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, 2002
                                                  --------------------


[ ]  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, 37601
             ------------------------------------------------------
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)


                                  (423) 926-3300
                      ------------------------------------------
                (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
                                    ----

                                       1,465,512
                      ------------------------------------------
         (OUTSTANDING SHARES OF THE ISSUER'S COMMON STOCK AS OF MAY 10, 2002)


            TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE):

                              YES          NO    X
                                               ----



<PAGE>



                             STATE OF FRANKLIN BANCSHARES, INC

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

        ITEM 1.   FINANCIAL STATEMENTS                                                     PAGE
                                                                                         -------
<S>                                                                                      <C>
                  CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION                               3
                     MARCH 31, 2002 (UNAUDITED) AND DECEMBER 31, 2001 (AUDITED)

                  CONSOLIDATED STATEMENTS OF INCOME                                            4
                     THREE MONTHS ENDED MARCH 31, 2002 AND 2001 (UNAUDITED)

                  CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY                   5
                     THREE MONTHS ENDED MARCH 31, 2002 (UNAUDITED)
                     AND YEAR ENDED DECEMBER 31, 2001 (AUDITED)

                  CONSOLIDATED STATEMENTS OF CASH FLOWS                                        6
                     THREE MONTHS ENDED MARCH 31, 2002 (UNAUDITED) AND 2001 (UNAUDITED)

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)                       7


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


PART II.   OTHER INFORMATION

        ITEM 1.   LEGAL PROCEEDINGS                                                           16

        ITEM 2.   CHANGES IN SECURITIES                                                       16

        ITEM 3.   DEFAULT UPON SENIOR SECURITIES                                              16

        ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                         16

        ITEM 5.   OTHER INFORMATION                                                           16

        ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K                                            16

</TABLE>












                                               2


<PAGE>

PART I  -  FINANCIAL INFORMATION

         ITEM 1.   FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                             STATE OF FRANKLIN BANCSHARES, INC.

                        CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION


                                                                  MARCH 31,         DECEMBER 31,
                             ASSETS                           2002 - UNAUDITED     2001 - AUDITED
-------------------------------------------------------------------------------------------------
<S>                                                              <C>                <C>
Cash and Due from Banks                                          $   3,716,917          5,252,689
Federal Funds Sold                                                  10,600,000         28,590,000
Short-Term Interest Bearing Deposits                                   301,479             57,649
Investments - HTM
   (Estimated Market 2002 - $18,290,569 and 2001 - $9,636,374)      18,576,734          9,676,885
Investments - AFS                                                   67,795,685         63,780,481
Loans Held for Sale                                                  1,456,479          2,548,370
Loans and Leases Receivable                                        144,941,901        139,090,332
   Less: Allowance for Loan and Lease Losses                        (1,344,196)        (1,473,855)
-------------------------------------------------------------------------------------------------
   Loans and Leases Receivable, Net                                143,597,705        137,616,477
-------------------------------------------------------------------------------------------------
Accrued Interest Receivable, Net                                     1,991,814          1,364,280
Land, Buildings & Equip at Cost Less Accum Depr
   of $1,384,216 in 2002 and $1,260,895 in 2001                      5,451,456          5,319,180
Prepaid Expense and Accounts Receivable                                 79,103            119,647
Deferred Tax Assets                                                    624,041            709,103
FHLB Stock                                                           2,185,600          2,161,700
Other Real Estate Owned                                                870,910            449,988
Other Assets                                                           233,981            239,000
-------------------------------------------------------------------------------------------------
  TOTAL ASSETS                                                   $ 257,481,904        257,885,449
=================================================================================================
             LIABILITIES AND STOCKHOLDERS' EQUITY
=================================================================================================
LIABILITIES:
Interest-Free Deposits                                           $   9,302,202         18,216,284
Interest-Bearing Deposits                                          188,897,692        181,920,790
Advances by Borrowers for Taxes and Insurance                          173,637             99,414
Accrued Interest on Deposits                                           186,379            179,897
Accounts Payable and Accrued Expenses                                  641,434            420,784
FHLB Long-Term Advances                                             30,494,461         30,240,995
Deferred Credits on REO                                                144,337             21,448
-------------------------------------------------------------------------------------------------
       TOTAL LIABILITIES                                         $ 229,840,142        231,099,612
-------------------------------------------------------------------------------------------------

Guaranteed Preferred Beneficial Interest in
   Subordinated Debentures                                           8,000,000          8,000,000

STOCKHOLDERS' EQUITY:
Common Stock, $1.00 Par Value                                        1,465,512          1,465,512
Paid-in Capital                                                     14,251,461         14,251,461
Accumulated Other Comprehensive Income                             (   221,686)       (   368,029)
Retained Earnings                                                    5,176,515          4,526,987
  Less: Employee Stock Ownership                                   ( 1,030,040)       ( 1,090,094)
-------------------------------------------------------------------------------------------------
       TOTAL STOCKHOLDERS' EQUITY                                $  19,641,762         18,785,837
-------------------------------------------------------------------------------------------------
       TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                $ 257,481,904        257,885,449
=================================================================================================
</TABLE>

      The accompanying notes are an integral part of the consolidated  financial
statements.

