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, 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 SEPTEMBER 30, 2000)


           TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE):

                              YES          NO    X
                                               ----


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

                                          INDEX
                                          -----

PART I.        FINANCIAL INFORMATION

        ITEM 1.   FINANCIAL STATEMENTS                                                   PAGE
                                                                                         -------
<S>                                                                                      <C>
                  CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION                               3
                     SEPTEMBER 30, 2000 (REVIEWED) AND DECEMBER 31, 1999 (AUDITED)

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

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

                  CONSOLIDATED STATEMENTS OF CASH FLOWS                                        7
                     NINE MONTHS ENDED SEPTEMBER 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                                                           18

        ITEM 2.   CHANGES IN SECURITIES                                                       18

        ITEM 3.   DEFAULT UPON SENIOR SECURITIES                                              18

        ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                         18

        ITEM 5.   OTHER INFORMATION                                                           18

        ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K                                            18
</TABLE>


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

ITEM 1.   FINANCIAL STATEMENTS

                             STATE OF FRANKLIN BANCSHARES, INC.

                        CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION


                                                                SEPTEMBER 30,       DECEMBER 31,
                             ASSETS                           2000 -  REVIEWED     1999 - AUDITED
-------------------------------------------------------------------------------------------------
<S>                                                              <C>                <C>
Cash and Due from Banks                                          $   4,345,227          2,785,509
Federal Funds Sold                                                     365,000            308,000
Short-Term Interest Bearing Deposits                                   128,274            133,148
Investments - HTM
   (Estimated Market 2000 - $13,382,537 and 1999 - $13,301,184)     13,989,295         13,988,346
Investments - AFS                                                   32,213,144         21,440,591
Loans Held for Sale                                                    145,825            453,562
Loans and Leases Receivable                                        133,138,565        114,439,773
   Less: Allowance for Loan and Lease Losses                          (953,887)          (810,303)
-------------------------------------------------------------------------------------------------
   Loans and Leases Receivable, Net                                132,184,678        113,629,470
-------------------------------------------------------------------------------------------------
Accrued Interest Receivable, Net                                     1,389,768          1,271,439
Land, Buildings & Equip at Cost Less Accum Depr
   of $814,610 in 2000 and $607,618 in 1999                          5,035,955          4,058,242
Prepaid Expense and Accounts Receivable                                113,764             77,907
Investment in Service Bureau at Cost                                    15,000             15,000
Deferred Tax Assets                                                    618,958            599,503
FHLB Stock                                                           1,496,300          1,417,700
-------------------------------------------------------------------------------------------------
  TOTAL ASSETS                                                   $ 192,041,188        160,178,417
=================================================================================================
             LIABILITIES AND STOCKHOLDERS' EQUITY
=================================================================================================
LIABILITIES:
Interest-Free Deposits                                           $   9,820,147          7,762,451
Interest-Bearing Deposits                                          141,209,219        124,475,175
Advances by Borrowers for Taxes and Insurance                          338,082            117,372
Accrued Interest on Deposits                                           193,568             95,734
Accounts Payable and Accrued Expenses                                  174,396            488,630
FHLB Short-Term Advances                                            17,185,000          4,045,000
FHLB Long-Term Advances                                              6,248,078          9,047,707
Deferred Gain on REO                                                    21,448             21,448
Notes Payable                                                          585,817            626,615
-------------------------------------------------------------------------------------------------
       TOTAL LIABILITIES                                         $ 175,775,755        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                                (555,340)          (610,238)
Retained Earnings                                                    2,289,611          1,189,889
  Less: Employee Stock Ownership                                    (1,185,811)          (626,615)
-------------------------------------------------------------------------------------------------
       TOTAL STOCKHOLDERS' EQUITY                                $  16,265,433         13,498,285
-------------------------------------------------------------------------------------------------
       TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                $ 192,041,188        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 SEPTEMBER 30,
                                                      ----------------------------------
INTEREST INCOME:                                       2000 - REVIEWED   1999 - REVIEWED
                                                      -----------------  ---------------
<S>                                                    <C>               <C>
Interest and Fees on Loans                             $     2,838,658         2,147,155
Other Interest Income                                          765,213           596,621
----------------------------------------------------------------------------------------
       TOTAL INTEREST INCOME                                 3,603,871         2,743,776
----------------------------------------------------------------------------------------

