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, 2001.

                                       OR

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

                         Commission File Number: 0-23551

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


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


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

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


Check  whether  the issuer:  (1) has filed all  reports  required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period that the  registrant was required to file such reports),  and (2)
has been subject to such filing  requirements  for the past ninety days:
Yes [X]  No [ ]

State the number of shares outstanding of each of the issuer's classes of common
stock as of the latest practicable date: 1,382,013
                                         ---------

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

              Consolidated Statements of Income for the Three-Month
              Periods Ended March 31, 2001 and 2000 (Unaudited)             4

              Consolidated Statements of Comprehensive Income (Loss)
              for the Three-Month Periods Ended March 31, 2001
              and 2000 (Unaudited)                                          5

              Consolidated Statement of Changes in Shareholders' Equity
              for the Three-Month Period Ended March 31, 2001 (Unaudited)   6

              Consolidated Statements of Cash Flows for the Three-Month
              Periods Ended March 31, 2001 and 2000 (Unaudited)             7-8

              Notes to Consolidated Financial Statements for the
              Three-Month Periods Ended March 31, 2001 and 2000
              (Unaudited)                                                   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

                                       2

<PAGE>


                UNITED TENNESSEE BANKSHARES, INC. AND SUBSIDIARY

                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
                                                                             March 31,
                                                                                2001              December 31,
                                                                             (Unaudited)             2000
                                                                            -------------          ----------
                                                                                       (In thousands)
                                                                            ---------------------------------
                                  Assets
<S>                                                                         <C>                    <C>
Cash and amounts due from depository institutions                           $     4,519            $   3,067
Investment securities available for sale, at fair value                          24,130               24,357
Loans receivable, net                                                            69,613               68,878
Premises and equipment, net                                                         467                  470
Accrued interest receivable                                                         547                  603
Goodwill, net of amortization                                                     1,013                1,033
Prepaid expenses and other assets                                                    36                  145
                                                                            -----------            ---------

Total assets                                                                $   100,325            $  98,553
                                                                            ===========            =========


                          Liabilities and Equity
Liabilities:
 Deposits                                                                   $    83,632            $  81,614
 Advances from Federal Home Loan Bank                                             1,234                1,753
 Accrued interest payable                                                           253                  300
 Accrued income taxes                                                                22                    0
 Deferred income taxes                                                              874                  841
 Accrued benefit plan liabilities                                                   421                  643
 Other liabilities                                                                   36                   72
                                                                            -----------            ---------

  Total liabilities                                                              86,472               85,223
                                                                            -----------            ---------



Shareholders' equity:
 Common stock - No par value, authorized 20,000,000 shares;
   issued and outstanding 1,382,013 shares in 2001 and 2000                      13,091               13,091
 Unearned compensation - ESOP                                                      (727)                (843)
 Shares in grantor trust - contra account                                          (183)                (183)
 Shares in MRP plan - contra account                                               (221)                (390)
 Shares in stock option plan trusts - contra account                             (1,657)              (1,657)
 Retained earnings                                                                2,323                2,139
 Accumulated other comprehensive income                                           1,227                1,173
                                                                            -----------            ---------
  Total shareholders' equity                                                     13,853               13,330
                                                                            -----------            ---------

Total liabilities and equity                                                $   100,325            $  98,553
                                                                            ===========            =========
</TABLE>


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



                                       3
<PAGE>

                UNITED TENNESSEE BANKSHARES, INC., AND SUBSIDIARY

                        CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
                                                                                   (In Thousands Except
                                                                                  per Share Information)
                                                                               -------------------------
                                                                                   Three Months Ended
                                                                               -------------------------
                                                                                        March 31,
                                                                               -------------------------
                                                                                  2001            2000
                                                                               (Unaudited)    (Unaudited)
                                                                               ----------    -----------
<S>                                                                            <C>            <C>
Interest income:
 Loans                                                                         $  1,472       $   1,280
 Investment securities                                                              363             397
 Other interest-earning assets                                                       26              24
                                                                               --------       ---------
  Total interest income                                                           1,861           1,701
                                                                               --------       ---------

Interest expense:
 Deposits                                                                         1,035             827
 Advances from Federal Home Loan Bank and note payable                               19              89
                                                                               --------       ---------
  Total interest expense                                                          1,054             916
                                                                               --------       ---------

Net interest income                                                                 807             785

Provision for loan losses                                                            12               7
                                                                               --------       ---------
Net interest income after provision for loan losses                                 795             778
                                                                               --------       ---------

