SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB

Mark One

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

     For the quarterly period ended June 30, 2002.



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

                         Commission File Number: 0-23551

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


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


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

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


Check  whether  the issuer:  (1) has filed all  reports  required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period that the  registrant was required to file such reports),  and (2)
has been subject to such filing requirements for the past ninety days:

                                 Yes [X] No [ ]

State the number of shares outstanding of each of the issuer's classes of common
stock as of the latest practicable date: 1,312,273


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


<PAGE>

                                    CONTENTS


PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

         Consolidated Statements of Financial Condition as of
         June 30, 2002 (Unaudited) and December 31, 2001                       3

         Consolidated Statements of Income for the Three-Month and
         Six-Month Periods Ended June 30, 2002 and 2001 (Unaudited)            4

         Consolidated Statements of Comprehensive Income for the
         Three-Month and Six-Month Periods Ended June 30, 2002
         and 2001 (Unaudited)                                                  5

         Consolidated Statement of Changes in Shareholders' Equity for the
         Six-Month Period Ended June 30, 2002 (Unaudited)                      6

         Consolidated Statements of Cash Flows for the Six-Month Periods
         Ended June 30, 2002 and 2001 (Unaudited)                            7-8

         Notes to Consolidated Financial Statements for the Three-Month and
         Six-Month Periods Ended June 30, 2002 and 2001 (Unaudited)         9-11

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


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

         Item 1.  Legal Proceedings                                           18

         Item 2.  Changes in Securities and Use of Proceeds                   18

         Item 3.  Defaults upon Senior Securities                             18

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

         Item 5.  Other Information                                           18

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

SIGNATURES                                                                    20




                                        2
<PAGE>



PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements

                UNITED TENNESSEE BANKSHARES, INC. AND SUBSIDIARY
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                    AS OF JUNE 30, 2002 AND DECEMBER 31, 2001
<TABLE>
<CAPTION>
                                                                                June 30,
                                                                                  2002              December 31,
                                                                              (Unaudited)               2001
                                                                            -----------------     ------------------
                                                                                        (In thousands)
                                                                            ----------------------------------------
                                  Assets
<S>                                                                        <C>                   <C>
Cash and amounts due from depository institutions                          $           4,062     $            2,123
Investment securities available for sale, at fair value                               25,875                 24,398
Loans receivable, net                                                                 78,115                 72,200
Premises and equipment, net                                                              509                    496
Accrued interest receivable                                                              677                    603
Goodwill, net of amortization                                                            913                    953
Prepaid expenses and other assets                                                         29                     38
                                                                            -----------------     ------------------
Total assets                                                               $         110,180     $          100,811
                                                                            =================     ==================

                          Liabilities and Equity
Liabilities:
 Deposits                                                                  $          93,515     $           84,810
 Accrued interest payable                                                                154                    161
 Accrued income taxes                                                                      7                      2
 Deferred income taxes                                                                   919                    869
 Accrued benefit plan liabilities                                                        608                    743
 Other liabilities                                                                        74                     58
                                                                            -----------------     ------------------
   Total liabilities                                                                  95,277                 86,643
                                                                            -----------------     ------------------
Shareholders' equity:
 Common stock - no par value, Authorized 20,000,000 shares;
  issued and outstanding 1,312,273  shares (1,341,012 in 2001)                        12,460                 12,719
 Unearned compensation - ESOP                                                          (517)                  (678)
 Shares in grantor trust - contra account                                              (195)                  (195)
 Shares in MRP plan - contra account                                                    (67)                  (210)
 Shares in stock option plan trusts - contra account                                 (1,477)                (1,591)
 Retained earnings                                                                     3,330                  2,835

 Accumulated other comprehensive income                                                1,369                  1,288
                                                                            -----------------     ------------------
   Total shareholders' equity                                                         14,903                 14,168
                                                                            -----------------     ------------------
Total liabilities and equity                                               $         110,180     $          100,811
                                                                            =================     ==================
</TABLE>



