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, 2004.


                                       OR

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

                         Commission File Number: 0-23551

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


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


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

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


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


State the number of shares outstanding of each of the issuer's classes of common
stock as of the latest practicable date: 1,196,999
                                         ---------


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, 2004 (Unaudited) and December 31, 2003                     3

     Consolidated  Statements  of  Income  for the
     Three-Month and  Nine-Month Periods Ended September 30,
     2004 and 2003 (Unaudited)                                                 4

     Consolidated  Statements of  Comprehensive  Income for the
     Three-Month and Nine-Month Periods Ended September 30,
     2004 and 2003 (Unaudited)                                                 5

     Consolidated   Statement  of  Changes  in  Shareholders'
     Equity  for  the Nine-Month Period Ended September 30,
     2004 (Unaudited)                                                          6

     Consolidated  Statements  of Cash Flows for the  Nine-Month
     Periods  Ended  September 30, 2004 and 2003 (Unaudited)                 7-8

     Notes  to  Consolidated   Financial  Statements  for  the
     Three-Month  and  Nine-Month Periods Ended September 30,
     2004 and 2003 (Unaudited)                                              9-12

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 and Reports on Form 8-K                                      20

SIGNATURES                                                                    21

CERTIFICATIONS                                                             22-23

                                      -2-
<PAGE>

PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements

                UNITED TENNESSEE BANKSHARES, INC. AND SUBSIDIARY
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                 AS OF SEPTEMBER 30, 2004 AND DECEMBER 31, 2003
<TABLE>
<CAPTION>
                                                                           September 30,
                                                                              2004            December 31,
                                                                           (Unaudited)             2003
                                                                        ------------------  -----------------
                                                                                (In Thousands)
<S>                                                                             <C>                 <C>
                         Assets
Cash and amounts due from depository institutions                               $   2,621           $   5,196
Investment securities available for sale, at fair value                            37,308              29,756
Loans receivable, net                                                              78,526              77,953
Premises and equipment, net                                                         1,216                 996
Foreclosed real estate - held for sale                                                 74                  49
Accrued interest receivable                                                           662                 559
Goodwill, net of amortization                                                         733                 793
Cash surrender value of life insurance                                              1,581               1,529
Prepaid expenses and other assets                                                      50                 151
                                                                        ------------------  ------------------
   Total assets                                                                 $ 122,771           $ 116,982
                                                                        ==================  ==================
                         Liabilities and Equity
Liabilities:
 Deposits                                                                       $ 102,593           $  98,107
 Accrued interest payable                                                             101                  79
 Accrued income taxes                                                                  68                   0
 Deferred income taxes                                                                683                 653
 Accrued benefit plan liabilities                                                   1,299               1,183
 Other liabilities                                                                    171                  67
                                                                        ------------------  ------------------
   Total liabilities                                                              104,915             100,089
                                                                        ------------------  ------------------
Shareholders' equity:
 Common stock - no par value, Authorized 20,000,000 shares;
   issued and outstanding 1,196,999 shares (1,230,379 in 2003)                  $  11,105           $  11,665
 Unearned compensation - ESOP                                                       (180)               (351)
 Shares in grantor trust - contra account                                           (224)               (216)
 Shares in stock option plan trusts - contra account                                (708)             (1,122)
 Retained earnings                                                                  6,681               5,785
 Accumulated other comprehensive income                                             1,182               1,132
                                                                       ------------------  ------------------
  Total shareholders' equity                                                       17,856              16,893
                                                                        ------------------  ------------------
Total liabilities and equity                                                    $ 122,771           $ 116,982
                                                                        ==================  ==================
</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, 2004 AND 2003