Noninterest income:
 Deposit account service charges                                                     55              46
 Loan service charges and fees                                                       32              28
 Net gain (loss) on sales of investment
  securities available for sale                                                       5               1
 Other                                                                                9               4
                                                                               --------       ---------
  Total noninterest income                                                          101              79
                                                                               --------       ---------

Noninterest expense:
 Compensation and benefits                                                          310             288
 Occupancy and equipment                                                             65              50
 Federal deposit insurance premiums                                                  12              12
 Data processing fees                                                                49              43
 Advertising and promotion                                                           23              18
 Amortization                                                                        20              20
 Other                                                                              133             131
                                                                               --------       ---------
  Total noninterest expense                                                         612             562
                                                                               --------       ---------

Income before income taxes                                                          284             295

Income taxes                                                                        100             120
                                                                               --------       ---------

Net income                                                                     $    184       $     175
                                                                               ========       =========
Earnings per share
 Basic                                                                         $   0.13       $    0.13
                                                                               ========       =========
 Diluted                                                                       $   0.13       $    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 (LOSS)


<TABLE>
<CAPTION>
                                                                                Three Months Ended March 31,
                                                                               ------------------------------
                                                                                   2001            2000
                                                                               ------------------------------
                                                                               (Unaudited - in thousands)
<S>                                                                            <C>                <C>
Net income                                                                      $    184          $   175
                                                                                --------          -------
Other comprehensive income (loss), net of tax:
 Unrealized gains (losses) on investment securities                                   92             (159)
 Reclassification adjustment for gains\losses
  included in net income                                                              (5)              (1)
 Income taxes related to unrealized
  gains\losses on investment securities                                              (33)              61
                                                                                --------          -------
Other comprehensive income (loss), net of tax                                         54              (99)
                                                                                --------          -------
Comprehensive income (loss)                                                     $    238          $    76
                                                                                ========          =======

</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, 2001


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

Net income                              -         -           -          -                       184           -             184
Issuance of shares of common
stock pursuant to MRP plan              -         -           -        169            -            -           -             169


Other comprehensive income              -         -           -          -            -            -          54              54


Payment on ESOP loan principal          -       116           -          -                         -           -             116
                                 --------   -------   ---------    -------     --------      --------    --------       --------
Balances, end of period          $ 13,091   $  (727)  $    (183)   $  (221)    $ (1,657)     $  2,323    $  1,227       $ 13,853
                                 ========   =======   =========    =======     ========      ========    ========       ========
</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

<TABLE>
<CAPTION>
                                                                                       Three Months Ended March 31,
                                                                                     -------------------------------
                                                                                         2001                2000
                                                                                     -------------------------------
                                                                                        (Unaudited - in thousands)
<S>                                                                                  <C>                   <C>
Operating Activities:
 Net income                                                                          $     184             $    175
                                                                                     ---------              -------
 Adjustments to reconcile net income to net cash provided by operating
  activities:
   Provision for loan losses                                                                12                    7
   Depreciation                                                                             15                   14
   Amortization of goodwill                                                                 20                   20
   Net (gain) loss on sales of foreclosed real estate                                        -                    -
   Federal home loan bank stock dividends                                                  (14)                   -
   Net (gain) loss on sales of investment securities                                         -                    -
    available for sale                                                                      (5)                   1
   (Increase) Decrease in:
    Accrued interest receivable                                                             56                  (42)
    Other assets                                                                           109                  134
   Increase (Decrease) in:
    Accrued interest payable                                                               (47)                  (9)
    Accrued income taxes                                                                    22                   80
    Accrued benefit plan liabilities                                                      (222)                (234)
    Other liabilities                                                                      (36)                 (31)
                                                                                     ---------              -------
     Total adjustments                                                                     (90)                 (60)
                                                                                     ---------              -------
Net cash provided by operating activities                                                   94                  115
                                                                                     ---------              -------

Investing Activities:
 Purchases of investment securities available for sale                                  (3,049)              (1,474)
 Proceeds from calls and maturities of investment securities
  available for sale                                                                     1,663                    -
 Principal payments received on investment securities
  available for sale                                                                     1,216                1,238
 Proceeds from sales of investment securities
  available for sale                                                                       502                1,001
 Net increase in loans                                                                    (747)              (1,532)
 Purchases of premises and equipment, net                                                  (12)                   -
                                                                                     ---------              -------
Net cash provided by (used in) investing activities                                       (426)             $  (767)
                                                                                     ---------              -------
</TABLE>

