Retail  properties in  Sevierville,  Tennessee.  In February 2002, the
          Bank made an $860,000  loan secured by an office  building  located in
          Sevierville,  Tennessee. The appraisal indicated a loan-to-value ratio
          of approximately 67%. The loan is being amortized over 20 years.

          Commercial property in Newport,  Tennessee.  In January 2001, the Bank
          made   a   $600,000    construction    loan   for   the   purpose   of
          construction/remodeling  of a local church. The loan to value ratio on
          this project is 74% amortized over 25 years.

          Commercial property in Newport, Tennessee. In June 2002, the Bank made
          a $580,000  loan  secured by a mobile  home park  located in  Newport,
          Tennessee. The loan to value ratio is 80% amortized over 20 years.


                                       6
<PAGE>


Commercial real estate lending  entails  significant  additional  risks compared
with  single-family  residential  lending.  For example,  commercial real estate
loans  typically  involve large loan  balances to single  borrowers or groups of
related  borrowers,  the payment experience on such loans typically is dependent
on the successful  operation of the real estate project,  and these risks can be
significantly  impacted  by supply  and  demand  conditions  in the  market  for
multi-family residential units and commercial office space, and, as such, may be
subject to a greater extent to adverse conditions in the economy  generally.  In
addition, church loans may depend on the congregation's voluntary contributions,
which may be affected by local employment levels and other factors.  To minimize
the effects of these risks,  the Bank generally  limits  commercial  real estate
lending  to  its  primary  market  area  and  to  borrowers  with  which  it has
substantial  experience or who are  otherwise  well known to the Bank. It is the
Bank's  policy to  obtain  personal  guarantees  from all  principals  obtaining
commercial  real estate loans.  In assessing the value of such  guarantees,  the
individual's  personal  financial  statements,  credit reports,  tax returns and
other financial information are reviewed.

The aggregate amount of loans which federally chartered savings institutions may
make on the security of liens on  commercial  real estate may not exceed 400% of
the institution's  capital. Based on its total capital at December 31, 2002, the
Bank  would be  permitted  to invest up to $58.4  million  in loans  secured  by
commercial real estate.

Consumer Lending.  The Bank's consumer loans consist of automobile loans, demand
loans secured by deposit  accounts  with the Bank,  home equity loans secured by
second mortgages on single-family residences in the Bank's market area and other
loans.  These loans totaled  approximately $5.6 million at December 31, 2002. At
that  date,  the Bank had 556  consumer  loans,  with a median  loan  balance of
approximately  $10,000,  none of which had a balance exceeding $75,000, and none
of the ten largest consumer loans was adversely classified or designated.

Consumer  loans   generally   involve  more  risk  than  first  mortgage  loans.
Repossessed  collateral for a defaulted loan may not provide an adequate  source
of repayment  of the  outstanding  loan  balance as a result of damage,  loss or
depreciation,  and the  remaining  deficiency  often  does not  warrant  further
substantial   collection  efforts  against  the  borrower.  In  addition,   loan
collections are dependent on the borrower's continuing financial stability,  and
thus are more likely to be adversely affected by job loss,  divorce,  illness or
personal bankruptcy. Further, the application of various federal and state laws,
including federal and state bankruptcy and insolvency laws, may limit the amount
which can be recovered. These loans may also give rise to claims and defenses by
a  borrower  against  the Bank and a borrower  may be able to assert  claims and
defenses which the Bank has against the seller of the underlying collateral.  In
underwriting  consumer loans, the Bank considers the borrower's  credit history,
an analysis of the borrower's income, expenses and ability to repay the loan and
the value of the collateral.

Collection Policies. When a borrower fails to make a payment on a loan, the Bank
generally takes prompt steps to have the delinquency cured and the loan restored
to current status.  Once the payment grace period has expired (in most instances
15 days after the due date), a late charge is imposed, if applicable. If payment
is not promptly  received,  a notice is sent 15 days after the expiration of the
grace period. If the loan becomes 60 days delinquent,  the borrower is contacted
and an attempt is made to formulate an affirmative plan to cure the delinquency.
If a loan becomes 90 days delinquent,  the loan is reviewed,  and, if payment is
not made, the Bank pursues foreclosure or other appropriate action.

Asset  Classification,  Allowance for Losses and Nonperforming  Assets.  Federal
regulations  require savings  institutions to classify their assets on the basis
of quality on a regular  basis.  An asset is classified as  substandard if it is
determined  to be  inadequately  protected  by the  current net worth and paying
capacity  of the  obligor  or of the  collateral  pledged,  if any.  An asset is
classified as doubtful if full collection is highly  questionable or improbable.
An asset is  classified  as loss if it is  considered  uncollectible,  even if a
partial  recovery could be expected in the future.  The regulations also provide
for a special  mention  designation,  described as assets which do not currently
expose an institution to a sufficient  degree of risk to warrant  classification
but do possess credit deficiencies or potential  weaknesses  deserving its close
attention.  Assets  classified as substandard or doubtful require an institution
to establish general  allowances for loan losses. If an asset or portion thereof
is classified loss, an institution  must either  establish a specific  allowance
for loss in the amount of the portion of the asset  classified  loss,  or charge
off  such  amount.   Federal   examiners  may  disagree  with  an  institution's
classifications.   If  an   institution   does  not  agree  with  an  examiner's
classification of an asset, it may appeal this determination to the OTS Regional
Director.


                                       7
<PAGE>


The Bank  regularly  reviews  its assets to  determine  whether  assets  require
classification  or  re-classification,  and the Board of  Directors  reviews and
approves all  classifications.  As of December 31, 2002,  the Bank had no assets
classified as loss or as doubtful,  $826,000 of assets classified as substandard
and no  assets  designated  as  special  mention.  The  Bank's  total  adversely
classified assets represented approximately 0.7% of its total assets and 6.4% of
its tangible  regulatory capital at December 31, 2002. At that date, $340,000 of
its  adversely   classified  or  designated  assets  were  one-  to  four-family
residences in its primary market area, and only one of such assets was in excess
of $100,000.  At December 31, 2002 the Bank had one commercial  real estate loan
with a balance of  approximately  $466,000  that was  adversely  classified.  At
December  31,  2002,  the Bank did not  expect  to incur  any loss in  excess of
attributable  existing reserves on any of its adversely classified or designated
assets.

In extending  credit,  the Bank  recognizes  that losses will occur and that the
risk of loss  will vary  with,  among  other  things,  the type of credit  being
extended,  the  creditworthiness of the obligor over the term of the obligation,
general  economic  conditions  and,  in the case of a  secured  obligation,  the
quality of the  security.  It is the Bank's  policy to maintain  allowances  for
losses based on its  assessment of the loan  portfolio.  The Bank  increased the
allowance for losses by charging provisions for losses against its income.

The Bank's  methodology  for  establishing  the  allowance for losses takes into
consideration  probable  losses that have been  identified  in  connection  with
specific  assets as well as  losses  that  have not been  identified  but can be
expected to occur. The Bank conducts regular reviews of its assets and evaluates
the need to establish  allowances  on the basis of this review.  Allowances  are
established  on a regular  basis based on an assessment of risk in assets taking
into  consideration  the composition  and quality of the portfolio,  delinquency
trends,  current  charge-off and loss  experience,  the state of the real estate
market,  regulatory  reviews  conducted in the regulatory  examination  process,
general  economic  conditions  and other  factors  deemed  relevant by the Bank.
Allowances  are  provided for  individual  assets,  or portions of assets,  when
ultimate collection is considered improbable based on the current payment status
of the assets and the fair value or net realizable  value of the collateral.  At
the date of  foreclosure  or other  repossession  or at the date a  property  is
determined to be an "in-substance  foreclosed" property,  the Bank transfers the
property to real estate  acquired in settlement of loans at the lower of cost or
fair value. Fair value is defined as the amount in cash or cash-equivalent value
of other  consideration  that a property would yield in a current sale between a
willing  buyer  and  a  willing  seller.   Fair  value  is  measured  by  market
transactions.  If a market  does  not  exist,  fair  value  of the  property  is
estimated based on selling prices of similar properties in active markets or, if
there are no active markets for similar properties, by discounting a forecast of
expected cash flows at a rate  commensurate  with the risk involved.  Fair value
generally is  determined  through an appraisal  at the time of  foreclosure.  At
December 31, 2002,  the Bank held two  properties  acquired in settlement in the
amount of  $126,000.  Any amount of cost in excess of fair value is  charged-off
against  the  allowance  for loan  losses.  The Bank  records an  allowance  for
estimated  selling  costs  of  the  property   immediately  after   foreclosure.
Subsequent  to  acquisition,  the  property is  periodically  evaluated,  and an
allowance is  established  if the  estimated  fair value of the  property,  less
estimated  costs  to  sell,  declines.  If,  upon  ultimate  disposition  of the
property,  net sales proceeds  exceed the net carrying value of the property,  a
gain on sale of real estate is recorded.

The  banking  regulatory  agencies,  including  the OTS,  have  adopted a policy
statement  about  maintenance  of an allowance  for loan and lease losses and an
effective loan review  system.  This policy  includes an arithmetic  formula for
checking the reasonableness of an institution's allowance for loan loss estimate
compared to the average loss  experience  of the industry as a whole.  Examiners
will review an  institution's  allowance  for loan losses and compare it against
the sum of (i) 50% of the portfolio that is classified doubtful; (ii) 15% of the
portfolio that is classified as  substandard;  and (iii) for the portions of the
portfolio that have not been  classified  (including  those loans  designated as
special mention),  estimated credit losses over the upcoming 12 months given the
facts and  circumstances  as of the evaluation  date.  This amount is considered
neither a "floor" nor a "safe  harbor" of the level of allowance for loan losses
an institution should maintain,  but examiners will view a shortfall relative to
the  amount as an  indication  that they  should  review  the  Bank's  policy on
allocating these  allowances to determine  whether it is reasonable based on all
relevant factors.


