UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    Form 10-K

                   Annual Report Pursuant to Section 13 or 15(d)
                     of The Securities Exchange Act of 1934

For the fiscal year ended December 31, 1996       Commission File Number 0-13030

                              TRANS FINANCIAL, INC.
             (Exact name of registrant as specified in its charter)

                     Kentucky                                61-1048868
     (State or other jurisdiction of        (I.R.S. Employer Identification No.)
     incorporation or organization)

500 East Main Street, Bowling Green, Kentucky               42101
     (Address of principal executive offices)             (Zip Code)

Registrant's telephone number, including area code: (800)739-6790

Securities  registered  pursuant to Section  12(b) of the Act:  None 
Securities registered pursuant to Section 12(g) of the Act:
                      Common Stock, no par value per share
                                (Title of Class)
                         Preferred Stock Purchase Rights
                                (Title of Class)

Indicate by check mark whether the registrant (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___

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best  of  the  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. _

The aggregate market value of the voting stock held by non-affiliates of the
registrant on February 18, 1997: $240,138,000.

The number of shares outstanding of the issuer's class of common stock on
February 18, 1997: 11,399,494 shares.

Document Incorporated By Reference
Portions  of  the  registrant's  Proxy  Statement  for  the  Annual  Meeting  of
Shareholders  to be held on April 28, 1997, are  incorporated  by reference into
Part III of this report.


<PAGE>



                                TABLE OF CONTENTS

   Item                                                                   Page
                                     Part I

   1.  Business..............................................................2
   2.  Properties............................................................4
   3.  Legal Proceedings.....................................................5
   4.  Submission of Matters to a Vote of Security Holders...................5
   4a. Executive Officers of the Registrant................................6-7

                                     Part II

   5.  Market for the Registrant's Common Equity and
       Related Shareholder Matters...........................................8
   6.  Selected Financial Data...............................................8
   7.  Management's Discussion and Analysis of Financial Condition
       and Results of Operations..........................................9-29
   8.  Financial Statements and Supplementary Data.......................30-54
   9.  Changes in and Disagreements with Accountants
       on Accounting and Financial Disclosure...............................54

                                    Part III

   10. Directors and Executive Officers of the Registrant...................55
   11. Executive Compensation...............................................55
   12. Security Ownership of Certain Beneficial Owners and Management.......55
   13. Certain Relationships and Related Transactions.......................55

                                     Part IV

   14. Exhibits, Financial Statement Schedules and Reports on Form 8-K......56
   Signatures.............................................................57-58
   Exhibit Index..........................................................59-60
<PAGE>

                         Part I

Item 1. Business
The Company and the Banks
     Trans  Financial,  Inc.  ("the  company")  is a bank and  savings  and loan
holding  company  registered  under the Bank Holding Company Act of 1956 and the
Home  Owners'  Loan  Act,  which  has two  commercial  bank  subsidiaries--Trans
Financial  Bank,  National  Association  ("TFB-KY")  and  Trans  Financial  Bank
Tennessee,  National  Association  ("TFB-TN")--and one thrift  subsidiary--Trans
Financial  Bank,  F.S.B.  ("TFB-FSB").  In  addition,  the  company  operates as
subsidiaries of TFB-KY a full-service securities  broker/dealer--Trans Financial
Investment  Services,  Inc.  ("TFIS")--and  a  mortgage  banking  company--Trans
Financial Mortgage Company ("TFMC").
     During 1995, three commercial bank  subsidiaries were merged to form TFB-KY
and two thrift subsidiaries were merged to form TFB-FSB.  Collectively,  TFB-KY,
TFB-TN and TFB-FSB are referred to in this report as "the banks."
     On December 31, 1996, the company had total consolidated  assets of
$2.0 billion,  total loans of $1.5 billion,  total deposits of $1.6 billion and
shareholders' equity of $131 million.
     The portion of Management's  Discussion and Analysis of Financial Condition
and Results of Operations entitled "Mergers and Acquisitions" included in Item 7
is incorporated herein by reference.
     The banks  provide a full range of corporate and retail  banking  services,
including  checking,  savings and time deposit  accounts;  secured and unsecured
loans to corporations, individuals and others; letters of credit; rental of safe
deposit boxes; financial counseling for individuals and institutions;  and trust
and brokerage services.  Interest on domestic commercial,  consumer and mortgage
loans  constitutes  the largest  contribution  to the operating  revenues of the
company and the banks.
     TFB-KY  provides  a wide  variety  of  personal  and  corporate  trust  and
trust-related  services,  including  serving as executor of estates;  as trustee
under testamentary and inter-vivos  trusts; as guardian of the estates of minors
and  incompetents;  as escrow agent under various  agreements;  and as financial
advisor to and custodian for  individuals,  corporations  and others.  Corporate
trust services  include serving as registrar,  transfer agent,  and paying agent
for  corporate  securities  and  as  corporate  trustee  under  corporate  trust
indentures.  At December  31,  1996,  approximately  $421 million in assets were
managed by the trust department of TFB-KY.
     TFMC   originates   and  purchases   mortgage  loans  for  the  purpose  of
constructing,  financing or refinancing one- to four-family dwellings. TFMC also
services  mortgage  loans for the banks and for others.  Generally,  residential
mortgage  loans  originated or purchased are then sold in the secondary  market.
When sold,  servicing may be retained by TFMC or released to the purchaser.  The
portfolio of mortgage loans serviced for others totaled $3.3 billion at December
31, 1996.
     TFIS  offers  to  customers  of the  banks  and to  others a wide  range of
investment products and services,  including  financial planning,  mutual funds,
annuities,  and  individual  stocks  and  bonds.  In  October  of  1995,  TFB-KY
introduced its own family of proprietary  mutual funds, the Trans Adviser Funds,
which added depth to its lineup of investment products.
     TFB-KY has twenty-seven offices in Kentucky:  six located in Bowling Green;
three  located  in  Pikeville;  two  located  in each of  Glasgow,  Scottsville,
Morehead and Maysville;  and one located in each of Augusta,  Cave City,  Dawson
Springs,  Tompkinsville,   Elkhorn  City,  Meta,  Belfry,  Virgie,  Martin,  and
Prestonsburg.  TFB-FSB has twelve offices: two in Columbia,  Tennessee;  and one
each in the  Tennessee  communities  of  Tullahoma,  Mt.  Pleasant,  Manchester,
Rockwood,  Kingston,  Shelbyville,  and Winchester; and one each in the Kentucky
communities of Franklin, Russellville and Auburn. TFMC has a mortgage operations
center in Tullahoma,  Tennessee,  and a loan  production  office in  Greensboro,
North Carolina.  TFB-TN has ten offices in Tennessee: two located in Cookeville;
and one  located  in  each  of  Nashville,  Clarksville,  Crossville,  Franklin,
Lebanon, McMinnville, Murfreesboro, and Sparta. Subsequent to December 31, 1996,
the company  entered  into a contract  to sell the  Lebanon and Sparta  offices,
subject to regulatory approval.

Competition
     The  deregulation of the banking industry and the enactment in Kentucky and
other states of legislation permitting multi-bank holding companies,  as well as
interstate banking, has created a highly competitive  environment for banking in
the company's  market area. The following table displays each of the communities
where the company is currently  located and the respective  percentage of market
share of deposits the company has in each of these  communities.  The table also
shows the ranking by deposit  size of each of the TFB  locations  in their local
markets.

<PAGE>

                   Share of Local Market
                   Banks, savings & loans and credit unions
                                                         Rank in
                                                Market    Local      Subsidiary
                                                Share     Market          Bank
                   South Central Kentucky:
                        Bowling Green              35%       1            TFB-KY
                        Glasgow/Cave City          40%       1            TFB-KY
                        Scottsville                35%       2            TFB-KY
                        Tompkinsville              18%       3            TFB-KY
                        Franklin                   *        NM            TFB-KY
                   Northeastern Kentucky:
                        Maysville                  37%       1            TFB-KY
                        Morehead                   33%       1            TFB-KY
                        Augusta                    30%       2            TFB-KY
                   Eastern Kentucky:
                        Pike County                19%       3            TFB-KY
                        Floyd County               27%       3            TFB-KY
                   Western Kentucky:
                        Dawson Springs              6%       5            TFB-KY
                        Russellville/Auburn        16%       3           TFB-FSB
                   Northern Tennessee:
                        Clarksville                 4%       8            TFB-TN
                   Middle Tennessee:
                        Cookeville                  6%       5            TFB-TN
                        Murfreesboro                1%      10            TFB-TN
                        Nashville                   *       NM            TFB-TN
                        Rockwood/Kingston          14%       4           TFB-FSB
                        McMinnville                 7%       4            TFB-TN
                        Sparta                      3%       4            TFB-TN
                        Franklin                    *       NM            TFB-TN
                        Lebanon                     1%      10            TFB-TN
                        Crossville                  3%       5            TFB-TN
                   South Central Tennessee:
                        Tullahoma                  13%       2           TFB-FSB
                        Shelbyville                 6%       6            TFB-TN
                        Manchester                 13%       2           TFB-FSB
                        Winchester                 13%       4           TFB-FSB
                        Columbia/Mt. Pleasant       7%       5           TFB-FSB
                 NM = not meaningful
                 * = less than 1%

     The company  actively  competes in its markets with other  commercial banks
and financial institutions for all types of deposits, loans, trust accounts, and
other services.  The company also competes  generally with insurance  companies,
savings and loan associations,  credit unions,  brokerage firms, other financial
institutions,  and institutions  which have expanded into the financial  market.
Many of these competitors have resources substantially in excess of those of the
company,  have broader  geographic  markets and higher  lending  limits than the
banks and,  therefore,  are able to make larger  loans,  sell a broader  product
line,  and make more  effective use of  advertising  than can the company or the
banks.

Supervision and Regulation
     Bank holding companies,  commercial banks and savings banks are extensively
regulated  under both  federal and state law.  Any change in  applicable  law or
regulation  may have a material  effect on the  business  and  prospects  of the
company and the banks.
     The  company,  as a  registered  bank  holding  company,  is subject to the
supervision  of and  regulation  by the  Federal  Reserve  Board  under the Bank
Holding  Company Act of 1956.  Also,  as a  registered  savings and loan holding
company,  the company is subject to the  supervision  of and  regulation  by the
Office of Thrift Supervision ("OTS").
     TFB-KY  and  TFB-TN  are  subject  to  the   supervision  of,  and  regular
examination  by,  the  Office of the  Comptroller  of the  Currency.  TFB-FSB is
subject to the supervision of, and regular  examination by, the OTS. The Federal
Deposit Insurance  Corporation  insures the deposits of the banks to the current
maximum of $100,000 per depositor.
     In addition,  the company is subject to the  provisions of  Kentucky's  and
Tennessee's  banking laws regulating bank acquisitions and certain activities of
controlling bank shareholders.
     The  Riegle-Neal  Interstate  Banking and Branching  Efficiency Act of 1994
(the "Act"),  when fully phased in, will remove state law barriers to interstate
bank  acquisitions  and will  permit the  consolidation  of  interstate  banking
operations.  Under the Act, effective September 29, 1995, adequately capitalized
and managed bank holding  companies may acquire  banks in any state,  subject to
(i) Community Reinvestment Act compliance, (ii) federal and state antitrust laws
and  deposit   concentration  limits,  and  (iii)  state  laws  restricting  the
acquisition  of a bank that has been in existence for less than a minimum period
of time (up to five years).  The Act's  interstate  consolidation  and branching
provisions will become operative on June 1, 1997,  although any state can, prior
to that time, adopt legislation to accelerate  interstate  branching or prohibit
it completely.  The Act's interstate consolidation and branching provisions will
permit  banks to merge  across  state  lines and,  if state laws  permit de novo
branching, to establish a new branch as its initial entry into a state.

