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

                                   FORM 10-QSB

Mark One

[X]      QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE UNITED STATES
         SECURITIES EXCHANGE ACT OF 1934

         For the quarterly period ended March 31, 2005.

                                       OR

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

                         Commission File Number: 0-23551

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


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


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

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


Check  whether  the issuer:  (1) has 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 ninety days:
                                                                  Yes [X] No [ ]

State the number of shares outstanding of each of the issuer's classes of common
stock as of May 13, 2005:                1,185,999
                                         ---------

Transitional Small Business Disclosure Format (Check one):     Yes [ ]   No [X]

<PAGE>


CONTENTS

PART I.  FINANCIAL INFORMATION
         ---------------------

         Item 1.  Financial Statements

                  Consolidated Statements of Financial Condition as of
                  March 31, 2005 (Unaudited) and December 31, 2004             3

                  Consolidated Statements of Income for the Three-Month
                  Periods Ended March 31, 2005 and 2004 (Unaudited)            4

                  Consolidated Statements of Comprehensive Income for
                  the Three-Month Periods Ended March 31, 2005 and 2004
                  (Unaudited)                                                  5

                  Consolidated Statement of Changes in Shareholders'
                  Equity for the Three-Month Period Ended March 31, 2005
                  (Unaudited)                                                  6

                  Consolidated Statements of Cash Flows for the Three-Month
                  Periods Ended March 31, 2005 and 2004 (Unaudited)          7-8

                  Notes to Consolidated Financial Statements for the
                  Three-Month Periods Ended March 31, 2005 and 2004
                  (Unaudited)                                               9-12

         Item 2.  Management's Discussion and Analysis or
                  Plan of Operation                                        12-18

         Item 3.  Controls and Procedures                                     18


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

         Item 1.  Legal Proceedings                                           19

         Item 2.  Changes in Securities and Use of Proceeds                   19

         Item 3.  Defaults upon Senior Securities                             19

         Item 4.  Submission of Matters to a Vote of Security Holders         19

         Item 5.  Other Information                                           19

         Item 6.  Exhibits and Reports on Form 8-K                         19-20

SIGNATURES                                                                    21

CERTIFICATIONS                                                             22-25

                                       2
<PAGE>


PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements


                UNITED TENNESSEE BANKSHARES, INC. AND SUBSIDIARY
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                   AS OF MARCH 31, 2005 AND DECEMBER 31, 2004
<TABLE>
<CAPTION>
                                                               March 31,        December
                                                                  2005             31,
                                                              (Unaudited)         2004
                                                              -----------     ------------
<S>                                                           <C>              <C>
                                                                     (In Thousands)
                           Assets
Cash and amounts due from depository institutions             $       623      $     3,444
Investment securities available for sale, at fair value            32,860           35,579
Loans receivable, net                                              79,294           78,830
Premises and equipment, net                                         2,287            1,714
Real estate acquired through foreclosure                              185              128
Accrued interest receivable                                           638              573
Goodwill, net of amortization                                         693              713
Cash surrender value of life insurance                              1,617            1,597
Prepaid expenses and other assets                                      32               81
                                                              -----------     ------------
  Total assets                                                $   118,229      $   122,659
                                                              ===========     ============

                   Liabilities and Equity
Liabilities:

 Deposits                                                     $    97,752      $   100,919
 Advances from Federal Home Loan Bank                                   0            1,000
 Accrued interest payable                                             107              135
 Accrued income taxes                                                 168                0
 Deferred income taxes                                                287              561
 Accrued benefit plan liabilities                                   1,243            1,531
 Other liabilities                                                    108               94
                                                              ------------    ------------
  Total liabilities                                                99,665          104,240
                                                              ------------    ------------

Shareholders' equity:
 Common stock - no par value, Authorized 20,000,000 shares;
  issued and outstanding 1,185,999 shares (1,196,999 in 2004       10,912           11,098
 Unearned compensation - ESOP                                         (64)            (180)
 Shares in grantor trust - contra account                            (224)            (224)
 Shares in stock option plan trusts - contra account                 (563)            (749)
 Retained earnings                                                  7,735            7,258
 Accumulated other comprehensive income                               768            1,216
                                                              -----------     ------------
  Total shareholders' equity                                       18,564           18,419
                                                              -----------     ------------
Total liabilities and equity                                  $   118,229      $   122,659
                                                              ===========     ============
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                       3

<PAGE>


                UNITED TENNESSEE BANKSHARES, INC., AND SUBSIDIARY
                        CONSOLIDATED STATEMENTS OF INCOME
            FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2005 AND 2004
<TABLE>
<CAPTION>

                                                                       (In Thousands Except
                                                                       per Share Information)
                                                                    ---------------------------
                                                                       Three Months Ended
                                                                   ----------------------------
                                                                            March 31,
                                                                   ----------------------------
                                                                      2005            2004
                                                                   (Unaudited)     (Unaudited)
                                                                   ------------    ------------
<S>                                                                <C>             <C>
Interest income:
 Loans                                                             $     1,349     $     1,356
 Investment securities                                                     343             323
 Other interest-earning assets                                               5               3
                                                                   ------------    ------------
  Total interest income                                                  1,697           1,682
                                                                   ------------    ------------
Interest expense:
 Deposits                                                                  477             376
 Advances from Federal Home Loan Bank                                        2               0
                                                                   ------------    ------------
  Total interest expense                                                   479             376
                                                                   ------------    ------------
Net interest income                                                      1,218           1,306
Provision for loan losses                                                   18              28
                                                                   ------------    ------------
Net interest income after provision for loan losses                      1,200           1,278
                                                                   ------------    ------------
Noninterest income:
 Deposit account service charges                                            70              72
 Loan service charges and fees                                              29              29
 Net gain (loss) on sales of investment securities
  available for sale                                                         0               0
 Other                                                                      31              29
                                                                   ------------    ------------
  Total noninterest income                                                 130             130
                                                                   ------------    ------------
Noninterest expense:
 Compensation and benefits                                                 284             510
 Occupancy and equipment                                                    53              60
 Federal deposit insurance premiums                                          4               4
 Data processing fees                                                       84              78
 Advertising and promotion                                                  18              14
 Net (gain) loss on foreclosed real estate                                   1               0
 Amortization                                                               20              20
 Other                                                                     162             133
                                                                   ------------    ------------
  Total noninterest expense                                                626             819
                                                                   ------------    ------------
Income before income taxes                                                 704             589

