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 June 30, 2003.

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

                         Commission File Number: 0-23551

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


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


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

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


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

State the number of shares outstanding of each of the issuer's classes of common
stock as of the latest practicable date: 1,273,124

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


                                       1
<PAGE>


CONTENTS

PART I.  FINANCIAL INFORMATION

   Item 1. Financial Statements

     Consolidated  Statements  of  Financial  Condition
     as  of  June  30,  2003 (Unaudited) and December 31, 2002                3

     Consolidated Statements of Income for the Three-Month
     and Six-Month Periods Ended June 30, 2003 and 2002 (Unaudited)           4

     Consolidated  Statements of  Comprehensive  Income for
     the  Three-Month and Six-Month Periods Ended June 30, 2003
     and 2002 (Unaudited)                                                     5

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

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

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

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

   Item 3. Controls and Procedures                                           19


PART II.  OTHER INFORMATION

   Item 1. Legal Proceedings                                                 20

   Item 2. Changes in Securities and Use of Proceeds                         20

   Item 3. Defaults upon Senior Securities                                   20

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

   Item 5. Other Information                                                 20

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

SIGNATURES                                                                   21


                                       2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements

                               UNITED TENNESSEE BANKSHARES, INC. AND SUBSIDIARY
                                CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                                   AS OF JUNE 30, 2003 AND DECEMBER 31, 2002
<TABLE>
<CAPTION>

                                                                            June 30,
                                                                              2003               December 31,
                                                                           (Unaudited)               2002
                                                                           ------------        -----------------
                                                                                      (In Thousands)
                                Assets

<S>                                                                        <C>                 <C>
Cash and amounts due from depository institutions                          $     5,804         $          5,350
Investment securities available for sale, at fair value                         28,338                   25,267
Loans receivable, net                                                           78,133                   78,362
Premises and equipment, net                                                        973                      969
Foreclosed real estate - held for sale                                              48                      127
Accrued interest receivable                                                        577                      670
Goodwill, net of amortization                                                      833                      873
Prepaid expenses and other assets                                                  163                      135
                                                                           ------------        -----------------
 Total assets                                                              $   114,869         $        111,753
                                                                           ============        =================

                        Liabilities and Equity
Liabilities:
 Deposits                                                                  $    96,892         $         93,747
 Accrued interest payable                                                          120                      132
 Deferred income taxes                                                             915                    1,008
 Accrued benefit plan liabilities                                                  816                      856
 Other liabilities                                                                  90                       85
                                                                           ------------        -----------------
 Total liabilities                                                              98,833                   95,828
                                                                           ------------        -----------------

Shareholders' equity:
 Common stock - no par value, authorized 20,000,000 shares;
  issued and outstanding 1,273,124 shares (1,311,124 in 2002)                   12,051                   12,448
 Unearned compensation - ESOP                                                     (401)                    (517)
 Shares in grantor trust - contra account                                         (199)                    (199)
 Shares in MRP plan - contra account                                               (56)                     (56)
 Shares in stock option plan trusts - contra account                            (1,376)                  (1,491)
 Retained earnings                                                               4,627                    4,199
 Accumulated other comprehensive income                                          1,390                    1,541
                                                                           ------------        -----------------
  Total shareholders' equity                                                    16,036                   15,925
                                                                           ------------        -----------------
Total liabilities and equity                                               $   114,869         $        111,753
                                                                           ============        =================
</TABLE>




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

                                       3
<PAGE>


                UNITED TENNESSEE BANKSHARES, INC., AND SUBSIDIARY
                        CONSOLIDATED STATEMENTS OF INCOME
        FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2003 AND 2002
<TABLE>
<CAPTION>

                                                 (In Thousands Except        (In Thousands Except
                                                per Share Information)      per Share Information)
                                             --------------------------------------------------------
                                                  Three Months Ended           Six Months Ended
                                             --------------------------------------------------------
                                                       June 30,                     June 30,
                                             --------------------------------------------------------
                                                2003           2002           2003           2002
                                             (Unaudited)    (Unaudited)    (Unaudited)    (Unaudited)
                                             -----------    -----------    -----------    -----------
Interest income:
<S>                                          <C>            <C>            <C>            <C>
 Loans                                       $    1,433     $    1,483     $    2,901     $    2,943
 Investment securities                              276            327            555            611
 Other interest-earning assets                       10             12             16             15
                                             -----------    -----------    -----------    -----------
  Total interest income                           1,719          1,822          3,472          3,569
                                             -----------    -----------    -----------    -----------

