UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB

Mark One

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

     For the quarterly period ended June 30, 2004.

                                       OR

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

                         Commission File Number: 0-23551


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


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


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

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


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

State the number of shares outstanding of each of the issuer's classes of common
stock as of the latest practicable date: 1,202,379
                                         ---------

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 June 30, 2004 (Unaudited) and December 31, 2003 .............. 3

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

          Consolidated   Statements  of  Comprehensive  Income
          (Loss)  for  the Three-Month  and  Six-Month  Periods
          Ended  June  30,  2004  and 2003 (Unaudited)........................ 5

          Consolidated  Statement of Changes in Shareholders' Equity
          for the Six Month Period Ended June 30, 2004 (Unaudited)............ 6

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

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

     Item 2. Management's Discussion and Analysis or Plan of Operation.... 12-18

     Item 3. Controls and Procedures..........................................18


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

     Item 4. Submission of Matters to a Vote of Security Holders............. 19

     Item 6. Exhibits and Reports on Form 8-K................................ 19

SIGNATURES....................................................................20



                                       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, 2004 AND DECEMBER 31, 2003



<TABLE>
<CAPTION>
                                                                                   June 30,
                                                                                     2004              December 31,
                                                                                  (Unaudited)              2003
                                                                                ----------------     ------------------
<S>                                                                             <C>                  <C>

                                                                                            (In Thousands)
                                  Assets
Cash and amounts due from depository institutions                               $         2,957      $           5,196
Investment securities available for sale, at fair value                                  39,015                 29,756
Loans receivable, net                                                                    76,903                 77,953
Premises and equipment, net                                                               1,090                    996
Foreclosed real estate - held for sale                                                      335                     49
Accrued interest receivable                                                                 643                    559
Goodwill, net of amortization                                                               753                    793
Cash surrender value of life insurance                                                    1,564                  1,529
Prepaid expenses and other assets                                                           170                    151
                                                                                ----------------     ------------------
  Total assets                                                                  $       123,430      $         116,982
                                                                                ================     ==================

                          Liabilities and Equity
Liabilities:
 Deposits                                                                       $       104,498      $          98,107
 Accrued interest payable                                                                   101                     79
 Deferred income taxes                                                                      462                    653
 Accrued benefit plan liabilities                                                         1,154                  1,183
 Other liabilities                                                                          137                     67
                                                                                ----------------     ------------------
  Total liabilities                                                                     106,352                100,089
                                                                                ----------------     ------------------

Shareholders' equity:
 Common stock - no par value, Authorized 20,000,000 shares;
   issued and outstanding 1,202,379 shares (1,230,379 in 2003)                           11,219                 11,665
 Unearned compensation - ESOP                                                              (180)                  (351)
 Shares in grantor trust - contra account                                                  (216)                  (216)
 Shares in stock option plan trusts - contra account                                       (800)                (1,122)
 Retained earnings                                                                        6,234                  5,785
 Accumulated other comprehensive income                                                     821                  1,132
                                                                                ----------------     ------------------
  Total shareholders' equity                                                             17,078                 16,893
                                                                                ----------------     ------------------

Total liabilities and equity                                                    $       123,430      $         116,982
                                                                                ================     ==================
</TABLE>

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



                                       3

<PAGE>



                UNITED TENNESSEE BANKSHARES, INC. AND SUBSIDIARY
                        CONSOLIDATED STATEMENTS OF INCOME
        FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2004 AND 2003

                   (In Thousands Except per Share Information

<TABLE>
<CAPTION>
                                                                  Three Months Ended                      Six Months Ended
                                                                       June 30,                               June 30,
                                                           ----------------------------------     ----------------------------------

                                                               2004                2003                2004               2003
                                                             (Unaudited)         (Unaudited)         (Unaudited)        (Unaudited)
                                                           --------------      --------------     ---------------     --------------
<S>                                                        <C>                 <C>                <C>                 <C>
Interest income:
 Loans                                                     $       1,353       $       1,433      $         2,709     $        2,901
 Investment securities                                               339                 276                  662                555
 Other interest-earning assets                                         2                  10                    5                 16
                                                           --------------      --------------     ---------------     --------------
  Total interest income                                            1,694               1,719                3,376              3,472
                                                           --------------      --------------     ---------------     --------------