<TABLE>
<CAPTION>

                                                              (In Thousands Except                    (In Thousands Except
                                                             per Share Information)                  per Share Information)
                                                               Three Months Ended                      Nine Months Ended
                                                                  September 30,                          September 30,
                                                        ----------------------------------     -----------------------------------
                                                               2004               2003                2004                2003
                                                           (Unaudited)        (Unaudited)         (Unaudited)         (Unaudited)
                                                        ---------------     --------------     ---------------     ---------------
<S>                                                     <C>                 <C>                <C>                 <C>
Interest income:
 Loans                                                  $        1,337      $       1,413      $        4,046      $        4,314
 Investment securities                                             393                294               1,055                 849
 Other interest-earning assets                                       3                  5                   8                  21
                                                        ---------------     --------------     ---------------     ---------------
  Total interest income                                          1,733              1,712               5,109               5,184
                                                        ---------------     --------------     ---------------     ---------------
Interest expense:
 Deposits                                                          430                438               1,197               1,350
 Advances from Federal Home Loan Bank                                1                  0                   1                   0
                                                        ---------------     --------------     ---------------     ---------------
  Total Interest Expense                                           431                438               1,198               1,350
                                                        ---------------     --------------     ---------------     ---------------
Net interest income                                              1,302              1,274               3,911               3,834
Provision for loan losses                                           24                 36                  76                 108
                                                        ---------------     --------------     ---------------     ---------------
Net interest income after provision for loan
 losses                                                          1,278              1,238               3,835               3,726
                                                        ---------------     --------------     ---------------     ---------------
Noninterest income:
 Deposit account service charges                                    80                 88                 227                 225
 Loan service charges and fees                                      29                 31                  84                  85
 Net gain (loss) on sales of investment
  securities available for sale                                     26                  0                  26                  13
 Other                                                              22                 15                  83                  48
                                                        ---------------     --------------     ---------------     ---------------
  Total noninterest income                                         157                134                 420                 371
                                                        ---------------     --------------     ---------------     ---------------
Noninterest expense:
 Compensation and benefits                                         415                324               1,264                 986
 Occupancy and equipment                                            55                 61                 205                 189
 Federal deposit insurance premiums                                  5                 15                  13                  45
 Data processing fees                                               86                 72                 251                 204
 Advertising and promotion                                          17                 20                  52                  57
 Net (gain) loss on foreclosed real estate                         (2)                  0                (10)                  10
 Amortization                                                       20                 20                  60                  60
 Other                                                             133                145                 431                 444
                                                        ---------------     --------------     ---------------     ---------------
  Total noninterest expense                                        729                657               2,266               1,995
                                                        ---------------     --------------     ---------------     ---------------
Income before income taxes                                         706                715               1,989               2,102

Income taxes                                                       259                278                 651                 817
                                                        ---------------     --------------     ---------------     ---------------
Net income                                              $          447      $         437      $        1,338      $        1,285
                                                        ===============     ==============     ===============     ===============
Earnings per share:
 Basic                                                  $         0.37      $        0.34      $         1.10      $         1.00
                                                        ===============     ==============     ===============     ===============
 Diluted                                                $         0.37      $        0.34      $         1.09      $         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 MONTH AND NINE MONTH PERIOD ENDED SEPTEMBER 30, 2004

<TABLE>
<CAPTION>
                                                               Three Months Ended          Nine Months Ended
                                                           -------------------------   -------------------------
                                                                  September 30,               September 30
                                                           -------------------------   -------------------------
                                                              2004            2003         2004          2003
                                                           -----------    ----------   -----------   -----------
                                                           (Unaudited - In thousands)  (Unaudited - In thousands)
<S>                                                        <C>            <C>          <C>           <C>
Net Income                                                 $      447     $      447   $     1,338   $     1,285
                                                           -----------    ----------   -----------   -----------
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on investment securities                607           (100)          106          (331)
Less reclassification adjustment for gains/losses
 included in net income                                           (26)             0           (26)          (13)
Less income taxes related to unrealized
 gains/losses on investment securities                           (220)            38           (30)          131
                                                           -----------    ----------   -----------   -----------
Other comprehensive income (loss), net of tax                     361            (62)           50          (213)
                                                           -----------    ----------   -----------   -----------
Comprehensive income(loss)                                 $      808     $      375   $     1,388   $     1,072
                                                           -----------    ----------   -----------   -----------
</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, 2004
<TABLE>
<CAPTION>
                                                         Shares in       Shares in                    Accumulated
                                           Unearned       Grantor       Stock Option                     Other             Total
                              Common    Compensation-   Trust-Contra    Plan Trust-     Retained     Comprehensive     Shareholders'
                               Stock         ESOP          Account     Contra Account   Earnings         Income            Equity
                           ---------    ------------     -----------    ------------   ----------    -------------     ------------
<S>                        <C>          <C>              <C>            <C>            <C>           <C>               <C>
Balances, beginning of
 period                    $  11,665    $       (351)    $      (216)   $     (1,122)  $    5,785    $       1,132     $     16,893