Income taxes                                                               227             197
                                                                   ------------    ------------
Net income                                                         $       477     $       392
                                                                   ============    ============
Earnings per share
 Basic                                                             $      0.40     $      0.32
                                                                   ============    ============
 Diluted                                                           $      0.40     $      0.32
                                                                   ============    ============
</TABLE>


   The accompanying notes are an integral part of these financial statements.

                                       4
<PAGE>


                UNITED TENNESSEE BANKSHARES, INC. AND SUBSIDIARY
             CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
            FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2005 AND 2004

                                                         Three Months Ended
                                                    -------------------------
                                                            March 31,
                                                    -------------------------
                                                        2005           2004
                                                    -----------    ----------
                                                        (Unaudited - in
                                                           thousands)
Net income                                          $      477      $    392
                                                    -----------    ----------

Other comprehensive income (loss), net of tax:
 Unrealized gains (losses) on investment securities       (722)          362
 Less reclassification adjustment for gains\losses
  included in net income                                     0             0
 Less income taxes related to unrealized
  gains\losses on investment securities                    274          (138)
                                                    -----------    ----------
   Other comprehensive income (loss), net of tax          (448)          224
                                                    -----------    ----------

Comprehensive income(loss)                          $       29     $     616
                                                    ===========    ==========


   The accompanying notes are an integral part of these financial statements.





                                       5
<PAGE>


                UNITED TENNESSEE BANKSHARES, INC. AND SUBSIDIARY
            CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
                 FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2005

<TABLE>
<CAPTION>
                                                                        Shares
                                                          Shares in        in                   Accumulated
                                                                         Stock
                                            Unearned       Grantor       Option                    Other          Total
                                                           Trust -       Plan -
                               Common      Compensatio     Contra        Contra      Retained   Comprehensive  Shareholders'
                               Stock          ESOP         Account      Account      Earnings     Income          Equity
                              ---------   -----------    ----------    ---------    ---------   ------------    -----------
                                                                  (In Thousands)
<S>                           <C>         <C>            <C>           <C>          <C>         <C>             <C>
Balances, beginning of period $ 11,098    $     (180)    $     (224)   $    (749)   $  7,258    $     1,216     $    18,419

Net income                           0             0              0            0         477              0             477

Other comprehensive income
 (loss)                              0             0              0            0           0           (448)           (448)

Retirement of Stock held
in the Stock Option
Plan Trust                        (186)            0              0          186           0              0               0

Purchase of  Stock from
ESOP                                 0             0              0          (68)          0              0            (680)

Payment on ESOP loan
principal                            0           116              0            0           0              0             116

Proceeds from exercise of
stock options                        0             0              0           68           0              0              68
                             ---------    ----------     ----------    ---------    --------    -----------     -----------

Balances, end of period       $ 10,912    $      (64)    $     (224)   $    (563)   $  7,735    $       768     $    18,564
                             =========    ==========     ==========    =========    ========    ===========     ===========
</TABLE>


   The accompanying notes are an integral part of these financial statements.



                                       6
<PAGE>

                UNITED TENNESSEE BANKSHARES, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
            FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2005 AND 2004
<TABLE>
<CAPTION>
                                                                          Three Months Ended
                                                                              March 31,
                                                                       -------------------------
                                                                          2005          2004
                                                                           (Unaudited - in
                                                                              thousands)
                                                                       -------------------------
<S>                                                                    <C>            <C>
Operating Activities:
 Net income                                                            $      477     $     392
                                                                       -----------    ----------
 Adjustments to reconcile net income to net cash
 provided by operating activities:
  Provision for loan losses                                                    18            28
  Depreciation                                                                 17            24
  Amortization of goodwill                                                     20            20
  Net (gain) loss on sales of foreclosed real estate                            1             0
  Federal home loan bank stock dividends                                      (11)           (9)

Increase in cash surrender value of bank-owned life insurance                 (20)          (18)
 (Increase) Decrease in:
  Accrued interest receivable                                                 (65)          (92)
  Other assets                                                                 49            86
  Increase (Decrease) in:
  Accrued interest payable                                                    (28)            1
  Accrued income taxes                                                        168            89
  Accrued benefit plan liabilities                                           (288)          (84)
  Other liabilities                                                            14            50
                                                                       -----------    ----------
     Total adjustments                                                       (125)           95
                                                                       -----------    ----------
Net cash provided by operating activities                                     352           487
                                                                       -----------    ----------
Investing Activities:
Purchases of investment securities available for sale                           0        (4,339)
Proceeds from maturities of investment securities available for sale            0             0
Payments received on investment securities available for sale               2,008         1,980
Proceeds from sales of investment securities available for sale                 0             0
Net (increase) decrease in loans                                             (647)          331
Purchases of premises and equipment, net                                     (590)          (57)
Proceeds from sales of foreclosed real estate                                 107            15
                                                                       -----------    ----------
Net cash provided by (used in) investing activities                           878        (2,070)
                                                                       -----------    ----------
</TABLE>





   The accompanying notes are an integral part of these financial statements.


