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 March 31, 2004.


[ ]  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: 1,230,379
                                         ---------

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


<PAGE>


CONTENTS

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

         Item 1.  Financial Statements

                  Consolidated Statements of Financial Condition as of
                  March 31, 2004 (Unaudited) and December 31, 2003            3

                  Consolidated Statements of Income for the Three Month
                  Month Periods Ended March 31, 2004 and 2003 (Unaudited)     4

                  Consolidated Statements of Comprehensive Income
                  for the Three Month Periods Ended March 31, 2004
                  and 2003 (Unaudited)                                        5

                  Consolidated Statement of Changes in Shareholders'
                  Equity for the Three Month Periods Ended
                  March 31, 2004 (Unaudited)                                  6

                  Consolidated Statements of Cash Flows for the
                  Three Month Periods Ended March 31, 2004
                  and 2003 (Unaudited)                                      7-8

                  Notes to Consolidated Financial Statements for
                  the Three Month Periods Ended March 31, 2004
                  and 2003 (Unaudited)                                     9-11

         Item 2.  Management's Discussion and Analysis or
                  Plan of Operation                                       12-17

         Item 3.  Controls and Procedures                                    17

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

         Item 1.  Legal Proceedings                                          18

         Item 2.  Changes in Securities and Use of Proceeds                  18

         Item 3.  Defaults upon Senior Securities                            18

         Item 4.  Submission of Matters to a Vote of Security Holders        18

         Item 5.  Other Information                                          18

         Item 6.  Exhibits and Reports on Form 8-K                           18

SIGNATURES                                                                   19

CERTIFICATIONS                                                            20-21

<PAGE>

PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements


<TABLE>
<CAPTION>
                                  UNITED TENNESSEE BANKSHARES, INC. AND SUBSIDIARY
                                   CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                                     AS OF MARCH 31, 2004 AND DECEMBER 31, 2003

                                                                                  March 31,
                                                                                    2004               December 31,
                                                                                 (Unaudited)               2003
                                                                                --------------        ----------------
<S>                                                                             <C>                   <C>
                                                                                           (In Thousands)
                                  Assets
Cash and amounts due from depository institutions                               $       3,562         $         5,196
Investment securities available for sale, at fair value                                32,486                  29,756
Loans receivable, net                                                                  77,366                  77,953
Premises and equipment, net                                                             1,029                     996
Foreclosed real estate - held for sale                                                    261                      49
Accrued interest receivable                                                               651                     559
Goodwill, net of amortization                                                             773                     793
Cash surrender value of life insurance                                                  1,547                   1,529
Prepaid expenses and other assets                                                          65                     151
                                                                                --------------        ----------------
  Total assets                                                                  $     117,740         $       116,982
                                                                                ==============        ================

                          Liabilities and Equity
Liabilities:
 Deposits                                                                       $      97,815         $        98,107
 Accrued interest payable                                                                  80                      79
 Accrued income taxes                                                                      89                       0
 Deferred income taxes                                                                    790                     653
 Accrued benefit plan liabilities                                                       1,099                   1,183
 Other liabilities                                                                        117                      67
                                                                                --------------        ----------------

  Total liabilities                                                                    99,990                 100,089
                                                                                --------------        ----------------

Shareholders' equity:
 Common stock - no par value, Authorized 20,000,000 shares;
   issued and outstanding 1,230,379 shares (1,230,379 in 2003)                         11,665                  11,665
 Unearned compensation - ESOP                                                            (235)                   (351)
 Shares in grantor trust - contra account                                                (216)                   (216)
 Shares in stock option plan trusts - contra account                                     (997)                 (1,122)
 Retained earnings                                                                      6,177                   5,785

 Accumulated other comprehensive income                                                 1,356                   1,132
                                                                                --------------        ----------------

  Total shareholders' equity                                                           17,750                  16,893
                                                                                --------------        ----------------
Total liabilities and equity                                                    $     117,740         $       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 MONTH PERIODS ENDED MARCH 31, 2004 AND 2003

<TABLE>
<CAPTION>
                                                                             (In Thousands Except
                                                                            per Share Information)
                                                                     -------------------------------------
                                                                              Three Months Ended
                                                                     -------------------------------------
                                                                                  March 31,
                                                                     -------------------------------------
                                                                          2004                  2003
                                                                      (Unaudited)           (Unaudited)
                                                                     ---------------       ---------------
<S>                                                                  <C>                   <C>
Interest income:

