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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB
(Mark One)

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

For the fiscal year ended December 31, 2000
                                       OR

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

For the transition period from                to
                               --------------    --------------

                         Commission File Number: 0-23551

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

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

 344 W. BROADWAY, NEWPORT, TENNESSEE                              37821-0249
---------------------------------------------                     ----------
(Address of Principal Executive Offices)                          (Zip Code)

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

       Securities registered under Section 12(b) of the Exchange Act: NONE

         Securities registered under Section 12(g) of the Exchange Act:
                           COMMON STOCK, NO PAR VALUE.

Check whether the issuer:  (1) 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 90 days. Yes  X    No
                                                             ------    ------
Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation  S-B is not  contained  in  this  form,  and no  disclosure  will  be
contained,  to the best of the  registrant's  knowledge,  in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]

The issuer's revenues for its most recent fiscal year were $7,527,044

The   aggregate   market  value  of  the   outstanding   common  stock  held  by
non-affiliates  at March 20, 2001 was  approximately  $7.2 million (based on the
most recent trade reported on the Nasdaq SmallCap Market SM ($9.125 on March 20,
2001)). Solely for purposes of this calculation, the registrant's employee stock
ownership  plan,   management   recognition  plan,  stock  option  plan  trusts,
directors' retirement plan and directors and executive officers are deemed to be
affiliates.

The total number of outstanding shares of the issuer's common stock at March 20,
2001 was 1,382,013

Transitional small business disclosure format (check one):  Yes         No  X
                                                                -----     ------
                       DOCUMENTS INCORPORATED BY REFERENCE

     1.   2000 Annual Report to Stockholders (the "Annual Report") (Part II).

     2.   Proxy  Statement for 2001 Annual Meeting of  Stockholders  (the "Proxy
          Statement") (Part III).

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<PAGE>

                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS
--------------------------------

GENERAL

     United Tennessee Bankshares,  Inc. United Tennessee  Bankshares,  Inc. (the
"Company") was  incorporated  under the laws of the State of Tennessee in August
1997 to serve as the  holding  company  for Newport  Federal  Bank (the  "Bank")
following  its  conversion  from  mutual to stock  form (the  "Conversion").  On
January 1, 1998, the Bank consummated the Conversion,  and the Company completed
its initial  offering of Common Stock through the sale and issuance of 1,454,750
shares of Common Stock at a price of $10.00 per share,  realizing gross proceeds
of $14.5 million and net proceeds of  approximately  $14.0 million.  The Company
purchased all of the Bank's  capital stock with $7.1 million of the net offering
proceeds and retained the  remainder.  Prior to January 1, 1998, the Company had
no assets or liabilities  and engaged in no business  activities.  The Company's
assets currently  consist of its investment in the Bank, an $843,000 loan to the
Company's employee stock ownership plan and approximately $1.5 million in liquid
assets.

     The Company's  executive  offices are located at 344 W. Broadway,  Newport,
Tennessee 37821-0249 and its telephone number is (423) 623-6088.

     Newport  Federal  Bank.  The  Bank  was  organized  in 1934 as a  federally
chartered mutual savings  institution under the name Newport Federal Savings and
Loan  Association.  Effective  January 1, 1998,  the Bank became a stock savings
bank and changed its name to Newport  Federal Bank. The Bank currently  operates
through three full service  banking offices  located in Newport,  Tennessee.  At
December 31, 2000, the Bank had total assets of $97.1 million, deposits of $81.6
million and stockholders' equity of $10.9 million, or 11.2% of total assets.

     The Bank attracts  deposits from the general public and invests those funds
in loans secured by first mortgages on owner-occupied  single-family  residences
in its market area and, to a lesser  extent,  commercial  real estate  loans and
consumer  loans.  The Bank also  maintains a substantial  investment  portfolio,
primarily of mortgage-backed  securities issued by the Federal National Mortgage
Association  ("FNMA"),  Federal Home Loan  Mortgage  Corporation  ("FHLMC")  and
Government National Mortgage  Association  ("GNMA"),  obligations of the federal
government and agencies and investment-grade obligations of states and political
subdivisions.

     The Bank  derives its income  principally  from  interest  earned on loans,
investment  securities and other  interest-earning  assets. The Bank's principal
expenses  are  interest  expense on deposits and  noninterest  expenses  such as
employee compensation, deposit insurance and miscellaneous other expenses. Funds
for these activities are provided  principally by deposit growth,  repayments of
outstanding loans and investment securities,  other operating revenues and, from
time to time,  advances  from the Federal Home Loan Bank  ("FHLB") of Cincinnati
and other borrowings.

     As a  federally  chartered  savings  institution,  the Bank is  subject  to
extensive  regulation by the Office of Thrift  Supervision  ("OTS").  The Bank's
lending  activities  and other  investments  must  comply with  various  federal
regulatory  requirements,  and  the  OTS  periodically  examines  the  Bank  for
compliance with various regulatory requirements. The Bank must also file reports
with the OTS  describing  its  activities  and financial  condition.  The Bank's
deposits are insured to applicable limits by the Savings  Association  Insurance
Fund ("SAIF") of the Federal Deposit Insurance Corporation ("FDIC"). The Bank is
also subject to certain monetary reserve  requirements  promulgated by the Board
of Governors of the Federal Reserve System (the "Federal Reserve Board").



                                       1
<PAGE>
MARKET AREA

     The Bank's  primary  market area is Cocke  County,  Tennessee.  To a lesser
extent, the Bank accepts deposits and offers loans in surrounding areas.

     Cocke County is primarily rural, with a population of approximately  32,000
persons  and  relatively  high  unemployment   levels  and  low  income  levels.
Approximately  one-third  of the county is occupied by Douglas Lake and portions
of the Cherokee National Forest and the Great Smoky Mountains  National Park. In
recent  periods,  the population  growth rate has been  significantly  above the
national  rate and state rate (since 1990,  10.0%  compared with 7.7% and 10.6%,
respectively),  partially due to increased  numbers of retirees  moving into the
area.  However,  unemployment  levels have been  slightly  higher than state and
national levels (for June 2000, 6.6% compared with 4.0% and 3.9%, respectively),
and income levels have been substantially lower than state and national averages
(for 2000, $20,800 compared with $26,500 and $30,200, respectively, per person),
due in part to the seasonal nature of tourism related employment.  Over the next
five years,  demographic trends in the county are expected to be consistent with
recent  experience,  with the  differences  between  county,  state and national
population growth rates decreasing and the differences between county, state and
national income levels growing.

     The  economy  in the  Bank's  primary  market  area  includes  a variety of
industries,  including farming,  manufacturing,  services,  retail and wholesale
trade  and  tourism.  Significant  employers  include  Hunt  Wesson  in the food
processing industry and Falcon Products in the furniture industry.

COMPETITION

     The  Bank  experiences  substantial  competition  both  in  attracting  and
retaining savings deposits and in the making of mortgage and other loans.

     Direct   competition   for  savings   deposits  comes  from  other  savings
institutions,  credit  unions,  regional bank holding  companies and  commercial
banks.  Significant  competition  for the  Bank's  other  deposit  products  and
services  comes from money market mutual funds and brokerage  firms.  Its direct
competitors  include three banks,  one of which is a branch of a large  regional
bank  headquartered  outside its market  area,  and one branch of a credit union
headquartered  outside its market area. The Bank currently has the third largest
share of  deposits in its market area of Cocke  County.  The primary  factors in
competing for loans are interest rates and loan origination fees and the quality
and range of services offered by various financial institutions. Competition for
origination of real estate loans normally comes from other savings institutions,
commercial banks, credit unions, mortgage bankers and mortgage brokers.

     The  Bank's  primary   competition   comes  from   financial   institutions
headquartered in its primary market area and from various  non-local  commercial
banks  that have  branch  offices  located  in its  primary  market  area.  Many
competing financial institutions have financial resources  substantially greater
than the Bank's and offer a wider  variety of  deposit  and loan  products.  The
Bank's  principal  competitive  strategy has been to emphasize  quality customer
service.

LENDING ACTIVITIES

     The Bank principally originates loans secured by mortgages on single-family
residences  in its primary  market area.  It also makes  commercial  real estate
loans and a variety of consumer loans.

     With  certain  limited  exceptions,  the  maximum  amount  that  a  savings
institution may lend to any borrower  (including certain related entities of the
borrower) at one time may not exceed 15% of the  unimpaired  capital and surplus
of the institution, plus an additional 10% of unimpaired capital and surplus for
loans fully secured by readily marketable collateral.  At December 31, 2000, the
maximum  amount that the Bank could have lent to any one borrower  without prior
OTS approval under those  regulations was  approximately  $2.3 million.  At that
date, the largest aggregate amount of loans that the Bank had outstanding to any
one  borrower  was  $1.8  million.   The  Bank  had  a  total  of  four  lending
relationships  with  aggregate  loan amounts over $500,000 at December 31, 2000,
and none of these loans were nonperforming. For additional information, see " --
Regulation of the Bank -- Limits on Loans to One Borrower."

                                       2
<PAGE>

         Loan Portfolio Composition.  The following table sets forth information
about the  composition of the Bank's loan portfolio by type of loan at the dates
indicated.  At  December  31,  2000,  the  Bank had no  concentrations  of loans
exceeding 10% of gross loans other than as disclosed below.
<TABLE>
<CAPTION>

                                                                        AT DECEMBER 31,
                                               ------------------------------------------------------------------
                                                         2000                1999                   1998
                                               -------------------    --------------------   --------------------
                                                AMOUNT          %      AMOUNT          %      AMOUNT          %
                                               --------      -----    --------       -----   --------       ----
                                                                     (DOLLARS IN THOUSANDS)
<S>                                            <C>            <C>      <C>            <C>     <C>           <C>
Real estate loans:
  One- to four-family residential...........   $53,782        75.9%    $48,550        76.5%   $41,833       76.1%
  Commercial................................    10,229        14.4       9,099        14.3      7,267       13.2
  Construction..............................     2,589         3.6       2,615         4.1      3,235        5.9

Consumer loans:
  Automobile................................     1,402         2.0         980         1.5        813        1.5
  Loans to depositors, secured by deposits..     1,250         1.8       1,114         1.8        848        1.5
  Home equity and second mortgage...........       227         0.3         208         0.3        162        0.3
  Other.....................................     1,415         2.0         931         1.5        838        1.5
                                               -------       -----     -------       -----    -------       ----
                                                70,894       100.0%     63,497       100.0%    54,996      100.0%
                                               -------       =====     -------       =====    -------      =====
Less:
  Loans in process..........................     1,030                   1,033                    748
  Deferred fees and discounts...............       326                     287                    261
  Allowance for loan losses.................       660                     661                    641
                                               -------                --------                -------
    Total...................................   $68,878                $ 61,516                $53,346
                                               =======                ========                =======
</TABLE>

     LOAN MATURITY  SCHEDULE.  The following table sets forth  information about
dollar  amounts  of  loans  maturing  in the  Bank's  portfolio  based  on their
contractual terms to maturity,  including scheduled repayments of principal,  at
December 31, 2000.  Demand loans,  loans having no stated schedule of repayments
and no stated  maturity and  overdrafts are reported as due in one year or less.
The table does not  include  any  estimate of  prepayments  which  significantly
shorten  the  average  life of all  mortgage  loans and may cause the  repayment
experience of the Bank to differ from that shown below.
<TABLE>
<CAPTION>
                                                              DUE AFTER
                                       DUE WITHIN             1 THROUGH             DUE AFTER
                                         1 YEAR                5 YEARS               5 YEARS             TOTAL
                                         ------                -------               -------             -----
                                                                  (IN THOUSANDS)
<S>                                     <C>                   <C>                   <C>                <C>
Real estate loans:
   One- to four-family residential....  $     926             $   2,635             $  50,221          $ 53,782
   Commercial.........................        345                 5,402                 4,482            10,229
   Construction.......................      2,589                    --                    --             2,589
Consumer loans........................      2,531                 1,722                    41             4,294
                                        ---------             ---------             ---------          --------
      Total...........................  $   6,391             $   9,759             $  54,744          $ 70,894
                                        =========             =========             =========          ========
</TABLE>


                                       3
<PAGE>


     Loan  Portfolio  Sensitivity.  The following  table sets forth  information
about dollar  amounts of loans due one year or more after December 31, 2000 that
had predetermined  interest rates and that had adjustable interest rates at that
date.
<TABLE>
<CAPTION>
                                                          PREDETERMINED       FLOATING OR
                                                              RATE          ADJUSTABLE RATES
                                                          -------------     ----------------
                                                                    (IN THOUSANDS)
     <S>                                                  <C>                  <C>
     Real estate loans:
        One- to four-family residential................   $  13,807            $  39,049
        Commercial.....................................       3,336                6,548
        Construction...................................          --                   --
     Consumer loans....................................       1,763                   --
                                                          ---------            ---------
           Total.......................................   $  18,906            $  45,597
                                                          =========            =========
</TABLE>

     Scheduled  contractual  principal  repayments  of loans do not  reflect the
actual life of such assets. The average life of loans is substantially less than
their contractual terms because of prepayments. In addition, due-on-sale clauses
on loans generally give the Bank the right to declare a loan immediately due and
payable in the event,  among  other  things,  that the  borrower  sells the real
property subject to the mortgage and the loan is not repaid. The average life of
mortgage  loans tends to increase  when current  mortgage  loan market rates are
substantially  higher than rates on  existing  mortgage  loans and,  conversely,
decrease when current  mortgage loan market rates are  substantially  lower than
rates on existing mortgage loans.

