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:    SEPTEMBER 30, 2001
                                                  --------------------

                                       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 NOVEMBER 7, 2001)


            TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE):

                              YES          NO    X
                                               ----



<PAGE>



<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
                     SEPTEMBER 30, 2001 (UNAUDITED) AND DECEMBER 31, 2000 (AUDITED)

                  CONSOLIDATED STATEMENTS OF INCOME                                        4 - 5
                     THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 (UNAUDITED)
                     NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 (UNAUDITED)

                  CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY                   6
                     NINE MONTHS ENDED SEPTEMBER 30, 2001 (UNAUDITED)
                     AND YEAR ENDED DECEMBER 31, 2000 (AUDITED)

                  CONSOLIDATED STATEMENTS OF CASH FLOWS                                        7
                     NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 (UNAUDITED)

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)                       8


         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 1  -  FINANCIAL INFORMATION

         ITEM 1.   FINANCIAL STATEMENTS

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

                        CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION


                                                                SEPTEMBER 30,       DECEMBER 31,
                             ASSETS                           2001 - UNAUDITED     2000 - AUDITED
-------------------------------------------------------------------------------------------------
<S>                                                              <C>                <C>
Cash and Due from Banks                                          $   4,775,664          4,715,833
Federal Funds Sold                                                   8,660,000          2,525,000
Short-Term Interest Bearing Deposits                                   363,925            227,422
Investments - HTM
   (Estimated Market 2001 - $4,010,324 and 2000 - $13,792,610)       3,994,961         13,989,368
Investments - AFS                                                   60,909,476         38,714,467
Loans Held for Sale                                                  1,371,302            264,922
Loans and Leases Receivable                                        136,758,837        136,155,217
   Less: Allowance for Loan and Lease Losses                        (1,344,585)        (1,062,511)
-------------------------------------------------------------------------------------------------
   Loans and Leases Receivable, Net                                135,414,252        135,092,706
-------------------------------------------------------------------------------------------------
Accrued Interest Receivable, Net                                     1,340,233          1,542,443
Land, Buildings & Equip at Cost Less Accum Depr
   of $1,162,683 in 2001 and $883,607 in 2000                        5,322,072          5,395,933
Prepaid Expense and Accounts Receivable                                 94,465             77,379
Investment in Service Bureau at Cost                                   815,009             15,000
Deferred Tax Assets                                                    104,391            313,815
FHLB Stock                                                           2,132,200          1,524,500
Other Real Estate Owned                                                495,129                  0
Other Assets                                                            60,000                  0
-------------------------------------------------------------------------------------------------
  TOTAL ASSETS                                                   $ 225,853,079        204,398,788
=================================================================================================
             LIABILITIES AND STOCKHOLDERS' EQUITY
=================================================================================================
LIABILITIES:
Interest-Free Deposits                                           $   8,908,536          9,503,943
Interest-Bearing Deposits                                          171,292,187        152,578,447
Advances by Borrowers for Taxes and Insurance                          306,599            107,235
Accrued Interest on Deposits                                           182,695            188,408
Accounts Payable and Accrued Expenses                                  307,139            296,388
FHLB Short-Term Advances                                                     0         12,660,000
FHLB Long-Term Advances                                             25,242,430         11,246,679
Deferred Gain on REO                                                    21,448             21,448
Notes Payable                                                          527,727            571,637
-------------------------------------------------------------------------------------------------
       TOTAL LIABILITIES                                         $ 206,788,761        187,174,185
-------------------------------------------------------------------------------------------------
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                                 535,108             89,678
Retained Earnings                                                    3,892,000          2,569,575
  Less: Employee Stock Ownership                                    (1,079,763)        (1,151,623)
-------------------------------------------------------------------------------------------------
       TOTAL STOCKHOLDERS' EQUITY                                $  19,064,318         17,224,603
-------------------------------------------------------------------------------------------------
       TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                $ 225,853,079        204,398,788
=================================================================================================
</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 SEPTEMBER 30,
                                                      ----------------------------------
INTEREST INCOME:                                      2001 - UNAUDUTED  2000 - UNAUDITED
                                                      ----------------  ----------------
<S>                                                    <C>               <C>
Interest and Fees on Loans                             $     2,697,446         2,838,658
Other Interest Income                                        1,078,658           765,213
----------------------------------------------------------------------------------------
       TOTAL INTEREST INCOME                                 3,776,104         3,603,871
----------------------------------------------------------------------------------------

