SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB

Mark One

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

     For the quarterly period ended September 30, 2003.


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

                         Commission File Number: 0-23551

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


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


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

         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 November 7, 2003: 1,241,879

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, 2003 (Unaudited) and December 31, 2002         3

                  Consolidated Statements of Comprehensive Income for the
                  Three-Month and Nine-Month Periods Ended September 30,
                  2003 and 2003 (Unaudited)                                    4

                  Consolidated Statement of Comprehensive Income for the
                  Three-Month and Nine-Month Periods Ended September 30,
                  2003 and 2002 (Unaudited)                                    5

                  Consolidated Statement of Changes in Shareholders' Equity
                  for the Nine-Month Period Ended September 30, 2003
                  (Unaudited)                                                  6

                  Consolidated Statements of Cash Flows for the
                  Nine-Month Period Ended September 30, 2003
                  and 2002 (Unaudited)                                       7-8

                  Notes to Consolidated Financial Statements for the
                  Three-Month and Nine-Month Periods Ended September 30,
                  2003 and 2002 (Unaudited)                                 9-13

         Item 2.  Management's Discussion and Analysis or Plan of
                  Operation                                                14-19

         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 and Reports on Form 8-K                            20

SIGNATURES                                                                    21

<PAGE>


PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements


                UNITED TENNESSEE BANKSHARES, INC. AND SUBSIDIARY
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                 AS OF SEPTEMBER 30, 2003 AND DECEMBER 31, 2002

<TABLE>
<CAPTION>

                                                                         September 30,
                                                                             2003                December 31,
                                                                          (Unaudited)                2002
                                                                        ----------------        ----------------
                                                                                     (In Thousands)
<S>                                                                  <C>                       <C>
                       Assets
Cash and amounts due from depository institutions                    $           4,316         $        5,350
Investment securities available for sale, at fair value                         30,883                 25,267
Loans receivable, net                                                           78,436                 78,362
Premises and equipment, net                                                        966                    969
Foreclosed real estate - held for sale                                              48                    127
Accrued interest receivable                                                        642                    670
Goodwill, net of amortization                                                      813                    873
Cash value of life insurance                                                     1,512                      0
Prepaid expenses and other assets                                                   65                    135
                                                                        ----------------        ----------------
  Total assets                                                       $         117,681         $      111,753
                                                                        ================        ================

                       Liabilities and Equity
Liabilities:
 Deposits                                                            $          99,147         $       93,747
 Accrued interest payable                                                          122                    132
 Accrued income taxes                                                               62                      0
 Deferred income taxes                                                             877                  1,008
 Accrued benefit plan liabilities                                                  913                    856
 Other liabilities                                                                 176                     85
                                                                        ----------------        ----------------
  Total liabilities                                                            101,297                 95,828
                                                                        ----------------        ----------------

Shareholders' equity:
 Common stock - no par value, authorized 20,000,000 shares;
   issued and outstanding 1,241,879 shares (1,311,124 in 2002)                  11,786                 12,448
 Unearned compensation - ESOP                                                     (401)                  (517)
 Shares in grantor trust - contra account                                         (200)                  (199)
 Shares in MRP plan - contra account                                                 0                    (56)
 Shares in stock option plan trusts - contra account                            (1,193)                (1,491)
 Retained earnings                                                               5,064                  4,199
 Accumulated other comprehensive income                                          1,328                  1,541
                                                                        ----------------        ----------------
  Total shareholders' equity                                                    16,384                 15,925
                                                                        ----------------        ----------------
Total liabilities and equity                                         $         117,681         $      111,753
                                                                        ================        ================

</TABLE>













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

                                       3

<PAGE>


                UNITED TENNESSEE BANKSHARES, INC. AND SUBSIDIARY
                        CONSOLIDATED STATEMENTS OF INCOME
     FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2003 AND 2002

<TABLE>
<CAPTION>

                                                             (In Thousands Except         (In Thousands Except
                                                            per Share Information)       per Share Information)
                                                          --------------------------- ----------------------------
                                                              Three Months Ended           Nine Months Ended
                                                          --------------------------- ----------------------------
                                                                September 30,                September 30,
                                                          --------------------------- ----------------------------
                                                              2003          2002          2003           2002
                                                          (Unaudited)    (Unaudited)  (Unaudited)     (Unaudited)
                                                          -------------  ------------ -------------  -------------
<S>                                                       <C>            <C>           <C>            <C>
Interest income:
 Loans                                                    $      1,413   $     1,506   $     4,314    $      4,449
 Investment securities                                             294           311           849             922
 Other interest-earning assets                                       5             7            21              22
                                                          -------------  ------------ -------------  -------------
  Total interest income                                          1,712         1,824         5,184           5,393
                                                          -------------  ------------ -------------  -------------

Interest expense:
 Deposits                                                          438           544         1,350           1,680
                                                          -------------  ------------ -------------  -------------

Net interest income                                              1,274         1,280         3,834           3,713
Provision for loan losses                                           36            45           108              93
                                                          -------------  ------------ -------------  -------------
Net interest income after provision for loan losses              1,238         1,235         3,726           3,620
                                                          -------------  ------------ -------------  -------------