INTEREST EXPENSE:
Interest on Deposits                                         1,941,376         1,487,732
Interest on Short-Term Debt                                     51,193                 -
Interest on Long-Term Debt                                     284,620           123,182
----------------------------------------------------------------------------------------
       TOTAL INTEREST EXPENSE                                2,277,189         1,610,914
----------------------------------------------------------------------------------------
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSS           1,326,682         1,132,862
PROVISION FOR LOAN LOSSES                                      (68,811)          (70,361)
----------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSS            1,257,871         1,062,501
----------------------------------------------------------------------------------------

OTHER INCOME:
Other Fees and Service Charges                                  97,410            71,424
Net Gain on Loans Sold                                           8,928             9,199
Insurance Commission Income                                     10,316             6,354
Rental Income, Net                                              31,329            29,838
----------------------------------------------------------------------------------------
       TOTAL OTHER INCOME                                      147,983           116,815
----------------------------------------------------------------------------------------

OTHER EXPENSES:
Compensation and Related Benefits                              399,812           326,467
Occupancy Expenses                                              59,419            60,549
Furniture and Equipment Expense                                 64,843            62,286
Advertising                                                     21,193            35,393
Data Processing Expense                                         91,005            87,492
Other                                                          182,782           193,778
----------------------------------------------------------------------------------------
       TOTAL OTHER EXPENSES                                    819,054           765,965
----------------------------------------------------------------------------------------
       INCOME BEFORE INCOME TAX                                586,800           413,351
PROVISION FOR INCOME TAXES                                    (190,509)         (160,925)
----------------------------------------------------------------------------------------
       NET INCOME                                      $       396,291           252,426
========================================================================================
EARNINGS PER SHARE:
  BASIC                                                $          0.29              0.22
  DILUTED                                                         0.28              0.22
========================================================================================
WEIGHTED AVERAGE SHARES OUTSTANDING:
  BASIC                                                      1,363,784         1,131,803
  DILUTED                                                    1,406,615         1,138,786
========================================================================================
</TABLE>


                See accompanying notes and accountant's report.


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

                                                        NINE MONTHS ENDED SEPTEMBER 30,
                                                      ----------------------------------
INTEREST INCOME:                                       2000 - REVIEWED   1999 - REVIEWED
                                                      -----------------  ---------------
<S>                                                   <C>                <C>
Interest and Fees on Loans                            $      7,954,566         5,877,416
Other Interest Income                                        2,028,755         1,584,338
----------------------------------------------------------------------------------------
       TOTAL INTEREST INCOME                                 9,983,321         7,461,754
----------------------------------------------------------------------------------------

INTEREST EXPENSE:
Interest on Deposits                                         5,309,154         4,074,962
Interest on Short-Term Debt                                    206,489                 -
Interest on Long-Term Debt                                     585,574           367,866
----------------------------------------------------------------------------------------
       TOTAL INTEREST EXPENSE                                6,101,217         4,442,828
----------------------------------------------------------------------------------------
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSS           3,882,104         3,018,926
PROVISION FOR LOAN LOSSES                                     (193,986)         (189,507)
----------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSS            3,688,118         2,829,419
----------------------------------------------------------------------------------------

OTHER INCOME:
Other Fees and Service Charges                                 285,416           176,869
Net Gain on Loans Sold                                          40,206            95,098
Net Gain on Sale and Maturity of Securities                          -            12,724
Insurance Commission Income                                     33,702            32,796
Rental Income, Net                                              72,262            88,992
----------------------------------------------------------------------------------------
       TOTAL OTHER INCOME                                      431,586           406,479
----------------------------------------------------------------------------------------

OTHER EXPENSES:
Compensation and Related Benefits                            1,164,101           940,952
Occupancy Expenses                                             196,270           187,481
Furniture and Equipment Expense                                197,238           192,323
Advertising                                                     64,807            99,610
Data Processing Expense                                        267,084           241,302
Other                                                          582,320           568,233
----------------------------------------------------------------------------------------
       TOTAL OTHER EXPENSES                                  2,471,820         2,229,901
----------------------------------------------------------------------------------------