                                       8
<PAGE>

The Bank  actively  monitors  its  asset  quality  and  charges  off  loans  and
properties  acquired in settlement of loans against the allowances for losses on
such loans and such  properties  when  appropriate  and provides  specific  loss
allowances  when  necessary.  Although  the  Bank  believes  it  uses  the  best
information  available to make determinations with respect to the allowances for
losses,  future  adjustments  may be  necessary  if economic  conditions  differ
substantially from the economic conditions in the assumptions used in making the
initial determinations.

The  following  table  sets  forth  information  about  activity  in the  Bank's
allowance for loan losses for the periods indicated.

<TABLE>
<CAPTION>

                                                                               Year Ended December 31,
                                                                2002                2001             2000
                                                                -----              ------           ------
                                                                              (Dollars in thousands)
<S>                                                           <C>               <C>               <C>

Balance at beginning of period..............................  $    719          $   660           $   661
Charge-offs:
    Consumer................................................       (34)             (52)              (40)
    Mortgage................................................       (14)               0                 0

Recoveries:
    Consumer................................................         3                1                 2
                                                              ---------         --------          --------
Net charge-offs.............................................       (45)             (51)              (38)
Provision for loan losses...................................       129              110                37
                                                              ---------         --------          --------
Balance at end of period....................................  $    803          $   719           $   660
                                                              =========         ========          ========
Ratio of net charge-offs to average
  loans outstanding during the period.......................      0.06%            0.07%             0.06%
                                                              =========         ========          ========
</TABLE>

The following table sets forth  information  about the Bank's allowance for loan
losses by asset category at the dates indicated. The allocation of the allowance
to each  category is not  necessarily  indicative  of future losses and does not
restrict the use of the allowance to absorb losses in any category.

<TABLE>
<CAPTION>

                                                                           At December 31,
                                            ----------------------------------------------------------------------------
                                                    2002                       2001                   2000
                                                    ----                       ----                   ----

                                                         Percent of                Percent of               Percent of
                                                        Loans in Each             Loans in Each            Loans in Each
                                                         Category to               Category to              Category to
                                            Amount       Total Loans    Amount     Total Loans   Amount     Total Loans
                                            ------      ------------    ------    -------------  ------    ------------
                                                                         (Dollars in thousands)
<S>                                         <C>            <C>         <C>           <C>         <C>            <C>

Loans:
One- to four-family residential...........  $     147       77.6%      $     362      76.1%      $     365       76.0%
  Commercial..............................        486       10.6             185      11.3             100       13.8
  Construction............................         38        4.9              34       5.3              35        3.7
Consumer loans............................        132        6.9             138       7.3             160        6.5
                                            ---------       ----       ---------      -----      ---------   ---------
    Total allowance for loan losses.......  $     803      100.0%      $     719     100.0%      $     660      100.0%
                                            =========      ======      =========     =====       =========      =====

</TABLE>

During  periods of  recession or other  economic  distress,  numerous  financial
institutions  throughout the United States have incurred  substantial losses due
to significant  increases in loss provisions and charge-offs  resulting  largely
from higher levels of loan delinquencies and foreclosures. As a result of losses
experienced by many financial  institutions during these periods, there has been
a greater level of scrutiny by regulatory  authorities of the loan portfolios of
financial  institutions  undertaken as part of examinations of such institutions
by the FDIC, OTS or other federal or state  regulators.  While the Bank believes
it has  established  its existing loss  allowances in accordance  with generally
accepted accounting principles, there can be no guarantee or assurance that such
reserves  are, or in the future  will be,  adequate to absorb all loan losses or
that  regulators,  in reviewing its assets,  will not make the Bank increase its
loss allowance,  thereby negatively  affecting its reported financial  condition
and results of operations.

                                        9
<PAGE>


The following table sets forth information about the Bank's nonperforming assets
at the  dates  indicated.  At these  dates,  the  Bank  did not have any  assets
accounted   for  on  a  nonaccrual   basis  or  modified  in  a  troubled   debt
restructuring.  For information about the Bank's interest accrual practices, see
Note 1 of the Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>


                                                                                      At December 31,
                                                              --------------------------------------------
                                                              2002               2001                2000
                                                              ----              -----               -----
                                                                             (Dollars in thousands)

Accruing loans which are contractually past due 90 days or more: Real estate
  loans:
<S>                                                           <C>               <C>              <C>
    One- to four-family residential.........................  $     292         $    411         $     517
    Commercial..............................................         30               --                --
    Construction............................................         --               --                --
  Consumer loans............................................         14               10                41
                                                              ---------         ---------        ----------
    Total non performing loans..............................  $     336         $    421         $     558
                                                              =========         =========        ==========

Percentage of total loans...................................      0.43%             0.58%             0.79%
                                                              =========         =========        ==========

Other nonperforming assets(1)...............................  $     126         $     --         $      --
                                                              =========         =========        ==========

Total nonperforming assets..................................  $     462         $    421         $     558
                                                              =========         =========        ==========

Percentage of total assets..................................      0.30%             0.42%             0.57%
                                                              =========         =========        ==========

</TABLE>



     (1)  Other   nonperforming   assets  includes   property  acquired  through
          foreclosure or repossession.  This property is carried at the lower of
          its fair value less estimated  selling costs or the principal  balance
          of the related loan, whichever is lower.



At  December  31,  2002,  the Bank  has no  additional  loans as to which  known
information  about possible credit problems of borrowers caused the Bank to have
doubts as to the ability of the borrowers to comply with present loan  repayment
terms.  At that  date,  the Bank did not  expect  to incur any loss in excess of
attributable existing reserves on any of its assets.

Investment Activities

The Bank is permitted under federal law to make certain  investments,  including
investments  in  securities  issued by various  federal  agencies  and state and
municipal  governments,  deposits  at the FHLB of  Cincinnati,  certificates  of
deposit in federally  insured  institutions,  certain  bankers'  acceptances and
federal  funds.  The Bank may also invest,  subject to certain  limitations,  in
commercial paper rated in one of the two highest investment rating categories of
a  nationally  recognized  credit  rating  agency,  and  certain  other types of
corporate debt securities and mutual funds. Federal regulations require the Bank
to maintain an investment in FHLB.

                                       10
<PAGE>



The Bank makes  investments  in order to  maintain  the levels of liquid  assets
required by regulatory  authorities and manage cash flow,  diversify its assets,
obtain  yield  and,  under  prior  federal  income  tax  law,   satisfy  certain
requirements for favorable tax treatment. These investment activities consist of
investments  in  mortgage-backed  securities  and other  investment  securities,
primarily  securities  issued or guaranteed  by the U.S.  Government or agencies
thereof  and  securities  issued  by  municipalities   and  other   governmental
authorities.  Investment and aggregate investment limitations and credit quality
parameters of each class of investment are  prescribed in the investment  policy
of the Bank.  Securities purchases are authorized by the investment committee of
the Bank's Board of Directors and ratified by the Bank's Board of Directors.

Securities  designated as  "available  for sale" are those assets which the Bank
might not hold to maturity and thus are carried at market value with  unrealized
gains or losses, net of tax effect, recognized in equity.

Mortgage-backed  securities  typically  represent  an  interest  in  a  pool  of
fixed-rate  or  adjustable-rate  mortgage  loans,  the  principal  and  interest
payments on which are passed from the mortgage  borrowers  to investors  such as
the  Bank.  Mortgage-backed  security  sponsors  may  be  private  companies  or
quasi-governmental  agencies such as the FHLMC,  FNMA and GNMA,  which guarantee
the payment of principal and interest to investors.  Mortgage-backed  securities
can  represent  a  proportionate  participation  interest in a pool of loans or,
alternatively,  an obligation to repay a specified  amount  secured by a pool of
loans  (commonly  referred  to as a  "collateralized  mortgage  obligation,"  or
"CMO").  Mortgage-backed securities generally increase the quality of the Bank's
assets by virtue of the credit enhancements that back them, are more liquid than
individual  mortgage loans and may be used to collateralize  borrowings or other
obligations.  The Bank's mortgage-backed securities portfolio primarily consists
of seasoned securities issued by one of the quasi-governmental agencies.

The actual maturity of a mortgage-backed  security varies, depending on when the
mortgagors  prepay  or  repay  the  underlying  mortgages.  Prepayments  of  the
underlying  mortgages may shorten the life of the investment,  thereby adversely
affecting   its  yield  to  maturity  and  the  related   market  value  of  the
mortgage-backed  security.  The yield is based upon the interest  income and the
amortization  of the  premium  or  accretion  of  the  discount  related  to the
mortgage-backed security.  Premiums and discounts on mortgage-backed  securities
are  amortized or accreted  over the estimated  term of the  securities  using a
level  yield  method.   The  prepayment   assumptions   used  to  determine  the
amortization  period for premiums and  discounts  can  significantly  affect the
yield of the  mortgage-backed  security,  and  these  assumptions  are  reviewed
periodically  to reflect the actual  prepayment.  The actual  prepayments of the
underlying mortgages depend on many factors, including the type of mortgage, the
coupon  rate,  the  age of  the  mortgages,  the  geographical  location  of the
underlying  real estate  collateralizing  the  mortgages  and general  levels of
market  interest  rates.  The  difference  between  the  interest  rates  on the
underlying  mortgages and the prevailing mortgage interest rates is an important
determinant  in the rate of  prepayments.  During  periods of  falling  mortgage
interest rates, prepayments generally increase, and, conversely,  during periods
of rising mortgage interest rates, prepayments generally decrease. If the coupon
rate of the underlying  mortgage  significantly  exceeds the  prevailing  market
interest rates offered for mortgage loans,  refinancing  generally increases and
accelerates the prepayment of the underlying mortgages. Prepayment experience is
more difficult to estimate for adjustable-rate mortgage-backed securities.

All  of  the  Company's   securities  issued  by  municipalities  or  comparable
governmental  authorities  were rated "A" or higher by a  nationally  recognized
credit rating agency at the time of purchase. The Company regularly monitors the
ratings of these holdings by reference to nationally  published rating media and
by communication with the issuer where necessary.  As of December 31, 2002, none
of these  securities had been  downgraded  from its original  rating,  and these
issues were primarily obligations of Tennessee  municipalities.  At December 31,
2002,  these  securities  had a weighted  average  coupon of 4.4% and a weighted
average term to maturity of  approximately  128 months.  The  carrying  value of
these securities was $2.1 million,  or 8.3% of the investment  securities of the
Company at that date.  None of its  privately  issued  securities  is insured or
guaranteed by FHLMC or FNMA.


