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 September 30, 2000.

                                       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: 1,382,013
                                         ----------

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
              September 30, 2000 (Unaudited) and December 31, 1999             3

              Consolidated Statements of Income for the Three-Month and
              Nine-Month Periods Ended September 30, 2000 and 1999 (Unaudited) 4

              Consolidated Statements of Comprehensive Income for the
              Three-Month and Nine-Month Periods Ended September 30, 2000
              and 1999 (Unaudited)                                             5

              Consolidated Statement of Changes in Shareholders' Equity
              for the Nine-Month Period Ended September 30, 2000 (Unaudited)   6

              Consolidated Statements of Cash Flows for the Nine-Month
              Periods Ended September 30, 2000 and 1999 (Unaudited)          7-8

              Notes to Consolidated Financial Statements for the Nine-Month
              Periods Ended September 30, 2000 and 1999 (Unaudited)         9-12

     Item 2.  Management's Discussion and Analysis or Plan of Operation    13-18


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

     Item 1.  Legal Proceedings                                               19

     Item 2.  Changes in Securities and Use of Proceeds                       19

     Item 3.  Defaults upon Senior Securities                                 19

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

     Item 5.  Other Information                                               19

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

SIGNATURES                                                                    20



                                       2
<PAGE>


                UNITED TENNESSEE BANKSHARES, INC. AND SUBSIDIARY
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                 AS OF SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
<TABLE>
<CAPTION>
                                                                                      September 30,
                                                                                          2000                   December 31,
                                                                                       (Unaudited)                   1999
                                                                                      --------------             -------------
                                                                                                   (in Thousands)
                                  Assets
<S>                                                                                      <C>                         <C>
Cash and amounts due from depository institutions                                        $   4,787                   $   2,387
Investment securities available for sale, at fair value                                     25,088                      27,935
Loans receivable, net                                                                       66,786                      61,516
Premises and equipment, net                                                                    482                         511
Foreclosed real estate - held for sale                                                          71                          71
Accrued interest receivable                                                                    544                         439
Goodwill, net of amortization                                                                1,053                       1,113
Prepaid expenses and other assets                                                              103                         148
                                                                                         ---------                   ---------
 Total assets                                                                            $  98,914                   $  94,120
                                                                                         =========                   =========

                          Liabilities and Equity
Liabilities:
 Deposits                                                                                $  79,478                   $  73,810
 Note Payable                                                                                    0                       3,200
 Advances from Federal Home Loan Bank                                                        5,298                       3,767
 Accrued interest payable                                                                      285                         284
 Deferred income taxes                                                                         556                         457
 Accrued benefit plan liabilities                                                              597                         619
 Other liabilities                                                                              36                          83
                                                                                         ---------                   ---------
  Total liabilities                                                                         86,250                      82,220
                                                                                         ---------                   ---------
Shareholders' equity:
 Common stock - no par value, Authorized 20,000,000 shares;
   issued and outstanding 1,382,013 shares in 2000 and 1999                                 13,091                      13,091
 Unearned compensation - ESOP                                                                 (843)                     (1,005)
 Shares in MRP plan - contra account                                                          (401)                       (556)
 Shares in grantor trust - contra account                                                     (202)                       (202)
 Shares in stock option plan trusts - contra account                                        (1,658)                     (1,658)
 Retained earnings                                                                           1,963                       1,751
 Accumulated other comprehensive income                                                        714                         479
                                                                                         ---------                   ---------
  Total shareholders' equity                                                                12,664                      11,900
                                                                                         ---------                   ---------
Total liabilities and equity                                                             $  98,914                   $  94,120
                                                                                         =========                   =========