Interest expense:
 Deposits                                           459            569            912          1,136
                                             -----------    -----------    -----------    -----------

Net interest income                               1,260          1,253          2,560          2,433

Provision for loan losses                            36             24             72             48
                                             -----------    -----------    -----------    -----------

Net interest income after provision
 for loan losses                                    224          1,229          2,488          2,385
                                             -----------    -----------    -----------    -----------

Noninterest income:
 Deposit account service charges                     75             62            137            116
 Loan service charges and fees                       29             30             54             58
 Net gain (loss) on sales of investment
  securities available for sale                       0             32             13             39
 Other                                               13              9             33             23
                                             -----------    -----------    -----------    -----------
  Total noninterest income                          117            133            237            236
                                             -----------    -----------    -----------    -----------

Noninterest expense:
 Compensation and benefits                          339            310            662            601
 Occupancy and equipment                             65             52            128            107
 Federal deposit insurance premiums                  15             12             30             24
 Data processing fees                                65             63            132            126
 Advertising and promotion                           19             22             37             42
 Net (gain) loss on foreclosed real estate            2              0             10              0
 Amortization                                        20             20             40             40
 Other                                              162            133            299            270
                                             -----------    -----------    -----------    -----------
  Total noninterest expense                         687            612          1,338          1,210
                                             -----------    -----------    -----------    -----------

Income before income taxes                          654            750          1,387          1,411

Income taxes                                        256            270            539            518
                                             -----------    -----------    -----------    -----------

Net income                                   $      398     $      480     $      848     $      893
                                             ===========    ===========    ===========    ===========

Earnings per share
 Basic                                       $     0.31     $     0.36     $     0.66     $     0.67
                                             ===========    ===========    ===========    ===========
 Diluted                                     $     0.31     $     0.36     $     0.66     $     0.67
                                             ===========    ===========    ===========    ===========


</TABLE>
The accompanying notes are an integral part of these financial statements.

                                       4

<PAGE>



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


<TABLE>
<CAPTION>



                                                       Three Months Ended June 30,        Six Months Ended June 30,
                                                      -------------------------------   -------------------------------
                                                          2003             2002             2003              2002
                                                      -------------    --------------   --------------    -------------
                                                        (Unaudited - in thousands)        (Unaudited - in thousands)

<S>                                                       <C>              <C>            <C>              <C>
Net income                                                $   398          $   480        $    848         $    893
                                                      -------------    --------------   --------------    -------------

Other comprehensive income (loss), net of tax:

 Unrealized gains (losses) on investment securities           (23)             449            (231)             170
 Less reclassification adjustment for gains/losses
  included in net income                                        0              (32)            (13)             (39)
 Less income taxes related to unrealized
  gains/losses on investment securities                         8             (158)             93              (50)

                                                      -------------    --------------   --------------    -------------
   Other comprehensive income (loss), net of tax              (15)             259            (151)              81
                                                      -------------    --------------   --------------    -------------

Comprehensive income                                      $   383          $   739        $    697         $    974
                                                      =============    ==============   ==============    =============
</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 SIX MONTH PERIOD ENDED JUNE 30, 2003

<TABLE>
<CAPTION>



                                                Shares in   Shares in   Shares in               Accumulated
                                    Unearned     Grantor    MRP Plan-  Stock Option                Other         Total
                          Common  Compensation Trust-Contra  Contra    Plan-Contra   Retained  Comprehensive  Shareholders'
                          Stock       ESOP       Account     Account     Account     Earnings      Income        Equity
                         -------- ------------ ------------ ---------  ------------  --------  -------------  ------------
                                                             (In Thousands)
<S>                      <C>         <C>         <C>        <C>        <C>           <C>         <C>           <C>
Balances, beginning of
 period                  $12,448     $ (517)     $ (199)    $ (56)     $ (1,491)     $ 4,199     $ 1,541       $ 15,925

