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 March 31, 2002.

                                       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: 1,325,773
                                         ---------

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


<PAGE>



                                    CONTENTS


PART I.  FINANCIAL INFORMATION
         ---------------------
<TABLE>
<CAPTION>

Item 1.  Financial Statements                                                                         Page
<S>            <C> <C>                           <C> <C>                                                <C>
         Consolidated Statements of Financial Condition as of
         March 31, 2002 (Unaudited) and December 31, 2001                                               3


         Consolidated Statements of Income for the Three Month Periods
         Ended March 31, 2002 (Unaudited) and 2001                                                      4


         Consolidated Statements of Comprehensive Income for the

         Three Month Periods Ended March 31, 2002 (Unaudited) and 2001                                  5


         Consolidated Statement of Changes in Shareholders' Equity for the

         Three Month Periods Ended March 31, 2002 (Unaudited)                                           6

         Consolidated Statements of Cash Flows for the Three Month Periods
         Ended March 31, 2002 (Unaudited) and 2001                                                    7-8

         Notes to Consolidated Financial Statements for the Three Month
         Periods Ended March 31, 2002 (Unaudited) and 2001                                           9-11

Item 2.  Management's Discussion and Analysis or Plan of Operation                                  12-16



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


Item 1.  Legal Proceedings                                                                             17

Item 2.  Changes in Securities and Use of Proceeds                                                     17

Item 3.  Defaults upon Senior Securities                                                               17

Item 4.  Submission of Matters to a Vote of Security Holders                                           17

Item 5.  Other Information                                                                             17

Item 6.  Exhibits and Reports on Form 8-K                                                              17

SIGNATURES                                                                                             18

</TABLE>


                                       2

<PAGE>
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

                UNITED TENNESSEE BANKSHARES, INC. AND SUBSIDIARY
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                   AS OF MARCH 31, 2002 AND DECEMBER 31, 2001
<TABLE>
<CAPTION>

                                                                                       March 31,
                                                                                          2002               December 31,
                                                                                      (Unaudited)                2001
                                                                                   -------------------      ----------------
                                                                                                (in thousands)
                                    Assets
<S>                                                                               <C>                      <C>
Cash and amounts due from depository institutions                                 $             5,350      $          2,123
Investment securities available for sale, at fair value                                        22,926                24,398
Loans receivable, net                                                                          75,311                72,200
Premises and equipment, net                                                                       496                   496
Accrued interest receivable                                                                       624                   603
Goodwill, net of amortization                                                                     933                   953
Prepaid expenses and other assets                                                                  36                    38
                                                                                   -------------------      ----------------
   Total assets                                                                   $           105,676      $        100,811
                                                                                   ===================      ================
                            Liabilities and Equity
Liabilities:
 Deposits                                                                         $            89,503      $         84,810
 Accrued interest payable                                                                         114                   161
 Accrued income taxes                                                                             268                     2
 Deferred income taxes                                                                            761                   869
 Accrued benefit plan liabilities                                                                 472                   743
 Other liabilities                                                                                 41                    58
                                                                                   -------------------      ----------------
   Total liabilities                                                                           91,159                86,643
                                                                                   -------------------      ----------------
Shareholders' equity:
 Common stock - no par value, Authorized 20,000,000 shares;
   issued and outstanding 1,325,773 shares (1,341,012 in 2001)                                 12,575                12,719
 Unearned compensation - ESOP                                                                   (563)                 (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                                          (1,591)               (1,591)
 Retained earnings                                                                              3,248                 2,835

 Accumulated other comprehensive income                                                         1,110                 1,288
                                                                                   -------------------      ----------------
  Total shareholders' equity                                                                   14,517                14,168
                                                                                   -------------------      ----------------
   Total liabilities and equity                                                   $           105,676      $        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 MONTH PERIODS ENDED MARCH 31, 2002 AND 2001