                                       7
<PAGE>



                UNITED TENNESSEE BANKSHARES, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
            FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2005 AND 2004

<TABLE>
<CAPTION>

                                                                         Three Months Ended
                                                                         2005          2004
                                                                       ----------    ----------
                                                                           (Unaudited - in
                                                                                thousands)
<S>                                                                    <C>           <C>
Financing Activities:
 Costs associated with stock options surrendered                              0           (81)
 Net increase (decrease) in deposits                                     (3,167)         (292)
 Purchase of common stock                                                   (68)            0
 Proceeds from exercise of stock options                                     68           206
 Payment on ESOP loan and release of shares                                 116           116
 Net repayment of advances from Federal Home Loan Bank                   (1,000)            0
                                                                       ---------     ---------
Net cash provided by (used in) financing activities                      (4,051)          (51)
                                                                       ---------     ---------
Net increase (decrease) in cash and cash equivalents                     (2,821)       (1,634)
Cash and cash equivalents, beginning of period                            3,444         5,196
                                                                       ----------    ---------
Cash and cash equivalents, end of period                               $    623      $  3,562
                                                                       ==========    =========
Supplementary disclosures of cash flow information:
Cash paid during the period for:
 Interest                                                              $    507      $    375
 Income taxes                                                          $     59      $     40
Supplementary disclosures of noncash investing activities:
  Acquisition of foreclosed real estate                                $    343      $    227
  Sale of foreclosed real estate by origination of mortgage loans      $    178      $      0
  Change in unrealized gain\loss on investment securities
   available for sale                                                  $   (722)     $    362
  Change in deferred income taxes associated with unrealized
   gain\loss on investment securities available for sale               $   (274)     $    138
  Change in net unrealized gain\loss on investment
   securities available for sale                                       $   (448)     $    224
</TABLE>










    The accompanying notes are an integral part of these financial statements.

                                       8
<PAGE>


                UNITED TENNESSEE BANKSHARES, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        FOR THE THREE-MONTH PERIODS ENDED
                       MARCH 31, 2005 AND 2004 (UNAUDITED)

Note 1 - Basis of Presentation and Principles of  Consolidation  and Significant
Accounting Policies

United Tennessee Bankshares, Inc. ("Company") was incorporated under the laws of
the State of  Tennessee  for the  purpose of  becoming  the  holding  company of
Newport Federal Savings and Loan Association ("Association"), in connection with
the Association's  conversion from a federally chartered mutual savings and loan
association to a federally chartered capital stock savings bank. The Company had
no assets or  operations  prior to the  conversion.  On  January  1,  1998,  the
Association  converted  from a mutual  savings  association  to a capital  stock
savings  bank,  changed  its name to  Newport  Federal  Bank  ("Bank"),  and was
simultaneously  acquired by its holding company,  United  Tennessee  Bankshares,
Inc.

The Bank provides a variety of financial  services to individuals  and corporate
customers  through its three offices in Newport,  Tennessee.  The Bank's primary
deposit  products are  interest-bearing  savings  accounts and  certificates  of
deposit.  The Bank's  primary  lending  products  are  one-to-four  family first
mortgage loans.

The accompanying  unaudited consolidated financial statements have been prepared
in accordance with the instructions for Form 10-QSB and on the same basis as the
Company's  audited  consolidated   financial  statements.   In  the  opinion  of
management, all adjustments,  consisting of normal recurring accruals, necessary
to present fairly the financial position,  results of operations, and cash flows
for the interim periods presented have been included.  The results of operations
for such interim periods are not necessarily  indicative of the results expected
for the full year.

The consolidated  financial  statements  include the accounts of the Company and
the Bank. All intercompany accounts have been eliminated.

The Company has a stock-based  employee  compensation  plan,  which is described
more fully in Note 5. The Company  accounts for this plan under the  recognition
and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to
Employees,  and related  interpretations.  No stock-based employee  compensation
cost is reflected in net income, as all options granted under those plans had an
exercise price equal to the market value of the  underlying  common stock on the
date of grant.  The  following  table  illustrates  the effect on net income and
earnings  per  share if the  Company  had  applied  the fair  value  recognition
provisions of FASB Statement No. 123,  Accounting for Stock-Based  Compensation,
to stock-based employee compensation.

                                                          Three Months Ended
                                                         --------------------
                                                               March 31,
                                                         --------------------
(In thousands, except per share data)                      2005         2004
                                                         --------    --------
Net Income, as reported                                  $    477      $  392

Deduct: Total stock-based employee compensation
  expense determined under fair value based method
  for all awards, net of related tax effects
  to calculate earnings per share                               0           0
                                                         --------    --------
Pro forma net income                                     $    477      $  392
                                                         ========    ========
Earnings per share:
  Basic - as reported                                    $   0.40      $ 0.32
                                                         ========    ========
  Basic - pro forma                                      $   0.40      $ 0.32
                                                         ========    ========
  Diluted - as reported                                  $   0.40      $ 0.32
                                                         ========    ========
  Diluted - pro forma                                    $   0.40      $ 0.32
                                                         ========    ========



                                       9
<PAGE>
Note 2 - Earnings Per Share

Basic earnings per share represent income  available to shareholders  divided by
the weighted  average number of shares  outstanding  during the period.  Diluted
earnings per share reflect additional shares that would have been outstanding if
dilutive  potential shares had been issued,  as well as any adjustment to income
that would result from the assumed issuance. Potential shares that may be issued
by the Company  relate solely to outstanding  stock options,  and are determined
using the treasury stock method.

