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 September 30, 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.)



  170 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 the latest practicable date: 1,142,999
                                         ---------

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
             September 30, 2005 (Unaudited) and December 31, 2004            3


             Consolidated Statements of Income for the Three-Month and
             Nine-Month Periods Ended September 30, 2005 and 2004
             (Unaudited)                                                     4


             Consolidated Statements of Comprehensive Income for the
             Three-Month and Nine-Month Periods Ended September 30, 2005
             and 2004 (Unaudited)                                            5


             Consolidated Statement of Changes in Shareholders' Equity
             for the Nine-Month Period Ended September 30, 2005
             (Unaudited)                                                     6

             Consolidated Statements of Cash Flow for the Nine-Month
             Periods Ended September 30, 2005 and 2004 (Unaudited)          7-8


             Notes to Consolidated Financial Statements for the
             Three-Month and Nine-Month Periods Ended September 30, 2005
             and 2004 (Unaudited)                                          9-13


    Item 2.  Management's Discussion and Analysis or Plan of Operation    13-19

    Item 3.  Controls and Procedures                                         19


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

    Item 1.  Legal Proceedings                                               20

    Item 2.  Changes in Securities and Use of Proceeds                       20

    Item 3.  Defaults upon Senior Securities                                 20

    Item 4.  Submission of Matters to a Vote of Security Holders             20

    Item 5.  Other Information                                               20

    Item 6.  Exhibits                                                        20

SIGNATURES                                                                   21

CERTIFICATIONS                                                             22-25

<PAGE>

PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements


                UNITED TENNESSEE BANKSHARES, INC. AND SUBSIDIARY
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                 AS OF SEPTEMBER 30, 2005 AND DECEMBER 31, 2004
<TABLE>
<S>                                                           <C>             <C>
                                                               September
                                                                  30,
                                                                 2005         December 31,
                                                              (Unaudited)         2004
                                                              ------------    -------------
                                                                     (In Thousands)
                    Assets

Cash and amounts due from depository institutions                $  3,223         $  3,444
Investment securities available for sale, at fair value            26,978           35,579
Loans receivable, net                                              82,284           78,830
Premises and equipment, net                                         3,842            1,714
Real estate acquired through foreclosure                                0              128
Accrued interest receivable                                           634              573
Goodwill, net of amortization                                         653              713
Cash surrender value of life insurance                              1,650            1,597
Prepaid expenses and other assets                                      80               81
                                                              ------------    -------------
  Total assets                                                   $119,344        $ 122,659
                                                              ============    =============

                   Liabilities and Equity
Liabilities:
 Deposits                                                        $ 98,085        $ 100,919
 Advances from Federal Home Loan Bank                               1,000            1,000
 Accrued interest payable                                             110              135
 Accrued income taxes                                                   0                0
 Deferred income taxes                                                267              561
 Accrued benefit plan liabilities                                   1,533            1,531
 Other liabilities                                                    167               94
                                                              ------------    -------------
  Total liabilities                                               101,162          104,240
                                                              ------------    -------------

Shareholders' equity:
 Common stock - no par value, Authorized 20,000,000 shares;
  issued and outstanding 1,142,999 shares (1,196,999 in
  2004)                                                          $ 10,597        $  11,459
 Unearned compensation - ESOP                                           0             (180)
 Shares in grantor trust - contra account                            (224)            (224)
 Shares in stock option plan trusts - contra account                 (437)            (500)
 Retained earnings                                                  7,510            6,648
 Accumulated other comprehensive income                               736            1,216
                                                              ------------    -------------
  Total shareholders' equity                                       18,182           18,419
                                                              ------------    -------------

Total liabilities and equity                                     $119,344        $ 122,659
                                                              ============    =============
</TABLE>

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

<PAGE>


                UNITED TENNESSEE BANKSHARES, INC., AND SUBSIDIARY
                        CONSOLIDATED STATEMENTS OF INCOME
     FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2005 AND 2004
<TABLE>
<S>                                                                 <C>              <C>            <C>             <C>
                                                                       (In Thousands Except            (In Thousands Except
                                                                      per Share Information)          per Share Information)
                                                                    ----------------------------    ---------------------------
                                                                        Three Months Ended              Nine Months Ended
                                                                    ----------------------------    ---------------------------
                                                                           September 30,                  September 30,
                                                                    ----------------------------    ---------------------------
                                                                       2005            2004            2005            2004
                                                                    (Unaudited)     (Unaudited)     (Unaudited)     (Unaudited)
                                                                    ------------    ------------    ------------    -----------
Interest income:
 Loans                                                               $    1,362      $    1,337      $    4,073      $   4,046
 Investment securities                                                      279             393             955          1,055
 Other interest-earning assets                                               19               3              41              8
                                                                    ------------    ------------    ------------    -----------
  Total interest income                                                   1,660           1,733           5,069          5,109
                                                                    ------------    ------------    ------------    -----------

Interest expense:
 Deposits                                                                   595             430           1,609          1,197
 Advances from Federal Home Loan Bank                                         0               1               6              1
                                                                    ------------    ------------    ------------    -----------
  Total interest expense                                                    595             431           1,615          1,198
                                                                    ------------    ------------    ------------    -----------