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


                                       3
<PAGE>



                UNITED TENNESSEE BANKSHARES, INC., AND SUBSIDIARY
                        CONSOLIDATED STATEMENTS OF INCOME
        FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2002 AND 2001
<TABLE>
<CAPTION>
                                                                 (In Thousands Except               (In Thousands Except
                                                                per Share Information)             per Share Information)
                                                            --------------------------------   --------------------------------
                                                                  Three Months Ended                  Six Months Ended
                                                            --------------------------------   --------------------------------
                                                                       June 30,                           June 30,
                                                            --------------------------------   --------------------------------
                                                                2002              2001             2002              2001
                                                             (Unaudited)      (Unaudited)       (Unaudited)      (Unaudited)
                                                            --------------   ---------------   --------------   ---------------
Interest income:
<S>                                                       <C>              <C>               <C>              <C>
 Loans                                                    $         1,483  $          1,487  $         2,943  $          2,959
 Investment securities                                                327               356              611               719
 Other interest-earning assets                                         12                29               15                55
                                                            --------------   ---------------   --------------   ---------------
   Total interest income                                            1,822             1,872            3,569             3,733
                                                            --------------   ---------------   --------------   ---------------
Interest expense:
 Deposits                                                             569               947            1,136             1,982
 Advances from Federal Home Loan Bank
  and Note Payable                                                      0                12                0                31
                                                            --------------   ---------------   --------------   ---------------
   Total interest expense                                             569               959            1,136             2,013
                                                            --------------   ---------------   --------------   ---------------
Net interest income                                                 1,253               913            2,433             1,720

Provision for loan losses                                              24                16               48                28
                                                            --------------   ---------------   --------------   ---------------
Net interest income after provision for loan losses                 1,229               897            2,385             1,692
                                                            --------------   ---------------   --------------   ---------------

Noninterest income:
 Deposit account service charges                                       62                68              116               123
 Loan service charges and fees                                         30                29               58                61
 Net gain (loss) on sales of investment
  securities available for sale                                        32               (2)               39                 3
 Other                                                                  9                12               23                21
                                                            --------------   ---------------   --------------   ---------------
   Total noninterest income                                           133               107              236               208
                                                            --------------   ---------------   --------------   ---------------
Noninterest expense:
 Compensation and benefits                                            310               290              601               624
 Occupancy and equipment                                               52                37              107               102
 Federal deposit insurance premiums                                    12                12               24                24
 Data processing fees                                                  63                62              126               110
 Advertising and promotion                                             22                24               42                47
 Amortization                                                          20                20               40                40
 Other                                                                133               122              270               232
                                                            --------------   ---------------   --------------   ---------------
   Total noninterest expense                                          612               567            1,210             1,179
                                                            --------------   ---------------   --------------   ---------------
Income before income taxes                                            750               437            1,411               721

Income taxes                                                          270               160              518               260
                                                            --------------   ---------------   --------------   ---------------
Net income                                                $           480  $            277  $           893  $            461
                                                            ==============   ===============   ==============   ===============
Earnings per share
 Basic                                                    $          0.36  $           0.21  $          0.67  $           0.34
                                                            ==============   ===============   ==============   ===============
 Diluted                                                  $          0.36  $           0.21  $          0.67  $           0.34
                                                            ==============   ===============   ==============   ===============
</TABLE>


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

                                       4
<PAGE>



                UNITED TENNESSEE BANKSHARES, INC. AND SUBSIDIARY
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
        FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2002 AND 2001


<TABLE>
<CAPTION>
                                                              Three Months Ended June 30,         Six Months Ended June 30,
                                                           ----------------------------------  --------------------------------
                                                               2002                2001            2002               2001
                                                           --------------      --------------  -------------      -------------
                                                              (Unaudited - in thousands)         (Unaudited - in thousands)
                                                           ----------------------------------  --------------------------------
<S>                                                       <C>                <C>              <C>               <C>
Net income                                                $           480    $            277 $          893    $           461
                                                           --------------      --------------  -------------      -------------
Other comprehensive income (loss), net of tax:
 Unrealized gains on investment securities                            449                  90            170                182
 Less reclassification adjustment for gains\losses
  included in net income                                              (32)                  2            (39)                (3)
 Less income taxes related to unrealized
  gains\losses on investment securities                              (158)                (35)           (50)               (68)
                                                           --------------      --------------  -------------      -------------
   Other comprehensive income, net of tax                             259                  57             81                111
                                                           --------------      --------------  -------------      -------------

Comprehensive income
                                                          $           739    $            334 $          974    $           572
                                                           ==============      ==============  =============      =============
</TABLE>





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


                                       5
<PAGE>



                UNITED TENNESSEE BANKSHARES, INC. AND SUBSIDIARY
            CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
                  FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2002