</TABLE>




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


                                       3
<PAGE>


                UNITED TENNESSEE BANKSHARES, INC., AND SUBSIDIARY
                        CONSOLIDATED STATEMENTS OF INCOME
     FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND 1999
<TABLE>
<CAPTION>
                                                                      (In Thousands Except                (In Thousands Except
                                                                     per Share Information)              per Share Information)
                                                               -----------------------------------  --------------------------------
                                                                       Three Months Ended                  Nine Months Ended
                                                                         September 30,                       September 30,
                                                               -----------------------------------  --------------------------------
                                                                    2000               1999              2000              1999
                                                                 (Unaudited)        (Unaudited)       (Unaudited)      (Unaudited)
                                                               ----------------   ----------------  ----------------  --------------
<S>                                                                  <C>                <C>               <C>              <C>
Interest income:
 Loans                                                               $   1,382          $   1,194         $   4,003        $   3,501
 Investment securities                                                     393                417             1,232            1,304
 Other interest-earning assets                                              33                 52                86              170
                                                                     ---------          ---------         ---------        ---------
  Total interest income                                                  1,808              1,663             5,321            4,975
                                                                     ---------          ---------         ---------        ---------

Interest expense:
 Deposits                                                                  966                800             2,699            2,282
 Advances from Federal Home Loan Bank and Note Payable                      81                 54               257              180
                                                                     ---------          ---------         ---------        ---------
  Total interest expense                                                 1,047                854             2,956            2,462
                                                                     ---------          ---------         ---------        ---------

Net interest income                                                        761                809             2,365            2,513

Provision for loan losses                                                    9                  6                25               18
                                                                     ---------          ---------         ---------        ---------
Net interest income after provision for loan losses                        752                803             2,340            2,495
                                                                     ---------          ---------         ---------        ---------
Noninterest income:
 Deposit account service charges                                            46                 41               138               85
 Loan service charges and fees                                              27                 23                84               68
 Other                                                                       4                  1                 9               12
                                                                     ---------          ---------         ---------        ---------
  Total noninterest income                                                  77                 65               231              165
                                                                     ---------          ---------         ---------        ---------
Noninterest expense:
 Compensation and benefits                                                 268                264               796              836
 Occupancy and equipment                                                    62                 43               163              153
 Federal deposit insurance premiums                                         12                 12                36               36
 Data processing fees                                                       65                 55               161              159
 Advertising and promotion                                                  18                 20                52               59
 Amortization                                                               20                 20                60               60
 Other                                                                     112                165               377              508
                                                                     ---------          ---------         ---------        ---------
  Total noninterest expense                                                557                579             1,645            1,808
                                                                     ---------          ---------         ---------        ---------

Income before income taxes                                                 272                289               926              852

Income taxes                                                                49                110               300              302
                                                                     ---------          ---------         ---------        ---------
Net income                                                           $     223          $     179         $     626        $     550
                                                                     =========          =========         =========        =========


Earnings per share:
 Basic                                                               $    0.16          $    0.13         $    0.45         $   0.40
                                                                     =========          =========         =========        =========
 Diluted                                                             $    0.16          $    0.13         $    0.45 `       $   0.40
                                                                     =========          =========         =========        =========
</TABLE>
   The accompanying notes are an integral part of these financial statements.


                                       4
<PAGE>

                UNITED TENNESSEE BANKSHARES, INC. AND SUBSIDIARY
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
     FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND 1999





<TABLE>
<CAPTION>
                                                                Three Months Ended                  Nine Months Ended
                                                                  September 30,                       September 30,
                                                            2000                 1999              2000              1999
                                                        ----------------   ----------------  ----------------  --------------
                                                             (Unaudited - in Thousands)          (Unaudited - in Thousands)
                                                        ---------------------------------------------------------------------
<S>                                                       <C>                <C>               <C>              <C>
Net income                                                $    223            $    179         $     626          $     550
                                                          --------            --------         ---------          ---------

Other comprehensive income (loss), net of tax:
 Unrealized gains (losses) on investment securities            584                (135)              389               (187)
 Reclassification adjustment for gains\losses
  included in net income                                         0                   0                (9)                 0
 Income taxes related to unrealized
  gains\losses on investment securities                       (215)                 53              (145)                73
                                                          --------            --------         ---------          ---------
   Other comprehensive income (loss), net of tax               369                 (82)              235               (114)
                                                          --------            --------         ---------          ---------

Comprehensive income (loss)                               $    592            $     97         $     861          $     436
                                                          ========            ========         =========          =========
</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 NINE MONTH PERIOD ENDED SEPTEMBER 30, 2000


