SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB

Mark One

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

     For the quarterly period ended June 30, 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
                  June 30, 2000 (Unaudited) and December 31, 1999             3

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

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

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

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

                  Notes to Consolidated Financial Statements for the
                  Six-Month Periods Ended June 30, 2000 and 1999
                  (Unaudited)                                               9-11

         Item 2.  Management's Discussion and Analysis or Plan of
                  Operation                                                12-18


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 JUNE 30, 2000 AND DECEMBER 31, 1999
<TABLE>
<CAPTION>

                                                              June 30,
                                                                2000      December 31,
                                                             (Unaudited)     1999
                                                             -----------  ------------

                                                                  (in Thousands)
<S>                                                           <C>         <C>
                      Assets
Cash and amounts due from depository institutions             $  2,127    $  2,387
Investment securities available for sale, at fair value         26,305      27,935
Loans receivable, net                                           65,331      61,516
Premises and equipment, net                                        483         511
Foreclosed real estate - held for sale                             156          71
Accrued interest receivable                                        531         439
Goodwill, net of amortization                                    1,073       1,113
Prepaid expenses and other assets                                   74         148
                                                              --------    --------
Total assets                                                  $ 96,080    $ 94,120
                                                              ========    ========

                          Liabilities and Equity
Liabilities:
 Deposits                                                     $ 76,989    $ 73,810
 Note Payable                                                        0       3,200
 Advances from Federal Home Loan Bank                            5,772       3,767
 Accrued interest payable                                          299         284
 Deferred income taxes                                             386         457
 Accrued benefit plan liabilities                                  514         619
 Other liabilities                                                  31          83
                                                              --------    --------

  Total liabilities                                             83,991      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 grantor trust - contra account                         (202)       (202)
 Shares in MRP plan - contra account                              (401)       (556)
 Shares in stock option plan - contra account                   (1,658)     (1,658)
 Retained earnings                                               1,739       1,751
 Accumulated other comprehensive income                            363         479
                                                              --------    --------
Total shareholders' equity                                      12,089      11,900
                                                              --------    --------
Total liabilities and equity                                  $ 96,080    $ 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 SIX MONTH PERIODS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
                                      (In Thousands Except    (In Thousands Except
                                      per Share Information)  per Share Information)
                                      ----------------------  ---------------------
                                       Three Months Ended      Six Months Ended
                                            June 30,               June 30,
                                      ---------------------  ---------------------
                                         2000      1999        2000       1999
                                      (Unaudited)(Unaudited)(Unaudited)(Unaudited)
<S>                                     <C>        <C>         <C>      <C>
Interest income:
 Loans                                  $1,341     $1,172      $2,621   $2,307
 Investment securities                     442        452         839      887
 Other interest-earning assets              29         40          53      118
                                        ------     ------      ------   ------
  Total interest income                  1,812      1,664       3,513    3,312
                                        ------     ------      ------   ------
Interest expense:
 Deposits                                  906        750       1,733    1,482
 Advances from Federal Home Loan Bank
   and Note Payable                         87         60         176      126
                                        ------     ------      ------   ------
  Total interest expense                   993        810       1,909    1,608
                                        ------     ------      ------   ------
Net interest income                        819        854       1,604    1,704

Provision for loan losses                    9          6          16       12
                                        ------     ------      ------   ------
Net interest income after provision
  for loan losses                          810        848       1,588    1,692
                                        ------     ------      ------   ------
Noninterest income:
 Deposit account service charges            46         23          92       44
 Loan service charges and fees              29         26          57       45
 Other                                       0          5           5       11
                                        ------     ------      ------   ------
  Total noninterest income                  75         54         154      100
                                        ------     ------      ------   ------
Noninterest expense:
 Compensation and benefits                 240        207         529      572
 Occupancy and equipment                    51         48         101      110
 Federal deposit insurance premiums         12         12          24       24
 Data processing fees                       53         56          96      101
 Advertising and promotion                  16         23          34       39
 Amortization                               20         20          40       40
 Other                                     134        180         265      343
                                        ------     ------      ------   ------
  Total noninterest expense                526        546       1,088    1,229
                                        ------     ------      ------   ------
Income before income taxes                 359        356         654      563