Noninterest income:
 Deposit account service charges                                    88            65           225             181
 Loan service charges and fees                                      31            27            85              85
 Net gain (loss) on sales of investment
  securities available for sale                                      0             7            13              46
 Other                                                              15             9            48              32
                                                          -------------  ------------ -------------  -------------
  Total noninterest income                                         134           108           371             344
                                                          -------------  ------------ -------------  -------------

Noninterest expense:
 Compensation and benefits                                         324           317           986             918
 Occupancy and equipment                                            61            77           189             184
 Federal deposit insurance premiums                                 15            13            45              37
 Data processing fees                                               72            68           204             194
 Advertising and promotion                                          20            19            57              61
 Net (gain) loss on foreclosed real estate                           0             0            10               0
 Amortization                                                       20            20            60              60
 Other                                                             145           129           444             398
                                                          -------------  ------------ -------------  -------------
  Total noninterest expense                                        657           643         1,995           1,852
                                                          -------------  ------------ -------------  -------------

Income before income taxes                                         715           700         2,102           2,112
Income taxes                                                       278           263           817             781
                                                          -------------  ------------ -------------  -------------
Net income                                                $        437   $       437  $      1,285   $       1,331
                                                          =============  ============ =============  =============

Earnings per share
 Basic                                                    $       0.34   $      0.33  $       1.00   $        1.00
                                                          =============  ============ =============  =============
 Diluted                                                  $       0.34   $      0.33  $       1.00   $        1.00
                                                          =============  ============ =============  =============

</TABLE>







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

                                       4

<PAGE>


                UNITED TENNESSEE BANKSHARES, INC. AND SUBSIDIARY
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
     FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2003 AND 2002



<TABLE>
<CAPTION>
                                                     Three Months Ended September 30,      Nine Months Ended September 30,
                                                     ---------------------------------    -----------------------------------
                                                          2003              2002               2003               2002
                                                     ---------------    --------------    ---------------    ----------------
                                                        (Unaudited - in thousands)            (Unaudited - in thousands)
<S>                                                  <C>                <C>               <C>                <C>
Net income                                           $           437    $          437    $         1,285    $          1,331
                                                     ---------------    --------------    ---------------    ----------------

Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on investment
  securities                                                   (100)              200               (331)                370
Less reclassification adjustment for
  gains/losses included in net income                             0                (7)               (13)                (46)
Less income taxes related to unrealized
  gains/losses on investment securities                          38               (73)               131                (123)
                                                     ---------------    --------------    ---------------    ----------------
Other comprehensive income (loss), net of tax                   (62)              120               (213)                201
                                                     ---------------    --------------    ---------------    ----------------

Comprehensive income                                 $           375    $          557    $         1,072    $          1,532
                                                     ===============    ==============    ===============    ================

</TABLE>






























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

                                       5

<PAGE>




                UNITED TENNESSEE BANKSHARES, INC. AND SUBSIDIARY
            CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
               FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2003


<TABLE>
<CAPTION>

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

Balances, beginning of period  $   12,448 $         (517)$      (199)$      (56)$    (1,491)$    4,199 $       1,541 $       15,925

Net income                              0              0           0          0           0      1,285             0          1,285

Issuance of shares of common
 stock pursuant to MRP plan             0              0           0         56           0          0             0             56

Other comprehensive loss                0              0           0          0           0          0          (213)          (213)

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

Dividends paid                          0              0           0          0           0       (420)            0           (420)

Adjustment of cost on directors
 long-term incentive plan               0              0           0          0           0          0             0              0

Proceeds from exercise of
 stock options                          0              0           0          0           9          0             0              9

Costs associated with stock options
 surrendered                            0              0           0          0        (327)         0             0           (327)

Purchase of 100 shares of
 common stock                           0              0          (1)         0           0          0             0             (1)

Purchase and retirement of
 3,200 shares of common stock         (46)             0           0          0           0          0             0            (46)

Retirement of 35,500 shares of
 common stock held in the stock
 option plan contra account          (616)             0           0          0         616          0             0              0
                                --------- -------------- ----------- ---------- ----------- ---------- ------------- ---------------
Balances, end of period          $ 11,786 $         (401)$     (200) $        0 $    (1,193)     5,064 $       1,328 $       16,384
                                ========= ============== =========== ========== =========== ========== ============= ===============
</TABLE>

















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

                                       6

<PAGE>

                UNITED TENNESSEE BANKSHARES, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
           FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2003 AND 2002


<TABLE>
<CAPTION>
                                                                                            Nine Months Ended
                                                                                              September 30,
                                                                                      -------------------------------
                                                                                            2003            2002
                                                                                        (Unaudited - in thousands)
                                                                                      -------------------------------
<S>                                                                                   <C>               <C>
Operating Activities:
 Net income                                                                           $       1,285     $       1,331
                                                                                      -------------     -------------
 Adjustments to reconcile net income to net cash
  provided by operating activities:
   Provision for loan losses                                                                    108                93
   Depreciation                                                                                  72                57
   Amortization of goodwill                                                                      60                60
   Net (gain) loss on sales of foreclosed real estate                                            10                 0
   Federal home loan bank stock dividends                                                       (27)              (30)
   Net (gain) loss on sales of investment securities available for sale                         (13)              (46)
   (Increase) Decrease in:
    Accrued interest receivable                                                                  28              (104)
    Other assets                                                                                 70               (28)
   Increase (Decrease) in:
    Accrued interest payable                                                                    (10)               (8)
    Accrued income taxes                                                                         62                23
    Accrued benefit plan liabilities                                                             57               (50)
    Other liabilities                                                                            91                47
                                                                                      -------------     -------------
     Total adjustments                                                                          508                14
                                                                                      -------------     -------------
Net cash provided by operating activities                                                     1,793             1,345
                                                                                      -------------     -------------