<TABLE>
<CAPTION>

                                                                  Shares in
                                                       Shares in   Grantor       Shares in              Accumulated
                                            Unearned   MRP Plan -  Trust -      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  $(1,005)    $(556)     $(202)       $(1,658)      $1,751      $ 479        $11,900

Net income                               -        -         -          -              -          626          -            626

Issuance of shares of common
stock pursuant to MRP plan               -        -       155          -              -            -          -            155

Other comprehensive income (loss)        -        -         -          -              -            -        235            235

Payment on ESOP loan principal           -      162         -          -              -            -          -            162

Dividends paid                           -        -         -          -              -         (414)         -           (414)
                                  --------  -------     -----      -----        -------       ------      -----        -------

Balances, end of period           $ 13,091  $  (843)    $(401)     $(202)       $(1,658)      $1,963      $ 714        $12,664
                                  ========  =======     =====      =====        =======       ======      =====        =======
</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 NINE MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND 1999

<TABLE>
<CAPTION>
                                                                         Nine Months Ended
                                                                           September 30
                                                                 -----------------------------------
                                                                      2000                  1999
                                                                 --------------        ------------
                                                                  (Unaudited - in Thousands)
<S>                                                                 <C>                   <C>
Operating Activities:
 Net income                                                         $     626             $     550
                                                                    ---------             ---------
 Adjustments  to  reconcile  net  income
  to  net  cash  provided  by  operating activities:
   Provision for loan losses                                               25                    18
   Depreciation                                                            43                    38
   Amortization of goodwill                                                60                    60
   Net (gain) loss on sales of foreclosed real estate                      10                     0
   Federal home loan bank stock dividends                                 (41)                  (25)
   Net (gain) loss on sales of investment securities
    available for sale                                                      9                     0
   Deferred income taxes (benefit)                                        (47)                    3
   (Increase) Decrease in:
    Accrued interest receivable                                          (105)                    4
    Other assets                                                           45                   (13)
   Increase (Decrease) in:
    Accrued interest payable                                                1                   (23)
    Accrued income taxes                                                    0                   (32)
    Accrued benefit plan liabilities                                      (22)                    0
    Other liabilities                                                     (46)                  297
                                                                    ---------             ---------
     Total adjustments                                                    (68)                  327
                                                                    ---------             ---------
Net cash provided by operating activities                                 558                   877
                                                                    ---------             ---------

Investing Activities:
 Purchases of investment securities available for sale                 (2,474)               (5,599)
 Proceeds from maturities of investment securities
  available for sale                                                        0                 2,000
 Principal payments received on investment securities
  available for sale                                                    4,240                 5,085
 Proceeds from sales of investment securities
  available for sale                                                    1,493                     0
 Purchases of investment securities held to maturity                        0                  (464)
 Proceeds from maturities of investment securities held
  to maturity                                                               0                   500
 Principal payments received on investment securities
  held to maturity                                                          0                 1,114
 Net increase in loans                                                 (5,305)               (5,497)
 Purchases of plant and equipment, net                                    (14)                  (72)
                                                                    ---------             ---------
Net cash used in investing activities                                  (2,060)               (2,933)
                                                                    ---------             ---------
</TABLE>



                                       7
<PAGE>
                UNITED TENNESSEE BANKSHARES, INC. AND SUBSIDIARY
                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
          FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND 1999
<TABLE>
<CAPTION>
                                                                                                       Nine Months Ended
                                                                                                         September 30
                                                                                               -----------------------------------
                                                                                                    2000                  1999
                                                                                               --------------        ------------
                                                                                                (Unaudited - in Thousands)
<S>                                                                                               <C>                   <C>
Financing Activities:
 Dividends paid                                                                                        (414)                 (415)
 Net increase in deposits                                                                             5,668                 3,349
 Purchase of common stock for MRP plan trust                                                              0                (2,286)
 Issuance of common stock for MRP plan                                                                  155                     0
 Payment on ESOP loan and release of shares                                                             162                   124
 Repayment of advances from Federal Home Loan Bank                                                   (1,469)               (1,433)
 Repayment of note payable                                                                           (3,200)                    0
 Proceeds from advances from Federal Home Loan Bank                                                   3,000                     0
                                                                                                  ---------             ---------
Net cash provided by (used in) financing activities                                                   3,902                  (661)
                                                                                                  ---------             ---------
Net increase (decrease) in cash and cash equivalents                                                  2,400                (2,717)