Net interest income                                                       1,065           1,302           3,454          3,911

Provision for loan losses                                                    18              24              54             76
                                                                    ------------    ------------    ------------    -----------

Net interest income after provision for loan losses                       1,047           1,278           3,400          3,835
                                                                    ------------    ------------    ------------    -----------

Noninterest income:
 Deposit account service charges                                             84              80             228            227
 Loan service charges and fees                                               27              29              80             84
 Net gain (loss) on sales of investment securities available for
   sale                                                                      33              26             517             26
 Net gain (loss) on sales of premises and equipment                         199               0             199              0
 Other                                                                       39              22             118             83
                                                                    ------------    ------------    ------------    -----------
  Total noninterest income                                                  382             157           1,142            420
                                                                    ------------    ------------    ------------    -----------

Noninterest expense:
 Compensation and benefits                                                  357             448           1,282          1,506
 Occupancy and equipment                                                     54              55             162            205
 Federal deposit insurance premiums                                          15               5              42             13
 Data processing fees                                                        80              86             250            251
 Advertising and promotion                                                   29              17              66             52
 Net (gain) loss on foreclosed real estate                                    0              (2)             (2)           (10)
 Amortization                                                                20              20              60             60
 Other                                                                      170             133             573            431
                                                                    ------------    ------------    ------------    -----------
  Total noninterest expense                                                 725             762           2,433          2,508
                                                                    ------------    ------------    ------------    -----------

Income before income taxes                                                  704             673           2,109          1,747

Income taxes                                                                269             260             773            675
                                                                    ------------    ------------    ------------    -----------

Net income                                                           $      435      $      413      $    1,336      $   1,072
                                                                    ============    ============    ============    ===========

Earnings per share
 Basic                                                               $     0.37      $     0.37      $     1.15      $     .97
                                                                    ============    ============    ============    ===========
 Diluted                                                             $     0.36      $     0.37      $     1.13      $     .95
                                                                    ============    ============    ============    ===========
</TABLE>

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

<PAGE>


                UNITED TENNESSEE BANKSHARES, INC. AND SUBSIDIARY
             CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
     FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2005 AND 2004

<TABLE>
<S>                                                   <C>            <C>           <C>           <C>
                                                         Three Months Ended           Nine Months Ended
                                                      -------------------------    ------------------------
                                                           September 30,                September 30,
                                                      -------------------------    ------------------------
                                                        2005           2004          2005          2004
                                                      ----------    -----------    ----------    ----------
                                                      (Unaudited - in thousands)   (Unaudited- in thousands)


Net income                                               $  435         $  413      $   1,336     $   1,072
                                                      ----------    -----------    ----------    ----------

Other comprehensive income (loss), net of tax:
 Unrealized gains (losses) on investment securities        (462)           607           (257)          106
 Less reclassification adjustment for gains\losses
  included in net income                                    (33)           (26)          (517)          (26)
 Less income taxes related to unrealized
  gains\losses on investment securities                     188           (220)           294           (30)
                                                      ----------    -----------    ----------    ----------
   Other comprehensive income (loss), net of tax           (307)           361           (480)           50
                                                      ----------    -----------    ----------    ----------

Comprehensive income(loss)                               $  128         $  774      $     856     $   1,122
                                                      ==========    ===========    ==========    ==========
</TABLE>




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


<PAGE>


                UNITED TENNESSEE BANKSHARES, INC. AND SUBSIDIARY
            CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
               FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2005

<TABLE>
<S>                             <C>        <C>            <C>           <C>          <C>        <C>
                                                         Shares in     Shares in                Accumulated
                                                                        Stock
                                            Unearned      Grantor       Option                     Other          Total
                                                          Trust -       Plan -
                                Common     Compensation   Contra        Contra       Retained   Comprehensive   Shareholders'
                                Stock         ESOP        Account       Account      Earnings     Income          Equity
                                -------    -----------   -----------   ----------    --------   ------------    -------------
                                                                     (In Thousands)

Balances, beginning of period  $11,459       $  (180)      $  (224)     $   (500)    $  6,648    $   1,216       $   18,419

Net income                           0             0             0             0        1,336            0            1,336

Other comprehensive income (loss)    0             0             0             0            0         (480)            (480)

Retirement of stock held
in the stock option plan
trusts                            (864)            0             0           864            0            0                0

Purchase of Common Stock             0             0             0          (877)           0            0             (877)

Decrease in cost of shares
in stock option plan trust           0             0             0            14            0            0               14

Payment on ESOP loan
principal                            0           180             0             0            0            0              180

Dividends paid                       0             0             0             0         (474)           0             (474)

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

Increase to common stock
for income tax
reduction related to
stock options exercised              2             0             0             0            0            0                2

Increase in cost basis for
withholding tax on stock
options exercised                    0             0             0            (6)           0            0               (6)
                                -------    -----------   -----------   ----------    --------   ------------       -----------