Interest expense:
 Deposits                                                            391                 459                 767                912
                                                           --------------      --------------     ---------------     --------------

Net interest income                                                1,303               1,260               2,609              2,560

Provision for loan losses                                             24                  36                  52                 72
                                                           --------------      --------------     ---------------     --------------

Net interest income after provision for loan
 losses                                                            1,279               1,224               2,557              2,488
                                                           --------------      --------------     ---------------     --------------

Noninterest income:
 Deposit account service charges                                      75                  75                 147                137
 Loan service charges and fees                                        26                  29                  55                 54
 Net gain (loss) on sales of investment
 securities available for sale                                         0                   0                   0                 13
 Other                                                                32                  13                  61                 33
                                                           --------------      --------------     ---------------     --------------

  Total noninterest income                                           133                 117                 263                237
                                                           --------------      --------------     ---------------     --------------

Noninterest expense:
 Compensation and benefits                                           339                 339                 849                662
 Occupancy and equipment                                              90                  65                 150                128
 Federal deposit insurance premium                                     4                  15                   8                 30
 Data processing fees                                                 87                  65                 165                132
 Advertising and promotion                                            21                  19                  35                 37
 Net (gain) loss on foreclosed real estate                            (8)                  2                  (8)                10
 Amortization                                                         20                  20                  40                 40
 Other                                                               165                 162                 298                299
                                                           --------------      --------------     ---------------     --------------
  Total noninterest expense                                          718                 687               1,537              1,338
                                                           --------------      --------------     ---------------     --------------

Income before income taxes                                           694                 654               1,283              1,387

Income taxes                                                         195                 256                 392                539
                                                           --------------      --------------     ---------------     --------------


Net income                                                 $         499       $         398      $          891      $         848
                                                           ==============      ==============     ===============     ==============
Earnings per share:
 Basic                                                     $        0.41       $        0.31      $         0.73      $        0.66
                                                           ==============      ==============     ===============     ==============
 Diluted                                                   $        0.41       $        0.31      $         0.72      $        0.66
                                                           ==============      ==============     ===============     ==============
</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 AND SIX MONTH PERIODS ENDED JUNE 30, 2004 AND 2003

<TABLE>
<CAPTION>

                                                         Three Months Ended June 30,          Six Months Ended June 30,
                                                        -------------------------------     -------------------------------
                                                            2004              2003              2004              2003
                                                        -------------     -------------     -------------     -------------
                                                          (Unaudited - in thousands)          (Unaudited - in thousands)
<S>                                                     <C>               <C>               <C>               <C>
Net income                                              $       499       $       398       $       891       $       848
                                                        -------------     -------------     -------------     -------------

Other comprehensive income (loss), net of tax:
 Unrealized gains (losses) on investment
securities                                                     (863)              (23)             (501)             (231)
 Less reclassification adjustment for gains/losses
  included in net income                                          0                 0                 0               (13)
 Less income taxes related to unrealized
  gains/losses on investment securities                         328                 8               190                93
                                                        -------------     -------------     -------------     -------------
   Other comprehensive income (loss), net of tax               (535)              (15)             (311)             (151)
                                                        -------------     -------------     -------------     -------------

Comprehensive income (loss)                             $       (36)      $       383       $       580       $       697
                                                        =============     =============     =============     =============

</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, 2004
                           (Unaudited in Thousands)

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

Balances, beginning of
period                   $  11,665    $       (351)    $      (216)   $     (1,122)   $    5,785     $       1,132     $     16,893

Net income                       0               0               0               0           891                 0              891

Other comprehensive
income (loss)                    0               0               0               0             0              (311)            (311)

Retirement of Stock held
in the Stock Option
Plan Trust                    (446)              0               0             446             0                 0                0

Purchase of Stock to be
held in the Stock Option
Plan Trust                       0               0               0             (54)            0                 0              (54)

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

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

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

Costs associated with
stock options surrendered        0               0               0            (276)            0                 0             (276)
                         ---------    ------------     -----------    ------------    ----------     -------------     -------------

Balances, end of period  $  11,219    $       (180)    $      (216)   $       (800)   $    6,234     $         821    $      17,078
                         =========    ============     ===========    ============    ==========     =============     =============

</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 PERIODS ENDED JUNE 30, 2004 AND 2003