Income taxes                               131        120         251      192
                                        ------     ------      ------   ------
Net income                              $  228     $  236      $  403   $  371
                                        ======     ======      ======   ======
Earnings per share:
 Basic                                  $ 0.16     $ 0.17      $ 0.29   $ 0.27
                                        ======     ======      ======   ======
 Diluted                                $ 0.16     $ 0.17      $ 0.29   $ 0.27
                                        ======     ======      ======   ======
</TABLE>


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


                                       4
<PAGE>


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



<TABLE>
<CAPTION>

                                                           Three Months Ended June 30,          Six Months Ended June 30,
                                                              2000             1999              2000               1999
                                                         ---------------  ----------------  ----------------   ----------------
                                                            (Unaudited - in Thousands)          (Unaudited - in Thousands)
                                                         ---------------------------------  -----------------------------------

<S>                                                           <C>               <C>              <C>                <C>
Net income                                                    $    228          $    236         $     403          $     371
                                                              --------          --------         ---------          ---------

Other comprehensive income (loss), net of tax:
 Unrealized gains (losses) on investment securities
                                                                   (34)              270              (195)               (52)
 Less reclassification adjustment for gains\losses
  included in net income
                                                                     8                 0                 9                  0
 Less income taxes related to unrealized
  gains\losses on investment securities
                                                                     9              (103)               70                 20
                                                              --------          --------         ---------          ---------
   Other comprehensive income (loss), net of tax
                                                                   (17)              167              (116)               (32)
                                                              --------          --------         ---------          ---------

Comprehensive income                                          $    211          $    403         $     287          $     339
                                                              ========          ========         =========          =========
</TABLE>


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


                                       5
<PAGE>

                UNITED TENNESSEE BANKSHARES, INC. AND SUBSIDIARY
            CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
                  FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2000

<TABLE>
<CAPTION>

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

<S>                               <C>       <C>         <C>        <C>          <C>           <C>         <C>          <C>
Balances, beginning of period     $ 13,091  $(1,005)    $(202)     $(556)       $(1,658)      $1,751      $ 479        $11,900

Net income                               -        -         -          -              -          403          -            403


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

Other comprehensive income (loss)        -        -         -          -              -            -       (116)          (116)
(loss)

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


Dividends paid                           -        -         -          -              -         (415)         -           (415)
                                  --------  -------     -----      -----        -------       ------      -----        -------

Balances, end of period           $ 13,091  $  (843)    $(202)     $(401)       $(1,658)      $1,739      $ 363        $12,089
                                  ========  =======     =====      =====        =======       ======      =====        =======
</TABLE>
   The accompanying notes are an integral part of these financial statements.

                                       6
<PAGE>



                UNITED TENNESSEE BANKSHARES, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
             FOR THE SIX MONTH PERIODS ENDED JUNE 30, 2000 AND 1999

<TABLE>
<CAPTION>
                                                            Six Months Ended
                                                               June 30
                                                        -----------------------
                                                           2000        1999
                                                         ---------   ---------
                                                       (Unaudited - in Thousands)
<S>                                                       <C>        <C>
Operating Activities:
 Net income                                               $   403    $   371
                                                          -------    -------
 Adjustments  to  reconcile  net  income  to  net
  cash  provided  by  operating activities:
   Provision for loan losses                                   16         12
   Depreciation                                                29         25
   Amortization of goodwill                                    40         40
   Federal home loan bank stock dividends                     (27)       (10)
   Net (gain) loss on sales of investment securities
    available for sale                                          9          0
   Deferred income taxes (benefit)                             (1)         0
   (Increase) Decrease in:
    Accrued interest receivable                               (92)       (39)
    Other assets                                               74          3
   Increase (Decrease) in:
    Accrued interest payable                                   15        (19)
    Accrued income taxes                                        0          1
    Accrued benefit plan liabilities                         (105)         0
    Other liabilities                                         (52)       198
                                                          -------    -------
     Total adjustments                                        (94)       211
                                                          -------    -------
Net cash provided by operating activities                     309        582
                                                          -------    -------
Investing Activities:
 Purchases of investment securities available for sale     (2,474)    (2,061)
 Proceeds from maturities of investment securities
  available for sale                                            0      2,000
 Principal payments received on investment securities
  available for sale                                        2,443      3,168
 Proceeds from sales of investment securities
  available for sale                                        1,493          0
 Purchases of investment securities held to maturity            0       (239)
 Proceeds from maturities of investment securities held
  to maturity                                                   0        500
 Principal payments received on investment securities
  held to maturity                                              0         80
 Net increase in loans                                     (3,916)    (3,448)
 Purchases of plant and equipment, net                         (1)       (47)
                                                          -------    -------
Net cash used in investing activities                      (2,455)       (47)
                                                          -------    -------
</TABLE>