 Loans                                                               $        1,356        $        1,468
 Investment securities                                                          323                   279
 Other interest-earning assets                                                    3                     6
                                                                     ---------------       ---------------
  Total interest income                                                       1,682                 1,753
                                                                     ---------------       ---------------

Interest expense:
 Deposits                                                                       376                   437
                                                                     ---------------       ---------------
  Total interest expense                                                        376                   437
                                                                     ---------------       ---------------

Net interest income                                                           1,306                 1,316

Provision for loan losses                                                        28                    36
                                                                     ---------------       ---------------

Net interest income after provision for loan losses                           1,278                 1,280
                                                                     ---------------       ---------------

Noninterest income:
 Deposit account service charges                                                 72                    62
 Loan service charges and fees                                                   29                    25
 Net gain (loss) on sales of investment
  securities available for sale                                                   0                    13
 Other                                                                           29                    20
                                                                     ---------------       ---------------
  Total noninterest income                                                      130                   120
                                                                     ---------------       ---------------

Noninterest expense:
 Compensation and benefits                                                      510                   360
 Occupancy and equipment                                                         60                    63
 Federal deposit insurance premiums                                               4                    15
 Data processing fees                                                            78                    67
 Advertising and promotion                                                       14                    18
 Net (gain) loss on foreclosed real estate                                        0                     8
 Amortization                                                                    20                    20
 Other                                                                          133                   116
                                                                     ---------------       ---------------
  Total noninterest expense                                                     819                   667
                                                                     ---------------       ---------------

Income before income taxes                                                      589                   733

Income taxes                                                                    197                   283
                                                                     ---------------       ---------------


Net income                                                           $          392        $          450
                                                                     ===============       ===============
Earnings per share

 Basic                                                               $         0.32        $         0.34
                                                                     ===============       ===============

Diluted                                                              $         0.32        $         0.34
                                                                     ===============       ===============
</TABLE>

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

                                       4
<PAGE>




                UNITED TENNESSEE BANKSHARES, INC. AND SUBSIDIARY
             CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
            FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2004 AND 2003

<TABLE>
<CAPTION>

                                                                                       Three Months Ended March 31,
                                                                                    -----------------------------------
                                                                                        2004                  2003
                                                                                    -------------         -------------
                                                                                        (Unaudited - in thousands)
<S>                                                                                 <C>                   <C>

Net income                                                                          $        392          $       450
                                                                                    -------------         -------------

Other comprehensive income (loss), net of tax:
 Unrealized gains (losses) on investment securities                                          362                 (207)
 Less reclassification adjustment for gains\losses
  included in net income                                                                       0                  (13)
 Less income taxes related to unrealized
  gains\losses on investment securities                                                    (138)                   84
                                                                                    -------------         -------------
   Other comprehensive income (loss), net of tax                                             224                 (136)
                                                                                    -------------         -------------


Comprehensive income(loss)                                                          $        616          $       314
                                                                                    =============         =============
</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 THREE MONTH PERIOD ENDED MARCH 31, 2004

<TABLE>
<CAPTION>

                                                             Shares in      Shares in                 Accumulated
                                               Unearned       Grantor      Stock Option                  Other           Total
                                   Common    Compensation   Trust-Contra    Plan-Contra    Retained   Comprehensive   Shareholders'
                                    Stock       ESOP           Account        Account      Earnings      Income          Equity
                                 ---------   ------------   ------------   ------------    --------   -------------   -------------
<S>                              <C>         <C>            <C>            <C>             <C>        <C>
Balances, beginning of perod     $  11,665   $      (351)   $      (216)   $    (1,122)    $  5,785   $       1,132   $      16,893

Net income                               0             0              0              0          392               0             392

Other comprehensive income (loss)        0             0              0              0            0             224             224

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

Dividents paid                           0             0              0              0            0               0               0

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

Proceeds form exercise of
  stock options                          0             0              0            206            0               0             206

Costs associated with stock options
 surrendered                             0             0              0            (81)           0               0             (81)
                                 ---------   ------------   ------------   -----------     --------     -----------   -------------
Balances, end of period          $  11,665   $      (235)   $      (216)   $      (997)    $  6,177     $     1,356   $      17,750

</TABLE>

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












                                       6
<PAGE>



                UNITED TENNESSEE BANKSHARES, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
            FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2004 AND 2003

<TABLE>
<CAPTION>
                                                                             Three Months Ended
                                                                                 March 31,
                                                                       -------------------------------
                                                                            2004            2003
                                                                         (Unaudited - in thousands)
                                                                       -------------------------------
<S>                                                                        <C>               <C>