<TABLE>
<CAPTION>
                                                      Shares in   Shares in   Shares in                  Accumulated
                                        Unearned       Grantor    MRP Plan-  Stock Option                   Other        Total
                             Common   Compensation  Trust-Contra    Contra   Plan Trusts -   Retained   Comprehensive  Shareholders'
                              Stock       ESOP         Account     Account  Contra Account   Earnings      Income       Equity
                                 -----------------------------------------------------------------------------------------------
                                                                  (Unaudited - in thousands)
                                 -----------------------------------------------------------------------------------------------
<S>                              <C>       <C>           <C>          <C>         <C>          <C>       <C>           <C>
Balances, beginning of period    $12,719   $    (678)    $    (195)   $  (210)    $  (1,591)   $ 2,835   $    1,288    $  14,168

Net income                             0           0             0          0             0        893            0          893

Issuance of shares of common
stock
 pursuant to MRP plan                  0           0             0        143             0         0            0          143

Other comprehensive income (loss)      0           0             0          0             0         0           81           81

Payment on ESOP loan principal         0         161             0          0             0         0            0          161

Dividends paid                         0           0             0          0             0      (398)           0         (398)

Purchase and retirement of
 15,239 shares of common stock      (145)          0             0          0             0         0            0         (145)

Retirement of 13,500 shares of
 common stock held in the stock
 option plan contra account         (114)          0             0          0           114         0            0            0
                                 -----------------------------------------------------------------------------------------------
Balances, end of period          $12,460   $    (517)    $    (195)   $   (67)    $  (1,477)  $ 3,330   $    1,369    $  14,903
                                 ===============================================================================================
</TABLE>





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


                                       6
<PAGE>



                UNITED TENNESSEE BANKSHARES, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2002 AND 2001



<TABLE>
<CAPTION>
                                                                                                      Six Months Ended
                                                                                                          June 30,
                                                                                               --------------------------------
                                                                                                     2002            2001
                                                                                                 (Unaudited - in thousands)
                                                                                               --------------------------------
Operating Activities:
<S>                                                                                          <C>               <C>
 Net income                                                                                  $            893  $           461
                                                                                               ---------------  ---------------
 Adjustments  to  reconcile  net  income  to  net  cash  provided  by  operating
  activities:
   Provision for loan losses                                                                               48               28
   Depreciation                                                                                            33               30
   Amortization of goodwill                                                                                40               40
   Federal home loan bank stock dividends                                                                 (20)             (29)
   Net gain on sales of investment securities available for sale                                          (39)              (3)
   Deferred income taxes                                                                                    0                1
   (Increase) Decrease in:
    Accrued interest receivable                                                                           (74)              10
    Other assets                                                                                            9              115
   Increase (Decrease) in:
    Accrued interest payable                                                                               (7)             (86)
    Accrued income taxes                                                                                    5               37
    Accrued benefit plan liabilities                                                                     (135)            (124)

    Other liabilities                                                                                      16              (50)
                                                                                               ---------------  ---------------
     Total adjustments                                                                                   (124)             (31)
                                                                                               ---------------  ---------------
Net cash provided by operating activities                                                                 769              430
                                                                                               ---------------  ---------------
Investing Activities:
 Purchases of investment securities available for sale                                                 (8,373)          (5,500)
 Proceeds from maturities of investment securities available for sale                                   1,087            2,823
 Principal payments received on investment securities available for sale                                4,509            2,212
 Proceeds from sales of investment securities available for sale                                        1,490              502
 Net increase in loans                                                                                 (5,963)          (1,133)
 Purchases of premises and equipment, net                                                                 (46)             (64)
                                                                                               ---------------  ---------------
Net cash used in investing activities                                                                  (7,296)          (1,160)
                                                                                               ---------------  ---------------
</TABLE>




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

                                       7

<PAGE>



                UNITED TENNESSEE BANKSHARES, INC. AND SUBSIDIARY
                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
              FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2002 AND 2001


<TABLE>
<CAPTION>
                                                                                                   Six Months Ended
                                                                                                       June 30,
                                                                                        ---------------------------------------
                                                                                              2002                 2001
                                                                                        ------------------   ------------------
                                                                                              (Unaudited - in thousands)
                                                                                        ---------------------------------------
Financing Activities:
<S>                                                                                     <C>                  <C>
 Dividends paid                                                                                      (398)                (415)
 Net increase in deposits                                                                           8,705                3,380
 Purchase and retirement of common stock                                                             (145)                (329)
 Issuance of common stock for MRP plan                                                                143                  169
 Payment on ESOP loan and release of shares                                                           161                  164
 Net repayment of advances from Federal Home Loan Bank                                                  0              (1,043)
                                                                                        ------------------   ------------------
Net cash provided by financing activities                                                           8,466                1,926
                                                                                        ------------------   ------------------
Net increase in cash and cash equivalents                                                           1,939                1,196