                                       7
<PAGE>

                UNITED TENNESSEE BANKSHARES, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
             FOR THE SIX MONTH PERIODS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>

                                                                Six Months Ended
                                                                    June 30,
                                                           --------------------------
                                                              2000           1999
                                                           ---------      ----------
                                                           (Unaudited - in Thousands)
<S>                                                             <C>        <C>
Financing Activities:
 Dividends paid                                                 (415)      (414)
 Net increase (decrease) in deposits                           3,179      1,052
 Purchase of common stock for MRP plan trust                       0     (1,572)
 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              (995       (950)
 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            1,886     (1,760)
                                                             -------    --------
Net increase (decrease) in cash and cash equivalents            (260)    (1,225)

Cash and cash equivalents, beginning of period                 2,387      6,131
                                                             -------    --------
Cash and cash equivalents, end of period                     $ 2,127    $ 4,906
                                                             =======    ========
Supplementary disclosures of cash flow information:
 Cash paid during the period for:
 Interest                                                    $ 1,894    $ 1,627
 Income taxes                                                $   252    $   191

Supplementary disclosures of noncash investing
 activities:
  Acquisition of foreclosed real estate                      $    85    $     0
  Change in unrealized gain\loss on investment securities
   available for sale                                        $  (186)   $   (52)
  Change in deferred income taxes associated with
   unrealized gain\loss on investment securities available
   for sale                                                  $   (70)   $   (20)
  Change in net unrealized gain\loss on investment
   securities available for sale                             $  (116)   $   (32)

</TABLE>

    The accompanying notes are an integral part of these financial statements


                                       8
<PAGE>

                UNITED TENNESSEE BANKSHARES, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             FOR THE SIX MONTH PERIODS ENDED JUNE 30, 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 six months ended June 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 six months  ended June 30,  2000 and 1999 were 4,763 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 June 30, 2000,  the Stock  Option  trust had  purchased
168,027 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 June 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 six month  period  ended June 30,  2000,  the Company  issued  12,709
shares of  restricted  stock at a cost of $155,559 and held 32,772 shares of its
common  stock  in trust  for the MRP  plan as of June 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 six month period ended June 30, 2000, the
Company purchased 42,192 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.

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.

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, 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.


                                       11
<PAGE>


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

GENERAL

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

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

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


                                       12
<PAGE>

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

         Total assets  increased from December 31, 1999 to June 30, 2000 by $2.0
million,  or 2.1%,  from $94.1  million at December 31, 1999 to $96.1 million at
June 30, 2000. The increase in assets was  principally the result of an increase
in loans  receivable,  which  were  offset by a slight  decrease  in  investment
securities  available  for  sale.   Investment  securities  available  for  sale
decreased $1.6 million or 5.8% from December 31, 1999.
         Loans  receivable  increased from December 31, 1999 to June 30, 2000 as
originations  exceeded  repayments for the period by approximately $3.8 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 June 30,  2000 and
December 31, 1999,  we had no  concentrations  of loans  exceeding  10% of gross
loans other than as disclosed below.
<TABLE>
<CAPTION>


                                                               June 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                          $53,304           78.8%          $48,550          76.5%
   Commercial                                                 6,750           10.0             9,099          14.3
   Construction                                               3,023            4.5             2,615           4.1