                                       11
<PAGE>


The following table sets forth information about carrying values of the
Company's investment securities at the dates indicated.
<TABLE>
<CAPTION>

                                                                              At December 31,
                                                              --------------------------------------------
                                                                2002                2001               2000
                                                                ----                ----               ----
                                                                              (In thousands)
<S>                                                           <C>               <C>              <C>

Securities available for sale:
   Mortgage-backed securities...............................  $   6,011         $ 10,335         $  14,374
   U.S. government and agency securities....................     13,720            9,201             6,554
   Obligations of states and political
       subdivisions.........................................      2,119            1,351               681
   FHLMC stock..............................................      1,655            1,833             1,931
   FHLB stock...............................................        897              857               802
   Corporate debt securities................................        760              716                --
   Other....................................................        105              105                15
                                                              ---------         --------         ---------

      Total.................................................  $  25,267         $ 24,398         $  24,357
                                                              =========         ========         =========

The following schedule analyzes the Company's investment portfolio at December
31, 2002 by time remaining to maturity and presents the average yield for each
range of maturities.

</TABLE>

                                       12
<PAGE>

<TABLE>
<CAPTION>
                                                                                                                    Total Investment
                                 Less than One Year   One to Five Years    Five to Ten Years  More than Ten Years      Portfolio
                                 ------------------    -----------------    -----------------   -----------------  -----------------
                                  Carrying  Average    Carrying Average     Carrying  Average    Carrying Average  Carrying  Average
                                    Value   Yield       Value   Yield        Value    Yield       Value   Yield       Value    Yield
                                  --------  -------    -------- -------     --------  -------   --------- -------  --------  -------
(Dollars in thousands)
<S>                                  <C>     <C>     <C>          <C>      <C>         <C>       <C>        <C>        <C>     <C>

Securities available for sale:
  Mortgage-backed securities         $  --    --%    $    1,581   5.3%     $    --      --%     $  4,430   5.7%       $6,011   5.6%
   U.S. government and agency
      securities..........              --    --         10,043   5.5        3,148     6.0           529   6.0        13,720   5.6
   Obligations of states and
      political subdivisions                                 --    --          195     5.2         1,243   3.9         2,119   4.4
   FHLMC stock............              --    --             --    --           --      --         1,655  89.9         1,655  89.9
   FHLB stock.............              --    --             --    --           --      --           897   9.6           897   9.6
   Corporate Debt Securities            --    --            270   5.7          490     6.3            --    --           760   6.1
   Other..................              --    --             --    --           --      --           105    --           105    --
                                    ------               ------            -------                 -----            --------
     Total................          $   --           $   12,089            $ 4,881               $ 8,297            $ 25,267
                                    ======               ======            =======                 =====            ========

</TABLE>


Deposit Activity and Other Sources of Funds

General.  Deposits  are the  primary  source  of funds for  lending,  investment
activities and general operational purposes.  In addition to deposits,  the Bank
derives  funds  from loan  principal  and  interest  repayments,  maturities  of
investment  securities  and  mortgage-backed  securities  and interest  payments
thereon.  Although  loan  repayments  are a relatively  stable  source of funds,
deposit inflows and outflows are  significantly  influenced by general  interest
rates and money market conditions.  Borrowings may be used on a short-term basis
to compensate for reductions in the  availability  of funds, or on a longer term
basis for general operational  purposes.  The Bank has access to borrow advances
from the FHLB of Cincinnati, which it uses from time to time.

Deposits.  The Bank attracts deposits principally from within its primary market
area by offering competitive rates on its deposit  instruments,  including money
market  accounts,  negotiable  order of withdrawal  ("NOW")  accounts,  passbook
deposit accounts,  individual retirement accounts ("IRAs"),  and certificates of
deposit which range in maturity from 90 days to three years.  Deposit terms vary
according  to the  minimum  balance  required  the length of time the funds must
remain on deposit and the interest  rate.  Maturities,  terms,  service fees and
withdrawal  penalties for deposit  accounts are established on a periodic basis.
In determining the  characteristics of deposit accounts,  the Bank considers the
rates offered by competing  institutions,  lending and  liquidity  requirements,
growth  goals  and  federal  regulations.  The Bank  does not  generally  accept
brokered deposits or pay negotiated rates for jumbo deposits.

The Bank attempts to compete for deposits with other  financial  institutions in
its market area by offering  competitively  priced deposit  instruments that are
tailored  to the needs of its  customers.  Additionally,  the Bank seeks to meet
customers'  needs by providing  convenient  customer  service to the  community,
efficient staff and convenient hours of service. Substantially all of the Bank's
depositors are local residents who reside in its primary market area.

                                       13
<PAGE>

The Bank's savings deposits at December 31, 2002 were represented by the various
types of savings programs listed below.
<TABLE>
<CAPTION>

Weighted
Average
Interest       Minimum                                                    Minimum                   Percentage of
Rate(1)          Term                     Category                        Balance      Balance      Total Savings
-------        -------                    --------                        ---------   ----------    -------------
<S>            <C>                  <C>                                   <C>           <C>            <C>

0.99%          None                 NOW accounts                          $      --     $  9,652        10.3%
1.89           None                 Money market                              2,500       16,498        17.6
1.26           None                 Savings deposits-passbook                    --       12,394        13.2
                                                                                        --------       ------
                                         Total transaction accounts                     $ 38,544        41.1%
                                                                                        ========       ======


                                    Certificates of Deposit

1.71           91 days              Fixed-term, fixed-rate                    2,500     $  6,255         6.7%
1.90           6 months-Regular     Fixed-term, fixed-rate                    2,500        7,277         7.8
2.02           6 months-IRA         Fixed-term, fixed-rate                      100          655         0.7
2.10           12 months            Fixed-term, fixed-rate                    1,000        4,342         4.6
2.34           14 months            Fixed-term, fixed-rate                    1,000        7,262         7.7
2.52           18 months-Regular    Fixed-term, fixed-rate                    1,000        2,215         2.4
3.01           18 months-IRA        Fixed-term, fixed-rate                      100        6,297         6.7
4.57           24 months            Fixed-term, fixed-rate                    1,000          307         0.3
4.56           30 months            Fixed-term, fixed-rate                    1,000          947         1.0
5.32           48 months            Fixed-term, fixed-rate                    1,000          541         0.6
2.09           Jumbos               Fixed-term, fixed-rate                  100,000       19,105        20.4
                                                                                        --------       -----
                                         Total certificates of deposit                    55,203        58.9
                                                                                        --------       -----
                                            Total deposits                              $ 93,747       100.0%
                                                                                        ========       =====

</TABLE>

The following  tables set forth  information  about the Bank's  average  deposit
balances and rates during the periods presented.
<TABLE>
<CAPTION>

                                                                 Year Ended December 31,
                                      ---------------------------------------------------------------------------

                                               2002                       2001                     2000
                                      --------------------      ---------------------       ---------------------
                                      Average      Average       Average      Average       Average       Average
                                      Balance         Rate       Balance         Rate       Balance          Rate
                                                                (Dollars in thousands)
<S>                                 <C>             <C>        <C>               <C>      <C>             <C>

NOW accounts.....................   $      9,483    1.0%       $     9,051       1.0%     $    7,544       2.0%
Money market deposits............         13,844    1.9              8,255       2.4           3,019       3.0
Savings deposits -- passbook.....         11,799    1.3             11,348       2.0          10,884       3.0
Certificates of deposit..........         55,718    2.3             56,676       3.5          55,989       6.0
                                    ------------               -----------                ----------
    Total........................   $     90,844               $    85,330                $   77,436
                                    ============               ===========                ==========


</TABLE>

                                       14
<PAGE>


The following  table sets forth  information  about changes in dollar amounts of
the Bank's deposits in various types of accounts between the dates indicated.

<TABLE>
<CAPTION>

                                                                                                                   Increase
                                                                                                                  (Decrease)
                                           Balance at                                   Balance at                  from
                                           December 31,     % of          Increase      December 31,     % of      December
                                              2002         Deposit        (Decrease)        2001        Deposits   31, 2000
                                           ----------      -------        ----------    ------------    --------  ----------
                                                                         (Dollars in thousands)
<S>                                        <C>             <C>          <C>             <C>            <C>         <C>

NOW accounts.............................. $   9,652        10.30%      $      728      $   8,924       10.52%     $   920
Money market deposit......................    16,498        17.59            7,681          8,817       10.40        6,038
Savings deposits -- passbook..............    12,394        13.22              982         11,412       13.46        1,117
Certificates of deposit...................    36,098        38.51           (5,064)        41,162       48.53       (5,109)
Jumbo certificates........................    19,105        20.38            4,610         14,495       17.09          230
                                           ---------       ------       ----------      ---------      ------      -------
                                           $  93,747       100.00%      $    8,937      $  84,810      100.00%     $ 3,196
                                           =========       ======       ==========      =========      ======      =======
</TABLE>

The  following  table sets forth  information  about the  Bank's  time  deposits
classified by rates at the dates indicated.

<TABLE>
<CAPTION>
                                                                           At December 31,
                                                              --------------------------------------------
                                                              2002               2001                2000
                                                              -----             ------              ------
                                                                            (In thousands)
<S>                                                           <C>               <C>              <C>
         1.00 -  1.99%..............................          $  10,778         $     --         $      --
         2.00 -  3.99%..............................             43,936           37,772                --
         4.00 -  5.99%..............................                489           11,511            25,093
         6.00 -  7.99%..............................                 --            6,374            35,443
                                                              ---------         --------         ---------
                                                              $  55,203         $ 55,657         $  60,536
                                                              =========         ========         =========
</TABLE>


The following table sets forth  information  about amounts and maturities of the
Bank's time deposits at December 31, 2002.
<TABLE>
<CAPTION>

                                                               Amount Due
                                  ------------------------------------------------------------------------
                                  Less Than                                        After
Rate                              One Year        1-2 Years        2-3 Years       3 Years         Total
----                              --------        ---------        ---------       -------         -----
                                                                  (In thousands)
<S>                                <C>             <C>             <C>             <C>            <C>

 1.00 -  1.99%..................   $10,667         $     --        $    --         $  111         $ 10,778
 2.00 -  3.99%..................    29,401            8,726          5,757             52           43,936
 4.00 -  5.99%..................        --               --             --            489              489
                                   -------         --------        -------         ------         --------
                                   $40,068         $  8,726        $ 5,757         $  652         $ 55,203
                                   =======         ========        =======         ======         ========
</TABLE>



The  following  table  sets  forth  information  about  amounts  of  the  Bank's
certificates  of deposit of $100,000 or more by time remaining until maturity at
December 31, 2002.