Cash and cash equivalents, beginning of period                                                        2,387                 6,131
                                                                                                  ---------             ---------

Cash and cash equivalents, end of period                                                          $   4,787             $   3,414
                                                                                                  =========             =========

Supplementary disclosures of cash flow information:
 Cash paid during the period for:
 Interest                                                                                         $   2,955             $   2,485
 Income taxes                                                                                     $     344             $     331

Supplementary disclosures of noncash investing activities:
  Sale of foreclosed real estate by origination of loans                                          $      75             $       0
  Acquisition of foreclosed real estate                                                           $      85             $       0
  Change in unrealized gain\loss on investment securities
   available for sale                                                                             $     380             $    (187)
  Change in deferred income taxes associated with
   unrealized gain\loss on investment securities available
   for sale                                                                                       $     145             $     (73)
  Change in net unrealized gain\loss on investment
   securities available for sale                                                                  $     235             $    (114)

</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 NINE MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND 1999
                                   (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.  For the
three months and nine months  ended  September  30, 2000 and 1999,  the weighted
average number of shares  outstanding was 1,382,013.  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.  Dilutive  potential shares outstanding during
the three  months and nine months ended  September  30, 2000 and 1999 were 2,364
and -0-, respectively. Potential shares that may be issued by the Company relate
solely to outstanding stock options, and are determined using the treasury stock
method.



                                       9
<PAGE>

NOTE 3 - STOCK CONVERSION

In May 1997,  the board of directors  approved a plan of  reorganization  from a
mutual  savings  association  to a capital stock savings bank and the concurrent
formation  of  a  holding  company.  In  November  1997  the  Office  of  Thrift
Supervision  approved  the plan of  conversion  subject to the  approval  of the
members,  and in December 1997 the members of the Association  also approved the
plan of conversion.  The conversion was accomplished  effective  January 1, 1998
through  amendment of the  Association's  charter and the sale of the  Company's
common stock in an amount equal to the appraised pro forma  consolidated  market
value of the Company and the Association  after giving effect to the conversion.
A subscription offering of the shares of common stock was offered to depositors,
borrowers,  directors,  officers,  employees  and employee  benefit plans of the
Association and to certain other eligible subscribers. The subscription offering
opened on November 20, 1997 and closed on December 16, 1997. On January 1, 1998,
in accordance with its approved plan of conversion, the Company issued 1,454,750
of its no  par  value  stock  at $10  per  share  providing  gross  receipts  of
$14,547,500.  On January 1, 1998,  the  Association  changed its name to Newport
Federal Bank and issued  100,000 shares of its $1 par value stock to the Holding
Company in exchange for $7,100,000. In addition, the Company established an ESOP
plan which acquired  $1,164,000 in stock during  conversion.  The  contra-equity
account  "Unearned  Compensation - ESOP" will be decreased as contributions  are
made to the ESOP plan and the shares are  allocated to the  participants.  Total
conversion  costs of $571,822  were repaid to the Bank by the Company in January
1998, and the Company  deducted them from the proceeds of the shares sold in the
conversion.

At the time of the  conversion,  the  Association  was  required to  establish a
liquidation  account in an amount equal to its capital as of June 30, 1997.  The
liquidation   account   will  be   maintained   for  the   benefit  of  eligible
accountholders  who  continue to maintain  their  accounts at the Bank after the
conversion.  The liquidation account will be reduced annually to the extent that
eligible  accountholders  have  reduced  their  qualifying  deposits  as of each
anniversary   date.   Subsequent   increases   will  not   restore  an  eligible
accountholder's  interest in the liquidation account. In the event of a complete
liquidation,   each  eligible  accountholder  will  be  entitled  to  receive  a
distribution  from the  liquidation  account in an amount  proportionate  to the
current  adjusted  qualifying  balances for accounts then held. The Bank and the
Company will be subject to several  restrictions  concerning  the  repurchase of
stock and dividend  payment  restrictions  pursuant to the applicable  rules and
policies of the OTS.