Balances, end of period        $10,597       $     0       $  (224)     $   (437)     $ 7,510     $    736          $18,182
                                =======    ===========   ===========   ==========    ========   ============       ===========
</TABLE>

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

<PAGE>


                UNITED TENNESSEE BANKSHARES, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
          FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 2005 AND 2004

<TABLE>
<S>                                                                <C>               <C>
                                                                          Nine Months Ended
                                                                            September 30,
                                                                   ------------------------------
                                                                       2005             2004
                                                                    (Unaudited - in thousands)
                                                                   ------------------------------
Operating Activities:
 Net income                                                          $    1,336      $     1,072
                                                                   -------------    -------------
 Adjustments to reconcile net income to net
  cash provided by operating activities:
   Provision for loan losses                                                 54               76
   Depreciation                                                              50               69
   Amortization of goodwill                                                  60               60
   Net (gain) loss on sales of foreclosed real estate                        (2)             (10)
   Federal home loan bank stock dividends                                   (35)             (29)
   Net (gain) loss on sales of investment securities available
    for sale                                                               (517)             (26)
   Net (gain) loss on sale of premises and equipment                       (199)               0
   Deferred income taxes (benefit)                                            0                0
   Increase in common stock for income tax reduction related to
    stock options exercised                                                   2               24
   Increase in cash surrender value of bank-owned life insurance            (53)             (52)
   (Increase) Decrease in:
    Accrued interest receivable                                             (61)            (103)
    Other assets                                                              1              101
   Increase (Decrease) in:
    Accrued interest payable                                                (25)              22
    Accrued income taxes                                                      0               68
    Accrued benefit plan liabilities                                          2              116
    Other liabilities                                                        73              104
                                                                   -------------    -------------
     Total adjustments                                                     (650)             420
                                                                   -------------    -------------
Net cash provided by operating activities                                   686            1,492
                                                                   -------------    -------------

Investing Activities:
 Purchases of investment securities available for sale                        0          (14,799)
 Proceeds from maturities of investment securities available for
   sale                                                                   1,912                0
 Payments received on investment securities available for sale            2,582            6,664
 Proceeds from sales of investment securities available for sale          3,885              718
 Net (increase) decrease in loans                                        (3,438)          (1,075)
 Purchases of premises and equipment, net                                (2,303)            (289)
Proceeds from sales of premises and equipment                               324                0
 Proceeds from sales of foreclosed real estate                               60              411
                                                                   -------------    -------------
Net cash used in investing activities                                     3,022           (8,370)
                                                                   -------------    -------------
</TABLE>

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

<PAGE>


                UNITED TENNESSEE BANKSHARES, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
          FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 2005 AND 2004
<TABLE>
<S>                                                                 <C>               <C>
                                                                          Nine Months Ended
                                                                            September 30,
                                                                   ------------------------------
                                                                       2005             2004
                                                                    (Unaudited - in thousands)
                                                                   ------------------------------

Financing Activities:
 Dividends paid                                                            (474)            (442)
 Decrease in cost of shares in stock option plan trusts                      14               27
 Net increase (decrease) in deposits                                     (2,834)           4,486
 Purchase of common stock                                                  (877)             (74)
 Proceeds from exercise of stock options                                     68              206
 Increase in cost basis for withholding tax on stock options
  exercised                                                                  (6)             (71)
 Payment on ESOP loan and release of shares                                 180              171
                                                                   -------------    -------------

Net cash provided by (used in) financing activities                      (3,929)           4,303
                                                                   -------------    -------------

Net increase (decrease) in cash and cash equivalents                       (221)          (2,575)

Cash and cash equivalents, beginning of period                            3,444            5,196
                                                                   -------------    -------------

Cash and cash equivalents, end of period                             $    3,223       $    2,621
                                                                   =============    =============

Supplementary disclosures of cash flow information:
 Cash paid during the period for:
 Interest                                                                $1,640           $1,220
 Income taxes                                                              $817             $551

Supplementary disclosures of noncash investing activities:
  Acquisition of foreclosed real estate                                    $343             $436
 Sale of Foreclosed Real Estate by Origination of Mortgage Loans           $413             $178
  Change in unrealized gain\loss on investment securities
   available for sale                                                     ($774)             $80
  Change in deferred income taxes associated with unrealized
   gain\loss on investment securities available for sale                  ($294)             $30
  Change in net unrealized gain\loss on investment
   securities available for sale                                          ($480)             $50
</TABLE>

    The accompanying notes are an integral part of these financial statements

<PAGE>


                UNITED TENNESSEE BANKSHARES, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE THREE-MONTH AND NINE-MONTH PERIODS
                  ENDED SEPTEMBER 30, 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.  Stock-based employee compensation cost
is  reflected in net income when and if options are  exercised by employees  and
directors,  and the  Company  purchases  those  shares  within six months of the
option exercise.  Compensation  expense equals the cash amount paid to employees
and  directors,  net  of  any  statutory  federal  income  tax  withholding  and
applicable payroll taxes paid from the proceeds. 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.