Earnings per share have been computed based on the following:


                                                        Three Months Ended
                                                 -------------------------------
                                                                March 31,
                                                 -------------------------------
                                                      2005             2004
                                                 --------------   --------------
Average number of shares outstanding                1,195,105        1,230,379
Effect of dilutive options                                  0            9,638
                                                 --------------   --------------
Average number of shares outstanding used
  to calculate earnings per share                   1,195,105        1,240,017
                                                 ==============   ==============
Note 3 - Comprehensive Income

The FASB has  issued  SFAS  No.  130,  "Reporting  Comprehensive  Income."  This
statement  establishes  standards  for  reporting  comprehensive  income and its
components  in the  financial  statements.  The objective of the statement is to
report a measure of all changes in equity of an  enterprise  that  results  from
transactions  and other  economic  events of the period other than  transactions
with owners. Items included in comprehensive income include revenues, gains, and
losses that under generally accepted accounting  principles are directly charged
to equity.  Examples include foreign currency  translations,  pension  liability
adjustments and unrealized gains and losses on investment  securities  available
for sale.  The  Company  has  included  its  comprehensive  income in a separate
financial statement as part of its consolidated financial statements.


Note 4 - Stock Option Plan

In January 1999,  the Company's  board of directors  approved the Company's 1999
stock option plan,  and in May 1999,  the  Company's  shareholders  ratified the
plan.  The plan  reserved  209,299  shares  of the  Company's  common  stock for
issuance  pursuant  to the options to be  granted.  These  shares will be either
newly issued shares or shares purchased on the open market.

The  Company's  board of directors  has  approved the issuance of stock  options
under  the  Plan to  certain  members  of the  board  of  directors  and  senior
management. The options vest at a rate of 25% per year, expire in ten years, and
provide for the  purchase of stock at an exercise  price equal to the fair value
of the Company's stock on the date the option is granted. Holders of the options
can also surrender the options and be paid cash for the  difference  between the
exercise price and the stock's fair value on the date surrendered.  The board of
directors  granted 202,676 options in 1999 and 6,623 options in 2001. During the
three month period ended March 31, 2005,  4,655  options were  surrendered  at a
total cost of $55,145 (7,656 shares for $80,638 in 2004).  Stock options awarded
and  outstanding  totaled  32,822  and  70,401  as of March  31,  2005 and 2004,
respectively.

                                       10
<PAGE>

The fair value of each option  grant is estimated on the date of grant using the
Black-Scholes   option-pricing   model  with  the   following   weighted-average
assumptions:
                                               Period Ended
                                     ---------------------------------
                                                March 31,
                                     ---------------------------------
                                          2005              2004
                                     ---------------    --------------
Dividend Yield                            3.5%              3.5%
Expected Life                          8.5 years          8.5 years
Expected Volatility                      52.0%              52.0%
Risk-Free Interest Rate                   4.8%              4.8%

A summary of the status of the Company's stock option plan is presented below:

<TABLE>
<CAPTION>
                                                                Three Months Ended March 31,
                                                 ----------------------------------------------------------
                                                            2005                            2004
                                                 ---------------------------    ---------------------------
                                                                 Weighted                         Weighted
                                                                 Average                           Average
                                                                 Exercise                         Exercise
                                                  Shares          Price           Shares            Price
                                                 ---------     -------------    ------------    -----------
<S>                                                <C>          <C>                <C>          <C>

Outstanding at Beginning of Period                  45,388      $    8.60          102,057      $     8.59
Granted                                                  0                               0
Exercised                                          (7,911)                         (24,000)
Surrendered                                        (4,655)           8.60           (7,656)           8.60
Forfeited                                                0                               0
                                                 ---------                      ----------
Outstanding at End of Period                        32,822      $    8.60           70,401      $     8.59
                                                 =========                      ==========


Options Exercisable at Period-End                   32,822      $    8.60           68,745      $     8.59
Weighted-Average Fair Value of
  Options Granted during the period                    n/a                             n/a
</TABLE>

Information pertaining to options outstanding at March 31, 2005 is as follows:

<TABLE>
<CAPTION>
                                       Options Outstanding                        Options Exercisable
                        -----------------------------------------------    ------------------------------
                                            Weighted
                                             Average         Weighted                         Weighted
                                            Remaining        Average                           Average
     Range of              Number          Contractual       Exercise         Number          Exercise
  Exercise Prices        Outstanding          Life            Price         Exercisable         Price
--------------------    --------------    --------------    -----------    --------------    ------------
   <S>                         <C>          <C>              <C>              <C>            <C>
   $8.00 - $9.00               32,822       3.8 years        $8.60            32,822         $   8.60
</TABLE>

The  Company  has  purchased  33,162 and 48,560  shares as of March 31, 2005 and
December 31, 2004,  respectively,  of its common  stock,  which is being held in
trusts for when the stock options are  exercised.  A  contra-equity  account has
been established to reflect the costs of such shares held in trusts.

The Company applies APB Opinion 25 and related Interpretations in accounting for
its stock option plan. Accordingly, no compensation cost has been recognized.

                                       11
<PAGE>

Note 5 - Improvement Plan for Main Office Facility

The  company  has begun  construction  on a new main  office  facility of 15,000
square feet, with an estimated completion date of August 2005.

Note 6 - Recent Accounting Pronouncements

Derivative Instruments and Hedging Activities

In April 2003,  the Financial  Accounting  Standards  Board issued  Statement of
Financial Accounting Standard No. 149, Amendment of Statement 133 on "Derivative
Instruments and Hedging  Activities".  This statement  amends  Statement 133 for
decisions made as part of the Derivatives Implementation Group process and other
board projects and in conjunction with other implementation  issues.  Management
does not expect this statement to have any  significant  impact on the Company's
financial position or results of operations.

Accounting  for  Certain  Financial  Instruments  with  Characteristics  of Both
Liabilities and Equity

In May 2003,  the  financial  Accounting  Standards  Board  issued  Statement of
Financial  Accounting  Standard  No.  150,  "Accounting  for  Certain  Financial
Instruments with Characteristics of Both Liabilities and Equity". This statement
established  standards  for  how  an  issuer  classifies  and  measures  certain
financial  instruments  with  characteristics  of both  liabilities  and equity.
Management  does not expect this  statement to have a significant  impact on the
Company's financial position or results of operations.