    The accompanying notes are an integral part of these financial statements


                                       7
<PAGE>


                UNITED TENNESSEE BANKSHARES, INC. AND SUBSIDIARY

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
                                                                                       Three Months Ended March 31,
                                                                                     --------------------------------
                                                                                          2001                 2000
                                                                                     --------------------------------
                                                                                        (Unaudited - in thousands)
<S>                                                                                  <C>                   <C>
Financing Activities:
 Dividends paid                                                                       $       -            $       -
 Net increase (decrease) in deposits                                                      2,018                3,224
 Issuance of common stock for MRP plan                                                      169                  155
 Payment on ESOP loan and release of shares                                                 116                  116
 Repayment of advances from Federal Home Loan Bank                                        ( 519)                (494)
 Repayment of note payable                                                                    -               (3,200)
 Proceeds from advances from Federal Home Loan Bank                                           -                3,000
                                                                                      ---------            ---------

Net cash provided by (used in) financing activities                                       1,785                2,801
                                                                                      ---------            ---------

Net increase (decrease) in cash and cash equivalents                                      1,452                2,149

Cash and cash equivalents, beginning of period                                            3,067                2,387
                                                                                      ---------            ---------

Cash and cash equivalents, end of period                                              $   4,519            $   4,536
                                                                                      =========            =========

Supplementary disclosures of cash flow information: Cash paid during the period
 for:
 Interest                                                                             $   1,101            $     925
 Income taxes                                                                         $       -            $      40

  Change in unrealized gain\loss on investment securities
   available for sale                                                                 $      87            $   (160)
  Change in deferred income taxes associated with
   unrealized gain\loss on investment securities available
   for sale                                                                           $      33            $    (61)
  Change in net unrealized gain\loss on investment
   securities available for sale                                                      $      54            $    (99)

</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, 2001 and 2000

                                   (UNAUDITED)

NOTE 1 - BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION

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

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

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

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

NOTE 2 - EARNINGS PER SHARE

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

Earnings Per Share Have Been Computed Based On the Following:
<TABLE>
<CAPTION>
                                                                                                 Period Ended March 31,
                                                                                            -------------------------------
                                                                                                 2001               2000
                                                                                            ------------        -----------
<S>                                                                                         <C>                 <C>
Average number of shares outstanding                                                           1,382,013          1,382,013
Effect of dilutive options                                                                           -0-              9,856
                                                                                            ------------        -----------
Average number of shares outstanding used
 to calculate diluted earnings per share                                                       1,382,013          1,391,869
                                                                                            ============        ===========
</TABLE>


                                       9
<PAGE>
NOTE 3 - CONSOLIDATED STATEMENT OF  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.


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, 2001
(50,845  shares as of March 31,  2000) of  restricted  common  stock to  certain
members of the board of directors and senior management.  The shares are awarded
25% per year. The Company and its subsidiary will share the cost of the Plan and
accrue the estimated  cost of  repurchasing  shares to be reissued as restricted
stock over the period that such  awards are earned.  Activity in the MRP plan is
as follows:
<TABLE>
<CAPTION>
                                                                                                 Period Ended March 31,
                                                                                           ------------------------------------
                                                                                                2001                2000
                                                                                           ---------------     ----------------
         <S>                                                                               <C>                 <C>
         Accrued Liability Balance at Beginning of Period                                  $      152,895      $       142,595
         Amount Charged to Expense                                                                 40,259               39,731
         Less Cost of Shares Issued                                                              (168,887)            (155,559)
                                                                                           --------------      ---------------
         Accrued Liability Balance at End of Period                                        $       24,267      $        26,767
                                                                                           ==============      ===============
</TABLE>

The Company held 18,056  shares as of March 31, 2001 (32,772  shares as of March
31, 2000) of its common stock in trust at a net cost of $221,006 as of March 31,
2001  ($400,915  as of  March  31,  2000).  A  contra-equity  account  has  been
established to reflect the cost of such shares held in trust.


NOTE 5 - STOCK OPTION PLAN

In January 1999,  the Company's  board of directors  approved the Company's 1999
stock option plan,  and in May 1999,  the  Company's  shareholders  ratified the
plan.  The plan  reserved  145,475  shares  of the  Company's  common  stock for
issuance  pursuant  to the options to be  granted.  These  shares will be either
newly issued shares or shares purchased on the open market.

The  Company's  board of directors  has  approved the issuance of stock  options
under  the  Plan to  certain  members  of the  board  of  directors  and  senior
management. The options vest at a rate of 25% per year, expire in ten years, and
provide for the purchase of stock at an exercise price of $8.60 per share. Stock
options  awarded  totaled  205,869  and  196,061  as of March 31,  2001 and 2000
respectively.


