U. S. SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D. C.  20549

                                   FORM 10-QSB

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

                FOR THE QUARTERLY PERIOD ENDED:    MARCH 31, 2000
                                                  ---------------

                                       OR
                                       --

     [   ]       TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15 (D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

COMMISSION  FILE  NUMBER:     0-24675
                             ---------

                           STATE OF FRANKLIN BANCSHARES, INC.
                       ------------------------------------------
        (EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)

          TENNESSEE                                     62-1607709
---------------------------------               --------------------------------
(STATE  OF  INCORPORATION)                           (I.R.S.  EMPLOYER
IDENTIFICATION  NO.)


             1907  NORTH  ROAN  STREET
             JOHNSON  CITY,  TENNESSEE                     37604
             ----------------------------                  -----
   (ADDRESS  OF  PRINCIPAL  EXECUTIVE  OFFICES)         (ZIP  CODE)


                                 (423) 232-4400
               -----------------------------------------------------
                (ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)

                                     NONE
          ------------------------------------------------------------
      (FORMER NAME, ADDRESS AND FISCAL YEAR, IF CHANGED SINCE LAST REPORT)


INDICATE BY CHECK MARK WHETHER THE ISSUER: (1) HAS FILED ALL REPORTS REQUIRED TO
BE  FILED  BY SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE  PRECEDING  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  90  DAYS.

                             YES     X          NO
                                   ----        ----


                                   1,356,670
                          ----------------------------
     (OUTSTANDING SHARES OF THE ISSUER'S COMMON STOCK AS OF MARCH 31, 2000)


           TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE):

                              YES          NO     X
                                 ----           ----


                                        1
<PAGE>
                        STATE OF FRANKLIN BANCSHARES, INC

                                      INDEX
                                      -----

PART I.   FINANCIAL  INFORMATION
                                                                            PAGE
                                                                            ----
      ITEM 1. FINANCIAL  STATEMENTS

              CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION                   3
                  MARCH 31, 2000 (REVIEWED) AND DECEMBER 31, 1999 (AUDITED)

              CONSOLIDATED  STATEMENTS  OF  INCOME                             4
                  THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (REVIEWED)

              CONSOLIDATED  STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY      5
                  THREE  MONTHS  ENDED  MARCH  31,  2000  (REVIEWED)
                  AND  YEAR  ENDED  DECEMBER  31,  1999  (AUDITED)

              CONSOLIDATED  STATEMENTS  OF  CASH  FLOWS                        6
                  THERE MONTHS ENDED MARCH 31, 2000 AND 1999 (REVIEWED)

              NOTES  TO CONSOLIDATED FINANCIAL STATEMENTS (REVIEWED)           7

              INDEPENDENT  ACCOUNTANT'S  REPORT                               13

      ITEM 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND  RESULTS  OF  OPERATIONS            14


PART II.   OTHER  INFORMATION

      ITEM 1. LEGAL PROCEEDINGS                                               17

      ITEM 2. CHANGES IN SECURITIES                                           17

      ITEM 3. DEFAULT  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


                                        2
<PAGE>
<TABLE>
<CAPTION>
PART  1  -  FINANCIAL  INFORMATION

ITEM  1.   FINANCIAL  STATEMENTS

                                     STATE OF FRANKLIN BANCSHARES, INC.
                               CONSOLIDATED  STATEMENTS OF FINANCIAL CONDITION

                                                             MARCH 31,        DECEMBER 31,
                     ASSETS                               2000 - REVIEWED    1999 - AUDITED
--------------------------------------------------------  ---------------  ----------------
<S>                                                       <C>              <C>

Cash and Due from Banks                                    $    3,711,188     2,785,509
Federal Funds Sold                                              2,299,000       308,000
Short-Term Interest Bearing Deposits                              143,313       133,148
Investments - HTM  (Estimated Market 2000 - $13,320,249)
  (Estimated Market 1999 - $13,301,184)                        13,988,778    13,988,346
Investments - AFS                                              20,936,974    21,440,591
Loans Held for Sale                                               218,711       453,562
Loans and Leases Receivable                                   121,074,200   114,439,773
   Less: Allowance for Loan and Lease Losses                     (866,062)     (810,303)
--------------------------------------------------------  ---------------  ----------------
   Loans and Leases Receivable, Net                           120,208,138   113,629,470
--------------------------------------------------------  ---------------  ----------------
Accrued Interest Receivable, Net                                1,220,318     1,271,439
Land, Buildings & Equip at Cost Less Accum Depr
   of $676,615 in 2000 and $607,618 in 1999                     4,741,966     4,058,242
Prepaid Expense and Accounts Receivable                            99,862        77,907
Investment in Service Bureau at Cost                               15,000        15,000
Deferred Tax Assets                                               637,181       599,503
FHLB Stock                                                      1,442,300     1,417,700
Other Real Estate Owned                                           155,831             -
--------------------------------------------------------  ---------------  ----------------

  TOTAL ASSETS                                             $  169,818,560   160,178,417
--------------------------------------------------------  ---------------  ----------------

             LIABILITIES AND STOCKHOLDERS' EQUITY
---------------------------------------------------------------------------------------

LIABILITIES:

Interest-Free Checking                                   $        8,646,325     7,762,451
Interest-Bearing Deposits                                       131,423,290   124,475,175
Advances by Borrowers for Taxes and Insurance                       162,057       117,372
Accrued Interest on Deposits                                        123,459        95,734
Accounts Payable and Accrued Expenses                               246,975       488,630
FHLB Short-Term Advances                                          4,980,000     4,045,000
FHLB Long-Term Advances                                           9,047,413     9,047,707
Deferred Gain on REO                                                 21,448        21,448
Notes Payable                                                       613,188       626,615
--------------------------------------------------------  -------------------  ------------