Consolidation of Variable Interest Entities

In  December  2003,  the FASB  issued  revised  Interpretation  No. 46  (FIN46),
"Consolidation of Variable Interest Entities." This Interpretation clarifies the
application  of ARB No. 51,  "Consolidated  Financial  Statements,"  for certain
entities  in  which  equity  investors  do not  have  the  characteristics  of a
controlling  financial interest or do not have sufficient equity at risk for the
entity to finance its activities  without additional  subordinated  support from
other parties.  This  Interpretation  requires  variable interest entities to be
consolidated by the primary  beneficiary,  which  represents the enterprise that
will absorb the majority of the variable interest  entities'  expected losses if
they  occur,  receive a majority of the  variable  interest  entities'  residual
returns if they occur, or both. This Interpretation is effective for the Bank in
the first  fiscal year or interim  period  ending after  December 15, 2004.  The
Company does not presently have any related  entities  considered to be variable
interest entities and this Standard is not expected to have a material effect on
the Company's financial statements.

Accounting for Certain Loans or Debt Securities Acquired in a Transfer

In December 2003, the American  Institute of Certified Public Accountants issued
Statement of Position 03-3,  "Accounting  for Certain Loans and Debt  Securities
Acquired  in a  Transfer"  ("SOP  03-3").  SOP  03-3  addresses  accounting  for
differences  between  contractual  cash flows  expected to be  collected  and an
investor's initial investment in loans or debt securities acquired in a transfer
if those differences are attributable,  at least in part, to credit quality. SOP
03-3 also prohibits  "carrying over" or creation of valuation  allowances in the
initial accounting of all loans acquired in a transfer that are within the scope
of SOP 03-3. The prohibition of the valuation allowance carryover applies to the
purchase of an  individual  loan, a pool of loans,  a group of loans,  and loans
acquired in a purchase  business  combination.  SOP 03-3 is effective  for loans
acquired in fiscal years beginning after December 15, 2004. The Company does not
anticipate  that the  adoption  of SOP 03-3 will have a  material  impact on its
financial condition or results of operations.

                                       12

<PAGE>

Meaning of Other-Than-Temporary Impairment

In March 2004, the Emerging Issues Task Force reached a consensus on Issue 03-1,
"Meaning of Other Than  Temporary  Impairment"  ("Issue  03-1").  The Task Force
reached a consensus  on an  other-than-temporary  impairment  model for debt and
equity  securities   accounted  for  under  Statement  of  Financial  Accounting
Standards  No.  115,  "Accounting  for  Certain  Investments  in Debt and Equity
Securities"  and  cost  method  investments,  and  required  certain  additional
financial statement disclosures. The implementation of the "Other-than-Temporary
Impairment" component of this consensus has been postponed.  The adoption of the
guidance  contained in this EITF consensus did not have a material effect on the
Company's financial statements.

Share-Based Payment

In December  2004,  the FASB issued SFAS No. 123  (revised  2004),  "Share-Based
Payment,"  which is a revision  of SFAS No.  123,  "Accounting  for  Stock-Based
Compensation."  SFAS No. 123(R)  supersedes APB Opinion No. 25,  "Accounting for
Stock Issued to Employees," and amends SFAS Statement No. 95, "Statement of Cash
Flows." Generally,  the approach to accounting for share-based  payments in SFAS
No. 123(R) is similar to the approach  described in SFAS No. 123. However,  SFAS
No. 123(R) requires all share-based  payments to employees,  including grants of
employee stock options,  to be recognized in the financial  statements  based on
their  fair  values,  which  means  that pro  forma  disclosure  is no longer an
alternative to financial statement recognition. SFAS No. 123(R) is effective for
the Bank  beginning  January 1, 2006.  The effect of this  pronouncement  on the
Company's financial  statements will depend on whether or not the Company grants
more stock options in future periods.

Exchanges of Non-Monetary Assets

In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets
- an Amendment to APB opinion No. 29." This Statement  addresses the measurement
of exchanges of nonmonetary  assets.  The Statement is effective for nonmonetary
exchanges occurring in fiscal periods beginning after June 15, 2005.  Management
does not  believe  this  Statement  will have a  material  effect on the  Bank's
financial statements.

Note 7 - Subsequent Event

At its meeting on April 12, 2005,  the  Company's  Board of  Directors  approved
proceeding with a proposed going private  transaction.  The proposed transaction
would  reduce the number of  stockholders  of record from  approximately  547 to
approximately  96. To provide funding for the proposed  transaction,  management
anticipates  selling  approximately  $4 million  of  investment  securities  and
borrowing approximately $2 million from the Federal Home Loan Bank. See Form 8-K
filed on April 14, 2005 for additional information.


                                       13
<PAGE>


Item 2.  Management's Discussion and Analysis or Plan of Operation

This  report  contains   "forward-looking   statements"   relating  to,  without
limitation,  future economic performance,  plans and objective of management for
future  operations,  and  projections of revenues and other financial items that
are based on the  beliefs  of  management,  as well as  assumptions  made by and
information currently available to management. The words "expect," "anticipate,"
and  "believe,"  as  well as  similar  expressions,  are  intended  to  identify
forward-looking  statements.  Our actual results may differ  materially from the
results discussed in the forward-looking statements.

General

The principal business of United Tennessee Bankshares, Inc. and our wholly owned
subsidiary  Newport  Federal  Bank  ("we,"  "us," etc.)  consists  of  accepting
deposits from the general  public through our main office and two branch offices
and investing  those funds in loans secured by one- to  four-family  residential
properties  located in our primary  market area. We also maintain a portfolio of
investment  securities and originate a limited amount of commercial  real estate
loans and consumer loans. Our investment  securities  portfolio consists of U.S.
Treasury notes and U.S. government agency securities,  local municipal bonds and
mortgage-backed  securities  that are guaranteed as to principal and interest by
the Federal Home Loan Mortgage Corporation (FHLMC), Government National Mortgage
Association  (GNMA) or Federal National  Mortgage  Association  (FNMA).  We also
maintain an investment in Federal Home Loan Bank of Cincinnati  common stock and
FHLMC common stock.