                                                              Certificates
                    Maturity Period                            of Deposit
                                                              ------------
                                                             (In thousands)

                     Six months or less.....................  $   11,463
                     Over six through 12 months.............       5,349
                     Over 12 months ........................       2,293
                                                               ---------
                                  Total.....................  $   19,105
                                                               =========
                                       15
<PAGE>

The following table sets forth information  about the Bank's savings  activities
for the periods indicated.
<TABLE>
<CAPTION>

                                                                             At December 31,
                                                              -------------------------------------------
                                                                2002               2001            2000
                                                                -----             ------           ------
                                                                             (In thousands)
<S>                                                           <C>               <C>              <C>
Net increase (decrease) before interest credited............  $   7,032         $   (512)        $   4,025
Interest credited...........................................      1,905            3,708             3,779
                                                              ---------         --------         ---------
    Net increase (decrease) in savings deposits.............  $   8,937         $  3,196         $   7,804
                                                              =========         ========         =========
</TABLE>



Borrowings.  Savings deposits historically have been the primary source of funds
for the Bank's lending,  investments and general operating activities.  The Bank
is  authorized,  however,  to use  advances  from  the  FHLB  of  Cincinnati  to
supplement  its  supply  of  lendable  funds  and  to  meet  deposit  withdrawal
requirements.  The FHLB functions as a central reserve bank providing credit for
savings  institutions  and certain  other member  financial  institutions.  As a
member of the FHLB System,  the Bank is required to own stock in the FHLB and is
authorized  to apply for  advances.  Advances are pursuant to several  different
programs,  each of which  has its own  interest  rate and  range of  maturities.
Advances from the FHLB of Cincinnati are secured by the Bank's stock in the FHLB
and first mortgage loans.

The Bank has historically  funded its lending and investment  activities through
deposits.  During  1998,  the Bank  began  using  FHLB  advances  to  supplement
deposits.  At December 31, 1999, the Company also had $3.2 million in borrowings
from a commercial  bank the proceeds of which were used to finance the return of
capital  distribution  paid to  stockholders  in November  1999.  This unsecured
borrowing matured in early 2000, at which time the Company borrowed $3.0 million
in additional  FHLB  advances.  The following  sets forth  selected  information
regarding  the Bank's  short-term  borrowings  at the dates and for the  periods
indicated.

<TABLE>
<CAPTION>

                                                                                 At December 31,
                                                                 ------------------------------------------
                                                                  2002             2001                2000
                                                                 -----            ------              -----
                                                                             (Dollars in thousands)
<S>                                                           <C>               <C>              <C>
Amount outstanding at end of period:
   FHLB advances............................................  $      --         $     --         $   1,753
   Bank debt................................................         --               --                --

Weighted average rate paid:
  FHLB advances.............................................       1.40%            5.80%             4.75%
  Bank debt.................................................         --               --                --

Maximum amount outstanding at any month end:
  FHLB advances.............................................  $     500         $  1,753         $   6,438
  Bank debt.................................................         --               --             3,200

Approximate average amount outstanding:
  FHLB advances.............................................  $      88         $    658         $   4,093
  Bank debt.................................................         --               --               267

Approximate weighted average rate paid:
  FHLB advances.............................................       1.40%            5.80%             4.88%
  Bank debt.................................................         --               --              7.25

</TABLE>


                                       16
<PAGE>

Subsidiary Activities

As a federally chartered savings institution, the Bank is permitted to invest an
amount equal to 2% of its assets in non-savings  institution service corporation
subsidiaries,  with  an  additional  investment  of  1%  of  assets  where  such
investment  serves  primarily  community  inner city and  community  development
purposes.  Under  such  limitations,  as of  December  31,  2002  the  Bank  was
authorized to invest up to  approximately  $3.4 million in the stock of or loans
to such subsidiaries, including the additional 1% investment for community inner
city and community development  purposes.  Institutions meeting their applicable
minimum regulatory capital requirements may invest up to 50% of their regulatory
capital in conforming  first mortgage loans to such  subsidiaries  in which they
own 10% or more of the capital stock.

Regulation of the Bank

General. As a federally chartered and insured savings  institution,  the Bank is
subject to  extensive  regulation  by the OTS and the FDIC.  The Bank's  lending
activities  and other  investments  must comply with  various  federal and state
statutory and regulatory  requirements,  and the OTS  periodically  examines the
Bank for  compliance  with various  regulatory  requirements.  The FDIC also has
authority to conduct periodic examinations.  The Bank must file reports with the
OTS describing  its  activities  and its financial  condition and it must obtain
approvals from regulatory  authorities before entering into certain transactions
such as the conversion or mergers with other financial institutions. The Bank is
also subject to certain reserve requirements  promulgated by the Federal Reserve
Board.  The  Bank's  relationship  with its  depositors  and  borrowers  is also
regulated to a great extent by federal and state law, especially in such matters
as the  ownership  of deposit  accounts and the form and content of its mortgage
documents.  This  supervision  and  regulation is primarily  intended to protect
depositors.  The  regulatory  structure  also gives the  regulatory  authorities
extensive  discretion  in  connection  with their  supervisory  and  enforcement
activities  and  examination  policies,  including  policies with respect to the
classification  of  assets  and the  establishment  of loan  loss  reserves  for
regulatory purposes. Any change in regulations,  whether by the OTS, the FDIC or
any  other  government  agency,  could  have a  material  adverse  impact on the
operations of the Bank.

Financial Modernization Legislation

The  Gramm-Leach-Bliley  ("G-L-B")  Act  was  enacted  in  1999  and  authorizes
affiliations between banking, securities and insurance firms and authorizes bank
holding  companies  and national  banks to engage in a variety of new  financial
activities.  Among the new  activities  that will be  permitted  to bank holding
companies are  securities  and  insurance  brokerage,  securities  underwriting,
insurance  underwriting  and merchant  banking.  The Federal  Reserve Board,  in
consultation  with  the  Secretary  of  the  Treasury,  may  approve  additional
financial activities.  The G-L-B Act, however,  prohibits future acquisitions of
existing unitary savings and loan holding companies,  like the Company, by firms
which are engaged in commercial activities and limits the permissible activities
of unitary holding companies formed after May 4, 1999.

The G-L-B Act imposes new requirements on financial institutions with respect to
customer  privacy.  The G-L-B Act  generally  prohibits  disclosure  of customer
information to  non-affiliated  third parties unless the customer has been given
the  opportunity  to object and has not objected to such  disclosure.  Financial
institutions  are  further  required  to  disclose  their  privacy  policies  to
customers annually. Financial institutions,  however, will be required to comply
with state law if it is more protective of customer  privacy than the G-L-B Act.
The G-L-B Act directs the federal  banking  agencies,  the National Credit Union
Administration,  the  Secretary of the  Treasury,  the  Securities  and Exchange
Commission  and the  Federal  Trade  Commission,  after  consultation  with  the
National  Association  of Insurance  Commissioners,  to promulgate  implementing
regulations  within six  months of  enactment.  The  privacy  provisions  became
effective six months thereafter.


                                       17
<PAGE>

The G-L-B Act contains  significant  revisions to the FHLB System. The G-L-B Act
imposes new capital  requirements  on the FHLBs and authorizes them to issue two
classes of stock with differing dividend rates and redemption requirements.  The
G-L-B Act deletes the current  requirement  that the FHLBs  annually  contribute
$300 million to pay interest on certain government obligations in favor of a 20%
of net  earnings  formula.  The G-L-B Act expands the  permissible  uses of FHLB
advances by community  financial  institutions (under $500 million in assets) to
include   funding   loans  to  small   businesses,   small   farms   and   small
agri-businesses.  The G-L-B  Act  makes  membership  in the FHLB  voluntary  for
federal savings associations.

The G-L-B Act  contains a variety of other  provisions  including a  prohibition
against ATM surcharges unless the customer has first been provided notice of the
imposition  and  amount of the fee.  The  G-L-B Act  reduces  the  frequency  of
Community  Reinvestment Act  examinations  for smaller  institutions and imposes
certain reporting requirements on depository  institutions that make payments to
non-governmental entities in connection with the Community Reinvestment Act. The
G-L-B Act eliminates the SAIF special  reserve and authorizes a federal  savings
association that converts to a national or state bank charter to continue to use
the term "federal" in its name and to retain any interstate branches.

To date the  impact of the G-L-B Act on the  Company's  operations  has not been
significant.

Deposit Insurance. The Bank is required to pay assessments based on a percent of
its insured  deposits  to the FDIC for  insurance  of its  deposits by the SAIF.
Under the Federal  Deposit  Insurance Act ("FDIA"),  the FDIC is required to set
semi-annual  assessments for  SAIF-insured  institutions at a rate determined by
the FDIC to be necessary to maintain the designated reserve ratio of the SAIF at
1.25% of  estimated  insured  deposits  or at a  higher  percentage  of  insured
deposits that the FDIC determines to be justified for that year by circumstances
raising a significant risk of substantial future losses to the SAIF.

The assessment rate for an insured  depository  institution is determined by the
assessment risk classification  assigned to the institution by the FDIC based on
the institution's capital level and supervisory  evaluations.  Based on the data
reported to  regulators  for date  closest to the last day of the seventh  month
preceding the semi-annual assessment period, institutions are assigned to one of
three  capital   groups  --  well   capitalized,   adequately   capitalized   or
undercapitalized  --  using  the  same  percentage  criteria  as in  the  prompt
corrective action  regulations.  See "-- Prompt Corrective  Regulatory  Action."
Within each capital group,  institutions  are assigned to one of three subgroups
on the basis of supervisory evaluations by the institution's primary supervisory
authority and such other  information  as the FDIC  determines to be relevant to
the  institution's  financial  condition  and  the  risk  posed  to the  deposit
insurance fund.