INTEREST EXPENSE:
Interest on Deposits                                         1,976,396         1,941,376
Interest on Short-Term Debt                                          4            51,193
Interest on Long-Term Debt                                     318,933           284,620
----------------------------------------------------------------------------------------
       TOTAL INTEREST EXPENSE                                2,295,333         2,277,189
----------------------------------------------------------------------------------------
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSS           1,480,771         1,326,682
PROVISION FOR LOAN LOSSES                                      (68,494)          (68,811)
----------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSS            1,412,277         1,257,871
----------------------------------------------------------------------------------------

OTHER INCOME:
Other Fees and Service Charges                                 105,523            97,410
Net Gain on Loans Sold                                          49,526             8,928
Insurance Commission Income                                     10,249            10,316
Rental Income, Net                                              18,683            31,329
----------------------------------------------------------------------------------------
       TOTAL OTHER INCOME                                      183,981           147,983
----------------------------------------------------------------------------------------

OTHER EXPENSES:
Compensation and Related Benefits                              460,532           399,812
Occupancy Expenses                                              63,748            59,419
Furniture and Equipment Expense                                 91,592            64,843
Advertising                                                     23,288            21,193
Data Processing Expense                                        104,839            91,005
Other                                                          205,873           182,782
----------------------------------------------------------------------------------------
       TOTAL OTHER EXPENSES                                    949,872           819,054
----------------------------------------------------------------------------------------
       INCOME BEFORE INCOME TAX                                646,386           586,800
PROVISION FOR INCOME TAXES                                     (97,006)         (190,509)
----------------------------------------------------------------------------------------
       NET INCOME                                      $       549,380           396,291
========================================================================================
EARNINGS PER SHARE:
  BASIC                                                $          0.40              0.29
  DILUTED                                                         0.38              0.28
========================================================================================
WEIGHTED AVERAGE SHARES OUTSTANDING:
  BASIC                                                      1,363,616         1,363,784
  DILUTED                                                    1,436,403         1,406,615
========================================================================================
</TABLE>

                See accompanying notes and accountant's report.

                                        4



<PAGE>
                       STATE OF FRANKLIN BANCSHARES, INC.
                       CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
                                                        NINE MONTHS ENDED SEPTEMBER 30,
                                                      ----------------------------------
INTEREST INCOME:                                      2001 - UNAUDITED  2000 - UNAUDITED
                                                      ----------------  ----------------
<S>                                                   <C>                <C>
Interest and Fees on Loans                            $      8,709,592         7,954,566
Other Interest Income                                        3,066,777         2,028,755
----------------------------------------------------------------------------------------
       TOTAL INTEREST INCOME                                11,776,369         9,983,321
----------------------------------------------------------------------------------------

INTEREST EXPENSE:
Interest on Deposits                                         6,327,757         5,309,154
Interest on Short-Term Debt                                     84,790           206,489
Interest on Long-Term Debt                                     963,860           585,573
----------------------------------------------------------------------------------------
       TOTAL INTEREST EXPENSE                                7,376,407         6,101,216
----------------------------------------------------------------------------------------
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSS           4,399,962         3,882,105
PROVISION FOR LOAN LOSSES                                     (453,026)         (193,986)
----------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSS            3,946,936         3,688,119
----------------------------------------------------------------------------------------

OTHER INCOME:
Other Fees and Service Charges                                 319,174           285,416
Net Gain on Loans Sold                                         142,473            40,205
Insurance Commission Income                                     25,431            33,702
Rental Income, Net                                              56,497            72,262
----------------------------------------------------------------------------------------
       TOTAL OTHER INCOME                                      543,575           431,585
----------------------------------------------------------------------------------------

OTHER EXPENSES:
Compensation and Related Benefits                            1,368,657         1,164,101
Occupancy Expenses                                             199,563           196,271
Furniture and Equipment Expense                                259,513           197,238
Advertising                                                     80,088            64,807
Data Processing Expense                                        326,678           267,084
Other                                                          609,690           582,319
----------------------------------------------------------------------------------------
       TOTAL OTHER EXPENSES                                  2,844,189         2,471,820
----------------------------------------------------------------------------------------