Our net  income  primarily  depends  on our net  interest  income,  which is the
difference between interest income earned on loans and investment securities and
interest paid on  customers'  deposits and other  borrowings.  Our net income is
also  affected by  noninterest  income,  such as service  charges on  customers'
deposit accounts,  loan service charges and other fees, and noninterest expense,
primarily  consisting  of  compensation  expense,  deposit  insurance  and other
expenses incidental to our operations.

Our  operations  and those of the thrift  industry as a whole are  significantly
affected by prevailing  economic  conditions,  competition  and the monetary and
fiscal policies of governmental  agencies. Our lending activities are influenced
by demand for and supply of housing and competition  among lenders and the level
of interest  rates in our market area.  Our deposit flows and costs of funds are
influenced  by  prevailing  market  rates of  interest,  primarily  on competing
instruments, account maturities and the levels of personal income and savings in
our market area.

The following is a discussion  of our financial  condition as of March 31, 2005.
These comments  should be read in conjunction  with our  consolidated  financial
statements and accompanying footnotes appearing in this report.

Comparison of Financial Condition at March 31, 2005 and December 31, 2004

Total assets decreased from December 31, 2004 to March 31, 2005 by $4.4 million,
or 3.6%, from $122.7 million at December 31, 2004 to $118.2 million at March 31,
2005.  The decrease in assets was  principally  the result of a decrease in cash
and due from  depository  institutions  and  investment  securities.  Investment
securities  decreased by $2.7  million and cash and amounts due from  depository
institutions decreased by $2.8 million.

                                       14
<PAGE>

Loans  receivable  increased  from  December  31,  2004  to  March  31,  2005 as
originations exceeded repayments for the period by approximately  $464,000.  The
following  table  sets  forth  information  about  the  composition  of our loan
portfolio by type of loan at the dates indicated. At March 31, 2005 and December
31, 2004, we had no  concentrations  of loans exceeding 10% of gross loans other
than as disclosed below.


                                           March 31, 2005      December 31, 2004
                                         -----------------     -----------------
                                            (Dollars in          (Dollars in
                                              Thousands)           Thousands)
                                          Amount    Percent    Amount    Percent
Type of Loan:
Real estate loans:
  One- to four-family residential       $ 62,686    75.8%      $ 63,037    76.6%

  Commercial                              10,039    12.1%        10,227    12.4%

  Construction                             5,028     6.1%         4,172     5.1%

Consumer loans:

  Automobile                               1,170     1.4%         1,278     1.6%

  Loans to depositors, secured by deposits 1,224     1.5%         1,224     1.5%

  Home equity and second mortgage            998     1.2%           734     0.9%

  Other                                    1,595     1.9%         1,567     1.9%
                                         -------   ------       -------  -------
                                         $82,740   100.0%       $82,243   100.0%
                                         -------   ======       -------  =======
Less:

  Loans in process                         2,101                  2,085

  Deferred fees and discounts                348                    348

  Allowance for loan losses                  997                    980
                                         -------                -------
    Total                                $79,294                $78,830
                                         -------                -------


                                       15
<PAGE>

We  actively  monitor  our asset  quality  and charge  off loans and  properties
acquired in settlement of loans against the  allowances for losses on such loans
and such properties when  appropriate and provide  specific loss allowances when
necessary.  Although we believe we use 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 our allowance for loan losses
for the period indicated.


                                                    Three              Three
                                                 Months Ended      Months Ended
                                                   March 31,           March 31,
                                                     2005               2004
                                                --------------    --------------
                                                        (In Thousands)
Balance at beginning of period                        $  980         $    921
                                                --------------    --------------
Charge-offs:
  Consumer                                                 0               (4)
  Mortgage                                                (2)             (12)
Recoveries:
  Consumer                                                 1                1
  Mortgage                                                 0                0
                                                --------------    --------------
Net Charge-offs                                           (1)             (15)
Provision for loan losses                                 18               28
                                                --------------    --------------
Balance at end of period                              $  997         $    934
                                                ==============    ==============

The following table sets forth information about our nonperforming assets at the
dates indicated.

                                                  March 31,         March 31,
                                                    2005              2004
                                                --------------    --------------
                                                        (In Thousands)
 Nonaccrual Loans                                $          -       $          -
Accruing loans which are contractually past due 90 days or more:
Real Estate:
  Residential                                              81               378
  Non-Residential                                           3                 9
Consumer                                                    2                 9
                                                --------------    --------------
Total                                            $         86       $       396
                                                ==============    ==============

                                       16

<PAGE>

We conduct  regular  reviews of our assets and  evaluate  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 our 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 us.  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.

During  the  three  months  ended  March 31,  2005,  the  Company's  liabilities
decreased by $4.6 million,  or 4.4%.  Total  deposits  decreased $3.1 million or
3.1% from  $100.9  million at December  31,  2004 to $97.8  million at March 31,
2005.

During 2004, the Bank accepted deposits totaling approximately $8.3 million from
various governmental and institutional  customers,  some of which are outside of
its traditional market area. The average term of these deposits is approximately
six months.  As of March 31,  2005,  the Bank had  retained  approximately  $2.8
million of these  deposits.  Management is unable to determine  whether the Bank
will retain these deposits upon  maturity.  In the event the Bank is not able to
retain these  deposits,  management has various  sources of liquidity  available
including  cash and  amounts due from  depository  institutions  and  investment
securities  which are available for sale. Also the Bank has borrowing  authority
from the Federal Home Loan Bank of approximately $4.0 million.