Cash and cash equivalents, beginning of period                                                      2,123                3,067
                                                                                        ------------------   ------------------
Cash and cash equivalents, end of period                                                $           4,062    $           4,263
                                                                                        ==================   ==================
Supplementary disclosures of cash flow information:  Cash paid during the period
 for:
 Interest                                                                               $           1,143    $           2,099
 Income taxes                                                                           $             571    $             223

Supplementary disclosures of noncash investing activities:
 Acquisition of foreclosed real estate                                                  $               0    $              59
 Change in unrealized gain\loss on investment securities
  available for sale                                                                    $             131    $             179
 Change in deferred income taxes associated with
  unrealized gain\loss on investment securities available
  for sale                                                                              $              50    $              68
 Change in net unrealized gain\loss on investment
  securities available for sale                                                         $              81    $             111

</TABLE>



     The accompanying notes are an integral part of these financial statements

                                       8
<PAGE>


                UNITED TENNESSEE BANKSHARES, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
     FOR THE THREE MONTH AND SIX MONTH PERIODS ENDED JUNE 30, 2002 AND 2001
                                   (UNAUDITED)




Note 1 - Basis of Presentation and Principles of Consolidation

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

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

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

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

Note 2 - Earnings Per Share

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

Earnings per share have been computed based on the following:
<TABLE>
<CAPTION>
                                                           Three Months Ended                Six Months Ended
                                                     -------------------------------   -----------------------------
                                                                June 30,                         June 30,
                                                     -------------------------------   -----------------------------
                                                             2002           2001               2002          2001
                                                     -------------------------------   -----------------------------
<S>                                                        <C>            <C>               <C>           <C>
Average number of shares outstanding                       1,323,548      1,345,713         1,330,927     1,372,888
Effect of dilutive options                                       641              0             2,394             0
                                                     -------------------------------   -----------------------------
Average number of shares outstanding used
  to calculate earnings per share                          1,324,189      1,345,713         1,333,321     1,372,888
                                                     ===============================   =============================
</TABLE>

                                       9

<PAGE>



Note 3 - Comprehensive Income

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


Note 4 - Management Recognition Plan

In  January  1999,  the  Company's  board of  directors  approved  a  Management
Recognition Plan (MRP), and in May 1999, the Company's shareholders ratified the
plan. The plan authorizes the board of directors to award up to 58,190 shares of
restricted  common  stock to  members  of the  board  of  directors  and  senior
management.

The Company's  board of directors has awarded  54,518 shares as of June 30, 2002
and December 31, 2001 of restricted common stock to certain members of the board
of directors  and senior  management.  The shares are awarded 25% per year.  The
Company  and its  subsidiary  will  share  the cost of the Plan and  accrue  the
estimated cost of  repurchasing  shares to be reissued as restricted  stock over
the period that such awards are earned.

Activity in the MRP plan is as follows:
<TABLE>
<CAPTION>
                                                              Period Ended June 30,
                                                         ---------------------------------
                                                              2002              2001
                                                         ----------------  ---------------
<S>                                                     <C>               <C>
Accrued Liability Balance at Beginning of Period        $        142,259  $       152,895
Amount Charged to Expense                                         11,236           81,575
Less Cost of Shares Issued                                     (142,339)        (168,887)
                                                         ----------------  ---------------
Accrued Liability at End of Period                      $         11,156  $        65,583
                                                         ================  ===============
</TABLE>

The  Company  held 5,509  shares of its  common  stock in trust at a net cost of
$67,431 as of June 30, 2002 (17,138 shares at a cost of $209,770 at December 31,
2001). A contra-equity  account has been established to reflect the cost of such
shares held in trust.


Note 5 - Stock Option Plan

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

The  Company's  board of directors  has  approved the issuance of stock  options
under  the  Plan to  certain  members  of the  board  of  directors  and  senior
management. The options vest at a rate of 25% per year, expire in ten years, and
provide for the purchase of stock at an exercise price of $8.60 per share. Stock
options awarded totaled 175,321 and 209,299 as of June 30, 2002 and December 31,
2001, respectively.

The Company  has  purchased  175,039 and 188,422  shares as of June 30, 2002 and
December 31, 2001,  respectively,  of its common stock,  which are being held in
trusts for when the stock options are  exercised.  A  contra-equity  account has
been established to reflect the costs of such shares held in trusts.