     Loan  Originations,  Purchases and Sales.  The  following  table sets forth
information about its loan originations  during the periods indicated.  The Bank
does not purchase or sell loans.
<TABLE>
<CAPTION>

                                                                       YEAR ENDED DECEMBER 31,
                                                              --------------------------------------------
                                                              2000               1999                1998
                                                              -----             ------              -----
                                                                            (IN THOUSANDS)
<S>                                                           <C>               <C>              <C>
Loans originated:
  Real estate loans:
    One- to four-family residential.........................  $  13,196         $ 14,743         $  11,409
    Commercial..............................................      1,596            4,967             4,750
    Construction............................................      3,831            3,656             3,225
  Consumer loans..............................................    2,361            1,623             1,404
                                                              ---------         --------         ---------
Total loans originated......................................     20,984           24,989            20,788
Loans acquired in branch purchases..........................         --               --                26
                                                              ---------         --------         ---------
     Total loans originated and acquired....................  $  20,984         $ 24,989         $  20,814
                                                              =========         ========         =========
</TABLE>


     One- to  Four-Family  Residential  Lending.  The Bank's  principal  lending
activity  consists of the  origination of loans secured by mortgages on existing
single-family  residences in its primary market area.  The Bank also  originates
significant  amounts  of loans  for the  construction  of such  residences.  The
purchase price or appraised value of most of such residences  generally has been
between $40,000 and $70,000, with original loan amounts averaging  approximately
$45,000.  At December 31, 2000,  $53.8  million,  or 75.9%,  of total loans were
secured by one- to four-family residences,  a substantial majority of which were
existing,  owner-occupied,  single-family residences in its primary market area.
At December  31,  2000,  $39.8  million,  or 74.0%,  of its one- to  four-family
residential loans had adjustable interest rates, and $14.0 million, or 26.0% had
fixed rates.  During the year ended December 31, 2000, the Bank originated $14.1
million  of  adjustable-rate  loans,  which  was  approximately  78.0%  of total
mortgage loan originations for that period, and at that date it had $2.2 million
of loan commitments, 85% of which were for adjustable-rate loans.

     The  Bank's  one-  to  four-family  residential  mortgage  loans  may  have
adjustable or fixed rates of interest. These loans generally are for terms of up
to 25 years  for  adjustable-rate  loans  and 15  years  for  fixed-rate  loans,



                                       4
<PAGE>

amortized  on a monthly  basis,  with  principal  and  interest  due each month.
Residential real estate loans often remain outstanding for significantly shorter
periods than their contractual terms. Borrowers may refinance or prepay loans at
their option without  penalty.  These loans  customarily  contain  "due-on-sale"
clauses which permit the Bank to accelerate repayment of a loan upon transfer of
ownership of the mortgaged property.

     While  it is not the  Bank's  policy  to sell its  loans  in the  secondary
market,   one-  to  four-family   residential   mortgage  loans   generally  are
underwritten  in  accordance  with   applicable   underwriting   guidelines  and
documentation  requirements  published  by the FNMA and  FHLMC  for  loans to be
eligible for sale to them,  except, as to approximately 95% of these loans, with
respect to their requirements  related to mortgaged  properties (for example, in
light of the  Bank's  experience  in its  market  area,  the Bank often does not
require  homes to have air  conditioning  or a  complete  survey or  independent
appraisal, and occasionally does not require contractors to be licensed).

     The Bank's lending policies generally limit the maximum loan-to-value ratio
on one- to  four-family  residential  mortgage  loans secured by  owner-occupied
properties to 95% of the lesser of the appraised value or purchase  price,  with
private  mortgage  insurance  or  other  enhancement   required  on  loans  with
loan-to-value  ratios in  excess  of 85%.  The  maximum  loan-to-value  ratio on
mortgage loans secured by non-owner-occupied  properties generally is limited to
75%.

     The Bank's adjustable-rate,  one- to four-family residential mortgage loans
generally  are indexed to the weekly  average rate on U.S.  Treasury  securities
adjusted to a constant maturity of one year. The rates at which interest accrues
on these loans typically are adjustable annually,  often after an initial period
of up to five years before the first rate adjustment, generally with limitations
on  adjustments  of  two  percentage  points  per  adjustment  period,  and  six
percentage points over the life of the loan, and an interest rate floor equal to
the  initial  interest  rate  on  the  loan.  While  its  adjustable-rate  loans
frequently are originated with initially  discounted  interest rates, such loans
are underwritten and borrowers are qualified based on the fully indexed interest
rate. The Bank's adjustable-rate loans do not permit negative amortization.

     Adjustable-rate  loans help the Bank to reduce its exposure to increases in
prevailing market interest rates. However, there are unquantifiable credit risks
resulting from potential  increases in costs to borrowers in the event of upward
repricing of adjustable-rate loans. It is possible that during periods of rising
interest rates, the risk of default on adjustable-rate loans may increase due to
increases in interest costs to borrowers.  Further,  adjustable-rate loans which
provide  for  initial  rates of interest  below the fully  indexed  rates may be
subject to increased risk of delinquency or default as the higher, fully indexed
rate of  interest  subsequently  replaces  the  lower,  initial  rate.  Further,
although adjustable-rate loans allow the Bank to increase the sensitivity of its
interest-earning  assets  to  changes  in  interest  rates,  the  extent of this
interest  sensitivity  is limited by the initial  fixed-rate  period  before the
first  adjustment  and  the  periodic  and  lifetime  interest  rate  adjustment
limitations and the ability of borrowers to refinance the loans. Accordingly, no
assurance  can be given  that  yields on its  adjustable-rate  loans  will fully
adjust  to   compensate   for   increases   in  its  cost  of  funds.   Finally,
adjustable-rate  loans  increase the Bank's  exposure to decreases in prevailing
market interest rates,  although decreases in its cost of funds and its interest
rate adjustment limitations and floor tend to offset this effect.

     Construction Lending. The Bank offers loans to individuals for construction
of one- to four-family  owner-occupied  residences located in its primary market
area, with such loans usually converting to permanent  financing upon completion
of construction.  At December 31, 2000, the Bank's loan portfolio  included $2.6
million of loans secured by  properties  under  construction,  all of which were
construction/permanent  loans  structured  to become  permanent  loans  upon the
completion  of  construction.  From time to time,  the Bank also offers loans to
qualified  builders  for the  construction  of one-  to  four-family  residences
located in the Bank's primary  market area.  Because such homes are intended for
resale,  the Bank  generally  does not cover such loans by  permanent  financing
commitments.  All construction loans are secured by a first lien on the property
under  construction.  Loan proceeds are disbursed in increments as  construction
progresses  and  as  inspections  warrant.   Construction/permanent   loans  are
underwritten  in accordance with the same  requirements as permanent  mortgages,
except  the  loans  generally  provide  for  disbursement  in  stages  during  a
construction period of up to six months, during which period the borrower may or
may not be required to make monthly payments.  Borrowers must satisfy all credit
requirements that would apply to its permanent  mortgage loan financing prior to
receiving construction financing for the subject property.

                                       5
<PAGE>

     Construction  financing  involves  a  higher  degree  of risk of loss  than
long-term financing on existing, improved, occupied real estate. Risk of loss on
a  construction  loan depends  upon the accuracy of the initial  estimate of the
property's value at completion of construction and the estimated cost (including
interest) of construction.  During the  construction  phase, a number of factors
could cause delays and cost overruns.  If the estimate of construction  costs is
inaccurate,  it may be required to advance  funds  beyond the amount  originally
committed  to permit  completion  of  construction.  If the estimate of value is
inaccurate,  it may be confronted, at or prior to the maturity of the loan, with
a property having a value which is  insufficient  to assure full repayment.  The
ability of a builder to sell  completed  residences  will depend on, among other
things,  demand,  pricing,  availability  of comparable  properties and economic
conditions.  The Bank has tried to minimize  this risk by limiting  construction
lending to qualified  borrowers in its market area and by limiting the aggregate
amount of outstanding construction loans.

     Commercial  Real Estate  Lending.  The Bank  originates  limited amounts of
commercial  real estate  loans in order to benefit  from the higher  origination
fees and interest  rates,  as well as shorter  terms to maturity,  than could be
obtained from  single-family  mortgage loans. The Bank's  commercial real estate
loans are  secured  by  churches,  restaurants,  offices,  apartments  and other
income-producing  commercial properties.  At December 31, 2000, the Bank had 183
of  these  loans  totaling  $10.2  million,   with  a  median  loan  balance  of
approximately  $60,000,  none of which had a balance exceeding $800,000.  One of
these  loans was  classified  as  substandard,  with an  outstanding  balance of
$468,000 at December 31, 2000. For  information  about its asset  classification
policies and nonperforming assets, see " -- Asset Classification,  Allowance for
Losses and Nonperforming Assets."

     The Bank's  commercial  real estate loans generally are limited to original
balances not exceeding  $500,000 on properties in its primary market area,  with
terms of up to 25 years. These loans generally have annually adjustable interest
rates,  with  limitations  on  adjustments  of two percent per year, and maximum
loan-to-value ratios of 75%.

     The following  paragraphs set forth information about the Bank's commercial
real estate loans with outstanding  balances  exceeding $500,000 at December 31,
2000.  None of these loans was  classified as  substandard,  doubtful or loss or
designated  as  special  mention  at that  date.  For  information  about  asset
classification  policies of the Bank, see "Asset  Classification,  Allowance for
Losses and Nonperforming Assets."

          Retail  properties in  Sevierville,  Tennessee.  In December 1998, the
          ----------------------------------------------
          Bank made a $750,000 loan secured by a medical office building located
          in  Sevierville,  Tennessee.  The appraisal  indicated a loan-to-value
          ratio of approximately 67%. The loan is being amortized over 15 years.
          In October  1999,  this loan was  refinanced at $775,000 and amortized
          over 20 years.

          Retail  properties in  Sevierville,  Tennessee.  In December 1998, the
          ----------------------------------------------
          Bank made a $750,000  loan  secured by an office  building  located in
          Sevierville,  Tennessee. The appraisal indicated a loan-to-value ratio
          of  approximately  75%. The loan is being  amortized over 15 years. In
          October 1999,  this loan was refinanced at $775,000 and amortized over
          20 years.

          Residential  real estate  development  property in Jefferson and Cocke
          ----------------------------------------------------------------------
          County,  Tennessee.  In  December  2000,  the Bank  approved a line of
          ------------------
          credit for  $900,000  secured by developed  residential  lots in Cocke
          County, Tennessee and unimproved land in Jefferson County,  Tennessee.
          The Bank advanced  $275,000 on the line of credit for the purchase and
          an additional  $300,000 for the  development of the unimproved land in
          Jefferson County. The total outstanding  balance on the line of credit
          was $575,000 at December  31,  2000.  The loan will mature on November
          30, 2001.

     Commercial  real  estate  lending  entails  significant   additional  risks
compared with single-family  residential lending.  For example,  commercial real
estate loans typically involve large loan balances to single borrowers or groups
of  related  borrowers,  the  payment  experience  on such  loans  typically  is
dependent  on the  successful  operation of the real estate  project,  and these
risks can be  significantly  affected  by supply  and demand  conditions  in the
market for multi-family  residential  units and commercial office space, and, as
such,  may be subject to a greater  extent to adverse  conditions in the economy
generally. In addition,  church loans may depend on the congregation's

                                       6
<PAGE>


voluntary  contributions,  which may be affected by local employment  levels and
other factors. To minimize the effects of these risks, the Bank generally limits
commercial  real estate lending to its primary market area and to borrowers with
which it has substantial experience or who are otherwise well known to the Bank.
It is the  Bank's  policy  to obtain  personal  guarantees  from all  principals
obtaining  commercial  real  estate  loans.  In  assessing  the  value  of  such
guarantees, the individual's personal financial statements,  credit reports, tax
returns and other financial information are reviewed.