Investing Activities:
 Purchases of investment securities available for sale                                      (12,184)           (9,800)
 Proceeds from maturities of investment securities available for sale                         1,031             1,580
 Payments received on investment securities available for sale                                4,126             5,041
 Proceeds from sales of investment securities available for sale                              1,107             2,742
 Net (increase) decrease in loans                                                              (230)           (7,026)
 Purchase of bank-owned life insurance                                                       (1,512)                0
 Purchases of premises and equipment, net                                                       (69)             (177)
 Proceeds from sales of foreclosed real estate                                                  118                 0
                                                                                      -------------     -------------
Net cash used in investing activities                                                        (7,613)           (7,640)
                                                                                      -------------     -------------

</TABLE>
















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

                                       7

<PAGE>

                UNITED TENNESSEE BANKSHARES, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
           FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2003 AND 2002

<TABLE>
<CAPTION>
                                                                               Nine Months Ended
                                                                            2003               2002
                                                                        ------------       -----------
                                                                          (Unaudited - in thousands)
<S>                                                                     <C>                      <C>
Financing Activities:
 Dividends paid                                                         $       (420)             (398)
 Costs associated with stock options surrendered                                (327)                0
 Net increase (decrease) in deposits                                           5,400             6,904
 Purchase of common stock                                                        (47)             (157)
 Proceeds from exercise of stock options                                           9                 0
 Issuance of common stock for MRP plan                                            56               154
 Purchase of common stock pursuant to director's long-term
  incentive plan                                                                  (1)                0
 Payment on ESOP loan and release of shares                                      116               161
                                                                        ------------       -----------
Net cash provided by (used in) financing activities                            4,786             6,664
                                                                        ------------       -----------

Net increase (decrease) in cash and cash equivalents                          (1,034)             (369)

Cash and cash equivalents, beginning of period                                 5,350             2,123
                                                                        ------------       -----------

Cash and cash equivalents, end of period                                $      4,316       $     2,492
                                                                        ============       ===========

Supplementary disclosures of cash flow information:
 Cash paid during the period for:
 Interest                                                               $      1,360       $     1,688
 Income taxes                                                           $        784       $       758

Supplementary disclosures of noncash investing
 activities:
  Acquisition of foreclosed real estate                                 $         48       $       171
  Change in unrealized gain\loss on investment securities
   available for sale                                                   $       (344)      $       324
  Change in deferred income taxes associated with unrealized
   gain/loss on investment securities available for sale                $       (131)      $       123
  Change in net unrealized gain\loss on investment
   securities available for sale                                        $       (213)      $       201
</TABLE>
















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

                                       8

<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  FOR THE THREE-MONTH AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2003 AND 2002
                                   (UNAUDITED)


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

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

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

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

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

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



<TABLE>
<CAPTION>

                                            Three Months Ended      Nine Months Ended
                                            ------------------      -----------------
                                               September 30,          September 30,
                                            ------------------      -----------------
                                             2003       2002          2003     2002
(In thousands, except per share data)       -------    -------      -------   -------
<S>                                         <C>        <C>          <C>       <C>
Net Income, as reported                     $   437    $   437      $ 1,285   $ 1,331

Deduct:  Total stock-based employee
  compensation expense determined under
  fair value based method for all awards,
  net of related tax effects to calculate
  earnings per share                            (1)       (112)          (7)     (223)
                                            -------    -------      -------   -------
Pro forma net income                        $   436    $   325      $ 1,278   $ 1,108
                                            =======    =======      =======   =======

Earnings per share:
  Basic - as reported                       $  0.34    $  0.33      $  1.00   $  1.00
                                            =======    =======      =======   =======
  Basic - pro forma                         $  0.34    $  0.25      $  1.00   $  0.84
                                            =======    =======      =======   =======
  Diluted - as reported                     $  0.34    $  0.33      $  1.00   $  1.00
                                            =======    =======      =======   =======
  Diluted - pro forma                       $  0.34    $  0.25      $  0.99   $  0.84
                                            =======    =======      =======   =======
</TABLE>



                                       9

<PAGE>
Note - Earnings Per Share

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

Earnings per share have been computed based on the following:

<TABLE>
<CAPTION>

                                              Three Months Ended           Nine Months Ended
                                            ------------------------    -------------------------
                                                  September 30,                 September 30,
                                            ------------------------    -------------------------
                                               2003          2002           2003          2002
                                            ---------    ---------      ---------      ----------
<S>                                         <C>          <C>            <C>            <C>

Average number of shares outstanding        1,268,030    1,312,086      1,281,777      1,324,577
Effect of dilutive options                      1,390           60          6,908          1,933
Average number of shares outstanding used
 to calculate earnings per share            ---------    ---------      ---------      ---------
                                            1,269,420    1,312,146      1,288,685      1,326,510
                                            =========    =========      =========      =========
</TABLE>

Note 3 - Comprehensive Income

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

Note 4 - Management Recognition Plan

In  January  1999,  the  Company's  board of  directors  approved  a  Management
Recognition Plan (MRP), and in May 1999, the Company's shareholders ratified the
plan. The plan authorizes the board of directors to award up to 58,190 shares of
restricted  common  stock to  members  of the  board  of  directors  and  senior
management.