<TABLE>
<S>                                                         <C>         <C>         <C>          <C>
                                                               Three Months            Nine Months
                                                                  Ended                   Ended
                                                            --------------------    --------------------
                                                               September 30,           September 30,
                                                            --------------------    --------------------
(In thousands, except per share data)                        2005        2004        2005        2004
                                                            --------    --------    --------    --------

Net Income, as restated                                      $  435      $  413      $1,336      $1,072

Add:  Stock-based employee compensation                           8          20          63         149
  Expense, net of related tax effect


Less: Total stock-based compensation expense determined
    Under fair value based method for all awards, net of
    related tax effect                                            0           0           0           0
                                                            --------    --------    --------    --------

Pro forma net income                                         $  443       $ 433      $1,399      $1,221
                                                            ========    ========    ========    ========
</TABLE>

<PAGE>

<TABLE>
<S>                                                         <C>         <C>         <C>         <C>

Earnings per share:

  Basic - as reported                                        $ 0.37      $ 0.37      $ 1.15      $  .97
                                                            ========    ========    ========    ========
  Basic - pro forma                                          $ 0.38      $ 0.39      $ 1.20      $ 1.11
                                                            ========    ========    ========    ========
  Diluted - as reported                                      $ 0.36      $ 0.37      $ 1.13      $ 0.95
                                                            ========    ========    ========    ========
  Diluted - pro forma                                        $ 0.37      $ 0.38      $ 1.18      $ 1.08
                                                            ========    ========    ========    ========
</TABLE>


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
                         ------------------------
                           September 30, 2005
                         ------------------------
                           2005          2004
                         ----------    ----------

    Dividend Yield         3.5%          3.5%
     Expected Life       7.5 years     8.5 years
  Expected Volatility      52.0%         52.0%
  Risk-Free Interest
         Rate               4.8%          4.8%


NOTE 2 - RESTATEMENT OF FINANCIAL STATEMENTS

On November 8, 2005,  management and the board of directors  determined that the
Company did not correctly  record the expense  associated with the repurchase of
its common stock from  employees and directors for the years ended  December 31,
2003 and 2004,  and for the interim  periods of March 31, June 30, and September
30, 2005. UTBI has consistently applied APB Opinion No. 25 in accounting for its
1999 Stock  Option  Plan.  When stock  options  were  issued,  the amount of the
options and the exercise  price was fixed,  and the exercise  price was equal to
the fair market value of the stock on the date  granted.  Accordingly,  UTBI did
not record any  compensation  cost when the stock  options  were  issued.  Stock
options were exercised by employees and directors and the stock was  immediately
repurchased by the Company.  The Company had previously  repurchased stock using
its Stock  Option Plan Trust to provide  for the shares  needed when the options
were  exercised.  The  cost  of  these  repurchased  shares  was  recorded  in a
contra-equity  account  called  "Stock Option Plan Trust Contra  Account"  which
reduced  shareholders'  equity.  When the options were  exercised  and the stock
repurchased,  the cost basis of the shares was adjusted in the Stock Option Plan
Trust Contra Account.  After further  research of APB Opinion No. 25 and related
interpretation  FIN 44,  management and the board of directors  have  determined
that the amount of cash paid to employees and directors should have been charged
to compensation  expense,  net of any statutory federal or state tax withholding
and payroll taxes paid from the proceeds.  In addition,  earnings per share were
computed  incorrectly  due to  incorrectly  including  the shares in the various
trust accounts in the computation of outstanding shares.

The following  table presents the originally  reported  amounts and the restated
amounts in the consolidated statements of financial condition as of December 31,
2004:

                                                  December 31, 2004
                                       Originally        As          Increase
                                        Reported      Restated      (Decrease)
                                       ----------     --------      ----------
Common Stock                            $ 11,098      $ 11,459       $  361
Shares in Stock Option Plan Trusts
- Contra Account                            (749)         (500)         249
Retained Earnings                          7,257         6,647         (610)
Total Shareholders' Equity                18,419        18,419            0

<PAGE>

The  following  table  presents the impact of the  compensation  adjustment  and
correction of the calculation of earnings per share on  consolidated  net income
and earnings per share for the nine month period ended September 30, 2004:
<TABLE>
<S>                                                        <C>                         <C>
                                                           Three months ended           Nine months ended
                                                           September 30, 2004          September 30, 2004

                                                                            (thousands)

Net Income as Previously Reported                                       $ 447                     $ 1,338
Increase in Compensation Expense                                           33                         242
Increase in Income Tax Expense                                              1                          24
Net Income as Restated                                                  $ 413                     $ 1,072

Earnings Per Share as Previously Reported:
  Basic                                                                $ 0.37                      $ 1.10
  Diluted                                                               $0.37                       $1.09
Earnings Per Share as Restated:
  Basic                                                                 $0.37                       $0.97
  Diluted                                                               $0.37                       $0.95
</TABLE>


Note 3 - 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 to  outstanding  stock options and shares held in Grantor
Trust and are determined using the treasury stock method.