<TABLE>
<CAPTION>
                                                                                Six Months Ended
                                                                                    June 30,
                                                                         ------------------------------
                                                                             2004              2003
                                                                           (Unaudited - in thousands)
                                                                         ------------------------------
<S>                                                                      <C>               <C>
Operating Activities:
 Net income                                                              $        891      $        848
                                                                         ------------      ------------
 Adjustments to reconcile net income to net cash provided by operating
  activities:
   Provision for loan losses                                                       52                72
   Depreciation                                                                    46                47
   Amortization of goodwill                                                        40                40
   Net (gain) loss on sales of foreclosed real estate                              (8)               10
   Federal home loan bank stock dividends                                         (19)              (18)
   Net (gain) loss on sales of investment securities available for
sale                                                                                0               (13)
   Increase in cash surrender value of life insurance                             (35)                0
   (Increase) Decrease in:
    Accrued interest receivable                                                   (84)               93
    Prepaid expenses and other assets                                             (19)              (28)
   Increase (Decrease) in:
    Accrued interest payable                                                       22               (12)
    Accrued benefit plan liabilities                                              (29)              (40)
    Other liabilities                                                              70                 5
                                                                         ------------      ------------
     Total adjustments                                                             36               156
                                                                         ------------      ------------
Net cash provided by operating activities                                         927             1,004
                                                                         ------------      ------------
Investing Activities:
 Purchases of investment securities available for sale                        (14,799)           (7,134)
 Proceeds from maturities of investment securities available for sale               0               518
 Payments received on investment securities available for sale                  5,057             2,225
 Proceeds from sales of investment securities available for sale                    0             1,107
 Net decrease in loans                                                            571               109
 Purchases of premises and equipment, net                                        (140)              (51)
 Proceeds from sales of foreclosed real estate                                    149               117
                                                                         ------------      ------------
Net cash used in investing activities                                          (9,162)           (3,109)
                                                                         ------------      ------------
</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 PERIODS ENDED JUNE 30, 2004 AND 2003

<TABLE>
<CAPTION>
                                                                                  Six Months Ended
                                                                                      June 30,
                                                                         -----------------------------
                                                                             2004              2003
                                                                           (Unaudited - in thousands)
                                                                         -----------------------------
      <S>                                                                <C>               <C>
      Financing Activities:
       Dividends paid                                                          (442)              (420)
       Costs associated with stock options surrendered                         (276)              (256)
       Net increase in deposits                                               6,391              3,145
       Purchase of common stock                                                 (54)               (35)
       Proceeds from exercise of stock options                                  206                  9
       Payment on ESOP loan and release of shares                               171                116
                                                                         ----------        -----------
      Net cash provided by (used in) financing activities                     5,996              2,559
                                                                         ----------        -----------
      Net increase (decrease) in cash and cash equivalents                   (2,239)               454
       and cash equivalents, beginning of period                              5,196              5,350
                                                                         ----------        -----------
      Cash and cash equivalents, end of period                           $    2,957        $     5,804
                                                                         ==========        ===========

      Supplementary disclosures of cash flow information:
       period for:
       Interest                                                          $      745        $       924
       Income taxes                                                      $      449        $       581

      Supplementary disclosures of noncash investing activities:
        Acquisition of foreclosed real estate                            $      427        $        48
        Change in unrealized gain\loss on investment securities
         available for sale                                              $     (501)       $      (244)
        Change in deferred income taxes associated with unrealized
         gain\loss on investment securities available for sale           $     (190)       $       (93)
        Change in net unrealized gain\loss on investment
         securities available for sale                                   $     (311)       $      (151)
</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, 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.

                                     Three Months Ended       Six Months Ended
                                  ----------------------   ---------------------
                                         June 30,               June 30,
                                  ----------------------   ---------------------
(In thousands, except per           2004           2003      2004         2003
 share data)                      --------       -------   --------     --------
Net Income, as reported           $    499       $   398   $    891     $   848

Deduct:  Total stock-based
 employee expense determined
 under fair value based method
 for all awards, net of related
 tax effects to calculate
 earnings per share                      0           (2)          0          (6)
                                  --------       ------    --------     -------
Pro forma net                     $    499       $  396    $    891     $   842
                                  ========       ======    ========     =======