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

                                       10

<PAGE>



Note 6 - Improvement Plan for Main Office Facility

During the first quarter of 2001,  the Company's  board of directors  approved a
plan to improve the existing main office  facilities.  Total cost of the project
was originally estimated to be approximately $1,000,000.  The board of directors
is in the process of evaluating various options under this plan.


Note 7 - Recent Accounting Pronouncements

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

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

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

                                       11

<PAGE>


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


General

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

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

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

The following is a discussion of our financial condition as of June 30, 2002 and
for the three and six-month  periods ended June 30, 2002.  These comments should
be  read  in  conjunction  with  our  consolidated   financial   statements  and
accompanying footnotes appearing in this report.

The  Company's  board of directors  approved a plan in July 2002 to purchase and
retire up to $500,000  of the  Company's  common  stock over the next two years,
depending upon the stock price.

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


                                       12

<PAGE>



Comparison of Financial Condition at June 30, 2002 and December 31, 2001

Total assets  increased from December 31, 2001 to June 30, 2002 by $9.4 million,
or 9.3%,  from $100.8 million at December 31, 2001 to $110.2 million at June 30,
2002. The increase in assets was  principally  the result of an increase in cash
and amounts due from depository  institutions,  investment  securities and loans
receivable.  Cash and amounts due from depository institutions increased by $1.9
million as a result of an increase  in  overnight  deposits  held by the Federal
Home Loan Bank of Cincinnati.  Investment  securities  increased by $1.5 million
due to investment purchases during the current period.

Loans  receivable  increased  from  December  31,  2001  to  June  30,  2002  as
originations  exceeded  repayments for the period by approximately $5.9 million.
The following  table sets forth  information  about the  composition of our loan
portfolio by type of loan at the dates indicated.  At June 30, 2002 and December
31, 2001, we had no  concentrations  of loans exceeding 10% of gross loans other
than as disclosed below.

<TABLE>
<CAPTION>
                                                           June 30, 2002               December 31, 2001
                                                       -----------------------      -------------------------
                                                                      (Dollars in thousands)
                                                         Amount     Percent            Amount      Percent
                                                         ------     -------            ------      -------
Type of Loan:
Real estate loans:
<S>                                                   <C>               <C>        <C>                 <C>
  One- to four-family residential                     $     61,842      76.2%      $       57,577      76.8%
  Commercial                                                10,294      12.7%               9,131      12.2%
  Construction                                               4,139       5.1%               3,997       5.3%

Consumer loans:
  Automobile                                                 1,340       1.7%               1,260       1.7%
  Loans to depositors, secured by deposits                   1,565       1.9%               1,380       1.8%
  Home equity and second mortgage                              139       0.2%                 157       0.2%
  Other                                                      1,798       2.2%               1,506       2.0%
                                                       ----------------------       -------------------------
                                                            81,117     100.0%              75,008     100.0%
                                                       -----------============      -------------============

Less:
  Loans in process                                           1,885                          1,737
  Deferred mortgage loan fees                                  368                            352
  Allowance for loan losses                                    749                            719
                                                       ------------                 --------------
    Total                                             $     78,115                 $       72,200
                                                       ============                 ==============
</TABLE>


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

                                       13

<PAGE>



The following table sets forth  information  about our allowance for loan losses
for the period indicated.
<TABLE>
<CAPTION>
                                                                   Six                      Six
                                                              Months Ended             Months Ended
                                                                June 30,                 June 30,
                                                                  2002                     2001
                                                           --------------------     --------------------
                                                                          (In thousands)
<S>                                                       <C>                      <C>
Balance at beginning of period                            $                719     $                660
                                                           --------------------     --------------------
Charge-offs:
  Consumer                                                                 (21)                      (4)
  Mortgage                                                                   0                        0
Recoveries:
  Consumer                                                                   3                        0
  Mortgage                                                                   0                        0
                                                           --------------------     --------------------
Net Charge-offs                                                            (18)                      (4)
Provision for loan losses                                                   48                       28
                                                           --------------------     --------------------
Balance at end of period                                  $                749     $                684
                                                           ====================     ====================
</TABLE>

The following table sets forth information about our nonperforming assets at the
dates indicated.
<TABLE>
<CAPTION>
                                                                June 30,               December 31,
                                                                  2002                     2001
                                                           --------------------     --------------------
                                                                          (In thousands)
<S>                                                       <C>                      <C>
Nonaccrual Loans                                          $                  0     $                  0
Accruing loans which are contractually past due
90 days or more:
Real Estate:
  Residential                                                              359                      411
  Non-Residential                                                          110                        0
Consumer                                                                     7                       10
                                                           --------------------     --------------------
Total                                                     $                476     $                421
                                                           ====================     ====================
</TABLE>