     The  aggregate   amount  of  loans  which   federally   chartered   savings
institutions may make on the security of liens on commercial real estate may not
exceed 400% of the institution's capital. Based on its total capital at December
31, 2000,  the Bank would be  permitted  to invest up to $43.7  million in loans
secured by commercial real estate.

     Consumer  Lending.  The Bank's consumer loans consist of automobile  loans,
demand  loans  secured by deposit  accounts  with the Bank,  home  equity  loans
secured by second  mortgages on  single-family  residences  in the Bank's market
area and other loans. These loans totaled approximately $4.3 million at December
31,  2000.  At that date,  the Bank had 570 consumer  loans,  with a median loan
balance of approximately  $5,000, none of which had a balance exceeding $75,000,
and  none  of the  ten  largest  consumer  loans  was  adversely  classified  or
designated.

     Consumer  loans  generally  involve  more risk than first  mortgage  loans.
Repossessed  collateral for a defaulted loan may not provide an adequate  source
of repayment  of the  outstanding  loan  balance as a result of damage,  loss or
depreciation,  and the  remaining  deficiency  often  does not  warrant  further
substantial   collection  efforts  against  the  borrower.  In  addition,   loan
collections are dependent on the borrower's continuing financial stability,  and
thus are more likely to be adversely affected by job loss,  divorce,  illness or
personal bankruptcy. Further, the application of various federal and state laws,
including federal and state bankruptcy and insolvency laws, may limit the amount
which can be recovered. These loans may also give rise to claims and defenses by
a borrower  against the Bank,  and a borrower  may be able to assert  claims and
defenses which the Bank has against the seller of the underlying collateral.  In
underwriting  consumer loans, the Bank considers the borrower's  credit history,
an analysis of the borrower's income, expenses and ability to repay the loan and
the value of the collateral.

     Collection Policies. When a borrower fails to make a payment on a loan, the
Bank  generally  takes prompt steps to have the  delinquency  cured and the loan
restored to current  status.  Once the payment grace period has expired (in most
instances 15 days after the due date), a late charge is imposed,  if applicable.
If  payment  is not  promptly  received,  a  notice  is sent 15 days  after  the
expiration  of the grace  period.  If the loan becomes 60 days  delinquent,  the
borrower is contacted and an attempt is made to formulate an affirmative plan to
cure  the  delinquency.  If a loan  becomes  90  days  delinquent,  the  loan is
reviewed,  and, if payment is not made,  the Bank pursues  foreclosure  or other
appropriate action.

     Asset  Classification,  Allowance  for  Losses  and  Nonperforming  Assets.
Federal regulations require savings institutions to classify their assets on the
basis of quality on a regular basis. An asset is classified as substandard if it
is determined to be  inadequately  protected by the current net worth and paying
capacity  of the  obligor  or of the  collateral  pledged,  if any.  An asset is
classified as doubtful if full collection is highly  questionable or improbable.
An asset is  classified  as loss if it is  considered  uncollectible,  even if a
partial  recovery could be expected in the future.  The regulations also provide
for a special  mention  designation,  described as assets which do not currently
expose an institution to a sufficient  degree of risk to warrant  classification
but do possess credit deficiencies or potential  weaknesses  deserving its close
attention.  Assets  classified as substandard or doubtful require an institution
to establish general  allowances for loan losses. If an asset or portion thereof
is classified loss, an institution  must either  establish a specific  allowance
for loss in the amount of the portion of the asset  classified  loss,  or charge
off  such  amount.   Federal   examiners  may  disagree  with  an  institution's
classifications.   If  an   institution   does  not  agree  with  an  examiner's
classification of an asset, it may appeal this determination to the OTS Regional
Director.

     The Bank regularly  reviews its assets to determine  whether assets require
classification  or  re-classification,  and the Board of  Directors  reviews and
approves all  classifications.  As of December 31, 2000,  the Bank had no assets
classified  as  loss  or  as  doubtful,   $1,026,000  of  assets  classified  as
substandard  and no assets  designated  as special  mention.  The  Bank's  total
adversely  classified assets represented  approximately 1.1% of its total assets
and 11.7% of its tangible regulatory capital at December 31, 2000. At that date,
$558,000 of its adversely classified or designated assets were primarily one- to
four-family  residences in its primary  market area, and only one of such


                                       7
<PAGE>

assets  was in  excess  of  $100,000.  At  December  31,  2000  the Bank had one
commercial  real estate loan with a balance of  approximately  $468,000 that was
adversely classified. At December 31, 2000, the Bank did not expect to incur any
loss  in  excess  of  attributable  existing  reserves  on any of its  adversely
classified or designated assets.

     In extending  credit,  the Bank  recognizes that losses will occur and that
the risk of loss will vary with,  among other  things,  the type of credit being
extended,  the  creditworthiness of the obligor over the term of the obligation,
general  economic  conditions  and,  in the case of a  secured  obligation,  the
quality of the  security.  It is the Bank's  policy to maintain  allowances  for
losses based on its  assessment  of the loan  portfolio.  The Bank  increase the
allowance for losses by charging provisions for losses against its income.

     The Bank's methodology for establishing the allowance for losses takes into
consideration  probable  losses that have been  identified  in  connection  with
specific  assets as well as  losses  that  have not been  identified  but can be
expected to occur. The Bank conducts regular reviews of its assets and evaluates
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 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 the Bank.
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.  At
the date of  foreclosure  or other  repossession  or at the date a  property  is
determined to be an "in-substance  foreclosed" property,  the Bank transfers the
property to real estate  acquired in settlement of loans at the lower of cost or
fair value. Fair value is defined as the amount in cash or cash-equivalent value
of other  consideration  that a property would yield in a current sale between a
willing  buyer  and  a  willing  seller.   Fair  value  is  measured  by  market
transactions.  If a market  does  not  exist,  fair  value  of the  property  is
estimated based on selling prices of similar properties in active markets or, if
there are no active markets for similar properties, by discounting a forecast of
expected cash flows at a rate  commensurate  with the risk involved.  Fair value
generally is  determined  through an appraisal  at the time of  foreclosure.  At
December 31, 2000, the Bank held no properties  acquired in settlement of loans.
Any amount of cost in excess of fair value is charged-off  against the allowance
for loan losses.  The Bank records an allowance for  estimated  selling costs of
the property  immediately  after  foreclosure.  Subsequent to  acquisition,  the
property is  periodically  evaluated,  and an  allowance is  established  if the
estimated fair value of the property,  less estimated  costs to sell,  declines.
If, upon ultimate disposition of the property, net sales proceeds exceed the net
carrying value of the property, a gain on sale of real estate is recorded.

     The banking regulatory  agencies,  including the OTS, have adopted a policy
statement  about  maintenance  of an allowance  for loan and lease losses and an
effective loan review  system.  This policy  includes an arithmetic  formula for
checking the reasonableness of an institution's allowance for loan loss estimate
compared to the average loss  experience  of the industry as a whole.  Examiners
will review an  institution's  allowance  for loan losses and compare it against
the sum of (i) 50% of the portfolio that is classified doubtful; (ii) 15% of the
portfolio that is classified as  substandard;  and (iii) for the portions of the
portfolio that have not been  classified  (including  those loans  designated as
special mention),  estimated credit losses over the upcoming 12 months given the
facts and  circumstances  as of the evaluation  date.  This amount is considered
neither a "floor" nor a "safe  harbor" of the level of allowance for loan losses
an institution should maintain,  but examiners will view a shortfall relative to
the  amount as an  indication  that they  should  review  the  Bank's  policy on
allocating these  allowances to determine  whether it is reasonable based on all
relevant factors.

     The Bank  actively  monitors  its asset  quality  and charges 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  the  Bank  believes  it  uses  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.


                                       8
<PAGE>

     The following  table sets forth  information  about  activity in the Bank's
allowance for loan losses for the periods indicated.
<TABLE>
<CAPTION>
                                                                         YEAR ENDED DECEMBER 31,
                                                              ----------------------------------------------------
                                                              2000               1999                1998
                                                              -----             ------              ------
                                                                        (DOLLARS IN THOUSANDS)

<S>                                                           <C>               <C>              <C>
Balance at beginning of period..............................  $     661         $    641         $     628
Charge-offs:
    Consumer................................................        (40)              (4)              (15)
                                                                                                        --
Recoveries:
    Consumer................................................          2               --                 4
                                                              ---------         --------         ---------
Net charge-offs.............................................        (38)              (4)              (11)
                                                                                                        --
Provision for loan losses...................................         37               24                24
                                                              ---------         --------         ---------
Balance at end of period....................................  $     660         $    661         $     641
                                                              =========         ========         =========
Ratio of net charge-offs to average
  loans outstanding during the period.......................       0.06%            0.01%             0.02%
                                                              =========         ========         =========
</TABLE>


     The following table sets forth  information  about the Bank's allowance for
loan losses by asset  category at the dates  indicated.  The  allocation  of the
allowance to each  category is not  necessarily  indicative of future losses and
does not restrict the use of the allowance to absorb losses in any category.
<TABLE>
<CAPTION>
                                                                           AT DECEMBER 31,
                                            ------------------------------------------------------------------------------
                                                      2000                     1999                       1998
                                            --------------------------  -----------------------  -------------------------
                                                         PERCENT OF                PERCENT OF                 PERCENT OF
                                                        LOANS IN EACH             LOANS IN EACH              LOANS IN EACH
                                                         CATEGORY TO               CATEGORY TO                CATEGORY TO
                                            AMOUNT       TOTAL LOANS    AMOUNT     TOTAL LOANS   AMOUNT       TOTAL LOANS
                                            ------      -------------  -------    ------------  -------      ------------
                                                                         (DOLLARS IN THOUSANDS)
Loans:
<S>                                         <C>                <C>     <C>            <C>        <C>             <C>
One- to four-family residential...........  $     365          75.9%   $     383      76.5%      $     375       76.1%
  Commercial..............................        100          14.4           91      14.3              78       13.2
  Construction............................         35           3.6           32       4.1              37        5.9
Consumer loans............................        160           6.1          155       5.1             151        4.8
                                            ---------      ---------   ---------      ----       ---------       ----
    Total allowance for loan losses.......  $     660         100.0%   $     661     100.0%      $     641      100.0%
                                            =========         =====    =========     =====       =========      =====
</TABLE>

     During periods of recession or other economic distress,  numerous financial
institutions  throughout the United States have incurred  substantial losses due
to significant  increases in loss provisions and charge-offs  resulting  largely
from higher levels of loan delinquencies and foreclosures. As a result of losses
experienced by many financial  institutions during these periods, there has been
a greater level of scrutiny by regulatory  authorities of the loan portfolios of
financial  institutions  undertaken as part of examinations of such institutions
by the FDIC, OTS or other federal or state  regulators.  While the Bank believes
it has  established  its existing loss  allowances in accordance  with generally
accepted accounting principles, there can be no guarantee or assurance that such
reserves  are, or in the future  will be,  adequate to absorb all loan losses or
that  regulators,  in reviewing its assets,  will not make the Bank increase its
loss allowance,  thereby negatively  affecting its reported financial  condition
and results of operations.



                                       9
<PAGE>

     The following table sets forth information  about the Bank's  nonperforming
assets at the dates indicated.  At these dates, the Bank did not have any assets
accounted   for  on  a  nonaccrual   basis  or  modified  in  a  troubled   debt
restructuring.  For information about the Bank's interest accrual practices, see
Note 1 of the Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>
                                                                            AT  DECEMBER  31,
                                                              --------------------------------------------
                                                               2000              1999                1998
                                                              ------            ------              ------
                                                                       (DOLLARS IN THOUSANDS)
<S>                                                           <C>               <C>              <C>
Accruing  loans which are  contractually  past due
  90 days or more:
  Real estate loans:
    One- to four-family residential.........................  $     517         $    348         $     407
    Commercial..............................................         --               --                --
    Construction............................................         --               --                --
  Consumer loans............................................         41               29                31
                                                              ---------         --------         ---------
    Total nonperforming loans...............................  $     558         $    377         $     438
                                                              =========         ========         =========

Percentage of total loans...................................       0.79%            0.59%             0.88%
                                                              =========         ========         =========

Other nonperforming assets/1/...............................  $      --         $     71         $      --
                                                              =========         ========         =========

Total nonperforming assets..................................  $     558         $    448         $     438
                                                              =========         ========         =========

Percentage of total assets..................................      0.57%             0.48%             0.50%
                                                              ========          ========         =========
<FN>
_____________
/1/      Other   nonperforming   assets  includes   property   acquired  through
         foreclosure or  repossession.  This property is carried at the lower of
         its fair value less estimated selling costs or the principal balance of
         the related loan, whichever is lower.
</FN>
</TABLE>

     At December 31, 2000,  the Bank had one additional  commercial  real estate
loan  totaling  $468,000 as to which known  information  about  possible  credit
problems of the borrower caused the Bank 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,  however,  is well  secured  and the Bank does not expect to incur any
loss in excess of attributable existing reserves on any of its assets.