<TABLE>
<CAPTION>

                                                                                              (in thousands except
                                                                                             per share information)
                                                                                   -------------------------------------------
                                                                                               Three Months Ended
                                                                                   -------------------------------------------
                                                                                                   March 31,
                                                                                   -------------------------------------------
                                                                                          2002                    2001
                                                                                      (Unaudited)              (Unaudited)
                                                                                   -------------------      ------------------
Interest income:
<S>                                                                               <C>                      <C>
 Loans                                                                            $             1,460      $            1,472
 Investment securities                                                                            284                     363
 Other interest-earning assets                                                                      3                      26
                                                                                   -------------------      ------------------
  Total interest income                                                                         1,747                   1,861
                                                                                   -------------------      ------------------
Interest expense:
 Deposits                                                                                         567                   1,035
 Advances from Federal Home Loan Bank and Note Payable                                              0                      19
                                                                                   -------------------      ------------------
  Total interest expense                                                                          567                   1,054
                                                                                   -------------------      ------------------
Net interest income                                                                             1,180                     807

Provision for loan losses                                                                          24                      12
                                                                                   -------------------      ------------------
Net interest income after provision for loan losses                                             1,156                     795
                                                                                   -------------------      ------------------
Noninterest income:
 Deposit account service charges                                                                   54                      55
 Loan service charges and fees                                                                     28                      32
 Net gain (loss) on sales of investment
  securities available for sale                                                                     7                       5
 Other                                                                                             14                       9
                                                                                   -------------------      ------------------
  Total noninterest income                                                                        103                     101
                                                                                   -------------------      ------------------
Noninterest expense:
 Compensation and benefits                                                                        277                     310
 Occupancy and equipment                                                                           55                      65
 Federal deposit insurance premiums                                                                12                      12
 Data processing fees                                                                              63                      49
 Advertising and promotion                                                                         20                      23
 Amortization                                                                                      20                      20
 Other                                                                                            151                     133
                                                                                   -------------------      ------------------
  Total noninterest expense                                                                       598                     612
                                                                                   -------------------      ------------------
Income before income taxes                                                                        661                     284
Income taxes                                                                                      248                     100
                                                                                   -------------------      ------------------
Net income                                                                        $               413      $              184
                                                                                   ===================      ==================
Earnings per share
 Basic                                                                            $              0.31      $             0.13
                                                                                   ===================      ==================
 Diluted                                                                          $              0.31      $             0.13
                                                                                   ===================      ==================
</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 MONTH PERIODS ENDED MARCH 31, 2002 AND 2001




<TABLE>
<CAPTION>



                                                                                 Three Months Ended March 31,
                                                                          -------------------------------------------
                                                                                 2002                    2001
                                                                          -------------------      ------------------
                                                                                  (Unaudited - in thousands)

<S>                                                                      <C>                      <C>
Net income                                                               $              413       $             184
                                                                          -------------------      ------------------

Other comprehensive income (loss), net of tax:
 Unrealized gains (losses) on investment securities                                    (278)                     92
 Less reclassification adjustment for gains\losses
  included in net income                                                                 (8)                      5
 Less income taxes related to unrealized
  gains\losses on investment securities                                                 108                     (33)
                                                                          -------------------      ------------------
   Other comprehensive income (loss), net of tax                                       (178)                     64
                                                                          -------------------      ------------------

Comprehensive income                                                     $              235       $             248
                                                                          ===================      ==================
</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 THREE MONTH PERIOD ENDED MARCH 31, 2002


<TABLE>
<CAPTION>




                                                        Shares in    Shares in    Shares in              Accumulated
                                           Unearned      Grantor    MRP Plan -  Stock Option                Other         Total
                               Common    Compensation  Trust-Contra   Contra     Plan-Contra   Retained Comprehensive  Shareholders'
                               Stock         ESOP        Account      Account      Account     Earnings    Income          Equity
                              ---------- ------------- ------------ ------------ ------------  -------- -------------- ------------
                                                                  (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       413              0          413

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          (178)        (178)

Payment on ESOP loan principal        0           115            0            0            0         0              0          115

Dividends paid                        0             0            0            0            0         0              0            0

Purchase and retirement of
 15,239 shares of common stock    (144)             0            0            0            0         0              0        (144)
                              ---------- ------------- ------------ ------------ ------------  -------- -------------- ------------
Balances, end of period         $12,575    $    (563)     $  (195)    $    (67)   $  (1,591)   $ 3,248     $    1,110    $  14,517
                              ========== ============= ============ ============ ============  ======== ============== ============
</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 THREE MONTH PERIODS ENDED MARCH 31, 2002 AND 2001