Earnings per share have been computed based on the following:
<TABLE>
<S>                                          <C>            <C>             <C>            <C>

                                                Three Months Ended             Nine Months Ended
                                             --------------------------    ---------------------------
                                                   September 30,                 September 30,
                                             --------------------------    ---------------------------
                                                2005           2004           2005            2004
                                             -----------    -----------    ------------    -----------
Average number of shares outstanding          1,174,803      1,104,280       1,164,179      1,104,751
Effect of dilutive options                       20,747         20,747          20,747         20,747
                                             -----------    -----------    ------------    -----------
Average number of shares outstanding used
  to calculate earnings per share             1,195,550      1,125,027       1,184,926      1,125,498
                                             -----------    -----------    ------------    -----------
</TABLE>


Note 4 - 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.

<PAGE>

Note 5 - 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. The board of directors
granted 202,676 options in 1999 and 6,623 options in 2001. During the nine month
period ended September 30, 2005, 21,727 options were exercised (55,069 shares in
2004).  Stock options  awarded and  outstanding  totaled 23,661 and 46,988 as of
September 30, 2005 and 2004, respectively.


A summary  of the  status of the Company's stock option plan is presented below:
<TABLE>
<S>                                  <C>            <C>            <C>          <C>
                                                 Nine Months Ended September 30,
                                      -----------------------------------------------------
                                                2005                        2004
                                      -------------------------    ------------------------
                                                    Weighted                     Weighted
                                                     Average                     Average
                                                    Exercise                     Exercise
                                       Shares         Price        Shares         Price
                                     ----------    -----------    ---------    -----------
Outstanding at Beginning of Period      45,388      $   8.60       102,057      $   8.59
Granted                                      0                           0
Exercised                              (21,727)         8.60       (55,069)         8.60
Forfeited                                    0                           0
                                     ----------                   ---------
Outstanding at End of Period            23,661          8.60        46,988          8.59
                                     ==========                   =========


Options Exercisable at Period-End       23,661          8.60        47,338          8.59
Weighted-Average Fair Value of
  Options Granted during the period      n/a                         n/a
</TABLE>


Information  pertaining  to options  outstanding  at  September  30,  2005 is as
follows:
<TABLE>
<S>                 <C>              <C>               <C>         <C>             <C>
                                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
-----------------   -------------    ------------    -----------   ------------    ----------
 $8.00 - $9.00           23,661       3.8 years       $   8.60         23,661      $   8.60
</TABLE>

The Company has purchased  24,594 and 48,650 shares as of September 30, 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.

Note 6 - Improvement Plan for Main Office Facility

The company moved into its new main office  facility and opened to the public on
September 19, 2005.

<PAGE>


Note 7 - 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.

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.

<PAGE>

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.



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 September 30,
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 September 30, 2005 and December 31, 2004

Total assets  decreased  from  December  31, 2004 to September  30, 2005 by $3.3
million,  or 2.7%, from $122.6 million at December 31, 2004 to $119.3 million at
September  30,  2005.  The  decrease in assets was  principally  the result of a
decrease in  investment  securities.  Investment  securities  decreased  by $8.6
million  offset  by an  increase  in loans  receivable  of $3.5  million  and an
increase in premises and equipment of $2.1 million.  Investment  securities were
sold to fund the increase in loan demand,  fund the building  program and fund a
reduction  in  deposits.  The  reduction  in  deposits is  primarily  related to
governmental and institutional deposits we had received last year.

<PAGE>

Loans  receivable  increased  from  December 31, 2004 to  September  30, 2005 as
originations  exceeded  repayments for the period by approximately $3.5 million.
The following  table sets forth  information  about the  composition of our loan
portfolio  by type of loan at the dates  indicated.  At  September  30, 2005 and
December 31, 2004,  we had no  concentrations  of loans  exceeding  10% of gross
loans other than as disclosed below.
<TABLE>
<S>                                          <C>          <C>           <C>       <C>
                                            September 30, 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             $ 65,772    75.6%        $ 63,037    76.6%

  Commercial                                    11,196    12.9%          10,227    12.4%

  Construction                                   5,518     6.3%           4,172     5.1%

Consumer loans:

  Automobile                                     1,045     1.2%           1,278     1.6%

  Loans to depositors, secured by deposits       1,027     1.2%           1,224     1.5%

  Home equity and second mortgage                  743     0.9%             733     0.9%

  Other                                          1,727     2.0%           1,567     1.9%
                                            --------------------      ---------------------

                                                87,028   100.0%          82,238   100.0%
                                            ----------- ========    ------------ ========

Less:

  Loans in process                               3,356                    2,085

  Deferred fees and discounts                      364                      348

  Allowance for loan losses                      1,024                      980
                                            -----------             ------------
    Total                                     $ 82,284                 $ 78,825
</TABLE>


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.
<PAGE>

<TABLE>
<S>                                              <C>             <C>
                                                   Nine           Nine
                                                  Months         Months
                                                   Ended         Ended
                                                 September       September
                                                    30,            30,
                                                   2005            2004
                                                      (In Thousands)

