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:    JUNE 30, 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
                                    ----

                                       1,465,512
                      ------------------------------------------
       (OUTSTANDING SHARES OF THE ISSUER'S COMMON STOCK AS OF JUNE 30, 2000)


            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
                     JUNE 30, 2000 (REVIEWED) AND DECEMBER 31, 1999 (AUDITED)

                  CONSOLIDATED STATEMENTS OF INCOME                                        4 - 5
                     THREE MONTHS ENDED JUNE 30, 2000 AND 1999 (REVIEWED)
                     SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (REVIEWED)

                  CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY                   6
                     SIX MONTHS ENDED JUNE 30, 2000 (REVIEWED)
                     AND YEAR ENDED DECEMBER 31, 1999 (AUDITED)

                  CONSOLIDATED STATEMENTS OF CASH FLOWS                                        7
                     SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (REVIEWED)

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (REVIEWED)                        8

                  INDEPENDENT ACCOUNTANT'S REPORT                                             15

ITEM 2.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                     AND RESULTS OF OPERATIONS                                                16


PART II.   OTHER INFORMATION

        ITEM 1.   LEGAL PROCEEDINGS                                                           19

        ITEM 2.   CHANGES IN SECURITIES                                                       19

        ITEM 3.   DEFAULT UPON SENIOR SECURITIES                                              19

        ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                         19

        ITEM 5.   OTHER INFORMATION                                                           19

        ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K                                            19
</TABLE>


                                              2
<PAGE>
                       PART  I  -  FINANCIAL  INFORMATION


PART  1  -  FINANCIAL  INFORMATION

ITEM  1.   FINANCIAL  STATEMENTS


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

                 CONSOLIDATED  STATEMENTS OF FINANCIAL CONDITION


                                                                  JUNE 30,          DECEMBER 31,
                             ASSETS                           2000 -  REVIEWED     1999 - AUDITED
-------------------------------------------------------------------------------------------------
<S>                                                              <C>                  <C>
Cash and Due from Banks                                          $        6,604,418     2,785,509
Federal Funds Sold                                                        2,333,000       308,000
Short-Term Interest Bearing Deposits                                        212,730       133,148
Investments - HTM
   (Estimated Market 2000 - $13,212,971 and 1999 - $13,301,184)          13,988,847    13,988,346
Investments - AFS                                                        22,334,258    21,440,591
Loans Held for Sale                                                         392,139       453,562
Loans and Leases Receivable                                             125,602,523   114,439,773
   Less: Allowance for Loan and Lease Losses                               (896,796)     (810,303)
-------------------------------------------------------------------------------------------------
   Loans and Leases Receivable, Net                                     124,705,727   113,629,470
-------------------------------------------------------------------------------------------------
Accrued Interest Receivable, Net                                          1,362,732     1,271,439
Land, Buildings & Equip at Cost Less Accum Depr
   of $745,613 in 2000 and $607,618 in 1999                               4,806,634     4,058,242
Prepaid Expense and Accounts Receivable                                     130,957        77,907
Investment in Service Bureau at Cost                                         15,000        15,000
Deferred Tax Assets                                                         699,873       599,503
FHLB Stock                                                                1,468,700     1,417,700
Other Real Estate Owned                                                     126,000             0
--------------------------------------------------------------------------------------------------
  TOTAL ASSETS                                                   $      179,181,015   160,178,417
==================================================================================================
             LIABILITIES AND STOCKHOLDERS' EQUITY
==================================================================================================
LIABILITIES:
Interest-Free Deposits                                           $        9,386,431     7,762,451
Interest-Bearing Deposits                                               132,751,508   124,475,175
Advances by Borrowers for Taxes and Insurance                               259,906       117,372
Accrued Interest on Deposits                                                158,533        95,734
Accounts Payable and Accrued Expenses                                       138,242       488,630
FHLB Short-Term Advances                                                 13,960,000     4,045,000
FHLB Long-Term Advances                                                   6,198,158     9,047,707
Deferred Gain on REO                                                         21,448        21,448
Notes Payable                                                               599,628       626,615
--------------------------------------------------------------------------------------------------
       TOTAL LIABILITIES                                         $      163,473,854   146,680,132
--------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Common Stock, $1.00 Par Value                                             1,465,512     1,301,519
Paid-in Capital                                                          14,251,461    12,243,730
Accumulated Other Comprehensive Income                                     (703,510)     (610,238)
                                                                              -
Retained Earnings                                                         1,893,320     1,189,889
  Less: Employee Stock Ownership                                         (1,199,622)     (626,615)
-------------------------------------------------------------------------------------------------
       TOTAL STOCKHOLDERS' EQUITY                                $       15,707,161    13,498,285
-------------------------------------------------------------------------------------------------
       TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                $      179,181,015   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 JUNE 30,
                                                    -------------------------------------
INTEREST INCOME:                                     2000 - REVIEWED      1999 - REVIEWED
                                                    --------------------  ---------------
<S>                                                 <C>                   <C>
Interest and Fees on Loans                          $         2,634,856   1,915,139
Other Interest Income                                           645,148     587,942
------------------------------------------------------------------------------------
       TOTAL INTEREST INCOME                                  3,280,004   2,503,081
------------------------------------------------------------------------------------