Net income                         0               0               0               0        1,338                0            1,338

Other comprehensive
 income (loss)                     0               0               0               0            0               50               50

Retirement of Stock held
 in the Stock Option
 Plan Trusts                    (560)              0               0             560            0                0                0

Purchase of Stock to be
 held in the Grantor
 Trust Plan                        0               0              (8)              8            0                0                0

Purchase of Stock to be
 held in the Stock Option
 Plan Trusts                       0               0               0             (74)           0                0              (74)

Payment on ESOP loan
 principal                         0             171               0               0            0                0              171

Dividends paid                     0               0               0               0         (442)               0             (442)

Proceeds from exercise
 of stock options                  0               0               0             206            0                0              206

Decrease in Cost of
 Shares in Stock Option
 Plan Trusts                       0               0               0              27            0                0               27

Costs associated with
 stock options surrendered         0               0               0            (313)           0                0             (313)
                           ---------    ------------     -----------    ------------   ----------    -------------     -------------
Balances, end of period    $  11,105    $       (180)    $      (224)   $       (708)  $    6,681    $       1,182     $     17,056
                           =========    ============     ===========    ============   ==========    =============     =============
</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, 2004 AND 2003
<TABLE>
<CAPTION>

                                                                           Nine Months Ended
                                                                             September 30,
                                                                     -------------------------------
                                                                               2004           2003
                                                                          (Unaudited - in thousands)
                                                                     -------------------------------
<S>                                                                       <C>             <C>
Operating Activities:
 Net income                                                               $   1,338       $   1,285
                                                                     -------------------------------
 Adjustments to reconcile net income to net cash
 provided by operating activities:
   Provision for loan losses                                                     76             108
   Depreciation                                                                  69              72
   Amortization of goodwill                                                      60              60
   Net (gain) loss on sales of foreclosed real estate                           (10)             10
   Federal home loan bank stock dividends                                       (29)            (27)
   Net (gain) loss on sales of investment securities
    available for sale                                                          (26)            (13)
   Increase in cash surrender value of bank-owned life insurance                (52)              0
   (Increase) Decrease in:
    Accrued interest receivable                                                (103)             28
    Other assets                                                                101              70
   Increase (Decrease) in:
    Accrued interest payable                                                     22             (10)
    Accrued income taxes                                                         68              62
    Accrued benefit plan liabilities                                            116              57
    Other liabilities                                                           104              91
                                                                     -------------------------------
     Total adjustments                                                          396             508
                                                                     -------------------------------
Net cash provided by operating activities                                     1,734           1,793
                                                                     -------------------------------
Investing Activities:
 Purchases of investment securities available for sale                      (14,799)        (12,184)
 Proceeds from maturities of investment securities available for sale             0           1,031
 Payments received on investment securities available for sale                6,664           4,126
 Proceeds from sales of investment securities available for sale                718           1,107
 Net (increase) decrease in loans                                            (1,075)           (230)
 Purchases of premises and equipment, net                                      (289)            (69)
 Purchase of bank-owned life insurance                                            0          (1,512)
 Proceeds from sales of foreclosed real estate                                  411             118
                                                                     -------------------------------
Net cash used in investing activities                                        (8,370)         (7,613)
                                                                     -------------------------------
</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, 2004 AND 2003
<TABLE>
<CAPTION>
                                                                              Nine Months Ended
                                                                              2004           2003
                                                                    --------------------------------
                                                                      (Unaudited - in thousands)
<S>                                                                          <C>          <C>
Financing Activities:
 Dividends paid                                                                   (442)        (420)
 Costs associated with stock options surrendered                                  (313)        (327)
 Net increase (decrease) in deposits                                             4,486        5,400
 Purchase of common stock                                                          (74)         (47)
 Proceeds from exercise of stock options                                           206            9
 Proceeds from dividends of shares in stock option plan                             27            0
 Issuance of common stock for MRP plan                                               0           56
Purchase of common stock pursuant director's long-term
 incentive plan                                                                      0           (1)
 Payment on ESOP loan and release of shares                                        171          116
 Net repayment of advances from Federal Home Loan Bank                               0            0
                                                                    --------------------------------
Net cash provided by (used in) financing activities                              4,061        4,786
                                                                    --------------------------------
Net increase (decrease) in cash and cash equivalents                            (2,575)      (1,034)