INVESTMENT ACTIVITIES

     The  Bank is  permitted  under  federal  law to make  certain  investments,
including investments in securities issued by various federal agencies and state
and municipal governments,  deposits at the FHLB of Cincinnati,  certificates of
deposit in federally  insured  institutions,  certain  bankers'  acceptances and
federal  funds.  The Bank may also invest,  subject to certain  limitations,  in
commercial paper rated in one of the two highest investment rating categories of
a  nationally  recognized  credit  rating  agency,  and  certain  other types of
corporate debt  securities and mutual funds. In order to be a member of the FHLB
of Cincinnati, the Bank is required to maintain an investment in FHLB stock.

     The Bank makes investments in order to maintain the levels of liquid assets
required by regulatory  authorities and manage cash flow,  diversify its assets,
obtain  yield  and,  under  prior  federal  income  tax  law,   satisfy  certain
requirements for favorable tax treatment. These investment activities consist of
investments  in  mortgage-backed  securities  and other  investment  securities,
primarily  securities  issued or guaranteed  by the U.S.  government or agencies
thereof  and  securities  issued  by  municipalities   and  other   governmental
authorities.  Investment and aggregate investment limitations and credit quality
parameters of each class of investment are  prescribed in the investment  policy
of the Bank.  Securities purchases are authorized by the investment committee of
the Bank's Board of Directors and ratified by the Bank's Board of Directors.


                                       10
<PAGE>

     Securities designated as "held to maturity" are those assets which the Bank
has the ability and intent to hold to maturity.  The held to maturity investment
portfolio is carried at amortized cost.  Securities designated as "available for
sale" are those  assets  which the Bank might not hold to maturity  and thus are
carried at market  value with  unrealized  gains or losses,  net of tax  effect,
recognized in equity.

     Mortgage-backed  securities  typically  represent  an interest in a pool of
fixed-rate  or  adjustable-rate  mortgage  loans,  the  principal  and  interest
payments on which are passed from the mortgage  borrowers  to investors  such as
the  Bank.  Mortgage-backed  security  sponsors  may  be  private  companies  or
quasi-governmental  agencies such as the FHLMC,  FNMA and GNMA,  which guarantee
the payment of principal and interest to investors.  Mortgage-backed  securities
can  represent  a  proportionate  participation  interest in a pool of loans or,
alternatively,  an obligation to repay a specified  amount  secured by a pool of
loans  (commonly  referred  to as a  "collateralized  mortgage  obligation,"  or
"CMO").  Mortgage-backed securities generally increase the quality of the Bank's
assets by virtue of the credit enhancements that back them, are more liquid than
individual  mortgage loans and may be used to collateralize  borrowings or other
obligations.  The Bank's mortgage-backed securities portfolio primarily consists
of seasoned securities issued by one of the quasi-governmental agencies.

     The actual maturity of a mortgage-backed security varies, depending on when
the  mortgagors  prepay or repay the  underlying  mortgages.  Prepayments of the
underlying  mortgages may shorten the life of the investment,  thereby adversely
affecting   its  yield  to  maturity  and  the  related   market  value  of  the
mortgage-backed  security.  The yield is based upon the interest  income and the
amortization  of the  premium  or  accretion  of  the  discount  related  to the
mortgage-backed security.  Premiums and discounts on mortgage-backed  securities
are  amortized or accreted  over the estimated  term of the  securities  using a
level  yield  method.   The  prepayment   assumptions   used  to  determine  the
amortization  period for premiums and  discounts  can  significantly  affect the
yield of the  mortgage-backed  security,  and  these  assumptions  are  reviewed
periodically  to reflect the actual  prepayment.  The actual  prepayments of the
underlying mortgages depend on many factors, including the type of mortgage, the
coupon  rate,  the  age of  the  mortgages,  the  geographical  location  of the
underlying  real estate  collateralizing  the  mortgages  and general  levels of
market  interest  rates.  The  difference  between  the  interest  rates  on the
underlying  mortgages and the prevailing mortgage interest rates is an important
determinant  in the rate of  prepayments.  During  periods of  falling  mortgage
interest rates, prepayments generally increase, and, conversely,  during periods
of rising mortgage interest rates, prepayments generally decrease. If the coupon
rate of the underlying  mortgage  significantly  exceeds the  prevailing  market
interest rates offered for mortgage loans,  refinancing  generally increases and
accelerates the prepayment of the underlying mortgages. Prepayment experience is
more difficult to estimate for adjustable-rate mortgage-backed securities.

     All of the  Company's  securities  issued by  municipalities  or comparable
governmental  authorities  were rated "A" or higher by a  nationally  recognized
credit rating agency at the time of purchase. The Company regularly monitors the
ratings of these holdings by reference to nationally  published rating media and
by communication with the issuer where necessary.  As of December 31, 2000, none
of these  securities had been  downgraded  from its original  rating,  and these
issues were primarily obligations of Tennessee  municipalities.  At December 31,
2000,  these  securities  had a weighted  average  coupon of 5.7% and a weighted
average term to maturity of approximately 38 months. The carrying value of these
securities was $681,000,  or 2.8% of the investment securities of the Company at
that date. None of its privately  issued  securities is insured or guaranteed by
FHLMC or FNMA.

                                       11
<PAGE>

     The following  table sets forth  information  about carrying  values of the
Company's investment securities at the dates indicated.
<TABLE>
<CAPTION>
                                                                            AT DECEMBER 31,
                                                              --------------------------------------------
                                                              2000               1999                1998
                                                              -----             ------              ------
                                                                           (IN THOUSANDS)
<S>                                                           <C>               <C>              <C>
Securities available for sale:
   Mortgage-backed securities...............................  $  14,374         $ 19,235         $  24,066
   U.S. government and agency securities....................      6,554            5,345             6,547
   Obligations of states and political
       subdivisions.........................................        681            1,275                --
   FHLMC preferred stock....................................      1,931            1,319             1,806
   FHLB stock...............................................        802              746               589
   Other....................................................         15               15                15

Securities held to maturity:
   Obligations of states and political
       subdivisions.........................................         --               --             2,431
                                                              ---------         --------         ---------
      Total.................................................  $  24,357         $ 27,935         $  35,454
                                                              =========         ========         =========
</TABLE>

     The  following  schedule  analyzes the  Company's  investment  portfolio at
December 31, 2000 by time  remaining to maturity and presents the average  yield
for each range of maturities.


<TABLE>
<CAPTION>
                                                                            FIVE TO          MORE THAN             TOTAL
                                  LESS THAN ONE YEAR ONE TO FIVE YEARS     TEN YEARS         TEN YEARS        INVESTMENT PORTFOLIO
                                  ------------------ -----------------  ----------------- ----------------- ------------------------
                                  CARRYING  AVERAGE  CARRYING AVERAGE   CARRYING  AVERAGE CARRYING  AVERAGE CARRYING  MARKET AVERAGE
                                   VALUE     YIELD     VALUE    YIELD     VALUE     YIELD   VALUE    YIELD    VALUE    VALUE  YIELD
                                  -------   -------  -------- -------   --------  ------- --------  ------- --------  ------ -------
                                                                                    (DOLLARS IN THOUSANDS)

<S>                               <C>         <C>     <C>        <C>     <C>         <C>   <C>        <C>   <C>       <C>       <C>
Securities available for sale:
   Mortgage-backed securities.... $   --       -- %   $2,278     6.4%    $  809      6.5%  $11,287     6.1% $14,374   $14,374   6.2%
   U.S. government and agency
      securities.................  1,993      5.8      4,561     6.3         --       --        --      --    6,554     6,554   6.1
   Obligations of states and
      political subdivisions.....     --       --        422      --        259      6.0                        681       681   5.7
   FHLMC preferred stock.........     --       --         --      --         --       --     1,931    46.4    1,931     1,931  46.4
   FHLB stock....................     --       --         --      --         --       --       802     7.5      802       802   7.5
   Other.........................     --       --         --      --         --       --        15      --       15        15    --
                                 -------              ------             ------            -------         --------   -------

     Total.......................$ 1,993              $7,261             $1,068            $14,035         $24,357    $24,357
                                 =======              ======             ======            =======         =======    =======
</TABLE>

DEPOSIT ACTIVITY AND OTHER SOURCES OF FUNDS

     General.  Deposits are the primary source of funds for lending,  investment
activities and general operational purposes.  In addition to deposits,  the Bank
derives  funds  from loan  principal  and  interest  repayments,  maturities  of
investment  securities  and  mortgage-backed  securities  and interest  payments
thereon.  Although  loan  repayments  are a relatively  stable  source of funds,
deposit inflows and outflows are  significantly  influenced by general  interest
rates and money market conditions.  Borrowings may be used on a short-term basis
to compensate for reductions in the  availability  of funds, or on a longer term
basis for general operational  purposes.  The Bank has access to borrow advances
from the FHLB of Cincinnati, which it uses from time to time.

     Deposits.  The Bank attracts  deposits  principally from within its primary
market area by offering competitive rates on its deposit instruments,  including
money market accounts, negotiable order of withdrawal ("NOW") accounts, passbook
deposit accounts,  individual retirement accounts ("IRAs"),  and certificates of
deposit which range in maturity from 90 days to three years.  Deposit terms vary
according  to the minimum  balance  required,  the length of time the funds must
remain on deposit and the interest  rate.  Maturities,  terms,  service fees and
withdrawal  penalties for deposit  accounts are established on a periodic basis.
In determining the  characteristics of deposit accounts,  the Bank considers the
rates offered by competing  institutions,  lending and  liquidity  requirements,
growth


                                       12
<PAGE>

goals and  federal  regulations.  The Bank does not  generally  accept  brokered
deposits or pay negotiated rates for jumbo deposits.

     The Bank attempts to compete for deposits with other financial institutions
in its market area by offering competitively priced deposit instruments that are
tailored  to the needs of its  customers.  Additionally,  the Bank seeks to meet
customers'  needs by providing  convenient  customer  service to the  community,
efficient staff and convenient hours of service. Substantially all of the Bank's
depositors are local residents who reside in its primary market area.

     The Bank's  savings  deposits at December 31, 2000 were  represented by the
various types of savings programs listed below.
<TABLE>
<CAPTION>

WEIGHTED
AVERAGE
INTEREST       MINIMUM                                                    MINIMUM                   PERCENTAGE OF
 RATE             TERM                 CATEGORY                            BALANCE        BALANCE    TOTAL SAVINGS
--------       --------               --------                            -------        -------    -------------

<S>            <C>                  <C>                                   <C>             <C>            <C>
2.02%          None                 NOW accounts                          $      --      $ 8,004         9.8%
2.99           None                 Money market                              2,500        2,779         3.4
3.00           None                 Savings deposits-passbook                    --       10,295        12.6
                                                                                         -------     -------
                                         Total transaction accounts                       21,078        25.8
                                                                                         -------     -------
                                    Certificates of Deposit
                                    -----------------------

5.94           91 days              Fixed-term, fixed-rate                    2,500        4,338         5.3
5.88           6 months-Regular     Fixed-term, fixed-rate                    2,500        7,065         8.7
5.89           6 months-IRA         Fixed-term, fixed-rate                      100          340         0.4
5.95           12 months            Fixed-term, fixed-rate                    1,000        4,835         5.9
6.67           14 months            Fixed-term, fixed-rate                    1,000       19,118        23.4
5.66           18 months-Regular    Fixed-term, fixed-rate                    1,000        2,574         3.2
5.81           18 months-IRA        Fixed-term, fixed-rate                      100        5,724         7.0
5.48           30 months            Fixed-term, fixed-rate                    1,000        2,277         2.8
6.35           Jumbos               Fixed-term, fixed-rate                  100,000       14,265        17.5
                                                                                         -------       -----
                                         Total certificates of deposit                    60,536        74.2
                                                                                         -------       -----
                                            Total deposits                               $81,614       100.0%
                                                                                         =======       =====
</TABLE>