INTEREST EXPENSE:
Interest on Deposits                                          1,739,024   1,384,986
Interest on Short-Term Debt                                      75,178           -
Interest on Long-Term Debt                                      176,887     124,331
Other Interest Expense                                                -           -
------------------------------------------------------------------------------------
       TOTAL INTEREST EXPENSE                                 1,991,089   1,509,317
------------------------------------------------------------------------------------

NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSS            1,288,915     993,764
PROVISION FOR LOAN LOSSES                                       (68,237)    (70,642)
------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSS             1,220,678     923,122
------------------------------------------------------------------------------------

OTHER INCOME:

Other Fees and Service Charges                                   97,989      55,196
Net Gain on Loans Sold                                           22,538      18,137
Net Gain on Sale and Maturity of Securities                           -      12,724
Insurance Commission Income                                      13,299      12,060
Rental Income, Net                                               25,909      31,269
Other                                                                 -         (24)
------------------------------------------------------------------------------------
       TOTAL OTHER INCOME                                       159,735     129,362
------------------------------------------------------------------------------------

OTHER EXPENSES:
Compensation and Related Benefits                               384,123     306,873
Occupancy Expenses                                               60,757      56,360
Furniture and Equipment Expense                                  62,529      77,972
Advertising                                                      29,186      28,589
Data Processing Expense                                          92,185      65,973
Other                                                           176,741     198,044
------------------------------------------------------------------------------------
       TOTAL OTHER EXPENSES                                     805,521     733,811
------------------------------------------------------------------------------------

       INCOME BEFORE INCOME TAX                                 574,892     318,673
PROVISION FOR INCOME TAXES                                     (199,547)   (102,967)
------------------------------------------------------------------------------------
       NET INCOME                                   $           375,345     215,706
====================================================================================

EARNINGS PER SHARE:
  BASIC                                             $              0.28        0.19
  DILUTED                                                          0.28        0.19
====================================================================================

WEIGHTED AVERAGE SHARES OUTSTANDING:
  BASIC                                                       1,319,526   1,126,149
  DILUTED                                                     1,355,734   1,138,830
====================================================================================
</TABLE>


              See accompanying  notes  and  accountant's  report.


                                      4
<PAGE>
                       STATE OF FRANKLIN BANCSHARES, INC.
                       CONSOLIDATED  STATEMENTS OF INCOME


<TABLE>
<CAPTION>
                                                         SIX MONTHS ENDED JUNE 30,
                                                    -------------------------------------
INTEREST INCOME:                                     2000 - REVIEWED      1999 - REVIEWED
                                                    --------------------  ---------------
<S>                                                 <C>                   <C>
Interest and Fees on Loans                          $         5,115,908   3,730,261
Other Interest Income                                         1,263,541     987,717
------------------------------------------------------------------------------------
       TOTAL INTEREST INCOME                                  6,379,449   4,717,978
------------------------------------------------------------------------------------

INTEREST EXPENSE:
Interest on Deposits                                          3,367,778   2,587,230
Interest on Short-Term Debt                                     155,296           -
Interest on Long-Term Debt                                      300,953     244,684
Other Interest Expense                                                -           -
------------------------------------------------------------------------------------
       TOTAL INTEREST EXPENSE                                 3,824,027   2,831,914
------------------------------------------------------------------------------------

NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSS            2,555,422   1,886,064
PROVISION FOR LOAN LOSSES                                      (125,175)   (119,146)
------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSS             2,430,247   1,766,918
------------------------------------------------------------------------------------

OTHER INCOME:

Other Fees and Service Charges                                  188,006     105,445
Net Gain on Loans Sold                                           31,278      85,899
Net Gain on Sale and Maturity of Securities                           -      12,724
Insurance Commission Income                                      23,386      26,443
Rental Income, Net                                               40,933      59,154
Other                                                                 -           -

------------------------------------------------------------------------------------
       TOTAL OTHER INCOME                                       283,603     289,665
------------------------------------------------------------------------------------

OTHER EXPENSES:
Compensation and Related Benefits                               764,289     614,485
Occupancy Expenses                                              136,852     126,932
Furniture and Equipment Expense                                 132,395     130,037
Advertising                                                      43,614      64,217
Data Processing Expense                                         176,079     153,810
Other                                                           399,537     374,455
------------------------------------------------------------------------------------
       TOTAL OTHER EXPENSES                                   1,652,766   1,463,936
------------------------------------------------------------------------------------

       INCOME BEFORE INCOME TAX                               1,061,084     592,647
PROVISION FOR INCOME TAXES                                     (357,653)   (197,868)
------------------------------------------------------------------------------------
       NET INCOME                                   $           703,431     394,779
====================================================================================

EARNINGS PER SHARE:
  BASIC                                             $              0.54        0.35
  DILUTED                                                          0.53        0.35
====================================================================================

WEIGHTED AVERAGE SHARES OUTSTANDING:
  BASIC                                                       1,295,363   1,125,012
  DILUTED                                                     1,331,571   1,136,479
====================================================================================
</TABLE>

                 See accompanying notes and accountant's report.


                                        5
<PAGE>
<TABLE>
<CAPTION>
                          STATE OF FRANKLIN BANCSHARES, INC.

              CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

  FOR SIX MONTHS ENDED JUNE 30, 2000 (REVIEWED) AND YEAR ENDED DECEMBER 31, 1999 (AUDITED)



                                                                                 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                            163,993         --    2,007,731        --          --          --       2,171,724
                                                                                                                    --------------
ESOP Shares Allocated                                --         --           --        --          --      26,987          26,987
                                                                                                                    --------------
Additional ESOP Shares Issued                                                                            (599,994)       (599,994)
                                                                                                                    --------------
Comprehensive Income
  Other Comprehensive Income,
    Net of Tax:
    Unrealized Gains on Securities
      Available-For-Sale:
      Unrealized Holding Gains
        Arising During the Period
           (Net of $48,049 Income Tax)               --         --           --   (93,272)         --          --         (93,272)

  Net Income                                         --         --           --        --     703,431          --         703,431
                                                                                                                    --------------
        Total Comprehensive Income                   --         --           --        --          --          --         610,159
                                          --------------  ---------  ----------  ---------  ---------  -----------  --------------
Balance at June 30, 2000                      1,465,512         --   14,251,461  (703,510)  1,893,320  (1,199,622)     15,707,161
                                          ==============  =========  ==========  =========  =========  ===========  ==============


                                          See accompanying notes and accountant's report.
</TABLE>


                                       6
<PAGE>
                       STATE OF FRANKLIN BANCSHARES, INC.