       INCOME BEFORE INCOME TAX                              1,646,322         1,647,884
PROVISION FOR INCOME TAXES                                    (323,897)         (548,162)
----------------------------------------------------------------------------------------
       NET INCOME                                      $     1,322,425         1,099,722

========================================================================================
EARNINGS PER SHARE:
  BASIC                                                $          0.97              0.83
  DILUTED                                                         0.93              0.81
========================================================================================
WEIGHTED AVERAGE SHARES OUTSTANDING:
  BASIC                                                      1,364,570         1,318,337
  DILUTED                                                    1,427,710         1,361,168
========================================================================================
</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 NINE MONTHS ENDED SEPTEMBER 30, 2001 (UNAUDITED) AND YEAR ENDED DECEMBER 31, 2000 (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, 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                        --           --           --          --      74,986          74,986
                                                                                                    -------------
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 $360,563 Income Tax)      --           --      699,915          --          --         699,915

  Net Income                                 --           --           --   1,379,687          --       1,379,687
                                                                                                    -------------
        Total Comprehensive Income           --           --           --          --          --       2,079,603
                                    -----------    ----------   ---------   ---------  ----------   -------------
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                        --           --           --          --      71,860          71,860

Comprehensive Income
  Other Comprehensive Income,
    Net of Tax:
    Unrealized Gains on Securities
      Available-For-Sale:
      Unrealized Holding Gains
        Arising During the Period
          (Net of $358,435 Income Tax)       --           --      593,682          --          --         593,682
      Less: Reclassification Adjustment
          (Net of $90,864 Income Tax)        --           --     (148,252)         --          --        (148,252)
                                                                                                    -------------
                                                                                                          445,430

  Net Income                                 --           --           --   1,322,425          --       1,322,425
                                                                                                    -------------
        Total Comprehensive Income           --           --           --          --          --       1,767,855
                                    -----------   ----------    ---------   ---------  ----------   -------------
Balance at September 30, 2001         1,465,512   14,251,461      535,107   3,892,001  (1,079,763)     19,064,318
                                    ===========   ==========    =========   =========  ==========   =============

</TABLE>

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



                                        6



<PAGE>
                       STATE OF FRANKLIN BANCSHARES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                NINE MONTHS ENDED SEPTEMBER 30,
                                                                              -----------------------------------
                                                                               2001 - UNAUDITED  2000 - UNAUDITED
                                                                              -----------------   ---------------
CASH  FLOWS  FROM  OPERATING  ACTIVITIES:
<S>                                                                               <C>                   <C>
  Net Income                                                                      $   1,322,425        1,099,722
  Items Not Affecting Cash:
    Depreciation                                                                        281,732          206,992
    (Increase) in Accrued Interest                                                      202,210         (118,329)
    Deferred Income Taxes (Benefit)                                                    (115,714)         (47,737)
    Provision for Loan and Lease Losses                                                 453,026          193,986
    (Increase) in Prepaid Expenses and Accounts Receivable                              (17,086)         (35,857)
    Increase (Decrease) in Interest Payable                                              (5,713)          97,834
    Increase (Decrease) in Accounts Payable and Accrued Expenses                         10,751         (314,234)
    Increase in Deferred Loan Fees, Net                                                  (8,511)          48,068
    Discount Accretion                                                                 (296,748)         (28,499)
    Earned ESOP Shares                                                                   71,860           40,799
    FHLB Stock Dividends                                                               (107,700)         (78,600)
    Net Decrease in Loans Held for Sale                                              (1,106,380)         307,737
-----------------------------------------------------------------------------------------------------------------
      NET CASH PROVIDED BY OPERATING ACTIVITIES                                         684,152        1,371,882
-----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of Available-for-Sale Investments                                        (35,624,027)     (11,165,995)
  Proceeds from Maturities of Held-to-Maturity Investments                           10,000,000                -
  Proceeds from Maturities of Available-for-Sale Investments                         14,490,740                -
  Proceeds from Sale of Available-for-Sale Investments                                        -          504,171
  (Increase) in Federal Funds Sold                                                   (6,135,000)         (57,000)
  (Increase) Decrease in Short-Term Interest Bearing Deposits                          (136,503)           4,874
  (Increase) in Loans Receivable, Net                                                (1,321,190)     (18,797,262)
  Purchases of Premises and Equipment                                                  (207,870)      (1,184,705)
  Purchases of Stock in Service Bureau                                                 (800,009)               -
  Purchases of Federal Home Loan Bank Stock                                            (500,000)               -
-----------------------------------------------------------------------------------------------------------------
    NET CASH (USED) BY INVESTING ACTIVITIES                                         (20,233,859)     (30,695,917)
-----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Net Increase in Deposits                                                           18,118,333       18,791,740
  Net Increase in Advances by Borrowers for Taxes and Insurance                         199,364          220,710
  Issuance of Common Stock, Net                                                               -        2,171,724
  ESOP Shares Purchased                                                                       -         (599,994)
  Repayment of Debt                                                                     (43,910)         (40,798)
  Repayment of FHLB Advances                                                        (15,661,417)               -
  Proceeds from FHLB Advances                                                        16,997,168       10,340,371
-----------------------------------------------------------------------------------------------------------------
    NET CASH PROVIDED BY FINANCING ACTIVITIES                                        19,609,538       30,883,753
-----------------------------------------------------------------------------------------------------------------
      NET INCREASE IN CASH                                                               59,831        1,559,718
CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD                                        4,715,833        2,785,509
-----------------------------------------------------------------------------------------------------------------
      CASH AND DUE FROM BANKS AT END OF PERIOD                                    $   4,775,664        4,345,227
=================================================================================================================
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Increase (Decrease) in Unrealized Gain (Loss) on Securities Available-For-Sale,
  Net of Deferred Tax Liability                                                   $     445,430           54,898
Acquisition of Real Estate Property through Foreclosure of Related Loans                495,129                -
=================================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
  Cash Paid During the Period for:
    Income Taxes                                                                  $     394,077          992,389
    Interest                                                                      $   7,382,120        6,003,383
=================================================================================================================
</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 nine months ended September
      30,  2001  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, 2000.