Statistical Information
     Certain statistical information is included in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included in Item 7 on
pages 9 through 29 and in note 7 to the consolidated financial statements.
Those pages are incorporated herein by reference.

     Description of Statistical Information                             Page(s)

     Average Consolidated Balance Sheets and Net Interest Analysis.......13-14
     Analysis of Year-to-Year Changes in Net Interest Income...............15
     Loans Outstanding.....................................................18
     Loan Maturities and Interest Rate Sensitivity.........................20
     Non-performing Assets (Including Potential Problem Loans).............21
     Summary of Loan Loss Experience.......................................22
     Allocation of Allowance for Loan Losses...............................23
     Allocation of Year-End Allowance for Loan Losses
       and Percentage of Each Type of Loan to Total Loans..................23
     Carrying Value of Securities..........................................23
     Maturity Distribution of Securities Available for Sale................24
     Maturity of Time Deposits of $100,000 or More.........................25
     Short-Term Borrowings.................................................26

     Consolidated Statistical Information..................................29

     Impact of Non-accrual Loans on Interest Income (note 7, paragraph 3)..40


Item 2. Properties
     The main  banking  office of  TFB-KY,  which also  serves as the  principal
office of the  company,  is  located  at 500 East Main  Street,  Bowling  Green,
Kentucky.  TFB-KY owns all of the  properties  at which it conducts its business
except the Ashley Circle and Nashville Road sales centers in Bowling Green,  the
Nashville  office (which  provides  trust and investment  services),  the Virgie
sales  center,  and one of its  Pikeville  sales  centers  (the North Mayo Trail
branch). TFB-KY also leases property in Bowling Green for its operations center.
The facility in which its  telemarketing  Customer Care Center operates was sold
and leased back on December 31, 1996.
     TFB-FSB owns all the  properties at which it conducts  business  except the
Auburn and  Franklin  sales  centers.  TFMC leases the  property  in  Tullahoma,
Tennessee,  which houses its  operations  center,  with the right to receive the
deed to the  property  upon  completion  of the lease,  and also leases space in
Greensboro for a loan production office.
     TFB-TN owns all the  properties  at which it conducts  business  except the
     Franklin and Nashville sales centers. Note 8 to the company's  consolidated
     financial statements contains additional information relating to amounts
invested in premises and equipment.


Item 3. Legal Proceedings
     In the  ordinary  course  of  operations,  the  company  and the  banks are
defendants in various legal proceedings. In the opinion of management,  there is
no proceeding pending or, to the knowledge of management,  threatened,  in which
an  adverse   decision  could  result  in  a  material  adverse  change  in  the
consolidated financial condition or results of operations of the company.
     On August 12,  1996,  Douglas M. Lester,  the  company's  former  chairman,
president and chief executive  officer,  filed suit individually and purportedly
on behalf of the  shareholders  of the company in Warren Circuit Court,  Bowling
Green,  Kentucky,  against  the company and four of its  directors.  Mr.  Lester
claims that the company wrongfully terminated him on June 4, 1996, that the four
named directors breached their fiduciary duties to the company, and also alleges
fraud, breach of contract,  interference with contractual relations and invasion
of privacy.  Mr. Lester seeks,  among other things,  $1 million in  compensatory
damages,  the value of certain stock options,  and punitive damages.  Management
believes that the litigation will not result in a material adverse change in the
consolidated  financial  condition or results of  operations  of the company and
intends to vigorously defend the action.
     On August 22,  1996,  two former  employees of the company and three former
employees of TFB-KY filed suit in Jefferson Circuit Court, Louisville, Kentucky,
against  the  company.  The five  plaintiffs  claim  wrongful  termination,  sex
discrimination,  age discrimination,  breach of contract and libel in connection
with the  termination of their  employment in June 1996.  The  plaintiffs  seek,
among other things,  compensatory  damages in an unspecified  amount, to include
the  value  of back  pay and  benefits;  the  value of  certain  stock  options;
reinstatement  as employees or  alternatively  the value of future  earnings and
benefits; and punitive damages. Management believes that the litigation will not
result in a material adverse change in the consolidated  financial  condition or
results of  operations  of the  company  and  intends to  vigorously  defend the
action.


Item 4. Submission of Matters to a Vote of Security Holders
     No matters  were  submitted to a vote of security  holders  during the last
quarter of the period covered by this report.


<PAGE>



Item 4a. Executive Officers of the Registrant
     The following  table sets forth the name, age and position with the company
and the banks of the executive officers of the company.  Officers of the company
and the banks are elected annually.

                                Served as
                              an Executive                  Position with the
     Name                    Officer Since     Age        Company and the Banks

Vince A. Berta                    1993          38        President, Chief
                                                          Executive Officer, and
                                                          Director of the
                                                          company;  Director and
                                                          Executive Vice
                                                          President of TFB-KY;
                                                          Director of TFMC
Barry D. Bray                     1984          50        Executive Vice
                                                          President, Chief
                                                          Credit Officer of the
                                                          company; Chief  Credit
                                                          Officer and Director
                                                          of TFB-KY; Chief
                                                          Credit Officer of
                                                          TFB-TN and TFB-FSB
James G. Campbell                 1996          40        Executive Vice
                                                          President-General
                                                          Sales Manager for the
                                                          company; President and
                                                          Director of TFB-KY;
                                                          Director of TFB-TN
                                                          and of TFB-FSB
Tommy W. Cole                     1996          41        Executive Vice
                                                          President, Corporate
                                                          Financial  Services
                                                          of the company and of
                                                          TFB-KY
John K. Davis II                  1997          40        Senior Vice President
                                                          and Chief Information
                                                          Officer of the company
                                                          and of TFB-KY
Roger E. Lundin                   1987          52        Senior Vice President
                                                          and Director of Human
                                                          Resources of the
                                                          company
Edward R. Matthews                1995          35        Chief Financial
                                                          Officer of the company
Michael J. Moser                  1994          50        Executive Vice
                                                          President and Director
                                                          of Marketing of the
                                                          company
Michael L. Norris                 1995          43        President and Director
                                                          of Trans Financial
                                                          Mortgage Company

Ronald B. Pigeon                  1995          48        Controller of the
                                                          company;  Secretary/
                                                          Treasurer and Director
                                                          of TFIS
Jay B. Simmons                    1993          40        Senior Vice President,
                                                          General Counsel and
                                                          Secretary of the
                                                          company; Senior Vice
                                                          President of TFB-KY,
                                                          TFB-TN, and TFB-FSB;
                                                          Director and General
                                                          Counsel of TFIS;
                                                          Director of TFMC
Ronald Szejner                    1995          48        Executive Vice
                                                          President and Chief
                                                          Trust Officer of the
                                                          company and of TFB-KY;
                                                          President and Director
                                                          of TFIS
Thomas R. Wallingford             1996          69        Chairman of the Board
                                                          and Director of the
                                                          company; Chairman
                                                          and Director of
                                                          TFB-KY; Retired,
                                                          Former Chairman  and
                                                          Chief Executive
                                                          Officer of  Kentucky
                                                          Community Bancorp,Inc.

     All of the  above-mentioned  executive  officers have been with the company
for more than five years, except for the following:
     Mr. Berta joined the company in April 1993.  Prior to that he was Vice
President  and Manager of  Functional  Control with PNC Bank.
      Mr.  Davis  joined  the  company  in  September  1995.  Prior to that he
was Director, Strategic  Architecture  for SmithKline Beecham Clinical
Laboratories.
     Mr.  Matthews  joined the company in January  1994.  Prior to that,  he was
Chief Financial  Officer for First Union National Bank of Tennessee for eighteen
months,   and  previously  held  positions  in  commercial  lending  and  credit
administration for First Union National Bank of North Carolina.
     Mr.  Moser  joined the company in July 1994.  Prior to that, he was Senior
Vice  President  and Director of Corporate Marketing for West One Bancorp in
Boise, Idaho.
     Mr. Norris joined the company in July, 1993. Prior to that, he was
responsible for all mortgage  servicing  activities at PNC Mortgage Servicing
Company.
     Mr.  Pigeon  joined the company in  November  1993.  Prior to that,  he was
Controller for a railroad warehousing service company in Denver,  Colorado,  and
was Vice  President for External  Reporting with Colorado  National  Bankshares,
Inc.
     Mr. Simmons  joined the company in November  1993.  Prior to that, he was a
partner in a Denver law firm,  specializing in financial  institutions  law, and
was a vice president on the legal staff of Colorado National Bankshares, Inc.
     Mr. Szejner  joined the company in March 1995.  Prior to that, he was
President and Chief Executive Officer of First Michigan Bank Brokerage Services
for eighteen  months.  He was Vice President and Director of Marketing for First
Michigan Bank Corporation from October 1991 until January 1994.
     None  of the  above  officers  is  related  to  another  and  there  are no
arrangements  or  understandings  between them and any other person  pursuant to
which  any of them  was  elected  as an  officer,  other  than  arrangements  or
understandings  with directors or officers of the company acting solely in their
capacities as such. With respect to certain agreements entered into with certain
officers  of the  registrant  providing  severance  benefits  in the  event  the
officer's employment is terminated without cause prior to December 31, 1997, see
section  entitled  Executive   Compensation  And  Other   Information-Employment
Contracts and  Termination of Employment and Change of Control  Arrangements  in
the registrant's  Proxy Statement for the 1997 Annual Meeting of Shareholders as
incorporated herein by reference at Item 11.


<PAGE>


                                     Part II

Item 5. Market for the Registrant's Common Equity
        and Related Shareholder Matters
     The  registrant's  common  stock is traded on the Nasdaq Stock Market under
the symbol  TRFI.  As of  December  31,  1996 there were 1,706  shareholders  of
record.
     Following  is a summary of market  prices and  dividends  declared  for the
registrant's common stock for the quarterly periods indicated:
                                              Stock Price
                                         High               Low         Dividend
     First quarter, 1995                $15.25            $12.75           $.15
     Second quarter, 1995                15.50             14.00            .15
     Third quarter, 1995                 17.875            15.00            .15
     Fourth quarter, 1995                18.125            16.75            .15
     First quarter, 1996                 18.125            14.75            .16
     Second quarter, 1996                18.50             15.125           .16
     Third quarter, 1996                 20.50             16.875           .16
     Fourth quarter, 1996                23.50             19.50            .16

     On November 7, 1996,  the company  issued  46,666 shares of common stock to
Morgan Keegan & Co., Inc.  ("Morgan  Keegan").  The shares were issued for total
consideration of $516,243.  The issuance was pursuant to the warrant dated as of
February  13,  1992,   previously   issued  to  Morgan  Keegan  as  underwriting
compensation  in  connection  with an issuance  of the  company's  common  stock
underwritten by Morgan Keegan. The issuance of the 46,666 shares of common stock
was not registered  under the  Securities  Act of 1933, as amended,  pursuant to
Section 4(2) of the Act.

     Additional  information  for  this  item  is  included  in  note  11 to the
consolidated financial statements.

Item 6. Selected Financial Data
     The information for this item is included in the section entitled
"Consolidated  Statistical  Information" in Item 7 of this report.