Cash and cash equivalents, beginning of period                                   5,196        5,350
                                                                    --------------------------------
Cash and cash equivalents, end of period                                     $   6,621    $   4,316
                                                                    ================================

Supplementary disclosures of cash flow information:
Cash paid during the period for:
 Interest                                                                    $   1,220    $   1,360
 Income taxes                                                                $     426    $     784

Supplementary disclosures of noncash investing activities:
  Acquisition of foreclosed real estate                                      $     436    $      48
  Change in unrealized gain\loss on investment securities
   available for sale                                                        $      80    $    (344)
  Change in deferred income taxes associated with unrealized
   gain\loss on investment securities available for sale                     $      30    $    (131)
  Change in net unrealized gain\loss on investment
   securities available for sale                                             $      50    $    (213)

</TABLE>



    The accompanying notes are an integral part of these financial statements


                                      -8-
<PAGE>


                UNITED TENNESSEE BANKSHARES, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE THREE-MONTH AND NINE-MONTH PERIODS
                  ENDED SEPTEMBER 30, 2004 AND 2003 (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,
                                                     -------------------------  ----------------------
(In thousands, except per share data)                   2004            2003       2004          2003
                                                     ------------   ----------  ----------   ---------
<S>                                                  <C>            <C>         <C>          <C>
Net Income, as reported                              $        447   $      437  $    1,338   $   1,285

Deduct:  Total stock-based employee compensation
  expense determined under fair value based method
  for all awards, net of related tax effects
  to calculate earnings per share                               0           (1)          0          (7)
                                                     ------------   ----------  ----------   ---------
Pro forma net income                                 $        447   $      436  $    1,338   $   1,278
                                                     ============   ==========  ==========   =========
Earnings per share:
  Basic - as reported                                $       0.37   $     0.34  $     1.10   $    1.00
                                                     ============   ==========  ==========   =========
  Basic - pro forma                                  $       0.37   $     0.34  $     1.10   $    1.00
                                                     ============   ==========  ==========   =========
  Diluted - as reported                              $       0.37   $     0.34  $     1.09   $    1.00
                                                     ============   ==========  ==========   =========
  Diluted - pro forma                                $       0.37   $     0.34  $     1.09   $    0.99
                                                     ============   ==========  ==========   =========
</TABLE>

                                      -9-
<PAGE>

Note 2 - Earnings Per Share

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

Earnings per share have been computed based on the following:

<TABLE>
<CAPTION>
                                                         Three Months Ended             Nine Months Ended
                                                      --------------------------    --------------------------
                                                            September 30,                 September 30,
                                                      --------------------------    --------------------------
                                                         2004           2003           2004           2003
                                                      -----------    -----------    -----------    -----------
<S>                                                    <C>            <C>            <C>            <C>
Average number of shares outstanding                   1,201,502      1,268,030      1,219,150      1,281,777
Effect of dilutive options                                     0          1,390          9,658          6,908
                                                      -----------    -----------    -----------    -----------
Average number of shares outstanding used
  to calculate earnings per share                      1,201,502      1,269,420      1,228,808      1,288,685
                                                      ===========    ===========    ===========    ===========
</TABLE>

Note 3 - Comprehensive Income

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

Note 4 - 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  awarded  54,517  shares of restricted  common
stock to certain  members of the board of directors and senior  management.  The
shares were awarded 25% per year. The Company and its subsidiary shared the cost
of the Plan and accrued the estimated cost of repurchasing shares to be reissued
as restricted stock over the period that such awards are earned.

                                      -10-
<PAGE>

Activity in the MRP plan is as follows:
<TABLE>
<CAPTION>
                                                                    Nine Month
                                                            Period Ended September 30,
                                                            ---------------------------
                                                               2004            2003
                                                            ------------    -----------
<S>                                                         <C>              <C>
Accrued Liability Balance at Beginning of Period            $         0      $   5,538
Amount Charged to Expense                                             0          5,698
Less Cost of Shares Issued                                            0        (11,236)
                                                            ------------    -----------
Accrued Liability at End of Period                          $         0      $       0
                                                            ============    ===========
</TABLE>

The Company paid out the remaining  distribution of the MRP in the third quarter
of 2003 and cancelled  the  remaining  3,673 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, 2004, 31,069 options were surrendered at a
total cost of  $312,682  (62,264  shares for  $337,396 in 2003).  Stock  options
awarded and outstanding  totaled 46,988 and 112,057 as of September 30, 2004 and
2003, 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
                                     ---------------------------------
                                              September 30,
                                     ---------------------------------
                                           2004              2003
                                     ---------------    --------------
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%