Operating Activities:
 Net income                                                                $    392          $    450
                                                                       -------------    --------------
 Adjustments to reconcile net income to net cash provided by operating
  activities:
   Provision for loan losses                                                     28                36
   Depreciation                                                                  24                23
   Amortization of goodwill                                                      20                20
   Increase in cash surrender value of life insurance                           (18)                0
   Net (gain) loss on sales of foreclosed real estate                             0                 8
   Federal home loan bank stock dividends                                        (9)               (9)
   Net (gain) loss on sales of investment securities available for
sale                                                                              0               (13)
   (Increase) Decrease in:
    Accrued interest receivable                                                 (92)              (17)
    Other assets                                                                 86                44
   Increase (Decrease) in:
    Accrued interest payable                                                      1                (3)
    Accrued income taxes                                                         89               272
    Accrued benefit plan liabilities                                            (84)             (154)
    Other liabilities                                                            50               (24)
                                                                       -------------    --------------
     Total adjustments                                                           95               183
                                                                       -------------    --------------
Net cash provided by operating activities                                       487               633
                                                                       -------------    --------------

Investing Activities:
 Purchases of investment securities available for sale                       (4,339)           (4,078)
 Proceeds from maturities of investment securities available for sale             0               517
 Payments received on investment securities available for sale                1,980             1,008
 Proceeds from sales of investment securities available for sale                  0             1,107
 Net (increase) decrease in loans                                               331               553
 Purchases of premises and equipment, net                                       (57)               (4)
 Proceeds from sales of foreclosed real estate                                   15               119
                                                                       -------------    --------------
Net cash provided by (used in) investing activities                          (2,070)             (778)
                                                                       -------------    --------------
</TABLE>

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



                                       7
<PAGE>



                UNITED TENNESSEE BANKSHARES, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
            FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2004 AND 2003
<TABLE>
<CAPTION>
                                                                            Three Months Ended
                                                                          2004              2003
                                                                      --------------    --------------
                                                                          (Unaudited - in thousands)
<S>                                                                       <C>               <C>
Financing Activities:
 Costs associated with stock options surrendered                               (81)              (195)
 Net increase (decrease) in deposits                                           (292)              100
 Purchase of common stock                                                         0               (35)
 Proceeds from exercise of stock options                                        206                 9
 Payment on ESOP loan and release of shares                                     116               116
                                                                      --------------    --------------
Net cash provided by (used in) financing activities                            (51)               (5)
                                                                      --------------    --------------
Net increase (decrease) in cash and cash equivalents                        (1,634)             (150)

Cash and cash equivalents, beginning of period                                5,196             5,350
                                                                      --------------    --------------

Cash and cash equivalents, end of period                                  $   3,562         $   5,200
                                                                      ==============    ==============

Supplementary disclosures of cash flow information:
Cash paid during the period for:
 Interest                                                                      $375             $434
 Income taxes                                                                  $ 40             $250

Supplementary disclosures of noncash investing activities:
  Acquisition of foreclosed real estate                                        $227              $21
  Change in unrealized gain\loss on investment securities
   available for sale                                                          $362            ($220)
  Change in deferred income taxes associated with unrealized
   gain\loss on investment securities available for sale                       $138             ($84)
  Change in net unrealized gain\loss on investment
   securities available for sale                                               $224            ($136)
</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 PERIOD ENDED MARCH 31, 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
                                                                   --------------------------
                                                                           March 31,
                                                                   --------------------------
(In thousands, except per share data)                                 2004           2003
                                                                   -----------    -----------
<S>                                                                <C>            <C>
Net Income, as reported                                            $      392     $      450

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             (4)
                                                                   -----------    -----------
Pro forma net income                                               $      392     $      446
                                                                   ===========    ===========

Earnings per share:
  Basic - as reported                                              $     0.32     $     0.34
                                                                   ===========    ===========
  Basic - pro forma                                                $     0.32     $     0.34
                                                                   ===========    ===========
  Diluted - as reported                                            $     0.32     $     0.34
                                                                   ===========    ===========
  Diluted - pro forma                                              $     0.32     $     0.34
                                                                   ===========    ===========
</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:

                                                        Three Months Ended
                                                 -------------------------------
                                                               March 31,
                                                 -------------------------------
                                                        2004             2003
                                                 --------------   --------------
Average number of shares outstand                    1,230,379        1,304,580
Effect of dilutive options                               9,638            2,433
                                                 --------------   --------------
Average number of shares outstanding used
  to calculate earnings per share                    1,240,017        1,307,013
                                                 ==============   ==============


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 has awarded 54,517 shares as of March 31, 2004
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:
                                                     Period Ended March 31,
                                                 -------------------------------
                                                      2004              2003
                                                 ------------     --------------
Accrued Liability Balance at Beginning of Period $         0      $       5,538
Amount Charged to Expense                                  0              2,809
Less Cost of Shares Issued                                 0                  0
                                                 ------------     --------------
Accrued Liability at End of Period               $         0      $       8,347
                                                 ============     ==============


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.