At June 30,  2002,  the Bank had one  additional  commercial  real  estate  loan
totaling $462,147,  as to which known information about possible credit problems
of the  borrower  caused us to have doubts as to the ability of the  borrower to
comply with present loan repayment terms. Although the loan is current, the cash
flows  of the  lessee  of the  property  are  below  expectations.  The  loan is
considered  well  secured  and we do not  expect  to incur any loss in excess of
attributable  existing reserves on any of our assets. We conduct regular reviews
of our assets and evaluate the need to establish allowances on the basis of this
review.  Allowances are established on a regular basis based on an assessment of
risk in our assets taking into  consideration the composition and quality of the
portfolio, delinquency trends, current charge-off and loss experience, the state
of the real  estate  market,  regulatory  reviews  conducted  in the  regulatory
examination  process,  general  economic  conditions  and other  factors  deemed
relevant by us.  Allowances are provided for individual  assets,  or portions of
assets, when ultimate  collection is considered  improbable based on the current
payment status of the assets and the fair value or net  realizable  value of the
collateral.

During the six months ended June 30, 2002, the Company increased its liabilities
by $8.6  million,  or  10.0%,  in order to fund  asset  growth.  Total  deposits
increased $8.7 million or 10.3% from $84.8 million at December 31, 2001 to $93.5
million at June 30, 2002.

During 2002, the Bank has accepted deposits totaling  approximately $6.9 million
from various governmental and institutional customers, some of which are outside
of  its  traditional  market  area.  The  average  term  of  these  deposits  is
approximately  six months.  Management  is unable to determine  whether the Bank
will retain these deposits upon  maturity.  In the event the Bank is not able to
retain these  deposits,  management has various  sources of liquidity  available
including  cash and  amounts due from  depository  institutions  and  investment
securities  which are available  for sale.  In addition,  the Bank has borrowing
authority from the Federal Home Loan Bank of approximately $4.0 million.

                                       14

<PAGE>



Our shareholders'  equity increased  $735,000 from $14.2 million at December 31,
2001 to $14.9 million at June 30, 2002.  The increase was due to $893,000 of net
income, an $81,000 increase in our net unrealized gain on investment securities,
payment of  approximately  $161,000 on the ESOP loan principal,  distribution of
shares  under the MRP plan at a cost of  $143,000,  all of which were  partially
offset by the  payment  of a  dividend  to  shareholders  of  $398,000,  and the
purchase and retirement of 15,239 shares of common stock at a cost of $145,000.

The  Company's  board of directors  approved a plan in July 2002 to purchase and
retire up to $500,000  of the  Company's  common  stock over the next two years,
depending upon the stock price.

Discussion of Results of Operations for the Three Months Ended June 30, 2002 and
2001

Our net  income  for the  three  months  ended  June 30,  2002 was  $480,000,  a
$203,000,  or 73.3% increase from the $277,000 we earned during the three months
ended June 30, 2001.  Basic and diluted  earnings per share for the three months
ended June 30,  2002 were each $0.36  compared  to $0.21 for the same  period in
2001. Basic average shares  outstanding for three months ended June 30, 2002 was
1,323,548  shares and 1,345,713 shares for the three months ended June 30, 2001.
Average dilutive potential shares outstanding were 641 and 0, respectively.

Interest  income  decreased  $50,000,  or 2.7%, from $1.87 million for the three
months ended June 30, 2001 to $1.82  million for the three months ended June 30,
2002.  The  decrease  in interest  income was due  primarily  to a reduction  in
interest income from investment  securities and other interest earning assets of
$46,000. The decrease in interest income on investment securities is a result of
a decrease in the yields on investment securities.

Interest  expense on deposits  decreased  $378,000  from  $947,000 for the three
months ended June 30, 2001 to $569,000 for the three months ended June 30, 2002,
primarily due to the decrease in deposit  account  interest  rates. In addition,
the Company  incurred no interest expense on advances from the Federal Home Loan
Bank compared to $12,000 in the prior-year period.

Net  interest  income  increased  $340,000,  or 37.2%,  between the periods as a
result of the decrease in interest  expense  which was  partially  offset by the
slight decrease in interest income. The Company's net interest margin widened to
4.96%  for the  three  months  ended  June 30,  2002  compared  to 3.82% for the
comparable  period of 2001. The widening of the net interest margin reflects the
current rate environment.

