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, 2001.

                                       OR

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

                         Commission File Number: 0-23551

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


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


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

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


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

                                 Yes [X] No [ ]

State the number of shares outstanding of each of the issuer's classes of common
stock as of the latest practicable date: 1,345,713
                                         ---------

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, 2001 (Unaudited) and December 31, 2000..............3

                  Consolidated Statements of Income for the Three-Month and
                  Six-Month Periods Ended June 30, 2001 and 2000 (Unaudited)...4

                  Consolidated Statements of Comprehensive Income for the
                  Three-Month and Six-Month Periods Ended June 30, 2001
                  and 2000 (Unaudited).........................................5

                  Consolidated Statement of Changes in Shareholders' Equity for
                  the Six-Month Period Ended June 30, 2001 (Unaudited).........6

                  Consolidated Statements of Cash Flows for the Six-Month
                  Periods Ended June 30, 2001 and 2000 (Unaudited)...........7-8

                  Notes to Consolidated Financial Statements for the Six-Month
                  Periods Ended June 30, 2001 and 2000 (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....................................................................19

                                       2
<PAGE>
<TABLE>
<CAPTION>
                UNITED TENNESSEE BANKSHARES, INC. AND SUBSIDIARY
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                    AS OF JUNE 30, 2001 AND DECEMBER 31, 2000
                                                                                  June 30,
                                                                                    2001             December 31,
                                                                                (Unaudited)              2000
                                                                            ---------------------- -------------------
                                                                                         (in thousands)
                                   Assets
<S>                                                                                   <C>                  <C>
Cash and amounts due from depository institutions                                     $    4,263           $    3,067
Investment securities available for sale, at fair value                                   24,530               24,357
Loans receivable, net                                                                     69,924               68,878
Premises and equipment, net                                                                  504                  470
Foreclosed real estate - held for sale                                                        59                    0
Accrued interest receivable                                                                  593                  603
Goodwill, net of amortization                                                                993                1,033
Prepaid expenses and other assets                                                             30                  145
                                                                            ----------------------- ------------------
Total assets                                                                         $   100,896          $    98,553
                                                                            ======================= ==================
                           Liabilities and Equity
Liabilities:
 Deposits                                                                            $    84,994          $    81,614
 Advances from Federal Home Loan Bank                                                        710                1,753
 Accrued interest payable                                                                    214                  300
 Accrued income taxes                                                                         37                    0
 Deferred income taxes                                                                       909                  841
 Accrued benefit plan liabilities                                                            519                  643
 Other liabilities                                                                            22                   72
                                                                            ----------------------- ------------------
  Total liabilities                                                                       87,405               85,223
                                                                            ----------------------- ------------------
Shareholders' equity:
 Common stock - no par value, Authorized 20,000,000 shares;
   issued and outstanding 1,345,713 shares (1,382,013 in 2000)                            12,762               13,091
 Unearned compensation - ESOP                                                             ( 679)               ( 843)
 Shares in grantor trust - contra account                                                 ( 183)               ( 183)
 Shares in MRP plan - contra account                                                      ( 221)               ( 390)
 Shares in stock option plan trusts - contra account                                    ( 1,657)             ( 1,657)
 Retained earnings                                                                         2,185                2,139
 Accumulated other comprehensive income                                                    1,284                1,173
                                                                            ----------------------- ------------------
  Total shareholders' equity                                                              13,491               13,330
                                                                            ----------------------- ------------------
Total liabilities and equity                                                         $   100,896          $    98,553
                                                                            ======================= ==================
</TABLE>


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

                                       3
<PAGE>
<TABLE>
<CAPTION>

                UNITED TENNESSEE BANKSHARES, INC., AND SUBSIDIARY
                        CONSOLIDATED STATEMENTS OF INCOME
        FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2001 AND 2000