                                       10
<PAGE>

The Company has repurchased  188,422 shares as of March 31, 2001 (139,293 shares
as of March 31,  2000) of its  common  stock  which are being held in trusts for
when  the  stock  options  are  exercised.  A  contra-equity  account  has  been
established  to reflect  the costs of such  shares  held in trusts.  The Company
intends to utilize  dividends  received to  continue  to purchase  shares of its
common stock to be placed in the stock option trusts.

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


NOTE 6 - IMPROVEMENT PLAN FOR MAIN OFFICE FACILITY

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


NOTE 7 -  ACCOUNTING  FOR  TRANSFERS  AND  SERVICING  OF  FINANCIAL  ASSETS  AND
          EXTINGUISHMENT OF LIABILITIES

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

                                       11
<PAGE>



ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
         ---------------------------------------------------------

GENERAL

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

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

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



                                       12
<PAGE>

Comparison of Financial Condition at March 31, 2001 and December 31, 1999

Total assets increased from December 31, 2000 to March 31, 2001 by $1.7 million,
or 1.8%,  from $98.6 million at December 31, 2000 to $100.3 million at March 31,
2001. The increase in assets was  principally the result of an increase in loans
receivable,  and from an  increase  in the amount of cash and  amounts  due from
depository institutions.

Loans  receivable  increased  from  December  31,  2000  to  March  31,  2001 as
originations exceeded repayments for the period by approximately  $735,000.  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 March 31, 2001 and December
31, 2000, we had no  concentrations  of loans exceeding 10% of gross loans other
than as disclosed below.
<TABLE>
<CAPTION>
                                                             March 31, 2001                   December 31, 2000
                                                         ----------------------              --------------------
                                                                            (Dollars in Thousands)
                                                           Amount       Percent              Amount       Percent
                                                         --------       -------              ------       -------
<S>                                                       <C>           <C>                 <C>           <C>
Type of Loan:
------------
Real estate loans:
  One- to four-family residential                         $ 53,741      74.3%               $ 53,782      75.9%
  Commercial                                                10,052      13.9%                 10,229      14.4%
  Construction                                               3,079       4.3%                  2,589       3.6%

Consumer loans:
  Automobile                                                 1,488       2.1%                  1,402       2.0%
  Loans to depositors, secured by deposits                   1,135       1.6%                  1,250       1.8%
  Home equity and second mortgage                              219       0.3%                    227       0.3%
  Other                                                      2,561       3.5%                  1,415       2.0%
                                                         -------------------                 ------------------
                                                            72,275     100.0%                 70,894     100.0%
                                                                       =====                             =====

Less:
  Loans in process                                           1,655                             1,030
  Deferred fees and discounts                                  337                               326
  Allowance for loan losses                                    670                               660
                                                         ---------                          --------
    Total                                                 $ 69,613                          $ 68,878
                                                         =========                          ========
</TABLE>


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


                                       13
<PAGE>
     The  following  table sets forth  information  about our allowance for loan
losses for the period indicated.
<TABLE>
<CAPTION>
                                                            Three                    Three
                                                         Months Ended             Months Ended
                                                        March 31, 2001           March 31, 2000
                                                        --------------           --------------
                                                                    (In Thousands)
<S>                                                         <C>                      <C>
Balance at beginning of period                               $660                     $661
                                                             ----                     ----
Charge-offs:
  Consumer                                                     (2)                      (2)
Recoveries:
  Consumer                                                      0                        4
                                                             ----                     ----
Net Charge-offs                                                (2)                       2
Provision for loan losses                                      12                        7
                                                             ----                     ----
Balance at end of period                                     $670                     $670
                                                             ====                     ====
</TABLE>

     The following table sets forth information  about our nonperforming  assets
at the dates indicated.
<TABLE>
<CAPTION>
                                                        March 31, 2001           March 31, 2000
                                                      -------------------      -------------------
                                                                    (In Thousands)
<S>                                                        <C>                      <C>
Nonaccrual Loans                                           $   0                    $   0
Accruing loans which are contractually past due
90 days or more:
 Real Estate:
  One- to four-family residential                            441                      344
  Commercial                                                 226                      488
  Consumer                                                    29                        6
                                                            ----                     ----
Total                                                       $696                     $838
                                                            ====                     ====
</TABLE>
At March 31,  2001,  the Bank had one  additional  commercial  real  estate loan
totalling $467,000 ($468,000 at December 31, 2000) as to which known information
about possible  credit  problems of borrower  caused us to have doubts as to the
ability of the borrower to comply with present loan  repayment  terms.  Although
the loan is  current,  the cash  flows of the lessee of the  property  are below
expectations.  The loan,  however, is well secured and we do not expect to incur
any loss in excess of attributable  existing  reserves on any of our assets.  We
conduct  regular  reviews  of our  assets  and  evaluate  the need to  establish
allowances on the basis of this review.  Allowances are established on a regular
basis based on an assessment of risk in our assets taking into consideration the
composition and quality of the portfolio, delinquency trends, current charge-off
and loss  experience,  the state of the real estate market,  regulatory  reviews
conducted in the regulatory examination process, general economic conditions and
other factors  deemed  relevant by us.  Allowances  are provided for  individual
assets, or portions of assets, when ultimate collection is considered improbable
based on the  current  payment  status of the  assets  and the fair value or net
realizable value of the collateral.