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  September  30,  2001
     consolidated financial statements.


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

     Fixed assets at September 30, 2001, and December 31, 2000 are summarized as
follows:

<TABLE>
<CAPTION>
                                                                2001          2000
                                                            -----------   -----------
<S>                                                        <C>           <C>
     Land                                                     1,450,000     1,450,000
     Buildings and Leasehold Improvements                     3,040,756     2,941,388
     Furniture, Fixtures and Equipment                        1,996,655     1,888,152
                                                            -----------   -----------
                                                              6,487,411     6,279,540
     Less:  Accumulated Depreciation                          1,165,339       883,607
                                                            -----------   -----------
                                                              5,322,072     5,395,933
                                                            ===========   ===========
</TABLE>


                                        8



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

     Loans  receivable at September  30, 2001 and December 31, 2000,  consist of
the following:

<TABLE>
<CAPTION>
                                                  2001              2000
                                              --------------   --------------
<S>                                          <C>              <C>
  First Mortgage Loans                           53,401,201       54,716,151
  Construction Loans                             21,531,922       24,454,127
  Consumer Loans                                 11,700,705       10,066,638
  Participation Loans, Net                          508,564          533,676
  Commercial Loans                               53,703,132       50,931,829
  Savings Account Loans                                   0          138,122
  Credit Line Advances                              762,454          392,295
  Lease Finance                                   1,531,433        1,461,095
                                             ---------------  ---------------

    Gross Loans and Leases Receivable           143,139,411      142,693,933
                                             ---------------  ---------------

  Less:
    Undisbursed Portion of Loans in Process    (  6,268,460)    (  6,418,090)
    Net Deferred Loan Origination Fees         (    112,114)    (    120,626)
    Accumulated General Loan Loss Allowance    (  1,344,585)    (  1,062,511)
                                             ---------------  ---------------
                                               (  7,725,159)    (  7,601,227)
                                             ---------------  ---------------

  Loans and Leases Receivable, Net              135,414,252      135,092,706
                                             ===============  ===============

</TABLE>
     An analysis of the  allowance  for loan and lease losses at  September  30,
     2001 and December 31, 2000 is as follows:

<TABLE>
<CAPTION>
                                                  2001              2000
                                              --------------   --------------
<S>                                           <C>               <C>
    Balance - Beginning of Period                 1,062,511          810,303
    Provision for Loan and Lease Losses             453,026          302,609
    Loans and Leases Charged-Off                   (171,852)         (50,401)
    Charged-Off Loan and Lease Recoveries               900               --
                                              --------------   --------------

    Balance - End of Period                       1,344,585        1,062,511
                                              ==============   ==============
</TABLE>


     The gross  amount of  participation  loans  serviced  by State of  Franklin
Savings Bank was  $1,017,128 at September  30, 2001 compared with  $1,067,240 at
December 31, 2000.