Net income                     0          0           0         0             0          848           0            848

Other comprehensive
 income (loss)                 0          0           0         0             0            0       (151)           (151)

Payment on ESOP loan
 with ESOP contribution
 received                      0        116           0         0             0            0           0            116

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

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

Costs associated with
 stock options surrendered     0          0           0         0          (256)           0           0           (256)

Purchase and retirement of
 2,500 shares of common
 stock                       (35)         0           0         0             0            0           0            (35)

Retirement of 35,500
 shares of common stock
 held in the stock option
 plan contra account        (362)         0           0         0           362            0           0              0
                         -------  ---------  ----------  --------     ---------      -------  -----------     ---------

Balances, end of period  $12,051     $ (401)     $ (199)    $ (56)     $ (1,376)     $ 4,627     $ 1,390       $ 16,036
                         =======  =========  ==========  ========     =========      =======  ===========     =========
</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 SIX MONTH PERIOD ENDED JUNE 30, 2003 AND 2002
<TABLE>
<CAPTION>

                                                                                          Six Months Ended
                                                                                              June 30,
                                                                                    -----------------------------
                                                                                         2003           2002
                                                                                     (Unaudited - in thousands)
                                                                                    -----------------------------
Operating Activities:

<S>                                                                                 <C>              <C>
Net income                                                                          $        848     $        893
                                                                                    -------------    ------------
Adjustments to reconcile net income to net cash
 provided by operating activities:
  Provision for loan losses                                                                   72              48
  Depreciation                                                                                47              33
  Amortization of goodwill                                                                    40              40
  Net (gain) loss on sales of foreclosed real estate                                          10               0
  Federal home loan bank stock dividends                                                     (18)            (20)
  Net (gain) loss on sales of investment securities available for sale                       (13)            (39)
  (Increase) Decrease in:
   Accrued interest receivable                                                                93             (74)
   Other assets                                                                              (28)              9
  Increase (Decrease) in:
   Accrued interest payable                                                                  (12)             (7)
   Accrued income taxes                                                                        0               5
   Accrued benefit plan liabilities                                                          (40)           (135)
   Other liabilities                                                                           5              16
                                                                                    -------------    ------------
    Total adjustments                                                                        156            (124)
                                                                                    -------------    ------------
Net cash provided by operating activities                                                  1,004             769
                                                                                    -------------    ------------

Investing Activities:
 Purchases of investment securities available for sale                                    (7,134)         (8,373)
 Proceeds from maturities of investment securities available for sale                        518           1,087
 Principal payments received on investment securities available for sale                   2,225           4,509
 Proceeds from sales of investment securities available for sale                           1,107           1,490
 Net (increase) decrease in loans                                                            109          (5,963)
 Purchases of premises and equipment, net                                                    (51)            (46)
 Proceeds from sales of foreclosed real estate                                               117               0

                                                                                    -------------    ------------
Net cash used in investing activities                                                     (3,109)         (7,296)
                                                                                    -------------    ------------
</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 SIX MONTH PERIOD ENDED JUNE 30, 2003 AND 2002
<TABLE>
<CAPTION>

                                                                              Six Months Ended
                                                                           2003              2002
                                                                       --------------    -------------
                                                                         (Unaudited - in thousands)
Financing Activities:

<S>                                                                    <C>               <C>
 Dividends paid                                                                (420)            (398)
 Costs associated with stock options surrendered                               (256)               0
 Net increase (decrease) in deposits                                          3,145            8,705
 Purchase and retirement of common stock                                        (35)            (145)
 Proceeds from exercise of stock options                                          9                0
 Issuance of common stock for MRP plan                                            0              143
 Payment on ESOP loan and release of shares                                     116              161

                                                                       --------------    -------------
Net cash provided by (used in) financing activities                           2,559            8,466
                                                                       --------------    -------------

Net increase in cash and cash equivalents                                       454            1,939

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

Cash and cash equivalents, end of period                               $      5,804      $     4,062
                                                                       ==============    =============