TOTAL LIABILITIES                                        $      155,264,155   146,680,132
--------------------------------------------------------  -------------------  ------------

STOCKHOLDERS' EQUITY:

Common Stock, $1.00 Par Value                                    1,356,670      1,301,519
Paid-in Capital                                                 12,909,700     12,243,730
Accumulated Other Comprehensive Income                            (616,752)      (610,238)
Retained Earnings                                                1,517,975      1,189,889
Unearned Compensation - ESOP                                      (613,188)      (626,615)
--------------------------------------------------------  -------------------  ------------

       TOTAL STOCKHOLDERS' EQUITY                        $       14,554,405    13,498,285
--------------------------------------------------------  -------------------  ------------

       TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY        $      169,818,560   160,178,417
--------------------------------------------------------  -------------------  ------------
</TABLE>

                  See accompanying  notes  and  accountant's  report.


                                        3
<PAGE>
<TABLE>
<CAPTION>
                                   STATE OF FRANKLIN BANCSHARES, INC.
                                   CONSOLIDATED  STATEMENTS OF INCOME
                                                            THREE MONTHS ENDED MARCH 31,
                                                          --------------------------------
INTEREST INCOME:                                         2000 - REVIEWED     1999 - REVIEWED
                                                      --------------------  --------------------
<S>                                                   <C>                   <C>
Interest and Fees on Loans                            $         2,481,052             1,815,122
Other Interest Income                                             618,394               399,775
----------------------------------------------------  --------------------  --------------------
       TOTAL INTEREST INCOME                                    3,099,446             2,214,897
----------------------------------------------------  --------------------  --------------------

INTEREST EXPENSE:
Interest on Deposits                                            1,628,754             1,202,244
Interest on Short-Term Debt                                        80,118                     -
Interest on Long-Term Debt                                        124,066               120,353
----------------------------------------------------  --------------------  --------------------

       TOTAL INTEREST EXPENSE                                   1,832,938             1,322,597
----------------------------------------------------  --------------------  --------------------

NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES            1,266,508               892,300
PROVISION FOR LOAN LOSSES                                         (56,938)              (48,504)
----------------------------------------------------  --------------------  --------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES             1,209,570               843,796
----------------------------------------------------  --------------------  --------------------

OTHER INCOME:

Other Fees and Service Charges                                     90,017                50,249
Net Gain on Loans Sold                                              8,739                67,762
Insurance Commission Income                                        10,087                14,383
Rental Income, Net                                                 15,024                27,885
Other                                                                   -                    24
----------------------------------------------------  --------------------  --------------------

       TOTAL OTHER INCOME                                         123,867               160,303
----------------------------------------------------  --------------------  --------------------

OTHER EXPENSES:
Compensation and Related Benefits                                 380,166               307,612
Occupancy Expenses                                                 76,095                70,572
Furniture and Equipment Expense                                    69,866                52,065
Advertising                                                        14,428                35,628
Data Processing Expense                                            83,894                87,837
Other                                                             222,796               176,411
----------------------------------------------------  --------------------  --------------------
       TOTAL OTHER EXPENSES                                       847,245               730,125
----------------------------------------------------  --------------------  --------------------

       INCOME BEFORE INCOME TAX                                   486,192               273,974
PROVISION FOR INCOME TAXES                                       (158,106)              (94,901)
----------------------------------------------------  --------------------  --------------------
       NET INCOME                                     $           328,086               179,073
----------------------------------------------------  --------------------  --------------------

EARNINGS PER SHARE:
  BASIC                                               $              0.26                  0.16
  DILUTED                                             $              0.25                  0.16
----------------------------------------------------  --------------------  --------------------

WEIGHTED AVERAGE SHARES OUTSTANDING:
  BASIC                                                         1,271,086             1,124,201
  DILUTED                                                       1,307,868             1,145,161
----------------------------------------------------  --------------------  --------------------
</TABLE>

                     See accompanying  notes  and  accountant's  report.


                                        4
<PAGE>

                       STATE OF FRANKLIN BANCSHARES, INC.
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
   FOR THREE MONTHS ENDED MARCH 31, 2000 (REVIEWED) AND YEAR ENDED DECEMBER 31,
                                 1999 (AUDITED)
<TABLE>
<CAPTION>
                                                                                 Accumulated
                                                         Common                  Other                     Employee
                                             Common      Stock        Paid-In    Comprehensive  Retained   Stock
                                             Stock       Subscribed   Capital    Income         Earnings   Ownership   Total
                                          -------------  ----------  ----------  -------------  ---------  ----------  -----------
<S>                                       <C>            <C>         <C>         <C>            <C>        <C>         <C>
Balance at December 31, 1998                  1,180,152      6,996   10,905,359        39,820     102,792   (664,820)  11,570,299
                                                                                                                       -----------
Net Proceeds
  from Sale of Stock                            121,367     (6,996)   1,338,371            --          --         --    1,452,742
                                                                                                                       -----------
ESOP Shares Allocated                                --         --           --            --          --     38,205       38,205
                                                                                                                       -----------
Comprehensive Income
  Other Comprehensive Income,
   Net of Tax:
    Unrealized Losses on Securities
      Available-For-Sale:
      Unrealized Holding Losses
        Arising During the Period
          (Net of $339,205 Income Tax)               --         --           --      (658,456)         --         --     (658,456)
      Less: Reclassification Adjustment
          (Net of $4,326 Income Tax)                 --         --           --         8,398          --         --        8,398
                                                                                                                       -----------
                                                                                                                         (650,058)
  Net Income                                         --         --           --            --   1,087,097         --    1,087,097
                                                                                                                       -----------
        Total Comprehensive Income                   --         --           --            --          --         --      437,039
                                          -------------  ----------  ----------  -------------  ---------  ----------  -----------
Balance at December 31, 1999                  1,301,519         --   12,243,730      (610,238)  1,189,889   (626,615)  13,498,285
                                                                                                                       -----------