<TABLE>
<CAPTION>


                                                                                               Three Months Ended
                                                                                                    March 31,
                                                                                   --------------------------------------------
                                                                                          2002                     2001
                                                                                           (Unaudited - in thousands)
                                                                                   --------------------------------------------
Operating Activities:
<S>                                                                               <C>                      <C>
 Net income                                                                       $              413       $              184
                                                                                   -------------------      -------------------
 Adjustments  to  reconcile  net  income  to  net  cash  provided  by  operating
  activities:
   Provision for loan losses                                                                      24                       12
   Depreciation                                                                                   17                       15
   Amortization of goodwill                                                                       20                       20
   Net (gain) loss on sales of foreclosed real estate                                              0                        0
   Federal Home Loan Bank stock dividends                                                        (10)                     (14)
   Net (gain) loss on sales of investment securities
    available for sale                                                                            (8)                      (5)
   (Increase) Decrease in:
    Accrued interest receivable                                                                  (21)                      56
    Other assets                                                                                   2                      109
   Increase (Decrease) in:
    Accrued interest payable                                                                     (47)                     (47)
    Accrued income taxes                                                                         266                       22
    Accrued benefit plan liabilities                                                            (271)                    (222)
    Other liabilities                                                                            (17)                     (36)
                                                                                   -------------------      -------------------
     Total adjustments                                                                           (45)                     (90)
                                                                                   -------------------      -------------------
Net cash provided by operating activities                                                        368                       94
                                                                                   -------------------      -------------------
Investing Activities:
 Purchases of investment securities available for sale                                        (3,300)                  (3,049)
 Proceeds from maturities of investment securities
  available for sale                                                                           1,080                    1,663
 Principal payments received on investment securities
  available for sale                                                                           2,051                    1,216
 Proceeds from sales of investment securities
  available for sale                                                                           1,373                      502
 Net increase in loans                                                                        (3,135)                    (747)
 Purchases of premises and equipment, net                                                        (17)                     (12)
 Proceeds from sales of foreclosed real estate                                                     0                        0
                                                                                   -------------------      -------------------
Net cash used in investing activities                                                         (1,948)                    (427)
                                                                                   -------------------      -------------------
</TABLE>







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

                                       7
<PAGE>



                UNITED TENNESSEE BANKSHARES, INC. AND SUBSIDIARY
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
           FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2002 AND 2001
<TABLE>
<CAPTION>

                                                                                               Three Months Ended
                                                                                          2002                    2001
                                                                                   -------------------      ------------------
                                                                                           (Unaudited - in thousands)
                                                                                   -------------------------------------------
Financing Activities:
<S>                                                                                                <C>                     <C>
 Dividends paid                                                                                    0                       0
 Net increase in deposits                                                                      4,693                   2,019
 Purchase and retirement of common stock                                                        (144)                      0
 Issuance of common stock for MRP plan                                                           143                     169
 Payment on ESOP loan and release of shares                                                      115                     116
 Net repayment of advances from Federal Home Loan Bank                                             0                    (519)
                                                                                   -------------------      ------------------
Net cash provided by financing activities                                                      4,807                   1,785
                                                                                   -------------------      ------------------
Net increase (decrease) in cash and cash equivalents                                           3,227                   1,452

Cash and cash equivalents, beginning of period                                                 2,123                   3,067
                                                                                   -------------------      ------------------
Cash and cash equivalents, end of period                                          $            5,350       $           4,519
                                                                                   ===================      ==================
Supplementary disclosures of cash flow information:  Cash paid during the period
 for:
 Interest                                                                         $              614       $           1,101
 Income taxes                                                                     $               29       $               0

Supplementary disclosures of noncash investing activities:
  Sale of foreclosed real estate
    by origination of mortgage loans                                              $                0       $               0
  Acquisition of foreclosed real estate                                           $                0       $               0
  Change in unrealized gain\loss on investment securities
   available for sale                                                             $             (286)      $              87
  Change in deferred income taxes associated with
   unrealized gain\loss on investment securities available
   for sale                                                                       $             (108)      $              33
  Change in net unrealized gain\loss on investment
   securities available for sale                                                  $             (178)      $              54
</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 PERIODS ENDED MARCH 31, 2002 AND 2001
                                   (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.