                     CONSOLIDATED  STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                          SIX MONTHS ENDED JUNE 30,
                                                                                  -----------------------------------
                                                                                     2000 - REVIEWED   1999 - REVIEWED
                                                                                  -------------------  --------------
CASH  FLOWS  FROM  OPERATING  ACTIVITIES:
<S>                                                                               <C>                   <C>
  Net Income                                                                      $           703,431       394,779
  Items Not Affecting Cash:
    Depreciation                                                                              137,995       125,862
    (Increase) in Accrued Interest                                                            (91,293)     (478,092)
    Deferred Income Taxes (Benefit)                                                           (52,323)       42,872
    Provision for Loan and Lease Losses                                                       125,175       118,130
    (Increase) in Prepaid Expenses and Accounts Receivable                                    (53,049)      (54,012)
    (Increase) Decrease in Interest Payable                                                    62,799       (31,604)
    (Increase) Decrease in Accounts Payable and Accrued Expenses                             (350,388)       63,804
    Increase (Decrease) in Deferred Loan Fees, Net                                             33,104          (972)
    (Gain) on Sale of Investments                                                                   -       (12,724)
    Discount Accretion                                                                         (7,182)       (3,033)
    Earned ESOP Shares                                                                         26,988        35,335
    FHLB Stock Dividends                                                                      (51,000)      (26,300)
    Net Decrease in Loans Held for Sale                                                        61,423     1,190,587
--------------------------------------------------------------------------------------------------------------------
      NET CASH PROVIDED BY OPERATING ACTIVITIES                                               545,680     1,364,632
--------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of Available-for-Sale Investments                                               (1,565,582)  (27,907,489)
  Proceeds from Sale of Available-for-Sale Investments                                        504,171             -
  Proceeds from Maturities of Available-for-Sale Investments                                        -     6,595,000
  Principal Payments on Mortgage Backed Securities - AFS                                            -        35,965
  (Increase) Decrease in Federal Funds Sold                                                (2,025,000)    2,617,000
  (Increase) Decrease in Short-Term Interest Bearing Deposits                                 (79,582)    5,000,000
  (Increase) in Loans Receivable, Net                                                     (11,327,432)  (13,129,550)
  Purchases of Premises and Equipment                                                        (886,387)      (85,239)
  Purchases of Federal Home Loan Bank Stock                                                         -      (870,700)
--------------------------------------------------------------------------------------------------------------------
    NET CASH (USED) BY INVESTING ACTIVITIES                                               (15,379,812)  (27,745,013)
--------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Net Increase in Deposits                                                                  9,900,313    26,546,797
  Net Increase in Advances by Borrowers for Taxes and Insurance                               142,534       116,366
  Issuance of Common Stock, Net                                                             2,171,724        35,576
  ESOP Shares Purchased                                                                      (599,994)            -
  Repayment of Debt                                                                           (26,987)      (35,335)
  Proceeds from FHLB Advances                                                               7,065,451             -
--------------------------------------------------------------------------------------------------------------------
    NET CASH PROVIDED BY FINANCING ACTIVITIES                                              18,653,041    26,663,404
--------------------------------------------------------------------------------------------------------------------
      NET INCREASE IN CASH                                                                  3,818,909       283,023
CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD                                              2,785,509     2,507,173
--------------------------------------------------------------------------------------------------------------------
      CASH AND DUE FROM BANKS AT END OF PERIOD                                    $         6,604,418     2,790,196
====================================================================================================================
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Increase (Decrease) in Unrealized Gain (Loss) on Securities Available-For-Sale,
  Net of Deferred Tax Liability                                                   $           (93,272)       17,157
Acquisition of Real Estate Property through Foreclosure of Related Loans          $          (126,000)            -
====================================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
  Cash Paid During the Period for:
    Income Taxes                                                                  $           807,389             -
    Interest                                                                      $         3,761,228     1,356,638
====================================================================================================================
</TABLE>

                 See accompanying notes and accountant's report.


                                        7
<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 June 30, 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 June 30, 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 for  completion in November of the current year.  Fixed
     assets at June 30, 2000, and December 31, 1999 are summarized as follows:

<TABLE>
<CAPTION>
                                                                2000          1999
                                                            -----------   -----------
<S>                                                        <C>           <C>
     Land                                                       850,000       850,000
     Construction  in  Process  - Colonial Heights Branch       753,644        25,000
     Buildings  and  Leasehold  Improvements                  2,298,899     2,271,821
     Furniture,  Fixtures  and  Equipment                     1,649,704     1,519,039
                                                            -----------   -----------
                                                              5,552,247     4,665,860
     Less:  Accumulated  Depreciation                           745,613       607,618
                                                            -----------   -----------
                                                              4,806,634     4,058,242
                                                            ===========   ===========
</TABLE>


                                       8
<PAGE>
NOTE  5     LOANS  RECEIVABLE
-------     -----------------

     Loans  receivable  at  June  30, 2000 and December 31, 1999, consist of the
following:

<TABLE>
<CAPTION>
                                                  2000              1999
                                              --------------   --------------
<S>                                          <C>              <C>
  First Mortgage Loans                           50,266,088       43,715,282
  Construction Loans                             27,183,740       23,525,380
  Consumer Loans                                 10,287,668        9,703,102
  Participation Loans, Net                          533,676          533,676
  Commercial Loans                               45,670,196       41,919,362
  Savings Account Loans                             346,694          248,964
  Credit Line Advances                              394,973          419,062
  Lease Finance                                   1,145,712          904,705
                                             ---------------  ---------------

    Gross Loans and Leases Receivable           135,828,747      120,969,533
                                             ---------------  ---------------

  Less:
    Undisbursed Portion of Loans in Process    ( 10,120,566)    (  6,457,206)
    Net Deferred Loan Origination Fees         (    105,657)    (     72,554)
    Accumulated General Loan Loss Allowance    (    896,796)    (    810,303)
                                             ---------------  ---------------

                                               ( 11,123,020)    (  7,340,063)
                                             ---------------  ---------------

  Loans and Leases Receivable, Net              124,705,727      113,629,470
                                             ===============  ===============

</TABLE>
     An analysis of the allowance for loan and lease losses at June 30, 2000 and
December  31,  1999  is  as  follows:

<TABLE>
<CAPTION>
                                                  2000              1999
                                              --------------   --------------
<S>                                           <C>               <C>
    Balance - Beginning of Period                   810,303          630,324
    Provision for Loan and Lease Losses             125,175          181,429
    Loans and Leases Charged-Off                    (38,682)          (1,450)
    Charged-Off Loan and Lease Recoveries                --               --
                                              --------------   --------------

    Balance - End of Period                         896,796          810,303
                                              ==============   ==============
</TABLE>


     The gross  amount of  participation  loans  serviced  by State of  Franklin
     Savings Bank was $1,067,240 at June 30, 2000 and also at December 31, 1999.

     The Bank had no non-performing  loans at June 30, 2000 compared to $221,781
     at December 31, 1999.


                                       9
<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  June  30,  2000:
     Total  Risk-Based  Capital
    (to Risk-Weighted Assets)   15,569  14.02%  >=11,021  10.0%

  Tier 1 Capital
    (to Risk-Weighted Assets)   14,527  13.08%   >=6,661   6.0%

  Tier 1 Capital
    (to Adjusted Total Assets)  14,527   8.60%   >=8,446   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  of  Franklin  Bancshares, Inc. are as follows:
For  Capital

<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  June  30,  2000:
     Total  Risk-Based  Capital
    (to Risk-Weighted Assets)   17,307  15.53%  >=11,144  10.0%

  Tier 1 Capital
    (to Risk-Weighted Assets)   16,411  14.73%   >=6,687   6.0%

  Tier 1 Capital
    (to Adjusted Total Assets)  16,411   9.63%   >=8,524   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>


                                       10
<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.  During 2000 the ESOP
     purchased 44,444  additional shares at $13.50 with financing by a loan from
     the Company.

     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:

                                       June  30,  December  31,
                                           2000     1999
                                       ---------  ---------
      Number  of  Shares
        Released  and  Allocated          26,431     16,054
        Committed  to  be  Released        1,999      5,188
        Suspense                         102,312     59,804

      Fair  Value
        Released  and  Allocated         356,819    216,729
        Committed  to  be  Released       26,986     70,038
        Suspense                       1,381,212    807,354


     Contributions to the ESOP are as follows:

                                       June  30,  December  31,
                                           2000     1999
                                       ---------  ---------
      Compensation  Expense               90,000    127,272
      Contributions                       90,000    127,272

     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,  2000      55,564    24,993     $10.45
     Options  Granted  -  Management             January  1,  2000     145,128    56,652     $11.00
                                                 During  2000           68,546      --       $13.50
     Options  Exercised                                                   (554)     --       $10.00
     Options  Expired  -  Outside  Directors                            (4,997)     --       $10.00
                                                                     ---------    ------
     Options  Outstanding - June 30, 2000                              263,687    81,645     $11.56
                                                                       =======    ======
</TABLE>


                                       11
<PAGE>
NOTE  8        DEPOSITS
-------        --------

     Deposit  balances  are  summarized  as  follows:

<TABLE>
<CAPTION>
                                                June  30,  2000                   December  31,  1999
                                    -----------------------------------  --------------------------------
                                        Rate     Amount       Percent     Rate      Amount     Percent
                                    ---------  ----------  ------------  ------  ----------  -----------
<S>                                <C>          <C>         <C>          <C>     <C>         <C>
  Passbook                                4.72  20,851,712        14.67    4.85  43,579,494        32.96

  Interest-Free Checking                    --   9,386,431         6.60      --   7,762,451         5.87

  NOW                                     2.00   7,058,685         4.97    1.99   6,285,555         4.75

  Money Market Deposit                    5.29  22,640,106        15.93    4.48  13,790,665        10.43
                                                ----------  -----------          ----------  -----------

                                                59,936,934       42.17           71,418,165        54.01
                                                ----------  -----------          ----------  -----------
  Fixed Term Certificate Accounts
    Balances $100,000 or greater          6.05  20,035,468        14.10    5.65  14,620,826        11.06
    Balances less than $100,000           5.91  62,165,537        43.74    5.12  46,198,635        34.93
                                                ----------  -----------          ----------  -----------

                                                82,201,005       57.83           60,819,461        45.99
                                                ----------  -----------          ----------  -----------

                                               142,137,939      100.00          132,237,626       100.00
                                                ==========  ===========          ==========  ===========
</TABLE>

The  contractual  maturity of certificate accounts at June 30, 2000 and December
31,  1999,  is  as  follows:

        Period  Ending  June  30,  2000       Year Ending December 31, 1999
        -------------------------------       ------------------------------
            2001          66,772,139                2000          42,805,186
            2002          12,976,530                2001           5,447,698
            2003           1,994,728                2002          11,749,728
            2004             457,607                2003             789,631
            2005 and After        --                2004 and After    27,218
                          ----------                              ----------
                          82,201,005                              60,819,461
                          ==========                              ==========

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

     Short-term  advances  from  the  Federal  Home  Loan Bank are summarized as
follows  for  the  periods  ended  June  30,  2000  and
     December  31,  1999:

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

     Cash Management (Rate Floats Daily)      13,960,000              4,045,000

     Weighted  Average  Rate                     6.76%                   5.49%


                                       12
<PAGE>
NOTE  10     INVESTMENT  SECURITIES
--------     ----------------------

     The amortized cost and fair value of investment securities held-to-maturity
     and available-for-sale at June 30, 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.

     June  30,  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          997,932       --     38,338      959,594
               After  five  years
                 but  within  ten  years     16,774,201       --    826,617   16,947,584
               Over  ten  years
                 but  within  fifteen  years  2,993,473       --    200,969    2,792,504
          Equity  Securities
               Callable  after  five  years
                 but  within ten years        1,000,000       --         --    1,000,000
          Other
               Within  one  year              1,634,576       --         --    1,634,576
                                              ---------  -------  ---------  -----------
                  Total Available-for-Sale   23,400,182       --  1,065,924   22,334,258
                                             ==========  =======  =========  ===========

     Held-to-Maturity:
          United  States  Government
            Agency  Securities  Maturing:
               After  one  year
                 but  within  five  years     1,000,000       --     30,277      969,723
               After  five  years
                 but  within  ten  years     12,988,847       --    745,598   12,243,249
                                              ---------  -------  ---------  -----------
                    Total  Held-to-Maturity  13,988,847       --    775,875   13,212,972
                                              =========  =======  =========  ===========
</TABLE>


NOTE  11     EARNINGS  PER  SHARE
--------     --------------------

     Earnings per share for quarter  ended June 30, 2000,  compared with quarter
     ended June 30, 1999, is as follows:

<TABLE>
<CAPTION>
                                                   June  30,
                                                2000      1999
                                             ---------  ---------
<S>                                          <C>        <C>
Net Income Available to Common Shareholders    375,345    215,706
                                             =========  =========
Average Shares
  Average Shares - Basic                     1,319,526  1,126,149
  Effect of Dilutive Common Stock Options       36,208     12,681
                                             ---------  ---------

  Average Shares - Diluted                   1,355,734  1,138,830
                                             =========  =========

Basic Earnings Per Share                          0.28       0.19
                                             =========  =========