       INCOME BEFORE INCOME TAX                              1,647,884         1,005,997
PROVISION FOR INCOME TAXES                                    (548,162)         (358,793)
----------------------------------------------------------------------------------------
       NET INCOME                                      $     1,099,722           647,204

========================================================================================
EARNINGS PER SHARE:
  BASIC                                                $          0.83              0.58
  DILUTED                                                         0.81              0.57
========================================================================================
WEIGHTED AVERAGE SHARES OUTSTANDING:
  BASIC                                                      1,318,337         1,124,931
  DILUTED                                                    1,361,168         1,129,607
========================================================================================
</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, 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                          --           --           --             --          --      40,798       40,798
                                                                                                                     -----------
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 $28,281 INCOME TAX)          --           --           --         54,898          --          --       54,898

  NET INCOME                                   --           --           --             --   1,099,722          --    1,099,722
                                                                                                                     -----------
        TOTAL COMPREHENSIVE INCOME             --           --           --             --          --          --    1,154,620
                                      ------------  -----------  ----------  --------------  ---------  -----------  -----------
BALANCE AT SEPTEMBER 30, 2000           1,465,512           --   14,251,461       (555,340)  2,289,611  (1,185,811)  16,265,433
                                      ============  ===========  ==========  ==============  =========  ===========  ===========
</TABLE>


                               See accompanying notes and accountant's report.


                                     6
<PAGE>
<TABLE>
<CAPTION>
                                          STATE OF FRANKLIN BANCSHARES, INC.
                                         CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                NINE MONTHS ENDED SEPTEMBER 30,
                                                                              -----------------------------------
                                                                               2000 - REVIEWED    1999 - REVIEWED
                                                                              -----------------  ----------------
<S>                                                                           <C>                 <C>
CASH  FLOWS  FROM  OPERATING  ACTIVITIES:
  Net Income                                                                   $      1,099,722          647,204
  Items Not Affecting Cash:
    Depreciation                                                                        206,992          188,739
    (Increase) in Accrued Interest                                                     (118,329)        (451,811)
    Deferred Income Taxes (Benefit)                                                     (47,737)          84,692
    Provision for Loan and Lease Losses                                                 193,986          189,507
    (Increase) in Prepaid Expenses and Accounts Receivable                              (35,857)         (49,163)
    Increase (Decrease) in Interest Payable                                              97,834          (18,648)
    Increase (Decrease) in Accounts Payable and Accrued Expenses                       (314,234)         181,060
    Increase in Deferred Loan Fees, Net                                                  48,068            7,344
    Discount Accretion                                                                  (28,499)          (3,033)
    Earned ESOP Shares                                                                   40,799           48,143
    FHLB Stock Dividends                                                                (78,600)         (51,300)
    Net Decrease in Loans Held for Sale                                                 307,737        1,369,326
-----------------------------------------------------------------------------------------------------------------
      NET CASH PROVIDED BY OPERATING ACTIVITIES                                       1,371,882        2,142,060
-----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of Held-to-Maturity Investments                                                    -      (16,536,456)
  Purchase of Available-for-Sale Investments                                        (11,165,995)     (12,986,406)
  Proceeds from Sale of Available-for-Sale Investments                                  504,171            9,662
  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                                             (57,000)       5,057,000
  Decrease in Short-Term Interest Bearing Deposits                                        4,874        5,000,000
  (Increase) in Loans Receivable, Net                                               (18,797,262)     (21,355,702)
  Purchases of Premises and Equipment                                                (1,184,705)        (115,036)
  Purchases of Federal Home Loan Bank Stock                                                   -         (870,700)
-----------------------------------------------------------------------------------------------------------------
    NET CASH (USED) BY INVESTING ACTIVITIES                                         (30,695,917)     (35,166,673)
-----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Net Increase in Deposits                                                           18,791,740       33,670,766
  Net Increase in Advances by Borrowers for Taxes and Insurance                         220,710          194,371
  Issuance of Common Stock, Net                                                       2,171,724           33,491
  ESOP Shares Purchased                                                                (599,994)               -
  Repayment of Debt                                                                     (40,798)         (48,143)
  Proceeds from FHLB Advances                                                        10,340,371           48,000
-----------------------------------------------------------------------------------------------------------------
    NET CASH PROVIDED BY FINANCING ACTIVITIES                                        30,883,753       33,898,485
-----------------------------------------------------------------------------------------------------------------
      NET INCREASE IN CASH                                                            1,559,718          873,872
CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD                                        2,785,509        2,507,173
-----------------------------------------------------------------------------------------------------------------
      CASH AND DUE FROM BANKS AT END OF PERIOD                                    $   4,345,227        3,381,045
=================================================================================================================
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Increase (Decrease) in Unrealized Gain (Loss) on Securities Available-For-Sale,
  Net of Deferred Tax Liability                                                   $      54,898         (486,074)
=================================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
  Cash Paid During the Period for:
    Income Taxes                                                                  $     992,389                -
    Interest                                                                      $   6,003,383        4,461,475
=================================================================================================================
</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,
     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  September  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 is in the process of constructing a fifth
     branch  location  that will open in  November of the  current  year.  Fixed
     assets at September  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                     2,542,903     2,271,821
     Furniture, Fixtures and Equipment                        1,704,018     1,519,039
                                                            -----------   -----------
                                                              5,850,565     4,665,860
     Less:  Accumulated Depreciation                            814,610       607,618
                                                            -----------   -----------
                                                              5,035,955     4,058,242
                                                            ===========   ===========
</TABLE>