                                      -11-
<PAGE>


A summary of the status of the Company's stock option plan is presented below:
<TABLE>
<CAPTION>
                                                                     Nine Months Ended September 30,
                                                --------------------------------------------------------------------------
                                                                   2004                                   2003
                                                -----------------------------------------    -----------------------------
                                                                              Weighted                         Weighted
                                                                               Average                          Average
                                                                              Exercise                         Exercise
                                                         Shares                 Price           Shares           Price
                                                 ------------------------   --------------    -----------    --------------
<S>                                                              <C>               <C>           <C>                <C>

Outstanding at Beginning of Period                               102,057           $ 8.59        175,321            $ 8.59
Granted                                                                0                               0
Exercised                                                        (24,000)                         (1,000)
Surrendered                                                      (31,069)            8.60        (62,264)             8.60
Forfeited                                                              0                               0
                                                 ------------------------                     -----------
Outstanding at End of Period                                      46,988           $ 8.59        112,057            $ 8.59
                                                 ========================                     ===========
Options Exercisable at Period-End                                 45,332           $ 8.59        108,746            $ 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,  2004 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               46,988       4.8 years        $    8.59              45,332      $    8.59
</TABLE>

The Company has purchased 49,010 and 100,249 shares as of September 30, 2004 and
December 31, 2003,  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

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

Note 7 - Recent Accounting Pronouncements

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.  Since the
Company  does not  invest  in  derivatives  or  engage  in  hedging  activities,
management  does not expect this  statement to have any impact on the  Company's
consolidated financial position or results of operations.

                                      -12-
<PAGE>


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
establishes  standards  for  how  an  issuer  classifies  and  measures  certain
financial instruments with characteristics of both liabilities and equity. Since
the  Company has not yet issued any  instruments  of the type  discussed  in the
statement,  management  does not expect  this  statement  to have a  significant
impact  on  the  Company's   consolidated   financial  position  or  results  of
operations.

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,
2004 and for the  three-month  and nine-month  periods ended  September 30, 2004
These comments  should be read in conjunction  with our  consolidated  financial
statements and accompanying footnotes appearing in this report.

                                      -13-
<PAGE>

Comparison of Financial Condition at September 30, 2004 and December 31, 2003

Total assets  increased  from  December  31, 2003 to September  30, 2004 by $5.8
million,  or 4.9%, from $117.0 million at December 31, 2003 to $122.8 million at
September  30,  2004.  The increase in assets was  principally  the result of an
increase in  investment  securities.  Investment  securities  increased  by $7.6
million  offset  by  a  decrease  in  cash  and  amounts  due  from   depository
institutions of $2.6 million.

Loans  receivable  increased  from  December 31, 2003 to  September  30, 2004 as
originations exceeded repayments for the period by approximately  $573,000.  The
following  table  sets  forth  information  about  the  composition  of our loan
portfolio  by type of loan at the dates  indicated.  At  September  30, 2004 and
December 31, 2003,  we had no  concentrations  of loans  exceeding  10% of gross
loans other than as disclosed below.

<TABLE>
<CAPTION>

                                            September 30, 2004         December 31, 2003
                                          ------------------------   -----------------------
<S>                                             <C>        <C>            <C>        <C>
                                                  Amount   Percent          Amount   Percent
Type of Loan:
-------------
Real estate loans:
  One- to four-family residential               $  63,443   77.9%         $  63,335   79.2%
  Commercial                                        9,263   11.4%             9,261   11.6%
  Construction                                      3,808    4.7%             1,769    2.2%

Consumer loans:
  Automobile                                        1,443    1.8%             1,488    1.9%
  Loans to depositors, secured by deposits          1,275    1.6%             1,293    1.6%
  Home equity and second mortgage                     637    0.8%             1,341    1.7%
  Other                                             1,538    1.9%             1,504    1.9%
                                          -----------------------   -----------------------
                                                   81,407  100.0%            79,991  100.0%
                                          ---------------========   ----------------=======

Less:
  Loans in process                                  1,571                       764
  Deferred fees and discounts                         352                       352
  Allowance for loan losses                           958                       922
                                          ----------------           ---------------
    Total                                       $  78,526                 $  77,953
                                          ================           ===============
</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.