<PAGE>


Item 7. Management's Discussion and Analysis of Financial Condition
        and Results of Operations

Financial Overview
     Trans  Financial,  Inc.  ("the  company")  is a bank and  savings  and loan
holding  company  registered  under the Bank Holding Company Act of 1956 and the
Home  Owners'  Loan  Act,  which  has two  commercial  bank  subsidiaries--Trans
Financial  Bank,  National  Association  ("TFB-KY")  and  Trans  Financial  Bank
Tennessee,  National  Association  ("TFB-TN")--and one thrift  subsidiary--Trans
Financial Bank, F.S.B. ("TFB-FSB").  Collectively,  these three institutions are
referred to in this report as "the banks."
     In addition,  the company operates as subsidiaries of TFB-KY a full-service
securities  broker/dealer--Trans  Financial  Investment  Services,  Inc.--and  a
mortgage banking company--Trans Financial Mortgage Company ("TFMC"). The company
sold its travel agency, Trans Travel, Inc., during the fourth quarter of 1996.
     At December 31,  1996,  the company had total  consolidated  assets of $2.0
billion,  total  loans of $1.5  billion,  total  deposits  of $1.6  billion  and
shareholders'  equity of $131 million. The company's net income decreased 55% in
1996,  to $6.9  million,  from $15.3  million in 1995,  and  earnings  per share
decreased 56% to $0.60 per common share, from $1.35 in 1995.
     Results for 1996 reflect pre-tax  charges  totaling $5.8 million related to
the company's mid-year commitment to refocus on core financial services,  reduce
operating expenses and exit from less-profitable  initiatives.  Also included in
the  1996  results  is  a  pre-tax   charge  of  $2.6  million   resulting  from
congressional   legislation   enacted  during  the  third  quarter  designed  to
re-capitalize the Savings Association Insurance Fund ("SAIF"). In addition,  the
provision  for loan losses was  increased  in 1996 by $8.6  million  compared to
1995.
     The discussion that follows is intended to provide  additional insight into
the company's financial  condition and results of operations.  It should be read
in conjunction  with the  consolidated  financial  statements  and  accompanying
notes, which follow this discussion.

Mergers and Acquisitions
     Over the past several years,  the company has expanded  through mergers and
acquisitions, which are summarized below.

<TABLE>
<CAPTION> 
                                                                                                                          Asset
                                                                                                           Date            Size
       Acquisition                                             Location                                   Consummated    (millions)

<S>                                                         <C>                                           <C>            <C>

  Mergers (pooling-of-interests accounting):
      Dawson Springs Bancorp, Inc. ........................  South Central & Western Kentucky              December-92   $ 70
      Kentucky Community Bancorp, Inc. ....................  Northeastern Kentucky                         February-94    175
      Peoples Financial Services, Inc. ....................  Middle & Eastern Tennessee                    April-94       123
      FGC Holding Company .................................  Eastern Kentucky                              August-94      127
  Acquisitions (purchase accounting):
      First Federal Savings and Loan Assoc. of Russellville  Southwestern Kentucky                         November-9      41
      Future Federal Savings Bank branches (from RTC) .....  South Central Kentucky                        August-91       75
      First Federal Savings Bank of Tennessee .............  South Central Tennessee                       March-92       224
      Maury Federal Savings Bank ..........................  Middle Tennessee                              March-92        55
      Heritage Federal Bank for Savings branches ..........  Middle Tennessee                              August-92       55
      Trans Kentucky Bancorp, Inc. ........................  Eastern Kentucky                              July-93        189
      Fifth Third Bank of Kentucky, Inc. branches .........  South Central Kentucky                        February-95     41
      AirLanse Travel (sold November-96) ..................  Louisville, Kentucky                          September-95     1
      Correspondents Mortgage Company, L.P. ...............  Greensboro, North Carolina                    November-95      1
</TABLE>

     The  mergers  shown  in the  above  table  were  accounted  for  using  the
pooling-of-interests method of accounting and, accordingly, financial statements
for all periods  were  restated to reflect  the results of  operations  of these
companies on a combined  basis from the earliest  period  presented,  except for
dividends  per share.  The  acquisitions  were  accounted for using the purchase
method of accounting.  Accordingly,  the results of operations of those acquired
entities prior to the acquisition dates have not been included in the results of
operations.  Therefore,  ratios or analyses  for periods  before and after these
purchase acquisitions may not be comparable.
     Three banks were acquired in the Kentucky Community  Bancorp,  Inc. merger.
These three banks were  consolidated  into the operations of TFB-KY on March 31,
1994. The Peoples Financial  Services,  Inc. merger included one commercial bank
and one thrift institution. The commercial bank became TFB-TN and the thrift was
consolidated  into the  operations of TFB-FSB on July 31, 1994.  The  commercial
bank acquired in the FGC Holding  Company ("FGC") merger was  consolidated  into
the  operations  of TFB-KY on March 24,  1995.  In  connection  with  these 1994
mergers,  the company issued a total of 3,727,216 shares of common stock and the
shares of FGC preferred stock were retired.
     In connection  with the February 1995 branch  acquisition  from Fifth Third
Bank of Kentucky,  Inc.,  the two Fifth Third offices  located in Bowling Green,
Kentucky,  were  consolidated  into  existing  Trans  Financial  locations;  the
company's  existing location in Scottsville,  Kentucky was consolidated into the
other purchased  location.  AirLanse Travel was consolidated into the operations
of Trans Travel, Inc. and Correspondents  Mortgage Company was consolidated into
the  operations of TFMC.  (As a part of the  company's  commitment to refocus on
core financial  services,  Trans Travel, Inc. was sold during the fourth quarter
of 1996.) In addition to the deposits assumed,  the company received net cash of
$36.8 million and issued 25,000 shares of common stock in connection  with these
1995 acquisitions.
     See  note  4  to  the  consolidated  financial  statements  for  additional
information regarding business combinations.

Income Statement Review
     Net income was $6.9 million in 1996,  compared  with $15.3 million in 1995,
and $14.4 million in 1994. On a per share basis, net income was $0.60, $1.35 and
$1.28, respectively.
     As mentioned  previously,  non-interest  expenses for 1996 reflect  pre-tax
charges  totaling $5.8 million related to an initiative to refocus the company's
resources on its core financial  services,  reduce  operating  expenses and exit
from less-profitable  initiatives.  This initiative was undertaken in the second
quarter  of  1996,  when the  Board of  Directors  made a  change  in  executive
management,  with the  expressed  purpose of changing  the  company's  strategic
direction.  As of December 31, 1996, the company has  accomplished the following
goals of the initiative:
         -exited the venture capital and human resources consulting initiatives,
         -closed the Louisville, Kentucky office, 
         -closed  mortgage loan production offices in Chattanooga, Jackson and
          Knoxville,  Tennessee,
         -sold the corporate aircraft,
         -sold the travel agency,
         -sold a  newly-constructed  building  intended  to house the  company's
         corporate  headquarters and consolidated office space in Bowling Green,
         Kentucky, and
         -realized  additional  cost savings in the  company's  retail  delivery
         system of  approximately  $2.5 million on an annualized  pre-tax basis,
         primarily through the reduction of administrative personnel.
     Based on a comparison of  non-interest  expenses for the fourth  quarter of
1996 to the second  quarter  (excluding the $5.8 million of charges to implement
the plan), total operating expenses have been reduced by more than $6 million on
an annualized pre-tax basis.
     In addition  to the charges  associated  with the refocus  initiative,  the
company  increased its 1996  provision for loan losses by $8.6 million  compared
with 1995 and recorded a pre-tax charge of $2.6 million imposed by congressional
legislation   enacted  during  1996  designed  to   re-capitalize   the  Savings
Association  Insurance Fund ("SAIF").  All banks with SAIF-insured  deposits and
all  savings  and loans  were  subject  to the SAIF  assessment.  The  increased
provision for loan losses in 1996 was primarily  due to a  deterioration  in the
quality of certain commercial credits in the second quarter of the year.
     With the major  components  of the refocus  initiative in place by year-end
1996,  management  believes the results of the third and fourth quarters of 1996
are more  representative of the company's ongoing  profitability.  Excluding the
SAIF  assessment,  annualized net income for those periods would have been $20.2
million,  which would have  resulted in a return on assets of 1.06 percent and a
15.85 percent return on equity.
     Following  is a summary of the  components  of income and  expense  and the
changes in those components over the past three years.
<TABLE>

 Condensed Consolidated Statements of Income
 For the years ended December 31
 Dollars in thousands, except per share data


<CAPTION>
                                             Change                           Change
                               1996     Amount       %             1995     Amount       %         1994


<S>                           <C>        <C>        <C>        <C>        <C>           <C>       <C>
Interest income ...........   $147,935   $ 13,707    10.2 %     $134,228   $ 20,246      17.8 %   $113,982
Interest expense ..........     73,066      8,467    13.1         64,599     17,224      36.4       47,375
                              --------   --------    -------    --------   --------    -------    --------
Net interest income .......     74,869      5,240     7.5         69,629      3,022       4.5       66,607
Provision for loan losses .     13,914      8,654   164.5          5,260      3,048     137.8        2,212
                              --------   --------   -------    --------   --------    -------     --------
Net interest income after
  provision for loan losses     60,955     (3,414)   (5.3)        64,369        (26)    (0.0)       64,395
Non-interest income .......     29,689      5,278    21.6         24,411      7,241      42.2       17,170
Non-interest expenses .....     80,642     14,593    22.1         66,049      5,979      10.0       60,070
                              --------   --------    -------    --------   --------    -------    --------
Income before income taxes      10,002    (12,729)  (56.0)        22,731      1,236       5.8       21,495
Income tax expense ........      3,120     (4,296)  (57.9)         7,416        341       4.8        7,075
                              --------   --------    -------    --------   --------    -------    --------
Net income ................   $  6,882   $ (8,433)  (55.1)      $ 15,315    $    895      6.2      $14,420
                                =======    ========  ========    =======    ========  ========    ========
Primary earnings
  per common share ........   $   0.60    $ (0.75)  (55.6)%       $ 1.35    $   0.07      5.5 %    $  1.28
                                =======    ========  ========    =======    ========  =========    =======
</TABLE>

     Each of these  components of income and expense is discussed  separately in
the sections that follow.

Net Interest Income
     Net interest income totaled $74.9 million in 1996, a 7.5% increase over the
$69.6  million  recorded in 1995.  In 1995 net interest  income was up 4.5% over
1994's $66.6 million.  On a fully-taxable  equivalent basis, net interest income
was $76.5 million in 1996, compared with $71.3 million in 1995 and $68.2 million
in 1994.  The  increase  in net  interest  income  in 1996 and 1995 was due to a
higher level of interest-earning assets, primarily commercial loans.
     The following  table  summarizes  the changes in the company's net interest
margin (on a  fully-taxable  equivalent  basis) over the past three  years.  Net
interest  margin is net  interest  income  divided  by the  average  balance  of
interest-earning assets for the year.
<TABLE>

 Net Interest Analysis Summary (F1)
 For the years ended December 31


<CAPTION>
                                                                    Basis Point               Basis Point
                                                        1996        Change       1995        Change         1994

<S>                                                     <C>          <C>         <C>          <C>            <C>
 Average yield on interest-earning assets               8.84%         (5)        8.89%         97            7.92%
 Average rate on interest-bearing liabilities           4.89          15         4.74         109            3.65
                                                        ----         -----       -----        ------         -----
 Net interest-rate spread                               3.95         (20)        4.15         (12)           4.27
 Impact of non-interest-bearing sources and other
    changes in balance sheet composition                0.57           5         0.52          12            0.40
                                                        ----         -----       ------       ------         -----
 Net interest margin                                    4.52%        (15)        4.67%          -            4.67%
                                                        ====         ===         ====         =====          ====
<FN>
(F1)Refer to the tables on pages 13 and 14 for additional  data regarding the net
interest analysis.
</FN>
</TABLE>

     The  table  on  pages  13 and 14  show,  for  the  past  three  years,  the
relationship  between  interest  income  and  expense  and the levels of average
interest-earning  assets  and  average  interest-bearing  liabilities.  It  also
reflects  the  general  increase  in  interest  rates on total  interest-bearing
liabilities over the past year, and increased volumes of loans,  certificates of
deposit, and borrowed funds.
     Approximately  $625 million of the company's  commercial and consumer loans
are tied to the prime rate.  Decreases in the prime lending rate, which began in
the third quarter of 1995, had a negative impact on net interest margin during
1996 as compared to 1995.  Although the prime rate leveled off in February 1996,
the company's  funding costs  continued to rise, as the company  placed  greater
reliance on  wholesale  funding  sources,  such as brokered  deposits  and other
borrowed  funds.  As a result,  the  company's  net  interest-rate  spread  (the
difference between the gross yield on interest-earning  assets and the rate paid
on  interest-bearing  liabilities)  decreased,   negatively  impacting  the  net
interest margin.
     Although  the net  interest-rate  spread fell by 12 basis points in 1995 as
compared  with 1994,  the net interest  margin was flat,  due to a change in the
composition of the balance sheet.  In 1994,  loans  accounted for 74% of average
earning  assets,  while  securities  represented  24%.  In 1995,  as the company
utilized maturing securities to fund growth in the loan portfolio,  those ratios
had changed to 78% and 20%, respectively. This trend continued in 1996, with the
ratio of loans to total earning assets increasing to 80% and securities dropping
to 17%. The increased proportion of assets invested in relatively higher-earning
loans served to mitigate in 1996--and  fully offset in 1995--the  decline in the
interest-rate spread from the previous year.
     On November 30, 1995, the company  reclassified all securities to available
for sale, as permitted by the Financial  Accounting Standards Board in a special
one-time reassessment.