                                             3


<PAGE>

<TABLE>
<CAPTION>
                         STATE OF FRANKLIN BANCSHARES, INC.
                         CONSOLIDATED STATEMENTS OF INCOME

                                                         THREE MONTHS ENDED MARCH 31,
                                                      ----------------------------------
INTEREST INCOME:                                      2002 - UNAUDITED  2001 - UNAUDITED
                                                      ----------------  ----------------
<S>                                                    <C>               <C>
Interest and Fees on Loans                             $     2,722,711         3,016,603
Other Interest Income                                        1,254,219           975,424
----------------------------------------------------------------------------------------
       TOTAL INTEREST INCOME                                 3,976,930         3,992,027
----------------------------------------------------------------------------------------

INTEREST EXPENSE:
Interest on Deposits                                         1,440,906         2,164,843
Interest on Short-Term Debt                                          1            84,776
Interest on Long-Term Debt                                     368,767           305,617
Interest on Subordinated Debentures                            124,208                 -
----------------------------------------------------------------------------------------
       TOTAL INTEREST EXPENSE                                1,933,882         2,555,236
----------------------------------------------------------------------------------------
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSS           2,043,049         1,436,791
PROVISION FOR LOAN LOSSES                                   (  147,500)       (   78,277)
----------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSS            1,895,549         1,358,514
----------------------------------------------------------------------------------------

OTHER INCOME:
Other Fees and Service Charges                                 113,399           107,134
Net Gain on Loans Sold                                          91,692            28,347
Insurance Commission Income                                     18,958             3,322
Rental Income, Net                                              23,385            16,237
----------------------------------------------------------------------------------------
       TOTAL OTHER INCOME                                      247,434           155,040
----------------------------------------------------------------------------------------

OTHER EXPENSES:
Compensation and Related Benefits                              596,826           429,037
Occupancy Expenses                                              86,706            72,769
Furniture and Equipment Expense                                111,536            81,102
Advertising                                                     30,968            23,677
Data Processing Expense                                        126,445           113,480
Other                                                          391,702           203,196
----------------------------------------------------------------------------------------
       TOTAL OTHER EXPENSES                                  1,344,183           923,261
----------------------------------------------------------------------------------------
       INCOME BEFORE INCOME TAX                                798,799           590,293
PROVISION FOR INCOME TAXES                                  (  149,271)       (  178,407)
----------------------------------------------------------------------------------------
       NET INCOME                                      $       649,528           411,886
========================================================================================
EARNINGS PER SHARE:
  BASIC                                                $          0.47              0.30
  DILUTED                                                         0.44              0.29
========================================================================================
WEIGHTED AVERAGE SHARES OUTSTANDING:
  BASIC                                                      1,378,208         1,366,126
  DILUTED                                                    1,469,566         1,424,281
========================================================================================
</TABLE>

  The  accompanying  notes are an integral  part of the  consolidated  financial
statements.

                                          4


<PAGE>

<TABLE>
<CAPTION>


                       STATE OF FRANKLIN BANCSHARES, INC.
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
 FOR THREE MONTHS ENDED MARCH 31, 2002 (UNAUDITED) AND YEAR ENDED DECEMBER 31, 2001 (AUDITED)


                                                               Accumulated
                                                                  Other                 Employee
                                     Common        Paid-In    Comprehensive  Retained    Stock
                                     Stock         Capital        Income     Earnings   Ownership       Total
                                  --------------  ----------  ------------  ---------  -----------  ------------
<S>                               <C>             <C>          <C>          <C>       <C>          <C>
Balance at December 31, 2000          1,465,512    14,251,461      89,677   2,569,576  (1,151,623)   17,224,603

ESOP Shares Allocated                        --           --           --          --      61,529        61,529

Comprehensive Income
  Other Comprehensive Income,
    Net of Tax:
    Unrealized Gains on Securities
      Available-For-Sale:
      Unrealized Holding Losses
        Arising During the Period
          (Net of $251,218 Income Tax)       --           --     (401,015)         --          --      (401,015)
      Less: Reclassification Adjustment
          (Net of $34,746 Income Tax)        --           --      (56,691)         --          --       (56,691)
                                                                                                    ------------
                                                                                                       (457,706)

  Net Income                                 --           --           --   1,957,411          --     1,957,411
                                                                                                    ------------
        Total Comprehensive Income           --           --           --          --          --     1,499,705
                                    ------------  ----------     ---------  ---------  -----------  ------------
Balance at December 31, 2001           1,465,512  14,251,461     (368,029)  4,526,987   (1,090,094)  18,785,837