     The Bank had $3.4 million in  non-performing  loans at  September  30, 2001
compared to $984,000 at December 31, 2000.


                                        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                          Amount    Ratio     Amount    Ratio
---------------------------          ----------------    ----------------
<S>                                  <C>       <C>        <C>      <C>
As of September 30, 2001:
  Total Risk-Based Capital
    (to Risk-Weighted Assets)        18,031    11.22%    >=16,064   10.0%

  Tier 1 Capital
    (to Risk-Weighted Assets)        16,620    10.35%     >=9,638    6.0%

  Tier 1 Capital
    (to Adjusted Total Assets)       16,620     7.58%    >=10,957    5.0%

As of December 31, 2000:
  Total Risk-Based Capital
    (to Risk-Weighted Assets)        16,355    12.78%    >=12,802   10.0%

  Tier 1 Capital
    (to Risk-Weighted Assets)        15,325    11.97%     >=7,681    6.0%

  Tier 1 Capital
    (to Adjusted Total Assets)       15,325     7.93%     >=9,665    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                           Amount    Ratio    Amount    Ratio
---------------------------          -----------------  -----------------
<S>                                  <C>        <C>     <C>        <C>
As of September 30, 2001:
  Total Risk-Based Capital
    (to Risk-Weighted Assets)        19,984     12.40%  >=16,113    10.0%

  Tier 1 Capital
    (to Risk-Weighted Assets)        18,529     11.50%   >=9,668     6.0%

  Tier 1 Capital
    (to Adjusted Total Assets)       18,529      8.38%  >=11,059     5.0%

As of December 31, 2000:
  Total Risk-Based Capital
    (to Risk-Weighted Assets)        18,197     14.15%  >=12,858    10.0%

  Tier 1 Capital
    (to Risk-Weighted Assets)        17,135     13.33%   >=7,715     6.0%

  Tier 1 Capital
    (to Adjusted Total Assets)       17,135      8.79%   >=9,747     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:

                                       September 30,   December 31,
                                           2001           2000
                                       -------------  -------------
      Number of Shares
        Released and Allocated               31,985         26,431
        Committed to be Released              3,899          5,554
        Suspense                            101,508         98,957

      Fair Value
        Released and Allocated              518,157        396,465
        Committed to be Released             63,164         83,310
        Suspense                          1,644,430      1,484,355


     Contributions to the ESOP are as follows:

                                       September 30,   December 31,
                                           2001           2000
                                       -------------  -------------
      Compensation Expense                  195,000        186,000
      Contributions                         195,000        186,000

     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, 2001        73,514    43,695     $11.46
     Options Granted - Management                January 1, 2001       182,166    93,084     $11.64
                                                                       -------   -------
     Options Outstanding - September 30, 2001                          255,680   136,779     $11.59
                                                                       =======   =======
</TABLE>


                                       11


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

     Deposit balances are summarized as follows:

<TABLE>
<CAPTION>
                                          September 30, 2001              December 31, 2000
                                    -----------------------------  -----------------------------
                     Rate Amount Percent Rate Amount Percent
                                    ------- -----------  --------  ------- -----------  --------
<S>                                 <C>    <C>           <C>       <C>    <C>           <C>
  Passbook                             3.77  32,202,018     17.87     4.68  16,657,166     10.28
  Interest-Free Checking                 --   8,908,536      4.94       --   9,503,943      5.86
  NOW                                  1.98   7,823,806      4.34     2.00   7,465,557      4.61
  Money Market Deposit                 3.43  51,044,344     28.33     5.51  31,022,840     19.14
                                            -----------  --------          -----------  --------
                                             99,978,704     55.48           64,649,506     39.89
                                            -----------  --------          -----------  --------
  Fixed Term Certificate Accounts
    Balances $100,000 or greater       5.32  20,038,953     11.12     6.38  23,480,179     14.48
    Balances less than $100,000        5.10  60,183,066     33.40     6.36  73,952,705     45.63
                                            -----------  --------          -----------  --------
                                             80,222,019     44.52           97,432,884     60.11
                                            -----------  --------          -----------  --------
                                            180,200,723    100.00          162,082,390    100.00
                                            ===========  ========          ===========  ========
</TABLE>