                                      -14-
<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,
                                              2004                 2003
                                       -------------------  --------------------
                                                      (In Thousands)
Balance at beginning of period         $              921     $             803
                                       -------------------  --------------------
Charge-offs:
  Consumer                                            (19)                  (20)
  Mortgage                                            (22)                    0
Recoveries:
  Consumer                                              2                     1
  Mortgage                                              0                     0
                                       -------------------  --------------------
Net Charge-offs                                       (39)                  (19)
Provision for loan losses                              76                   108
                                       -------------------  --------------------
Balance at end of period               $              958     $             892
                                       ===================  ====================


The following table sets forth information about our nonperforming assets at the
dates indicated.
                                             September 30,         September 30,
                                                  2004                 2003
                                       -------------------  --------------------
                                                   (In Thousands)
Nonaccrual Loans                       $                -   $                 -
Accruing loans which are contractually past due
90 days or more:
Real Estate:
  Residential                                          64                   283
  Non-Residential                                       4                    66
Consumer                                               15                    11
                                       -------------------  --------------------
Total                                  $               83   $               360
                                       ===================  ====================

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,  2004,  the Company  increased  its
liabilities by $4.8 million,  or 4.8%. Total deposits  increased $4.5 million or
4.6% from $98.1 million at December 31, 2003 to $102.6  million at September 30,
2004.

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. Management is unable to determine

                                      -15-
<PAGE>


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 $1.0 million from $16.9 million at December
31, 2003 to $17.9 million at September 30, 2004. The Company's  equity increased
primarily  due to net income of $1.3  million and  proceeds  from stock  options
exercised of $206,000,  and a decrease in unearned  compensation  related to the
Company's  ESOP of $171,000 and an increase in other  accumulated  comprehensive
income of $50,000, offset by dividends paid of $442,000,  decreases due to stock
options  surrendered  at a cost of $313,000 and the purchase and  retirement  of
$69,000  of the  Company's  common  stock.  The  Company's  board  of  directors
announced a plan to extend the current stock  repurchase  plan an additional two
years and  purchase  an  additional  $500,000,  up to a total of $606,000 of its
stock in the open market, depending upon the stock price.


Discussion  of Results of  Operations  for the Three Months Ended  September 30,
2004 and 2003

Our net income for the three months ended September 30, 2004 was $447,000, which
was an increase  of $10,000  from the amount we earned  during the three  months
ended  September  30, 2003.  Basic and diluted  earnings per share for the three
months ended  September 30, 2004 were each $0.37  compared to $0.34 for the same
period  in 2003.  Basic  average  shares  outstanding  for  three  months  ended
September  30,  2004 was  1,201,502  shares and  1,269,420  shares for the three
months ended September 30, 2003.  Average dilutive  potential shares outstanding
were 0 and 1,390 respectively.

Interest  income  increased  $21,000,  or 1.2%, from $1.71 million for the three
months  ended  September  30, 2003 to $1.73  million for the three  months ended
September 30, 2004.  The increase in interest  income is a result of an increase
in investment  securities  interest of $99,000  offset by a decrease in interest
income on loans of $76,000.

Interest expense on deposits decreased $8,000 from $438,000 for the three months
ended  September  30, 2003 to $430,000 for the three months ended  September 30,
2004, primarily due to the decrease in deposit account interest rates.

Net interest income increased $28,000,  or 2.2%, 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 4.47% for the three months ended
September  30, 2004  compared to 4.68% for the  comparable  period of 2003.  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  $23,000 from $134,000 for the three months ended
September  30, 2003 to $157,000 for the three months ended  September  30, 2004.
The increase in  noninterest  income was due to a $26,000 gain on the sale of an
investment security.

Noninterest  expenses increased $72,000 from $657,000 for the three months ended
September  30, 2003 to $729,000 for the three months ended  September  30, 2004.
The increase in noninterest expense was primarily from an increase  compensation
and benefits of $91,000,  offset by a reduction in other noninterest expenses of
$12,000. The increase compensation and benefits resulted from the mark to market
adjustment on the Directors  Incentive Plan of $40,000 and a $23,000 increase to
the directors deferred compensation  liability.  The directors have an option of
deferring  their fees and earning a market

                                      -16-
<PAGE>


return  on the  balance.  The  return on both  plans is based on the  percentage
increase or decrease in the market value of United  Tennessee  Bankshares  stock
for the period.