Supplementary disclosures of cash flow information:
 Cash paid during the period for:
 Interest                                                                      $924           $1,143
 Income taxes                                                                  $581           $  571

Supplementary disclosures of noncash investing activities:
  Acquisition of foreclosed real estate                                        $ 48           $    0
  Change in unrealized gain\loss on investment securities
   available for sale                                                         ($244)          $  131
  Change in deferred income taxes associated with unrealized
   gain\loss on investment securities available for sale                      ($ 93)          $   50
  Change in net unrealized gain\loss on investment
   securities available for sale                                              ($151)          $   81


</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 SIX-MONTH PERIODS ENDED JUNE 30, 2003 AND 2002
                                   (UNAUDITED)


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

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

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

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

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

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

<TABLE>
<CAPTION>

                                                           Three Months Ended              Six Months Ended
                                                       ---------------------------    ---------------------------
                                                                June 30,                       June 30,
                                                       ---------------------------    ---------------------------
(In thousands, except per share data)                     2003            2002            2003           2002
                                                       ------------   ------------    -----------    ------------
<S>                                                         <C>            <C>            <C>             <C>
Net Income, as reported                                     $  398         $  480         $  848          $  893

Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects                      (2)           (37)            (6)            (74)
                                                       ------------   ------------    -----------    ------------
Pro forma net income                                        $  396         $  443         $  842          $  819
                                                       ============   ============    ===========    ============

Earnings per share:
Basic - as reported                                         $ 0.31         $ 0.36         $ 0.66          $ 0.67
                                                       ============   ============    ===========    ============
Basic - pro forma                                           $ 0.31         $ 0.33         $ 0.65          $ 0.62
                                                       ============   ============    ===========    ============
Diluted - as reported                                       $ 0.31         $ 0.36         $ 0.66          $ 0.67
                                                       ============   ============    ===========    ============
Diluted - pro forma                                         $ 0.31         $ 0.33         $ 0.65          $ 0.61
                                                       ============   ============    ===========    ============

</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              Six Months Ended
                                               --------------------------     -------------------------
                                                       June 30,                       June 30,
                                               --------------------------     -------------------------
                                                  2003           2002            2003          2002
                                               -----------    -----------     -----------   -----------
<S>                                             <C>            <C>             <C>           <C>
Average number of shares outstanding            1,273,124      1,323,548       1,288,765     1,330,927
Effect of dilutive options                              0            641               0         2,394
                                               -----------    -----------     -----------   -----------
Average number of shares outstanding used
 to calculate earnings per share                1,273,124      1,324,189       1,288,765     1,333,321
                                               ===========    ===========     ===========   ===========

</TABLE>




Note 3 - Comprehensive Income

The  Financial  Accounting  Standards  Board  (FASB)  has  issued  Statement  of
Financial Accounting Standard (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  54,518 shares as of June 30, 2003
of  restricted  common stock to certain  members of the board of  directors  and
senior  management.  The shares are  awarded  25% per year.  The Company and its
subsidiary  will  share the cost of the Plan and accrue  the  estimated  cost of
repurchasing shares to be reissued as restricted stock over the period that such
awards are earned.

Activity in the MRP plan is as follows:
<TABLE>
<CAPTION>

                                                     Period Ended June 30,
                                                 ----------------------------
                                                       2003           2002
                                                 ------------     -----------
<S>                                                <C>             <C>
Accrued Liability Balance at Beginning of Period        5,538        142,259
Amount Charged to Expense                               5,698         11,236
Less Cost of Shares Issued                                  0       (142,339)
                                                  -----------    -----------
Accrued Liability at End of Period                 $   11,236      $  11,156
                                                  ===========    ===========
</TABLE>


                                       10

<PAGE>



The  Company  held 4,591  shares of its  common  stock in trust at a net cost of
$56,195 as of June 30, 2003 and December 31, 2002. A  contra-equity  account has
been established to reflect the cost of such shares held in trust.