Balance at beginning of period                   $     980        $      921
                                                ------------     -------------
Charge-offs:
  Consumer                                              (9)              (19)
  Mortgage                                              (2)              (22)
Recoveries:
  Consumer                                               1                 2
  Mortgage                                               0                 0
                                                ------------     -------------
Net Charge-offs                                        (10)              (39)
Provision for loan losses                               54                76
                                                ------------     -------------
Balance at end of period                         $   1,024        $      958
</TABLE>


The following table sets forth information about our nonperforming assets at the
dates indicated.
<TABLE>
<S>                                                     <C>               <C>
                                                        September 30,     September 30,
                                                            2005               2004
                                                             (In Thousands)
         Nonaccrual Loans                                    $     0        $       0
         Accruing loans which are contractually past due
          90 days or more:
         Real Estate:
           Residential                                           424               64
           Non-Residential                                        63                4
         Consumer                                                 18               15
                                                        -------------    -------------
        Total                                                $   505        $      83
                                                        =============    =============
</TABLE>


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 nine months ended  September  30,  2005,  the  Company's  liabilities
decreased by $3.1 million,  or 3.0%.  Total  deposits  decreased $2.8 million or
2.8% from $100.9  million at December 31, 2004 to $98.1 million at September 30,
2005.

During 2004, the Bank has 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.  The Bank, as of September 30, 2005, has retained $2.2
million  of these  deposits.  In the event  the Bank is not able to  retain  the
remaining  deposits,  management  has  various  sources of  liquidity  available
including  cash and  amounts due from  depository  institutions  and  investment
securities,  which are available  for sale. In addition,  the Bank has borrowing
authority from the Federal Home Loan Bank of approximately $4.0 million.

The Company's equity  decreased  primarily due to the repurchase of common stock
at a cost of $877,000,  dividends paid of $474,000 and a decrease in accumulated
other comprehensive  income of $480,000,  offset by net income of $1.34 million,
proceeds  from stock  options  exercised  of $68,000  and a decrease in unearned
compensation  related to the  Company's  ESOP of  $180,000.  The market value of
UTBI's  investment  portfolio  decreased due to changes in the current  interest
rate environment.

<PAGE>

Discussion  of Results of  Operations  for the Three Months Ended  September 30,
2005 and 2004

Our net income for the three months ended September 30, 2005 was $435,000, which
was an increase  of $23,000  from the amount we earned  during the three  months
ended  September  30, 2004.  Basic and diluted  earnings per share for the three
months ended  September 30, 2005 were $0.37 and $0.36  compared to $0.37 for the
same period in 2004.  Basic average  shares  outstanding  for three months ended
September  30,  2005 was  1,174,803  shares and  1,104,280  shares for the three
months ended September 30, 2004.  Average dilutive  potential shares outstanding
were 20,747 respectively.

Interest  income  decreased  $73,000,  or 4.2%, from $1.73 million for the three
months  ended  September  30, 2004 to $1.66  million for the three  months ended
September 30, 2005. The decrease in interest income is a result of a decrease in
investment  interest income of $114,000 offset by an increase in interest income
on loans of $25,000 and an increase in other interest income of $16,000.

Interest  expense on deposits  increased  $165,000  from  $430,000 for the three
months ended September 30, 2004 to $595,000 for the three months ended September
30, 2005, due to the increase in deposit  account  interest  rates.  Our cost of
funds  increased  from 1.55% at September  30, 2004,  to 2.18% at September  30,
2005.

Net  interest  income  decreased  $237,000,  or 18.2%,  between the periods as a
result of the larger  increase in interest  expense  compared to the increase in
interest  income.  The Company's net interest  margin  narrowed to 3.79% for the
three  months  ended  September  30, 2005  compared to 4.47% for the  comparable
period of 2004.  The narrowing of the net interest  margin  reflects the current
rate environment and the fact that our cost of funds has increased.

Noninterest  income increased  $225,000 from $157,000 for the three months ended
September  30, 2004 to $382,000 for the three months ended  September  30, 2005.
The increase in  noninterest  income was due primarily to a net gain realized on
the sale of our former main office facility of $199,000.

Noninterest  expenses decreased $37,000 from $762,000 for the three months ended
September  30, 2004 to $725,000 for the three months ended  September  30, 2005.
The  decrease  in   noninterest   expense  was  primarily  from  a  decrease  in
compensation  and  benefits  expense  due to a reduction  in pension  expense of
$38,000.

Our effective  tax rates for the three months ended  September 30, 2005 and 2004
were 38.2% and 38.5%, respectively.

Discussion of Results of Operations for the Nine Months Ended September 30, 2005
and 2004

Our net income for the nine months ended  September  30, 2005 was $1.34  million
which was an  increase  of  $239,000  from the amount we earned  during the nine
months ended  September 30, 2004.  Basic and diluted  earnings per share for the
nine months ended  September 30, 2005 were $1.15 and $1.13 compared to $0.97 and
$0.95 for the same period in 2004.  Basic average  shares  outstanding  for nine
months ended  September 30, 2005 was 1,164,179  shares and 1,104,751  shares for
the nine months ended  September 30, 2004.  Average  dilutive  potential  shares
outstanding were 20,747 respectively.