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:

                                                    Three Months Ended
                                                        March 31,
                                              -------------------------------
                                                   2002           2001
                                              -------------------------------

Average number of shares outstanding               1,335,799       1,382,013
Effect of dilutive options                             1,402               0
                                              -------------------------------
Average number of shares outstanding used
   to calculate earnings per share                 1,337,201       1,382,013
                                              ===============================


                                       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 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 accounting  principles generally accepted in the United States
of America 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 March 31, 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  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>

                                                                Three Month
                                                          Period Ended March 31,
                                                    ------------------------------------
                                                         2002                2001
                                                    ---------------     ----------------
<S>                                                 <C>                 <C>
Accrued Liability Balance at Beginning of Period    $     142,259       $      152,895
Amount Charged to Expense                                   5,618               40,259
Less Cost of Shares Issued                               (142,339)            (168,887)
                                                    ---------------     ----------------
Accrued Liability Balance at End of Period          $       5,538       $       24,267
                                                    ===============     ================
</TABLE>

The  Company  held 5,509  shares of its  common  stock in trust at a net cost of
$67,431 as of March 31,  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  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.

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 209,299 as of March 31, 2002 and December 31, 2001.

The Company has repurchased 188,422 shares as of March 31, 2002 and December 31,
2001 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 plans to utilize dividends
received to continue to purchase  shares of its common stock to be placed in the
stock option trusts.

                                       10
<PAGE>



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

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 FHLMC,  GNMA or 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 and for the three
month period ended March 31, 2002.  These comments should be read in conjunction
with our consolidated  financial statements and accompanying footnotes appearing
in this report.

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



                                       12
<PAGE>



Comparison of Financial Condition at March 31, 2002 and December 31, 2001

Total assets increased from December 31, 2001 to March 31, 2002 by $4.9 million,
or 4.8%, from $100.8 million at December 31, 2001 to $105.7 million at March 31,
2002. 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 from depository  institutions  increased by $3.2 million as a result
of an  increase in  overnight  deposits  held by the  Federal  Home Loan Bank of
Cincinnati.

Loans  receivable  increased  from  December  31,  2001  to  March  31,  2002 as
originations  exceeded  repayments for the period by approximately $3.1 million.
The following  table sets forth  information  about the  composition of our loan
portfolio by type of loan at the dates indicated. At March 31, 2002 and December
31, 2001, we had no  concentrations  of loans exceeding 10% of gross loans other
than as disclosed below.

<TABLE>
<CAPTION>
                                                         March 31, 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                  $      59,040      75.4%     $      57,577       76.8%
   Commercial                                               9,844      12.6%             9,131       12.2%
   Construction                                             4,213       5.4%             3,997        5.3%

Consumer loans:
   Automobile                                               1,231       1.6%             1,260        1.7%
   Loans to depositors, secured by deposits                 1,617       2.1%             1,380        1.8%
   Home equity and second mortgage                            148       0.2%               157        0.2%
   Other                                                    2,139       2.7%             1,506        2.0%
                                                     ------------------------     -------------------------
                                                           78,232       100%            75,008        100%
                                                                 ============                 =============

Less:
   Loans in process                                         1,816                        1,737
   Deferred fees and discounts                                359                          352
   Allowance for loan losses                                  746                          719
                                                     -------------                -------------
     Total                                          $      75,311                $      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>
                                                                  Three                    Three
                                                              Months Ended             Months Ended
                                                                March 31,                March 31,
                                                                  2002                     2001
                                                           --------------------     --------------------
                                                                          (in thousands)
<S>                                                       <C>                      <C>
Balance at beginning of period                            $                719     $                660
                                                           --------------------     --------------------
Charge-offs:
   Consumer                                                                  0                      (2)
   Mortgage                                                                  0                        0
Recoveries:
   Consumer                                                                  3                        0
   Mortgage                                                                  0                        0
                                                           --------------------     --------------------
Net Charge-offs                                                              3                      (2)
Provision for loan losses                                                   24                       12
                                                           --------------------     --------------------
Balance at end of period                                  $                746     $                670
                                                           ====================     ====================

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

                                                            March 31,                March 31,
                                                               2002                     2001
                                                        -------------------      -------------------
                                                                      (in thousands)
Nonaccrual loans                                       $                 0      $                 0
Accruing loans which are contractually past due
90 days or more:
Real Estate:
   One- to four-family residential                                     608                      441
   Commercial                                                           38                      226
Consumer                                                                38                       29
                                                        -------------------      -------------------
Total                                                  $               684      $               696
                                                        ===================      ===================
</TABLE>

At March 31,  2002,  the Bank had one  additional  commercial  real  estate loan
totalling  $466,007 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.  This  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 local 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 three  months  ended  March 31,  2002,  the  Company  increased  its
liabilities  by $4.6  million,  or 5.2%,  in order to fund asset  growth.  Total
deposits  increased  $4.7 million,  or 5.5%,  from $84.8 million at December 31,
2001 to $89.5 million at March 31, 2002.