The Company's  board of directors has awarded  54,517 shares as of September 30,
2003 of restricted common stock to certain members of the board of directors and
senior  management.  The shares are  awarded  25% per year.  The Company and its
subsidiary  will  share the cost of the Plan and accrue  the  estimated  cost of
repurchasing shares to be reissued as restricted stock over the period that such
awards are earned.

Activity in the MRP plan is as follows:


                                                      Nine Month
                                                     Period Ended
                                                     September 30,
                                               -------------------------
                                                 2003           2002
                                               -----------   -----------
Accrued Liability Balance at Beginning of
  Period                                        $ 5,538      $ 142,259
Amount Charged to Expense                         5,698         11,236
Less Cost of Shares Issued                      (11,236)      (142,339)
                                               ----------    -----------
Accrued Liability at End of Period              $     -         11,156
                                               ==========    ===========

                                       10

<PAGE>
The Company paid out the remaining  distribution of the MRP in the third quarter
and cancelled the remaining 3,672 shares of its common stock in trust and closed
out the contra-equity account.


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. Holders of the options
can also surrender the options and be paid cash for the  difference  between the
exercise price and the stock's fair value on the date surrendered.  The board of
directors  granted 202,676 options in 1999 and 6,623 options in 2001. During the
nine month period ended September 30, 2003, 62,264 options were surrendered at a
total cost of  $337,000  (33,978  shares for  $70,192  in 2002).  Stock  options
awarded and outstanding totaled 112,057 and 175,321 as of September 30, 2003 and
2002, respectively.

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 June 30,
                                         ---------------------------------
                                               2003               2002
                                         --------------    ---------------
Dividend Yield                                 3.5%              3.5%
Expected Life                                  8.5 years         8.5 years
Expected Volatility                           52.0%             52.0%
Risk-Free Interest Rate                        4.8%              4.8%

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


<TABLE>
<CAPTION>

                                                        Nine Months Ended September 30,
                                      ----------------------------------------------------------------
                                                     2003                              2002
                                      ------------------------------    ------------------------------
                                                        Weighted                          Weighted
                                                        Average                           Average
                                                        Exercise                          Exercise
                                        Shares           Price            Shares           Price
                                      -----------    ---------------    -----------    ---------------
<S>                                      <C>             <C>               <C>             <C>

Outstanding at Beginning of
  Period                                 175,321         $ 8.59            209,299         $ 8.59
Granted                                        0                                 0
Exercised                                 (1,000)          8.60                  0
Surrendered                              (62,264)          8.60            (33,978)          8.60
Forfeited                                      0                                 0
                                      -----------                       -----------
Outstanding at End of Year               112,057         $ 8.59            175,321           8.59
                                      ===========                       ===========


Options Exercisable at Period-End        108,746         $ 8.59            204,332         $ 8.59
Weighted-Average Fair Value of
  Options Granted during the year        n/a                               n/a

</TABLE>

                                       11

<PAGE>


Information  pertaining  to options  outstanding  at  September  30,  2003 is as
follows:
<TABLE>
<CAPTION>

                                 Options Outstanding                  Options Exercisable
                      ------------------------------------------    -------------------------
                                       Weighted
                                        Average       Weighted                     Weighted
                                       Remaining       Average                      Average
    Range of            Number        Contractual     Exercise        Number       Exercise
 Exercise Prices      Outstanding        Life           Price       Exercisable      Price
------------------    ------------    ------------    ----------    -----------    ----------
<S>                       <C>          <C>             <C>             <C>          <C>
  $8.00 - $9.00           112,057      5.8 years       $8.59           108,746      $8.59

</TABLE>



The Company has  purchased  112,660 and 175,139  shares as of September 30, 2003
and December 31, 2002, respectively, of its common stock, which is being held in
trusts for when the stock options are  exercised.  A  contra-equity  account has
been established to reflect the costs of such shares held in trusts.

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


Note 6 - Improvement Plan for Main Office Facility

During the first quarter of 2001,  the Company's  board of directors  approved a
plan to improve the existing main office  facilities.  The Company has purchased
land on which to  construct a new main  office  facility.  Management  is in the
process of working with an architect on the design of the new building.

Note 7 - Recent Accounting Pronouncements

In June 2001,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting Standard No. 141, Business  Combinations and SFAS No. 142,
Goodwill and Other  Intangible  Assets.  SFAS No. 141 requires that the purchase
method of accounting be used for all business combinations  initiated after June
30, 2001. SFAS No. 142 requires that goodwill and other  intangible  assets with
indefinite  useful  lives no longer be  amortized,  but  instead  be tested  for
impairment  annually.  SFAS No. 142 is effective  on January 1, 2002.  Since the
Company's  intangible asset associated with its branch purchase is accounted for
in accordance with SFAS No. 72, the Company has not changed its  amortization of
its intangible asset.