Regulatory  Capital  Requirements.   OTS  capital  regulations  require  savings
institutions,  such as the Bank, to meet three capital  standards:  (1) tangible
capital  equal to at least 1.5 % of total  adjusted  assets,  (2) Tier 1 or core
capital equal to at least 4.0% of total adjusted  assets,  and (3) total capital
equal to at least 8.0 % of total risk-weighted assets. In addition,  the OTS may
require that a savings institution that has a risk-based capital ratio less than
8.0%, a ratio of Tier 1 capital to  risk-weighted  assets of less than 4.0% or a
ratio of Tier 1 capital to adjusted  total assets of less than 4.0% take certain
actions  to  increase  its  capital  ratios.  If the  institution's  capital  is
significantly  below the minimum  required  levels or if it is  unsuccessful  in
increasing  its  capital  ratios,   the  OTS  may  significantly   restrict  its
activities.

Tangible  capital  is  defined  as  core  capital  less  all  intangible  assets
(including  supervisory  goodwill),  less certain mortgage  servicing rights and
less  certain  investments.  Tier  1  or  core  capital  is  defined  as  common
stockholders'  equity (including  retained earnings),  non-cumulative  perpetual
preferred  stock and minority  interests in the equity  accounts of consolidated
subsidiaries,  certain non-withdrawable  accounts and pledged deposits of mutual
savings institutions and qualifying  supervisory  goodwill,  less non-qualifying
intangible assets, certain servicing rights and certain investments.

                                       18

<PAGE>

Adjusted  total assets are a savings  institution's  total assets as  determined
under generally  accepted  accounting  principles  increased by certain goodwill
amounts and by a pro rated  portion of the assets of  unconsolidated  includable
subsidiaries  in  which  the  savings  institution  holds a  minority  interest.
Adjusted  total  assets  are  reduced  by the  amount of  assets  that have been
deducted  from  capital,  the  investments  in  any  unconsolidated   includable
subsidiary  in which the savings  institution  has a minority  interest and, for
purposes of the core capital requirement, qualifying supervisory goodwill.

Total capital  equals the sum of core capital plus  supplementary  capital.  The
components  of  supplementary  capital  include,  among other items,  cumulative
perpetual preferred stock and perpetual subordinated debt, mandatory convertible
subordinated  debt,  intermediate-term  preferred  stock, and the portion of the
allowance  for loan losses not  designated  for specific  loan losses.  Overall,
supplementary  capital  is  limited  to 100%  of core  capital.  The  Bank  must
calculate its  risk-weighted  assets by multiplying  each asset and  off-balance
sheet item by various risk factors as determined by the OTS, which range from 0%
for cash to 100% for delinquent loans,  property  acquired through  foreclosure,
commercial loans, and other assets.

In addition to requiring  generally  applicable  capital  standards  for savings
associations,  the Director of OTS is  authorized to establish the minimum level
of  capital  for a  savings  association  at such  amount  or at such  ratio  of
capital-to-assets  as the Director determines to be necessary or appropriate for
such  association in light of the particular  circumstances  of the association.
Such  circumstances  would  include a high degree of  exposure to interest  rate
risk,  prepayment  risk,  credit risk,  concentration of credit risk and certain
risks arising from non-traditional activities. The Director of OTS may treat the
failure of any savings association to maintain capital at or above such level as
an unsafe or unsound  practice and may issue a directive  requiring  any savings
association  which  fails to  maintain  capital  at or above the  minimum  level
required by the Director to submit and adhere to a plan for increasing  capital.
Such an order may be enforced in the same manner as an order issued by the FDIC.

At December 31, 2002, the Bank  substantially  exceeded all  regulatory  capital
requirements.

Prompt  Corrective  Regulatory  Action.  Under  the  Federal  Deposit  Insurance
Corporation  Improvement Act of 1991 ("FDICIA"),  the federal banking regulators
are  required  to  take  prompt  corrective  action  if  an  insured  depository
institution  fails  to  satisfy  certain  minimum  capital   requirements.   All
institutions, regardless of their capital levels, are restricted from making any
capital  distribution  or paying any management  fees if the  institution  would
thereafter   fail  to  satisfy  the  minimum  levels  for  any  of  its  capital
requirements.  An  institution  that  fails to meet the  minimum  level  for any
relevant capital measure (an "undercapitalized institution") may be: (i) subject
to increased  monitoring by the  appropriate  federal  banking  regulator;  (ii)
required to submit an acceptable capital  restoration plan within 45 days; (iii)
subject to asset growth  limits;  and (iv)  required to obtain prior  regulatory
approval for  acquisitions,  branching and new lines of businesses.  The capital
restoration plan must include a guarantee by the  institution's  holding company
that the  institution  will  comply  with the plan until it has been  adequately
capitalized on average for four  consecutive  quarters,  under which the holding
company would be liable up to the lesser of 5% of the institution's total assets
or the amount necessary to bring the institution  into capital  compliance as of
the date it failed to comply with its capital restoration plan. A "significantly
undercapitalized"  institution, as well as any undercapitalized institution that
did not  submit an  acceptable  capital  restoration  plan,  may be  subject  to
regulatory demands for recapitalization,  broader application of restrictions on
transactions  with  affiliates,  limitations on interest rates paid on deposits,
asset  growth  and other  activities,  possible  replacement  of  directors  and
officers,  and restrictions on capital distributions by any bank holding company
controlling the institution.  Any company controlling the institution could also
be required to divest the  institution or the  institution  could be required to
divest   subsidiaries.   The  senior  executive   officers  of  a  significantly
undercapitalized   institution   may  not  receive   bonuses  or   increases  in
compensation  without prior  approval and the  institution  is  prohibited  from
making  payments of principal  or interest on its  subordinated  debt.  In their
discretion,  the  federal  banking  regulators  may also  impose  the  foregoing
sanctions on an  undercapitalized  institution if the regulators  determine that
such actions are  necessary  to carry out the purposes of the prompt  corrective
action provisions. If an institution's ratio of tangible capital to total assets
falls  below a "critical  capital  level,"  the  institution  will be subject to
conservatorship or receivership within specified time periods.

                                       19

<PAGE>

Under regulations jointly adopted by the federal banking  regulators,  a savings
association's  capital  adequacy  for purposes of the FDICIA  prompt  corrective
action rules is determined on the basis of the  institution's  total  risk-based
capital ratio (the ratio of its total capital to risk-weighted  assets),  Tier 1
risk-based capital ratio (the ratio of its core capital to risk-weighted assets)
and leverage  ratio (the ratio of its Tier 1 or core  capital to adjusted  total
assets).  The  following  table shows the capital  ratio  requirements  for each
prompt corrective action category:
<TABLE>
<CAPTION>
                                                     Adequately                                   Significantly
                           Well Capitalized          Capitalized         Undercapitalized        Undercapitalized
                           ----------------          ------------        ----------------        ----------------
<S>                         <C>                      <C>                 <C>                     <C>
Total risk-based
    capital ratio           10.0% or more            8.0% or more        Less than 8.0%          Less than 6.0%
Tier 1 risk-based
    capital ratio            6.0% or more            4.0% or more        Less than 4.0%          Less than 3.0%
Leverage ratio               5.0% or more            4.0% or more        Less than 4.0%          Less than 3.0%
</TABLE>

A  "critically  undercapitalized"  savings  association  is defined as a savings
association  that has a ratio of "tangible  equity" to total assets of less than
2.0%.  Tangible  equity is defined as core  capital  plus  cumulative  perpetual
preferred stock (and related surplus) less all intangibles other than qualifying
supervisory  goodwill and certain purchased  mortgage  servicing rights. The OTS
may reclassify a well capitalized savings association as adequately  capitalized
and may require an adequately  capitalized  or  undercapitalized  association to
comply with the supervisory actions applicable to associations in the next lower
capital  category  (but  may not  reclassify  a  significantly  undercapitalized
institution as critically  undercapitalized) if the OTS determines, after notice
and an opportunity for a hearing,  that the savings  association is in an unsafe
or unsound  condition or that the  association  has received and not corrected a
less-than-satisfactory  rating for any CAMELS rating  category.  For information
regarding the position of the Bank with respect to the FDICIA prompt  corrective
action rules, see Note 9 of Notes to Consolidated  Financial Statements included
under Item 7 hereof.

Dividend  and  Other  Capital  Distribution   Limitations.   Except  in  limited
circumstances,  the Bank is  prohibited  from paying a dividend or other capital
distribution if the Bank would be  undercapitalized  after the distribution.  In
addition,  the Bank may not declare or pay a cash  dividend on its capital stock
if the  effect  would be to reduce  its  regulatory  capital  below  the  amount
required for the liquidation account established at the time of the Conversion.

Savings  associations  must  submit  notice to the OTS prior to making a capital
distribution  (which includes  dividends,  stock repurchases and amounts paid to
stockholders  in another  institution in a cash merger) if (a) they would not be
well capitalized  after the distribution,  (b) the distribution  would result in
the  retirement of any of the  association's  common or preferred  stock or debt
counted as its regulatory  capital,  or (c) the association is a subsidiary of a
holding company. A savings association must make application to the OTS to pay a
capital distribution if (x) the association would not be adequately  capitalized
following the distribution,  (y) the association's  total  distributions for the
calendar year exceed the  association's net income for the calendar year to date
plus its net income (less distributions) for the preceding two years, or (z) the
distribution  would  otherwise  violate  applicable  law  or  regulation  or  an
agreement with or condition imposed by the OTS.