                                       14
<PAGE>



Our shareholders'  equity increased  $349,000 from $14.2 million at December 31,
2001 to $14.5 million at March 31, 2002. The increase was due to $413,000 of net
income, payment of approximately $115,000 on the ESOP loan principal, a $178,000
decrease in our net unrealized  gain on investment  securities,  distribution of
shares under the MRP plan at a cost of $143,000, and the purchase and retirement
of 15,239 shares of common stock at a cost of $144,000.

Discussion  of Results of  Operations  for the Three Months Ended March 31, 2002
and 2001

Our net  income  for the three  months  ended  March 31,  2002 was  $413,000,  a
$229,000,  or 124.5%,  increase  from the  $184,000  we earned  during the three
months ended March 31, 2001.  Basic and diluted earnings per share for the three
months  ended  March 31,  2002 were each  $0.31  compared  to $0.13 for the same
period in 2001.  Basic  average  shares  outstanding  for the three months ended
March 31, 2002 was 1,335,799  shares and  1,382,013  shares for the three months
ended March 31, 2001.  Average dilutive  potential shares outstanding were 1,402
and 0, respectively.

Interest income  decreased  $114,000,  or 6.1%, from $1.86 million for the three
months  ended March 31, 2001 to $1.75  million for the three  months ended March
31,  2002.  The  decrease in interest  income was due to a reduction in interest
income from investment securities and other interest earning assets of $102,000.
Interest on loans also decreased $12,000. The decrease in the interest income is
a result of lower  interest rates on mortgage loans and a decrease in the yields
on  investment  securities,  as well as a lower  amount  invested in  investment
securities.

Interest expense on deposits decreased $468,000 from $1.04 million for the three
months  ended March 31, 2001 to $567,000  for the three  months  ended March 31,
2002,  primarily  due to a  decrease  in  deposit  account  interest  rates.  In
addition,  the Company incurred no interest expense on advances from the Federal
Home Loan Bank compared to $19,000 in the prior-year period.

Net interest  income  increased  $373,000,  or 46.2%, in 2002 as a result of the
increase in interest income and the decrease in interest expense.  The Company's
net interest  margin  widened to 4.85% for the three months ended March 31, 2002
compared to 3.44% for the  comparable  period of 2001.  The  widening of the net
interest margin reflects the current rate environment.

Noninterest  income  increased  $2,000 from  $101,000 for the three months ended
March 31, 2001 to $103,000 for the three months ended March 31, 2002.

Noninterest  expenses decreased $14,000 from $612,000 for the three months ended
March  31,  2001  to  $598,000  for the  three  months  ended  March  31,  2002.
Compensation and benefits expense  decreased $33,000 from $310,000 for the three
months  ended March 31, 2001 to $277,000  for the three  months  ended March 31,
2002. The decrease in compensation  and benefits expense is due primarily to the
decrease  in  expense  for  the  management  recognition  plan  which  has  been
substantially completed in 2002.

Our  effective tax rates for the three months ended March 31, 2002 and 2001 were
37.5%  and  35.2%,  respectively.  The  higher  effective  tax  rate is due to a
reduction in municipal securities in 2002 compared to 2001.


                                       15
<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.  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
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,
we have  substantial  borrowing  authority  as a member of the Federal Home Loan
Bank of  Cincinnati.  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 March 31, 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.











                                       16
<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

         None.

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





---------------

(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.

                                       17
<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:  May 13, 2002              /s/ Richard G. Harwood
                                 -------------------------------------------
                                 Richard G. Harwood
                                 President and Chief Executive Officer
                                 (Duly Authorized Representative and
                                 Principal Financial and Accounting Officer)



                                       18