Earnings per share:
 Basic - as reported              $   0.41       $ 0.31    $   0.73     $  0.66
 Basic - pro forma                $   0.41       $ 0.31    $   0.73     $  0.65
 Diluted - as reported            $   0.41       $ 0.31    $   0.72     $  0.66
 Diluted - pro forma              $   0.41       $ 0.31    $   0.72     $  0.65
                                  ========       ======    ========     =======

                                       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       Six Months Ended
                                  ----------------------   ---------------------
                                         June 30,               June 30,
                                  ----------------------   ---------------------
                                    2004           2003      2004         2003
                                  ---------    ---------   ---------   ---------
Average number of shares
outstanding                       1,225,764    1,273,124   1,228,071   1,288,765
Effect of dilutive options              963            0      11,931           0
                                  ---------    ---------   ---------   ---------
Average number of shares
 outstanding used to
 calculate earnings per share     1,226,727    1,273,124   1,240,002   1,288,765
                                  =========    =========   =========   =========

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 June 30, 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 June 30,
                                              ----------------------------------
                                                   2004               2003
                                              -------------    -----------------
Accrued Liability Balance at Beginning
of Period                                        $   0             $  5,538
Amount Charged to Expense                            0                5,698
Less Cost of Shares Issued                           0                    0
                                              -------------    -----------------
Accrued Liability at End of Period               $   0             $ 11,236
                                              =============    =================

                                       10

<PAGE>

The Company paid out the remaining  distribution of the MRP in the third quarter
of 2003 and cancelled  the  remaining  3,673 shares of its common stock in trust
and closed out the contra-equity account.

Note 5 - Stock Option Plan

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

The  Company's  board of directors  has  approved the issuance of stock  options
under  the  plan to  certain  members  of the  board  of  directors  and  senior
management. The options vest at a rate of 25% per year, expire in ten years, and
provide for the  purchase of stock at an exercise  price equal to the fair value
of the Company's stock on the date the option is granted. Holders of the options
can also surrender the options and be paid cash for the  difference  between the
exercise price and the stock's fair value on the date surrendered.  The board of
directors  granted 202,676 options in 1999 and 6,623 options in 2001. During the
six month period ended June 30, 2004, 27,408 options were surrendered at a total
cost of $276,292 (47,512 shares for $256,258 in 2003). Stock options awarded and
outstanding   totaled  50,649  and  126,809  as  of  June  30,  2004  and  2003,
respectively.

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

                                          Period Ended June 30,
                                     ---------------------------------
                                          2004              2003
                                     ---------------    --------------
Dividend Yield                            3.5%              3.5%
Expected Life                          8.5 years          8.5 years
Expected Volatility                      52.0%              52.0%
Risk-Free Interest Rate                   4.8%              4.8%


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

<TABLE>
<CAPTION>
                                                               Six Months Ended June 30,
                                              -------------------------------------------------------------
                                                          2004                            2003
                                              -----------------------------    ----------------------------
                                                               Weighted                         Weighted
                                                                Average                         Average
                                                               Exercise                         Exercise
                                                  Shares         Price            Shares          Price
                                              ------------   --------------    -----------    -------------
<S>                                              <C>                <C>          <C>                <C>
Outstanding at Beginning of Period                102,057           $ 8.59        175,321           $ 8.59
Granted                                                 0                               0
Exercised                                        (24,000)                         (1,000)
Surrendered                                      (27,408)             8.60       (47,512)             8.60
Forfeited                                               0                               0
                                              ------------                     -----------
Outstanding at End of Period                       50,649           $ 8.59        126,809           $ 8.59
                                              ============                     ===========


Options Exercisable at Period-End                  48,993           $ 8.59        123,498           $ 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, 2004 is as follows:
<TABLE>
<CAPTION>
                           Options Outstanding Options Exercisable               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               50,649       4.8 years        $  8.59           48,993      $    8.59
</TABLE>

The Company  has  purchased  50,939 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 has approved
an architectural design and has selected a contractor to begin work in the third
quarter of 2004.  The new main office  facility will have 15,000 square feet and
will cost approximately $2.5 million to construct.