                                                                      (In Thousands Except                (In Thousands Except
                                                                     per Share Information)              per Share Information)
                                                               -----------------------------------  --------------------------------
                                                                       Three Months Ended                   Six Months Ended
                                                                            June 30,                            June 30,
                                                               -----------------------------------  --------------------------------
                                                                    2001               2000              2001              2000
                                                                 (Unaudited)        (Unaudited)       (Unaudited)      (Unaudited)
                                                               ----------------   ----------------  ----------------  --------------
Interest income:
<S>                                                            <C>                <C>               <C>               <C>
 Loans                                                         $         1,487    $         1,341   $         2,959   $        2,621
 Investment securities                                                     356                442               719              839
 Other interest-earning assets                                              29                 55                53               29
                                                               ----------------   ----------------  ----------------  --------------
   Total interest income                                                 1,872              1,812             3,733            3,513
                                                               ----------------   ----------------  ----------------  --------------
Interest expense:
 Deposits                                                                  947                906             1,982            1,733
 Advances from Federal Home Loan Bank
  and note payable                                                          12                 87                31              176
                                                               ----------------   ----------------  ----------------  --------------
   Total interest expense                                                  959                993             2,013            1,909
                                                               ----------------   ----------------  ----------------  --------------
Net interest income                                                        913                819             1,720            1,604

Provision for loan losses                                                   16                  9                28               16
                                                               ----------------   ----------------  ----------------  --------------
Net interest income after provision for loan losses                        897                810             1,692            1,588
                                                               ----------------   ----------------  ----------------  --------------
Noninterest income:
 Deposit account service charges                                            68                 46               123               92
 Loan service charges and fees                                              29                 29                61               57
 Net gain (loss) on sales of investment
  securities available for sale                                             (2)                 0                 3                0
 Other                                                                      12                  0                21                5
                                                               ----------------   ----------------  ----------------  --------------
   Total noninterest income                                                107                 75               208              154
                                                               ----------------   ----------------  ----------------  --------------
Noninterest expense:
 Compensation and benefits                                                 278                240               588              528
 Occupancy and equipment                                                    37                 51               102              101
 Federal deposit insurance premiums                                         12                 12                24               24
 Data processing fees                                                       62                 53               110               96
 Advertising and promotion                                                  24                 16                47               34
 Amortization                                                               20                 20                40               40
 Other                                                                     134                134               268              265
                                                               ----------------   ----------------  ----------------  --------------
   Total noninterest expense                                               567                526             1,179            1,088
                                                               ----------------   ----------------  ----------------  --------------
Income before income taxes                                                 437                359               721              654

Income taxes                                                               160                131               260              251
                                                               ----------------   ----------------  ----------------  --------------
Net income                                                     $           277    $           228   $           461   $          403
                                                               ================   ================  ================  ==============
Earnings per share:
 Basic                                                         $          0.21    $          0.16   $          0.34   $         0.29
                                                               ================   ================  ================  ==============
 Diluted                                                       $          0.21    $          0.16   $          0.34   $         0.29
                                                               ================   ================  ================  ==============
</TABLE>

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

                                       4
<PAGE>
<TABLE>
<CAPTION>
                UNITED TENNESSEE BANKSHARES, INC. AND SUBSIDIARY
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
        FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2001 AND 2000







                                                           Three Months Ended June 30,          Six Months Ended June 30,
                                                              2001             2000              2001               2000
                                                         ---------------  ----------------  ----------------   ----------------
                                                            (Unaudited - in Thousands)          (Unaudited - in Thousands)
                                                         ---------------------------------  -----------------------------------
<S>                                                           <C>               <C>              <C>                <C>
Net income                                                    $    277          $    228         $     461          $     403
                                                         ---------------  ----------------  ----------------   ----------------
Other comprehensive income (loss), net of tax:
 Unrealized gains (losses) on investment securities                  90              (34)               182              (195)
 Reclassification adjustment for gains\losses
  included in net income                                              2                 8               (3)                  9
 Income taxes related to unrealized
  gains\losses on investment securities                            (35)                 9              (68)                 70
                                                         ---------------  ----------------  ----------------   ----------------
   Other comprehensive income (loss), net of tax                     57              (17)               111              (116)
                                                         ---------------  ----------------  ----------------   ----------------
Comprehensive income                                          $    334          $    211         $     572          $     287
                                                         ===============  ================  ================   ================
</TABLE>

