ESOP Shares Allocated                        --           --           --          --      60,054        60,054

Comprehensive Income
  Other Comprehensive Income,
    Net of Tax:
    Unrealized Gains on Securities
      Available-For-Sale:
      Unrealized Holding Losses
        Arising During the Period
          (Net of $85,383 Income Tax)       --           --       148,177          --          --       148,177
      Less: Reclassification Adjustment
          (Net of $1,124 Income Tax)        --           --        (1,834)         --          --        (1,834)
                                                                                                    ------------
                                                                                                        146,343

  Net Income                                 --           --           --     649,528          --       649,528
                                                                                                    ------------
        Total Comprehensive Income           --           --           --          --          --       795,871
                                    ------------  ----------    ---------   ---------  ----------   ------------
Balance at March 31, 2002              1,465,512  14,251,461     (221,686)  5,176,515  (1,030,040)   19,641,792
                                    ============  ==========     =========  =========  ===========  ============

</TABLE>

        The  accompanying  notes  are  an  integral  part  of  the  consolidated
financial statements.

                                                 5



<PAGE>

                       STATE OF FRANKLIN BANCSHARES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                  THREE MONTHS ENDED MARCH 31,
                                                                                ----------------------------------
                                                                                2002 - UNAUDITED  2001 - UNAUDITED
                                                                                ----------------------------------
CASH  FLOWS  FROM  OPERATING  ACTIVITIES:
<S>                                                                               <C>                   <C>
  Net Income                                                                      $     649,528           411,886
  Items Not Affecting Cash:
    Depreciation                                                                        120,664            92,567
    (Increase) Decrease in Accrued Interest                                            (627,534)          213,244
    Deferred Income Taxes (Benefit)                                                      (4,635)          (14,707)
    Provision for Loan and Lease Losses                                                 147,500            78,277
    (Increase) Decrease in Prepaid Expenses and Accounts Receivable                      40,544           (40,815)
    Increase in Interest Payable                                                          6,482            29,079
    Increase in Accounts Payable and Accrued Expenses                                   220,650            90,807
    Increase (Decrease) in Deferred Loan Fees, Net                                       41,716            (3,066)
    Discount Accretion                                                                 (127,990)          (98,484)
    Earned ESOP Shares                                                                   60,054            21,371
    FHLB Stock Dividends                                                                (23,900)          (23,900)
    Net (Increase) Decrease in Loans Held for Sale                                    1,091,891          (937,013)
-------------------------------------------------------------------------------------------------------------------
      NET CASH PROVIDED BY OPERATING ACTIVITIES                                       1,594,970          (190,454)
-------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of Held-to-Maturity Investments                                           (8,911,815)                -
  Purchase of Available-for-Sale Investments                                         (3,989,834)      (16,156,869)
  Proceeds from Sale of Available-for-Sale Investments                                        -                 -
  Proceeds from Maturities of Available-for-Sale Investments                            350,865         3,925,000
  Proceeds from Sale of Available-for-Sale Investments                                        -         6,000,000
  (Increase) Decrease in Federal Funds Sold                                          17,990,000        (1,730,000)
  (Increase) Decrease in Short-Term Interest Bearing Deposits                          (243,830)          188,467
  (Increase) in Loans Receivable, Net                                                (6,463,698)       (2,543,105)
  Purchases of Premises and Equipment                                                  (252,940)          (20,750)
  Purchases of Federal Home Loan Bank Stock                                                   -          (500,000)
-------------------------------------------------------------------------------------------------------------------
    NET CASH (USED) BY INVESTING ACTIVITIES                                          (1,521,251)      (10,837,257)
-------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Net Increase (Decrease) in Deposits                                                (1,937,180)        6,392,977
  Net Increase in Advances by Borrowers for Taxes and Insurance                          74,223            66,644
  Repayment of Debt                                                                           -           (14,522)
  Repayment of FHLB Advances                                                                  -       (12,660,000)
  Proceeds from FHLB Advances                                                           253,466        16,998,593
-------------------------------------------------------------------------------------------------------------------
    NET CASH PROVIDED BY FINANCING ACTIVITIES                                        (1,609,491)       10,783,692
-------------------------------------------------------------------------------------------------------------------
      NET INCREASE IN CASH                                                           (1,535,772)         (244,019)
CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD                                        5,252,689         4,715,833
-------------------------------------------------------------------------------------------------------------------
      CASH AND DUE FROM BANKS AT END OF PERIOD                                    $   3,716,917         4,471,814
===================================================================================================================
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Increase (Decrease) in Unrealized Gain (Loss) on Securities Available-For-Sale,
  Net of Deferred Tax Liability                                                   $     146,343           342,122
Acquisition of Real Estate Property through Foreclosure of Related Loans          $     870,910                 -
===================================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
  Cash Paid During the Period for:
    Income Taxes                                                                  $     714,077            20,000
    Interest                                                                      $   1,927,400         2,526,157
===================================================================================================================
</TABLE>

        The  accompanying  notes  are  an  integral  part  of  the  consolidated
financial statements.