                                       10
<PAGE>

Note 5 - Stock Option Plan

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

The  Company's  board of directors  has  approved the issuance of stock  options
under  the  Plan to  certain  members  of the  board  of  directors  and  senior
management. The options vest at a rate of 25% per year, expire in ten years, and
provide for the  purchase of stock at an exercise  price equal to the fair value
of the Company's stock on the date the option is granted. Holders of the options
can also surrender the options and be paid cash for the  difference  between the
exercise price and the stock's fair value on the date surrendered.  The board of
directors  granted 202,676 options in 1999 and 6,623 options in 2001. During the
three month period ended March 31, 2004,  7,656  options were  surrendered  at a
total cost of  $80,638  (36,394  shares for  $195,664  in 2003).  Stock  options
awarded  and  outstanding  totaled  70,401 and  138,927 as of March 31, 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 March 31,
                                     ---------------------------------
                                          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%

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

<TABLE>
<CAPTION>
                                                            Three Months Ended March 31,
                                              ------------------------------------------------------------
                                                         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)                              0
Surrendered                                       (7,656)             8.60       (36,394)            8.60
Forfeited                                              0                               0
                                              -----------                     -----------
Outstanding at End of Year                        70,401      $      8.59        138,927      $      8.59
                                              ===========                     ===========


Options Exercisable at Period-End                 68,745      $      8.59        135,616      $      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 March 31, 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               70,401      4.8 years        $     8.59           68,745      $      8.59
</TABLE>



The Company  has  purchased  76,249 and 100,249  shares as of March 31, 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

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 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.

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.

                                       12
<PAGE>

General

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

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

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

The following is a discussion  of our  financial  condition as of March 31, 2004
and for the  three-month  period ended March 31, 2004 These  comments  should be
read in conjunction with our consolidated  financial statements and accompanying
footnotes appearing in this report.

Comparison of Financial Condition at March 31, 2004 and December 31, 2003

Total assets increased from December 31, 2003 to March 31, 2004 by $758,000,  or
0.6%,  from $117.0  million at December 31, 2003 to $117.7  million at March 31,
2004.  The  increase  in assets was  principally  the result of an  increase  in
investment securities. Investment securities increased by $2.7 million offset by
a decrease in cash and amounts due from depository institutions of $1.6 million.

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

                                       13
<PAGE>


<TABLE>
<CAPTION>
                                                 March 31, 2004           December 31, 2003
                                            -----------------------    -----------------------
<S>                                             <C>         <C>            <C>         <C>


                                                   Amount   Percent           Amount   Percent
Type of Loan:
Real estate loans:
  One- to four-family residential               $  62,977    78.3%         $  63,335    79.2%

  Commercial                                        9,139    11.4%             9,261    11.5%

  Construction                                      2,985     3.7%             1,769     2.2%

Consumer loans:

  Automobile                                        1,490     1.8%             1,488     1.9%

  Loans to depositors, secured by deposits          1,327     1.7%             1,293     1.6%

  Home equity and second mortgage                   1,135     1.4%             1,341     1.7%

  Other                                             1,362     1.7%             1,504     1.9%
                                            -------------  --------    -------------- --------

                                                   80,415   100.0%            79,991   100.0%
                                            -------------- ========    -------------- ========

Less:

  Loans in process                                  1,765                        764

  Deferred fees and discounts                         350                        352

  Allowance for loan losses                           934                        922
                                            --------------             --------------
    Total                                       $  77,366                  $  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.