Interest  income  decreased  $40,000,  or 0.8%,  from $5.11 million for the nine
months  ended  September  30, 2004 to $5.07  million  for the nine months  ended
September 30, 2005. The decrease in interest income is a result of a decrease in
investment  interest  income of  $100,000  offset by an  increase in interest on
loans of $27,000 and an increase in other interest income of $33,000.

Interest expense on deposits  increased  $412,000 from $1.2 million for the nine
months  ended  September  30, 2004 to $1.6  million  for the nine  months  ended
September 30, 2005, due to the increase in deposit account  interest rates.  Our
cost of funds increased from 1.55% for the nine months ended September 30, 2004,
to 2.18% for the nine months ended September 30, 2005.

<PAGE>

Net  interest  income  decreased  $457,000,  or 11.7%,  between the periods as a
result of the larger  increase in interest  expense  compared to the increase in
interest  income.  The Company's net interest  margin  narrowed to 4.13% for the
nine months ended September 30, 2005 compared to 4.61% for the comparable period
of 2004.  The  narrowing  of the net interest  margin  reflects the current rate
environment and the fact that our cost of funds has increased.

Noninterest  income  increased  $722,000 from $420,000 for the nine months ended
September 30, 2004 to $1,142,000  for the nine months ended  September 30, 2005.
The increase in  noninterest  income was due primarily to a $615,000 gain on the
sale of our Intrieve,  Inc.  stock, a gain on the sale of our former main office
facility of $199,000,  offset by a loss on the sale of mortgage back  securities
of $98,000.

Noninterest  expenses  decreased  $75,000 from $2.51 million for the nine months
ended  September 30, 2004 to $2.43  million for the nine months ended  September
30, 2005. The decrease in noninterest expense was primarily due to a decrease in
compensation  and  benefits  expense due to a reduction  in the  recognition  of
expense on stock options  exercised of $146,000,  a reduction in expense related
to the  Company's  ESOP of $93,000  offset by an  increase  of $142,000 in other
noninterest  expense and an increase in advertising of $14,000.  The increase in
the  other  non-interest  expense  category  reflects  the  increase  in  legal,
accounting and consulting fees associated with the April 14, 2005,  announcement
of United Tennessee Bankshares proposed going private transaction.

Our  effective  tax rates for the nine months ended  September 30, 2005 and 2004
were 36.7% and 38.6%, respectively

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.

<PAGE>

At September 30, 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.

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 September 30, 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.



<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


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.

<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: November 21, 2005               /s/Richard G. Harwood
      ----------------------         ----------------------------------------
                                     Richard G. Harwood
                                     President and Chief Executive Officer
                                     (Duly Authorized Representative and
                                     Principal Financial and Accounting Officer)



<PAGE>
                                                                   Exhibit 31.1

                    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 quarterly report of United Tennessee Bankshares,  Inc.
     ("United Tennessee");

2.   Based on my knowledge, this 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
     report;

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

4.   The  small  business  issuer's  other  certifying   officer(s)  and  I  are
     responsible  for  establishing  and  maintaining  disclosure  controls  and
     procedures  (as defined in Exchange  Act Rules  13a-15(e)  and 15d-1(e) and
     internal control over financial  reporting (as defined in Exchange Act Rule
     13a-15(f) and 15d-15(f))for the small business issuer and have:

     a)   Designed  such  disclosure  controls  and  procedures,  or caused such
          disclosure   controls  and   procedures  to  be  designed   under  our
          supervision, to ensure that material information relating to the small
          business  issuer,  including its  consolidated  subsidiaries,  is made
          known to us by others within those entities,  particularly  during the
          period in which this report is being prepared;

     b)   Designed such internal  control over  financial  reporting,  or caused
          such internal  control over  financial  reporting to be designed under
          our  supervision,   to  provide  reasonable  assurance  regarding  the
          reliability  of financial  reporting and the  preparation of financial
          statements for external purposes in accordance with generally accepted
          accounting principles;

     c)   Evaluated the effectiveness of the small business issuer's  disclosure
          controls and procedures  and presented in this report our  conclusions
          about the effectiveness of the disclosure controls and procedures,  as
          of the  end of the  period  covered  by  this  report  based  on  such
          evaluation; and

     d)   Disclosed  in this  report any change in the small  business  issuer's
          internal  control over financial  reporting  that occurred  during the
          small business  issuer's most recent fiscal quarter tht has materially
          affected,  or is  reasonably  likely to materially  affect,  the small
          business issuer's internal control over financial reporting; and

5.   The small business issuer's other certifying officers and I have disclosed,
     based on our most recent  evaluation  of internal  control  over  financial
     reporting,  to the small business issuer's auditors and the audit committee
     of small business  issuer's  board of directors (or persons  performing the
     equivalent function):

     a)   All significant  deficiencies and material weaknesses in the design or
          operation  of internal  control  over  financial  reporting  which are
          reasonably  likely to  adversely  affect the small  business  issuer's
          ability   to  record,   process,   summarize   and  report   financial
          information; and

     b)   Any fraud, whether or not material,  that involves management or other
          employees who have a significant  role in the small business  issuer's
          internal control over financial reporting.