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
six month period ended June 30, 2003, 47,512 options were surrendered at a total
cost of $256,000 (33,978 shares for $70,192 in 2002).  Stock options awarded and
outstanding  totaled  126,809  and  175,321  as  of  June  30,  2003  and  2002,
respectively.

The fair value of each option  grant is estimated on the date of grant using the
Black-Scholes   option-pricing   model  with  the   following   weighted-average
assumptions:

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

A summary of the status of the Company's stock option plan is presented below:
<TABLE>
<CAPTION>

                                                         Six Months Ended June 30,
                                      ----------------------------------------------------------------
                                                  2003                              2002
                                      ------------------------------    ------------------------------
                                                        Weighted                          Weighted
                                                        Average                           Average
                                                        Exercise                          Exercise
                                        Shares           Price            Shares           Price
                                      -----------    ---------------    -----------    --------------
<S>                                      <C>             <C>              <C>              <C>
Outstanding at Beginning of
Period                                   175,321         $   8.59         209,299          $   8.59
Granted                                        0                                0
Exercised                                 (1,000)            8.60               0
Surrendered                              (47,512)            8.60         (33,978)             8.60
Forfeited                                      0                                0
                                      -----------                       -----------
Outstanding at End of Period             126,809         $   8.59         175,321          $   8.59
                                      ===========                       ===========


Options Exercisable at Period-End        123,498         $   8.59         172,010          $   8.59
Weighted-Average Fair Value of
Options Granted during the period            n/a                              n/a

</TABLE>


                                       11


<PAGE>


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

                                Options Outstanding                   Options Exercisable
                      -----------------------------------------    --------------------------
                                       Weighted
                                       Average       Weighted                      Weighted
                                      Remaining       Average                       Average
    Range of            Number        Contractual    Exercise        Number        Exercise
 Exercise Prices      Outstanding        Life          Price       Exercisable       Price
------------------    ------------    -----------    ----------    ------------    ----------
<S>                       <C>         <C>             <C>              <C>          <C>
$8.00 - $9.00             126,809     5.8 years       $   8.59         123,498      $   8.59

</TABLE>

The Company  has  purchased  139,633 and 175,139  shares as of June 30, 2003 and
December 31, 2002,  respectively,  of its common  stock,  which is being held in
trusts for when the stock options are  exercised.  A  contra-equity  account has
been established to reflect the costs of such shares held in trusts.

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

Note 6 - Improvement Plan for Main Office Facility

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

Note 7 - Recent Accounting Pronouncements

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

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

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

                                       12
<PAGE>

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

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

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

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

                                       13

<PAGE>

2003,  and otherwise is effective  for public  companies at the beginning of the
first interim period  beginning after June 15, 2003.  Management does not expect
this statement to have a significant impact on the Company's  financial position
or results of operations.

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

General

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

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

Our  operations  and those of the thrift  industry as a whole are  significantly
affected by prevailing  economic  conditions,  competition  and the monetary and
fiscal policies of governmental  agencies. Our lending activities are influenced
by demand for and supply of housing and competition  among lenders and the level
of interest  rates in our market area.  Our deposit flows and costs of funds are
influenced  by  prevailing  market  rates of  interest,  primarily  on competing
investments, 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 June 30, 2003 and
for the  three-month and six-month  periods ended June 30, 2003.  These comments
should be read in conjunction  with our  consolidated  financial  statements and
accompanying footnotes appearing in this report.

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


                                       14

<PAGE>


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

Total assets  increased from December 31, 2002 to June 30, 2003 by $3.1 million,
or 2.8%,  from $111.8 million at December 31, 2002 to $114.9 million at June 30,
2003.  The  increase  in assets was  principally  the result of an  increase  in
investment securities. Investment securities increased by $3.1 million to offset
an increase in deposits.

Loans receivable decreased from December 31, 2002 to June 30, 2003 as repayments
exceeded  originations  for  the  period  by  approximately  $229,000  due  to a
slow-down in new loan  originations  and the continued  refinancing  of existing
loans. The following table sets forth  information  about the composition of our
loan  portfolio  by type of loan at the dates  indicated.  At June 30,  2003 and
December 31, 2002,  we had no  concentrations  of loans  exceeding  10% of gross
loans other than as disclosed below.