Our shareholders'  equity increased $145,000 from $18.42 million at December 31,
2004 to $18.56  million  at March  31,  2005.  The  Company's  equity  increased
primarily  due to net  income  of  $477,000  and  proceeds  from  stock  options
exercised  of $68,000,  and a decrease in unearned  compensation  related to the
Company's  ESOP of  $116,000,  offset  by a  decrease  doe to the  cost of stock
options surrendered of $55,000 and a decrease in accumulated other comprehensive
income of $448,000.  The market value of UTBI's investment  portfolio  decreased
due to changes in the current interest rate environment.

Discussion  of Results of  Operations  for the Three Months Ended March 31, 2005
and 2004

Our net income for the three months ended March 31, 2005 was $477,000, which was
an increase of $85,000  from the amount we earned  during the three months ended
March 31, 2004.  Basic and diluted earnings per share for the three months ended
March 31,  2005 were each $0.40  compared  to $0.32 for the same period in 2004.
Basic  average  shares  outstanding  for three  months  ended March 31, 2005 was
1,195,105 shares and 1,230,379 shares for the three months ended March 31, 2004.
Average dilutive potential shares outstanding were 0 and 9,638 respectively.

Interest  income  increased  $15,000,  or 1.0%, from $1.68 million for the three
months  ended March 31, 2004 to $1.70  million for the three  months ended March
31, 2005.  The increase in interest  income is primarily a result of an increase
in investment  securities  interest of $20,000  offset by a decrease in interest
income on loans of $7,000.

Interest expense on deposits increased $103,000,  or 27.4% from $376,000 for the
three  months  ended March 31, 2004 to $479,000 for the three months ended March
31, 2005,  primarily  due to the  increase in deposit  account  interest  rates.
Rising rates has increased our average interest rate paid on deposits from 1.54%
for the three months  ended March 31, 2004,  to 1.89% for the three months ended
March 31, 2005.

Net interest income decreased $88,000,  or 6.7%, between the periods as a result
of the larger increase in interest expense than the increase in interest income.
The Company's net interest  margin  narrowed to 4.21% for the three months ended
March  31,  2005  compared  to 4.77%  for the  comparable  period  of 2004.  The
narrowing of the net interest margin  reflects the current rate  environment and
the fact that our yield on loans and investments has reduced.

Noninterest  income remained steady at $130,000 for the three months ended March
31, 2005 and 2004.

                                       17
<PAGE>

Noninterest expenses decreased $193,000 from $819,000 for the three months ended
March 31, 2004 to  $626,000  for the three  months  ended  March 31,  2005.  The
decrease in noninterest  expense was primarily from a decrease  compensation and
benefits of  $226,000,  offset by an increase in other  noninterest  expenses of
$29,000. The decrease compensation and benefits resulted from the mark to market
adjustment on the Directors  Long-term  Incentive  Plan of $38,000 and a $20,000
decrease to the directors deferred compensation liability compared to an expense
of $57,000 and $152,000 for the comparable period of 2004. The directors have an
option of deferring  their fees and earning a market return on the balance.  The
return on both plans is based on the  percentage  increase  or  decrease  in the
market value of United Tennessee Bankshares stock for the period.

Our  effective tax rates for the three months ended March 31, 2005 and 2004 were
32.2% and 33.4%,  respectively.  The decrease in our  effective tax rate for the
period in 2005 was due to the  surrender of stock  options,  which provide a tax
benefit to the Company.

Liquidity and Capital Resources

The Company  does not  currently  have any  business  activities  other than the
operation of the Bank and does not have significant on-going funding commitments
other than the payment of dividends to  shareholders.  To date,  the Company has
used the proceeds from its initial  public  offering and dividends from the Bank
to  meet  its  liquidity  needs.  The  Bank is  subject  to  various  regulatory
limitations on the payment of dividends to the Company.

Our most liquid  assets are cash and amounts due from  depository  institutions,
which are short-term highly liquid investments with original  maturities of less
than three months that are readily  convertible  to known  amounts of cash.  The
levels of these assets are dependent on our  operating,  financing and investing
activities  during any given period.  Our primary sources of funds are deposits,
proceeds from principal and interest payments on loans and investment securities
and earnings.  While  scheduled  principal  repayments  on loans and  investment
securities are a relatively  predictable source of funds, deposit flows and loan
and investment securities prepayments are greatly influenced by general interest
rates,  economic  conditions,  competition and other factors.  We do not solicit
deposits  outside  of  our  market  area  through  brokers  or  other  financial
institutions;  however,  we do accept  deposits  from various  governmental  and
institutional investors outside our traditional market area from time to time.

We have also  designated all of our investment  securities as available for sale
in order to meet liquidity demands.  In addition to internal sources of funding,
as a  member  of the  Federal  Home  Loan  Bank  we have  substantial  borrowing
authority  with the Federal Home Loan Bank.  Our use of a  particular  source of
funds is based on need, comparative total costs and availability.

We have historically maintained substantial levels of capital. The assessment of
capital adequacy depends on several factors,  including asset quality,  earnings
trends,  liquidity and economic  conditions.  We seek to maintain high levels of
regulatory  capital to give us maximum  flexibility  in the changing  regulatory
environment and to respond to changes in market and economic  conditions.  These
levels of capital have been achieved through consistent earnings enhanced by low
levels of noninterest expense and have been maintained at those high levels as a
result of our policy of moderate growth  generally  confined to our market area.
At March 31, 2005 and  December 31,  2004,  we exceeded  all current  regulatory
capital requirements and met the definition of a "well-capitalized" institution,
the highest regulatory capital category.