  Consumer loans:
   Automobile                                                 1,282            1.9               980           1.5
   Loans to depositors, secured by deposits                   1,439            2.1             1,114           1.8
   Home equity and second mortgage                              172            0.2               208           0.3
   Other                                                      1,673            2.5               931           1.5
                                                        -----------      ---------      ------------     ---------
                                                             67,643          100.0%           63,497         100.0%
                                                                         =========                       =========
  Less:
   Loans in process                                           1,331                            1,033
   Deferred fees and discounts                                  315                              287
   Allowance for loan losses                                    666                              661
                                                        -----------                     ------------
     Total                                                  $65,331                          $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.


                                       13
<PAGE>

         The following table sets forth information about our allowance for loan
losses for the period indicated.
<TABLE>
<CAPTION>

                                                                             Six                     Six
                                                                        Months Ended            Months Ended
                                                                          June 30,                June 30,
                                                                            2000                    1999
                                                                     --------------------     ------------------
                                                                                   (In Thousands)
         <S>                                                                 <C>                     <C>
         Balance at beginning of period                                       $661                    $641
                                                                          --------                --------
         Charge-offs:
          Consumer                                                             (15)                     (4)
         Recoveries:
          Consumer                                                               4                       0
                                                                          --------                --------
         Net charge-offs                                                       (11)                     (4)
         Provision for loan losses                                              16                      12
                                                                          --------                --------
         Balance at end of period                                             $666                    $649
                                                                          ========                ========
</TABLE>

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

                                                                          June 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                                    358                     348
            Commercial                                                         101                       0
           Consumer                                                             19                      29
                                                                          ----------              ----------
              Total                                                           $478                    $377
                                                                          ==========              ==========
</TABLE>

         At June 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 six months ended June 30, 2000,  the Company  increased  its
liabilities  by $1.8  million,  or 2.1%,  in order to fund asset  growth.  Total
deposits  increased $3.2 million or 4.3% from $73.8 million at December 31, 1999
to $77.0 million at June 30, 2000. Advances from the Federal Home Loan Bank also
increased $2.0 million, or 53.2%, from $3.8 million at December 31, 1999 to $5.8
million at June 30, 2000. The Company also repaid its short-term note payable of
$3.2 million.
         Our  shareholders'  equity  increased  $189,000  from $11.9  million at
December  31, 1999 to $12.1  million at June 30,  2000.  The increase was due to
$403,000  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
$116,000  decrease in our net  unrealized  gain on  investment  securities,  and
payment of a dividend to shareholders of $415,000.

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

         Our net income for the three months  ended June 30, 2000 was  $228,000,
an $8,000,  or 3.4% decrease from the $236,000 we earned during the three months
ended June 30, 1999.  Basic and diluted  earnings per share for the three months
ended June 30,  2000 were each $0.16  compared  to $0.17 for the same  period in
1999.  Basic average shares  outstanding for both periods was 1,382,013  shares.
Average dilutive potential shares outstanding were 4,763 and -0-, respectively.


                                       14
<PAGE>

         Interest  income  increased $148 thousand,  or 8.9%, from $1.66 million
for the three months  ended June 30, 1999 to $1.81  million for the three months
ended June 30,  2000.  The  increase in  interest  income was due to interest on
loans  which  increased  $169,000,  or 14%,  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
$21,000.
         Interest expense on deposits  increased  $156,000  primarily due to the
increase in average  balance of deposits  of $5.8  million  compared to the same
period in the prior year, and a slight  increase in interest rates. In addition,
the Company  incurred  $87,000 in interest  expense on advances from the Federal
Home Loan Bank compared to $60,000 in the prior-year period.
         Net interest income decreased $35,000,  or 4.1%, between the periods as
the increase in interest expense  exceeded the increase in interest income.  The
Company's net interest  margin narrowed to 3.40% for the three months ended June
30, 2000 compared to 3.85% 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 $21,000 from $54,000 for the three months
ended June 30, 1999 to $75,000 for the three  months  ended June 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 June 30, 2000.
         Noninterest  expenses  decreased  $20,000  from  $546,000 for the three
months ended June 30, 1999 to $526,000 for the three months ended June 30, 2000.
Other noninterest  expenses decreased $46,000 from $180,000 for the three months
ended June 30, 1999 to $134,000 for the three months ended June 30, 2000.
         Our  effective  tax rates for the three  months ended June 30, 2000 and
1999 were 36.5% and 33.7%, respectively. The higher effective tax rate is due to
a decrease in our tax-exempt investment securities in 2000 compared to 1999.