NOTE 4 - 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.


                                       10
<PAGE>

NOTE 5 - MANAGEMENT RECOGNITION PLAN AND STOCK OPTION PLAN

In January 1999,  the Company's  board of directors  approved the Company's 1999
Stock Option Plan (SOP) and a Management  Recognition  Plan (MRP). The Company's
shareholders approved both plans at the annual meeting held on May 18, 1999. The
board of directors has reserved 215,688 shares of the Company's common stock for
issuance  pursuant to the options to be granted under the SOP. These shares will
be either newly issued shares or shares purchased on the open market.  The Stock
Option trust purchased shares on the open market in the first,  second and third
quarters of 1999. As of September 30, 2000, the Stock Option trust had purchased
184,527 for a total cost of approximately $1,658,000. The board of directors has
also  authorized  the issuance of 58,190  shares of common  stock as  restricted
stock  pursuant to the MRP.  The MRP trust  purchased  these  shares on the open
market in the first and second  quarters of 1999. As of September 30, 2000,  the
MRP  trust  had  purchased  58,190  shares  for a total  cost  of  approximately
$713,000.

The Company's board of directors has awarded 50,845 shares of restricted  common
stock to certain  members of the board of directors and senior  management.  The
shares vest as follows:  25% in 1999 and 25% per year for the next three  years.
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.

During the nine month  periods ended  September  30, 1999 and 2000,  the Company
issued 12,709 shares of restricted stock each period at a total cost of $311,118
and held  32,772  shares  of its  common  stock in trust  for the MRP plan as of
September 30, 2000 at a net cost of $400,915.  A contra-equity  account has been
established  to reflect the cost of such  shares held in trust.  During the nine
month period ended  September 30, 2000, the Company  purchased  58,692 shares of
its common stock with the dividends  received on shares  previously  held in the
Stock Option trust.

NOTE 6 - ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The FASB has issued SFAS No. 133,  "Accounting  for Derivative  Instruments  and
Hedging  Activities."  This  statement   establishes  standards  for  derivative
instruments,   including  certain  derivative   instruments  embedded  in  other
contracts,  and for hedging  activities.  This  statement is  effective  for all
fiscal  quarters  of  fiscal  years  beginning  after  June  15,  1999.  Earlier
application  is  encouraged,  but is permitted  only as of the  beginning of any
fiscal quarter that begins after issuance of this statement. The Company elected
to apply the  provisions of this statement as of July 1, 1999. In June 2000, the
FASB issued Statement of Financial  Accounting Standards No. 138. This statement
amends the accounting  and reporting  standards of Statement No. 133 for certain
derivative instruments and certain hedging activities, but these amendments will
not significantly affect the Company's operations.

Although the Company and its  subsidiary  do not currently  hold any  derivative
instruments  or engage in hedging  activities,  the  statement  also  provides a
one-time opportunity for any investments in the held-to-maturity  category to be
transferred into the  available-for-sale  category. On July 1, 1999, the Company
and its subsidiary transferred  investments with an amortized cost of $2,090,063
(fair  value  of  $2,100,160)  from  their  held-to-maturity  category  to their
available-for-sale category.


                                       11
<PAGE>

NOTE 7 - ACCOUNTING  FOR  MORTGAGE-BACKED  SECURITIES  AFTER  SECURITIZATION  OF
MORTGAGE LOANS HELD FOR SALE BY A MORTGAGE BANKING ENTERPRISE

The FASB has  issued  Statement  of  Financial  Accounting  Standards  No.  134,
"Accounting for  Mortgage-Backed  Securities  after  Securitization  of Mortgage
Loans Held for Sale by a Mortgage Banking  Enterprise." SFAS No. 134 amends FASB
Statement No. 65,  "Accounting for Certain Mortgage Banking  Activities,"  which
establishes  accounting  and  reporting  standards  for  certain  activities  of
mortgage banking  enterprises and other enterprises that conduct operations that
are substantially similar to the primary operations related to securitization of
mortgage  loans.  The  Company  has not entered  into any  transactions  of this
nature, nor does the Company  anticipate  entering into any transactions of this
nature in the future. Therefore, SFAS No. 134 will not have a significant effect
on the Company's consolidated financial condition or results of operations.