Net Proceeds
  from Sale of Stock                             55,151         --      665,970            --          --         --      721,121
                                                                                                                       -----------
ESOP Shares Allocated                                --         --           --            --          --     13,427       13,427
                                                                                                                       -----------
Comprehensive Income
  Other Comprehensive Income,
   Net of Tax:
    Unrealized Losses on Securities
      Available-For-Sale:
      Unrealized Holding Losses
        Arising During the Period
           (Net of $3,356  Income Tax)               --         --           --        (6,514)         --         --       (6,514)

  Net Income                                         --         --           --            --     328,086         --      328,086
                                                                                                                       -----------

        Total Comprehensive Income                   --         --           --            --          --         --      321,572
                                          -------------  ----------  ----------  -------------  ---------  ----------  -----------

Balance at March 31, 2000                     1,356,670         --   12,909,700      (616,752)  1,517,975  (613,188)   14,554,405
                                          =============  ==========  ==========  =============  =========  ==========  ===========
</TABLE>
                                 See accompanying notes and accountant's report.


                                        5
<PAGE>
                                          STATE OF FRANKLIN BANCSHARES, INC.
                                       CONSOLIDATED  STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                                    THREE MONTHS ENDED MARCH 31,
                                                                                    ----------------------------
                                                                                  2000 - REVIEWED  1999 - REVIEWED
                                                                                  ---------------  ---------------
CASH  FLOWS  FROM  OPERATING  ACTIVITIES:
<S>                                                                               <C>              <C>
  Net Income                                                                      $      328,086          179,073
  Items Not Affecting Cash:
    Depreciation                                                                          68,997           52,398
    (Increase) Decrease in Accrued Interest                                               51,121         (101,833)
    Deferred Income Taxes (Benefit)                                                      (34,323)         (15,387)
    Provisions for Loan Losses                                                            56,938           48,504
    (Increase) in Prepaid Expenses and Accounts Receivable                               (21,955)          (2,241)
    Increase (Decrease) in Interest Payable                                               27,725          (34,041)
    Increase (Decrease) in Accounts Payable and Accrued Expenses                        (241,655)          12,173
    Increase (Decrease) in Deferred Loan Fees, Net                                        15,281             (920)
    Discount Accretion                                                                    (4,635)          (6,932)
    Earned ESOP Shares                                                                    13,427           22,824
    FHLB Stock Dividends                                                                 (24,600)          (8,100)
    Net Decrease in Loans Held for Sale                                                  234,851          544,400
--------------------------------------------------------------------------------  ---------------  ---------------
      NET CASH PROVIDED BY OPERATING ACTIVITIES                                          469,258          689,918
--------------------------------------------------------------------------------  ---------------  ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of Held-to-Maturity Investments                                                     -      (13,271,647)
  Purchase of Available-for-Sale Investments                                              (6,220)               -
  Proceeds from Maturities of Available-for-Sale Investments                                   -        3,000,000
  Proceeds from Sale of Available-for-Sale Investments                                   504,171                -
  Principal Payments on Mortgage Backed Securities - AFS                                       -           27,710
  (Increase) in Federal Funds Sold                                                    (1,991,000)      (4,547,000)
  (Increase) Decrease in Short-Term Interest Bearing Deposits                            (10,165)       5,000,000
  (Increase) in Loans Receivable, Net                                                 (6,806,718)      (5,200,252)
  Purchases of Premises and Equipment                                                   (752,721)         (61,369)
--------------------------------------------------------------------------------  ---------------  ---------------
    NET CASH (USED) BY INVESTING ACTIVITIES                                           (9,062,653)     (15,052,558)
--------------------------------------------------------------------------------  ---------------  ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Net Increase in Deposits                                                             7,831,989       14,074,793
  Net Increase in Advances by Borrowers for Taxes and Insurance                           44,685           56,570
  Issuance of Common Stock, Net                                                          721,121          111,767
  Repayment of Debt                                                                      (13,427)         (12,426)
  Proceeds from FHLB Advances                                                            934,706                -
--------------------------------------------------------------------------------  ---------------  ---------------
    NET CASH PROVIDED BY FINANCING ACTIVITIES                                          9,519,074       14,230,704
--------------------------------------------------------------------------------  ---------------  ---------------
      NET INCREASE (DECREASE) IN CASH                                                    925,679         (131,936)
CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD                                         2,785,509        2,507,173
--------------------------------------------------------------------------------  ---------------  ---------------
      CASH AND DUE FROM BANKS AT END OF PERIOD                                    $    3,711,188        2,375,237
--------------------------------------------------------------------------------  ---------------  ---------------

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:

Increase (Decrease) in Unrealized Gain (Loss) on Securities Available-For-Sale,
  Net of Deferred Tax Liability                                                   $       (6,514)          17,157
Acquisition of Real Estate Property through Foreclosure of Related Loans                (155,831)               -
--------------------------------------------------------------------------------  ---------------  ---------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

  Cash Paid During the Period for:
    Income Taxes                                                                  $      427,413                -
    Interest                                                                      $    1,805,213        1,356,638
--------------------------------------------------------------------------------  ---------------  ---------------
</TABLE>

                        See accompanying  notes  and  accountant's  report.