The  contractual  maturity of  certificate  accounts at  September  30, 2001 and
December 31, 2000, is as follows:

       Period Ending September 30, 2001           Year Ending December 31, 2000
       --------------------------------           -----------------------------
            2001             22,042,200                2001          81,572,541
            2002             53,480,455                2002          13,728,541
            2003              3,513,599                2003           1,810,104
            2004              1,185,765                2004             321,698
            2005 and After           --                2005 and After        --
                             ----------                              ----------
                             80,222,019                              97,432,884
                             ==========                              ==========



NOTE 9     FEDERAL HOME LOAN BANK Advances
-------    ---------------------------------

     Advances from the Federal Home Loan Bank are  summarized as follows for the
periods ended September 30, 2001 and December 31, 2000:

                                                       2001                 2000
                                                   -----------       -----------
        Short-Term Borrowings:
          Cash Management (Rate Floats Daily)              0          12,660,000
          Weighted Average Rate at End of Period           0%            6.75%

        Long-Term Borrowings:
          Mortgage Match Advances                       242,430          246,679
          Convertible Fixed Rate (Within 10 Years)   25,000,000       11,000,000
                                                     ----------       ----------
          Total Long-Term Borrowings                 25,242,430       11,246,679
          Weighted Average Rate at End of Period        5.02%            5.31%

        Total Federal Home Loan Bank Advances        25,242,430       23,906,679
        Weighted Average Rate at End of Period          5.02%            6.07%









                                       12



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

     The amortized cost and fair value of investment securities held-to-maturity
     and  available-for-sale at September 30, 2001, 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.

     September 30, 2001:
     -------------------
<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         7,885,214      236,988           --     8,122,202
               Over ten years
                 but within fifteen years     1,927,435       75,540           --     2,002,975
               Over 15 years                  4,368,365      204,201      111,113     4,461,453
              Municipal Securities Maturing:
               Within one year                  120,000        1,158           --       121,158
               After one year
                 but within five years          530,000       22,114           --       552,114
               After five years
                 but within ten years         1,595,823       56,678           --     1,652,501
               Over ten years
                 but within fifteen years     8,329,045      155,097       17,596     8,466,546
               Over 15 years                  5,985,443       79,468       60,683     6,004,228

          Equity Securities
               Callable after one year
                 but within five years       21,000,000      265,898       34,582    21,231,316
               Callable after five years
                 but within ten years         1,000,000       13,713           --     1,013,713

          Other
               Within one year                6,811,610           --           --     6,811,610
               Over 15 years                    493,464           --       23,804       469,660
                                             ----------    ---------    ---------   -----------
                  Total Available-for-Sale   60,046,399    1,110,855      247,778    60,909,476
                                             ==========    =========    =========   ===========
     Held-to-Maturity:
          United States Government
            Agency Securities Maturing:
               After five years
                 but within ten years         3,994,961       15,363           --     4,010,324
                                             ----------    ---------    ---------   -----------
                    Total Held-to-Maturity    3,994,961       15,363           --     4,010,324
                                             ==========    =========    =========   ===========
</TABLE>

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

     Earnings per share for three  months  ended and six months ended  September
     30, 2001,  compared with the same periods ended  September 30, 2000, are as
     follows:

<TABLE>
<CAPTION>
                                                 Three Months Ended        Nine Months Ended
                                                  September 30,              September 30,
                                                 2001        2000           2001        2000
                                              ---------   ---------      ---------   ---------
<S>                                           <C>         <C>            <C>         <C>
Net Income                                      549,380     396,291      1,322,425   1,099,722
Average Basic Shares Outstanding              1,363,616   1,363,784      1,364,570   1,318,337

Basic Earnings Per Share                           0.40        0.29           0.97        0.83
                                              =========   =========      =========   =========

Net Income                                      549,380     396,291      1,322,425   1,099,722
Average Basic Shares Outstanding              1,363,616   1,363,784      1,364,570   1,318,337
Dilutive Effect Due to Stock Options             72,787      42,831         63,140      42,831
                                              ---------   ---------      ---------   ---------
Average Shares Outstanding, as Adjusted       1,436,403   1,406,615      1,427,710   1,361,168

Diluted Earnings Per Share                         0.38        0.28           0.93        0.81
                                              =========   =========      =========   =========
</TABLE>
                                       13




<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 September 30, 2001, assets of State of Franklin Bancshares, Inc. totaled
     $225.9  million  reflecting  an  increase  of $21.5  million  or 10%  since
     December  31,  2000.  The growth in assets has been funded  primarily by an
     $18.8 million  increase in deposits and a $1.3 million  increase in Federal
     Home Loan Bank advances.