NOTE 8 -  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.


                                       12
<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.



                                       13
<PAGE>

Comparison of Financial Condition at September 30, 2000 and December 31, 1999

         Total assets  increased from December 31, 1999 to September 30, 2000 by
$4.8 million,  or 5.1%, from $94.1 million at December 31, 1999 to $98.9 million
at September 30, 2000. The increase in assets was  principally  the result of an
increase in loans  receivable,  which were  offset by a decrease  in  investment
securities  available  for  sale.   Investment  securities  available  for  sale
decreased $2.8 million or 10.2% from December 31, 1999.
         Loans receivable increased from December 31, 1999 to September 30, 2000
as  originations  exceeded  repayments  for the  period  by  approximately  $5.3
million.  Our market area has experienced an increase in lending activity during
this period. The following table sets forth information about the composition of
our loan portfolio by type of loan at the dates indicated. At September 30, 2000
and December 31, 1999, we had no  concentrations of loans exceeding 10% of gross
loans other than as disclosed below.
<TABLE>
<CAPTION>
                                                            September 30, 2000               December 31, 1999
                                                        ----------------------------    ----------------------------
                                                                          (Dollars in Thousands)
                                                        Amount            Percent          Amount         Percent
                                                        ------------     -----------    -------------    -----------
<S>                                                         <C>               <C>            <C>              <C>
  Type of Loan:
  ------------
  Real estate loans -
   One- to four-family residential                          $54,502           78.9%          $48,550          76.5%
   Commercial                                                 7,093           10.3             9,099          14.3
   Construction                                               3,002            4.3             2,615           4.1

  Consumer loans:
   Automobile                                                 1,290            1.9               980           1.5
   Loans to depositors, secured by deposits                   1,274            1.8             1,114           1.8
   Home equity and second mortgage                              206            0.3               208           0.3
   Other                                                      1,750            2.5               931           1.5
                                                            -------          -----           -------         -----
                                                             69,117          100.0%           63,497         100.0%
                                                                             =====                           =====
  Less:
   Loans in process                                           1,355                            1,033
   Deferred fees and discounts                                  319                              287
   Allowance for loan losses                                    657                              661
                                                            -------                          -------
     Total                                                  $66,786                          $61,516
                                                            =======                          =======
</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.



                                       14
<PAGE>

         The following table sets forth information about our allowance for loan
losses for the period indicated.
<TABLE>
<CAPTION>
                                                                            Nine                    Nine
                                                                        Months Ended            Months Ended
                                                                        September 30,           September 30,
                                                                            2000                    1999
                                                                     --------------------     ------------------
                                                                                   (In Thousands)
         <S>                                                              <C>                     <C>
         Balance at beginning of period                                   $      661              $      641
                                                                          ----------              ----------
         Charge-offs:
          Consumer                                                               (33)                     (4)
         Recoveries:
          Consumer                                                                 4                       0
                                                                          ----------              ----------
         Net charge-offs                                                         (29)                     (4)
         Provision for loan losses                                                25                      18
                                                                          ----------              ----------
         Balance at end of period                                         $      657              $      655
                                                                          ==========              ==========
</TABLE>

         The  following  table sets forth  information  about our  nonperforming
assets at the dates indicated.
<TABLE>
<CAPTION>

                                                                        September 30,           December 31,
                                                                            2000                    1999
                                                                     --------------------     ------------------
                                                                                   (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                                      413                     348
            Commercial                                                            60                       0
           Consumer                                                               20                      29
                                                                          ----------              ----------
              Total                                                       $      493              $      377
                                                                          ==========              ==========
</TABLE>