Diluted Earnings Per Share                        0.28       0.19
                                             =========  =========
</TABLE>


                                       13
<PAGE>
     Earnings per share for six months ended June 30,  2000,  compared  with six
     months ended June 30, 1999, is as follows:

<TABLE>
<CAPTION>
                                                   June  30,
                                                 2000      1999
                                             ---------  ---------
<S>                                          <C>        <C>
Net Income Available to Common Shareholders    703,431    394,779
                                             =========  =========
Average Shares
  Average Shares - Basic                     1,295,363  1,125,012
  Effect of Dilutive Common Stock Options       36,208     11,467
                                             ---------  ---------
  Average Shares - Diluted                   1,331,571  1,136,479
                                             =========  =========
Basic Earnings Per Share                          0.54       0.35
                                             =========  =========
Diluted Earnings Per Share                        0.53       0.35
                                             =========  =========
</TABLE>


                                       14
<PAGE>
<TABLE>
<CAPTION>
                       BAYLOR  AND  BACKUS

<S>                    <C>                                      <C>
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 June 30, 2000 and
the  related consolidated statements of income, changes in stockholders' equity,
and  cash flows for the periods ended June 30, 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

August  8,  2000




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


                                       15
<PAGE>
ITEM  NO.  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  (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 June 30,  2000,  assets of State of Franklin  Bancshares,  Inc.  totaled
     $179.2  million  reflecting  an  increase  of $19.0  million  or 12%  since
     December  31,  1999.  The growth in assets has been funded  primarily by an
     $9.9 million increase in deposits,  a $7.1 million increase in Federal Home
     Loan Bank advances, and a $2.2 million increase in stockholders' equity.


     LOANS
     -----

     Loans outstanding totaled $125.6 million at June 30, 2000. This represented
     an increase of 9.8% from the December 31, 1999 outstanding  loans of $114.4
     million.

     Commercial  loans  increased  $3.8 million at June 30, 2000, an increase of
     9.0% from $41.9  million at December  31,  1999.  Real estate  construction
     lending  totaled $27.2 million  compared with $23.5 million at December 31,
     1999,  reflecting an increase of $3.7 million or 15.6%.  Consumer  loans of
     $10.3 million at June 30, 2000 increased $585,000 or 6.0% from $9.7 million
     at December 31, 1999.  During the first six months of 2000,  first mortgage
     residential  loans  increased  $6.6 million or 15% to $50.3 million at June
     30,  2000.  The  loan  portfolio  mix at  June  30,  2000  consists  of 37%
     residential mortgages, 34% commercial, 20% real estate construction, and 9%
     consumer loans.

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

     Investment  securities totaled $36.3 million at June 30, 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 June 30,
     2000,  approximately  $22.3 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.

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

     The bank had no non-performing  assets or nonaccrual loans at June 30, 2000
     compared  with  $221,781 at December 31, 1999.  The  allowance for possible
     loan losses was $896,796 at June 30, 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 June 30, 2000 of $142.1 million,  represented an increase
     of $9.9  million or a 7.5%  increase  from $132.2  million at December  31,
     1999. Non-interest bearing demand deposits totaled $9.4 million at June 30,
     2000, an increase of $1.6 million from December 31, 1999.  Interest bearing
     deposits increased $8.3 million to $132.8 million at June 30, 2000.


                                       16
<PAGE>
     CAPITAL
     -------

     Equity  capital for the Savings Bank at June 30, 2000 was $14  million.  At
     June  30,  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 13.08%, 14.02% and 8.60%, respectively.

     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 June 30,  2000,  closing date of the
     offering,  275,085 total shares have been sold,  generating $3.7 million in
     additional  capital.  Equity  capital for the Company at June 30, 2000, was
     $15.7 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 $25 million at June 30, 2000.


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

     The Company had net income of $375,345 for the three months ending June 30,
     2000, compared with $215,706 for the same period last year, resulting in an
     increase of 74%. For the six month period ending June 30, 2000,  net income
     was $703,431 compared with $394,779 the first six months of 1999 reflecting
     an increase  of 78%.  Net income per  diluted  share was $0.53  compared to
     earnings per share of $0.35 for the first six months  ending June 30, 1999.
     Return on average  assets  was .83% and the  return on  average  equity was
     10.77% for the six month period ended June 30, 2000, compared with .60% and
     6.81%, respectively, for the same period in 1999.