                                        6
<PAGE>
STATE  OF  FRANKLIN  BANCSHARES,  INC.
NOTES  TO  CONSOLIDATED  FINANCIAL  STATEMENTS  -  REVIEWED


NOTE  1     INCORPORATION  AND  OPERATIONS
-------     ------------------------------

State  of Franklin Bancshares, Inc. (Company) was incorporated under the laws of
the  State of Tennessee for the purpose of becoming the holding company of State
of  Franklin  Savings  Bank (Savings Bank). The stockholders of the Savings Bank
exchanged  their  shares for the shares of the Company, whereby the Savings Bank
became  the  Company's  wholly  owned  subsidiary.  State  of  Franklin  Leasing
Corporation  (Leasing  Corp)  was  incorporated  under  the laws of the State of
Tennessee  for  the  purpose  of  lease financing.  The Leasing Corp is a wholly
owned  subsidiary  of  the  Company.  John  Sevier  Title  Services, Inc. (Title
Company)  is  the  wholly  owned  subsidiary  of  the  Savings  Bank.


NOTE  2     BASIS  OF  PREPARATION
-------     ----------------------

The accompanying reviewed consolidated financial statements include the accounts
of  the  Company and its subsidiaries. All significant intercompany accounts and
transactions  have been eliminated.  These financial statements were prepared in
accordance  with  generally accepted accounting principles for interim financial
information  and  in  accordance  with  the  instructions  for  Form  10-Q  SB.
Accordingly,  they  do  not  include  all  disclosures  necessary for a complete
presentation of the consolidated statements of financial condition, income, cash
flows, and changes in stockholders' equity in conformity with generally accepted
accounting  principles.  However,  all  adjustments which are, in the opinion of
management,  necessary  for  the  fair  presentation  of  the  interim financial
statements  have  been included.  All such adjustments are of a normal recurring
nature.  The  statement of comprehensive income for the three months ended March
31,  2000 is not necessarily indicative of the results which may be expected for
the  entire  year.

These  consolidated  financial statements should be read in conjunction with the
audited  consolidated financial statements and notes thereto for the Company for
the  year  ended  December  31,  1999.


NOTE  3     RECLASSIFICATIONS
-------     -----------------

In  instances  where  required,  amounts  reported  in  prior period's financial
statements  included  herein  have been reclassified to put them on a comparable
basis  to  the  amounts  reported  in  the March 31, 2000 consolidated financial
statements.


NOTE  4     LAND  BUILDINGS  AND  EQUIPMENT
-------     -------------------------------

The  Savings Bank has purchased additional property near Kingsport, Tennessee in
Sullivan  County  and  will be constructing a fifth branch location scheduled to
open in late summer or early fall.  Fixed assets at March 31, 2000, and December
31,  1999  are  summarized  as  follows:



                                                        2000         1999
                                                   -----------  ------------
<TABLE>
<CAPTION>
<S>                                                  <C>        <C>
  Land                                                 850,000      850,000
  Construction in Process - Colonial Heights Branch    753,644       25,000
  Buildings and Leasehold Improvements               2,274,105    2,271,821
  Furniture, Fixtures and Equipment                  1,540,832    1,519,039
                                                     ---------  -----------
                                                     5,418,581    4,665,860
  Less: Accumulated Depreciation                       676,615      607,618
                                                     ---------  -----------
                                                     4,741,966    4,058,242
                                                     =========  ===========
</TABLE>


                                        7
<PAGE>
NOTE  5     LOANS  RECEIVABLE
-------     -----------------

Loans  receivable  at  March 31, 2000 and December 31, 1999, consist of the
following:
<TABLE>
<CAPTION>
                                                      2000             1999
                                             --------------  ---------------
<S>                                          <C>              <C>
  First Mortgage Loans                           46,631,324       43,715,282
  Construction Loans                             26,643,092       23,525,380
  Consumer Loans                                  9,806,810        9,703,102
  Participation Loans, Net                          533,676          533,676
  Commercial Loans                               44,865,329       41,919,362
  Savings Account Loans                             290,399          248,964
  Credit Line Advances                              333,515          419,062
  Lease Finance                                     955,160          904,705
                                             ---------------  ---------------
    Gross Loans and Leases Receivable           130,059,305      120,969,533
                                             ---------------  ---------------
  Less:
    Undisbursed Portion of Loans in Process    (  8,897,270)    (  6,457,206)
    Net Deferred Loan Origination Fees         (     87,835)    (     72,554)
    Accumulated General Loan Loss Allowance    (    866,062)    (    810,303)
                                             ---------------  ---------------

                                               (  9,851,167)    (  7,340,063)
                                             ---------------  ---------------

  Loans and Leases Receivable, Net              120,208,138      113,629,470
                                             ===============  ===============
</TABLE>

An  analysis  of  the  allowance for loan and lease losses at March 31, 2000 and
December 31,  1999  is  as  follows:
                                             2000      1999
                                           --------  --------
<TABLE>
<CAPTION>
<S>                                        <C>       <C>
    Balance - Beginning of Period          810,303   630,324
    Provision for Losses                    56,938   181,429
    Loans and Leases Charged-Off            (1,179)   (1,450)
    Charged-Off Loan and Lease Recoveries       --        --
                                           --------  --------

    Balance - End of Period                866,062   810,303
                                           ========  ========

</TABLE>
The  gross  amount  of participation loans serviced by State of Franklin Savings
Bank  was  $1,067,240  at  March  31,  2000  and  also  at  December  31,  1999.

Non-performing  loans  at  March  31,  2000 totaled $67,906 and $221,781 at
December  31,  1999.