<PAGE>




<TABLE>

 Average Consolidated Balance Sheets and Net Interest Analysis
 For the years ended December 31
 Fully-taxable equivalent basis
 Dollars in thousands
<CAPTION>

                                                 1996                           1995                          1994
                                       Average              Average     Average             Average     Average             Average
                                      Balance     Interest     Rate     Balance  Interest    Rate      Balance   Interest    Rate
                                          (F1)      (F2)                  (F1)    (F2)                   (F1)        (F2)
 Assets
<S>                                    <C>        <C>         <C>    <C>         <C>          <C>    <C>        <C>        <C>  
 Interest-earning assets:
   Securities held to maturity:
    U.S. Treasury, federal agencies,

    and mortgage-backed securities     $       -  $     -     0.00%  $   24,257  $  1,686     6.95%  $  69,766   $ 3,967    5.69%
    State and municipal obligations            -        -     0.00       46,674     3,622     7.76      50,111     3,972    7.93
    Other securities                           -        -     0.00        4,816       355     7.37       5,723       396    6.92
                                        ---------  -------           ----------  --------           ----------   ------- 
    Total securities held to maturity         -         -     0.00       75,747     5,663     7.48     125,600     8,335    6.64
   Securities available for sale:
    U.S. Treasury, federal agencies,
     and mortgage-backed securities      204,549     11,450   5.60      209,756    11,847     5.65     214,749    11,477    5.34
    State and municipal obligations       53,844      4,023   7.47        5,442       445     8.18           -         -    0.00
    Other securities                      33,460      2,133   6.37       13,727       901     6.56      13,526       708    5.23
                                      ----------     ------           ----------  --------         -----------   -------
   Total securities available
    for sale                             291,853     17,606   6.03     228,925     13,193     5.76     228,275    12,185    5.34
                                      ----------    -------           ----------  --------           ----------   -------
    Total securities                     291,853     17,606   6.03      304,672    18,856     6.19     353,875    20,520    5.80
   Federal funds sold                        898         52   5.79       13,652       804     5.89      13,424       540    4.02
   Interest-bearing deposits
     with banks                              117         14     NM          197        17       NM         235       104      NM
   Mortgage loans held for sale           53,392      3,938   7.38       19,436     1,644     8.46      17,913     1,152    6.43
   Loans, net of unearned income (F3)  1,346,754    127,983   9.50    1,190,101   114,572     9.63   1,073,580    93,263    8.69
                                      ----------    -------           ----------  -------           ----------   -------
 Total interest-earning assets /
   interest income                     1,693,014    149,593   8.84%   1,528,058   135,893     8.89%  1,459,027   115,579    7.92%
 Less allowance for loan losses           16,563                         13,239                         12,742
                                      ----------                      ----------                     ----------
                                       1,676,451                      1,514,819                      1,446,285
 Non-interest-earning assets:
   Cash and due from banks                58,443                         63,726                         65,788
   Premises and equipment                 39,891                         38,307                         35,275
   Other assets                           82,543                         56,080                         40,712
                                      ----------                      ----------                     ----------
 Total assets                         $1,857,328                     $1,672,932                     $1,588,060
                                      ==========                     ==========                     ==========


<PAGE>
                                                  
                                      
   Shareholders' Equity
 Interest-bearing liabilities:
  Interest-bearing deposits:

   Interest-bearing demand            $  108,325      3,128   2.89%  $  231,224     6,147     2.66% $  243,827     5,896    2.42
   Savings deposits                      113,078      3,027   2.68      131,614     3,778     2.87     155,819     4,351    2.79
   Money market accounts                 178,566      5,571   3.12       47,288     1,514     3.20      55,636     1,485    2.67
   Certificates of deposit               783,386     43,276   5.52      729,269    40,240     5.52     633,608    26,040    4.11
   Individual Retirement Accounts         86,097      4,793   5.57       88,547     4,786     5.41      92,122     3,952    4.29
                                      ----------    -------           ----------   -------           ----------   -------
   Total interest-bearing deposits     1,269,452     59,795   4.71    1,227,942    56,465     4.60   1,181,012    41,724    3.53
  Federal funds purchased
   and repurchase agreements              42,010      1,949   4.64       47,219     2,013     4.26      40,303     1,253    3.11
  Other short-term borrowings             56,136      3,117   5.55       40,652     2,983     7.34      36,669     1,715    4.68
  Long-term debt                         125,593      8,205   6.53       46,840     3,137     6.70      40,756     2,683    6.58
                                      ----------    -------           ----------   -------           ----------   -------
   Total borrowed funds                  223,739     13,271   5.93      134,711     8,133     6.04     117,728     5,651    4.80
                                      ----------    -------           ----------   -------           ----------   -------
 Total interest-bearing
  liabilities/ interest expense        1,493,191     73,066   4.89    1,362,653    64,598     4.74   1,298,740    47,375    3.65
                                                    -------                        -------                        -------
 Non-interest-bearing liabilities:
  Non-interest-bearing deposits          213,332                        172,748                        168,746
  Other liabilities                       21,405                         15,485                          8,687
                                      ----------                      ----------                     ----------
   Total liabilities                   1,727,928                      1,550,886                      1,476,173
 Shareholders' equity                    129,400                        122,046                        111,887
                                      ----------                      ----------                     ----------
 Total liabilities
  and shareholders' equity            $1,857,328                     $1,672,932                     $1,588,060
                                      ==========                     ==========                     ==========

 Net interest-rate spread (F4)                                3.95                            4.15                          4.27
 Impact of non-interest bearing
  sources and other changes in
  balance sheet composition                                   0.57                            0.52                          0.40
 Net interest income /
  margin on interest-earning
  assets (F5)                                       $76,527   4.52 %              $71,295     4.67 %             $68,204    4.67 %
                                                    =======   ====                =======     ====               =======    ====
NM = not meaningful
<FN>

(F1)Average balances are based on daily balances.
(F2)Interest  income on tax-exempt  securities and loans has been increased 47.5%
in  this   analysis  to  reflect   fully-taxable-equivalent   interest. 
(F3)For computational  purposes,   non-accrual  loans  are  included  in  loans.
(F4)Net interest-rate  spread is the  difference  between the  average  rate of
interest earned on  interest-earning  assets and the average rate of interest
expensed on interest-bearing  liabilities.
(F5)Net  interest  margin is net interest income divided by average interest-
earning assets.
</FN>
</TABLE>


<PAGE>



Analysis of Year-to-Year Changes in Net Interest Income

     The following table shows changes in interest  income and interest  expense
resulting from changes in volume  (average  balances) and interest rates for the
years ended  December 31, 1996 and 1995, as compared to the previous  year.  The
change in  interest  income  and  expense  due to both rate and  volume has been
allocated to changes in volume and rate in proportion to the relationship of the
absolute dollar amounts of the change in each.
<TABLE>

<CAPTION>
                                                    1996 vs. 1995                         1995 vs. 1994
                                                  Increase (decrease)                   Increase (decrease)
 Fully-taxable equivalent basis              in interest income and expense        in interest income and expense
 In thousands                                     due to changes in:                    due to changes in:
                                                 Rate     Volume      Total             Rate     Volume      Total
<S>                                            <C>       <C>        <C>               <C>       <C>        <C>
 Interest-earning assets:
   Securities held to maturity:
     U.S. Treasury, federal agencies, and
       mortgage-backed securities               $   -    $(1,686)   $(1,686)          $  736    $(3,017)   $(2,281)
     State and municipal obligations                -     (3,622)    (3,622)             (82)      (268)      (350)
     Other securities                               -       (355)      (355)              25        (66)       (41)
                                               ------    -------    -------           ------    -------    -------
     Total securities held to maturity              -     (5,663)    (5,663)             679     (3,351)    (2,672)
   Securities available for sale:
     U.S. Treasury, federal agencies, and
       mortgage-backed securities                (105)      (292)      (397)             641       (271)       370
     State and municipal obligations              (42)     3,620      3,578                -        445        445
     Other securities                             (27)     1,259      1,232              182         11        193
                                               ------    --------   -------           ------    -------    -------
     Total securities available for sale         (174)     4,587      4,413              823        185      1,008
                                               ------    --------   -------           ------    -------    -------
     Total securities                            (174)    (1,076)    (1,250)           1,502     (3,166)    (1,664)
   Federal funds sold                             (13)      (739)      (752)             255          9        264
   Interest-bearing deposits with banks             5         (8)        (3)             (72)       (15)       (87)
   Mortgage loans held for sale                  (236)     2,530      2,294              387        105        492
   Loans, net of unearned income               (1,493)    14,904     13,411           10,638     10,671     21,309
                                               ------    -------    -------           ------    -------    -------
 Total interest-earning assets                 (1,911)    15,611     13,700           12,710      7,604     20,314
 Interest-bearing liabilities:
   Interest-bearing deposits:
     Interest-bearing demand                      491     (3,510)    (3,019)             566       (315)       251
     Savings deposits                            (243)      (508)      (751)             119       (692)      (573)
     Money market accounts                        (40)     4,097      4,057              271       (242)        29
     Certificates of deposit                       47      2,989      3,036            9,857      4,343     14,200
     Individual Retirement Accounts               141       (134)         7              993       (159)       834
                                               ------    -------    -------           ------    -------    -------
     Total interest-bearing deposits              396      2,934      3,330           11,806      2,935     14,741
   Federal funds purchased
     and repurchase agreements                    169       (233)       (64)             520        240        760
   Other short-term borrowings                   (834)       968        134            1,065        203      1,268
   Long-term debt                                 (79)     5,147      5,068               47        407        454
                                               ------    -------    -------           ------    -------    -------
     Total borrowed funds                        (744)     5,882      5,138            1,632        850      2,482
                                               ------    -------    -------           ------    -------    -------
 Total interest-bearing liabilities              (348)     8,816      8,468           13,438      3,785     17,223
                                               ------    -------    -------           ------    -------    -------
 Increase (decrease) in net interest income   $(1,563)   $ 6,795    $ 5,232           $ (728)   $ 3,819    $ 3,091
                                              =======    =======    =======           ======    =======    =======

</TABLE>

Provision for Loan Losses
     The  provision  for loan  losses  in 1996 was  $13.9  million,  or 1.03% of
average  loans,  an increase of $8.6 million from the $5.3 million,  or 0.44% of
average  loans,  in 1995.  In 1994,  the company  recorded a  provision  of $2.2
million, or 0.21% of average loans.
     Net loan charge-offs were $11.6 million in 1996, compared with $2.0 million
in 1995 and $2.2 million in 1994.  In 1996 the company  charged off $7.0 million
on three non-performing loans which had been placed in non-accrual status during
1995. As a percentage of average loans,  net charge-offs  were 0.86% in 1996, up
from 0.17% in 1995 and 0.20% in 1994. For the five year period from 1992 through
1996, net charge-offs averaged 0.38%.
     The  provision  for loan  losses  and the level of the  allowance  for loan
losses result from  management's  evaluation of the risk in the loan  portfolio.
The increased provision in 1996 and 1995 provides for overall growth in the loan
portfolio as well as a higher level of non-performing loans than in the previous
three  years.  Further  discussion  on loan quality and the  allowance  for loan
losses is included later in this review in the "Asset Quality" section.