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

                                       5
<PAGE>
<TABLE>
<CAPTION>
                UNITED TENNESSEE BANKSHARES, INC. AND SUBSIDIARY
            CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
                  FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2001







                                                        Shares in
                                                        Grantor   Shares in     Shares in                Accumulated
                                           Unearned     Trust -   MRP Plan -  Stock Option                  Other         Total
                               Common    Compensation   Contra     Contra     Plan - Contra  Retained   Comprehensive  Shareholders'
                               Stock         ESOP       Account    Account       Account     Earnings      Income         Equity
                              ----------- ------------- ---------- ----------- -------------- ---------- -------------- ------------
                                                                    (Unaudited - in Thousands)
<S>                           <C>         <C>           <C>        <C>         <C>            <C>        <C>            <C>
Balances, beginning
of period                     $ 13,091    $     (843)   $    (183) $    (390)  $  (1,657)     $ 2,139    $    1,173     $   13,330

Net income                                                                                        461                          461

Issuance of shares of common
 stock pursuant to MRP plan                                              169                                                   169

Other comprehensive                                                                                             111            111
 income (loss)

Payment on ESOP loan                             164                                                                           164
principal


Dividends paid                                                                                   (415)                        (415)

Repurchase and retirement
of 36,300 shares of Common Stock  (329)                                                                                       (329)
                              ----------- ------------- ---------- ----------- -------------- ---------- -------------- ------------
Balances, end of period       $ 12,762    $     (679)   $    (183) $    (221)  $  (1,657)     $ 2,185    $    1,284     $   13,491
                              =========== ============= ========== =========== ============== ========== ============== ============
</TABLE>















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

                                       6

<PAGE>
<TABLE>
<CAPTION>
                UNITED TENNESSEE BANKSHARES, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
             FOR THE SIX MONTH PERIODS ENDED JUNE 30, 2001 AND 2000


                                                                                                     Six Months Ended
                                                                                         ------------------------------------------
                                                                                                          June 30
                                                                                         ------------------------------------------
                                                                                                 2001                  2000
                                                                                         --------------------  --------------------
                                                                                                (Unaudited - in Thousands)
Operating Activities:
 Net income                                                                                        $     461             $     403
                                                                                         --------------------  --------------------
 Adjustments  to  reconcile  net  income  to  net  cash  provided  by  operating
  activities:
<S>                                                                                                       <C>                   <C>
   Provision for loan losses                                                                              28                    16
   Depreciation                                                                                           30                    29
   Amortization of goodwill                                                                               40                    40
   Federal home loan bank stock dividends                                                                (29)                  (27)
   Net (gain) loss on sales of investment securities
    available for sale                                                                                    (3)                    9
   Deferred income taxes (benefit)                                                                         1                    (1)
   (Increase) Decrease in:
    Accrued interest receivable                                                                           10                   (92)
    Other assets                                                                                         115                    74
   Increase (Decrease) in:
    Accrued interest payable                                                                             (86)                   15
    Accrued income taxes                                                                                  37                     0
    Accrued benefit plan liabilities                                                                    (124)                 (105)
    Other liabilities                                                                                    (50)                  (52)
                                                                                         --------------------  --------------------
     Total adjustments                                                                                   (31)                  (94)
                                                                                         --------------------  --------------------
Net cash provided by operating activities                                                                430                   309
                                                                                         --------------------  --------------------

Investing Activities:
 Purchases of investment securities available for sale                                                (5,500)               (2,474)
 Proceeds from maturities of investment securities
  available for sale                                                                                   2,823                     0
 Principal payments received on investment securities
  available for sale                                                                                   2,212                 2,443
 Proceeds from sales of investment securities
  available for sale                                                                                     502                 1,493
 Net increase in loans                                                                                (1,133)               (3,916)
 Purchases of plant and equipment, net                                                                   (64)                   (1)
                                                                                         --------------------  --------------------
Net cash used in investing activities                                                                 (1,160)               (2,455)
                                                                                         --------------------  --------------------
</TABLE>