In June 2001,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial   Accounting   Standard  No.  143,  Accounting  for  Asset  Retirement
Obligations.  SFAS No. 143  applies  to legal  obligations  associated  with the
retirement of long-lived assets that result from the acquisition,  construction,
development  and/or the  normal  operation  of a  long-lived  asset,  except for
certain  obligations  of  lessees.  SFAS  No.  143 is  effective  for  financial
statements  issued for fiscal years  beginning  after June 15,  2002.  Since the
Company does not have any legal  obligations as described above,  this statement
has not had any  impact  on the  Company's  financial  position  or  results  of
operations.

In August 2001, the Financial  Accounting  Standards  Board issued  Statement of
Financial Accounting Standard No. 144, Accounting for the Impairment or Disposal
of Long-Lived  Assets (SFAS No. 144).  This  statement  supercedes  SFAS No. 121
Accounting for the Impairment of Long-Lived  Assets and for Long-Lived Assets to
be Disposed of, and the accounting  and reporting  provisions of APB Opinion No.
30, Reporting the Results of  Operations-Reporting  the Effects of Disposal of a
Segment of a Business,  and  Extraordinary,  Unusual and Infrequently  Occurring
Events  and  Transactions,  for the  disposal  of a segment  of a  business  (as
previously  defined in that  Opinion).  SFAS No. 144 is effective  for financial
statements  issued for fiscal years  beginning  after  December  15,  2001,  and
interim  periods  within  those  fiscal  years.  This  statement  has  not had a
significant impact on the Company's financial position or results of operations.

                                       12

<PAGE>
In October 2002, the Financial  Accounting  Standards Board issued  Statement of
Financial Standard No. 147, Accounting for Certain Financial Institutions.  This
statement removes acquisitions of financial  institutions from the scope of FASB
Statement  No. 72,  Accounting  for  Certain  Acquisitions  of Banking or Thrift
Institutions, and FASB Interpretation No. 9, Applying APB Opinions No. 16 and 17
When a Savings and Loan  Association  or a Similar  Institution Is Acquired in a
Business  Combination  Accounted for by the Purchase Method.  In addition,  this
statement  amends FASB  Statement  No. 144,  Accounting  for the  Impairment  or
Disposal  of  Long-Lived  Assets,  to  include in its scope  long-term  customer
relationship intangible assets of financial institutions such as depositor - and
borrower-relationship intangible assets and credit cardholder intangible assets.
This statement  intends to improve the  comparability of financial  reporting by
requiring  institutions to follow FASB Statement No. 141, Business Combinations.
SFAS No. 147 is effective for  acquisitions for which the date of acquisition is
on or after October 1, 2002. Management does not expect this statement to have a
significant impact on the Company's financial position or results of operations.

In December 2002, the Financial  Accounting  Standards Board issued Statement of
Financial Accounting Standard No. 148, Accounting for Stock-Based Compensation -
Transition  and  Disclosure  - an  amendment  of FASB  Statement  No. 123.  This
statement provides  alternative  methods of transition for a voluntary change to
the fair value based method of accounting for stock-based employee compensation.
In addition,  this statement amends the disclosure requirements of Statement 123
to require prominent disclosures in both annual and interim financial statements
about the method of accounting for  stock-based  employee  compensation  and the
effect of the method used on reported  results.  Statement  No. 148 is effective
for financial statements for fiscal years ending after December 15, 2002 and for
interim  periods  beginning  after  December 15, 2002.  The Company and the Bank
apply the intrinsic  value based method of accounting  prescribed by APB Opinion
No. 25, Accounting for Stock Issued to Employees,  in accounting for their stock
option  plans and have not  elected a  voluntary  change to the fair value based
method  prescribed  in Statement  No. 123.  The  Company's  consolidated  annual
financial  statements  beginning  in 2002  and  consolidated  interim  financial
statements beginning in 2003 include the additional disclosures required by SFAS
No. 148, but this  statement has not had a  significant  impact on the Company's
consolidated financial position or results of operations.

In April 2003,  the Financial  Accounting  Standards  Board issued  Statement of
Financial Accounting Standards No. 149, Amendment of Statement 133 on Derivative
Instruments  and  Hedging  Activities.   This  statement  amends  and  clarifies
financial  accounting  and  reporting  for  derivative  financial   instruments,
including  certain  derivative  instruments  embedded in other contracts and for
hedging activities under Financial Accounting Standards Board Statement No. 133,
Accounting for Derivative  Instruments  and Hedging  Activities.  This statement
intends  to  improve  financial  reporting  by  requiring  that  contracts  with
comparable  characteristics  be accounted for  similarly.  In  particular,  this
statement  clarifies  under what  circumstances  a contract  with an initial net
investment  meets the  characteristic  of a derivative as discussed in Statement
No. 133 and  clarifies  when a derivative  contains a financial  component.  The
statement also amends the definition of an underlying to conform it to Financial
Accounting  Standards  Board  Statement  No.  45,  Guarantor's   Accounting  and
Disclosure  Requirements  for  Guarantees,   Including  Indirect  Guarantees  of
Indebtedness  of Others.  Statement No. 149 is effective  for contracts  entered
into or modified  after June 30, 2003 and for hedging  relationships  designated
after June 30, 2003.  The  provisions of this statement that relate to Statement
No. 133 Implementation  Issues that have been effective for fiscal quarters that
began prior to June 15, 2003 should  continue to be applied in  accordance  with
their  respective  effective  dates.  This  statement  is not expected to have a
significant impact on the Company's financial position or results of operations.