<TABLE>
<CAPTION>


                                                June 30, 2003            December 31, 2002
                                            -----------------------    ----------------------
                                                 Amount    Percent          Amount    Percent
Type of Loan:
Real estate loans:
<S>                                            <C>           <C>          <C>          <C>
 One- to four-family residential               $  61,700     76.4%        $  62,773     77.6%

 Commercial                                        8,938     11.1%            8,617     10.6%

 Construction                                      3,624      4.4%            3,932      4.8%

Consumer loans:

 Automobile                                        1,437      1.8%            1,354      1.7%

 Loans to depositors, secured by deposits          1,122      1.4%            1,264      1.6%

 Home equity and second mortgage                   1,031      1.3%              948      1.2%

 Other                                             2,880      3.6%            2,055      2.5%
                                            ------------- ---------    ------------- --------
                                                  80,732    100.0%           80,943    100.0%
                                            ------------- =========    ------------- ========

Less:

 Loans in process                                  1,361                      1,406

 Deferred fees and discounts                         371                        372

 Allowance for loan losses                           867                        803
                                            -------------              -------------
 Total                                         $  78,133                  $  78,362
                                            =============              =============
</TABLE>


We  actively  monitor  our asset  quality  and charge  off loans and  properties
acquired in settlement of loans against the  allowances for losses on such loans
and such properties when  appropriate and provide  specific loss allowances when
necessary.  Although we believe we use the best  information  available  to make
determinations with respect to the allowances for losses, future adjustments may
be  necessary  if economic  conditions  differ  substantially  from the economic
conditions in the assumptions used in making the initial determinations.

                                       15

<PAGE>


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

                                                  Six                 Six
                                              Months Ended        Months Ended
                                                June 30,            June 30,
                                                  2003                2002
                                              --------------     ---------------
                                                       (In Thousands)

Balance at beginning of period                  $       803        $        719
                                              --------------     ---------------
Charge-offs:
 Consumer                                                (8)                (21)
 Mortgage                                                 0                   0
Recoveries:
 Consumer                                                 0                   3
 Mortgage                                                 0                   0
                                              --------------     ---------------
Net Charge-offs                                          (8)                (18)
Provision for loan losses                                72                  48
                                              --------------     ---------------
Balance at end of period                        $       867        $        749
                                              ==============     ===============

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

                                                   June 30,            June 30,
                                                     2003                2002
                                                ---------------   --------------
                                                         (In Thousands)
Nonaccrual Loans                                 $          0       $         0
Accruing loans which are contractually past due
 90 days or more:
Real Estate:
 Residential                                              367               359
 Non-Residential                                          866               110
Consumer                                                   19                 7
                                                ---------------   --------------
Total
                                                  $     1,252       $       476
                                                ===============   ==============


Nonresidential  real estate loans past due 90 days or more increased $756,000 to
$866,000 as of June 30, 2003 compared to $110,000 as of June 30, 2002  primarily
due to one commercial real estate loan.  Payments on this loan have been brought
current subsequent to June 30, 2003.

At June 30,  2003,  the Bank had one  additional  commercial  real  estate  loan
totaling $460,000,  as to which known information about possible credit problems
of the  borrower  caused us to have doubts as to the ability of the  borrower to
comply with present loan repayment terms. Although the loan is current, the cash
flows  of the  lessee  of the  property  are  below  expectations.  The  loan is
considered  well  secured  and we do not  expect  to incur any loss in excess of
existing reserves on any of our assets. We conduct regular reviews of our assets
and  evaluate  the need to  establish  allowances  on the basis of this  review.
Allowances are  established on a regular basis based on an assessment of risk in
our  assets  taking  into  consideration  the  composition  and  quality  of the
portfolio, delinquency trends, current charge-off and loss experience, the state
of the real  estate  market,  regulatory  reviews  conducted  in the  regulatory
examination  process,  general  economic  conditions  and other  factors  deemed
relevant by us.  Allowances are provided for individual  assets,  or portions of
assets, when ultimate  collection is considered  improbable based on the current
payment status of the assets and the fair value or net  realizable  value of the
collateral.