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

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


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

  First Mortgage Loans                           54,252,566       43,715,282
  Construction Loans                             27,193,063       23,525,380
  Consumer Loans                                 10,156,901        9,703,102
  Participation Loans, Net                          533,676          533,676
  Commercial Loans                               48,926,360       41,919,362
  Savings Account Loans                             269,078          248,964
  Credit Line Advances                              445,985          419,062
  Lease Finance                                   1,407,185          904,705
                                             ---------------  ---------------

    Gross Loans and Leases Receivable           143,184,815      120,969,533
                                             ---------------  ---------------

  Less:
    Undisbursed Portion of Loans in Process    (  9,925,628)    (  6,457,206)
    Net Deferred Loan Origination Fees         (    120,622)    (     72,554)
    Accumulated General Loan Loss Allowance    (    953,887)    (    810,303)
                                             ---------------  ---------------
                                               ( 11,000,137)    (  7,340,063)
                                             ---------------  ---------------

  Loans and Leases Receivable, Net              132,184,678      113,629,470
                                             ===============  ===============


     An analysis of the  allowance  for loan and lease losses at  September  30,
2000 and December 31, 1999 is as follows:


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

    Balance - Beginning of Period                   810,303          630,324
    Provision for Loan and Lease Losses             193,986          181,429
    Loans and Leases Charged-Off                    (50,402)          (1,450)
    Charged-Off Loan and Lease Recoveries                --               --
                                              --------------   --------------

    Balance - End of Period                         953,887          810,303
                                              ==============   ==============


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

     The Bank had no  non-performing  loans at  September  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:

                                                            For Capital
                                                             Adequacy
                                                             Purposes
                                                          And To Be Well
                                                         Capitalized Under
                                                         Prompt Corrective
                                         Actual          Action Provision
                                     ----------------    ----------------
In Thousands  (Reviewed)             Amount    Ratio     Amount    Ratio
---------------------------          ----------------    ----------------
As of September 30, 2000:
     Total Risk-Based Capital
    (to Risk-Weighted Assets)        15,966   13.09%    >=12,972   10.0%

  Tier 1 Capital
    (to Risk-Weighted Assets)        14,936   12.25%     >=7,318    6.0%

  Tier 1 Capital
    (to Adjusted Total Assets)       14,936    8.22%     >=9,084    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%