                                                  6



<PAGE>

STATE OF FRANKLIN BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

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

      State of Franklin Bancshares,  Inc. (the "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  (the  "Savings  Bank).  The
      stockholders  of the Savings Bank exchanged their shares for the shares of
      the Company,  whereby the Savings Bank became a wholly owned subsidiary of
      the Company.  State of Franklin  Leasing  Corporation (the "Leasing Corp")
      was incorporated  under the laws of the State of Tennessee for the purpose
      of lease financing.  In January 2002, State of Franklin Real Estate,  Inc.
      (the "Real Estate  Company") was  incorporated  for the purpose of selling
      real estate. The Real Estate Company and John Sevier Title Services,  Inc.
      (the "Title  Company") are wholly owned  subsidiaries of the Savings Bank.
      The Leasing Corp is a wholly owned subsidiary of the Company.


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-QSB.  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,
      2002 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, 2001.


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, 2002 consolidated
     financial statements.


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

     Fixed assets at March 31, 2002,  and  December 31, 2001 are  summarized  as
follows:

<TABLE>
<CAPTION>
                                                                2002          2001
                                                            -----------   -----------
<S>                                                        <C>           <C>
     Land                                                     1,450,000     1,450,000
     Buildings and Leasehold Improvements                     3,078,176     3,040,756
     Furniture, Fixtures and Equipment                        2,307,496     2,091,976
                                                            -----------   -----------
                                                              6,835,672     6,582,732
     Less:  Accumulated Depreciation                          1,384,216     1,263,552
                                                            -----------   -----------
                                                              5,451,456     5,319,180
                                                            ===========   ===========
</TABLE>


                                        7


<PAGE>


NOTE  5     LOANS  RECEIVABLE
-------    ------------------

     Loans  receivable  at March 31, 2002 and December 31, 2001,  consist of the
following:

<TABLE>
<CAPTION>
                                                   2002             2001
                                              --------------   --------------
<S>                                          <C>              <C>
  First Mortgage Loans                           57,110,664       54,554,665
  Construction Loans                             23,792,705       20,163,050
  Consumer Loans                                 12,595,071       12,536,061
  Participation Loans, Net                          498,142          503,354
  Commercial Loans                               59,931,593       56,028,216
  Credit Line Advances                              692,322          710,137
  Lease Finance                                   1,260,604        1,342,242
                                             ---------------  ---------------

    Gross Loans and Leases Receivable           155,881,101      145,837,725
                                             ---------------  ---------------

  Less:
    Undisbursed Portion of Loans in Process    ( 10,756,535)    (  6,606,444)
    Net Deferred Loan Origination Fees         (    182,665)    (    140,949)
    Accumulated General Loan Loss Allowance    (  1,367,186)    (  1,473,855)
                                             ---------------  ---------------
                                               ( 12,283,396)    (  8,221,248)
                                             ---------------  ---------------

  Loans and Leases Receivable, Net              143,597,705      137,616,477
                                             ===============  ===============

</TABLE>
     An analysis of the  allowance  for loan and lease  losses at March 31, 2002
     and December 31, 2001 is as follows:

<TABLE>
<CAPTION>
                                                  2002              2001
                                              --------------   --------------
<S>                                           <C>               <C>
    Balance - Beginning of Period                 1,473,855        1,062,511
    Provision for Loan and Lease Losses             147,500          589,902
    Loans and Leases Charged-Off                 (  277,502)      (  181,508)
    Charged-Off Loan and Lease Recoveries               343            2,950
                                              --------------   --------------

    Balance - End of Period                       1,344,196        1,473,855
                                              ==============   ==============
</TABLE>


     The gross  amount of  participation  loans  serviced  by State of  Franklin
     Savings Bank was $995,858 at March 31, 2002 and  $1,006,596 at December 31,
     2001.

     The  Bank had $1.3  million  in  non-performing  loans  at March  31,  2002
     compared to $2.8 million at December 31, 2001.


                                                   8


<PAGE>

NOTE 6     FEDERAL REGULATION
------     -------------------

     The capital ratios for State of Franklin Savings Bank are as follows:

<TABLE>
<CAPTION>
                                                            For Capital
                                                             Adequacy
                                                             Purposes
                                                          And To Be Well
                                                         Capitalized Under
                                                         Prompt Corrective
                                          Actual          Action Provision
                                     ----------------    ----------------
In Thousands  (Reviewed)             Amount    Ratio     Amount    Ratio
---------------------------          ----------------    ----------------
<S>                                  <C>       <C>        <C>      <C>
As of March 31, 2002:
     Total Risk-Based Capital
    (to Risk-Weighted Assets)        19,246    11.32%    >=17,006   10.0%

  Tier 1 Capital
    (to Risk-Weighted Assets)        17,947    10.55%    >=10,203    6.0%