         At  September  30, 2000 and  December  31,  1999,  all loans which were
included in our adversely  classified  or  designated  asset amounts as to which
known  information about possible credit problems of borrowers caused us to have
doubts as to the ability of the borrowers to comply with present loan  repayment
terms are  reflected in the above  table.  We do not expect to incur any loss in
excess of attributable existing reserves on any of our assets.
         During the nine months ended September 30, 2000, the Company  increased
its liabilities by $4.0 million,  or 4.9%, in order to fund asset growth.  Total
deposits  increased $5.7 million or 7.7% from $73.8 million at December 31, 1999
to $79.5 million at September 30, 2000. Advances from the Federal Home Loan Bank
also increased $1.5 million, or 39.5%, from $3.8 million at December 31, 1999 to
$5.3 million at September 30, 2000. The Company also repaid its short-term  note
payable of $3.2 million.
         Our  shareholders'  equity  increased  $764,000  from $11.9  million at
December 31, 1999 to $12.7 million at September  30, 2000.  The increase was due
to $626,000 of net income,  payment of  approximately  $162,000 on the ESOP loan
principal,  distribution  of shares under the MRP plan at a cost of $155,000,  a
$235,000  increase in our net  unrealized  gain on  investment  securities,  and
payment of dividends to shareholders totalling $414,000.

Discussion  of Results of  Operations  for the Three Months Ended  September 30,
2000 and 1999

         Our net  income  for the three  months  ended  September  30,  2000 was
$223,000,  a $44,000,  or 24.6%  increase from the $179,000 we earned during the
three months ended September 30, 1999.  Basic and diluted earnings per share for
the three months ended  September 30, 2000 were each $0.16 compared to $0.13 for
the same period in 1999.  Basic average shares  outstanding for both periods was
1,382,013 shares.  Average potential  dilutive shares outstanding were 2,364 and
-0-, respectively.

                                       15
<PAGE>
         Interest  income  increased $145 thousand,  or 8.7%, from $1.66 million
for the three months  ended  September  30, 1999 to $1.81  million for the three
months  ended  September  30, 2000.  The increase in interest  income was due to
interest on loans which increased $188,000,  or 15.7%, due to an increase in the
average  outstanding balance of the loan portfolio and a slight increase in loan
rates.  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 $43,000.
         Interest expense on deposits  increased  $166,000  primarily due to the
increase in average balance of deposits and a slight increase in interest rates.
In addition,  the Company  incurred $81,000 in interest expense on advances from
the Federal Home Loan Bank compared to $54,000 in the prior-year period.
         Net interest income decreased $48,000,  or 5.9%, between the periods as
the increase in interest expense  exceeded the increase in interest income.  The
Company's  net  interest  margin  narrowed to 3.55% for the three  months  ended
September  30, 2000  compared to 3.73% for the  comparable  period of 1999.  The
narrowing of the net interest margin  reflects the current rate  environment and
the fact  that  recent  loan  refinancings  have  reduced  the yield on our loan
portfolio while competition for savings deposits has increased the interest cost
of our deposits.
         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.
         Noninterest  income increased $12,000 from $65,000 for the three months
ended  September  30, 1999 to $77,000 for the three months ended  September  30,
2000.  The  increase in  noninterest  income was mainly from  increased  deposit
account  service charges  consistent  with the higher level of deposit  accounts
during the 2000  period.  Loan service  charges and fees also  increased as loan
originations increased during the three month period ended September 30, 2000.
         Noninterest  expenses  decreased  $22,000  from  $579,000 for the three
months ended September 30, 1999 to $557,000 for the three months ended September
30, 2000. Other  noninterest  expenses  decreased  $53,000 from $165,000 for the
three  months  ended  September  30, 1999 to $112,000 for the three months ended
September 30, 2000.  Legal and  professional  fees and other expenses related to
being a public company have decreased from the prior year when several  one-time
costs were incurred.
         Our effective  tax rates for the three months ended  September 30, 2000
and 1999 were 18.0% and 38.1%, respectively. The lower effective tax rate is due
to an increase in our tax-exempt  investment securities in 2000 compared to 1999
and an adjustment  of our deferred tax  liabilities  in 2000 in accordance  with
FASB Statement No. 109.