In May 2003,  the  Financial  Accounting  Standards  Board  issued  Statement of
Financial  Accounting  Standards  No.  150,  Accounting  for  Certain  Financial
Instruments with  Characteristics of Both Liabilities and Equity. This statement
establishes  standards  for  how  an  issuer  classifies  and  measures  certain
financial  instruments with  characteristics  of both liabilities and equity. It
requires an issuer to classify a financial  instrument  that is within its scope
as a liability or (or an asset in some circumstances). Many of these instruments
were  previously  classified as equity.  This  statement is to be implemented by
reporting  the  cumulative  effect of a change in an  accounting  principle  for
financial  instruments  created  before the issuance  date of the  statement and
still existing at the beginning of the interim period of adoption. The statement
is effective for financial  instruments  entered into or modified  after May 31,
2003,  and otherwise is effective  for public  companies at the beginning of the
first interim

                                       13

<PAGE>
period beginning after June 15, 2003.  Management does not expect this statement
to have a significant  impact on the Company's  financial position or results of
operations.


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


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),  the  Government  National
Mortgage Association (GNMA) or the 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,
2003 and for the  three-month  and nine-month  periods ended September 30, 2003.
These comments  should be read in conjunction  with our  consolidated  financial
statements and accompanying footnotes appearing in this report.

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.

                                       14

<PAGE>

Comparison of Financial Condition at September 30, 2003 and December 31, 2002


Total assets  increased  from  December  31, 2002 to September  30, 2003 by $5.9
million,  or 5.3%, from $111.8 million at December 31, 2002 to $117.7 million at
September  30,  2003.  The increase in assets was  principally  the result of an
increase in  investment  securities.  Investment  securities  increased  by $5.6
million to offset an increase in deposits.

Loans receivable increased slightly from December 31, 2002 to September 30, 2003
as originations  exceeded  repayments for the period by approximately  $172,000.
The following  table sets forth  information  about the  composition of our loan
portfolio  by type of loan at the dates  indicated.  At  September  30, 2003 and
December 31, 2002,  we had no  concentrations  of loans  exceeding  10% of gross
loans other than as disclosed below.


<TABLE>
<CAPTION>

Loan Portfolio Composition                      September 30, 2003         December 31, 2002
                                              -----------------------    ----------------------

                                                 Amount     Percent         Amount     Percent
                                                 ------     -------         ------     -------
<S>                                            <C>          <C>           <C>         <C>
Type of Loan:
Real estate loans:

  One- to four-family residential              $  62,086     76.5%        $  62,772    77.6%
  Commercial                                       9,544     11.8%            8,617    10.6%
  Construction                                     2,987      3.7%            3,932     4.9%

Consumer loans:
  Automobile                                       1,336      1.6%            1,354     1.7%
  Loans to depositors, secured by deposits         1,198      1.5%            1,264     1.6%
  Home equity and second mortgage                  1,426      1.8%              948     1.2%
  Other                                            2,537      3.1%            2,055     2.4%
                                            -------------  -------     -------------  ------
                                                  81,114    100.0%           80,942   100.0%
                                            -------------  =======     -------------  ======


Less:
  Loans in process                                 1,430                      1,406
  Deferred fees and discounts                        357                        372
  Allowance for loan losses                          891                        803
                                            -------------              -------------
    Total                                      $  78,436                  $  78,361
                                            =============              =============
</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.

                                       15

<PAGE>

The following table sets forth  information  about our allowance for loan losses
for the period indicated.


                                                  Nine                Nine
                                              Months Ended        Months Ended
                                              September 30,      September 30,
                                                  2003                2002
                                              --------------     ---------------
                                                       (In Thousands)
Balance at beginning of period                     $    803             $   719
                                              --------------     ---------------
Charge-offs:
  Consumer                                              (21)                (27)
  Mortgage                                                0                   0
Recoveries:
  Consumer                                                1                   3
  Mortgage                                                0                   0
                                              --------------     ---------------
Net Charge-offs                                         (20)                (24)
Provision for loan losses                               108                  93
                                              --------------     ---------------
Balance at end of period                            $   891             $   788
                                              ==============     ===============


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


                                                September 30,      September 30,
                                                      2003               2003
                                               -------------     ---------------
                                                        (In Thousands)
Nonaccrual Loans                               $           0      $           0
Accuring loans which are contractually
 past due 90 days or more:
Real Estate:
  Residential                                            283                565
  Non-Residential                                         66                 15
Consumer                                                  11                 12
                                               -------------     ---------------
  Total                                        $         360                592
                                               =============     ===============

At September 30, 2003, the Bank had one additional  commercial  real estate loan
totaling $460,000,  as to which known information about possible credit problems
of the  borrower  caused us to have doubts as to the ability of the  borrower to
comply with present loan repayment terms. Although the loan is current, the cash
flows  of the  lessee  of the  property  are  below  expectations.  The  loan is
considered  well  secured  and we do not  expect  to incur any loss in excess of
existing reserves on any of our assets. 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,  2003,  the Company  increased  its
liabilities by $5.5 million,  or 5.7%. Total deposits  increased $5.4 million or
5.8% from $93.7  million at December 31, 2002 to $99.1  million at September 30,
2003.