                                        8
<PAGE>
NOTE  6     FEDERAL  REGULATION
-------     -------------------
<TABLE>
<CAPTION>
The  capital  ratios  for  State  of  Franklin  Savings  Bank  are  as  follows:

                                                        For Capital
                                                     Adequacy Purposes
                                                       And To Be Well
                                                     Capitalized Under
                                                     Prompt Corrective
                                       Actual        Action Provisions
                                 ------------------  -----------------
  In  Thousands  (Reviewed)      Amount      Ratio   Amount    Ratio
-------------------------------  ------------------  -----------------
<S>                              <C>         <C>     <C>      <C>
As of March 31, 2000:
  Total Risk-Based Capital
    (to Risk-Weighted Assets)    15,171      14.18%  >=10,698   10.0%

  Tier 1 Capital
    (to Risk-Weighted Assets)    14,090      13.17%  >= 6,419    6.0%

  Tier 1 Capital
    (to Adjusted Total Assets)   14,090       8.75%  >= 8,050    5.0%


As of December 31, 1999:
  Total Risk-Based Capital
    (to Risk-Weighted Assets)    13,303      13.12%  >=10,140   10.0%

  Tier 1 Capital
    (to Risk-Weighted Assets)    12,222      12.05%  >= 6,084    6.0%

  Tier 1 Capital
    (to Adjusted Total Assets)   12,222       7.91%  >= 7,730    5.0%

</TABLE>

The capital ratios for State Franklin Bancshares, Inc. are as follows:

<TABLE>
<CAPTION>
                                                        For Capital
                                                     Adequacy Purposes
                                                       And To Be Well
                                                     Capitalized Under
                                                     Prompt Corrective
                                       Actual        Action Provisions
                                 ------------------  -----------------
  In  Thousands  (Reviewed)      Amount       Ratio  Amount     Ratio
-------------------------------  ------------------  -----------------
<S>                             <C>        <C>       <C>      <C>
Total Risk-Based Capital
    (to Risk-Weighted Assets)      16,037  14.94%    >=10,735  10.0%

  Tier 1 Capital
    (to Risk-Weighted Assets)      15,171  14.13%    >= 6,441   6.0%

  Tier 1 Capital
    (to Adjusted Total Assets)     15,171   9.34%    >= 8,120   5.0%



As of December 31, 1999:
  Total Risk-Based Capital
    (to Risk-Weighted Assets)      14,919  14.66%    >=10,176  10.0%

  Tier 1 Capital
    (to Risk-Weighted Assets)      14,109  13.86%    >= 6,106   6.0%

  Tier 1 Capital
    (to Adjusted Total Assets)     14,109   9.09%    >= 7,769   5.0%

</TABLE>


                                        9
<PAGE>
NOTE  7     EMPLOYEE  AND  DIRECTOR  BENEFIT  PLANS
-------     ---------------------------------------

     EMPLOYEE  STOCK  OWNERSHIP  PLAN

The  Company has an employee stock ownership plan (ESOP) for those employees who
meet  the  eligibility  requirements  of  the  plan.

ESOP shares are maintained in a suspense account until released and allocated to
participants'  accounts.  The  release  of  shares  from the suspense account is
based  on  the  principal paid in the year in proportion to the total of current
year  and  remaining  outstanding  debt.  Allocation  of  released  shares  to
participants'  accounts  is  done  as  of  December  31.  Shares  allocated  and
remaining  in  suspense  were  as  follows:

<TABLE>
<CAPTION>
                                             March  31,   December  31,
                                                 2000       1999
                                              ---------   ---------
<S>                                        <C>           <C>
      Number of Shares
  Released and Allocated                         16,054     16,054
  Committed to be Released                        6,182      5,188
  Suspense                                       58,810     59,804

      Fair Value
  Released and Allocated                        216,729    216,729
  Committed to be Released                       83,457     70,038
  Suspense                                      793,935    807,354


Contributions to the ESOP are as follows:
                                             March  31,   December  31,
                                                   2000     1999
                                              ---------   ---------
      Compensation Expense                       40,000    127,272
      Contributions                              40,000    127,272
</TABLE>

For the purpose of computing earnings per share, all ESOP shares committed to be
released  will  be  considered  outstanding.

     STOCK  OPTION  PLANS

<TABLE>
<CAPTION>
                                                                              Weighted
                                                                              Average
                                                       Awarded                Exercise
                                                       And                    Price
                                                       Unexercised  Vested    Per
                                                       Options      Options   Share.
                                      -------------------------------------------------
<S>                                                      <C>      <C>      <C>
  Options Granted - Outside Directors   January 1, 2000    55,564   24,993  $    10.45
  Options Granted - Management          January 1, 2000   145,128   44,452  $    11.00
                                        During 2000            --       --
  Options Exercised                                     (     554)      --  $    10.00
  Options Expired - Outside Directors                   (   4,997)      --  $    10.00
                                                          -------   ------

  Options Outstanding - March 31, 2000                    195,141   69,445  $    10.82
                                                          =======   ======
</TABLE>


                                       10
<PAGE>
NOTE  8        DEPOSITS
-------        --------

     Deposit  balances  are  summarized  as  follows:

<TABLE>
<CAPTION>
                                                  March  31, 2000            December 31, 1999
                                        -------------------------------  ------------------------
                                         Average                         Average
                                          Rate       Amount     Percent    Rate   Amount   Percent
                                        -------   ------------  -------  -------  ------  ---------
<S>                                <C>          <C>         <C>          <C>     <C>         <C>
  Passbook                                5.00  33,639,262        24.02    4.85  43,579,494   32.96

  Interest-Free Checking                    --   8,646,325         6.17      --   7,762,451    5.87

  NOW                                     1.99   6,281,851         4.48    1.99   6,285,555    4.75

  Money Market Deposit                    4.49  12,613,994         9.01    4.48  13,790,665   10.43
                                                ----------  -----------          ----------  ------

                                                61,181,432        43.68          71,418,165   54.01
                                                -----------  ----------         -----------  ------
  Fixed Term Certificate Accounts
    Balances $100,000 or Greater          5.92  19,618,339        14.01    5.65  14,620,826   11.06
    Balances Less than $100,000           5.76  59,269,844        42.31    5.12  46,198,635   34.93
                                                ----------  -----------          ----------  ------

                                                78,888,183        56.32          60,819,461   45.99
                                                -----------  ----------         -----------  ------