     LOANS
     -----

     Loans  outstanding  totaled  $136.8  million at September  30,  2001.  This
     represented a slight increase of .4% from the December 31, 2000 outstanding
     loans of $136.2 million.

     Commercial  loans increased $2.8 million at September 30, 2001, an increase
     of 5% from $50.9  million at December  31,  2000.  Consumer  loans of $11.7
     million at  September  30, 2001  increased  $1.6  million or 16% from $10.1
     million at December  31, 2000.  During the first nine months of 2001,  real
     estate  related loans  declined in part due to the slowing  economy and the
     lower interest rate environment resulting in less construction spending and
     an increase in existing mortgages being refinanced in the secondary market.
     Real estate construction  lending totaled $21.5 million compared with $24.5
     million at December 31, 2000,  reflecting a decline of $2.9 million or 12%.
     First  mortgage  residential  loans  declined  $1.3  million or 2% to $53.4
     million at September 30, 2001. The loan portfolio mix at September 30, 2001
     consists of 38%  residential  mortgages,  37%  commercial,  17% real estate
     construction, and 8% consumer loans.


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

     Investment  securities  totaled $64.9  million at September  30, 2001.  The
     investment  portfolio  at quarter end  consisted  of $18.6  million in debt
     securities issued by the U. S Government or Federal Agencies, $22.2 million
     in preferred stock issued by Federal Agencies,  $16.8 million in securities
     issued by state,  county,  or  municipalities,  and  $470,000 in  corporate
     securities.

     At September 30, 2001, securities categorized as available-for-sale totaled
     $60.9  million  while the  held-to-maturity  securities  totaled $4 million
     compared  to  $38.7  million  in  available-for-sale  and  $14  million  in
     held-to-maturity   at  December  31,  2000.  At  September  30,  2001,  the
     available-for-sale  portfolio had gross  unrealized gains of $1,110,855 and
     gross unrealized losses of $247,778.  Our  held-to-maturity  securities had
     $15,363 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 $227,000 at September 30, 2001 and $194
     thousand  at  December  31,  2000.  Nonaccrual  loans  were  $3,283,000  at
     September 30, 2001 compared with $984,000 at December 31, 2000.  Additional
     funding  of  the  allowance  for  loan  losses  have  been  made  to  cover
     anticipated  losses  associated with these loans.  The reserve for loan and
     lease losses was  $1,344,585  at September  30, 2001,  or .98% of loans and
     leases outstanding, net of unearned income, compared to $1,062,511 or 0.78%
     at December 31, 2000.  Management believes the allowance for loan losses is
     adequate to provide for potential loan losses.


     DEPOSITS
     --------

     Total  deposits at September  30, 2001 of $180.2  million,  represented  an
     increase  of $18.1  million  or an 11%  increase  from  $162.1  million  at
     December  31,  2000.  Non-interest  bearing  demand  deposits  totaled $8.9
     million at September  30, 2001,  a decrease of $600,000  from  December 31,
     2000.  Interest bearing deposits  increased $18.7 million to $171.3 million
     at September 30, 2001.


                                       14





<PAGE>
     CAPITAL
     -------

     Equity  capital  for the  Savings  Bank at  September  30,  2001 was  $17.1
     million.  At September 30, 2001,  all capital  ratios were in excess of the
     regulatory minimums, with the Savings Bank's Tier 1, total risk-based,  and
     leverage ratios of 10.35%, 11.22% and 7.58%, respectively.

     Equity  capital for the Company at September  30, 2001,  was $19.1  million
     with Tier 1, total risk-based,  and leverage ratios of 11.50%,  12.40%, and
     8.38%, 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 $35 million at September
     30, 2001.