Non-interest Income
     Non-interest  income for 1996 increased 22% over 1995, after increasing 42%
from 1994 to 1995. The increases in non-interest income were due to:
<TABLE>
<CAPTION>
                                                         Increase (Decrease) in
                                                           Non-Interest Income
 In thousands                                             1996 vs. 1995   1995 vs. 1994
                                                         -----------------------------------

<S>                                                             <C>       <C>
Increase in service charges on deposit accounts ..............  $ 1,069   $ 1,088
Decrease in gains on sale of securities ......................     (180)      (57)
Increase (decrease) in mortgage banking income due to:
      Recognition of MSR's under SFAS 122 ....................      174     1,243
      Increase in gain on sale of mortgage loans held for sale    1,580       845
      Increased mortgage servicing fees ......................    2,618     1,169
      Gain on sale of mortgage servicing rights in 1995 ......   (1,687)    1,687
Increase in trust service fees ...............................      563       145
Increase in brokerage income .................................      473       423
Increase in travel agency fees ...............................      335       203
Increase (decrease) in credit life insurance fees ............      252       (15)
Increase in all other non-interest income ....................       81       510
                                                                -------   -------
      Total increase in non-interest income ..................  $ 5,278   $ 7,241
                                                                =======   =======
</TABLE>

     The  increases  in  non-interest  income  reflect the  company's  expanding
mortgage  banking  business  and  continued  increases  in trust and  investment
services revenues. As previously mentioned, the company sold its travel business
during the fourth quarter of 1996.
     TFMC purchased a $1.0 billion mortgage loan servicing portfolio in 1996 and
a $1.2 billion servicing portfolio in 1995, increasing the size of the servicing
portfolio from $1.3 billion at the end of 1994 to $3.3 billion at year-end 1996.
The significant  increase in mortgage servicing fees in 1996 and 1995 was due to
this growth in the  servicing  portfolio.  In the fourth  quarter of 1995,  TFMC
acquired Correspondents Mortgage Company of Greensboro, North Carolina, doubling
TFMC's wholesale  mortgage lending capacity.  The Greensboro office accounts for
$2.1 million of the $4.4 million  increase in mortgage  banking income from 1995
to 1996,  and $0.3 million of the increase from 1994 to 1995.  Also in 1995, the
company sold a $168 million  mortgage loan servicing  portfolio,  resulting in a
$1.7 million gain on the sale of mortgage servicing rights.
     Effective  January 1, 1995,  the  company  adopted on a  prospective  basis
Statement of Financial  Accounting  Standards No. 122,  Accounting  for Mortgage
Servicing Rights ("SFAS 122"). SFAS 122 requires that rights to service mortgage
loans for others be recognized as assets, without regard to whether those assets
were  acquired  in  purchase   transactions   or  were  acquired   through  loan
originations.  In years prior to 1995, only purchased  mortgage servicing rights
("MSR's")  were  recognized  as assets.  SFAS 122 also  eliminates  the previous
requirement  that  gains on the sale of  mortgage  loans be offset  against  the
related  servicing right asset. As a result of SFAS 122, the company  recognized
$1.2  million in  non-interest  income,  before  amortization,  in 1995 and $1.4
million in 1996.
     During 1994, the company  engaged an outside  consulting firm to review its
banking  products  and  services.  As an outcome  of this  review,  the  company
implemented  a new product and fee  structure in April 1995,  which  resulted in
additional service charges on deposit accounts.

Non-interest Expenses
     Non-interest  expenses for 1996 increased 22% over 1995,  after  increasing
10% from 1994 to 1995. The increases in non-interest expense were due to:

<TABLE>
<CAPTION>

                                                                                    Increase (Decrease) in
                                                                                     Non-Interest Expenses
In thousands                                                                      1996 vs. 1995   1995 vs. 1994
                                                                                  ------------    -------------
<S>                                                                                    <C>        <C>
      Second quarter initiatives ....................................................  $  5,807   $  --
      Increase in compensation and employee benefits ................................     5,541     4,258
      Increase in occupancy and equipment expense ...................................       449     1,106
      Increase in communications expense ............................................       909       476
      Deposit insurance:
            1996 SAIF assessment, net of fourth quarter refund ......................     2,563      --
            Decrease in deposit insurance premiums ..................................    (1,073)   (1,088)
      Increase (decrease) in advertising and public relations expense ...............      (410)      724
      Decrease in professional fees .................................................      (594)     (318)
      Increase in postage, printing and supplies ....................................       482       127
      Increase (decrease) in educational expense ....................................      (280)      424
      Increase (decrease) in foreclosed asset expense ...............................      (495)      315
      Increase in processing fees ...................................................       931       312
      Increase (decrease) in all other non-interest expenses ........................       763      (357)
                                                                                       --------   -------
                                                                                       $ 14,593   $ 5,979
                                                                                       ========   =======
</TABLE>

     Costs  recognized in the second quarter of 1996 which are  associated  with
the  initiative to refocus the company's  resources on core  financial  services
include  severance and related payroll taxes and benefits,  write-downs of fixed
assets  to be sold or  abandoned,  legal and  accounting  fees  associated  with
discontinuing  certain  activities and various other costs  associated  with the
disposition  of assets.  These charges  provide for the cost of exiting  several
initiatives  which the company entered in recent years,  such as human resources
consulting  and venture  capital.  Also  included  in the  charges are  expenses
associated  with  closing  the  Louisville,   Kentucky  office;   mortgage  loan
production  offices  in  Chattanooga,  Jackson  and  Knoxville,  Tennessee;  and
consolidation of operations in Bowling Green,  Kentucky.  Severance  expense was
also  recognized  related  to  changes  designed  to reduce  costs in the retail
delivery  system and in  investment  management.  The company sold its corporate
jet, with the cost of its disposition  included in second quarter expenses.  The
classification  of these  costs in the  consolidated  statement  of income is as
follows: 

In thousands
               Compensation and employee benefits                        $1,798
               Net occupancy expense                                        475
               Furniture and equipment expense                              325
               Professional fees                                            340
               Writedowns and losses on sale of fixed assets              1,698
               Other expenses                                             1,171
                                                                         ------
                   Total costs associated with the initiative            $5,807
                                                                         ======

     The increases in non-interest expenses over the past two years also reflect
the  company's   commitment  to  invest  in  new   technology,   product  lines,
distribution  channels and people,  to provide enhanced  customer service and to
support future growth.
     Compensation  and benefits  increased  $5.5 million in 1996  (excluding the
refocus  initiative  charges) as compared to 1995, and increased $4.3 million in
1995 versus 1994--the  result of an expansion of the professional  staff in 1994
and 1995. Of the increase in  compensation  and benefits in 1996 and 1995,  $1.4
million and $0.8 million, respectively,  represent increased payments associated
with the company's implementation of an incentive-based compensation system.
     Advertising and public  relations  expense  decreased $0.4 million in 1996,
after  increasing  $0.7 million in 1995.  During 1995, the company  expanded its
promotion  of the new  products  and  services  added  during  the year,  and an
intensified  sales  training  program  resulted  in a $0.4  million  increase in
educational expense that year.
     In general,  the remaining  increases in both 1996 and 1995 were related to
an ongoing effort to build the company's  infrastructure  to accommodate  future
growth,  requiring  investments in staff as well as in buildings,  equipment and
information systems. Occupancy, furniture and equipment and communications costs
increased  $1.4 million in 1996 and $1.6 million in 1995. In addition,  external
data  processing  costs,  primarily for mortgage loan  servicing and  electronic
delivery of financial services,  increased $0.9 million and $0.3 million in 1996
and 1995, respectively.
     As mentioned  previously,  the company  recorded in the third quarter of
1996 a pre-tax  charge of $2.7 million  resulting  from  legislation  enacted
during 1996 designed  to  re-capitalize  the SAIF.  The $1.1 million decreases
in deposit insurance premiums in both 1996 and 1995 were due to a reduction
from $0.23 to $0.04  per $100 of  deposits  insured  through  the  Federal
Deposit  Insurance Corporation's ("FDIC") Bank Insurance Fund ("BIF"), effective
June 1, 1995, and to zero effective January 1, 1996.  Approximately 69% of the
company's  deposits are insured  through the BIF. The remaining  31% of the
company's  deposits are insured through the SAIF.  Insurance  premiums on the
SAIF deposits  remained at $0.23 through 1996, however a refund of $122 thousand
was received from the SAIF in the fourth  quarter  of 1996.  For 1997,  the
company expects to recognize deposit insurance expense of approximately  $0.065
per $100 of  SAIF-insured deposits and $0.013 per $100 of BIF-insured deposits.

Income Taxes
     The company had income tax expense of $3.1 million in 1996,  compared  with
$7.4 million in 1995 and $7.1 million in 1994.  These  represent  effective  tax
rates of 31.2%,  32.6%  and  32.9%,  respectively.  Further  information  on the
company's  income  taxes can be found in note 12 to the  consolidated  financial
statements.

Balance Sheet Review
     Assets at year-end 1996 totaled $2.0 billion, compared with $1.8 billion at
December 31, 1995.  Average  total assets for 1996  increased  $184 million from
1995, after increasing $85 million from 1994 to 1995.  Average  interest-earning
assets  increased $165 million from 1995 to 1996, and increased $69 million from
1994 to 1995.

Loans
     Total  loans,  net of  unearned  income,  averaged  $1.3  billion  in 1996,
compared with $1.2 billion in 1995 and $1.1 billion in 1994.  At year-end  1996,
loans totaled $1.5 billion, compared with $1.3 billion at December 31, 1995, and
$1.1 billion at the end of 1994.
     The company has experienced  strong loan growth throughout its markets over
the past five years,  with particular  strength in middle market  commercial and
commercial real estate lending products.  The following table presents a summary
of the loan portfolio by category over that period.
<TABLE>

Loans Outstanding
December 31

In thousands
<CAPTION>

                                       1996          1995          1994          1993        1992
<S>                              <C>           <C>           <C>           <C>           <C>
Commercial ....................  $   466,365   $   372,822   $   318,970   $   320,952   $ 235,922
Commercial real estate ........      470,235       397,741       334,567       234,308     140,554
Residential real estate .......      385,894       357,697       339,605       303,283     292,847
Consumer ......................      130,444       132,401       153,754       150,202     114,820
                                 -----------   -----------   -----------   -----------   ---------
   Total loans ................    1,452,938     1,260,661     1,146,896     1,008,745     784,143
Less unearned income ..........       (1,939)       (2,150)       (3,063)       (3,656)     (3,843)
                                 -----------   -----------   -----------   -----------   ---------
   Loans net of unearned income  $ 1,450,999   $ 1,258,511   $ 1,143,833   $ 1,005,089   $ 780,300
                                 ===========   ===========   ===========   ===========   =========
</TABLE>

Loan Concentrations
     Much of the  increase in  commercial  and  commercial  real estate loans is
financing the operations of the company's commercial customers. Although many of
these loans are  structured as mortgages,  the company  relies on the borrower's
cash  flow to  service  the  loan,  rather  than on the  sale of the  underlying
collateral. Commercial real estate loans include financing for industrial parks,
residential  developments,   retail  shopping  centers,  multi-family  apartment
complexes, industrial buildings, fast food and mid-scale restaurants, and hotels
and motels.  The primary  source of  repayment  cannot be traced to any specific
industry group.
     The percentage  distribution of the company's loans, by industry,  is shown
in the following table.