                                                140,069,615      100.00         132,237,626  100.00
                                                ===========  ==========         ===========  ======
</TABLE>



The  contractual maturity of certificate accounts at March 31, 2000 and December
31,  1999,  is  as  follows:


<TABLE>
<CAPTION>

        Year Ending              Year  Ending
     March  31,  2000         December 31, 1999
--------------------------  --------------------------
<S>             <C>         <C>             <C>
2001            63,017,189   2000           42,805,186
2002             8,968,090   2001            5,447,698
2003             6,450,311   2002           11,749,728
2004               452,593   2003              789,631
2005 and After          --   2004 and After     27,218
                ----------                  ----------
                78,888,183                  60,819,461
             =============               =============
</TABLE>


NOTE  9     SHORT-TERM  BORROWINGS
-------     ----------------------

Short-term  advances  from  the  Federal  Home  Loan Bank are summarized as
follows  for  the  periods  ended  March  31,  2000  and December  31,  1999:

                                             2000                    1999
                                           ---------               ---------

Cash  Management  (Rate  Floats  Daily)    4,980,000               4,045,00
Weighted  Average  Rate                     5.95%                    5.49%


                                       11
<PAGE>
NOTE  10     INVESTMENT  SECURITIES
--------     ----------------------

The  amortized cost and fair value of investment securities held-to-maturity and
available-for-sale  at March 31, 2000, by contractual maturity, are shown below.
Expected  maturities will differ from contractual maturities because issuers may
have  the  right  to  call  or  prepay  obligations  without  call or prepayment
penalties.

March  31,  2000:
----------------


<TABLE>
<CAPTION>
                                                     Gross       Gross      Estimated
                                   Amortized       Unrealized  Unrealized    Market
                                   Cost              Gains       Losses      Value
                                   --------------  ----------  ----------  -----------
<S>                                <C>             <C>         <C>         <C>
Available-for-Sale:
   United States Government
     Agency Securities Maturing:
       After one year
        but within five years             997,892        --        34,898      962,994
      After five years
        but within ten years           15,769,381        --       737,604   15,031,777
      Over ten years
        but within fifteen years        2,993,355        --       161,970    2,831,385
    Equity Securities
      Callable after five years
        but within ten years            1,000,000        --           --     1,000,000
    Other
      Within one year                   1,110,818        --           --     1,110,818
                                   --------------  ----------  ----------  -----------

        Total Available-for-Sale       21,871,446        --       934,472   20,936,974
                                   ==============  ==========  ==========  ===========

  Held-to-Maturity:
    United States Government
      Agency Securities Maturing:
      After one year
        but within five years           1,000,000        --        31,037      968,963
      After five years
        but within ten years           12,988,778        --       637,491   12,351,286
                                   --------------  ----------  ----------  -----------

        Total Held-to-Maturity         13,988,778        --       668,528   13,320,249
                                   ==============  ==========  ==========  ===========

</TABLE>
NOTE  11     EARNINGS  PER  SHARE
--------     --------------------

Earnings  per  share  for  quarter  ending March 31, 2000, compared with quarter
ending  March  31,  1999,  is  as  follows:

                                                  March  31,
                                         -------------------------
                                                2000      1999
                                         -------------  ----------
<TABLE>
<CAPTION>
<S>                                          <C>        <C>
Net Income Available to Common Shareholders    328,086    179,073
                                             =========  =========
Average Shares
  Average Shares - Basic                     1,271,086  1,124,201
  Effect of Dilutive Common Stock Options       36,782     20,960
                                             ---------  ---------
  Average Shares - Diluted                   1,307,868  1,145,161
                                             =========  =========
Basic Earnings Per Share                          0.26       0.16
                                             =========  =========
Diluted Earnings Per Share                        0.25       0.16
                                             =========  =========
</TABLE>


                                       12
<PAGE>
<TABLE>
<CAPTION>
<S>                      <C>                                       <C>
                          BAYLOR  AND  BACKUS
D.G. LEONARD, CPA         CERTIFIED PUBLIC ACCOUNTANTS               E.N. BACKUS, CPA (1907-1971)
R.F. VANHOY, CPA          2112 NORTH ROAN STREET                     T.E. HULSE, CPA (1927-1975)
  -----------             FIRST TENNESSEE BUILDING, EIGHTH FLOOR     E.R. BAYLOR, CPA (1894-1982)
T.S. JOHNSON, CPA         JOHNSON CITY, TENNESSEE  37605             W.E. MORELOCK, CPA (1927-1985)
C.J. STAMPFLI, CPA        (423) 282-9000                             H.L. SIENKNECHT, CPA (1917-1990)
</TABLE>


To  the  Board  of  Directors
State  of  Franklin  Bancshares,  Inc.
P.  O.  Box  940
Johnson  City,  Tennessee  37605


We  have reviewed the accompanying consolidated statement of financial condition
of  State of Franklin Bancshares, Inc. and subsidiaries as of March 31, 2000 and
the  related consolidated statements of income, changes in stockholders' equity,
and cash flows for the periods ended March 31, 2000 and 1999, in accordance with
Statements  on  Standards  for  Accounting  and  Review  Services  issued by the
American Institute of Certified Public Accountants.  All information included in
these  financial  statements is the representation of the management of State of
Franklin  Bancshares,  Inc.

A review consists principally of inquiries of State of Franklin Bancshares, Inc.
personnel  and  analytical  procedures  applied  to  financial  data.  It  is
substantially  less in scope than an audit in accordance with generally accepted
auditing  standards,  the  objective  of  which  is the expression of an opinion
regarding  the  financial  statements  taken as a whole.  Accordingly, we do not
express  such  an  opinion.

Based  on our review, we are not aware of any material modifications that should
be  made  to  the  accompanying  financial statements in order for them to be in
conformity  with  generally  accepted  accounting  principles.