Interest Rate Sensitivity

The Bank's  profitability  is  dependent  to a large  extent  upon net  interest
income,  which is the difference between its interest income on interest-earning
assets and interest expense on  interest-bearing  liabilities.  In recent years,
the banking industry has experienced  steady interest rates, which have likewise
produced  steady growth in net interest  income as the bank has grown.  The Bank
will be  affected  by changes  in levels of  interest  rates and other  economic
factors beyond its control,  particularly to the extent that such factors affect
the overall volume of its lending and deposit  activities.  A sudden increase in
interest  rates could have a negative  impact on the bank's net income through a
narrower interest margin and/or reduced lending volume.

                                       18
<PAGE>

The  bank's   Asset/Liability   Committee   ("ALCO"   committee)   follows   the
Asset/Liability  Management Policy approved by the board of directors.  The ALCO
committee  meets at least  quarterly  or more often as  considered  necessary to
discuss asset/liability  management issues and make recommendations to the board
of  directors   regarding  prudent   asset/liability   management  policies  and
procedures.  Some of the issues the ALCO committee considers include:  local and
national  economic  forecasts;  interest rate forecasts and spreads;  mismatches
between  the  maturities  of the  banks  assets  (loans,  and  investments)  and
liabilities (deposits);  anticipated loan demands; and the liquidity position of
the bank.

The matching of assets and  liabilities  may be analyzed by examining the extent
to which such  assets and  liabilities  are  "interest  rate  sensitive"  and by
monitoring  an  institution's  interest  rate  sensitivity  "gap."  An  asset or
liability is said to be interest rate sensitive within a specific time period if
it will mature or reprice within that time period. The interest rate sensitivity
gap is defined as the difference between the amount of  interest-earning  assets
maturing  or  repricing  within  a  specific  time  period  and  the  amount  of
interest-bearing  liabilities  maturing or repricing  within that time period. A
gap is considered  positive when the amount of interest  rate  sensitive  assets
exceeds the amount of interest rate sensitive  liabilities.  A gap is considered
negative  when the amount of interest  rate  sensitive  liabilities  exceeds the
amount of interest rate  sensitive  assets.  During a period of rising  interest
rates, a negative gap would tend to adversely affect net interest income while a
positive gap would tend to result in an increase in net interest income.  During
a period of falling  interest  rates,  a negative gap would tend to result in an
increase in net  interest  income  while a positive  gap would tend to adversely
affect net interest income.

Item 3.  Controls and Procedures

(a)  Evaluation  of Disclosure  Controls and  Procedures.  The  Company's  chief
executive  officer and chief financial  officer have evaluated the effectiveness
of the design and operation of the Company's  disclosure controls and procedures
(as defined in Exchange Act  Rule13a-14(c))  as of March 31, 2005. Based on that
evaluation,  the chief  executive  officer  and  chief  financial  officer  have
concluded that the Company's disclosure controls and procedures 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 quarterly 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.





                                       19
<PAGE>

PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings

None.

Item 2.  Changes in Securities and Use of Proceeds

None.

Item 3.  Defaults upon Senior Securities

None.

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

None.

Item 5.  Other Information

None.

Item 6.  Exhibits and Reports on Form 8-K

   (a) Exhibits:

The following exhibits are filed as a part of this report:

3.1/1             Charter of United Tennessee Bankshares, Inc.

3.2/1             Bylaws of United Tennessee Bankshares, Inc.

4/1               Form of Stock Certificate of United Tennessee Bankshares, Inc.

10.1/2            United Tennessee Bankshares, Inc. 1999 Stock Option Plan

10.2/2            United Tennessee Bankshares, Inc. Management Recognition Plan

10.3(a)/1         Employment Agreements between Newport Federal Savings and Loan
                  Association  and Richard G. Harwood, Nancy L. Bryant and Peggy
                  Holston

10.3(b)/1         Forms   of   Guarantee  Agreements  between  United  Tennessee
                  Bankshares,  Inc. and  Richard G. Harwood, Nancy L. Bryant and
                  Peggy Holston

10.4/1            Newport   Federal  Savings  and   Loan  Association  Long-Term
                  Incentive Plan

10.5/1            Newport   Federal  Savings  and   Loan  Association   Deferred
                  Compensation Plan

31.1     Certification  Pursuant  to 18 U.S.C. Section 1350, as Adopted Pursuant
         to  Section 302 of the Sarbanes-Oxley Act of 2002, signed by Richard G.
         Harwood,  President  and  Chief  Executive  Officer of United Tennessee
         Bankshares, Inc.

31.2     Certification  Pursuant  to 18 U.S.C. Section 1350, as Adopted Pursuant
         to  Section  302  of the Sarbanes-Oxley Act of 2002, signed by Chris H.
         Triplett, Controller.

32.1     Certification  Pursuant  to 18 U.S.C. Section 1350, as Adopted Pursuant
         to  Section 906 of the Sarbanes-Oxley Act of 2002, signed by Richard G.
         Harwood,  President  and  Chief  Executive  Officer of United Tennessee
         Bankshares, Inc.

32.2     Certification  Pursuant  to 18 U.S.C. Section 1350, as Adopted Pursuant
         to  Section  906  of the Sarbanes-Oxley Act of 2002, signed by Chris H.
         Triplett, Controller.
---------------
1/       Incorporated  by  reference  to  United  Tennessee  Bankshares,  Inc.'s
         Registration Statement on Form SB-2, File No. 333-36465.

2/       Incorporated  by  reference  to  United  Tennessee  Bankshares,  Inc.'s
         Registration Statement on Form S-8, File No. 333-82803.

   (b) Reports on Form 8-K:
         United Tennessee Bankshares, Inc. did not file a current report on Form
         8-K during the quarter covered by this report.


                                       20

<PAGE>

                                   SIGNATURES



     In accordance  with the  requirements  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.
                           Registrant



Date: May 13, 2005        /s/Richard G. Harwood
                           -----------------------------------------------------
                           Richard G. Harwood
                           President and Chief Executive Officer
                           (Duly Authorized Representative and
                           Principal Financial and Accounting Officer)


















                                       21