                                       16

<PAGE>
During 2003, the Bank has accepted deposits totaling  approximately $5.9 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.  Management  is unable to determine  whether the Bank
will retain these deposits upon  maturity.  In the event the Bank is not able to
retain these  deposits,  management has various  sources of liquidity  available
including  cash and  amounts due from  depository  institutions  and  investment
securities  which are available  for sale.  In addition,  the Bank has borrowing
authority from the Federal Home Loan Bank of approximately $4.0 million.

Our shareholders'  equity increased  $459,000 from $15.9 million at December 31,
2002 to $16.4 million at September  30, 2003.  The  Company's  equity  increased
primarily due to net income of $1,285,000,  a decrease in unearned  compensation
related to the  Company's  ESOP of  $116,000,  and a decrease in the  management
recognition  plan contra account of $56,000,  offset by the cost associated with
stock  options  surrendered  of $327,000,  the purchase and  retirement of 3,200
shares of the Company's common stock at a cost of $46,000,  a reduction in other
accumulated  comprehensive  income  of  $213,000  and a  reduction  in  retained
earnings for dividends paid to shareholders of $420,000.  The Company's board of
directors  approved a plan in July 2002 to purchase and retire up to $500,000 of
the  Company's  common stock over the next two years,  depending  upon the stock
price.

Discussion  of Results of  Operations  for the Three Months Ended  September 30,
2003 and 2002

Our net income for the three months ended September 30, 2003 was $437,000, which
was the same amount we earned during the three months ended  September 30, 2002.
Basic and diluted  earnings per share for the three months ended  September  30,
2003 were  each  $0.34  compared  to $0.33  for the same  period in 2002.  Basic
average  shares  outstanding  for three  months  ended  September  30,  2003 was
1,268,030  shares and 1,312,086  shares for the three months ended September 30,
2002.   Average  dilutive  potential  shares  outstanding  were  1,390  and  60,
respectively.

Interest income  decreased  $112,000,  or 6.1%, from $1.82 million for the three
months  ended  September  30, 2002 to $1.71  million for the three  months ended
September 30, 2003. The decrease in interest income is a result of a decrease in
the yields on our loan and investment portfolios.

Interest  expense on deposits  decreased  $106,000  from  $544,000 for the three
months ended September 30, 2002 to $438,000 for the three months ended September
30, 2003, primarily due to the decrease in deposit account interest rates.

Net interest income decreased $6,000,  or 0.5%,  between the periods as a result
of the larger decrease in interest income than the decrease in interest expense.
The Company's net interest  margin  narrowed to 4.68% for the three months ended
September  30, 2003  compared to 4.91% for the  comparable  period of 2002.  The
narrowing of the net interest margin  reflects the current rate  environment and
the fact that our yield on loans and investments has reduced.

Noninterest  income  increased  $26,000 from $108,000 for the three months ended
September  30, 2002 to $134,000 for the three months ended  September  30, 2003.
The increase in  noninterest  income was primarily due to a $23,000  increase in
deposit  account  service fees. The Bank put in place a new deposit  account fee
structure effective August 2003.

Noninterest  expenses increased $14,000 from $643,000 for the three months ended
September  30, 2002 to $657,000 for the three months ended  September  30, 2003.
The  increase in  noninterest  expense was  primarily  from an increase in other
noninterest  expenses related  insurance expense and other costs associated with
being a public company.

Our effective  tax rates for the three months ended  September 30, 2003 and 2002
were 38.9% and 37.6%, respectively.


                                       17

<PAGE>
Discussion of Results of Operations for the Nine Months Ended September 30, 2003
and 2002

Our net income for the nine months ended  September 30, 2003 was  $1,285,000,  a
$46,000,  or 3.5% decrease from the  $1,331,000 we earned during the nine months
ended  September  30,  2002.  Basic and diluted  earnings per share for the nine
months ended  September 30, 2003 were each $1.00  compared to $1.00 for the same
period in 2002. Basic average shares outstanding for nine months ended September
30, 2003 was  1,281,777  shares and  1,324,577  shares for the nine months ended
September 30, 2002. Average dilutive potential shares outstanding were 6,908 and
1,933, respectively.

Interest  income  decreased  $209,000,  or 3.9%, from $5.39 million for the nine
months  ended  September  30, 2002 to $5.18  million  for the nine months  ended
September 30, 2003. The decrease in interest income is a result of a decrease in
the yields on our loan and investment portfolios.

Interest expense on deposits  decreased $330,000 from $1.68 million for the nine
months  ended  September  30, 2002 to $1.35  million  for the nine months  ended
September 30, 2003,  primarily due to the decrease in deposit  account  interest
rates.

Net interest income increased $121,000, or 3.3%, between the periods as a result
of the larger decrease in interest expense than the decrease in interest income.
The  Company's net interest  margin  narrowed to 4.69% for the nine months ended
September  30, 2003  compared to 4.75% for the  comparable  period of 2002.  The
narrowing  of the net  interest  margin  continues  to reflect the current  rate
environment. The increase in net interest income is due to the percentage growth
in  interest-earning   assets  being  greater  than  the  percentage  growth  in
interest-bearing liabilities.