                       Loans by Industry
                       December 31, 1996
                       As a percentage of total loans

                       Agriculture                                          2.9%
                       Apartment buildings                                  2.6
                       Construction and land development                    8.4
                       Finance and insurance                                1.9
                       Manufacturing:
                          Durable goods                                     7.1
                          Non-durable goods                                 3.9
                       Mining                                               3.1
                       Services:
                          Health                                            2.7
                          Hotels and  motels                                4.1
                          Other than health and hotels                      4.6
                       Wholesale trade                                      3.1
                       Retail trade:
                          Restaurants                                       4.9
                          Food stores                                       2.3
                          Automotive                                        1.6
                          Other                                             2.2
                       Other commercial real estate                         7.2
                       All other commercial loans                           1.9
                                                                         -------
                       Total commercial and commercial real estate loans   64.5
                       Residential real estate loans                       26.6
                       Consumer loans                                       8.9
                                                                         -------
                             Total loans, net of unearned income          100.0%
                                                                          =====

     Substantially  all of the  company's  loans  are to  customers  located  in
Kentucky and Tennessee, in the immediate market areas of the banks. However, the
company has one $6.3 million  commercial  loan to a Mexican  affiliate of a U.S.
corporation.  The  loan  represents  financing  for  an  essential  part  of the
operations of an established  customer  located in the company's  primary market
area.
     On  December  31,  1996,  the  company's  49 largest  credit  relationships
consisted of loans and loan commitments  ranging from $5 million to $20 million,
none of which was classified as  non-performing.  The aggregate  amount of these
credit relationships was $472 million.
     The following table sets forth the maturity  distribution and interest rate
sensitivity of commercial  and  commercial  real estate loans as of December 31,
1996.  Maturities are based upon  contractual  terms. The company's policy is to
specifically  review and approve all loans renewed;  loans are not automatically
rolled over.
<TABLE>

Loan Maturities and Rate Sensitivity
December 31, 1996
In thousands
<CAPTION>

                                                            One Year  One Through   Over       Total
                                                             or Less  Five Years  Five Years   Loans
By maturity date:
<S>                                                           <C>       <C>       <C>       <C>
  Commercial ...............................................  $184,900  $121,031  $160,434  $466,365
  Commercial real estate ...................................   100,581    61,855   307,799   470,235
                                                              --------  --------  --------  --------
    Total ..................................................  $285,481  $182,886  $468,233  $936,600
                                                              ========  ========  ========  ========

  Fixed rate loans .........................................  $ 54,482  $ 73,759  $ 60,079  $188,320
  Floating rate loans ......................................   230,999   109,127   408,154   748,280
                                                              --------  --------  --------  --------
    Total ..................................................  $285,481  $182,886  $468,233  $936,600
                                                              ========  ========  ========  ========


By next repricing opportunity:
  Commercial ...............................................  $401,117  $ 48,912  $ 16,336  $466,365
  Commercial real estate ...................................   386,956    38,719    44,560   470,235
                                                              --------  --------  --------  --------
    Total ..................................................  $788,073  $ 87,631  $ 60,896  $936,600
                                                              ========  ========  ========  ========

  Fixed rate loans .........................................  $ 54,482  $ 73,759  $ 60,079  $188,320
  Floating rate loans ......................................   733,591    13,872       817   748,280
                                                              --------  --------  --------  --------
    Total ..................................................  $788,073  $ 87,631  $ 60,896  $936,600
                                                              ========  ========  ========  ========
</TABLE>


Asset Quality
     Non-performing  loans, which include non-accrual loans, accruing loans past
due over 90 days and  restructured  loans,  totaled  $10.6 million at the end of
1996,  a  decrease  of $6.7  million  from  December  31,  1995.  The  ratio  of
non-performing  loans to  year-end  loans  was  0.73%,  compared  with  1.38% at
year-end  1995 and 0.69% at December 31, 1994.  Non-performing  loans  increased
$4.2  million  in the  fourth  quarter of 1995,  primarily  due to  placing  one
commercial  loan in non-accrual  status.  Non-performing  assets,  which include
non-performing  loans,  foreclosed  real estate and other  foreclosed  property,
totaled $12.4 million at year-end  1996,  and the ratio of total  non-performing
assets to total  assets  decreased  to 0.62% at  year-end  1996,  from  1.24% at
December 31, 1995.
     The following table presents information concerning  non-performing assets,
including non-accrual and restructured loans:
<TABLE>

 Non-performing Assets
 December 31
 Dollars in thousands

<CAPTION>

                                                      1996       1995        1994      1993       1992
<S>                                                 <C>        <C>        <C>        <C>        <C>
Non-accrual loans ...............................   $ 4,717    $12,708    $ 4,375    $ 5,926    $ 3,986
Accruing loans which are contractually
  past due 90 days or more ......................     5,863      4,617      3,514      2,377      4,262
Restructured loans ..............................         4         14         30      1,591        718
                                                    -------    -------    -------    -------    -------
  Total non-performing and restructured loans ...    10,584     17,339      7,919      9,894      8,966
Foreclosed real estate ..........................     1,608      4,329      4,998      5,869      9,036
Other foreclosed property .......................       184        677        199        113       --
                                                    -------    -------    -------    -------    -------
  Total non-performing and restructured loans
    and foreclosed property .....................   $12,376    $22,345    $13,116    $15,876    $18,002
                                                    =======    =======    =======    =======    =======

Non-performing and restructured loans
  as a percentage of loans net of unearned income      0.73%      1.38%      0.69%      0.98%      1.15%
Non-performing and restructured loans and other
  real estate as a percentage of total assets ...      0.62%      1.24%      0.81%      0.99%      1.30%
</TABLE>

     Management  classifies  commercial  and  commercial  real  estate  loans as
non-accrual  when principal or interest is past due 90 days or more and the loan
is not adequately  collateralized and in the process of collection,  or when, in
the  opinion of  management,  principal  or interest is not likely to be paid in
accordance  with the terms of the  obligation.  Consumer  loans are  charged off
after 120 days of delinquency  unless  adequately  secured and in the process of
collection.  Non-accrual  loans are not reclassified as accruing until principal
and interest  payments are brought current and future payments appear reasonably
certain.  Loans are categorized as  restructured if the original  interest rate,
repayment  terms,  or  both  were  restructured  due to a  deterioration  in the
financial   condition  of  the  borrower.   However,   restructured  loans  that
demonstrate  performance  under the  restructured  terms and that yield a market
rate of interest may be removed from  restructured  status in the year following
the restructure.
     Two commercial credit  relationships  account for $2.1 million,  or 45%, of
the  company's  non-accrual  loans  at  December  31,  1996,  and  20% of  total
non-performing  and  restructured  loans.  The  larger of these  credits is to a
specialty apparel  manufacturer and the other is to a company in the coal mining
industry.  An allowance  for loan losses in the amount of $164 thousand has been
established  for  these  credits  in  accordance  with  Statement  of  Financial
Accounting  Standards No. 114,  Accounting by Creditors for the  Impairment of a
Loan.  The remaining  non-accrual  balance  consists of various  commercial  and
consumer loans, with no single loan exceeding $350,000.
     The increase over the past two years in accruing  loans past due 90 days or
more  is  principally  related  to  residential  real  estate  loans.   Personal
bankruptcies, particularly Chapter 13 filings, have been rising in Tennessee and
Kentucky over the past two years. This form of bankruptcy forestalls foreclosure
on a wage earner's residence as long as monthly payments are resumed and a small
additional  payment  is made  to the  lender  to be  applied  to the  delinquent
mortgage  payments.  Such a payment  plan may stretch  out to several  years the
period  required to bring  payments  current.  Although  these loans may be well
secured and in the process of collection, most are reported as more than 90 days
past due and accruing interest.
     Foreclosed  real estate at December 31, 1996,  includes one property with a
book value of $340 thousand,  or 21% of the outstanding  balance.  This property
was acquired  through  foreclosure in 1986, with an unsatisfied  loan balance at
the time of $1.8 million.  In order to facilitate  the disposal of the property,
the  company  entered  into a joint  venture  with a real estate  developer  and
developed the land for industrial and other  commercial use.  Subsequently,  the
company dissolved the joint venture and retained title to the property.  Several
parcels  have been  sold to date.  Based on an  appraisal  of the  property  and
previous sales experience,  management does not anticipate a loss to be incurred
on disposition of the remaining parcels. A second property which was included in
foreclosed real estate on December 31, 1995, is a  manufacturing  facility which
was acquired in the fourth  quarter of 1995. The property was sold in the fourth
quarter of 1996.  The remaining  balance of foreclosed  real estate  consists of
several properties, with no single property exceeding $250,000.
     As of December 31,  1996,  the company had $8.4 million of loans which were
not included in the past due,  non-accrual or restructured  categories,  but for
which known information about possible credit problems caused management to have
serious  doubts as to the  ability of the  borrowers  to comply with the present
loan repayment terms. Based on management's evaluation, including current market
conditions, cash flow generated and recent appraisals, no significant losses are
anticipated  in  connection  with  these  loans.  These  loans  are  subject  to
continuing  management  attention and are considered in determining the level of
the allowance for loan losses.
     The allowance for loan losses is  established  through a provision for loan
losses  charged  to  expense.  The  allowance  represents  an amount  which,  in
management's  judgment,  will be adequate to absorb  probable losses on existing
loans.  At December 31, 1996,  the  allowance was $18.1  million,  compared with
$15.8 million at December 31, 1995,  and $12.5 million at December 31, 1994. The
allowance as a percentage of non-performing loans was 171% at December 31, 1996,
as compared to 91% at year-end 1995, and 158% at December 31, 1994. The ratio of
the allowance for loan losses to total loans (excluding  mortgage loans held for
sale) at December 31, 1996, was 1.25%, compared with 1.25% at December 31, 1995,
and 1.10% at December 31, 1994.
     Following is a summary of the changes in the  allowance for loan losses for
each of the past five years.
<TABLE>

 Summary of Loan Loss Experience
 For the years ended December 31
 Dollars in thousands
<CAPTION>


                                                       1996         1995        1994        1993        1992
<S>                                              <C>          <C>          <C>          <C>          <C>
Balance at beginning of year .................   $   15,779   $   12,529   $   12,505   $    9,596   $  7,700
Provision for loan losses ....................       13,914        5,260        2,212        2,794      2,618
Balance of allowance for loan losses
  of acquired subsidiaries at acquisition date         --           --           --          2,433      1,016
Amounts charged off:
  Commercial and commercial real estate ......       10,012          993        1,873        2,195      1,623
  Residential real estate ....................          372          106           80          315        138
  Consumer ...................................        2,083        1,426          838          936        738
                                                 ----------   ----------   ----------   ----------   --------
  Total loans charged off ....................       12,467        2,525        2,791        3,446      2,499
Recoveries of amounts previously charged off:
  Commercial and commercial real estate ......          390          228          232          615        323
  Residential real estate ....................           38            8           41          115        106
  Consumer ...................................          411          279          330          398        332
                                                 ----------   ----------   ----------   ----------   --------
  Total recoveries ...........................          839          515          603        1,128        761
                                                 ----------   ----------   ----------   ----------   --------
  Net charge-offs ............................       11,628        2,010        2,188        2,318      1,738
                                                 ----------   ----------   ----------   ----------   --------
Balance at end of year .......................   $   18,065   $   15,779   $   12,529   $   12,505   $  9,596
                                                 ==========   ==========   ==========   ==========   ========

Total loans, net of unearned income:
  Average ....................................   $1,346,754   $1,190,101   $1,073,580   $  898,834   $719,184
  At December 31 .............................    1,450,999    1,258,511    1,143,833    1,006,796    780,846
As a percentage of average loans:
  Net charge-offs ............................       0.86 %       0.17 %       0.20 %       0.26 %     0.24 %
  Provision for loan losses ..................         1.03         0.44         0.21         0.31       0.36
Allowance as a percentage of year-end loans ..         1.25         1.25         1.10         1.24       1.23
Allowance as a percentage of non-performing
  and restructured loans .....................        170.7         91.0        158.2        126.4      107.0
</TABLE>