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

     The  Company  had net  income  of  $549,380  for the  three  months  ending
     September  30, 2001,  compared with $396,291 for the same period last year,
     resulting in an increase of 39%. For the nine month period ending September
     30, 2001, net income was $1,322,425 compared with $1,099,722 the first nine
     months of 2000  reflecting an increase of 20%. Net income per diluted share
     was $0.93 compared to earnings per share of $0.81 for the first nine months
     ending September 30, 2000. Return on average assets was .82% and the return
     on average  equity was 9.49% for the nine month period ended  September 30,
     2001,  compared with .86% and 9.62%,  respectively,  for the same period in
     2000.

     Noninterest income increased $111,990, or 26%, during the nine months ended
     September  30, 2001,  compared the same period last year as a result of the
     net effect several  factors.  Gain on loans sold increased  $102,268 due to
     increased  activity  in income  generated  by loans  sold in the  secondary
     market.  Service  charges  on  deposit  accounts  increased  $33,758  while
     insurance  commissions  and rental  income  declined  $8,271  and  $15,765,
     respectively  for the nine months ended  September 30, 2001,  compared with
     the same period a year ago.

     Noninterest  expense was $2.8 million for the nine months ending  September
     30, 2001, an increase of 15% over the 2000 period, primarily resulting from
     increased salaries and benefits,  occupancy,  furniture and equipment, data
     processing, and other general operating expenses.


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

     Interest  income and  interest  expense  both  increased  from 2000 to 2001
     resulting  primarily from the increases in both earning assets and interest
     bearing  liabilities.  Net  interest  income of $1.5  million for the three
     months  ended  September  30, 2001  reflects an increase of $154,089 or 12%
     over the same period last year.  For the nine months  ending  September 30,
     2001,  net  interest  income was $4.4  million,  reflecting  an increase of
     $517,857 or 13% over the same period a year ago. For the nine months ending
     September 30, 2001,  average earning assets  increased $43.8 million or 27%
     while average interest bearing liabilities increased $40.9 million, or 28%,
     compared  with the same  period  in 2000.  Average  earning  asset  taxable
     equivalent  yield  declined  28 basis  points  to 7.85%  while  the cost on
     interest  bearing  liabilities  also declined 28 basis points to 5.21%. The
     net interest margin based on average  earning assets  declined  slightly to
     3.10% for the nine months ending September 30, 2001 compared with 3.16% for
     the same period in 2000.


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

     During the nine months ended September 30, 2001, the provision for possible
     loan losses was $453,026  compared  with  $193,986 for the same period last
     year.  Loan  charge-offs for the nine months ended September 30, 2000, were
     $171,852  compared  with  $50,402  during  the same  period  in  1999.  The
     allowance for possible loan losses  represented .98% of total loans, net of
     mortgage loans  held-for-sale,  at September 30, 2001,  compared to .72% at
     September 30, 2000.  Management  considers the allowance for loan losses to
     be adequate to cover losses inherent in the loan portfolio.



                                       15



<PAGE>

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

     For the nine months ended September 30, 2001, the provision for federal and
     state  income taxes was  $323,897,  a decrease of $224,265  from 2000.  The
     decrease  is due  primarily  to  taxfree  interest  income  generated  from
     purchases of municipal  securities and tax exempt  dividends from purchases
     of preferred stock in federal agencies.


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

     The Company's  noninterest income was $543,575 during the nine months ended
     September 30, 2001, an increase of $111,990 or 26% from the comparable 2000
     period.  The increase resulted from the net effect of declines in insurance
     commissions and rental income of $8,271 and $15,765, respectively, combined
     with increases of $33,758 in other fees and service charges and $102,268 in
     net gains on loans sold.


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

     Noninterest  expense  totaled  $949,873 for the three month  period  ending
     September  30,  2001,  an increase  of $130,819 or 16%.  For the nine month
     period ending September 30, 2001,  noninterest expense was up $2,844,189 or
     15% over the same period in 2000. 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.


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 September 30, 2001


                                       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)





November 8, 2001                               /s/ Randal R. Greene
----------------                               ---------------------------------
    (Date)                                     Randal R. Greene, President





November 8, 2001                               /s/ Charles E. Allen, Jr.
----------------                               ---------------------------------
   (Date)                                      Charles E. Allen, Jr.,
                                               Chairman of the Board
                                               and Chief Executive Officer
                                              (Principal Executive, Financial
                                               and Accounting Officer)






                                       17