Discussion of Results of Operations for the Six Months Ended June 30, 2000 and
1999

         Our net income for the six months ended June 30, 2000 was  $403,000,  a
$32,000,  or 8.6%  increase  over the  $371,000 we earned  during the six months
ended June 30,  1999.  Basic and diluted  earnings  per share for the six months
ended June 30,  2000 were each $0.29  compared  to $0.27 for the same  period in
1999. Average shares outstanding for both periods was 1,382,013 shares.
         Interest income increased $201,000,  or 6.1% from $3.31 million for the
six months  ended June 30, 1999 to $3.51  million for the six months  ended June
30,  2000.  The  increase in interest  income was due to interest on loans which
increased  $314,000,  or 13.6%, 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 $113,000.
         Interest expense on deposits  increased $251,000 due to the increase in
average  balance of deposits of $6.1 million  compared to the same period in the
prior year, and a slight increase in interest  rates.  In addition,  the Company
incurred $176,000 in interest expense on advances for the Federal Home Loan


                                       15
<PAGE>
Bank compared to $126,000 in the prior  period.  The Company used the funds from
the additional deposits to fund loan originations.
     Net interest income  decreased  $100,000 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 3.42% for the six months ended June
30, 2000 compared to 3.84% 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 $54,000 from $100,000 for the six months ended
June 30, 1999 to $154,000 for the six months  ended June 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.
     Noninterest  expenses decreased $141,000 from $1,229,000 for the six months
ended  June 30,  1999 to  $1,088,000  for the six months  ended  June 30,  2000.
Compensation  and  benefits  for the six months ended June 30, 2000 were $44,000
lower  primarily  due to a one time  compensation  expense  associated  with the
implementation  of a  management  recognition  plan in 1999.  Other  noninterest
expenses  decreased $78,000 from $343,000 for the six months ended June 30, 1999
to $265,000 for the six months ended June 30, 2000.
     Our  effective  tax rates for the six months  ended June 30,  2000 and 1999
were 38.4% and 34.1%,  respectively.  The higher  effective tax rate is due to a
decrease in our tax-exempt investment securities in 2000 compared to 1999.

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.


                                       16
<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 June 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 June 30, 2000 and December 31,
1999.