<TABLE>
<CAPTION>

                                                                    Three                    Three
                                                                Months Ended              Months Ended
                                                                  March 31,                March 31,
                                                                    2004                      2003
                                                              ------------------        -----------------
<S>                                                           <C>                       <C>
                                                                            (In Thousands)
Balance at beginning of period                                $            921          $           803
                                                              ------------------        -----------------
Charge-offs:
  Consumer                                                                  (4)                      (3)
  Mortgage                                                                 (12)                        0
Recoveries:
  Consumer                                                                    1                        1
  Mortgage                                                                    0                        0
                                                              ------------------        -----------------
Net Charge-offs                                                            (15)                      (2)
Provision for loan losses                                                    28                       36
                                                              ------------------        -----------------
Balance at end of period                                      $             934         $            837
                                                              ==================        =================
</TABLE>



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

<TABLE>
<CAPTION>
                                                                 March 31,                March 31,
                                                                    2004                      2003
                                                              ------------------        -----------------
<S>                                                           <C>                       <C>

                                                                            (In Thousands)
Nonaccrual Loans                                              $               0         $              0
Accruing loans which are contractually past due
90 days or more:
Real Estate:
  Residential                                                               378                      394
  Non-Residential                                                             9                       14
Consumer                                                                      9                       21
                                                              ------------------        -----------------
Total                                                         $             396         $            429
                                                              ==================        =================
</TABLE>

We conduct  regular  reviews of our assets and  evaluate  the need to  establish
allowances on the basis of this review.  Allowances are established on a regular
basis based on an assessment of risk in our assets taking into consideration the
composition and quality of the portfolio, delinquency trends, current charge-off
and loss  experience,  the state of the real estate market,  regulatory  reviews
conducted in the regulatory examination process, general economic conditions and
other factors  deemed  relevant by us.  Allowances  are provided for  individual
assets, or portions of assets, when ultimate collection is considered improbable
based on the  current  payment  status of the  assets  and the fair value or net
realizable value of the collateral.

During  the three  months  ended  March 31,  2004,  the  Company  decreased  its
liabilities by $99,000,  or 0.1%. Total deposits decreased $292,000 or 0.3% from
$98.1 million at December 31, 2003 to $97.8 million at March 31, 2004.

                                       15
<PAGE>


During 2004, 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  $857,000 from $16.9 million at December 31,
2003 to  $17.8  million  at March  31,  2004.  The  Company's  equity  increased
primarily  due to net income of  $392,000,  a decrease in unearned  compensation
related to the Company's ESOP of $116,000,  the exercise of 24,000 stock options
for $206,000, an increase in other accumulated comprehensive income of $224,000,
offset by the cost of 7,656 stock options surrendered for $81,000. 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 March 31, 2004
and 2003

Our net income for the three months ended March 31, 2004 was $392,000, which was
a decrease of $58,000  from the amount we earned  during the three  months ended
March 31, 2003.  Basic and diluted earnings per share for the three months ended
March 31,  2004 were each $0.32  compared  to $0.34 for the same period in 2003.
Basic  average  shares  outstanding  for three  months  ended March 31, 2004 was
1,230,379 shares and 1,304,580 shares for the three months ended March 31, 2003.
Average   dilutive   potential   shares   outstanding   were  9,638  and  2,433,
respectively.

Interest  income  decreased  $71,000,  or 4.1%, from $1.75 million for the three
months  ended March 31, 2003 to $1.68  million for the three  months ended March
31,  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  $61,000  from  $437,000  for the three
months  ended March 31, 2003 to $376,000  for the three  months  ended March 31,
2004, primarily due to the decrease in deposit account interest rates.

Net interest income decreased $10,000,  or 0.8%, 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 4.77% for the three months ended
March  31,  2004  compared  to 5.00%  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  $10,000 from $120,000 for the three months ended
March 31, 2003 to  $130,000  for the three  months  ended  March 31,  2004.  The
increase in noninterest  income was due to a $10,000 increase in deposit account
service  fees.  The  Bank  put in  place a new  deposit  account  fee  structure
effective August 2003.

Noninterest expenses increased $152,000 from $667,000 for the three months ended
March 31, 2003 to  $819,000  for the three  months  ended  March 31,  2004.  The
increase in noninterest  expense was primarily from an increase in  compensation
and  benefits  resulting  from the mark to market  adjustment  on the  Directors
Incentive  Plan of $57,000  and a $95,000  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 quarter. The return for the first quarter was 17.43%.

Our  effective tax rates for the three months ended March 31, 2004 and 2003 were
33.4% and 38.6%, respectively.

                                       16
<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 March 31, 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.

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 a date within 90 days of the
filing  date of this  quarterly  report.  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.


                                       17

<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

99.1       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.

99.2       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.

                                       18
<PAGE>


SIGNATURES

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

                                     UNITED TENNESSEE BANKSHARES, INC.
                                     Registrant



Date: May 10, 2004                   /s/Richard G. Harwood
                                     -------------------------------------------
                                     Richard G. Harwood
                                     President and Chief Executive Officer
                                     (Duly Authorized Representative and
                                     Principal Financial and Accounting Officer)

















                                       19