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

                                       7
<PAGE>
<TABLE>
<CAPTION>

                UNITED TENNESSEE BANKSHARES, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
             FOR THE SIX MONTH PERIODS ENDED JUNE 30, 2001 AND 2000

                                                                                                     Six Months Ended
                                                                                         ------------------------------------------
                                                                                                         June 30,
                                                                                         ------------------------------------------
                                                                                                2001                  2000
                                                                                         --------------------  --------------------
                                                                                                 (Unaudited - in Thousands)
Financing Activities:
<S>                                                                                                    <C>                    <C>
 Dividends paid                                                                                        ( 415)                 (415)
 Net increase (decrease) in deposits                                                                   3,380                 3,179
 Repurchase and retirement of common stock                                                              (329)                    0
 Issuance of common stock for MRP plan                                                                   169                   155
 Payment on ESOP loan and release of shares                                                              164                   162
 Repayment of advances from Federal Home Loan Bank                                                    (1,043)                 (995)
 Repayment of note payable                                                                                 0                (3,200)
 Proceeds from advances from Federal Home Loan Bank                                                        0                 3,000
                                                                                         --------------------  --------------------
Net cash provided by (used in) financing activities                                                    1,926                 1,886
                                                                                         --------------------  --------------------

Net increase (decrease) in cash and cash equivalents                                                   1,196                  (260)

Cash and cash equivalents, beginning of period                                                         3,067                 2,387
                                                                                         --------------------  --------------------
Cash and cash equivalents, end of period                                                          $    4,263            $    2,127
                                                                                         ====================  ====================

Supplementary disclosures of cash flow information:  Cash paid during the period
 for:
 Interest                                                                                         $   2,099             $    1,894
 Income taxes                                                                                     $     223             $      252

Supplementary disclosures of noncash investing activities:
  Sale of foreclosed real estate
    by origination of mortgage loans                                                              $       0             $        0
  Acquisition of foreclosed real estate                                                           $      59             $       85
  Change in unrealized gain\loss on investment securities
   available for sale                                                                             $     179             $     (186)
  Change in deferred income taxes associated with
   unrealized gain\loss on investment securities available
   for sale                                                                                       $      68             $      (70)
  Change in net unrealized gain\loss on investment
   securities available for sale                                                                  $     111             $     (116)
</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 SIX MONTH PERIODS ENDED JUNE 30, 2001 AND 2000
                                   (UNAUDITED)




Note 1 - Basis of Presentation and Principles of Consolidation

United Tennessee Bankshares, Inc. ("Company") was incorporated under the laws of
the State of  Tennessee  for the  purpose of  becoming  the  holding  company of
Newport Federal Savings and Loan Association ("Association"), in connection with
the Association's  conversion from a federally chartered mutual savings and loan
association to a federally chartered capital stock savings bank. The Company had
no assets or  operations  prior to the  conversion.  On  January  1,  1998,  the
Association  converted  from a mutual  savings  association  to a capital  stock
savings  bank,  changed  its name to  Newport  Federal  Bank  ("Bank"),  and was
simultaneously  acquired by its holding company,  United  Tennessee  Bankshares,
Inc. See Note 3 for additional  information  concerning the Association's  stock
conversion.

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.

Earning per share have been computed based on the following:
<TABLE>
<CAPTION>
                                                                 Three Months Ended               Six Months Ended
                                                           -------------------------------   ----------------------------
                                                                      June 30,                        June 30,
                                                           -------------------------------   ----------------------------
                                                                2001           2000              2001          2000
                                                           -------------- ----------------   ------------- --------------
<S>                                                             <C>             <C>              <C>           <C>
Average number of shares outstanding                            1,345,713       1,382,013        1,372,888     1,382,013
Effect of dilutive options                                              0           4,763                0         4,763
                                                           -------------- ----------------   ------------- --------------
Average number of shares outstanding used
   to calculate earnings per share                               1,345,713      1,386,776        1,372,888     1,386,776
                                                           ============== ================   ============= ==============
</TABLE>