  Tier 1 Capital
    (to Adjusted Total Assets)       17,947     7.17%    >=12,517    5.0%

As of December 31, 2001:
  Total Risk-Based Capital
    (to Risk-Weighted Assets)        18,680    11.25%    >=16,602   10.0%

  Tier 1 Capital
    (to Risk-Weighted Assets)        17,244    10.39%    >= 9,961    6.0%

  Tier 1 Capital
    (to Adjusted Total Assets)       17,244     7.44%    >=11,588    5.0%


</TABLE>

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

<TABLE>
<CAPTION>
                                                           For Capital
                                                            Adequacy
                                                            Purposes
                                                         And To Be Well
                                                        Capitalized Under
                                                        Prompt Corrective
                                         Actual         Action Provision
                                     -----------------  -----------------
In Thousands  (Reviewed)             Amount    Ratio    Amount    Ratio
---------------------------          -----------------  -----------------
<S>                                  <C>        <C>     <C>        <C>
As of March 31, 2002:
     Total Risk-Based Capital
    (to Risk-Weighted Assets)        29,007     16.97%  >=17,078    10.0%

  Tier 1 Capital
    (to Risk-Weighted Assets)        26,186     15.33%  >=10,247     6.0%

  Tier 1 Capital
    (to Adjusted Total Assets)       26,186     10.39%  >=12,598     5.0%

As of December 31, 2001:
  Total Risk-Based Capital
    (to Risk-Weighted Assets)        28,392     17.03%  >=16,671    10.0%

  Tier 1 Capital
    (to Risk-Weighted Assets)        25,224     15.13%  >=10,003     6.0%

  Tier 1 Capital
    (to Adjusted Total Assets)       25,224     10.80%  >=11,675     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. The ESOP was established
     and funded for 1997. On February 28, 1998, 5,236 shares of the Savings Bank
     with a fair value of $57,600  were  issued for the 1997  contribution.  The
     Savings Bank stock was exchanged for Company stock.

     During  the third  quarter of 1998,  the ESOP  borrowed  $700,000  from the
     Company and used the funds to purchase 63,636 shares of common stock of the
     Company at $11 per share. Note payments were $8,218 per month for ten years
     with a fixed  interest  rate of 7.25%.  The note  balances  outstanding  at
     December 31, 2000 and 1999 were  $571,637  and  $626,615,  respectively.  A
     related  loan was  granted for the  purpose of  leveraging  the ESOP in the
     amount of $700,000 with similar terms and collaterized with stock. The note
     balances  outstanding  at  December  31,  2000 and 1999 were  $571,637  and
     $626,615, respectively.

     On June 30, 2000, the ESOP borrowed an additional $599,994 from the Company
     and used the funds to purchase 44,444  additional shares of common stock of
     the Company at $13.50 per share.  Note  payments  were $7,280 per month for
     ten years with a fixed interest rate of 8.00%. The note balance outstanding
     at December 31, 2000 was $579,985.  In November  2001,  the ESOP loans were
     consolidated  into a seven year term loan from the Company in the amount of
     $1,071,093  with a fixed interest rate of 6.00%.  Note payments are $15,218
     per month for 83 months plus a final principal payment of $24,092. The note
     balance  outstanding  at March 31, 2002 was  $1,015,140.  Also, in November
     2001,  the  Company  granted a $300,000  line of credit to the ESOP for the
     purchase  of  additional  shares  of stock  in the  Company  as it  becomes
     available. The interest rate for balances outstanding on the line of credit
     is 6% with a five  year  term.  Interest  is paid  monthly  with  principal
     payments made as funds are available.  At March 31, 2002,  the  outstanding
     balance advanced on the line of credit was $14,900.

     Shares owned by the ESOP at December 31, 2001 totaled 151,528.  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:

                                         March 31,     December 31,
                                           2002           2001
                                       -------------  -------------
      Number of Shares
        Released and Allocated               49,340         43,654
        Committed to be Released              2,533          5,687
        Suspense                             86,292         88,814

      Fair Value
        Released and Allocated              888,120        707,195
        Committed to be Released             45,594        351,049
        Suspense                          1,553,256      1,438,787


     Contributions to the ESOP are as follows:

                                         March 31,    December 31,
                                           2002           2001
                                      -------------  -------------
      Compensation Expense                  78,000        264,000
      Contributions                         78,000        264,000

     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>        <C>
     Options Granted - Outside Directors         January 1, 2002        76,014    49,707     $11.62
                                                 During 2002             7,000     7,000      16.20

     Options Granted - Management                January 1, 2002       182,166   109,910     $11.64
                                                 During 2002            20,982        --      16.20

                                                                       -------   -------
     Options Outstanding - March 31, 2002                              286,162   166,617     $12.08
                                                                       =======   =======
</TABLE>