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


                                                           For Capital
                                                            Adequacy
                                                            Purposes
                                                         And To Be Well
                                                        Capitalized Under
                                                        Prompt Corrective
                                          Actual        Action Provision
                                     -----------------  -----------------
In Thousands  (Reviewed)             Amount    Ratio    Amount    Ratio
---------------------------          -----------------  -----------------

As of September 30, 2000:
     Total Risk-Based Capital
    (to Risk-Weighted Assets)        17,775    14.50%  >=12,255    10.0%

  Tier 1 Capital
    (to Risk-Weighted Assets)        16,821    13.73%   >=7,353     6.0%

  Tier 1 Capital
    (to Adjusted Total Assets)       16,821     9.23%   >=9,107     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%


                                      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,
                                           2000           1999
                                       -------------  -------------
      Number of Shares
        Released and Allocated               26,431         16,054
        Committed to be Released              2,985          5,188
        Suspense                            101,326         59,804

      Fair Value
        Released and Allocated              356,819        216,729
        Committed to be Released             40,298         70,038
        Suspense                          1,367,901        807,354


     Contributions to the ESOP are as follows:

                                       September 30,   December 31,
                                           2000           1999
                                       -------------  -------------
      Compensation Expense                  138,000        127,272
      Contributions                         138,000        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 - September 30, 2000                          263,687    81,645     $11.56
                                                                     ==========  ========
</TABLE>


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

     Deposit balances are summarized as follows:

<TABLE>
<CAPTION>
                                              SEPTEMBER  30,  2000          DECEMBER  31,  1999
                                   ------------------------------------  ---------------------------
                                      RATE        AMOUNT      PERCENT     RATE     AMOUNT    PERCENT
                                   -----------  ----------  -----------  ------  ----------  -------
<S>                                <C>          <C>         <C>          <C>     <C>         <C>
  PASSBOOK                                4.69  17,234,815        11.41    4.85  43,579,494    32.96
  INTEREST-FREE CHECKING                    --   9,820,147         6.50      --   7,762,451     5.87
  NOW                                     2.00   6,942,939         4.60    1.99   6,285,555     4.75
  MONEY MARKET DEPOSIT                    5.50  28,115,634        18.62    4.48  13,790,665    10.43
                                                ----------  -----------          ----------  -------
                                                62,113,535        41.13          71,418,165    54.01
                                                ----------  -----------          ----------  -------
  FIXED TERM CERTIFICATE ACCOUNTS
    BALANCES $100,000 OR GREATER          6.32  21,813,551        14.44    5.65  14,620,826    11.06
    BALANCES LESS THAN $100,000           6.28  67,102,280        44.43    5.12  46,198,635    34.93
                                                ----------  -----------         -----------  -------
                                                88,915,831        58.87          60,819,461    45.99
                                                ----------  -----------         -----------  -------
                                               151,029,366       100.00         132,237,626   100.00
                                               ===========  ===========         ===========  =======
</TABLE>


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

       Period Ending September 30, 2000           Year Ending December 31, 1999
       --------------------------------           ------------------------------
            2001             21,347,660                2000           42,805,186
            2002             55,233,374                2001            5,447,698
            2003             11,798,498                2002           11,749,728
            2004                536,299                2003              789,631
            2005 and After           --                2004 and After     27,218
                             ----------                               ----------
                             88,915,831                               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 September 30, 2000 and December 31, 1999:

                                                         2000            1999
                                                      ----------       ---------
         Cash Management (Rate Floats Daily)          17,185,000       4,045,000
         Weighted Average Rate                           6.70%           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 September 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.

     September 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          998,122       --       28,065       970,057
               After five years
                 but within ten years        19,771,424       --      716,229    19,055,195
               Over ten years
                 but within fifteen years     2,903,164    6,283       60,913     2,848,534
          Equity Securities
      Callable after one year
                 but within five years        1,000,000       --       60,000       940,000
      Callable after five years
                 but within ten years         7,000,000   17,500           --     7,017,500
          Other
               Within one year                1,381,858       --           --     1,381,858
                                              ---------   ------    ---------   -----------
                  Total Available-for-Sale   33,054,568   23,783      865,207    32,213,144
                                             ==========   ======    =========   ===========
     Held-to-Maturity:
          United States Government
            Agency Securities Maturing:
               After one year
                 but within five years        1,000,000       --       22,371       977,629
               After five years
                 but within ten years        12,989,295       --      584,388    12,404,907
                                              ---------  -------    ---------   -----------
                    Total Held-to-Maturity   13,989,295       --      606,759    13,382,536
                                              =========  =======    =========   ===========
</TABLE>