Discussion of Results of Operations for the Nine Months Ended September 30, 2000
and 1999

         Our net  income  for the  nine  months  ended  September  30,  2000 was
$626,000,  a $76,000,  or 13.8%  increase over the $550,000 we earned during the
nine months ended September 30, 1999.  Basic and diluted  earnings per share for
the nine months ended  September 30, 2000 were each $0.45  compared to $0.40 for
the same  period  in 1999.  Average  shares  outstanding  for both  periods  was
1,382,013 shares.  Average potential  dilutive shares outstanding were 2,364 and
-0-, respectively.
         Interest income increased $346,000,  or 7.0% from $4.98 million for the
nine months ended  September 30, 1999 to $5.32 million for the nine months ended
September 30, 2000. The increase in interest income was due to interest on loans
which increased $502,000, or 14.3%, due to an increase in the average balance of
the loan  portfolio,  and a slight  increase  in loan  rates.  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 $156,000.
         Interest expense on deposits  increased $417,000 due to the increase in
average  balance of deposits of $4.6 million  compared to the same period in the
prior year, and an increase in interest rates. In addition, the Company incurred
$257,000 in interest expense on advances for the Federal Home Loan


                                       16
<PAGE>

Bank compared to $180,000 in the prior  period.  The Company used the funds from
the additional deposits to fund loan originations.
         Net interest income  decreased  $148,000 or 5.9% between the periods as
the increase in interest expense  exceeded the increase in interest income.  The
Company's  net  interest  margin  narrowed  to 3.44% for the nine  months  ended
September  30, 2000  compared to 3.72% for the  comparable  period of 1999.  The
narrowing of the interest margin  reflects the current rate  environment and the
fact that  competition  for deposits  has  increased  the  interest  cost of our
deposits.
         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 realizable value of the collateral.
         Noninterest  income increased $66,000 from $165,000 for the nine months
ended  September  30, 1999 to $231,000 for the nine months ended  September  30,
2000.  The  increase in  noninterest  income was mainly from  increased  deposit
account service  charges due to the higher level of deposit  accounts during the
2000 period and the restructure of deposit fees.
         Noninterest  expenses  decreased  $163,000 from $1,808,000 for the nine
months  ended  September  30,  1999 to  $1,645,000  for the  nine  months  ended
September  30,  2000.  Compensation  and  benefits  for the  nine  months  ended
September 30, 2000 were $40,000 lower  primarily due to a one time  compensation
expense associated with the  implementation of a management  recognition plan in
1999. Other noninterest  expenses  decreased $131,000 from $508,000 for the nine
months ended  September 30, 1999 to $377,000 for the nine months ended September
30, 2000.  Legal and  professional  fees and other  expenses  related to being a
public company have  decreased  from the prior year when several  one-time costs
were incurred.
         Our  effective  tax rates for the nine months ended  September 30, 2000
and 1999 were 32.4% and 35.5%, respectively. The lower effective tax rate is due
to an increase in our tax-exempt  investment securities in 2000 compared to 1999
and an adjustment  of our deferred tax  liabilities  in 2000 in accordance  with
FASB Statement No. 109.

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.


                                       17
<PAGE>

         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 September  30, 2000 and December 31, 1999,  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 September 30, 2000 and December
31, 1999.



                                       18
<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
         10.3(a) /1/  Employment  Agreements  between Newport Federal Savings
                      and Loan Association and Richard G. Harwood, Nancy L.
                      Bryant and Peggy Holston
         10.3(b) /1/  Forms of Guarantee Agreements between United Tennessee
                      Bankshares,  Inc. and Richard G. Harwood, Nancy L. Bryant
                      and Peggy Holston
         10.4 /1/     Newport Federal Savings and Loan Association Long-Term
                      Incentive Plan
         10.5 /1/     Newport Federal Savings and Loan Association Deferred
                      Compensation Plan
         27           Financial Data Schedule
---------------
/1/   Incorporated   by  reference  to  United   Tennessee   Bankshares,
      Inc.'s Registration Statement on Form SB-2, File No. 333-36465.

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

     (b) Reports on Form 8-K:

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


                                       19
<PAGE>
                                   SIGNATURES



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

                                   UNITED TENNESSEE BANKSHARES, INC.
                                   Registrant



Date: November 13, 2000            /s/ Richard G. Harwood
                                   --------------------------------------------
                                   Richard G. Harwood
                                   President and Chief Executive Officer
                                   (Duly Authorized Representative and
                                   Principal Financial and Accounting Officer)



                                       20