                                                   10


<PAGE>

NOTE 8     DEPOSITS
-------   ----------

     Deposit balances are summarized as follows:

<TABLE>
<CAPTION>
                                            March 31, 2002              December 31, 2001
                                    -----------------------------  -----------------------------
                                       Rate      Amount   Percent     Rate      Amount   Percent
                                    ------- -----------  --------  ------- -----------  --------
<S>                                  <C>    <C>           <C>       <C>    <C>           <C>
     Passbook                          2.63  52,620,594     26.55     2.60  41,603,020     20.79
     Interest-Free Checking              --   9,302,202      4.69       --  18,216,284      9.10
     NOW                               1.98   9,818,913      4.95     2.00   8,512,548      4.26
     Money Market Deposit              2.20  40,526,056     20.45     2.21  46,020,212     22.99
                                            -----------  --------          -----------  --------
                                            112,267,765     56.64          114,352,064     57.14
                                            -----------  --------          -----------  --------
     Fixed Term Certificate Accounts
      Balances $100,000 or greater     4.00  22,663,906     11.44     4.45  22,237,766     11.11
      Balances less than $100,000      3.81  63,268,223     31.92     4.32  63,547,244     31.75
                                            -----------  --------          -----------  --------
                                             85,932,129     43.36           85,785,010     42.86
                                            -----------  --------          -----------  --------
                                            198,199,894    100.00          200,137,074    100.00
                                            ===========  ========          ===========  ========
</TABLE>

The contractual  maturity of certificate accounts at March 31, 2001 and December
31, 2000, is as follows:

           Period Ending March 31, 2002           Year Ending December 31, 2001
           ----------------------------           -----------------------------
            2002             64,381,162                2002          77,330,432
            2003             15,136,346                2003           5,968,854
            2004              3,974,088                2004           1,323,611
            2005              2,220,253                2005           1,162,113
            2006 and After      220,280                2006 and After        --
                             ----------                              ----------
                             85,932,129                              85,785,010
                             ==========                              ==========


NOTE 9     FEDERAL HOME LOAN BANK ADVANCES
-------    -------------------------------

     Advances  from FHLB are  summarized  as follows for the periods ended March
31, 2002 and December 31, 2001:


      Contractual Maturity                            2002            2001
      --------------------                        -----------     -----------

      Convertible Fixed Rate (Within 10 Years)      30,000,000       30,000,000
      Matched-Funding (30-Year Amortizing)             494,461          240,995

      Weighted Average Rate                              4.92%            4.95%


     The convertible  fixed rate advances have an original  maturity of 10 years
     with an option  held by FHLB to convert to a variable  rate tied to 3-month
     LIBOR  beginning 1 to 3 years from the original issue date. If converted to
     a variable  rate the bank  maintains  the option to pay off the  advance or
     continue at the variable rate over the original contractual maturity of the
     advance.


NOTE 10     INVESTMENT SECURITIES
-------     ---------------------

     The amortized cost and fair value of investment securities held-to-maturity
     and  available-for-sale  at March 31, 2002, 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.






                                       11
<PAGE>
NOTE 10     CONTINUED
-------     ---------

     March 31, 2002:
<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 five years
           but within ten years               6,891,182   120,382          --      7,011,564
         After ten years
           but within fifteen years             999,740        --       38,810       960,930
         After fifteen years
           but within twenty years            3,434,010   128,796      138,669     3,424,137
         After twenty years                   1,104,343        --       74,653     1,029,690

       U S Agency Collateralized Mortgage Obligations:
         After five years
           but within ten years              1,946,387      1,288       12,868     1,934,807
         After fifteen years
           but within twenty years           1,948,644     22,682           --     1,971,326

       Municipal Securities Maturing:
         After one year
           but within five years               675,000     22,532           --       697,532
         After five years
           but within ten years              2,401,656     30,468       28,944     2,403,180
         After ten years
           but within fifteen years         10,598,565     62,035      121,139    10,539,461
         After fifteen years
           but within twenty years           4,965,622         --      153,139     4,812,483
         After twenty years                  1,512,760        549       24,053     1,489,256

       Equity Securities (Preferred
         Stock in U S Government Agencies):
          Callable after 1 year
           but within five years            17,000,000         --      234,444    16,765,556
          Callable after five years
           but within ten years              5,933,450    178,702           --     6,112,152

       Other
          Within one year                    1,080,595         --           --     1,080,595
          After five years
           but within ten years              3,000,000         --       79,602     2,920,398
          After ten years
           but within fifteen years          2,100,000         --       75,095     2,024,905
          After twenty years                 2,558,494     75,311       16,092     2,617,713
                                            ----------    -------    ---------    ----------
             Total Available-for-Sale       68,150,448    642,745      997,508    67,795,685
                                            ==========    =======    =========    ==========

     Held-to-Maturity:

        United States Government Agency Securities Maturing:
          After five years
           but within ten years              4,838,347         --       14,400     4,823,947
          After ten years
           but within fifteen years          5,490,878         --      138,362     5,352,516