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

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

                                                     September 30,
                                                   2000        1999
                                                ----------  ----------
Net Income Available to Common Shareholders       396,291      252,426
                                                ==========  ==========
Average Shares
  Average Shares - Basic                        1,363,784    1,131,803
  Effect of Dilutive Common Stock Options          42,831        6,983
                                                ----------  ----------
  Average Shares - Diluted                      1,406,615    1,138,786
                                                ==========  ==========

Basic Earnings Per Share                             0.29         0.22
                                                ==========  ==========

Diluted Earnings Per Share                           0.28         0.22
                                                ==========  ==========


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


                                                     September 30,
                                                   2000         1999
                                                ----------  ----------

Net Income Available to Common Shareholders      1,099,722     647,204
                                                ==========  ==========
Average Shares
  Average Shares - Basic                         1,318,337   1,124,931
  Effect of Dilutive Common Stock Options           42,831       4,676
                                                ----------  ----------
  Average Shares - Diluted                       1,361,168   1,129,607
                                                ==========  ==========

Basic Earnings Per Share                              0.83        0.58
                                                ==========  ==========

Diluted Earnings Per Share                            0.81        0.57
                                                ==========  ==========


                                      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)
J.F. RODGERS, 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 September 30, 2000
and the related  consolidated  statements  of income,  changes in  stockholders'
equity,  and cash flows for the periods  ended  September  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 i s 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

November 6, 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
     source s 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, 2000, assets of State of Franklin Bancshares, Inc. totaled
     $192.0  million  reflecting  an  increase  of $31.9  million  or 20%  since
     December  31,  1999.  The growth in assets has been funded  primarily by an
     $18.8 million  increase in deposits,  a $10.3  million  increase in Federal
     Home Loan Bank  advances,  and a $2.8  million  increase  in  stockholders'
     equity.


     LOANS
     -----

     Loans  outstanding  totaled  $133.1  million at September  30,  2000.  This
     represented  an increase of 16.3% from the  December  31, 1999  outstanding
     loans of $114.4 million.

     Commercial  loans increased $7.0 million at September 30, 2000, an increase
     of 17% 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 16%.  Consumer  loans of
     $10.2  million at  September  30, 2000  increased  $454,000 or 5% from $9.7
     million at December 31, 1999.  During the first nine months of 2000,  first
     mortgage residential loans increased $10.5 million or 24% to $54.3 mil lion
     at  September  30,  2000.  The loan  portfolio  mix at  September  30, 2000
     consists of 38%  residential  mortgages,  36%  commercial,  19% real estate
     construction, and 7% consumer loans.


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

     Investment  securities  totaled $46.2  million at September  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
     September 30, 2000,  approximately  $32.2 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 September 30,
     2000  compared  with  $221,781 at December  31,  1999.  The  allowance  for
     possible  loan losses was  $953,887 at  September  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 September  30, 2000 of $151.0  million,  represented  an
     increase  of $18.8  million  or a 14.2%  increase  from  $132.2  million at
     December  31,  1999.  Non-interest  bearing  demand  deposits  totaled $9.8
     million at September  30, 2000,  an increase of $2.1 million from  December
     31, 1999.  Interest  bearing  deposits  increased  $16.7  million to $141.2
     million at September 30, 2000.


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

     Equity  capital  for the  Savings  Bank at  September  30,  2000 was  $14.5
     million.  At September 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 12.25%, 13.09% and 8.22%, 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 September 30, 2000,
     was $16.3 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 for
     m of unused  federal  funds  lines of credit and a line of credit  with the
     Federal Home Loan Bank of Cincinnati  totaling $22 million at September 30,
     2000.