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 June 30, 2004 and
for the  three-month and six-month  periods ended June 30, 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 June 30, 2004 and December 31, 2003

Total assets increased from December 31, 2003 to June 30, 2004 by $6.4 million,
or 5.5%, from $117.0 million at December 31, 2003 to $123.4 million at June 30,
2004. The increase in assets was principally the result of an increase in
investment securities. Investment securities increased by $9.3 million offset by
a decrease in cash and amounts due from depository institutions of $2.2 million.

Loans receivable decreased from December 31, 2003 to June 30, 2004 as repayments
exceeded  originations  for  the  period  by  approximately  $1.0  million.  The
following  table  sets  forth  information  about  the  composition  of our loan
portfolio by type of loan at the dates indicated.  At June 30, 2004 and December
31, 2003, we had no  concentrations  of loans exceeding 10% of gross loans other
than as disclosed below.

<TABLE>
<CAPTION>
                                                    June 30, 2004            December 31, 2003
                                            -----------------------    -----------------------

                                                  Amount    Percent           Amount   Percent
                                                  ------    -------           ------   -------
Type of Loan:
-------------
<S>                                             <C>          <C>           <C>          <C>
Real estate loans:
  One- to four-family residential               $  62,305    78.2%         $  63,335    79.2%
  Commercial                                        9,106    11.4%             9,261    11.5%
  Construction                                      3,209     4.0%             1,769     2.2%
</TABLE>

                                       13


<PAGE>
<TABLE>
<CAPTION>
Consumer loans:
<S>                                                <C>       <C>              <C>      <C>

  Automobile                                        1,419     1.8%             1,488     1.9%

  Loans to depositors, secured by deposits          1,182     1.5%             1,293     1.6%

  Home equity and second mortgage                   1,057     1.3%             1,341     1.7%


  Other                                             1,427     1.8%             1,504     1.9%

                                            -----------------------    -----------------------
                                                   79,705   100.0%            79,991   100.0%
                                            -------------- ========    -------------- ========
</TABLE>

Less:

  Loans in process                             1,514                        764

  Deferred fees and discounts                    343                        352

  Allowance for loan losses                      945                        922
                                      --------------             --------------

    Total                                  $  76,903                  $  77,953

                                      ==============             ==============


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


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

                                              Six                 Six
                                         Months Ended        Months Ended
                                           June 30,             June 30,
                                             2004                 2003
                                         ------------        ------------
                                                   (In Thousands)
Balance at beginning of period           $        921        $        803
                                         ------------        ------------
Charge-offs:
  Consumer                                        (17)                 (8)
  Mortgage                                        (13)                  0
Recoveries:
  Consumer                                          2                   0
  Mortgage                                          0                   0
                                         ------------        ------------
Net Charge-offs                                   (28)                 (8)
Provision for loan losses                          52                  72
                                         ------------        ------------
Balance at end of period                 $        945        $        867
                                         ============        ============



                                       14

<PAGE>


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

<TABLE>
<CAPTION>
                                                               June 30,             June 30,
                                                                 2004                 2003
                                                           -----------------    ------------------
                                                                       (In Thousands)
<S>                                                                 <C>                   <C>
Nonaccrual Loans                                                    $     0               $     0
Accruing loans which are contractually past due
90 days or more:
Real Estate:
   Residential                                                          262                   367
   Non-Residential                                                        4                   866
Consumer                                                                 15                    19
                                                           -----------------    ------------------
Total                                                              $    281             $   1,252
                                                           =================    ==================
</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 six months ended June 30, 2004, the Company increased its liabilities
by $6.3 million,  or 6.3%.  Total  deposits  increased $6.4 million or 6.5% from
$98.1 million at December 31, 2003 to $104.5 million at June 30, 2004.

During 2004, the Bank has accepted deposits totaling  approximately $9.0 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  $185,000 from $16.9 million at December 31,
2003 to $17.1 million at June 30, 2004. The Company's equity increased primarily
due to net  income  of  $891,000,  proceeds  from  stock  options  exercised  of
$206,000,  and a decrease in unearned compensation related to the Company's ESOP
of  $171,000,  offset  by  dividends  paid of  $442,000,  a  decrease  in  other
accumulated comprehensive income of $311,000, and decreases due to stock options
surrendered  at a cost of $276,000 and the purchase and retirement of $54,000 of
the Company's common stock. The Company's board of directors announced a plan to
extend the current stock repurchase plan an additional two years and purchase an
additional $500,000,  up to a total of $606,000 of its stock in the open market,
depending upon the stock price.