Qualified Thrift Lender Test. Savings  institutions must meet a Qualified Thrift
Lender test. The Bank must maintain at least 65% of its portfolio  assets (total
assets less intangible  assets,  property it uses in conducting its business and
liquid  assets in an amount not  exceeding  20% of total  assets)  in  Qualified
Thrift  Investments to satisfy the test.  Qualified Thrift  Investments  consist
primarily of residential mortgage loans and mortgage-backed and other securities
related to domestic, residential real estate or manufactured housing. The shares
of stock the Bank  owns in the FHLB of  Cincinnati  also  qualify  as  Qualified
Thrift  Investments.  Subject to an aggregate limit of 20% of portfolio  assets,
the Bank may also count the following as Qualified Thrift  Investments:  (I) 50%
of the dollar amount of  residential  mortgage loans  originated for sale,  (ii)
investments in the capital stock or  obligations  of any service  corporation or
operating  subsidiary  as long as such  subsidiary  derives  at least 80% of its
revenues  from domestic  housing  related  activities,  (iii) 200% of the dollar
amount of loans and  investments  to  purchase,  construct  or develop  "starter
homes," subject to certain other restrictions, (iv) 200% of the dollar amount of
loans for the purchase,  construction  or  development  of domestic  residential
housing  or  community  centers  in  "credit  needy"  areas or loans  for  small
businesses  located in such areas,  (v) loans for the purchase,  construction or
development of community centers, (vi) loans for personal,  family, household or
educational purposes, subject to a maximum of 10% of portfolio assets, and (vii)
shares of FHLMC or FNMA stock.

                                       20
<PAGE>

A savings  institution  that does not meet the Qualified Thrift Lender Test must
either  convert to a bank charter or comply with the following  restrictions  on
its  operations:  (i) the institution may not engage in any new activity or make
any new investment,  directly or indirectly,  unless such activity or investment
is permissible for a national bank; (ii) the branching powers of the institution
are  restricted to those of a national  bank;  and (iii) payment of dividends by
the institution will be subject to the rules regarding payment of dividends by a
national bank.  Upon the expiration of three years from the date the institution
ceases to be a Qualified  Thrift  Lender,  it must cease any  activity,  and not
retain any  investment  unless the activity or investment is  permissible  for a
national bank and a savings  institution.  Compliance with the Qualified  Thrift
Lender test is determined on a monthly basis in nine out of every 12 months.  As
of December 31,  2002,  the Bank was in  compliance  with its  Qualified  Thrift
Lender requirement.

Transactions With Affiliates.  Generally,  transactions between the Bank and its
affiliates  are subject to certain  limitations.  Such  transactions  must be on
terms as favorable to the Bank as comparable  transactions with  non-affiliates.
In  addition,  certain of these  transactions  are  restricted  to an  aggregate
percentage of the Bank's capital.  Collateral in specified  amounts must usually
be provided by affiliates  in order to receive  loans from the Bank.  The Bank's
affiliates  include  the Company  and any  company  which would be under  common
control  with the  Bank.  In  addition,  the Bank may not  extend  credit to any
affiliate  engaged in activities not  permissible  for a bank holding company or
acquire the  securities of any affiliate  that is not a subsidiary.  The OTS has
the discretion to treat  subsidiaries of savings  institution as affiliates on a
case-by-case basis.

Loans to  Directors,  Executive  Officers and Principal  Stockholders.  The Bank
cannot  make  loans in excess of  certain  levels  to its  directors,  executive
officers or 10% or greater  stockholders (or any of their affiliates) unless the
loan is  approved in advance by a majority  of its Board of  Directors  with any
"interested" director not voting. Loans to directors, executive officers and 10%
or greater  stockholders,  and their  related  interests,  must be made on terms
substantially  the same as offered in comparable  transactions  to other persons
unless the loan is made  pursuant to a benefit or  compensation  program that is
widely available to employees and does not give preference to insiders. The Bank
is  also  prohibited  from  paying  overdrafts  of its  directors  or  executive
officers.  The Bank is also subject to certain other  restrictions on the amount
and type of loans to executive  officers and directors and must annually  report
such loans to its regulators.

Limits on Loans to One  Borrower.  The Bank  generally is subject to the lending
limits applicable to national banks. With certain limited exceptions,  loans and
extensions of credit  outstanding  to a person at one time may not exceed 15% of
unimpaired  capital  and  surplus of the Bank.  The Bank may lend an  additional
amount,  equal to 10% of unimpaired  capital and surplus,  if such loan is fully
secured by readily marketable collateral. The Bank is additionally authorized to
make loans to one borrower, for any purpose, in an amount not to exceed $500,000
or, by order of the  Director  of the OTS, in an amount not to exceed the lesser
of $30,000,000 or 30% of unimpaired  capital and surplus to develop  residential
housing,  provided: (i) the purchase price of each single-family dwelling in the
development does not exceed $500,000; (ii) the institution is in compliance with
its  regulatory  capital  requirements;  (iii) the loans comply with  applicable
loan-to-value  requirements,  and; (iv) the aggregate amount of loans made under
this authority does not exceed 150% of unimpaired capital and surplus.  The Bank
is also  authorized  to make loans to one  borrower  to finance the sale of real
property  acquired in satisfaction of debts in an amount up to 50% of unimpaired
capital  and  surplus.  Certain  types of loans are  exempted  from the  lending
limits.

At December  31, 2002,  the maximum  amount that the Bank could have lent to any
one borrower under the 15% limit was approximately  $1.9 million.  At such date,
the largest  aggregate amount of loans that were outstanding to any one borrower
or group of affiliated borrowers was $1.4 million.

FHLB System. The Bank is a member of the FHLB of Cincinnati,  which is one of 12
regional  FHLBs.  Each FHLB serves as a reserve or central  bank for its members
within its  assigned  region.  It is funded  primarily  from funds  deposited by
savings  institutions  and  proceeds  derived  from  the  sale  of  consolidated
obligations of the FHLB System. It makes loans to members (that is, advances) in
accordance with policies and procedures established by the board of directors of
the FHLB.


                                       21
<PAGE>

As a member,  the Bank is required to purchase and maintain stock in the FHLB of
Cincinnati in an amount equal to at least 1% of its aggregate unpaid residential
mortgage loans, home purchase contracts or similar  obligations at the beginning
of each year, or 1/20 of its advances from the FHLB of Cincinnati,  whichever is
greater.  At December  31, 2002,  the Bank had $897,000 in FHLB stock,  at cost,
which  was in  compliance  with  this  requirement.  The  FHLB  imposes  various
limitations  on advances  such as limiting  the amount of certain  types of real
estate  related  collateral to a percentage  of a member's  capital and limiting
total  advances to a member.  At December 31, 2002,  the Bank had no outstanding
advances.

Federal  Reserve  System.  The Federal  Reserve  Board  requires all  depository
institutions  to  maintain  noninterest-bearing  reserves  at  specified  levels
against  their  transaction  accounts  (primarily  checking,  NOW and  Super NOW
checking  accounts) and non-personal time deposits.  The balances  maintained to
meet the reserve  requirements  imposed by the Federal Reserve Board may be used
to satisfy the liquidity  requirements  that are imposed by the OTS. At December
31,  2002,  the Bank's  reserve  met the minimum  level  required by the Federal
Reserve System.

Regulation of the Company

General.  The Company is  registered  as a savings and loan holding  company and
files reports with the OTS and is subject to regulation  and  examination by the
OTS. In addition,  the OTS has  enforcement  authority  over the Company and any
non-savings  institution  subsidiaries.  This  permits  the OTS to  restrict  or
prohibit  activities  that it determines to be a serious risk to the Bank.  This
regulation  is intended  primarily  for the  protection  of the  depositors  and
deposit  insurance fund of the Bank and not for the benefit of  stockholders  of
the Company.

The Company is also required to file certain  reports with,  and comply with the
rules and  regulations  of, the  Securities  and Exchange  Commission  under the
federal securities laws.

Activities Restrictions. Since the Company owns only one savings institution and
acquired  the  institution  prior to May 4, 1999,  it is able to  diversify  its
operations into activities not related to banking,  but only so long as the Bank
satisfies  the Qualified  Thrift Lender test. If the Company  controls more than
one savings  institution,  it would lose the ability to diversify its operations
into non-banking related activities, unless such other savings institutions each
also  qualify as a Qualified  Thrift  Lender and were  acquired in a  supervised
acquisition. See "--regulation of the Bank -- Qualified Thrift Lender Test."

Restrictions on Acquisitions. Unless the acquirer was a unitary savings and loan
holding  company on May 4, 1999 (or became a unitary  savings  and loan  holding
company  pursuant to an  application  pending as of that  date),  no company may
acquire  control of the Company unless the company is only engaged in activities
that are  permitted  for  multiple  savings and loan  holding  companies  or for
financial holding companies under Bank Holding Company Act of 1956 as amended by
the G-L-B Act.  Financial  holding  companies may engage in activities  that the
Federal Reserve Board, in consultation  with the Secretary of the Treasury,  has
determined to be financial in nature or  incidental  to a financial  activity or
complementary to a financial  activity provided that the complementary  activity
does not pose a risk to safety and soundness.  Financial  holding companies that
were not  previously  bank holding  companies  may continue to engage in limited
nonfinancial  activities  for up to ten years  after the  effective  date of the
G-L-B Act (with provision for extension for up to five  additional  years by the
Federal  Reserve  Board)   provided  that  the  financial   holding  company  is
predominantly engaged in financial activities.

The Company must obtain  approval from the OTS before  acquiring  control of any
other savings institution or savings and loan holding company, substantially all
the  assets  thereof  or in excess of 5% of the  outstanding  shares of  another
savings institution or savings and loan holding company. The Company's directors
and officers or persons  owning or  controlling  more than 25% of the  Company's
stock,  must also  obtain  approval of the OTS before  acquiring  control of any
savings institution or savings and loan holding company.

The OTS may approve acquisitions that will result in the formation of a multiple
savings and loan holding  company which controls  savings  institutions  in more
than one state  only if:  (i) the  multiple  savings  and loan  holding  company
involved  controls a savings  institution which operated a home or branch office
in the state of the  institution  to be acquired  as of March 5, 1987;  (ii) the
acquirer is authorized to acquire control of the savings institution pursuant to
the emergency  acquisition  provisions of the FDIA; or (iii) the statutes of the
state in which the  institution  to be acquired is located  specifically  permit
institutions to be acquired by state-chartered  institutions or savings and loan
holding companies located in the state where the acquiring entity is located (or
by a holding company that controls such state-chartered savings institutions).