     The following tables set forth information about the Bank's average deposit
balances and rates during the periods presented.
<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                      ---------------------------------------------------------------------------
                                             2000                       1999                        1998
                                      ---------------------      --------------------       ---------------------
                                      AVERAGE      AVERAGE       AVERAGE      AVERAGE       AVERAGE       AVERAGE
                                      BALANCE        RATE        BALANCE        RATE        BALANCE         RATE
                                      -------      -------       -------      -------       -------       -------
                                                                (DOLLARS IN THOUSANDS)
<S>                                    <C>          <C>           <C>           <C>        <C>             <C>
Escrow accounts for stock
  subscriptions..................      $      --     -- %         $     --        --%        $   1,968     3.0%
NOW accounts.....................          7,544    2.0              7,496       2.0             4,522     2.2
Money market deposits............          3,019    3.0              3,268       3.3             2,382     3.3
Savings deposits -- passbook.....         10,884    3.0             11,466       3.0             9,588     3.3
Certificates of deposit..........         55,989    6.0             51,620       5.3            39,816     4.6
                                       ---------                  --------                   ---------
    Total........................      $  77,436                  $ 73,850                   $  58,276
                                       =========                  ========                   =========
</TABLE>

                                       13
<PAGE>

     The following table sets forth  information about changes in dollar amounts
of the Bank's deposits in various types of accounts between the dates indicated.
<TABLE>
<CAPTION>
                                                                                                                INCREASE
                                                                                                                (DECREASE)
                                           BALANCE AT                                  BALANCE AT                 FROM
                                           DECEMBER 31,     % OF          INCREASE     DECEMBER 31,     % OF    DECEMBER
                                              2000         DEPOSIT       (DECREASE)      1999         DEPOSITS   31, 1998
                                           ------------    -------       ----------    ------------   --------  ----------
                                                                         (DOLLARS IN THOUSANDS)
<S>                                        <C>               <C>        <C>           <C>              <C>       <C>
NOW accounts.............................. $   8,004         9.81%      $    986      $   7,018        9.50%     $     153
Money market deposit......................     2,779         3.41           (401)         3,180        4.31           (464)
Savings deposits -- passbook..............    10,295        12.61         (1,181)        11,476       15.55            870
Certificates of deposit...................    46,271        56.69          9,449         36,822       49.89          1,420
Jumbo certificates........................    14,265        17.48         (1,049)        15,314       20.75          1,996
                                           ---------       ------       --------      ---------     -------       --------
                                           $  81,614       100.00%      $  7,804      $  73,810      100.00%      $  3,975
                                           =========       ======       ========      =========      ======       ========
</TABLE>

     The following table sets forth  information  about the Bank's time deposits
classified by rates at the dates indicated.
<TABLE>
<CAPTION>
                                                                            AT DECEMBER 31,
                                                              --------------------------------------------
                                                              2000               1999                1998
                                                              -----             ------              ------
                                                                            (IN THOUSANDS)
         <S>                                                  <C>               <C>              <C>
         4.00 -  5.99%......................................  $  25,093         $ 52,136         $  47,604
         6.00 -  7.99%......................................     35,443               --             1,116
                                                              ---------         --------         ---------
                                                              $  60,536         $ 52,136         $  48,720
                                                              =========         ========         =========
</TABLE>

     The following table sets forth  information about amounts and maturities of
the Bank's time deposits at December 31, 2000.
<TABLE>
<CAPTION>
                                                                 AMOUNT  DUE
                                  ----------------------------------------------------------------------
                                  LESS THAN                                         AFTER
RATE                              ONE YEAR        1-2 YEARS        2-3 YEARS       3 YEARS         TOTAL
----                              --------        ---------        ---------       -------         -----
                                                                  (IN THOUSANDS)
<S>                                <C>             <C>             <C>             <C>            <C>
 4.00 -  5.99%..................   $21,943         $  2,617        $   354         $  179         $ 25,093
 6.00 -  7.99%..................    32,666            2,590            162             25           35,443
                                   -------         --------        -------         ------         --------
                                   $54,609         $  5,207        $   516         $  204         $ 60,536
                                   =======         ========        =======         ======         ========
</TABLE>


     The  following  table sets forth  information  about  amounts of the Bank's
certificates  of deposit of $100,000 or more by time remaining until maturity at
December 31, 2000.

                                                    CERTIFICATES
      MATURITY PERIOD                                OF DEPOSIT
      ---------------                              --------------
                                                   (IN THOUSANDS)

      Six months or less.........................  $   13,046
      Over six through 12 months.................       1,124
      Over 12 months ............................          95
                                                   ----------
            Total................................  $   14,265
                                                   ==========



                                       14
<PAGE>
     The  following  table  sets  forth  information  about the  Bank's  savings
activities for the periods indicated.
<TABLE>
<CAPTION>

                                                                             AT DECEMBER 31,
                                                              --------------------------------------------
                                                              2000               1999                1998
                                                              -----             ------              ------
                                                                            (IN THOUSANDS)
<S>                                                           <C>               <C>              <C>
Net increase (decrease) before interest credited
  and branch purchase.......................................  $   4,025         $    897         $ (29,297)
Deposits acquired in branch purchase........................         --               --            14,909
Interest credited...........................................      3,779            3,077             2,553
                                                              ---------         --------         ---------
    Net increase (decrease) in savings deposits.............  $   7,804         $  3,974         $ (11,835)
                                                              =========         ========         =========
</TABLE>

     Borrowings.  Savings deposits  historically have been the primary source of
funds for the Bank's lending,  investments and general operating activities. The
Bank is  authorized,  however,  to use advances  from the FHLB of  Cincinnati to
supplement  its  supply  of  lendable  funds  and  to  meet  deposit  withdrawal
requirements.  The FHLB functions as a central reserve bank providing credit for
savings  institutions  and certain  other member  financial  institutions.  As a
member of the FHLB System,  the Bank is required to own stock in the FHLB and is
authorized  to apply for  advances.  Advances are pursuant to several  different
programs,  each of which  has its own  interest  rate and  range of  maturities.
Advances from the FHLB of Cincinnati are secured by the Bank's stock in the FHLB
and first mortgage loans.

     The Bank has  historically  funded its  lending and  investment  activities
through deposits.  During 1998, the Bank began using FHLB advances to supplement
deposits.  At December 31, 1999, the Company also had $3.2 million in borrowings
from a commercial bank, the proceeds of which were used to finance the return of
capital  distribution  paid to  stockholders  in November  1999.  This unsecured
borrowing matured in early 2000, at which time the Bank borrowed $3.0 million in
additional FHLB advances in order to fund a distribution to the Company to repay
the bank borrowing.  The following sets forth selected information regarding the
Company's and the Bank's short-term  borrowings at the dates and for the periods
indicated.
<TABLE>
<CAPTION>
                                                                             AT DECEMBER 31,
                                                              --------------------------------------------
                                                              2000               1999                1998
                                                              -----             ------              ------
                                                                       (DOLLARS IN THOUSANDS)
<S>                                                           <C>               <C>                <C>
Amount outstanding at end of period:
   FHLB advances............................................  $ 1,753           $ 3,767            $ 5,689
   Bank debt................................................       --             3,200                 --

Weighted average rate paid:
  FHLB advances.............................................     4.75%             4.75%              4.75%
  Bank debt.................................................       --              7.25                 --

Maximum amount outstanding at any month end:
  FHLB advances.............................................  $ 6,438          $  5,689            $ 6,000
  Bank debt.................................................    3,200             3,200                 --

Approximate average amount outstanding:
  FHLB advances.............................................  $ 4,093           $ 4,728            $ 1,181
  Bank debt.................................................      267               267                 --

Approximate weighted average rate paid:
  FHLB advances.............................................     4.88%             4.75%              4.75%
  Bank debt.................................................     7.25              7.25                 --

</TABLE>



                                       15
<PAGE>

SUBSIDIARY ACTIVITIES

     As a federally  chartered  savings  institution,  the Bank is  permitted to
invest an amount equal to 2% of its assets in  non-savings  institution  service
corporation  subsidiaries,  with an additional  investment of 1% of assets where
such investment serves primarily community, inner-city and community development
purposes.  Under  such  limitations,  as of  December  31,  2000  the  Bank  was
authorized to invest up to  approximately  $2.9 million in the stock of or loans
to such  subsidiaries,  including the  additional  1%  investment  for community
inner-city  and  community  development  purposes.  Institutions  meeting  their
applicable minimum regulatory capital requirements may invest up to 50% of their
regulatory  capital in conforming  first mortgage loans to such  subsidiaries in
which they own 10% or more of the capital stock.  At December 31, 2000, the Bank
did not have any subsidiaries.


REGULATION OF THE BANK

     General. As a federally chartered and insured savings institution, the Bank
is subject to extensive  regulation by the OTS and the FDIC.  The Bank's lending
activities  and other  investments  must comply with  various  federal and state
statutory and regulatory  requirements,  and the OTS  periodically  examines the
Bank for  compliance  with various  regulatory  requirements.  The FDIC also has
authority to conduct periodic examinations.  The Bank must file reports with the
OTS describing  its  activities  and its financial  condition and it must obtain
approvals from regulatory  authorities before entering into certain transactions
such as the conversion or mergers with other financial institutions. The Bank is
also subject to certain reserve requirements  promulgated by the Federal Reserve
Board.  The  Bank's  relationship  with its  depositors  and  borrowers  is also
regulated to a great extent by federal and state law, especially in such matters
as the  ownership  of deposit  accounts and the form and content of its mortgage
documents.  This  supervision  and  regulation is primarily  intended to protect
depositors.  The  regulatory  structure  also gives the  regulatory  authorities
extensive  discretion  in  connection  with their  supervisory  and  enforcement
activities  and  examination  policies,  including  policies with respect to the
classification  of  assets  and the  establishment  of loan  loss  reserves  for
regulatory purposes. Any change in regulations,  whether by the OTS, the FDIC or
any  other  government  agency,  could  have a  material  adverse  impact on the
operations of the Bank.

FINANCIAL MODERNIZATION LEGISLATION

     On November 12, 1999, President Clinton signed legislation which could have
a far-reaching impact on the financial services industry. The Gramm-Leach-Bliley
("G-L-B") Act authorizes affiliations between banking,  securities and insurance
firms and  authorizes  bank holding  companies and national banks to engage in a
variety  of new  financial  activities.  Among the new  activities  that will be
permitted to bank holding  companies are  securities  and  insurance  brokerage,
securities  underwriting,  insurance  underwriting  and  merchant  banking.  The
Federal Reserve Board, in consultation  with the Secretary of the Treasury,  may
approve  additional  financial  activities.  The G-L-B Act,  however,  prohibits
future acquisitions of existing unitary savings and loan holding companies, like
the Company, by firms which are engaged in commercial  activities and limits the
permissible activities of unitary holding companies formed after May 4, 1999.

     The G-L-B Act imposes  new  requirements  on  financial  institutions  with
respect to customer  privacy.  The G-L-B Act generally  prohibits  disclosure of
customer  information  to  non-affiliated  third parties unless the customer has
been given the  opportunity  to object and has not objected to such  disclosure.
Financial  institutions  are further required to disclose their privacy policies
to customers  annually.  Financial  institutions,  however,  will be required to
comply  with state law if it is more  protective  of customer  privacy  than the
G-L-B Act.  The G-L-B Act directs the federal  banking  agencies,  the  National
Credit Union Administration,  the Secretary of the Treasury,  the Securities and
Exchange  Commission and the Federal Trade Commission,  after  consultation with
the National Association of Insurance Commissioners,  to promulgate implementing
regulations within six months of enactment.  The privacy regulations will become
effective in July 2001.

     The G-L-B Act contains significant  revisions to the FHLB System. The G-L-B
Act imposes new capital  requirements  on the FHLBs and authorizes them to issue
two classes of stock with differing dividend rates and redemption  requirements.
The G-L-B Act deletes the current requirement that the FHLBs annually contribute
$300 million to pay interest on certain government obligations in favor of a 20%
of net  earnings  formula.  The G-L-B Act expands the  permissible  uses of FHLB
advances by community  financial  institutions (under $500 million in assets)


                                       16
<PAGE>

to  include   funding  loans  to  small   businesses,   small  farms  and  small
agri-businesses.  The G-L-B  Act  makes  membership  in the FHLB  voluntary  for
federal savings associations.

     The  G-L-B  Act  contains  a  variety  of  other  provisions   including  a
prohibition  against ATM surcharges  unless the customer has first been provided
notice of the  imposition  and  amount of the fee.  The  G-L-B Act  reduces  the
frequency of Community  Reinvestment Act  examinations for smaller  institutions
and imposes certain reporting requirements on depository  institutions that make
payments  to   non-governmental   entities  in  connection  with  the  Community
Reinvestment  Act.  The  G-L-B  Act  eliminates  the SAIF  special  reserve  and
authorizes a federal  savings  association  that converts to a national or state
bank charter to continue to use the term "federal" in its name and to retain any
interstate branches.