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

     The  Company  had net  income  of  $396,291  for the  three  months  ending
     September  30, 2000,  compared with $252,426 for the same period last year,
     resulting in an increase of 57%. For the nine month period ending September
     30, 2000, net income was  $1,099,722  compared with $647,204 the first nine
     months of 1999  reflecting an increase of 70%. Net income per diluted share
     was $0.81 compared to earnings per share of $0.57 for the first nine months
     ending  September  30,  1999.  Return on  average  assets was .86% and th e
     return  on  average  equity  was  9.62%  for the nine  month  period  ended
     September  30, 2000,  compared with .63% and 7.46%,  respectively,  for the
     same period in 1999.

     Noninterest income increased  $25,107,  or 6%, during the nine months ended
     September  30, 2000,  compared the same period last year as a result of the
     net effect 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.  Rental income and
     gains on security  sales also  declined in the nine months ended Septem ber
     30, 2000, compared with the same period a year ago. Offsetting the declines
     were an increase  in service  charges  and fees on deposit  accounts  and a
     slight increase in insurance commissions.

     Noninterest  expense was $2.5 million for the nine months ending  September
     30, 2000, an increase of 11% over the 1999 period, primarily resulting from
     increased salaries and benefits,  occupancy,  furniture and equipment, data
     processing, and other general operating expenses.  Partially offsetting the
     increases was a $34,803, or 35%, decline in advertising expense.


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

     Interest  income and  interest  expense  both  increased  from 1999 to 2000
     resulting  primarily from the increases in both earning assets and interest
     bearing  liabilities.  Net  interest  income of $1.3  million for the three
     months  ended  September  30, 2000  reflects an increase of $193,820 or 17%
     over the same period last year.  For the nine months  ending  September 30,
     2000,  net  interest  income was $3.9  million,  reflecting  an increase of
     $863,178 or 29% over the same period a year ago. For the nine months ending
     Sep tember 30, 2000,  average earning assets increased $33.9 million or 26%
     while average interest bearing liabilities increased $30.7 million, or 26%,
     compared  with the  same  period  in  1999.  Average  earning  asset  yield
     increased  45 basis  points  to 8.13%  while the cost on  interest  bearing
     liabilities  increased  44 basis  points  to 5.49%.  Consequently,  the net
     interest margin based on average earning assets increased slightly to 3.16%
     for the nine months  ending  September 30, 2000 compared with 3.11% for the
     same period in 1999.


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

     During the nine months ended September 30, 2000, the provision for possible
     loan losses was $193,986  compared  with  $189,507 for the same period last
     year.  Loan  charge-offs for the nine months ended September 30, 2000, were
     $50,402  compared with $1,016 during the same period in 1999. The allowance
     for possible loan losses  represented  .72% of total loans, net of mortgage
     loans  held-for-sale,  at September 30, 2000, compared to .77% at September
     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 nine months ended September 30, 2000, the provision for federal and
     state  income  taxes was  $548,162,  an  increase  of  $189,369  from 1999,
     primarily due to the increase in income before income taxes.


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

     The Company's  noninterest income was $431,586 during the nine months ended
     September 30, 2000, an increase of $25,107 or 6% from the  comparable  1999
     period.  The increase  resulted from the net effect of declines in net gain
     on loans  sold,  net  gain on sale of  securities,  and  rental  income  of
     $54,892, $12,724, and $16,730,  respectively,  combined with an increase of
     $108,547 in other fees and service charges and a slight increase of $906 on
     insurance commissions.

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

     Noninterest  expense  totaled  $819,054 for the three month  period  ending
     September 30, 2000, an increase of $53,089 or 7%. For the nine month period
     ending September 30, 2000,  noninterest expense was up $241,919 or 11% 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.


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

     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 September 30, 2000


                                      18
<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 7, 2000                     /s/  Randal R. Greene
---------------------------             ----------------------------------
         (Date)                             Randal R. Greene, President



     November 7, 2000                     /s/  Charles E. Allen, Jr.
---------------------------             ----------------------------------
         (Date)                               Charles E. Allen, Jr.,
                                              Chairman of the Board
                                           and Chief Executive Officer
                                         (Principal Executive, Financial
                                              and Accounting Officer)


                                      19
<PAGE>