Date: November 21, 2005                               /s/ Richard G. Harwood
      -------------------                            --------------------------
                                                     Richard G. Harwood
                                                     President and
                                                     Chief Executive Officer
<PAGE>
                                                                   Exhibit 31.2

                    CERTIFICATION OF CHIEF FINANCIAL OFFICER
                         PURSUANT TO SECTION 302 OF THE
                           SARBANES-OXLEY ACT OF 2002

I, Chris H. Triplett, certify that:

1.   I have reviewed this quarterly report of United Tennessee Bankshares,  Inc.
     ("United Tennessee");

2.   Based on my knowledge, this 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
     report;

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

4.   The  small  business  issuer's  other  certifying   officer(s)  and  I  are
     responsible  for  establishing  and  maintaining  disclosure  controls  and
     procedures  (as defined in Exchange  Act Rules  13a-15(e)  and 15d-1(e) and
     internal control over financial  reporting (as defined in Exchange Act Rule
     13a-15(f) and 15d-15(f))for the small business issuer and have:

     a)   Designed  such  disclosure  controls  and  procedures,  or caused such
          disclosure   controls  and   procedures  to  be  designed   under  our
          supervision, to ensure that material information relating to the small
          business  issuer,  including its  consolidated  subsidiaries,  is made
          known to us by others within those entities,  particularly  during the
          period in which this report is being prepared;

     b)   Designed such internal  control over  financial  reporting,  or caused
          such internal  control over  financial  reporting to be designed under
          our  supervision,   to  provide  reasonable  assurance  regarding  the
          reliability  of financial  reporting and the  preparation of financial
          statements for external purposes in accordance with generally accepted
          accounting principles;

     c)   Evaluated the effectiveness of the small business issuer's  disclosure
          controls and procedures  and presented in this report our  conclusions
          about the effectiveness of the disclosure controls and procedures,  as
          of the  end of the  period  covered  by  this  report  based  on  such
          evaluation; and

     d)   Disclosed  in this  report any change in the small  business  issuer's
          internal  control over financial  reporting  that occurred  during the
          small business  issuer's most recent fiscal quarter tht has materially
          affected,  or is  reasonably  likely to materially  affect,  the small
          business issuer's internal control over financial reporting; and

5.   The small business issuer's other certifying officers and I have disclosed,
     based on our most recent  evaluation  of internal  control  over  financial
     reporting,  to the small business issuer's auditors and the audit committee
     of small business  issuer's  board of directors (or persons  performing the
     equivalent function):

     a)   All significant  deficiencies and material weaknesses in the design or
          operation  of internal  control  over  financial  reporting  which are
          reasonably  likely to  adversely  affect the small  business  issuer's
          ability   to  record,   process,   summarize   and  report   financial
          information; and

     b)   Any fraud, whether or not material,  that involves management or other
          employees who have a significant  role in the small business  issuer's
          internal control over financial reporting.


Date: November 21, 2005                               /s/ Chris H. Triplett
      ------------------                              ------------------------
                                                      Chris H. Triplett
                                                      CFO

<PAGE>


                                                                   EXHIBIT 32.1

                    CERTIFICATION OF CHIEF EXECUTIVE OFFICER
                         PURSUANT TO SECTION 906 OF THE
                           SARBANES-OXLEY ACT OF 2002

     In connection with this quarterly report on Form 10-QSB of United Tennessee
Bankshares, Inc. I, Richard G. Harwood, President and Chief Executive Officer of
United  Tennessee  Bankshares,  Inc.,  certify,  pursuant  to Section 906 of the
Sarbanes-Oxley Act of 2002, that:

    2.    The report fully  complies with the  requirements  of Section 13(a) or
          15(d) of the Securities Exchange Act of 1934; and

    3.    The  information  contained  in this report  fairly  presents,  in all
          material respects,  the financial  condition and results of operations
          of United Tennessee Bankshares, Inc.


Date:  November 21, 2005                                /s/ Richard G. Harwood
      -------------------                               ------------------------
                                                        Richard G. Harwood
                                                        President and
                                                        Chief Executive Officer


<PAGE>


                                                                  EXHIBIT 32.2


                    CERTIFICATION OF CHIEF FINANCIAL OFFICER
                         PURSUANT TO SECTION 906 OF THE
                           SARBANES-OXLEY ACT OF 2002

     In connection with this quarterly report on Form 10-QSB of United Tennessee
Bankshares, Inc. I, Chris H. Triplett, CFO of United Tennessee Bankshares, Inc.,
certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

    1.    The report fully  complies with the  requirements  of Section 13(a) or
          15(d) of the Securities Exchange Act of 1934; and

    2.    The  information  contained  in this report  fairly  presents,  in all
          material respects,  the financial  condition and results of operations
          of United Tennessee Bankshares, Inc.

Date: November 21, 2005                               /s/ Chris H. Triplett
      -------------------                             --------------------------
                                                      Chris H. Triplett
                                                      Chief Financial Officer