The  consolidated  statement  of financial condition as of December 31, 1999 and
the  consolidated  statement  of  changes in retained earnings for the year then
ended were audited by us, and we expressed an unqualified opinion on them in our
report  dated  March 15, 2000, but we have not performed any auditing procedures
since  that  date.

BAYLOR  AND  BACKUS
Certified  Public  Accountants

Johnson  City,  Tennessee

May  8,  2000

               MEMBERS OF AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
                      TENNESSEE SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS


                                       13
<PAGE>
ITEM  NO.  2   MANAGEMENT  DISCUSSION  AND  ANALYSIS  OF FINANCIAL CONDITION AND
------------   -----------------------------------------------------------------
               RESULTS  OF  OPERATIONS
               -----------------------


GENERAL
-------

The following discussion and analysis is intended to assist in understanding the
financial  condition  and  the  results  of operations of the Company.  State of
Franklin  Savings  Bank (Savings Bank) and State of Franklin Leasing Corporation
(Leasing  Corp)  represents  virtually  all  of  the assets of State of Franklin
Bancshares,  Inc.  (Company).  The  Company  places an emphasis on an integrated
approach  to its balance sheet management.  Significant balance sheet components
of  investment  securities,  loans  and  sources  of  funds  are  managed  in an
integrated  manner  with  the  management  of interest rate risk, liquidity, and
capital.  These  components  are  examined  below.


BALANCE  SHEET  REVIEW
----------------------

At  March  31, 2000, assets of State of Franklin Bancshares, Inc. totaled $169.8
million  reflecting  an  increase of $9.6 million or 6% since December 31, 1999.
The  growth  in  assets  has  been funded primarily by an $8 million increase in
deposits,  a  $935,000  increase  in Federal Home Loan Bank advances, and a $1.1
million increase  in  stockholders'  equity.


LOANS
-----

Loans outstanding totaled $121.1 million at March 31, 2000.  This represented an
increase  of  6% from the December 31, 1999 outstanding loans of $114.4 million.

Commercial  loans  increased  $2.9  million at March 31, 2000, an increase of 7%
from  $41.9  million  at  December  31,  1999.  Real estate construction lending
totaled  $26.6  million  compared  with  $23.5  million  at  December  31, 1999,
reflecting  an  increase of $3.1 million or 13%.  Consumer loans of $9.8 million
at  March  31,  2000  increased slightly from $9.7 million at December 31, 1999.
During  the  first  three  months  of  2000,  first  mortgage  residential loans
increased  $2.9  million  or  7%  to  $46.6 million at March 31, 2000.  The loan
portfolio  mix  at  March  31,  2000  consists of 36% residential mortgages, 35%
commercial,  21%  real  estate  construction,  and  8%  consumer  loans.

INVESTMENT  SECURITIES
----------------------

Investment  securities totaled $34.9 million at March 31, 2000.  The majority of
the  holdings  are  backed  by  U.  S.  Government  or Federal Agency guarantees
limiting  the  credit risk associated with these securities.  At March 31, 2000,
approximately  $20.9  million  of  investment  securities  were  held  as
available-for-sale  compared to $21.4 million at December 31, 1999.  Investments
held-to-maturity  remained unchanged at $14 million compared with $14 million at
December  31,  1999.

NON-PERFORMING  ASSETS
----------------------

Non-performing  assets  or  nonaccrual  loans  at March 31, 2000 totaled $67,906
compared  with  $221,781  at December 31, 1999.  The allowance for possible loan
losses  was  $866,062 at March 31, 2000 compared with $810,303 at year end 1999.
Management  believes  the  allowance  for  possible  loan  losses is adequate to
provide  for  potential  loan  losses.

DEPOSITS
--------

Total  deposits  at March 31, 2000 of $140.1 million, represented an increase of
$7.9  million  or  a  6%  increase  from  $132.2  million  at December 31, 1999.
Non-interest  bearing demand deposits totaled $8.6 million at March 31, 2000, an
increase  of  $883,874  from  December  31,  1999.  Interest  bearing  deposits
increased  $7  million  to  $131.4  million  at  March  31,  1999.

CAPITAL
-------

Equity  capital  for  the  Savings Bank at March 31, 2000 was $13.5 million.  At
March  31,  2000,  all capital ratios were in excess of the regulatory minimums,
with the Savings Bank's Tier 1, total risk-based, and leverage ratios of 13.17%,
14.18%  and  8.75%,  respectively.  The ratios at March 31, 2000, reflect a $1.5
million  current  quarter  increased  investment by State of Franklin Bancshares
into  the  Savings  Bank.


                                       14
<PAGE>
On October 4, 1999, the Company filed a registration statement on Form SB-1 with
the  SEC for the purpose of offering up to 555,555 shares of its common stock at
a  per share price of $13.50.  This offering became effective November 12, 1999.
At  December  31, 1999, 111,092 shares had been sold with proceeds totaling $1.5
million.  At  March  31,  2000,  166,243  total  shares  have  been  sold in the
offering, generating $2.2 million in additional capital.  Equity capital for the
Company  at  March  31,  2000,  was  $14.6  million.

LIQUIDITY
---------

The  purpose  of liquidity management is to ensure that there is sufficient cash
flow  to  satisfy  demands  for credit, deposit withdrawals, and other corporate
needs.  Traditional  sources of liquidity include asset maturities and growth in
core  deposits.  Other sources of funds such as securities sold under agreements
to  repurchase,  negotiable  certificates  of  deposit and other liabilities are
sources  of  liquidity that the Company has not significantly used.  The Company
had  unused  sources  of  liquidity in the form of unused federal funds lines of
credit  and  a  line  of  credit  with  the Federal Home Loan Bank of Cincinnati
totaling  $13  million  at  March  31,  2000.