                                       9
<PAGE>

Note 3 - Comprehensive Income

The FASB has  issued  SFAS  No.  130,  "Reporting  Comprehensive  Income."  This
statement  establishes  standards  for  reporting  comprehensive  income and its
components in the financial statements. The object 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, 2001
(50,845  shares  as of June 30,  2000) 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,
                                                                                           ------------------------------------
                                                                                                2001                2000
                                                                                           ---------------     ----------------
<S>                                                                                     <C>                 <C>
         Accrued Liability Balance at Beginning of Period                               $        152,895    $         142,595
         Amount Charged to Expense                                                                81,575               79,463
         Less Cost of Shares Issued                                                             (168,887)            (155,559)
                                                                                           ---------------     ----------------
         Accrued Liability Balance at End of Period                                     $         65,583    $          66,499
                                                                                           ===============     ================
</TABLE>
The Company held 18,056 shares as of June 30, 2001 (32,772 shares as of June 30,
2000) of its common stock in trust at a net cost of $221,006 as of June 30, 2001
($400,915 as of June 30, 2000). 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  145,475  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.


                                       10
<PAGE>


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  205,869  and  196,061  as of June  30,  2001 and 2000
respectively.

The Company has  repurchased  188,422 shares as of June 30, 2001 (168,027 shares
as of June 30,  2000) 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
intends to utilize  dividends  received to  continue  to purchase  shares of its
common stock to be placed in the stock option trusts.

The Company applies APB Opinion 25 and related Interpretations in accounting for
its stock option plan.  Accordingly,  no compensation  cost has been recognized.
Had compensation  cost for the Company's stock option plan been determined based
on the fair value at the grant dates for awards under the plan  consistent  with
the method  prescribed  by FASB  Statement No. 123, the Company's net income and
earnings per share would not have been significantly affected.

Note 6 - Improvement Plan for Main Office Facility

The  Company's  board of  directors  recently  approved  a plan to  improve  the
existing  main office  facilities.  Total cost of the project is estimated to be
approximately $1,000,000.

Note 7 -  Accounting  for  Transfers  and  Servicing  of  Financial  Assets  and
          Extinguishment of Liabilities

In September 2000, the FASB issued Statement of Financial  Accounting  Standards
No.  140,  Accounting  for  Transfers  and  Servicing  of  Financial  Assets and
Extinguishment of Liabilities.  This Statement  replaces FASB Statement No. 125,
Accounting for Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities.  It revises the standards for  accounting  for  securitization  and
other  transfers  of  financial  assets  and  collateral  and  requires  certain
disclosures,  but it carries over most of Statement  No. 125's  provisions.  The
Statement  provides   accounting  and  reporting  standards  for  transfers  and
servicing of financial assets and extinguishment of liabilities  occurring after
March  31,  2001.   This  Statement  is  also  effective  for   recognition  and
reclassification  of collateral  and for  disclosure  related to  securitization
transactions  and  collateral  for fiscal years ending after  December 15, 2000.
Since  the  Company  does not  currently  engage  in  securitization  and  other
transfers of financial assets and collateral,  this Statement is not expected to
significantly  affect the  financial  condition or results of  operations of the
Company.


                                       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 which are guaranteed as to principal and interest by
the FHLMC,  GNMA or FNMA.  We also  maintain an  investment in Federal Home Loan
Bank of Cincinnati common stock and FHLMC preferred 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.



                                       12
<PAGE>


Comparison of Financial Condition at June 30, 2001 and December 31, 2000

Total assets  increased from December 31, 2000 to June 30, 2001 by $2.3 million,
or 2.4%,  from $98.6 million at December 31, 2000 to $100.9  million at June 30,
2001. The increase in assets was  principally the result of an increase in loans
receivable  and cash and  amounts  due from  depository  institutions.  Cash and
amounts due  increased  by $1.2  million as a result of an increase in overnight
deposits held at the Federal Home Loan Bank.