     The adequacy of the  allowance  for loan losses is determined on an ongoing
basis through analysis of the overall quality of the loan portfolio,  historical
loan loss  experience,  loan  delinquency  trends,  and  current  and  projected
economic  conditions.  Additional  allocations  of the  allowance  are  based on
specifically   identified  potential  loss  situations.   These  potential  loss
situations  are  identified  by  account  officers'  evaluations  of  their  own
portfolios, as well as by an independent loan review function.
     Management  believes  that the  allowance  for loan losses at December  31,
1996,  is adequate to absorb  losses  inherent in the loan  portfolio as of that
date.  That  determination  is  based  on  the  best  information  available  to
management,  but necessarily involves uncertainties and matters of judgment and,
therefore,  cannot be  determined  with  precision and could be  susceptible  to
significant  change in the  future.  In  addition,  bank and  thrift  regulatory
authorities,  as a part of their periodic  examinations of the banks,  may reach
different  conclusions regarding the quality of the loan portfolio and the level
of the  allowance,  which could result in  additional  provisions  being made in
future periods.
     The tables below  present an allocation of the allowance for loan losses by
category of loan and a percentage  distribution of the allowance allocation.  In
making the allocation,  consideration  was given to such factors as management's
evaluation of risk in each category,  current economic conditions and charge-off
experience. An allocation of the allowance for loan losses is an estimate of the
portion of the allowance which will be used to cover future  charge-offs in each
loan category,  but it does not preclude any portion of the allowance  allocated
to one type of loan from being used to absorb losses of another loan type.

 Allocation of Allowance for Loan Losses
 December 31
 In thousands              1996      1995       1994      1993     1992
Commercial ............   $ 9,080   $ 9,133   $ 7,529   $ 6,870   $4,813
Commercial real estate      5,375     4,089     1,883     1,718    1,203
Residential real estate     1,010       640       977     1,358    1,720
Consumer ..............     2,600     1,917     2,140     2,559    1,860
                          -------   -------   -------   -------   ------
   Total ..............   $18,065   $15,779   $12,529   $12,505   $9,596
                          =======   =======   =======   =======   ======

<TABLE>

 Allocation of Year-End Allowance for Loan Losses
   and Percentage of Each Type of Loan to Total Loans
 December 31

<CAPTION>
                                  1996               1995            1994               1993              1992
                          Allowance  Loans  Allowance   Loans  Allowance  Loans  Allowance Loans  Allowance  Loans
<S>                          <C>    <C>      <C>      <C>      <C>       <C>      <C>      <C>      <C>       <C>
Commercial ............       50.2%  32.0%    57.9%    29.5%    60.1%     27.8%    54.9%    31.7%    50.2%    30.1%
Commercial real estate        29.8   32.4     25.9     31.6     15.0      29.2     13.7     23.2     12.5     17.9
Residential real estate        5.6   26.6      4.1     28.4      7.8      29.6     10.9     30.2     17.9     37.4
Consumer ..............       14.4    9.0     12.1     10.5     17.1      13.4     20.5     14.9     19.4     14.6
                              ----   ----     ----     ----     ----      ----     ----     ----     ----     ----


   Total ..............      100.0% 100.0%   100.0%   100.0%   100.0%    100.0%   100.0%   100.0%   100.0%    100.0%
                             ====   =====    =====    =====    =====     ======   =====    =====    =====     =====
</TABLE>
         

Securities, Federal Funds Sold and Resale Agreements
     Securities,  including  those  classified as held to maturity and available
for sale,  averaged $292 million in 1996, compared with $305 million in 1995 and
$354 million in 1994. The decline in the securities  portfolio  throughout  this
period was substantially the result of maturities,  prepayments and calls. Funds
provided by the reduction in securities were utilized to fund growth in the loan
portfolio.
     The company  reclassified  all securities to available for sale on November
30, 1995, as permitted by the Financial  Accounting Standards Board in a special
one-time reassessment.
     The tables below present the carrying  value of  securities for each of 
the past three years and the  maturities  and yield  characteristics 
of securities as of December 31, 1996.

 Carrying Value of Securities
 December 31
 In thousands                                1996      1995        1994
 U.S. Treasury and federal agencies:
  Available for sale ..................   $128,296   $142,199   $146,484
  Held to maturity ....................       --         --        3,081
Collateralized mortgage obligations and
 mortgage-backed securities:
  Available for sale ..................     67,626     81,900     70,895
  Held to maturity ....................       --         --       26,372
State and municipal obligations:
  Available for sale ..................     51,311     55,552       --
  Held to maturity ....................       --         --       49,752
Other securities:
  Available for sale ..................     37,922     18,571     12,264
  Held to maturity ....................       --         --        5,553
                                          --------   --------   --------
Total securities:
  Available for sale ..................    285,155    298,222    229,643
  Held to maturity ....................       --         --       84,758
                                          --------   --------   --------
   Total securities ...................   $285,155   $298,222   $314,401
                                          ========   ========   ========

<TABLE>

 Maturity Distribution of Securities
 December 31, 1996
 Dollars in thousands
<CAPTION>


                                                     Over           Over
                                                     One Year     Five Years
                                       One Year      Through       Through      Over        Equity       Total         Market
                                       or Less      Five Years    Ten Years   Ten Years   Securities   Maturities      Value
<S>                                       <C>         <C>         <C>         <C>         <C>           <C>
U.S. Treasury and federal agencies ..     $72,883     $38,779     $17,668     $            $            $129,330     $128,296
Collateralized mortgage obligations
  and mortgage-backed securities:(F1)         839       6,154      18,109      42,950          --         68,052       67,626
State and municipal obligations .....       2,808      13,758      21,911      11,460          --         49,937       51,311
Other securities ....................      11,217       2,063       1,147         103        23,415       37,945       37,922
                                          -------     -------     -------     -------     ---------     --------     --------
  Total securities available for sale     $87,747     $60,754     $58,835     $54,513     $  23,415     $285,264     $285,155
                                          =======     =======     =======     =======     =========     ========     ========

Percent of total ....................     30.76 %     21.30 %     20.62 %     19.11 %         8.21 %     100.00 %
Weighted average yield(F2) ...........     5.41 %      5.03 %      5.49 %      5.92 %         6.51 %       5.53 %
<FN>

(F1)  Collateralized  mortgage  obligations and  mortgage-backed  securities are
grouped into average lives based on December 1996  prepayment  projections.
(F2)  The weighted average yields are based on amortized cost.
</FN>
</TABLE>


Mortgage Servicing Rights
     The  company  adopted on a  prospective  basis  effective  January 1, 1995,
Statement of Financial  Accounting  Standards No. 122,  Accounting  for Mortgage
Servicing Rights ("SFAS 122"). SFAS 122 requires that rights to service mortgage
loans for others be recognized as assets, without regard to whether those assets
were  acquired  in  purchase   transactions   or  were  acquired   through  loan
originations. In prior years, only purchased mortgage servicing rights ("MSR's")
were  recognized  as assets.  MSR's  totaled $41.9 million at December 31, 1996,
compared with $28.3  million at December 31, 1995,  and $9.2 million at year-end
1994.  During 1996 and 1995, the company  purchased  servicing  portfolios  with
mortgage loan principal balances of $1.0 billion and $1.2 billion, respectively.
The company  recognized MSR's of $12.5 million and $21.1 million,  respectively,
on these purchased portfolios.
     The  carrying  value of MSR's and the related  amortization  are  evaluated
quarterly in relation to their fair values.  The company  evaluates the carrying
value of the MSR's by  estimating  the present value of the future net servicing
income  of the  rights,  using  a  discounted  valuation  method  and  based  on
management's  best  estimate  of  remaining  loan  lives.   Serviced  loans  are
stratified  into four interest rate tranches and two loan types.  Impairment and
subsequent  adjustments  in each stratum,  if any, are recognized by a valuation
allowance and a charge against servicing income.
     Prepayments of mortgage  loans can have a considerable  impact on the value
of the MSR  portfolio.  Prepayments  result  from a variety  of  factors,  but a
declining mortgage loan interest rate environment is generally  considered to be
the most significant of these. As of December 31, 1996, approximately 48% of the
MSR recognized on the balance sheet was related to loans which have  contractual
interest rates from 7% to 7.99%,  with a weighted  average rate of 7.48%.  Loans
with contractual  rates from 8% to 8.99%, with a weighted average rate of 8.31%,
account for another 36% of the MSR balance.  If mortgage  rates  should  decline
substantially  from current levels, the carrying value of the MSR's could become
impaired in future periods.
     To  mitigate  this  risk,  in 1996  the  company  purchased  a $75  million
(notional  amount)  interest  rate  "floor"  contract in which the company  will
receive  interest on the notional amount to the extent that the interest rate on
ten-year  constant  maturity U.S.  Treasury Notes falls below 5.50%. The cost of
this  contract was  $548,000  and its fair value as of December  31,  1996,  was
$479,000.  The cost,  which is  included  in other  assets  in the  consolidated
balance sheet, is being  amortized on a  straight-line  basis over the five-year
life of the contract.  In January 1997, the company purchased a second five-year
floor contract,  with a $100 million notional amount and a 5.25% floor rate. The
cost of this  contract was  $455,000.  Management  believes that the increase in
market  value of  these  two  floor  contracts  which  would  result  from a 100
basis-point drop in the interest rate on ten-year Treasuries would substantially
offset the impairment in the MSR likely to occur with such a decline in interest
rates.  Although management believes it is unlikely that ten-year Treasury rates
will drop below 5.25% in the foreseeable  future, and may take additional action
to limit the  company's  exposure if rates begin to decline  significantly,  the
company is currently  exposed to potential  impairment of the MSR asset if rates
should drop by more than 100 basis points.


Deposits
     Total  deposits  averaged  $1.5  billion in 1996,  an $82  million,  or 6%,
increase over 1995.  Approximately  48% of the increase in average  deposits was
due to brokered  certificates of deposit issued during 1996--$55  million in the
second  quarter  and $50  million in the fourth  quarter--in  order to fund loan
growth.  Average  deposits for 1995 were $1.4 billion,  a 4% increase over 1994.
The  company  issued  in the  first  quarter  of 1995 $30  million  of  brokered
certificates   of  deposit  and  purchased  $41  million  of  deposits  from  an
unaffiliated  bank.  Excluding these  transactions,  average deposits would have
grown approximately $10 million from 1994 to 1995.
     During 1996 the company implemented a program that sweeps excess funds from
targeted  interest-bearing  demand  accounts  into money market  accounts.  This
program has significantly  reduced the Federal Reserve Bank reserve requirements
for the banks.
     Time  deposits of $100,000 or more totaled  $336.1  million at December 31,
1996,  compared with $206.9  million at December 31, 1995.  Interest  expense on
time  deposits of $100,000 or more was $16.5  million in 1996,  $11.8 million in
1995 and $6.3 million in 1994. The following  table shows the maturities of time
deposits of $100,000 or more, including brokered  certificates of deposit, as of
December 31, 1996.

 Maturity of Time Deposits of $100,000 or More
 December 31, 1996
 In thousands
 Three months or less                                              $104,351
 Over three through six months                                       29,473
 Over six through twelve months                                      62,399
 Over one year through two years                                     37,165
 Over two years through five years                                  101,966
 Over five years                                                        723
                                                                ------------
    Total                                                          $336,077

     Brokered certificates of deposit,  which are included in the above maturity
schedule, mature as follows:

 Maturity of Brokered Certificates of Deposit
 December 31, 1996
 In thousands
 Three months or less                                              $ 30,000
 Over three through six months                                          -
 Over six through twelve months                                      25,000
 Over one year through two years                                     20,000
 Over two years through five years                                   60,000
                                                                 ----------
    Total                                                          $135,000

     Other  information  regarding  time deposits is contained in note 19 to the
consolidated financial statements.