     The  Company  is  unable  to  predict  the  impact  of the G-L-B Act on its
operations  at this time.  Although the G-L-B Act reduces the range of companies
which may acquire control of the Company,  it may facilitate  affiliations  with
companies in the financial services industry.

     Deposit  Insurance.  The Bank is  required  to pay  assessments  based on a
percent of its insured deposits to the FDIC for insurance of its deposits by the
SAIF. Under the Federal Deposit Insurance Act ("FDIA"),  the FDIC is required to
set semi-annual  assessments for SAIF-insured  institutions at a rate determined
by the FDIC to be necessary to maintain the designated reserve ratio of the SAIF
at 1.25% of  estimated  insured  deposits or at a higher  percentage  of insured
deposits that the FDIC determines to be justified for that year by circumstances
raising a significant risk of substantial future losses to the SAIF.

     The assessment rate for an insured depository  institution is determined by
the assessment risk classification assigned to the institution by the FDIC based
on the  institution's  capital level and supervisory  evaluations.  Based on the
data  reported  to  regulators  for date  closest to the last day of the seventh
month preceding the semi-annual assessment period,  institutions are assigned to
one of three  capital  groups -- well  capitalized,  adequately  capitalized  or
undercapitalized  --  using  the  same  percentage  criteria  as in  the  prompt
corrective action  regulations.  See "-- Prompt Corrective  Regulatory  Action."
Within each capital group,  institutions  are assigned to one of three subgroups
on the basis of supervisory evaluations by the institution's primary supervisory
authority and such other  information  as the FDIC  determines to be relevant to
the  institution's  financial  condition  and  the  risk  posed  to the  deposit
insurance fund.

     The FDIC's current assessment  schedule for SAIF deposit insurance sets the
assessment rate for well capitalized  institutions with the highest  supervisory
ratings at zero and institutions in the worst risk assessment classification are
assessed at the rate of 0.27% of insured  deposits.  In  addition,  FDIC-insured
institutions  are required to pay  assessments to the FDIC to help fund interest
payments on certain  bonds  issued by the  Financing  Corporation  ("FICO"),  an
agency of the federal  government  established to finance takeovers of insolvent
thrifts. Until December 31, 1999, SAIF-insured institutions were required to pay
FICO  assessments  at five times the rate at which Bank  Insurance  Fund ("BIF")
members were assessed.  After  December 31, 1999,  both BIF and SAIF members are
assessed at the same rate for FICO payments.

     Regulatory Capital  Requirements.  OTS capital  regulations require savings
institutions,  such as the Bank, to meet three capital  standards:  (1) tangible
capital  equal to at least 1.5 % of total  adjusted  assets,  (2) Tier 1 or core
capital  equal  to  at  least  4.0 % of  total  adjusted  assets  (3.0%  if  the
institution  has a composite 1 CAMELS  rating under the OTS  examination  rating
system),  and (3) total capital  equal to at least 8.0 % of total  risk-weighted
assets. In addition,  the OTS may require that a savings  institution that has a
risk-based  capital  ratio  less  than  8.0%,  a  ratio  of  Tier 1  capital  to
risk-weighted  assets of less than 4.0% or a ratio of Tier 1 capital to adjusted
total assets of less than 4.0% (3.0% if the institution has received the highest
rating on its most recent  examination)  take  certain  actions to increase  its
capital ratios. If the institution's  capital is significantly below the minimum
required levels or if it is  unsuccessful in increasing its capital ratios,  the
OTS may significantly restrict its activities.

     Tangible  capital is defined as core  capital  less all  intangible  assets
(including  supervisory  goodwill),  less certain mortgage  servicing rights and
less  certain  investments.  Tier  1  or  core  capital  is  defined  as  common
stockholders'  equity (including  retained earnings),  non-cumulative  perpetual
preferred  stock and minority  interests in the equity  accounts of consolidated
subsidiaries,  certain non-withdrawable  accounts and pledged deposits of


                                       17
<PAGE>

mutual  savings   institutions  and  qualifying   supervisory   goodwill,   less
non-qualifying   intangible   assets,   certain  servicing  rights  and  certain
investments.

     Adjusted  total  assets  are  a  savings   institution's  total  assets  as
determined under generally accepted accounting  principles  increased by certain
goodwill  amounts  and by a pro rated  portion of the  assets of  unconsolidated
includable  subsidiaries  in which  the  savings  institution  holds a  minority
interest.  Adjusted  total  assets are reduced by the amount of assets that have
been deducted from capital,  the  investments in any  unconsolidated  includable
subsidiary  in which the savings  institution  has a minority  interest and, for
purposes of the core capital requirement, qualifying supervisory goodwill.

     Total capital  equals the sum of core capital plus  supplementary  capital.
The components of supplementary capital include,  among other items,  cumulative
perpetual preferred stock,  perpetual  subordinated debt, mandatory  convertible
subordinated  debt,  intermediate-term  preferred  stock,  the  portion  of  the
allowance for loan losses not designated for specific loan losses, and up to 45%
of unrealized net gains on equity securities.  Overall, supplementary capital is
limited  to 100% of core  capital.  The Bank must  calculate  its  risk-weighted
assets by  multiplying  each asset and  off-balance  sheet item by various  risk
factors  as  determined  by the OTS,  which  range  from 0% for cash to 100% for
delinquent loans,  property acquired through foreclosure,  commercial loans, and
other assets.

     The OTS risk-based capital regulations have been amended to require savings
institutions  with more than a "normal"  level of interest rate risk to maintain
additional total capital. A savings institution's interest rate risk is measured
in terms of the sensitivity of its "net portfolio  value" to changes in interest
rates.  Net  portfolio  value is defined,  generally,  as the  present  value of
expected cash inflows from existing assets and off-balance  sheet contracts less
the present value of expected cash outflows from existing liabilities. A savings
institution  is  considered  to have a  "normal"  level of  interest  rate  risk
exposure if the decline in its net portfolio  value after an immediate 200 basis
point increase or decrease in market  interest rates  (whichever  results in the
greater  decline)  is less than two percent of the  current  estimated  economic
value of its assets.  A savings  institution with a greater than normal interest
rate risk would be  required  to deduct  from total  capital,  for  purposes  of
calculating its risk-based  capital  requirement,  an amount (the "interest rate
risk  component")  equal to one-half the  difference  between the  institution's
measured  interest  rate  risk and the  normal  level  of  interest  rate  risk,
multiplied  by the economic  value of its total  assets.  Implementation  of the
interest  rate risk  component  has been  delayed  and the  Company has not been
required to  determine  whether it will be  required to deduct an interest  rate
risk component from capital.

     In addition to requiring generally applicable capital standards for savings
associations,  the Director of OTS is  authorized to establish the minimum level
of  capital  for a  savings  association  at such  amount  or at such  ratio  of
capital-to-assets  as the Director determines to be necessary or appropriate for
such  association in light of the particular  circumstances  of the association.
Such  circumstances  would  include a high degree of  exposure to interest  rate
risk,  prepayment  risk,  credit risk,  concentration of credit risk and certain
risks arising from non-traditional activities. The Director of OTS may treat the
failure of any savings association to maintain capital at or above such level as
an unsafe or unsound  practice and may issue a directive  requiring  any savings
association  which  fails to  maintain  capital  at or above the  minimum  level
required by the Director to submit and adhere to a plan for increasing  capital.
Such an order may be enforced in the same manner as an order issued by the FDIC.

     At December  31,  2000,  the Bank  substantially  exceeded  all  regulatory
capital requirements.

     Prompt Corrective  Regulatory  Action.  Under the Federal Deposit Insurance
Corporation  Improvement Act of 1991 ("FDICIA"),  the federal banking regulators
are  required  to  take  prompt  corrective  action  if  an  insured  depository
institution  fails  to  satisfy  certain  minimum  capital   requirements.   All
institutions, regardless of their capital levels, are restricted from making any
capital  distribution  or paying any management  fees if the  institution  would
thereafter   fail  to  satisfy  the  minimum  levels  for  any  of  its  capital
requirements.  An  institution  that  fails to meet the  minimum  level  for any
relevant capital measure (an "undercapitalized institution") may be: (i) subject
to increased  monitoring by the  appropriate  federal  banking  regulator;  (ii)
required to submit an acceptable capital  restoration plan within 45 days; (iii)
subject to asset growth  limits;  and (iv)  required to obtain prior  regulatory
approval for  acquisitions,  branching and new lines of businesses.  The capital
restoration plan must include a guarantee by the  institution's  holding company
that the  institution  will  comply  with the plan until it has been  adequately
capitalized on average for four  consecutive  quarters,  under which the holding
company would be liable


                                       18
<PAGE>

up to the lesser of 5% of the institution's total assets or the amount necessary
to bring the  institution  into capital  compliance  as of the date it failed to
comply with its capital  restoration  plan. A  "significantly  undercapitalized"
institution, as well as any undercapitalized  institution that did not submit an
acceptable  capital  restoration plan, may be subject to regulatory  demands for
recapitalization,  broader  application of  restrictions  on  transactions  with
affiliates,  limitations  on interest  rates paid on deposits,  asset growth and
other  activities,   possible   replacement  of  directors  and  officers,   and
restrictions on capital  distributions  by any bank holding company  controlling
the institution.  Any company controlling the institution could also be required
to  divest  the  institution  or the  institution  could be  required  to divest
subsidiaries.  The senior executive officers of a significantly undercapitalized
institution may not receive  bonuses or increases in compensation  without prior
approval and the  institution is prohibited from making payments of principal or
interest on its  subordinated  debt. In their  discretion,  the federal  banking
regulators  may also  impose  the  foregoing  sanctions  on an  undercapitalized
institution if the regulators determine that such actions are necessary to carry
out the purposes of the prompt corrective action provisions. If an institution's
ratio of  tangible  capital to total  assets  falls  below a  "critical  capital
level,"  the  institution  will be subject to  conservatorship  or  receivership
within specified time periods.

     Under  regulations  jointly  adopted by the federal banking  regulators,  a
savings  association's  capital  adequacy  for  purposes  of the  FDICIA  prompt
corrective  action rules is determined on the basis of the  institution's  total
risk-based  capital  ratio  (the  ratio of its total  capital  to  risk-weighted
assets),  Tier 1  risk-based  capital  ratio (the  ratio of its core  capital to
risk-weighted  assets)  and  leverage  ratio  (the  ratio  of its Tier 1 or core
capital to adjusted total assets).  The following  table shows the capital ratio
requirements for each prompt corrective action category:
<TABLE>
<CAPTION>
                                                     ADEQUATELY                                     SIGNIFICANTLY
                           WELL CAPITALIZED          CAPITALIZED         UNDERCAPITALIZED        UNDERCAPITALIZED
                           ----------------          -----------         ----------------        ----------------
<S>                        <C>                       <C>                 <C>                     <C>
Total risk-based
    capital ratio           10.0% or more            8.0% or more        Less than 8.0%          Less than 6.0%
Tier 1 risk-based
    capital ratio            6.0% or more            4.0% or more        Less than 4.0%          Less than 3.0%
Leverage ratio               5.0% or more            4.0% or more *      Less than 4.0% *        Less than 3.0%
<FN>
-----------
*  3.0% if institution has a composite 1 CAMELS rating.
</FN>
</TABLE>

A  "critically  undercapitalized"  savings  association  is defined as a savings
association  that has a ratio of "tangible  equity" to total assets of less than
2.0%.  Tangible  equity is defined as core  capital  plus  cumulative  perpetual
preferred stock (and related surplus) less all intangibles other than qualifying
supervisory  goodwill and certain purchased  mortgage  servicing rights. The OTS
may reclassify a well capitalized savings association as adequately  capitalized
and may require an adequately  capitalized  or  undercapitalized  association to
comply with the supervisory actions applicable to associations in the next lower
capital  category  (but  may not  reclassify  a  significantly  undercapitalized
institution as critically  undercapitalized) if the OTS determines, after notice
and an opportunity for a hearing,  that the savings  association is in an unsafe
or unsound  condition or that the  association  has received and not corrected a
less-than-satisfactory  rating for any CAMELS rating  category.  For information
regarding the position of the Bank with respect to the FDICIA prompt  corrective
action rules, see Note 9 of Notes to Consolidated  Financial Statements included
under Item 7 hereof.

     Dividend  and Other  Capital  Distribution  Limitations.  Except in limited
circumstances,  the Bank is  prohibited  from paying a dividend or other capital
distribution if the Bank would be  undercapitalized  after the distribution.  In
addition,  the Bank may not declare or pay a cash  dividend on its capital stock
if the  effect  would be to reduce  its  regulatory  capital  below  the  amount
required for the liquidation account established at the time of the Conversion.