During  the  three  months  ended  March 31,  2001,  the  Company's  liabilities
increased  by $1.2  million,  or  1.5%,  in order to fund  asset  growth.  Total
deposits  increased $2.0 million or 2.5% from $81.6 million at December 31, 2000
to $83.6  million at March 31,  2001.  Advances  from the Federal Home Loan Bank
decreased 29.6%, from $1.7 million at December 31, 2000 to $1.2 million at March
31, 2001.  Our  shareholders'  equity  increased  $523,000 from $13.3 million at
December 31, 2000 to $13.9  million at March 31,  2001.  The increase was due to
$184,000  of net  income,  payment of  approximately  $116,000  on the ESOP loan
principal,  distribution of shares under the MRP plan at a cost of $169,000, and
a $54,000 increase in our net unrealized gain on investment securities.


                                       14
<PAGE>

Discussion  of Results of  Operations  for the Three Months Ended March 31, 2001
and 2000

Our net income for the three months ended March 31, 2001 was $184,000, a $9,000,
or 5.1% increase from the $175,000 we earned during the three months ended March
31, 2000. Basic and diluted earnings per share for the three month periods ended
March 31, 2001 and 2000 were each $0.13.  Basic average shares  outstanding  for
both periods was 1,382,013 shares. Average potential dilutive shares outstanding
were -0- and 9,856, respectively.

Interest income  increased  $160,000,  or 9.4%, from $1.70 million for the three
months  ended March 31, 2000 to $1.86  million for the three  months ended March
31, 2001.  The increase in interest  income was due to interest on loans,  which
increased  $192,000,  or 15.0%,  due to an increase  in the average  outstanding
balance of the loan  portfolio.  The  increase in  interest  income on loans was
partially  offset by a decrease in interest  income on investment  securities of
$34,000.

Interest expense on deposits increased $208,000 primarily due to the increase in
average balance of deposits. This increase was partially offset by a decrease in
interest  expense on  advances  from the  Federal  Home Loan Bank.  The  Company
incurred $19,000 in interest expense on advances from the Federal Home Loan Bank
compared to $89,000 in the prior-year period.

Net  interest  income  increased  $22,000,  or 2.8%,  between the periods as the
increase in total  interest  income  exceeded  the  increase  in total  interest
expense.  The Company's net interest margin  narrowed  slightly to 3.44% for the
three months ended March 31, 2001 compared to 3.45% for the comparable period of
2000.

Noninterest  income  increased  $22,000  from $79,000 for the three months ended
March 31, 2000 to  $101,000  for the three  months  ended  March 31,  2001.  The
increase in noninterest income was mainly from increased deposit account service
charges  consistent with the higher level of deposit  accounts during the period
and the  restructuring  of our deposit fees.  Loan service charges and fees also
increased as loan originations  increased slightly during the three-month period
ended March 31, 2001.

Noninterest  expenses increased $50,000 from $562,000 for the three months ended
March  31,  2000  to  $612,000  for the  three  months  ended  March  31,  2001.
Compensation and benefits expense  increased $22,000 from $288,000 for the three
months  ended March 31, 2000 to $310,000  for the three  months  ended March 31,
2001 due to the addition of personnel and normal salary increases. Occupancy and
equipment  expense increased $15,000 to $65,000 for the three months ended March
31, 2001 from $50,000 for the same period in 2000.

Our  effective tax rates for the three months ended March 31, 2001 and 2000 were
35.2%  and  40.7%,  respectively.  The  lower  effective  tax  rate is due to an
increase in our tax-exempt investment securities in 2001 compared to 2000 and an
adjustment  of our  deferred tax  liabilities  in 2001 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.


                                       15
<PAGE>

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

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


                                       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

         10.3(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

---------------
(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 15, 2001                 /s/ Richard G. Harwood
                                   ---------------------------------------------
                                   Richard G. Harwood
                                   President and Chief Executive Officer
                                   (Duly Authorized Representative and
                                   Principal Financial and Accounting Officer)


                                       18