                                       22
<PAGE>

Taxation

Federal Taxation.  The Bank is subject to the provisions of the Internal Revenue
Code of 1986,  as amended (the  "Internal  Revenue  Code"),  in the same general
manner  as  other   corporations.   However,   prior  to  August  1996,  savings
institutions  such as the Bank, which met certain  definitional  tests and other
conditions  prescribed  by the Internal  Revenue Code could benefit from certain
favorable  provisions  regarding their deductions from taxable income for annual
additions to their bad debt reserve. The amount of the bad debt deduction that a
qualifying  savings  institution  could claim for tax  purposes  with respect to
additions  to its reserve for bad debts for  "qualifying  real  property  loans"
could be based upon its actual loss experience (the "experience  method" or as a
percentage of its taxable income (the  "percentage  of taxable income  method").
Historically,  the Bank used the method  that would allow it to take the largest
deduction.

In August 1996,  the Internal  Revenue Code was revised to equalize the taxation
of savings  institutions and banks. Savings  institutions,  such as the Bank, no
longer have a choice  between the  percentage  of taxable  income method and the
experience  method in determining  additions to bad debt reserves.  Thrifts with
$500  million of assets or less may still use the  experience  method,  which is
generally available to small banks currently. Larger thrifts may only take a tax
deduction when a loan is actually  charged off. Any reserve  amounts added after
1987 will be taxed over a six year period beginning in 1997;  however,  bad debt
reserves set aside through 1987 are generally not taxed.  A savings  institution
may delay  recapturing  into  income  its  post-1987  bad debt  reserves  for an
additional  two years if it meets a  residential-lending  test.  This law is not
expected to have a material  impact on the Bank. At December 31, 2002,  the Bank
had  approximately  $57,000 of post-1987  bad debt  reserves  that have not been
recaptured.

Earnings  appropriated  to the  Bank's  bad debt  reserve  and  claimed as a tax
deduction  including its supplemental  reserves for losses will not be available
for the payment of cash dividends or for distribution  (including  distributions
made on  dissolution  or  liquidation),  unless the Bank  includes the amount in
income,  along with the amount  deemed  necessary to pay the  resulting  federal
income tax. If such amount is used for any purpose  other than bad debt  losses,
including a dividend  distribution or a distribution  in  liquidation,  the Bank
will be subject to federal income tax at the then current rate.

The Internal  Revenue Code imposes a tax ("AMT") on alternative  minimum taxable
income ("AMTI") at a rate of 20%. AMTI is increased by certain preference items,
including the excess of the tax bad debt reserve  deduction using the percentage
of taxable income method over the deduction that would have been allowable under
the  experience  method.  Only 90% of AMTI can be offset by net  operating  loss
carryovers  of which the Bank  currently  has  none.  AMTI is also  adjusted  by
determining  the tax  treatment  of certain  items in a manner that  negates the
deferral of income  resulting  from the regular tax  treatment  of those  items.
Thus,  the Bank's AMTI is  increased  by an amount equal to 75% of the amount by
which its adjusted current earnings exceeds its AMTI (determined  without regard
to this  adjustment  and  prior  to  reduction  for net  operating  losses).  In
addition, for taxable years beginning after December 31, 1986 and before January
1, 1996,  an  environmental  tax of 0.12% of the  excess of AMTI  (with  certain
modifications) over $2 million is imposed on corporations, including us, whether
or not an AMT is paid.

The Company may exclude from its income 100% of dividends received from the Bank
as a  member  of the same  affiliated  group of  corporations.  A 70%  dividends
received  deduction  generally  applies with respect to dividends  received from
corporations that are not members of such affiliated  group,  except that an 80%
dividends  received  deduction  applies if the Company owns more than 20% of the
stock of a corporation paying a dividend.  The above exclusion amounts, with the
exception of the  affiliated  group  figure,  were reduced in years in which the
Bank used the percentage of taxable income bad debt deduction method.

The Bank's  federal  income tax returns  have not been  audited by the  Internal
Revenue Service since 1992.

State  Taxation.  In addition to the Bank's federal  income tax  liability,  the
State of  Tennessee  imposes  an excise tax on  savings  institutions  and other
corporations at the rate of 6.5% of net taxable income,  which is computed based
on federal taxable income subject to certain adjustments. The State of Tennessee
also imposes  franchise and privilege  taxes on savings  institutions  and other
corporations which, in the Bank's case, have not constituted significant expense
items.

                                       23
<PAGE>

Executive Officers Who Are Not Directors

The following table sets forth information  regarding the executive  officers of
the Bank who do not serve on the Board of Directors.

                        Age at
                      December 31,
Name                     2002          Title
------                   ----          ------
Lonnie R. Jones           59           Vice-President of Operations
Nancy L. Bryant           59           Vice-President and Treasurer
Peggy G. Holston          53           Branch Manager and Assistant Secretary
Chris H. Triplett         37           Controller


Lonnie R. Jones  joined the Bank as  Vice-President  of  Operations  on June 30,
1999. Mr. Jones began his banking career with the Merchants and Planters Bank of
Newport,  Tennessee in 1961 working his way up to President and Chief  Executive
Officer in 1993.  Mr. Jones  continued  to serve as  President of Merchants  and
Planters  Bank  after  its  acquisition  by  Dominion  Bank.  When  First  Union
Corporation  acquired  Dominion  Bank in  1994,  Mr.  Jones  became  a  Regional
President and served in that capacity until his retirement in 1999.

Nancy L.  Bryant  serves as Vice  President  and  Treasurer  of the Bank and the
Company. Ms. Bryant joined the Bank in 1966. She has served as a Director of the
Douglas  Cooperative,  serves as a the  President  of Habitat for  Humanity  and
received  the  1993  Citizen  of the Year  Award  from the  Newport  Chamber  of
Commerce.

Peggy G.  Holston has been  employed  with the Bank since 1971 and serves as its
Assistant  Secretary  and Branch  Manager.  She has also  served on the Board of
Directors of the Newport/Cocke County Chamber of Commerce.

Chris H. Triplett joined the bank as Controller on January 1, 2001. Mr. Triplett
began his career with Union Planters Bank of Morristown in 1991.  Before leaving
Union Planters,  Mr. Triplett served as Vice President,  Compliance  Officer and
Auditor. He is also a member of the Newport Kiwanis Club and serves on the Board
of Directors of the Newport/Cocke County Chamber of Commerce.

Employees

As of December 31, 2002,  the Bank had 28  full-time  employees  and 2 part-time
employee,  none of whom were represented by a collective  bargaining  agreement.
The Bank considers its relationships with its employees to be good.

Item 2. Description of Property

The  following  table sets forth  information  about the  offices of the Bank at
December 31, 2002.


<TABLE>
<CAPTION>

                                  Year           Owned or                           Approximate
                                Opened            Leased          Book Value      Square Footage    Deposits
                                -------          ---------        ----------      --------------    --------
                                                                                                 (In thousands)
<S>                               <C>              <C>            <C>                <C>            <C>
Main Office:
  344 W. Broadway
  Newport, Tennessee              1973             Owned          $ 23,957           8,000          $ 58,565
Branch Offices:
  263 E. Broadway
  Newport, Tennessee              1960             Owned               100           5,400            19,522
  345 Cosby Highway
  Newport, Tennessee              1998             Owned           134,826           2,400            15,660

The book value of the Bank's aggregate investment in properties, premises and
equipment totaled approximately $969,000 at December 31, 2002. See Note 4 of the
Notes to Consolidated Financial Statements in the Annual Report.
</TABLE>

Item 3. Legal Proceedings

From time to time, the Bank is a party to various legal proceedings  incident to
its business. At December 31, 2002, there were no legal proceedings to which the
Bank was a party, or to which any of its property was subject, which it expected
to result in a material loss, and there were no pending  regulatory  proceedings
to which the Bank was a party,  or to which any of its  properties  was subject,
which it expected to result in a material loss.

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

No  matters  were  submitted  to a vote of  security  holders  during the fourth
quarter of the fiscal year ended December 31, 2002.

                                       24
<PAGE>

                                    PART II

Item 5. Market for Common Equity and Related Stockholder Matters

The  information set forth under the section titled "Market for Common Stock and
Related Stockholder Matters" in the Annual Report is filed as Exhibit 13 to this
report and incorporated herein by reference.

Item 6. Management's Discussion and Analysis or Plan of Operation

The information set forth under the section titled "Management's  Discussion and
Analysis of Financial  Condition and Results of Operations" in the Annual Report
is filed as Exhibit 13 to this report and incorporated herein by reference.

Item 7. Financial Statements

The Independent  Auditor's Report and related financial  statements and notes in
the Annual Report are filed as Exhibit 13 to this report and incorporated herein
by reference.

Item 8.  Changes  in  and  Disagreements  with  Accountants  on  Accounting  and
     Financial Disclosure

Not applicable.


                                    PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
        with Section 16(a) of the Exchange Act

Information  concerning  the directors and executive  officers of the Company is
incorporated  herein by reference to the  sections  titled "Item 1.  Business --
Executive  Officers Who Are Not  Directors"  herein,  "Proposal I -- Election of
Directors",  "Voting  Securities  and  Beneficial  Ownership" and "Section 16(a)
Beneficial Ownership Reporting Compliance" in the Proxy Statement.

Item 10. Executive Compensation

The information required by this item is incorporated herein by reference to the
section titled  "Proposal I -- Election of Directors -- Executive  Compensation"
in the Proxy Statement.


                                       25
<PAGE>


Item 11. Security Ownership of Certain Beneficial Owners and Management

The information required by this item is incorporated herein by reference to the
sections titled "Voting Securities and Beneficial Ownership" and "Proposal I --
Election of Directors" in the Proxy Statement.

Item 12. Certain Relationships and Related Transactions

The information required by this item is incorporated herein by reference to the
section titled "Proposal I -- Election of Directors -- Transactions with
Management" in the Proxy Statement.