During the six months ended June 30, 2003, the Company increased its liabilities
by $3.0 million,  or 3.1%.  Total  deposits  increased $3.2 million or 3.4% from
$93.7 million at December 31, 2002 to $96.9 million at June 30, 2003.

                                       16

<PAGE>

During 2003, the Bank has accepted deposits totaling  approximately $5.5 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  $111,000 from $15.9 million at December 31,
2002 to $16.0 million at June 30, 2003. The Company's equity increased primarily
due to net income of $848,000,  a decrease in unearned  compensation  related to
the Company's ESOP of $116,000, offset by the cost associated with stock options
surrendered of $256,000, the purchase and retirement of $35,000 of the Company's
common stock, a reduction in other accumulated  comprehensive income of $151,000
and a reduction  in retained  earnings for  dividends  paid to  shareholders  of
$420,000.  The  Company's  board of  directors  approved  a plan in July 2002 to
purchase and retire up to $500,000 of the  Company's  common stock over the next
two years, depending upon the stock price.

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

Our net  income  for the three  months  ended  June 30,  2003 was  $398,000,  an
$82,000,  or 17.1%  decrease from the $480,000 we earned during the three months
ended June 30, 2002.  Basic and diluted  earnings per share for the three months
ended June 30,  2003 were each $0.31  compared  to $0.36 for the same  period in
2002. Basic average shares  outstanding for three months ended June 30, 2003 was
1,273,124  shares and 1,323,548 shares for the three months ended June 30, 2002.
Average dilutive potential shares outstanding were 0 and 641, respectively.

Interest income  decreased  $103,000,  or 5.7%, from $1.82 million for the three
months ended June 30, 2002 to $1.72  million for the three months ended June 30,
2003. The decrease in interest income is a result of a decrease in the yields on
our loan and investment portfolios.

Interest  expense on deposits  decreased  $110,000  from  $569,000 for the three
months ended June 30, 2002 to $459,000 for the three months ended June 30, 2003,
primarily due to the decrease in deposit account interest rates.

Net interest income increased $7,000, or 0.62%,  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 4.78% for the three months ended
June 30, 2003 compared to 4.96% for the comparable period of 2002. The narrowing
of the net interest  margin  reflects the current rate  environment and the fact
that our yield on loans and investments has reduced.

Noninterest  income  decreased  $16,000 from $133,000 for the three months ended
June 30, 2002 to $117,000 for the three months ended June 30, 2003. The decrease
in  noninterest  income  was  primarily  due to a  $32,000  net gain on sales of
investment  securities sold during the quarter ended June 30, 2002 ($0 in 2003),
offset by an increase in deposit account service charges of $13,000 in 2003.

Noninterest  expenses increased $75,000 from $612,000 for the three months ended
June 30, 2002 to $687,000 for the three months ended June 30, 2003. The increase
in  noninterest  expense was  primarily  from an increase  in  compensation  and
benefits of $29,000 due to hiring two  additional  employees  and normal  salary
increases,  an increase in occupancy and equipment  expense of $13,000 primarily
related to  updating  computer  equipment,  and an  increase of $29,000 in other
noninterest  expense  related to increases in insurance  expense and other costs
associated with being a public company.

Our  effective  tax rates for the three months ended June 30, 2003 and 2002 were
39.1% and 36.0%, respectively.

                                       17

<PAGE>

Discussion of Results of  Operations  for the Six Months Ended June 30, 2003 and
2002

Our net income for the six months ended June 30, 2003 was  $848,000,  a $45,000,
or 5.0%  decrease  from the $893,000 we earned  during the six months ended June
30, 2002. Basic and diluted earnings per share for the six months ended June 30,
2003 were  each  $0.66  compared  to $0.67  for the same  period in 2002.  Basic
average  shares  outstanding  for six months  ended June 30, 2003 was  1,288,765
shares and  1,330,927  shares for the six months  ended June 30,  2002.  Average
dilutive potential shares outstanding were 0 and 2,394, respectively.