Noninterest  income  increased  $26,000 from $107,000 for the three months ended
June 30, 2001 to $133,000 for the three months ended June 30, 2002. The increase
in  noninterest  income  was  primarily  the  result  of a net  gain on sales of
investment securities available for sale of $32,000.

Noninterest  expenses increased $45,000 from $567,000 for the three months ended
June 30, 2001 to $612,000 for the three months ended June 30, 2002. The increase
in  noninterest  expense was  primarily  from an increase  in  compensation  and
benefits  of $20,000  and an  increase in  occupancy  and  equipment  expense of
$15,000.

Our  effective  tax rates for the three months ended June 30, 2002 and 2001 were
36.0% and 36.6%, respectively.

                                       15

<PAGE>



Discussion of Results of  Operations  for the Six Months Ended June 30, 2002 and
2001

Our net income for the six months ended June 30, 2002 was $893,000,  a $432,000,
or 93.7%  increase  from the $461,000 we earned during the six months ended June
30, 2001. Basic and diluted earnings per share for the six months ended June 30,
2002 were  each  $0.67  compared  to $0.34  for the same  period in 2001.  Basic
average  shares  outstanding  for six months  ended June 30, 2002 was  1,330,927
shares and  1,372,888  shares for the six months  ended June 30,  2001.  Average
dilutive potential shares outstanding were 2,394 and 0, respectively.

Interest  income  decreased  $164,000,  or 4.4%,  from $3.73 million for the six
months  ended June 30, 2001 to $3.57  million for the six months  ended June 30,
2002. The decrease in interest  income was due to a reduction in interest income
from  investment  securities  and other  interest  earning  assets of  $148,000.
Interest on loans also decreased $16,000. The decrease in interest income is the
result of lower interest rates on mortgage loans and a decrease in the yields on
investment securities.

Interest expense on deposits  decreased  $846,000 from $1.98 million for the six
months  ended June 30, 2001 to $1.14  million for the six months  ended June 30,
2002,  primarily  due to the  decrease in deposit  account  interest  rates.  In
addition,  the Company incurred no interest expense on advances from the Federal
Home Loan Bank compared to $31,000 in the prior-year period.

Net  interest  income  increased  $713,000,  or 41.5%,  between the periods as a
result of the decrease in interest  expense  which was  partially  offset by the
decrease in interest income.  The Company's net interest margin widened to 4.81%
for the six months  ended June 30,  2002  compared  to 3.60% for the  comparable
period of 2001.  The  widening of the net interest  margin  reflects the current
rate environment.

Noninterest income increased $28,000 from $208,000 for the six months ended June
30, 2001 to $236,000  for the six months  ended June 30,  2002.  The increase in
noninterest  income  was  primarily  from a net  gain  on  sales  of  investment
securities  available for sale of $39,000 with an offsetting decrease in deposit
account service charges of $7,000.

Noninterest  expenses  increased  $31,000 from $1.18  million for the six months
ended June 30, 2001 to $1.21 million for the six months ended June 30, 2002. The
increase  in  noninterest  expense  was from an  increase  in other  noninterest
expenses of $38,000 which includes an expense of  approximately  $28,000 for the
market  value  adjustment  of the  director's  long-term  incentive  plan.  Data
processing  fees also  increased  by $16,000  while  compensation  and  benefits
expense decreased $23,000.

Our  effective  tax rates for the three months ended June 30, 2002 and 2001 were
36.7% and 36.1%, respectively.



                                       16

<PAGE>


Liquidity and Capital Resources

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

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

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

We have historically maintained substantial levels of capital. The assessment of
capital adequacy depends on several factors,  including asset quality,  earnings
trends,  liquidity and economic  conditions.  We seek to maintain high levels of
regulatory  capital to give us maximum  flexibility  in the changing  regulatory
environment and to respond to changes in market and economic  conditions.  These
levels of capital have been achieved through consistent earnings enhanced by low
levels of noninterest expense and have been maintained at those high levels as a
result of our policy of moderate growth  generally  confined to our market area.
At June 30, 2002 and  December  31,  2001,  we exceeded  all current  regulatory
capital requirements and met the definition of a "well-capitalized" institution,
the highest regulatory capital category.


                                       17

<PAGE>


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

Item 1.  Legal Proceedings

         None.

Item 2.  Changes in Securities and Use of Proceeds

         None.

Item 3.  Defaults upon Senior Securities

         None.

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

     On May 21, 2002,  United  Tennessee  Bankshares,  Inc. held its 2002 Annual
Meeting of  Stockholders.  The following is a brief  description  of each matter
voted upon and the results of the voting.