EARNINGS  REVIEW
----------------

The  Company  had  net  income of $328,086 for the three months ending March 31,
2000,  compared  with  $179,073  for  the same period last year, resulting in an
increase of 83%. Net income per diluted share was $0.25 compared to earnings per
share  of  $0.16  for  the  first three months ending March 31, 1999.  Return on
average assets was .81% and the return on average equity was 9.27% for the three
month  period  ended March 31, 2000, compared with .57% and 6.14%, respectively,
for  the  same  period  in  1999.

Noninterest income declined $36,436, or 23%, during the three months ended March
31,  2000, compared the same period last year due mainly to a $59,023 decline in
income  generated  by  loans  sold in the secondary market.  Recent increases in
interest rates have slowed the demand for secondary market loans and temporarily
eliminated  the  refinance  market.  Insurance  commission income and net rental
income also declined in the three months ended March 31, 2000, compared with the
same  period  a  year  ago. Partially offsetting the declines was an increase in
service charges and fees on deposit accounts.  Noninterest expense  was $847,245
for the quarter ending March 31, 2000, an increase of 16% over the  1999 period,
primarily  resulting  from  increased  salaries  and  benefits,  furniture  and
equipment  expense,  and  other  general  operating  expenses.

NET  INTEREST  INCOME
---------------------

Interest  income and interest expense both increased from 1999 to 2000 resulting
primarily  from  the  increases  in  both  earning  assets  and interest bearing
liabilities.  Net  interest  income  of  $1.2 million for the three months ended
March  31, 2000  reflected an increase of $374,207 or 42% over the same period a
year  ago.  For  the  three months ending March 31, 2000, average earning assets
increased  $39  million  or  34%  while  average  interest  bearing  liabilities
increased  $36 million, also 34%, compared with the same period in 1999. Average
earning  asset  yield  increased  28  basis  points  to  8.02% while the cost on
interest  bearing  liabilities increased 11 basis points.  Consequently, the net
interest margin based on average earning assets increased to 3.28% for the three
months  ending  March  31, 2000 compared with 3.12% for the same period in 1999.


                                       15
<PAGE>
PROVISION  FOR  LOAN  LOSSES
----------------------------

During  the  three  months ended March 31, 2000, the provision for possible loan
losses  was  $56,938  compared with $48,504 for the same period last year.  Loan
charge-offs for the three months ended March 31, 2000, were $1,179 compared with
no  charge-offs during the same period in 1999.  The allowance for possible loan
losses  represented .72% of total loans, net of mortgage loans held-for-sale, at
March  31,  2000,  compared to .75% at March 31, 1999.  Management considers the
allowance  for  loan  losses to be adequate to cover losses inherent in the loan
portfolio.

PROVISION  FOR  INCOME  TAXES
-----------------------------

For  the  three months ended March 31, 2000, the provision for federal and state
income  taxes  was  $158,106, an increase of $63,205 from 1999, primarily due to
the  increase  in  income  before  income  taxes.

NONINTEREST  INCOME
-------------------

The  Company's  noninterest  income  was  $123,867 during the three months ended
March  31,  2000,  a  decline of $36,436 or 23% from the comparable 1999 period.
The  decline  was attributable to declines in net gains on loans sold, insurance
commissions,  and  rental  income of $59,023, $4,296, and $12,861, respectively,
which  were partially offset by an increase in other fees and service charges of
$39,768.

NONINTEREST  EXPENSE
--------------------

Noninterest expense totaled $847,245 for the three month period ending March 31,
2000,  an increase of $117,120 or 16%.  The increases were a result primarily of
growth  in the organization.  Compensation and related benefits, data processing
expense,  and  other  operating  expenses,  which  include postage, printing and
supplies, and telephone expense, reflect the growth in the customer base and the
general  increased  size  of  the  organization.


                                       16
<PAGE>
PART  II  --  OTHER  INFORMATION


ITEM  1.     LEGAL  PROCEEDINGS

             None

ITEM  2.     CHANGES  IN  SECURITIES

             On  October 4, 1999, the Company filed a registration  statement on
             Form  SB-1 with the  SEC for the purpose of offering up  to 555,555
             Shares  of its common stock at a  per share  price of $13.50.  This
             Offering  became  effective  November  12, 1999.  At  December  31,
             1999,  111,092  shares  had been sold  with proceeds  totaling $1.5
             million.  At  March  31,  2000,  166,243  total  shares  have  been
             sold  in  the  offering,  generating  $2.2  million  in  additional
             capital.  Equity  capital  for  the  Company at March 31, 2000, was
             $14.6  million.

ITEM  3.     DEFAULT  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)     27    Financial  Data  Schedule  (for  SEC  use  only)
             b)     The Company did not file any reports on Form 8-K during the
                    quarter ended March  31,  2000


                                       17
<PAGE>
                                   SIGNATURES

Pursuant  to  the  requirements  of  the  Securities  Exchange  Act of 1934, the
Registrant  has  duly  caused  this  report  to  be  signed on its behalf by the
undersigned  thereunto  duly  authorized.

                                         STATE  OF  FRANKLIN  BANCSHARES,  INC.
                                        ----------------------------------------
                                                       (Registrant)
May 10, 2000                            /s/ Randal R. Greene
----------------------                  ----------------------------------------
(Date)                                  Randal R. Greene,  President  and  Chief
                                                 Executive  Officer
                                           (Principal  Executive  Officer)

May 10, 2000                            /s/ Charles E. Allen, Jr.
----------------------                  ----------------------------------------
(Date)                              Charles E. Allen, Jr., Chairman of the Board
                                           and  Chief  Financial  Officer
                                          (Principal Executive, Financial
                                              and Accounting Officer)


                                       18
<PAGE>