Interest  income  decreased  $97,000,  or 2.8%,  from $3.57  million for the six
months  ended June 30, 2002 to $3.47  million for the six months  ended June 30,
2003. The decrease in interest income is a result of a decrease in the yields on
our loan and investment portfolios.

Interest expense on deposits  decreased $224,000 from $1,136 million for the six
months  ended June 30, 2002 to $912,000  for the six months ended June 30, 2003,
primarily due to the decrease in deposit account interest rates.

Net interest income increased $127,000, or 5.2%, 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 widened  slightly to 4.86% for the six months
ended June 30, 2003  compared to 4.81% for the  comparable  period of 2002.  The
widening of the net interest margin,  which has slowed down  significantly  from
the prior year, continues to reflect the current rate environment.

Noninterest  income increased $1,000 from $236,000 for the six months ended June
30,  2002 to 237,000 for the six months  ended June 30,  2003.  The  increase in
noninterest  income was primarily due to an increase in deposit  account service
charges of $21,000, increase in other noninterest income of $10,000, offset by a
decrease in net gain on sales of investment securities of $26,000 and a decrease
in loan service charges and fees of $4,000.

Noninterest  expenses  increased  $128,000 from $1.21 million for the six months
ended June 30, 2002 to $1.34 million for the six months ended June 30, 2003. The
increase in noninterest  expense was primarily from an increase in  compensation
and benefits of $61,000 due to hiring two additional employees and normal salary
increases,  an increase in occupancy and equipment  expense of $21,000 primarily
related to updating  computer  equipment,  and an increase in other  noninterest
expense of $29,000  related to increases  in  insurance  expense and other costs
associated with being a public company.

Our  effective  tax rates for the three months ended June 30, 2003 and 2002 were
38.9% and 36.7%, respectively.

                                       18

<PAGE>

Liquidity and Capital Resources

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

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

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

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

Item 3.  Controls and Procedures

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

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

                                       19


<PAGE>
PART II. OTHER INFORMATION

Item 1. Legal Proceedings

        None.

Item 2. Changes in Securities and Use of Proceeds

        None.

Item 3. Defaults upon Senior Securities

        None.

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

On May 20, 2003, United Tennessee Bankshares,  Inc. held its 2003 Annual Meeting
of Stockholders.  The following is a brief description of each matter voted upon
and the results of the voting.

     1.   Election of Directors

               Nominee                    For                 Withheld
          ------------------        ---------------           --------
          J. William Myers             1,018,598               31,737
          William B. Henry             1,046,492                3,843
          Tommy C. Bible               1,018,673               31,662

          There were no abstentions or broker non-votes.

          The terms of the office of  Directors  Richard G.  Harwood,  Robert R.
          Self, Robert L. Overholt,  and Ben W. Hooper, III, continued after the
          meeting.

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)(a)     Forms  of   Guarantee   Agreements   between   United   Tennessee
               Bankshares,  Inc.  and  Richard G.  Harwood,  Nancy L. Bryant and
               Peggy Holston
10.4(1)        Newport Federal Savings and Loan Association  Long-Term Incentive
               Plan
10.5(1)        Newport   Federal   Savings   and   Loan   Association   Deferred
               Compensation Plan
31.1           Certification   of  Richard  G.  Harwood,   President  and  Chief
               Executive Officer of United Tennessee  Bankshares,  Inc. pursuant
               to  Section  302  of  the  Sarbanes-Oxley  Act  of  2002.
31.2           Certification   of  Chris  H.  Triplett,   Controller  of  United
               Tennessee  Bankshares,  Inc.  pursuant  to  Section  302  of  the
               Sarbanes-Oxley Act of 2002.
32.1           Certification   of  Richard  G.  Harwood,   President  and  Chief
               Executive Officer of United Tennessee  Bankshares,  Inc. pursuant
               to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2           Certification   of  Chris  H.  Triplett,   Controller  of  United
               Tennessee  Bankshares,  Inc.  pursuant  to  Section  906  of  the
               Sarbanes-Oxley Act of 2002.

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

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

     (b) Reports on Form 8-K:

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

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<PAGE>


                                   SIGNATURES



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

                                     UNITED TENNESSEE BANKSHARES, INC.
                                     Registrant


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


































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