     Savings  associations  must  submit  notice  to the OTS  prior to  making a
capital  distribution (which includes  dividends,  stock repurchases and amounts
paid to stockholders in another  institution in a cash merger) if (a) they would
not be well  capitalized  after the  distribution,  (b) the  distribution  would
result in the retirement of any of the  association's  common or preferred stock
or  debt  counted  as its  regulatory  capital,  or  (c)  the  association  is a
subsidiary of a holding company. A savings  association must make application to
the OTS to pay a  capital  distribution  if (x)  the  association  would  not be
adequately  capitalized following the distribution,  (y) the association's

                                       19
<PAGE>

total  distributions  for the calendar year exceed the  association's net income
for the calendar year to date plus its net income (less  distributions)  for the
preceding two years, or (z) the distribution  would otherwise violate applicable
law or regulation or an agreement with or condition imposed by the OTS.

     Qualified Thrift Lender Test.  Savings  institutions  must meet a Qualified
Thrift Lender test. The Bank must maintain at least 65% of its portfolio  assets
(total  assets  less  intangible  assets,  property  it uses in  conducting  its
business and liquid  assets in an amount not  exceeding  20% of total assets) in
Qualified Thrift  Investments to satisfy the test.  Qualified Thrift Investments
consist primarily of residential  mortgage loans and  mortgage-backed  and other
securities related to domestic, residential real estate or manufactured housing.
The  shares of stock the Bank owns in the FHLB of  Cincinnati  also  qualify  as
Qualified Thrift Investments.  Subject to an aggregate limit of 20% of portfolio
assets,  the Bank may also count the following as Qualified Thrift  Investments:
(i) 50% of the dollar amount of residential  mortgage loans originated for sale,
(ii) investments in the capital stock or obligations of any service  corporation
or operating  subsidiary as long as such subsidiary  derives at least 80% of its
revenues  from domestic  housing  related  activities,  (iii) 200% of the dollar
amount of loans and  investments  to  purchase,  construct  or develop  "starter
homes," subject to certain other restrictions, (iv) 200% of the dollar amount of
loans for the purchase,  construction  or  development  of domestic  residential
housing  or  community  centers  in  "credit  needy"  areas or loans  for  small
businesses  located in such areas,  (v) loans for the purchase,  construction or
development of community centers, (vi) loans for personal,  family, household or
educational purposes, subject to a maximum of 10% of portfolio assets, and (vii)
shares of FHLMC or FNMA stock.

     A savings  institution  that does not meet the Qualified Thrift Lender Test
must either convert to a bank charter or comply with the following  restrictions
on its  operations:  (i) the  institution  may not engage in any new activity or
make any new  investment,  directly  or  indirectly,  unless  such  activity  or
investment is permissible for a national bank; (ii) the branching  powers of the
institution  are  restricted to those of a national  bank;  and (iii) payment of
dividends by the institution  will be subject to the rules regarding  payment of
dividends by a national  bank.  Upon the expiration of three years from the date
the  institution  ceases to be a  Qualified  Thrift  Lender,  it must  cease any
activity,  and not retain any  investment  unless the activity or  investment is
permissible for a national bank and a savings  institution.  Compliance with the
Qualified  Thrift  Lender test is  determined  on a monthly basis in nine out of
every 12 months.  As of December 31, 2000,  the Bank was in compliance  with its
Qualified  Thrift  Lender  requirement  with  approximately  94% of  its  assets
invested in Qualified Thrift Investments.

     Transactions With Affiliates.  Generally, transactions between the Bank and
its affiliates are subject to certain limitations.  Such transactions must be on
terms as favorable to the Bank as comparable  transactions with  non-affiliates.
In  addition,  certain of these  transactions  are  restricted  to an  aggregate
percentage of the Bank's capital.  Collateral in specified  amounts must usually
be provided by affiliates  in order to receive  loans from the Bank.  The Bank's
affiliates  include  the Company  and any  company  which would be under  common
control  with the  Bank.  In  addition,  the Bank may not  extend  credit to any
affiliate  engaged in activities not  permissible  for a bank holding company or
acquire the  securities of any affiliate  that is not a subsidiary.  The OTS has
the discretion to treat  subsidiaries of savings  institution as affiliates on a
case-by-case basis.

     Loans to Directors, Executive Officers and Principal Stockholders. The Bank
cannot  make  loans in excess of  certain  levels  to its  directors,  executive
officers or 10% or greater  stockholders (or any of their affiliates) unless the
loan is  approved in advance by a majority  of its Board of  Directors  with any
"interested" director not voting. Loans to directors, executive officers and 10%
or greater  stockholders,  and their  related  interests,  must be made on terms
substantially  the same as offered in comparable  transactions  to other persons
unless the loan is made  pursuant to a benefit or  compensation  program that is
widely available to employees and does not give preference to insiders. The Bank
is  also  prohibited  from  paying  overdrafts  of its  directors  or  executive
officers.  The Bank is also subject to certain other  restrictions on the amount
and type of loans to executive  officers and directors and must annually  report
such loans to its regulators.

     Limits On Loans to One  Borrower.  The Bank  generally  is  subject  to the
lending limits  applicable to national banks.  With certain limited  exceptions,
loans  and  extensions  of  credit  outstanding  to a person at one time may not
exceed 15% of unimpaired  capital and surplus of the Bank.  The Bank may lend an
additional amount,  equal to 10% of unimpaired capital and surplus, if such loan
is fully  secured by readily  marketable  collateral.  The Bank is  additionally
authorized to make loans to one borrower,  for any purpose,  in an amount not to
exceed  $500,000  or, by order of the  Director  of the OTS, in an amount not to
exceed the lesser of  $30,000,000  or 30% of


                                       20
<PAGE>

unimpaired capital and surplus to develop residential housing, provided: (i) the
purchase price of each single-family dwelling in the development does not exceed
$500,000;  (ii) the  institution is in compliance  with its  regulatory  capital
requirements; (iii) the loans comply with applicable loan-to-value requirements,
and;  (iv) the  aggregate  amount of loans made under  this  authority  does not
exceed 150% of unimpaired  capital and surplus.  The Bank is also  authorized to
make loans to one  borrower  to finance  the sale of real  property  acquired in
satisfaction of debts in an amount up to 50% of unimpaired  capital and surplus.
Certain types of loans are excepted from the lending limits.

     At December 31, 2000,  the maximum  amount that the Bank could have lent to
any one borrower  under the 15% limit was  approximately  $1.4 million.  At such
date,  the largest  aggregate  amount of loans that were  outstanding to any one
borrower or group of affiliated  borrowers  was $1.8  million.  These loans were
made prior to the  payment of $4.2  million  in  dividends  from the Bank to the
Company in 2000 and were  within the Bank's  loan-to-one  borrower  limit at the
time of  origination.  Management  does not intend to originate  any  additional
loans to the borrower  and will allow the loans to be repaid  according to their
contractual agreements.

     FHLB System.  The Bank is a member of the FHLB of Cincinnati,  which is one
of 12  regional  FHLBs.  Each FHLB  serves as a reserve or central  bank for its
members within its assigned region.  It is funded primarily from funds deposited
by savings  institutions  and  proceeds  derived  from the sale of  consolidated
obligations of the FHLB System. It makes loans to members (that is, advances) in
accordance with policies and procedures established by the board of directors of
the FHLB.

     As a member,  the Bank is required to purchase  and  maintain  stock in the
FHLB of  Cincinnati  in an amount equal to at least 1% of its  aggregate  unpaid
residential  mortgage loans, home purchase  contracts or similar  obligations at
the beginning of each year, or 1/20 of its advances from the FHLB of Cincinnati,
whichever is greater. At December 31, 2000, the Bank had $802,000 in FHLB stock,
at cost, which was in compliance with this requirement. The FHLB imposes various
limitations  on advances  such as limiting  the amount of certain  types of real
estate  related  collateral to a percentage  of a member's  capital and limiting
total  advances  to a  member.  At  December  31,  2000,  the Bank had  advances
outstanding of $1,753,000.

     Federal Reserve  System.  The Federal Reserve Board requires all depository
institutions  to  maintain  noninterest-bearing  reserves  at  specified  levels
against  their  transaction  accounts  (primarily  checking,  NOW and  Super NOW
checking  accounts) and non-personal time deposits.  The balances  maintained to
meet the reserve  requirements  imposed by the Federal Reserve Board may be used
to satisfy the liquidity  requirements  that are imposed by the OTS. At December
31,  2000,  the Bank's  reserve  met the minimum  level  required by the Federal
Reserve System.

REGULATION OF THE COMPANY

     General.  The Company is registered  as a savings and loan holding  company
and files reports with the OTS and is subject to regulation  and  examination by
the OTS. In addition, the OTS has enforcement authority over the Company and any
non-savings  institution  subsidiaries.  This  permits  the OTS to  restrict  or
prohibit  activities  that it determines to be a serious risk to the Bank.  This
regulation  is intended  primarily  for the  protection  of the  depositors  and
deposit  insurance fund of the Bank and not for the benefit of  stockholders  of
the Company.  The Company is also  required to file certain  reports  with,  and
comply with the rules and regulations of, the Securities and Exchange Commission
under the federal securities laws.

     Activities   Restrictions.   Since  the  Company   owns  only  one  savings
institution  and acquired the  institution  prior to May 4, 1999,  it is able to
diversify its operations  into  activities  not related to banking,  but only so
long as the Bank  satisfies  the  Qualified  Thrift  Lender test. If the Company
controls  more  than one  savings  institution,  it would  lose the  ability  to
diversify its operations into non-banking related activities,  unless such other
savings  institutions  each also qualify as a Qualified  Thrift  Lender and were
acquired  in a  supervised  acquisition.  See "  --Regulation  of  the  Bank  --
Qualified Thrift Lender Test."

     Restrictions On Acquisitions. Unless the acquiror was a unitary savings and
loan  holding  company  on May 4,  1999 (or  became a unitary  savings  and loan
holding company pursuant to an application  pending as of that date), no company
may  acquire  control  of the  Company  unless the  company  is only  engaged in
activities that are permitted for multiple savings and loan holding companies or
for  financial  holding  companies  under Bank  Holding  Company


                                       21
<PAGE>

Act of 1956 as amended by the G-L-B Act.  Financial holding companies may engage
in activities that the Federal Reserve Board, in consultation with the Secretary
of the  Treasury,  has  determined  to be financial in nature or incidental to a
financial  activity or complementary to a financial  activity  provided that the
complementary  activity does not pose a risk to safety and soundness.  Financial
holding  companies that were not previously bank holding  companies may continue
to engage  in  limited  nonfinancial  activities  for up to ten years  after the
effective  date of the G-L-B Act (with  provision  for  extension for up to five
additional  years by the Federal  Reserve  Board)  provided  that the  financial
holding company is predominantly engaged in financial activities.

     The Company must obtain approval from the OTS before  acquiring  control of
any other savings institution or savings and loan holding company, substantially
all the assets thereof or in excess of 5% of the  outstanding  shares of another
savings institution or savings and loan holding company. The Company's directors
and officers or persons  owning or  controlling  more than 25% of the  Company's
stock,  must also  obtain  approval of the OTS before  acquiring  control of any
savings institution or savings and loan holding company.

     The OTS may approve  acquisitions  that will result in the  formation  of a
multiple savings and loan holding company which controls savings institutions in
more than one state only if: (i) the multiple  savings and loan holding  company
involved  controls a savings  institution which operated a home or branch office
in the state of the  institution  to be acquired  as of March 5, 1987;  (ii) the
acquiror is authorized to acquire control of the savings institution pursuant to
the emergency  acquisition  provisions of the FDIA; or (iii) the statutes of the
state in which the  institution  to be acquired is located  specifically  permit
institutions to be acquired by state-chartered  institutions or savings and loan
holding companies located in the state where the acquiring entity is located (or
by a holding company that controls such state-chartered savings institutions).

TAXATION

     Federal  Taxation.  The Bank is subject to the  provisions  of the Internal
Revenue Code of 1986,  as amended (the  "Internal  Revenue  Code"),  in the same
general manner as other  corporations.  However,  prior to August 1996,  savings
institutions  such as the Bank, which met certain  definitional  tests and other
conditions  prescribed  by the Internal  Revenue Code could benefit from certain
favorable  provisions  regarding their deductions from taxable income for annual
additions to their bad debt reserve. The amount of the bad debt deduction that a
qualifying  savings  institution  could claim for tax  purposes  with respect to
additions  to its reserve for bad debts for  "qualifying  real  property  loans"
could be based upon its actual loss experience (the "experience  method" or as a
percentage of its taxable income (the  "percentage  of taxable income  method").
Historically,  the Bank used the method  that would allow it to take the largest
deduction.