        U S Agency Collateralized Mortgage Obligations:
          After one year
           but within five years             4,235,443     32,983       26,907     4,241,519
          After five years
           but within ten years              4,012,066         --      139,478     3,872,588
                                            ----------    -------    ---------    ----------
             Total Held-to-Maturity         18,576,734     32,983      319,147    18,290,570
                                            ==========    =======    =========    ==========




                                       12


<PAGE>

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

     Earnings per share for quarter ended March 31, 2002,  compared with quarter
     ended March 31, 2001, is as follows:

<TABLE>
<CAPTION>
                                                            March 31,
                                                        2002        2001
                                                     ---------    ---------
<S>                                                  <C>          <C>
     Net Income                                        649,528      411,886

     Average Basic Shares Outstanding                1,378,208    1,366,126

     Basic Earnings Per Share                             0.47         0.30
                                                          ====         ====

     Net Income                                        649,528      411,886

     Average Basic Shares Outstanding                1,378,208    1,366,126
     Dilutive Effect Due to Stock Options               91,327       58,155
                                                     ---------    ---------
     Average Shares Outstanding, as Adjusted         1,469,535    1,424,281

     Diluted Earnings Per Share                           0.44         0.29
                                                          ====         ====
</TABLE>






























                                       13

<PAGE>
ITEM  2. MANAGEMENT'S 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 (the "Savings Bank") and State of
     Franklin Leasing Corporation (the "Leasing Corp") represents  virtually all
     of the assets of State of Franklin  Bancshares,  Inc. (the "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, 2002, assets of the Company totaled $257.5 million  reflecting
     a slight decline of $404,000 or .2% since December 31, 2001. The decline in
     assets was due  primarily  to a $1.9 million  decline in deposits  combined
     with increases in Federal Home Loan Bank advances and stockholders' equity.


     LOANS
     -----

     Loans   outstanding   totaled  $146.4  million  at  March  31,  2002.  This
     represented an increase of 3% from the December 31, 2001 outstanding  loans
     of $141.6 million.

     Commercial loans increased $3.9 million to $59.9 million at March 31, 2002,
     an  increase  of 7% from $56  million at  December  31,  2001.  Real estate
     construction  lending totaled $23.8 million  compared with $20.2 million at
     December 31, 2001,  reflecting an increase of $3.6 million or 18%. Consumer
     loans of $12.6  million  at March 31,  2002  increased  $59,000  from $12.5
     million at December 31, 2001.  During the first three months of 2002, first
     mortgage  residential  loans  increased  to $57.1  million or 5% from $54.6
     million at December  31,  2001.  The loan  portfolio  mix at March 31, 2002
     consists of 37%  residential  mortgages,  39%  commercial,  14% real estate
     construction, and 10% consumer loans.


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

     Investment  securities  totaled  $86.4  million  at  March  31,  2001.  The
     investment  portfolio  at quarter end  consisted  of $22.8  million in debt
     securities  issued  by the U. S.  Government  or  Federal  Agencies,  $12.2
     million  is  Federal  Agency  Collateralozed  Mortgage  Obligations,  $22.9
     million in preferred  stock issued by Federal  Agencies,  $19.9  million in
     securities issued by state, county, or municipalities,  and $8.6 million in
     corporate securities.

     At March 31, 2002,  securities  categorized as  available-for-sale  totaled
     $67.8 million while the  held-to-maturity  securities totaled $18.6 million
     compared  to  $63.8  million  in  available-for-sale  and $9.7  million  in
     held-to-maturity   at  December   31,  2001.   At  March  31,   2002,   the
     available-for-sale  portfolio had a net  unrealized  loss of $354,763 while
     our  held-to-maturity  securities had $286,164 in unrealized  losses due to
     changes in market rates. Due to the credit quality of these investments, no
     realized losses are expected.


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

     Loans  past due 90 days or more were  $1.6  million  at March 31,  2002 and
     $881,000 at December 31, 2001.  Nonaccrual loans were $1.3 million at March
     31, 2002 compared  with $2.8 million at December 31, 2001.  The reserve for
     loan and lease losses was  $1,367,186  at March 31, 2002, or 0.94% of loans
     and leases outstanding,  net of unearned income,  compared to $1,473,855 or
     1.06% at December 31, 2001.  Management  believes  the  allowance  for loan
     losses is adequate to provide for potential loan losses.


     DEPOSITS
     --------

     Total deposits at March 31, 2002 of $198.2 million,  reflected a decline of
     $1.9  million or a 4% decrease  from $200.1  million at December  31, 2001.
     Non-interest  bearing demand deposits totaled $9,302,202 at March 31, 2002,
     a decrease  of $8.9  million  from  December  31,  2001.  Interest  bearing
     deposits increased $7 million to $188.9 million at March 31, 2002.