Noninterest  income  increased  $27,000 from  $344,000 for the nine months ended
September 30, 2002 to $371,000 for the nine months ended September 30, 2003. The
increase  in  noninterest  income was  primarily  due to an  increase in deposit
account  service  charges of $44,000,  increase in other  noninterest  income of
$16,000,  offset by a decrease in net gain on sales of investment  securities of
$33,000.

Noninterest  expenses  increased $143,000 from $1.85 million for the nine months
ended September 30, 2002 to $2.0 million for the nine months ended September 30,
2003.  The increase in  noninterest  expense was  primarily  from an increase in
compensation and benefits of $68,000 due to hiring two additional  employees and
normal salary increases,  an increase in data processing fees of $10,000,  a net
loss on  foreclosed  real  estate of $10,000,  an  increase  in federal  deposit
insurance  premiums of $8,000 and an increase  in other  noninterest  expense of
$46,000  related to insurance  expense and other costs  associated  with being a
public company.

Our  effective  tax rates for the nine months ended  September 30, 2003 and 2002
were 38.9% and 37.0%, respectively.

                                       18


<PAGE>

Liquidity and Capital Resources

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

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

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

We have historically maintained substantial levels of capital. The assessment of
capital adequacy depends on several factors,  including asset quality,  earnings
trends,  liquidity and economic  conditions.  We seek to maintain high levels of
regulatory  capital to give us maximum  flexibility  in the changing  regulatory
environment and to respond to changes in market and economic  conditions.  These
levels of capital have been achieved through consistent earnings enhanced by low
levels of noninterest expense and have been maintained at those high levels as a
result of our policy of moderate growth  generally  confined to our market area.
At September 30, 2003 and December 31, 2002, we exceeded all current  regulatory
capital requirements and met the definition of a "well-capitalized" institution,
the highest regulatory capital category.


Item 3.  Controls and Procedures

(a)  Evaluation  of  Disclosure  Controls and  Procedures.  As of the end of the
period covered by this report,  the Company's  chief  executive  officer and its
controller have evaluated the  effectiveness  of the design and operation of the
Company's  disclosure  controls and  procedures (as defined in Exchange Act Rule
13a-14(c)).  Based on that  evaluation,  the  chief  executive  officer  and the
controller have concluded that the Company's  disclosure controls and procedures
are  effective to ensure that material  information  relating to the Company and
the Company's consolidated subsidiaries is made known to such officers by others
within these entities,  particularly during the period this quarterly report was
prepared, in order to allow timely decisions regarding required disclosure.

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


                                       19

<PAGE>

PART II.  OTHER INFORMATION

 Item 1.  Legal Proceedings

          None.

 Item 2.  Changes in Securities and Use of Proceeds

          None.

 Item 3.  Defaults upon Senior Securities

          None.

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

          None.

 Item 5.  Other Information

          None.































                                       20

<PAGE>


Item 6.  Exhibits and Reports on Form 8-K

   (a) Exhibits:

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

3.1(1)     Charter of United  Tennessee  Bankshares,  Inc.
3.2(1)     Bylaws of United  Tennessee  Bankshares,  Inc.
4 (1)      Form of  Stock  Certificate  of  United Tennessee Bankshares,  Inc.
10.1(2)    United Tennessee Bankshares,  Inc. 1999 Stock Option Plan
10.2(2)    United  Tennessee  Bankshares,  Inc.  Management Recognition  Plan
10.3(a)(1) Employment  Agreements  between  Newport  Federal  Savings  and  Loan
           Association and Richard G. Harwood, Nancy L. Bryant and Peggy Holston
10.3(b)(1) Forms of Guarantee Agreements  between  United Tennessee  Bankshares,
           Inc. and Richard G. Harwood,  Nancy L. Bryant and Peggy  Holston
10.4(1)    Newport  Federal  Savings  and  Loan  Association Long-Term Incentive
           Plan
10.5(1)    Newport  Federal Savings and  Loan  Association Deferred Compensation
           Plan
31.1       Certification   of   Richard   L.   Harwood,   President  and   Chief
           Executive Officer of United  Tennessee  Bankshares, Inc.  pursuant to
           Section 301 of the Sarbanes-Oxley Act of 2002.
31.2       Certification   of  Chris   H.   Triplett,   Controller   of   United
           Tennessee   Bankshares,  Inc.  pursuant   to   Section  301   of  the
           Sarbanes-Oxley Act of 2002.
32.1       Certification   of   Richard   L.   Harwood,   President  and   Chief
           Executive Officer  of  United  Tennessee  Bankshares,  Inc.  pursuant
           to Section 906 of the Sarbanes-Oxley  Act of 2002.
32.2       Certification   of  Chris   H.   Triplett,   Controller   of   United
           Tennessee   Bankshares,  Inc.  pursuant   to   Section  906   of  the
           Sarbanes-Oxley Act  of 2002.

------------------
(1)  Incorporated   by  reference  to  United   Tennessee   Bankshares,   Inc.'s
     Registration Statement on Form SB-2, File No. 333-36465.

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

     (b) Reports on Form 8-K:

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





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<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 12, 2003              /s/ Richard G. Harwood
                                     -------------------------------------------
                                     Richard G. Harwood
                                     President and Chief Executive Officer
                                     (Duly Authorized Representative and
                                     Principal Financial and Accounting Officer)



















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