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

Our net income for the three months ended June 30, 2004 was $499,000,  which was
an increase of $101,000  from the amount we earned during the three months ended
June 30, 2003.  Basic and diluted

                                       15

<PAGE>
earnings  per share for the three  months  ended  June 30,  2004 were each $0.41
compared to $0.31 for the same period in 2003. Basic average shares  outstanding
for three months ended June 30, 2004 was 1,225,764  shares and 1,273,124  shares
for the three months  ended June 30, 2003.  Average  dilutive  potential  shares
outstanding were 963 and 0, respectively.

Interest  income  decreased  $25,000,  or 1.5%, from $1.72 million for the three
months ended June 30, 2003 to $1.69  million for the three months ended June 30,
2004. The decrease in interest income is a result of a decrease in the yields on
our loan and investment portfolios.

Interest  expense on deposits  decreased  $68,000  from  $459,000  for the three
months ended June 30, 2003 to $391,000 for the three months ended June 30, 2004,
primarily due to the decrease in deposit account interest rates.

Net interest income increased $43,000,  or 3.4%, 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 4.67% for the three months ended
June 30, 2004 compared to 4.79% 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  $16,000 from $117,000 for the three months ended
June 30, 2003 to $133,000 for the three months ended June 30, 2004. The increase
in  noninterest  income  was due to  $17,000  in  income  from bank  owned  life
insurance, which the Company did not have during the period ended June 30, 2003.

Noninterest  expenses increased $31,000 from $687,000 for the three months ended
June 30, 2003 to $718,000 for the three months ended June 30, 2004. The increase
in noninterest  expense was primarily  from an increase in office  occupancy and
equipment  expense of $25,000 and data processing  fees of $22,000,  offset by a
gain on the sale of foreclosed real estate of $8,000.

Our  effective  tax rates for the three months ended June 30, 2004 and 2003 were
28.1% and 39.1%,  respectively.  The decrease in our  effective tax rate for the
period in 2004 was due to the  surrender of stock  options  which  provide a tax
benefit to the Company.

Discussion of Results of  Operations  for the Six Months Ended June 30, 2004 and
2003

Our net income for the six months ended June 30, 2004 was $891,000, which was an
increase of $43,000  from the amount we earned  during the six months ended June
30, 2003. Basic and diluted earnings per share for the six months ended June 30,
2004 were $0.73 and  $0.72,  respectively,  compared  to $0.66 for each the same
period in 2003.  Basic average shares  outstanding for the six months ended June
30, 2004 was 1,228,071 shares and 1,288,765 shares for the six months ended June
30, 2003.  Average  dilutive  potential  shares  outstanding  were 11,931 and 0,
respectively.

Interest income decreased $96,000, or 2.8%, from $3.5 million for the six months
ended June 30, 2003 to $3.4 million for the six months ended June 30, 2004.  The
decrease in interest  income is a result of a decrease in the yields on our loan
and investment portfolios.

Interest expense on deposits decreased $145,000 from $912,000 for the six months
ended  June 30,  2003 to  $767,000  for the six  months  ended  June  30,  2004,
primarily due to the decrease in deposit account interest rates.

Net interest income increased $49,000,  or 1.9%, 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 4.68% for the six months ended
June 30, 2004 compared to 4.87% 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.

                                       16
<PAGE>

Noninterest income increased $26,000 from $237,000 for the six months ended June
30, 2003 to $263,000  for the six months  ended June 30,  2004.  The increase in
noninterest  income was due to $34,000 in income from bank owned life insurance,
which the Company did not have during the period ended June 30, 2003.

Noninterest  expenses  increased  $199,000  from $1.3 million for the six months
ended June 30, 2003 to $1.5 million for the six months ended June 30, 2004.  The
increase in  noninterest  expense was  primarily  from  increases  in  occupancy
expense of $22,000,  data  processing  fees of  $33,000,  and  compensation  and
benefits of $187,000.  The increase in compensation  and benefits  resulted from
the mark to market  adjustment on the Directors  Incentive Plan of $87,000 and a
$46,000 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,  Inc. stock for the
period.

Our  effective  tax rates for the six months  ended June 30,  2004 and 2003 were
30.6% and 38.9%,  respectively.  The decrease in our  effective tax rate for the
period in 2004 was due to the  surrender of stock  options,  which provide a tax
benefit to the Company.