Loans  receivable  increased  from  December  31,  2000  to  June  30,  2001  as
originations  exceeded  repayments for the period by approximately $1.0 million.
The following  table sets forth  information  about the  composition of our loan
portfolio by type of loan at the dates indicated.  At June 30, 2001 and December
31, 2000, we had no  concentrations  of loans exceeding 10% of gross loans other
than as disclosed below.
<TABLE>
<CAPTION>
                                                                        June 30, 2001                December 31, 2000
                                                              ---------------------------     -------------------------
                                                                               (Dollars in Thousands)
                                                              ---------------------------------------------------------
                                                                     Amount       Percent            Amount     Percent
                                                                     ------       -------            ------     -------
<S>                                                          <C>                   <C>       <C>                 <C>
Type of Loan:
Real estate loans:
   One- to four-family residential                           $       54,501        74.5%     $      53,782       75.9%
   Commercial                                                         9,537        13.0%            10,229       14.4%
   Construction                                                       3,900         5.3%             2,589        3.6%

Consumer loans:
   Automobile                                                         1,418         1.9%             1,402        2.0%
   Loans to depositors, secured by deposits                           1,189         1.6%             1,250        1.8%
   Home equity and second mortgage                                      187         0.3%               227        0.3%
   Other                                                              2,466         3.4%             1,415        2.0%
                                                              ---------------------------     -------------------------
                                                                     73,198         100%            70,894        100%
                                                              -------------==============     ------------=============
Less:
   Loans in process                                                   2,240                          1,030
   Deferred fees and discounts                                          350                            326
   Allowance for loan losses                                            684                            660
                                                              --------------                  -------------
     Total                                                   $       69,924                  $      68,878
                                                              ==============                  =============
</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, 2001            June 30, 2000
                                                        -------------------      -------------------
                                                                      (In Thousands)
<S>                                                    <C>                      <C>
Balance at beginning of period                         $               660      $               661
                                                        -------------------      -------------------
Charge-offs:
  Consumer                                                              (4)                     (15)
Recoveries:
  Consumer                                                               0                        4
                                                        -------------------      -------------------
Net Charge-offs                                                         (4)                     (11)
Provision for loan losses                                               28                       16
                                                        -------------------      -------------------
Balance at end of period                               $              $684      $              $666
                                                        ===================      ===================
</TABLE>
The following table sets forth information about our nonperforming assets at the
dates indicated.
<TABLE>
<CAPTION>
                                                          June 30, 2001            June 30, 2000
                                                        -------------------      -------------------
                                                                      (In Thousands)
<S>                                                     <C>                      <C>
Nonaccrual Loans                                        $                0       $                0
Accruing loans which are contractually past due
90 days or more:
Real Estate:
One- to four-family residential                                        388                      358
Commercial                                                              36                      101
Consumer                                                                47                       19
                                                        -------------------      -------------------
Total                                                  $              $471      $              $478
                                                        ===================      ===================
</TABLE>

At June 30,  2001,  the Bank had one  additional  commercial  real  estate  loan
totaling  $460,000 as to which known  information about possible credit problems
of 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, however, is 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, 2001, the Company increased its liabilities
by $2.2  million,  or 2.6%,  in  order  to fund  asset  growth.  Total  deposits
increased  $3.4 million or 4.1% from $81.6 million at December 31, 2000 to $85.0
million at June 30, 2001.  Advances  from the Federal  Home Loan Bank  decreased
$1.0 million,  or 59.5%,  from $1.75 million at December 31, 2000 to $710,000 at
June 30, 2001.

Our shareholders'  equity increased  $161,000 from $13.3 million at December 31,
2000 to $13.5 million at June 30, 2001.  The increase was due to $461,000 of net
income,   payment  of  approximately   $164,000  on  the  ESOP  loan  principal,
distribution of shares under the MRP plan at a cost of $169,000,  and a $111,000
increase in our net  unrealized  gain on  investment  securities,  offset by the
payment of a dividend  to  shareholders  of  $415,000,  and the  repurchase  and
retirement of stock at a cost of $329,000.