                                       14

     <PAGE>
     CAPITAL
     -------

     Tier 1 capital for the Savings Bank at March 31, 2002 was $17.9 million. At
     March 31,  2002,  all  capital  ratios  were in  excess  of the  regulatory
     minimums,  with the Savings Bank's Tier 1, total  risk-based,  and leverage
     ratios of 10.55%, 11.32% and 7.17%, respectively.

     Tier 1 capital for the Company at March 31,  2002,  was $26.2  million with
     Tier 1,  total  risk-based,  and  leverage  ratios of 15.33%,  16.97%,  and
     10.39%, respectively.


     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 an unused line of credit with
     the Federal Home Loan Bank of Cincinnati  totaling $19 million at March 31,
     2002.


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

     The Company had net income of $649,528  for the three  months  ending March
     31, 2002,  compared with $411,886 for the same period last year,  resulting
     in an increase of 58%. Net income per diluted  share was $0.44  compared to
     earnings  per share of $0.29 for the three  months  ending  March 31, 2001.
     Return on average  assets  was 1.04% and the  return on average  equity was
     14.07% for the three month period ended March 31, 2002,  compared with .80%
     and 9.21%, respectively, for the same period in 2001.

     Noninterest income increased $92,394, or 60%, during the three months ended
     March 31,  2002,  compared the same period last year as a result of the net
     effect several factors.  Gain on loans sold increased  $63,345,  other fees
     and service charges increased $6,265,  rental income increased $7,148,  and
     insurance commission income increased $15,636.

     Noninterest  expense was  $1,344,183  for the three months ending March 31,
     2002,  an  increase  of 46% over the 2001  period,  resulting  mainly  from
     compensation  and related  benefits,  occupancy,  furniture  and  equipment
     expense,  advertising,  data processing, and other expenses associated with
     growth of the Company.


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

     Interest  income  increased while interest  expense  decreased from 2001 to
     2002  resulting  from a  combination  of  increases  in earning  assets and
     interest  bearing  liabilities and a decline in overall interest rates. Net
     interest  income of $2.0  million for the three months ended March 31, 2002
     reflects an increase of $606,258 or 42% over the same period last year. For
     the three months ending March 31, 2002,  average  earning assets  increased
     $42.1 million or 21% while average interest bearing  liabilities  increased
     $39.9  million,  or 22%,  compared  with the same  period in 2001.  Average
     earning  asset yield  declined  125 basis points to 7.01% while the cost on
     interest  bearing   liabilities   decreased  217  basis  points  to  3.50%.
     Consequently,  the net  interest  margin  based on average  earning  assets
     increased to 3.80% for the three months ending March 31, 2002 compared with
     3.10% for the same period in 2001.


     PROVISION FOR LOAN LOSSES
     -------------------------

     During the three months ended March 31, 2002,  the  provision  for possible
     loan losses was  $147,500  compared  with  $78,277 for the same period last
     year.  Loan  charge-offs  for the three months  ended March 31, 2002,  were
     $278,000  compared with $873 during the same period in 2001.  The allowance
     for possible loan losses  represented  .93% of total loans, net of mortgage
     loans held-for-sale, at March 31, 2001, compared to .82% at March 31, 2001.
     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, 2002,  the  provision  for federal and
     state income taxes was  $149,271,  a decrease of $29,136 from the March 31,
     2001  provision of $178,407.  The decline was primarily due to the increase
     in tax free  municipal  income and the tax  benefit  from the  increase  in
     dividends on agency preferred stocks.

                                       15

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

     The Company's noninterest income was $247,434 during the three months ended
     March 31,  2002,  an  increase of $92,394 or 60% from the  comparable  2001
     period.  The increase resulted from increases in service charges on deposit
     accounts, gains on loans sold, insurance commissions,  and rental income of
     $6,265, $63,345, $15,636, and $7,148, respectively.


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

     Noninterest  expense  totaled  $1,344,183 for the three month period ending
     March 31, 2002,  an increase of $420,922 or 46%. The increase was result of
     increases  in  compensation  and  related  benefits,   occupancy   expense,
     furniture and equipment expense,  advertising, data processing expense, and
     other  expenses  of  $167,789,   $13,937,  $30,434,  $7,291,  $12,965,  and
     $188,506, respectively.




PART II  -  OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

     None

ITEM 2.    CHANGES IN SECURITIES

     None

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

          b)   The  Company  did not file any  reports  on Form 8-K  during  the
               quarter ended March 31, 2002






























                                       16



<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, 2002                          /s/ Randal R. Greene
---------------------------             ----------------------------------
         (Date)                             Randal R. Greene, President





       May 10, 2002                         /s/ Charles E. Allen, Jr.
---------------------------             ----------------------------------
          (Date)                              Charles E. Allen, Jr.,
                                              Chairman of the Board
                                           and Chief Executive Officer
                                         (Principal Executive, Financial
                                             and Accounting Officer)