Our effective  tax rates for the three months ended  September 30, 2004 and 2003
were 36.7% and 38.9%,  respectively.  The decrease in our effective tax rate for
the period in 2004 was due to the  surrender of stock  options,  which provide a
tax benefit to the Company.


Discussion of Results of Operations for the Nine Months Ended September 30, 2004
and 2003

Our net income for the nine months  ended  September  30,  2004 was  $1,338,000,
which was an  increase  of  $53,000  from the  amount we earned  during the nine
months ended  September 30, 2003.  Basic and diluted  earnings per share for the
nine  months  ended  September  30,  2004 were  $1.10 and  $1.09,  respectively,
compared  to $1.00  for  each the same  period  in 2003.  Basic  average  shares
outstanding  for the nine months ended  September 30, 2004 was 1,219,150  shares
and  1,281,777  shares for the nine months ended  September  30,  2003.  Average
dilutive potential shares outstanding were 8,096 and 6,908 respectively.

Interest  income  decreased  $75,000,  or 1.4%,  from $5.18 million for the nine
months  ended  September  30, 2003 to $5.11  million  for the nine months  ended
September 30, 2004. 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 $153,000 from $1.35 million for the nine
months  ended  September  30, 2003 to $1.20  million  for the nine months  ended
September 30, 2004,  primarily due to the decrease in deposit  account  interest
rates.

Net interest income increased $77,000,  or 2.0%, 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 4.61% for the nine months ended
September  30, 2004  compared to 4.69% for the  comparable  period of 2003.  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  $49,000 from  $371,000 for the nine months ended
September 30, 2003 to $420,000 for the nine months ended September 30, 2004. The
increase in noninterest income was due to $51,000 in income from bank owned life
insurance.

Noninterest  expenses  increased  $271,000 from $2.0 million for the nine months
ended September 30, 2003 to $2.3 million for the nine months ended September 30,
2004.  The increase in  noninterest  expense was  primarily  from an increase in
compensation  and benefits of $278,000.  The increase  compensation and benefits
resulted primarily from the mark to market adjustment on the Directors Incentive
Plan of $127,000 and a $69,000 increase to the directors  deferred  compensation
liability.  The directors  have an option of deferring  their fees and earning a
market  return  on the  balance.  The  return  on both  plans  is  based  on the
percentage  increase  or  decrease  in the  market  value  of  United  Tennessee
Bankshares stock for the period.

Our  effective  tax rates for the nine months ended  September 30, 2004 and 2003
were 32.7% and 38.9%,  respectively.  The decrease in our effective tax rate for
the period in 2004 was due to the  surrender of stock  options,  which provide a
tax benefit to the Company.

Liquidity and Capital Resources

The Company  does not  currently  have any  business  activities  other than the
operation of the Bank and does not have significant on-going funding commitments
other than the payment of dividends to

                                      -17-
<PAGE>


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, 2004 and December 31, 2003, 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

                                      -18-
<PAGE>


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, 2004.  Based on
that evaluation,  the chief executive  officer and chief financial  officer have
concluded that the Company's disclosure controls and procedures are effective to
ensure that  material  information  relating  to the  Company and the  Company's
consolidated  subsidiaries is made known to such officers by others within these
entities,  particularly during the period this quarterly report was prepared, in
order to allow timely decisions regarding required disclosure.

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







                                      -19-

<PAGE>


PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings

None.

Item 2.  Changes in Securities and Use of Proceeds

None.

Item 3.  Defaults upon Senior Securities

None.

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

None.

Item 5.  Other Information

None.

Item 6.  Exhibits and Reports on Form 8-K

   (a) Exhibits:

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

3.1/1             Charter of United Tennessee Bankshares, Inc.

3.2/1             Bylaws of United Tennessee Bankshares, Inc.

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

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

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

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

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

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

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

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

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

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

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

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

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

                                      -20-
<PAGE>


                                   SIGNATURES



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

                            UNITED TENNESSEE BANKSHARES, INC.
                            Registrant



Date: November 12, 2004     /S/ Richard G. Harwood
                            ----------------------------------------------------
                            Richard G. Harwood
                            President and Chief Executive Officer
                            (Duly Authorized Representative and
                            Principal Financial and Accounting Officer)