                                       14
<PAGE>

Discussion of Results of Operations for the Three Months Ended June 30, 2001 and
2000

Our net income for the three months ended June 30, 2001 was $277,000, a $49,000,
or 21.5% increase from the $228,000 we earned during the three months ended June
30, 2000.  Basic and diluted  earnings per share for the three months ended June
30, 2001 were each $0.21  compared  to $0.16 for the same period in 2000.  Basic
average  shares  outstanding  for the periods  ended June 30, 2001 and 2000 were
1,345,713 and 1,382,013 shares, respectively.  Average dilutive potential shares
outstanding were 0 and 4,763, respectively.

Interest  income  increased  $60,000,  or 3.3%, from $1.81 million for the three
months ended June 30, 2000 to $1.87  million for the three months ended June 30,
2001.  The  increase  in interest  income was due to  interest  on loans,  which
increased  $146,000,  or 10.9%,  due to an increase  in the average  outstanding
balance of the loan  portfolio.  The  increase in  interest  income on loans was
offset by a decrease  in  interest  income on  investment  securities  and other
interest earning assets of $86,000.

Interest  expense on deposits  increased  $41,000  from  $906,000  for the three
months ended June 31, 2000 to $947,000 for the three months ended June 30, 2001,
primarily due to the increase in the average  balance of deposits.  In addition,
the Company  incurred  $12,000 in interest  expense on advances from the Federal
Home Loan Bank compared to $87,000 in the prior-year period.

Net interest  income  increased  $94,000,  or 11.5%,  between the periods as the
increase in interest  income  exceeded  the  increase in interest  expense.  The
Company's net interest  margin  widened to 3.82% for the three months ended June
30, 2001 compared to 3.40% for the  comparable  period of 2000.  The widening of
the net interest margin reflects the current rate environment.

Noninterest  income  increased  $32,000  from $75,000 for the three months ended
June 30, 2000 to $107,000 for the three months ended June 30, 2001. The increase
in noninterest  income was mainly from increased deposit account service charges
consistent with the higher level of deposit  accounts during the 2001 period and
the restructuring of our deposit fees.

Noninterest  expenses increased $41,000 from $526,000 for the three months ended
June 30, 2000 to $567,000 for the three months ended June 30, 2001. Compensation
and benefits expense  increased $38,000 from $240,000 for the three months ended
June 30, 2000 to $278,000  for the three  months  ended June 30, 2001 due to the
addition of personnel and normal salary increases

Our  effective  tax rates for the three months ended June 30, 2001 and 2000 were
36.6% and 36.5%, respectively.

Discussion of Results of  Operations  for the Six Months Ended June 30, 2001 and
2000

Our net income for the six months ended June 30, 2001 was  $461,000,  a $58,000,
or 14.4%  increase  over the $403,000 we earned during the six months ended June
30, 2000. Basic and diluted earnings per share for the six months ended June 30,
2001 were each  $0.34  compared  to $0.29 for the same  period in 2000.  Average
shares  outstanding  for the six month  period ended June 30, 2001 and 2000 were
1,372,888 and 1,382,013 shares, respectively.

                                       15
<PAGE>

Interest  income  increased  $220,000,  or 6.3% from $3.51  million  for the six
months  ended June 30, 2000 to $3.73  million for the six months  ended June 30,
2001.  The  increase  in interest  income was due to  interest  on loans,  which
increased  $338,000,  or 12.9%, due to an increase in the average balance of the
loan portfolio. The increase in interest income on loans was partially offset by
a decrease  in  interest  income on  investment  securities  and other  interest
earning assets of $118,000.

Interest expense on deposits  increased  $249,000 due to the increase in average
balance of  deposits  of $7.9  million  compared to the same period in the prior
year.  The  Company  used the funds from the  additional  deposits  to fund loan
originations  and to repay  advances  from the Federal Home Loan Bank.  Interest
expense on advances from the Federal Home Loan Bank  decreased  $145,000 for the
six months  ended June 30,  2001  compared  to the same  period in 2000 due to a
decrease in the average balance of advances  outstanding of  approximately  $5.0
million.