Liquidity and Capital Resources

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


                                       17
<PAGE>

Interest Rate Sensitivity

The Bank's  profitability  is  dependent  to a large  extent  upon net  interest
income,  which is the difference between its interest income on interest-earning
assets and interest expense on  interest-bearing  liabilities.  In recent years,
the banking industry has experienced  steady interest rates, which have likewise
produced  steady growth in net interest  income as the bank has grown.  The Bank
will be  affected  by changes  in levels of  interest  rates and other  economic
factors beyond its control,  particularly to the extent that such factors affect
the overall volume of its lending and deposit  activities.  A sudden increase in
interest  rates could have a negative  impact on the bank's net income through a
narrower interest margin and/or reduced lending volume.


The  bank's   Asset/Liability   Committee   ("ALCO"   committee)   follows   the
Asset/Liability  Management Policy approved by the board of directors.  The ALCO
committee  meets at least  quarterly  or more often as  considered  necessary to
discuss asset/liability  management issues and make recommendations to the board
of  directors   regarding  prudent   asset/liability   management  policies  and
procedures.  Some of the issues the ALCO committee considers include:  local and
national  economic  forecasts;  interest rate forecasts and spreads;  mismatches
between  the  maturities  of the bank's  assets  (loans,  and  investments)  and
liabilities (deposits);  anticipated loan demands; and the liquidity position of
the bank.

The matching of assets and  liabilities  may be analyzed by examining the extent
to which such  assets and  liabilities  are  "interest  rate  sensitive"  and by
monitoring  an  institution's  interest  rate  sensitivity  "gap."  An  asset or
liability is said to be interest rate sensitive within a specific time period if
it will mature or reprice within that time period. The interest rate sensitivity
gap is defined as the difference between the amount of  interest-earning  assets
maturing  or  repricing  within  a  specific  time  period  and  the  amount  of
interest-bearing  liabilities  maturing or repricing  within that time period. A
gap is considered  positive when the amount of interest  rate  sensitive  assets
exceeds the amount of interest rate sensitive  liabilities.  A gap is considered
negative  when the amount of interest  rate  sensitive  liabilities  exceeds the
amount of interest rate  sensitive  assets.  During a period of rising  interest
rates, a negative gap would tend to adversely affect net interest income while a
positive gap would tend to result in an increase in net interest income.  During
a period of falling  interest  rates,  a negative gap would tend to result in an
increase in net  interest  income  while a positive  gap would tend to adversely
affect net interest income.


Item 3.  Controls and Procedures

(a)  Evaluation  of Disclosure  Controls and  Procedures.  The  Company's  chief
executive  officer and chief financial  officer have evaluated the effectiveness
of the design and operation of the Company's  disclosure controls and procedures
(as defined in Exchange  Act  Rule13a-14(c))  as of 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.








                                       18
<PAGE>


PART II.  OTHER INFORMATION

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

          On May 18, 2004,  United  Tennessee  Bankshares,  Inc. held its Annual
          Meeting of Stockholders.  The following is a brief description of each
          matter voted upon and the results of the voting.

          Election of Directors

               Nominee                       For               Withheld
               ---------                     ----              --------
               Robert Overholt               1,024,823         4,143
               Ben Hooper, III               1,024,023         4,943

               There were no abstentions or broker non-votes.

               Directors  continuing to serve are Richard G. Harwood,  Robert R.
               Self, William B. Henry, J. William Myers and Tommy C. Bible.


Item 6.   Exhibits and Reports on Form 8-K

          (a)  Exhibits:

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

  31.1    Certification  of Richard L. 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 L. Harwood,  President  and Chief  Executive
          Officer of United Tennessee  Bankshares,  Inc. pursuant to Section 906
          of the Sarbanes-Oxley Act of 2002.

  32.2    Certification  of Chris H.  Triplett,  Controller of United  Tennessee
          Bankshares,  Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of
          2002.

    (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.


                                       19

<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 13, 2004             /s/Richard G. Harwood
                                  ----------------------------------------------
                                     Richard G. Harwood
                                     President and Chief Executive Officer
                                     (Duly Authorized Representative and
                                     Principal Financial and Accounting Officer)
















                                       20