Item 13. Exhibits List and Reports on Form 8-K

     (a)  Exhibits.  The  following  exhibits  either  are  filed  or  otherwise
furnished as part of this report or are incorporated herein by reference:

  No.                           Description

 3.1*      Charter of United Tennessee Bankshares, Inc.
 3.2*      Bylaws of United Tennessee Bankshares, Inc.
   4*      Form of Stock Certificate of United Tennessee Bankshares, Inc.
10.1**     United Tennessee Bankshares, Inc. 1999 Stock Option Plan +
10.2**     United  Tennessee  Bankshares,  Inc.  Management Recognition Plan and
           Trust Agreement +
10.3(a)*   Employment  Agreements  between   Newport  Federal  Savings  and Loan
           Association and Richard G.Harwood, Nancy L. Bryant and Peggy Holston+
10.3(b)    Guarantee  Agreements  between   United  Tennessee  Bankshares,  Inc.
           and Richard G. Harwood,  Nancy L. Bryant and Peggy Holston +
10.4       Newport  Federal  Savings  and  Loan  Association Long-Term Incentive
           Plan, as amended. +
10.5*      Newport  Federal  Savings and  Loan Association Deferred Compensation
           Plan +
13         2002 Annual Report to Stockholders
21         Subsidiaries of the Registrant
23         Consent of Pugh & Company, P.C.
99.1***    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
           to  the Sarbanes-Oxley Act of 2002, signed by Richard G. Harwood, the
           President and Chief Executive Officer of United Tennessee Bankshares,
           Inc. on March 31, 2003.
99.2***    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
           to  the  Sarbanes-Oxley Act of 2002, signed by Chris H. Triplett, the
           Controller of United Tennessee Bankshares, Inc. on March 31, 2003.
---------------
*          Incorporated  by reference to the Company's Registration Statement on
           Form SB-2 (File No. 333-36465).
**         Incorporated  by reference to the Company's Registration Statement on
           Form S-8 (File No. 333-82803).
***        A signed  original  of this written statement required by Section 906
           has  been provided to the Company and will be retained by the Company
           and furnished to the Securities and Exchange  Commission or its staff
           upon request.
+          Management contract or compensatory plan or arrangement.

     (b) Reports on Form 8-K. The Registrant did not file any Current Reports on
Form 8-K during the last quarter of the fiscal year ending December 31, 2002.

ITEM 14 - CONTROLS AND PROCEDURES

     (a)  Evaluation  of  Disclosure  Controls  and  Procedures.  The  Company's
President and Chief  Executive  Officer and its  Controller  have  evaluated the
effectiveness of the design and operation of the Company's  disclosure  controls
and procedures  (as defined in Exchange Act Rule  13a-14(c)) as of a date within
90 days of the filing date of this annual report. Based on that evaluation,  the
President and Chief Executive Officer and the Controller are effective to ensure
that material information relating to the Company and the Company's consolidated
subsidiaries  is made known to such  officers by others  within these  entities,
particularly  during the period this  annual  report was  prepared,  in order to
allow timely decisions regarding required disclosure.

     (b)  Changes in  Internal  Controls.  There  have not been any  significant
changes  in the  Company's  internal  controls  or in other  factors  that could
significantly affect these controls subsequent to the date of their evaluation.

                                       26
<PAGE>


                                   SIGNATURES

     In accordance  with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                        UNITED TENNESSEE BANKSHARES, INC.


Date:  March 28, 2003                By: /s/ Richard G. Harwood
                                     -------------------------------------------
                                         Richard G. Harwood
                                         President and Chief Executive Officer
                                         (Duly Authorized Representative)



     In  accordance  with Exchange Act, this report has been signed below by the
following  persons on behalf of the  registrant and in the capacities and on the
dates indicated.


By: /s/ Richard G. Harwood                    By:  /s/ J. William Myers
    ----------------------------                   -----------------------------
    Richard G. Harwood                             J. William Myers
    President and Chief Executive Officer          Chairman of the Board and
    (Director and Principal Executive,             Director
    Financial and Accounting Officer)

Date:   March 28, 2003                             Date:  March 28, 2003


By: /s/ Tommy C. Bible                        By:  /s/ Ben W. Hooper, III
    ------------------------------                 -----------------------------
    Tommy C. Bible                                 Ben W. Hooper, III
    Director                                       Director

Date:  March 28, 2003                              Date:  March 28, 2003


By: /s/ William B. Henry                      By:  /s/ Robert D. Self
    ------------------------------                 -----------------------------
    William B. Henry                               Robert D. Self
    Director                                       Director

Date:   March 28, 2003                             Date:  March 28, 2003


By: /s/ Robert L. Overholt
    --------------------------------
    Robert L. Overholt
    Director

Date:   March 28, 2003


                                       27
<PAGE>

                    Certification of Chief Executive Officer
                         Pursuant to Section 302 of the
                           Sarbanes-Oxley Act of 2002

I, Richard G. Harwood, certify that:

     1.   I have reviewed this annual report on Form 10-KSB of United  Tennessee
          Bankshares, Inc. ("United Tennessee");

     2.   Based on my knowledge,  this annual report does not contain any untrue
          statement  of a  material  fact  or  omit to  state  a  material  fact
          necessary to make the statements  made, in light of the  circumstances
          under which such  statements were made, not misleading with respect to
          the period covered by this annual report; and

     3.   Based on my knowledge,  the financial statements,  and other financial
          information  included in this  annual  report,  fairly  present in all
          material respects the financial  condition,  results of operations and
          cash flows of United  Tennessee as of, and for, the periods  presented
          in this annual report.

     4.   The registrant's  other certifying  officers and I are responsible for
          establishing  and maintaining  disclosure  controls and procedures (as
          defined in Exchange  Act Rules  13a-14 and 15d-14) for the  registrant
          and we have:

          a)   designed such  disclosure  controls and procedures to ensure that
               material  information  relating to the registrant,  including its
               consolidated  subsidiaries,  is made known to us by others within
               those  entities,  particularly  during  the  period in which this
               annual report is being prepared;

          b)   evaluated  the  effectiveness  of  the  registrant's   disclosure
               controls and  procedures as of a date within 90 days prior to the
               filing date of this annual report (the "Evaluation Date"); and

          c)   presented  in  this  annual  report  our  conclusions  about  the
               effectiveness of the disclosure  controls and procedures based on
               our evaluation as of the Evaluation Date;

     5.   The registrant's other certifying officers and I have disclosed, based
          on our most recent  evaluation,  to the registrant's  auditors and the
          audit  committee  of  registrant's  board  of  directors  (or  persons
          performing the equivalent function):

          a)   all  significant  deficiencies  in the  design  or  operation  of
               internal  controls which could adversely  affect the registrant's
               ability to record,  process,  summarize and report financial data
               and have  identified for the  registrant's  auditors any material
               weaknesses in internal controls; and

          b)   any fraud,  whether or not material,  that involves management or
               other employees who have a significant  role in the  registrant's
               internal controls; and

     6.   The  registrant's  other  certifying  officers and I have indicated in
          this annual report  whether or not there were  significant  changes in
          internal controls or in other factors that could significantly  affect
          internal   controls   subsequent  to  the  date  of  our  most  recent
          evaluation,   including   any   corrective   actions  with  regard  to
          significant deficiencies and material weaknesses.



Date:  March 28, 2003                            /s/ Richard G. Harwood
                                                 -------------------------------
                                                 Richard G. Harwood
                                                 President and
                                                 Chief Executive Officer


<PAGE>

                           Certification of Controller
                         Pursuant to Section 302 of the
                           Sarbanes-Oxley Act of 2002

I, Chris H. Triplett, certify that:

     1.   I have reviewed this annual report on Form 10-KSB of United  Tennessee
          Bankshares, Inc. ("United Tennessee");

     2.   Based on my knowledge,  this annual report does not contain any untrue
          statement  of a  material  fact  or  omit to  state  a  material  fact
          necessary to make the statements  made, in light of the  circumstances
          under which such  statements were made, not misleading with respect to
          the period covered by this annual report; and

     3.   Based on my knowledge,  the financial statements,  and other financial
          information  included in this  annual  report,  fairly  present in all
          material respects the financial  condition,  results of operations and
          cash flows of United  Tennessee as of, and for, the periods  presented
          in this annual report.

     4.   The registrant's  other certifying  officers and I are responsible for
          establishing  and maintaining  disclosure  controls and procedures (as
          defined in Exchange  Act Rules  13a-14 and 15d-14) for the  registrant
          and we have:

          a)   designed such  disclosure  controls and procedures to ensure that
               material  information  relating to the registrant,  including its
               consolidated  subsidiaries,  is made known to us by others within
               those  entities,  particularly  during  the  period in which this
               annual report is being prepared;

          b)   evaluated  the  effectiveness  of  the  registrant's   disclosure
               controls and  procedures as of a date within 90 days prior to the
               filing date of this annual report (the "Evaluation Date"); and

          c)   presented  in  this  annual  report  our  conclusions  about  the
               effectiveness of the disclosure  controls and procedures based on
               our evaluation as of the Evaluation Date;

     5.   The registrant's other certifying officers and I have disclosed, based
          on our most recent  evaluation,  to the registrant's  auditors and the
          audit  committee  of  registrant's  board  of  directors  (or  persons
          performing the equivalent function):

          a)   all  significant  deficiencies  in the  design  or  operation  of
               internal  controls which could adversely  affect the registrant's
               ability to record,  process,  summarize and report financial data
               and have  identified for the  registrant's  auditors any material
               weaknesses in internal controls; and

          b)   any fraud,  whether or not material,  that involves management or
               other employees who have a significant  role in the  registrant's
               internal controls; and

     6.   The  registrant's  other  certifying  officers and I have indicated in
          this annual report  whether or not there were  significant  changes in
          internal controls or in other factors that could significantly  affect
          internal   controls   subsequent  to  the  date  of  our  most  recent
          evaluation,   including   any   corrective   actions  with  regard  to
          significant deficiencies and material weaknesses.



Date:  March 28, 2003                            /s/ Chris H. Triplett
                                                 -------------------------------
                                                 Chris H. Triplett
                                                 Controller


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