Net  interest  income  increased  $116,000  or 7.2%  between  the periods as the
increase in interest  income  exceeded  the  increase in interest  expense.  The
Company's net interest margin widened to 3.60% for the six months ended June 30,
2001 compared to 3.42% for the  comparable  period of 2000.  The widening of the
interest  margin  reflects  the current rate  environment  and the fact that our
deposit costs have decreased.

Noninterest income increased $54,000 from $154,000 for the six months ended June
30, 2000 to $208,000  for the six months  ended June 30,  2001.  The increase in
noninterest  income was mainly from increased  deposit  account  service charges
consistent with the higher level of deposit  accounts during the 2001 period and
the restructuring of our deposit fees.

Noninterest  expenses  increased  $91,000 from $1.08  million for the six months
ended June 30,  2000 to $1.18  million for the six months  ended June 30,  2001.
Compensation  and benefits expense  increased  $60,000 from $528,000 for the six
months  ended June 30, 2000 to $588,000  for the six months  ended June 30, 2001
due to the addition of personnel and normal salary increases.

Our  effective  tax rates for the six months  ended June 30,  2001 and 2000 were
36.1%  and  38.4%,  respectively.  The  lower  effective  tax  rate is due to an
increase in our tax-exempt investment securities in 2001 compared to 2000.

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.  The Company  paid a
return of capital distribution with funds on hand and approximately $3.0 million
in borrowings  from a third party lender during the fourth  quarter of 1999. The
Bank received permission from the OTS to pay a dividend to the Company in excess
of  regulatory  safe  harbor  amounts in order to allow the Company to repay the
loan in the first quarter of 2000.

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
                                       16
<PAGE>
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.

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, 2001 and  December  31,  2000,  we exceeded  all current  regulatory
capital requirements and met the definition of a "well-capitalized" institution,
the highest regulatory capital category.

We are required to maintain  minimum  levels of liquid  assets as defined by OTS
regulations. This requirement,  which may be varied at the discretion of the OTS
depending  on  economic  conditions  and  deposit  outflows,  is  based  upon  a
percentage of deposits and, if any,  short-term  borrowings.  We exceeded all of
the liquidity  requirements of the OTS as of both June 30, 2001 and December 31,
2000.

















                                       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 15, 2001,  United  Tennessee  Bankshares,  Inc. held its 2000 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
         ------------------------------    -----------------    --------------
         Robert L. Overholt                   1,043,939             6,521
         Ben W. Hooper, III                   1,041,492             8,968

         There were no abstentions of broker non-votes.

The terms of office of Directors Richard G. Harwood,  Robert R. Self, William B.
Henry, J. William Myers and Tommy C. Bible continued after the meeting.

2.   Approval  of  an  amendment  to  the  Newport   Federal  Savings  and  Loan
     Association Long-Term Incentive Plan as follows:

     For.................1,018,035
     Against................27,850
     Abstain.................4,575

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  Charter of United Tennessee Bankshares, Inc.(1)

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

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

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

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

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

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

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

          10.5 Newport   Federal   Savings   and   Loan   Association   Deferred
               Compensation Plan (1)
---------------
(1)  Incorporated   by  reference  to  United   Tennessee   Bankshares,   Inc.'s
     Registration Statement on Form SB-2, File No. 333-36465.

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

   (b) Reports on Form 8-K:

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

                                       18
<PAGE>


                                   SIGNATURES


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

                                               UNITED TENNESSEE BANKSHARES, INC.
                                               Registrant



Date: August 14, 2001                          /s/ Richard G. Harwood
                                               ---------------------------------
                                               Richard G. Harwood
                                               President and Chief Executive
                                               Officer
                                               (Duly Authorized Representative
                                               and Principal Financial and
                                               Accounting Officer)















                                       19