1.       Election of Directors

                  Nominee                 For                 Withheld
         ------------------         ---------------           --------
         Richard G. Harwood          1,103,881                  3,397
         Robert R. Self              1,099,906                  7,372

         There were no abstentions or broker non-votes.

     The terms of the office of  Directors  Robert L.  Overholt,  Ben W. Hooper,
III, William B. Henry, J. William,  Myers and Tommy C. Bible continued after the
meeting.

Item 5.  Other Information

         None.

Item 6.  Exhibits and Reports on Form 8-K

   (a) Exhibits:

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

          3.1(1)    Charter of United Tennessee Bankshares, Inc.

          3.2(1)    Bylaws of United Tennessee Bankshares, Inc.

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

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

          10.2(2)   United Tennessee  Bankshares,  Inc.  Management  Recognition
                    Plan

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

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

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

          10.5(1)   Newport  Federal  Savings  and  Loan  Association   Deferred
                    Compensation Plan

                                       18

<PAGE>


     99.1 Certification  Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
          to Section 906 of the Sarbanes-Oxley Act of 2002, signed by Richard G.
          Harwood,  President and Chief  Executive  Officer of United  Tennessee
          Bankshares, Inc. on August 13, 2002.

     99.2 Certification  Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
          to Section 906 of the  Sarbanes-Oxley  Act of 2002, signed by Chris H.
          Triplett,  Controller of United Tennessee  Bankshares,  Inc. on August
          13, 2002.

---------------
(1)       Incorporated  by  reference  to United  Tennessee  Bankshares,  Inc.'s
          Registration Statement on Form SB-2, File No. 333-36465.
(2)       Incorporated  by  reference  to United  Tennessee  Bankshares,  Inc.'s
          Registration Statement on Form S-8, File No. 333-82803.

   (b) Reports on Form 8-K:

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


                                       19

<PAGE>


                                   SIGNATURES



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

                                   UNITED TENNESSEE BANKSHARES, INC.
                                   Registrant



Date:  August 13, 2002            /s/Richard G. Harwood
                                   ---------------------------------------------
                                   Richard G. Harwood
                                   President and Chief Executive Officer
                                   (Duly Authorized Representative and
                                   Principal Financial and Accounting Officer)


                                       20


<PAGE>



                                                                    EXHIBIT 99.1

                                  CERTIFICATION

                       Pursuant to 18 U.S.C. Section 1350,
                             As Adopted Pursuant to
                  Section 906 of the Sarbanes-Oxley Act of 2002


Pursuant to 18 U.S.C.  Section 1350,  as adopted  pursuant to Section 906 of the
Sarbanes-Oxley  Act of 2002, and in connection with the quarterly report on Form
10-QSB of United  Tennessee  Bankshares,  Inc. (the  "Company")  for the quarter
ended June 30, 2002, as filed with the Securities and Exchange Commission on the
date hereof (the "Report"),  the undersigned,  Richard G. Harwood, the President
and Chief Executive Officer of the Company, hereby certifies that (1) the Report
fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934,  and (2) the  information  contained in the Report  fairly
presents,  in all material  respects,  the  financial  condition  and results of
operations of the Company.

         This Certification is signed on August 13, 2002.




                                      /s/Richard G. Harwood
                                      ---------------------
                                      Richard G. Harwood
                                      President and
                                      Chief Executive Officer




<PAGE>



                                                                    EXHIBIT 99.2

                                  CERTIFICATION

                       Pursuant to 18 U.S.C. Section 1350,
                             As Adopted Pursuant to
                  Section 906 of the Sarbanes-Oxley Act of 2002


Pursuant to 18 U.S.C.  Section 1350,  as adopted  pursuant to Section 906 of the
Sarbanes-Oxley  Act of 2002, and in connection with the quarterly report on Form
10-QSB of United  Tennessee  Bankshares,  Inc. (the  "Company")  for the quarter
ended June 30, 2002, as filed with the Securities and Exchange Commission on the
date hereof (the  "Report"),  the  undersigned,  Chris H. Triplett,  Controller,
hereby  certifies  that (1) the Report fully complies with the  requirements  of
Section  13(a) or  15(d) of the  Securities  Exchange  Act of 1934,  and (2) the
information  contained in the Report fairly presents,  in all material respects,
the financial condition and results of operations of the Company.

         This Certification is signed on August 13, 2002.



                                   /s/Chris H. Triplett
                                   --------------------
                                   Chris H. Triplett
                                   Controller