     In August  1996,  the  Internal  Revenue  Code was revised to equalize  the
taxation of savings  institutions and banks. Savings  institutions,  such as the
Bank, no longer have a choice  between the  percentage of taxable  income method
and the experience method in determining additions to bad debt reserves. Thrifts
with $500 million of assets or less may still use the experience  method,  which
is generally available to small banks currently.  Larger thrifts may only take a
tax  deduction  when a loan is actually  charged off. Any reserve  amounts added
after 1987 will be taxed over a six year period beginning in 1996; however,  bad
debt  reserves  set  aside  through  1987 are  generally  not  taxed.  A savings
institution  may delay  recapturing  into income its post-1987 bad debt reserves
for an additional two years if it meets a residential-lending  test. This law is
not expected to have a material  impact on the Bank.  At December 31, 2000,  the
Bank had approximately $170,000 of post-1987 bad debt reserves.

     Earnings  appropriated  to the Bank's bad debt reserve and claimed as a tax
deduction  including its supplemental  reserves for losses will not be available
for the payment of cash dividends or for distribution  (including  distributions
made on  dissolution  or  liquidation),  unless the Bank  includes the amount in
income,  along with the amount  deemed  necessary to pay the  resulting  federal
income tax. If such amount is used for any purpose  other than bad debt  losses,
including a dividend  distribution or a distribution  in  liquidation,  the Bank
will be subject to federal income tax at the then current rate.

     The  Internal  Revenue Code  imposes a tax ("AMT") on  alternative  minimum
taxable  income  ("AMTI")  at a rate  of 20 %.  AMTI  is  increased  by  certain
preference  items,  including  the excess of the tax bad debt reserve  deduction
using the percentage of taxable income method over the deduction that would have
been allowable  under the experience  method.  Only 90% of AMTI can be offset by
net operating loss carryovers of which the Bank


                                       22
<PAGE>

currently has none.  AMTI is also adjusted by  determining  the tax treatment of
certain items in a manner that negates the deferral of income resulting from the
regular tax treatment of those items.  Thus,  the Bank's AMTI is increased by an
amount equal to 75% of the amount by which its adjusted current earnings exceeds
its AMTI  (determined  without regard to this  adjustment and prior to reduction
for net  operating  losses).  In addition,  for taxable  years  beginning  after
December 31, 1986 and before January 1, 1996, an  environmental  tax of 0.12% of
the excess of AMTI (with  certain  modifications)  over $2 million is imposed on
corporations, including us, whether or not an AMT is paid.

     The Company may exclude from its income 100% of dividends received from the
Bank as a member of the same affiliated group of  corporations.  A 70% dividends
received  deduction  generally  applies with respect to dividends  received from
corporations that are not members of such affiliated  group,  except that an 80%
dividends  received  deduction  applies if the Company owns more than 20% of the
stock of a corporation paying a dividend.  The above exclusion amounts, with the
exception of the  affiliated  group  figure,  were reduced in years in which the
Bank used the percentage of taxable income bad debt deduction method.

     The Bank's federal income tax returns have not been audited by the Internal
Revenue Service since 1992.

     State Taxation. In addition to the Bank's federal income tax liability, the
State of  Tennessee  imposes  an excise tax on  savings  institutions  and other
corporations at the rate of 6% of net taxable income, which is computed based on
federal  taxable income subject to certain  adjustments.  The State of Tennessee
also imposes  franchise and privilege  taxes on savings  institutions  and other
corporations which, in the Bank's case, have not constituted significant expense
items.

EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS

     The following table sets forth information regarding the executive officers
of the Bank who do not serve on the Board of Directors.
<TABLE>
<CAPTION>
                                                 AGE AT
                                             DECEMBER 31,
         NAME                                    2000                  TITLE
         ----                                ------------              -----

         <S>                                      <C>                  <C>
         Lonnie R. Jones                          57                   Vice-President of Operations

         Nancy L. Bryant                          57                   Vice-President and Treasurer

         Peggy G. Holston                         51                   Branch Manager and Assistant Secretary

</TABLE>


     LONNIE R. JONES joined the Bank as Vice-President of Operations on June 30,
1999. Mr. Jones began his banking career with the Merchants and Planters Bank of
Newport,  Tennessee in 1961 working his way up to President and Chief  Executive
Officer in 1993.  Mr. Jones  continued  to serve as  President of Merchants  and
Planters  Bank  after  its  acquisition  by  Dominion  Bank.  When  First  Union
Corporation  acquired  Dominion  Bank in  1994,  Mr.  Jones  became  a  Regional
President and served in that capacity until his retirement in 1999.

     NANCY L. BRYANT serves as Vice  President and Treasurer of the Bank and the
Company.  Ms.  Bryant  joined the Bank in 1966.  She serves as a Director of the
Douglas Cooperative,  serves as a Director and Treasurer of Habitat for Humanity
and  received  the 1993  Citizen of the Year Award from the  Newport  Chamber of
Commerce.

     PEGGY G. HOLSTON has been  employed  with the Bank since 1971 and serves as
its Assistant Secretary and Branch Manager.  She has also served on the Board of
Directors of the Newport/Cocke County Chamber of Commerce.

                                       23
<PAGE>

EMPLOYEES

     As of  December  31,  2000,  the  Bank  had 26  full-time  employees  and 1
part-time  employee,  none of whom was  represented  by a collective  bargaining
agreement. The Bank consider its relationships with its employees to be good.

ITEM 2.  DESCRIPTION OF PROPERTY
--------------------------------

     The following table sets forth information about the offices of the Bank at
December 31, 2000.
<TABLE>
<CAPTION>
                                  YEAR           OWNED OR                           APPROXIMATE
                                 OPENED           LEASED          BOOK VALUE      SQUARE FOOTAGE    DEPOSITS
                                 ------          --------         ----------      --------------    --------
                                                                                                 (IN THOUSANDS)
<S>                               <C>              <C>               <C>                <C>            <C>
Main Office:
  344 W. Broadway
  Newport, Tennessee              1973             Owned          $ 37,253           8,000          $ 45,300

Branch Offices:
  263 E. Broadway
  Newport, Tennessee              1960             Owned               100           5,400            20,840

  345 Cosby Highway
  Newport, Tennessee              1998             Owned           138,579           2,400            15,474
</TABLE>

     The book value of the Bank's aggregate  investment in properties,  premises
and equipment totaled approximately $470,000 at December 31, 2000. See Note 4 of
the Notes to Consolidated Financial Statements in the Annual Report.

ITEM 3.  LEGAL PROCEEDINGS
--------------------------

     From  time to  time,  the  Bank is a party  to  various  legal  proceedings
incident to its business.  At December 31, 2000, there were no legal proceedings
to which the Bank was a party,  or to which  any of its  property  was  subject,
which it  expected  to result in a  material  loss,  and there  were no  pending
regulatory  proceedings  to which  the Bank was a party,  or to which any of its
properties was subject, which it expected to result in a material loss.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------------------------------------------------------------

     No matters were  submitted to a vote of security  holders during the fourth
quarter of the fiscal year ended December 31, 2000.


                                       24
<PAGE>

                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
-----------------------------------------------------------------

     The information set forth under the section titled "Market for Common Stock
and Related Stockholder  Matters" in the Annual Report is filed as Exhibit 13 to
this report and incorporated herein by reference.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
------------------------------------------------------------------

     The information set forth under the section titled "Management's Discussion
and Analysis of Financial  Condition  and Results of  Operations"  in the Annual
Report  is filed  as  Exhibit  13 to this  report  and  incorporated  herein  by
reference.

ITEM 7.  FINANCIAL STATEMENTS
-----------------------------

     The Independent Auditor's Report and related financial statements and notes
in the Annual  Report are filed as  Exhibit 13 to this  report and  incorporated
herein by reference.

ITEM  8.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
          FINANCIAL DISCLOSURE
--------------------------------------------------------------------------------

     Not applicable.


                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
        WITH SECTION 16(A) OF THE EXCHANGE ACT
--------------------------------------------------------------------------------

         Information  concerning  the directors  and  executive  officers of the
Company is  incorporated  herein by reference  to the  sections  titled "Item 1.
Business -- Executive  Officers Who Are Not  Directors"  herein,  "Proposal I --
Election  of  Directors",  "Voting  Securities  and  Beneficial  Ownership"  and
"Section  16(a)  Beneficial   Ownership  Reporting   Compliance"  in  the  Proxy
Statement.

ITEM 10.  EXECUTIVE COMPENSATION
--------------------------------

     The information  required by this item is incorporated  herein by reference
to the  section  titled  "Proposal  I --  Election  of  Directors  --  Executive
Compensation" in the Proxy Statement.


ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
------------------------------------------------------------------------

     The information  required by this item is incorporated  herein by reference
to  the  sections  titled  "Voting  Securities  and  Beneficial  Ownership"  and
"Proposal I -- Election of Directors" in the Proxy Statement.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------

     The information  required by this item is incorporated  herein by reference
to the section titled "Proposal I -- Election of Directors -- Transactions  with
Management" in the Proxy Statement.



                                       25
<PAGE>
                                     PART IV

ITEM 13.  EXHIBITS LIST AND REPORTS ON FORM 8-K
-----------------------------------------------

     (a)  EXHIBITS.  The  following  exhibits  either  are  filed  or  otherwise
          --------
furnished as part of this report or are incorporated herein by reference:

       NO.                      DESCRIPTION
       --                       -----------

       3.1*       Charter of United Tennessee Bankshares, Inc.
       3.2*       Bylaws of United Tennessee Bankshares, Inc.
       4*         Form of Stock Certificate of United Tennessee Bankshares, Inc.
      10.1**      United Tennessee Bankshares, Inc. 1999 Stock Option Plan +
      10.2**      United Tennessee Bankshares, Inc. Management Recognition Plan
                     and Trust Agreement +
      10.3(a)*    Employment  Agreements  between Newport  Federal Savings and
                     Loan  Association and Richard G. Harwood, Nancy L. Bryant
                     and Peggy B. Holston +
      10.3(b)*    Guarantee  Agreements  between  United  Tennessee  Bankshares,
                     Inc. and Richard G.  Harwood, Nancy L. Bryant and Peggy B.
                     Holston +
      10.4*       Newport Federal Savings and Loan Association Long-Term
                     Incentive Plan +
      10.5*       Newport Federal Savings and Loan Association Deferred
                     Compensation Plan +
      13          2000 Annual Report to Stockholders
      21          Subsidiaries of the Registrant
      23          Consent of Pugh & Company, P.C.
---------------
*    Incorporated by reference to the Company's  Registration  Statement on Form
     SB-2 (File No. 333-36465).
**   Incorporated by reference to the Company's  Registration  Statement on Form
     S-8 (File No. 333-82803).
+    Management contract or compensatory plan or arrangement.

     (b) REPORTS ON FORM 8-K. The Registrant did not file any Current Reports on
         -------------------
Form 8-K during the last quarter of the fiscal year ending December 31, 2000.


                                       26
<PAGE>
                                   SIGNATURES

     In accordance  with Section 13 or 15(d) 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.


Date:  March 30, 2001                By: /s/ Richard G. Harwood
                                         ---------------------------------
                                         Richard G. Harwood
                                         President and Chief Executive Officer
                                         (Duly Authorized Representative)



     In  accordance  with Exchange Act, this report has been signed below by the
following  persons on behalf of the  registrant and in the capacities and on the
dates indicated.


By: /s/ Richard G. Harwood                 By:/s/ J. William Myers
    -------------------------------------     ----------------------------------
    Richard G. Harwood                        J. William Myers
    President and Chief Executive Officer     Chairman of the Board and Director
    (Director and Principal Executive,
    Financial and Accounting Officer)

Date:   March 30, 2001                        Date:  March 30, 2001


By: /s/ Tommy C. Bible                     By:/s/ Ben W. Hooper, III
    -------------------------------------     ----------------------------------
    Tommy C. Bible                            Ben W. Hooper, III
    Director                                  Director

Date:   March 30, 2001                        Date:  March 30, 2001


By: /s/ William B. Henry                   By:/s/ Robert D. Self
    -------------------------------------     ----------------------------------
    William B. Henry                          Robert D. Self
    Director                                  Director

Date:   March 30, 2001                        Date:  March 30, 2001


By: /s/ Robert L. Overholt
    -------------------------------------
    Robert L. Overholt
    Director

Date:   March 30, 2001