Recent Legislation

         On November 12, 1999,  President Clinton signed legislation which could
have  a   far-reaching   impact  on  the  financial   services   industry.   The
Gramm-Leach-Bliley   ("G-L-B")  Act  authorizes  affiliations  between  banking,
securities  and  insurance  firms and  authorizes  bank  holding  companies  and
national banks to engage in a variety of new financial activities. Among the new
activities  that will be permitted to bank holding  companies  and national bank
subsidiaries are securities and insurance brokerage, securities underwriting and
certain  forms of  insurance  underwriting.  Bank  holding  companies  will have
broader  insurance  underwriting  powers than  national  banks and may engage in
merchant  banking  activities  after the adoption of  implementing  regulations.
Merchant  banking   activities  may  also  become  available  to  national  bank
subsidiaries  after five years. The Federal Reserve Board, in consultation  with
the Department of Treasury,  may approve additional  financial  activities.  The
G-L-B Act,  however,  prohibits future  acquisitions of existing unitary savings
and loan  holding  companies,  like the  Company,  by firms which are engaged in
commercial  activities  and  prohibits  the  formation  of new  unitary  holding
companies.
         The G-L-B Act imposes new requirements on financial  institutions  with
respect to customer  privacy.  The G-L-B Act generally  prohibits  disclosure of
customer  information  to  non-affiliated  third parties unless the customer has
been given the  opportunity  to object and has not objected to such  disclosure.
Financial  institutions  are further required to disclose their privacy policies
to customers  annually.  Financial  institutions,  however,  will be required to
comply  with state law if it is more  protective  of customer  privacy  than the
G-L-B Act.  The G-L-B Act directs the federal  banking  agencies,  the  National
Credit Union Administration,  the Secretary of the Treasury,  the Securities and
Exchange  Commission and the Federal Trade Commission,  after  consultation with
the National Association of Insurance Commissioners,  to promulgate implementing
regulations  within six months of enactment.  The privacy provisions will become
effective six months thereafter.
         The G-L-B Act contains  significant  revisions to the Federal Home Loan
Bank System. The G-L-B Act imposes new capital  requirements on the Federal Home
Loan Banks and  authorizes  them to issue two  classes  of stock with  differing
dividend  rates and redemption  requirements.  The G-L-B Act deletes the current
requirement that the Federal Home Loan Banks annually contribute $300 million to
pay interest on certain government obligations in favor of a 20% of net earnings
formula.  The G-L-B Act expands the  permissible  uses of Federal Home Loan Bank
advances by community  financial  institutions (under $500 million in assets) to
include   funding   loans  to  small   businesses,   small   farms   and   small
agri-businesses.  The G-L-B Act makes  membership  in the Federal Home Loan Bank
voluntary for federal savings associations.


                                       17
<PAGE>

         The G-L-B  Act  contains  a variety  of other  provisions  including  a
prohibition  against ATM surcharges  unless the customer has first been provided
notice of the  imposition  and  amount of the fee.  The  G-L-B Act  reduces  the
frequency of Community  Reinvestment Act  examinations for smaller  institutions
and imposes certain reporting requirements on depository  institutions that make
payments  to   non-governmental   entities  in  connection  with  the  Community
Reinvestment  Act.  The  G-L-B  Act  eliminates  the SAIF  special  reserve  and
authorizes a federal  savings  association  that converts to a national or state
bank charter to continue to use the term "federal" in its name and to retain any
interstate branches.
         The  Company  is unable to  predict  the impact of the G-L-B Act on its
operations  at this time.  Although the G-L-B Act reduces the range of companies
which may acquire the Company, it may facilitate  affiliations with companies in
the financial services industry.


                                       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

          On  May 16, 2000,  United  Tennessee  Bankshares,  Inc.  held its 2000
Annual  Meeting of  Stockholders.  The following is a brief  description of each
matter voted upon and the results of the voting.

          1.  Election of Directors

                    Nominee                      For              Withheld
         ------------------------------    -----------------    --------------
         William B. Henry                      1,123,377           5,313
         J. William Myers                      1,118,980           9,710
         Tommy C. Bible                        1,121,505           7,185

          There were no abstentions or broker non-votes.

          The  terms of office of Directors Richard G. Harwood,  Robert D. Self,
Clyde E. Driskill, Jr., Robert L. Overholt and Ben W. Hooper continued after the
meeting.

Item 5.  Other Information

         None.

Item 6.  Exhibits and Reports on Form 8-K

   (a) Exhibits:

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

         3.1 1/       Charter of United Tennessee Bankshares, Inc.
             -
         3.2 1/       Bylaws of United Tennessee Bankshares, Inc.
             -
         4 1/         Form of Stock Certificate of United Tennessee Bankshares,
           -          Inc.
         10.1 2/      United Tennessee Bankshares, Inc. 1999 Stock Option Plan
              -
         10.2 2/      United Tennessee Bankshares, Inc. Management Recognition
              -       Plan

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

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

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

         10.5 1/      Newport Federal Savings and Loan Association Deferred
              -       Compensation Plan

         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: August 10, 2000              /s/ Richard G. Harwood
                                   -------------------------------------------
                                   Richard G. Harwood
                                   President and Chief Executive Officer
                                   (Duly Authorized Representative and
                                   Principal Financial and Accounting Officer)