     Noninterest income declined $6,062, or 2%, during the six months ended June
     30, 2000,  compared the same period last year due to several factors.  Gain
     on loans sold  declined  $54,621  due to a 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, rental income, and gains on
     security  sales  also  declined  in the six  months  ended  June 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 $1.7  million  for the six months  ending June 30,
     2000,  an increase of 13% 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 $2.6 million for the six months
     ending June 30, 2000  reflects an increase of $669,358 or 36% over the same
     period a year ago. For the six months ending June 30, 2000, average earning
     assets  increased  $34.7  million  or 28% while  average  interest  bearing
     liabilities  increased  $31.7  million,  also 28%,  compared  with the same
     period in 1999.  Average  earning asset yield  increased 36 basis points to
     8.06%  while the cost on  interest  bearing  liabilities  increased 7 basis
     points.  Consequently,  the net interest  margin  based on average  earning
     assets  increased to 3.23% for the six months ending June 30, 2000 compared
     with 3.08% for the same period in 1999.


                                       17
<PAGE>
     PROVISION  FOR  LOAN  LOSSES
     ----------------------------

     During the six months ended June 30, 2000,  the provision for possible loan
     losses was $125,175  compared  with $119,146 for the same period last year.
     Loan  charge-offs  for the six months  ended June 30,  2000,  were  $38,682
     compared  with $1,016  during the same period in 1999.  The  allowance  for
     possible loan losses represented .71% of total loans, net of mortgage loans
     held-for-sale,  at June  30,  2000,  compared  to .76%  at June  30,  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 six months ended June 30, 2000, the provision for federal and state
     income taxes was $357,653, an increase of $159,785 from 1999, primarily due
     to the increase in income before income taxes.

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

     The Company's  noninterest  income was $283,603 during the six months ended
     June 30, 2000, a decline of $6,062 or 2% from the  comparable  1999 period.
     The decline was  attributable  to declines in net gains on loans sold,  net
     gain on sale of  securities,  insurance  commissions,  and rental income of
     $54,621, $12,724, $3,057, and $18,221,  respectively,  which were partially
     offset by an increase in other fees and service charges of $82,561.

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

     Noninterest expense totaled $805,521 for the three month period ending June
     30, 2000,  an increase of $71,710 or 10%.  For the six month period  ending
     June 30,  2000,  noninterest  expense  was up $188,830 or 32% over the same
     period in 1999.  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.


                                       18
<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 June 30,  2000,  closing date of the
     offering,  275,085 total shares have been sold,  generating $3.7 million in
     additional  capital.  Equity  capital for the Company at June 30, 2000, was
     $15.7 million.

ITEM  3.     DEFAULT  UPON  SENIOR  SECURITIES

     None

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

     At the Annual  Meeting on April 25,  2000,  the  shareholders  voted on the
     following proposals with the results as indicated:

     1. Elected  three of its current  directors to continue in office until the
     2003  annual  meeting  of  shareholders.   Current   directors  elected  to
     three-year terms were as follows:

                                         FOR     WITHHOLD  AUTHORITY     ABSTAIN
                                        ----------------------------------------
       Charles E. Allen, Sr., M.D.       835,439        1,500              500
       Donald R. Jeans                   835,439        1,500              500
       Richard S. Venable                835,439        1,500              500

     Directors continuing to serve include:

     Charles E. Allen, Jr.       Randal R. Greene        Vance W. Cheek
     Kenneth E. Cutshall, M.D.   Stephen K. Gross        Verrill M. Norwood, Jr.
     Cameron Perry               Henry J. Williams, M.D.

     2. Ratified the appointment of Baylor & Backus as the Company's independent
     accountants and auditors for 1999 as follows:

       FOR              AGAINST             ABSTAIN            BROKER NON-VOTES
     ---------------------------------------------------------------------------
     824,858            1,900               10,681                    0


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 June  30,  2000


                                       19
<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)


      August  10, 2000                 / s /  Randal R. Greene
---------------------------           -------------------------
          (Date)                       Randal R. Greene,  President


      August  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)


                                       20
<PAGE>