Liquidity,  Short-term  Borrowings and Capital Resources  Information  regarding
     short-term borrowings is presented below.
<TABLE>

 Short-term Borrowings
 Dollars in thousands
<CAPTION>
 <S>                                                 <C>        <C>        <C> 
                                                       1996       1995       1994
Federal funds purchased and repurchase agreements:    
  Balance at year end ............................   $ 71,879   $ 75,594   $ 74,553
  Weighted average rate at year end ..............     6.26 %     4.83 %     3.50 %
  Average balance during the year ................     42,010     47,219     40,303
  Weighted average rate during the year ..........     4.64 %     4.27 %     3.11 %
  Maximum month-end balance ......................     89,640     82,607     74,553
Other short-term borrowings:
  Balance at year end ............................     55,000     45,014     48,033
  Weighted average rate at year end ..............     5.42 %     6.67 %     6.36 %
  Average balance during the year ................     56,136     40,652     36,669
  Weighted average rate during the year ..........     5.55 %     7.34 %     4.68 %
  Maximum month-end balance ......................     70,005     61,831     48,840
Total short-term borrowings:
  Balance at year end ............................    126,879    120,608    122,586
  Weighted average rate at year end ..............     5.90 %     5.52 %     4.62 %
  Average balance during the year ................     98,146     87,871     76,972
  Weighted average rate during the year ..........     5.16 %     5.69 %     3.86 %
  Maximum month-end balance ......................    159,645    120,608    122,586
</TABLE>

     Substantially all federal funds purchased and repurchase  agreements mature
in one business day. Due to an unusually high demand in the market for overnight
funds on  December  31,  1996,  the rate the  company  paid for  federal  funds,
excluding repurchase  agreements,  on that date was also unusually high (7.12%).
The weighted average rate on the company's  federal funds purchased was 5.61% on
December 30, 1996, and was 6.02% on the first business day after year end. Other
short-term  borrowings  principally  represent  Federal Home Loan Bank  ("FHLB")
advances to TFB-FSB and TFB-KY (with varying maturity dates),  which are funding
residential mortgage and commercial loans.
     Long-term debt averaged $125.6 million in 1996, compared with $46.8 million
in 1995 and $40.8  million in 1994.  The increase in 1996 is due to the issuance
by TFB-KY in the fourth quarter of 1995 of $20 million of two-year notes and $30
million of three-year  notes under a $250 million  senior bank note program;  in
the second  quarter of 1996  another  $25 million of  four-year  bank notes were
issued.  These notes were issued to support growth in the loan portfolio.  Notes
issued  to date  bear  interest  at  fixed  rates of  6.32%,  6.48%  and  7.13%,
respectively.  The  notes  issued in 1995 have  been  effectively  converted  to
floating rate  instruments  through the use of interest rate swap  transactions.
Interest rate swaps are discussed more fully in the  Asset/Liability  Management
section which follows and in note 14 to the consolidated financial statements.
     In addition, TFB-KY borrowed on a long-term basis $30 million from the FHLB
in the first quarter of 1996 to fund residential  mortgage and commercial loans.
Long-term debt also includes financing from an unaffiliated  commercial bank for
the company's  leveraged ESOP.  Total ESOP debt was $2.5 million at December 31,
1996, and $3.0 million at December 31, 1995.
     The company  has a $5 million  unsecured  operating  line of credit with an
unaffiliated  commercial  bank that is used from time to time to supplement  the
company's  cash  requirements.  The line was not in use at December  31, 1996 or
1995. Also, under the book-entry  senior bank note program,  TFB-KY may issue up
to an additional $175 million of bank notes from time to time in maturities from
30 days to 30 years.
     See  note  9  to  the  consolidated  financial  statements  for  a  further
     description of the terms of these borrowings.  The company's capital ratios
     at December 31, 1996 and 1995  (calculated  in accordance  with  regulatory
     guidelines) were as follows:

December 31                                       1996                  1995

Tier 1 risk based                                 7.68%                 8.64%
   Regulatory minimum                             4.00                  4.00
Total risk based                                 10.87                 12.15
   Regulatory minimum                             8.00                  8.00
Leverage                                          6.12                  6.70
   Regulatory minimum                             3.00                  3.00


     Capital  ratios  of all of the  company's  subsidiaries  are in  excess  of
applicable  minimum  regulatory capital ratio requirements at December 31, 1996.
The   decrease   in  these   ratios   over  the  past   year  is  due  to  asset
growth--particularly  commercial and commercial real estate loans--combined with
minimal growth in shareholders'  equity as a result of the decline in net income
in 1996.  Notwithstanding  the 1996 decline in net income,  primarily due to the
loss incurred in the second  quarter,  the Board of Directors  chose to maintain
the  quarterly  dividend  at $0.16.  As a result,  the  company  paid  dividends
slightly in excess of earnings  for 1996.  Although  there can be no  assurance,
management  expects the company will pay dividends in 1997 of approximately  30%
to 40% of net income.
     Approximately half of the $18.1 million increase in equity capital during 
1995 was provided by retained earnings.  Most of the remaining portion was due
to a $7.7million decline in the net unrealized loss on securities available for
sale.
     To maintain a desired level of liquidity,  the company has several  sources
of funds available.  The company  primarily relies upon net inflows of cash from
financing  activities,  supplemented  by net  inflows  of  cash  from  operating
activities,  to provide cash used in its investing activities.  As is typical of
most banking  companies,  significant  financing  activities include issuance of
common stock and long-term debt,  deposit  gathering,  and the use of short-term
borrowing facilities,  such as federal funds purchased,  repurchase  agreements,
FHLB advances and lines of credit.  The company's primary  investing  activities
include  purchases of securities  and loan  originations,  offset by maturities,
prepayments and sales of securities,  and loan payments.  At December 31, 1996,
the retained earnings of the banks totaled $69.7 million, of which $24.0 million
was available for the payment of dividends to the parent company.

Asset/Liability Management
     Managing  interest  rate  risk is  fundamental  to the  financial  services
industry. The company's policies are designed to manage the inherently different
maturity and repricing  characteristics  of the lending and  deposit-acquisition
lines of  business  to achieve a desired  interest-sensitivity  position  and to
limit exposure to interest rate risk. The maturity and repricing characteristics
of  the   company's   lending   and  deposit   activities   create  a  naturally
asset-sensitive  structure.  By using a combination of on- and off-balance-sheet
financial  instruments,  the company  manages  interest rate  sensitivity  while
optimizing  net  interest  income  within the  constraints  of  prudent  capital
adequacy,  liquidity  needs,  the  interest  rate and economic  outlook,  market
opportunities and customer requirements.
     The company uses an earnings  simulation  model to monitor and evaluate the
impact of changing interest rates on earnings.  The simulation model used by the
company is  designed to reflect the  dynamics  of all  interest-earning  assets,
interest-bearing   liabilities  and  off-balance-sheet   financial  instruments,
combining  the  various  factors  affecting  rate  sensitivity  into a  two-year
earnings  outlook.  Among the  factors  the model  utilizes  are  rate-of-change
differentials,  such as  federal  funds  rates  versus  savings  account  rates;
maturity effects, such as calls on securities; and rate barrier effects, such as
caps or floors on loans.  It also  captures  changing  balance  sheet levels and
floating-rate  loans that may be tied or related to prime,  Treasury  Notes,  CD
rates or other rate indices,  which do not necessarily move identically as rates
change.  In addition,  it captures  leads and lags that occur as rates move away
from current levels,  and the effects of prepayments on various assets,  such as
residential mortgages, mortgage-backed securities and consumer loans.
     The  model  is  updated  monthly  for  multiple  interest  rate  scenarios,
projected changes in balance sheet categories and other relevant assumptions. In
developing multiple rate scenarios, an econometric model is employed to forecast
key rates, based on the cyclical nature and historic  volatility of those rates.
A stochastic view of net interest income is derived once probabilities have been
assigned to those key rates.
     By forecasting a most likely rate environment,  the effects on net interest
income of adjusting those rates up or down can reveal the company's  approximate
interest rate risk exposure  level.  As of December 31, 1996, the company's most
likely rate environment assumed the federal funds rate and prime lending rate at
5.25% and  8.25%,  respectively,  rising to 5.75% and  8.75%,  respectively,  by
December of 1997. The following  illustrates  the effects on net interest income
of an immediate  shift in market interest rates compared to the most likely rate
assumptions used in the company's model:

-------------------------------------------------------------------------------
Basis-point change                           +200 bp  +100 bp  -100 bp  -200 bp
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Increase (decrease) in net interest income    3.3%     1.9%    - 0 -%    (0.2)%
-------------------------------------------------------------------------------

     As of December 31, 1996,  management  believes the company's  balance sheet
was in an  asset-sensitive  position,  as the repricing  characteristics  of the
balance sheet were such that an increase in interest rates would have a positive
effect on earnings and a decrease in interest rates would have a negative effect
on earnings.  It should be noted that some of the assumptions made in the use of
the simulation  model will inevitably not materialize and  unanticipated  events
and  circumstances  will occur; in addition,  the simulation model does not take
into account any future  actions  which could be undertaken to reduce an adverse
impact if there were a change in  interest  rate  expectations  or in the actual
level of interest rates.
     A second  interest  rate  sensitivity  tool  utilized by the company is the
quantification of market value changes for all assets and liabilities,  given an
increase or decrease in interest  rates.  This  approach  provides a longer-term
view of interest rate risk, capturing all expected future cash flows. Assets and
liabilities with option  characteristics  are valued based on numerous  interest
rate path valuations using statistical rate simulation techniques.
     To assist in achieving a desired  level of interest  rate  sensitivity  the
company has entered into off-balance-sheet interest rate swap transactions which
partially  neutralize  the asset  sensitive  position  which is  inherent in the
balance  sheet.  The  company  pays a  variable  interest  rate on each swap and
receives a fixed rate.  In a higher  interest-rate  environment,  the  increased
contribution   to  net  interest  income  from   on-balance-sheet   assets  will
substantially  offset any negative  impact on net interest  income from interest
rate swap transactions.  Conversely,  if interest rates decline,  the swaps will
mitigate the company's exposure to reduced net interest income.
     See also the Mortgage Servicing Rights section of this discussion regarding
the use of  interest  rate  floor  contracts  to  hedge  against  the  potential
impairment of the MSR asset  resulting  from a  significant  decline in interest
rates.  Interest rate swap  transactions  are described more fully in note 14 to
the consolidated financial statements.

Quarterly Results
     Following is a summary of quarterly operating results for 1996 and 1995:
<TABLE>

 Quarterly Results of Operations
 In thousands, except per share data
<CAPTION>

                                              1996                                     1995
                            4th Qtr.  3rd Qtr.  2nd Qtr.  1st Qtr.   4th Qtr.  3rd Qtr.  2nd Qtr.  1st Qtr.

<S>                         <C>       <C>       <C>       <C>        <C>       <C>       <C>       <C>    
 Interest income            $38,995   $37,896   $36,215   $34,829    $35,097   $34,222   $33,236   $31,673
 Interest expense            19,215    18,626    17,940    17,285     17,244    16,686    16,039    14,630
                            -------  --------   -------   -------    -------   -------   -------   -------
 Net interest income         19,780    19,270    18,275    17,544     17,853    17,536    17,197    17,043
 Provision for loan losses    2,651     1,621     8,421     1,221      3,180       780       780       520
                            -------  --------   -------   -------    -------   -------   -------   -------
 Net interest income after
      provision              17,129    17,649     9,854    16,323     14,673    16,756    16,417    16,523
 Non-interest income          7,756     7,394     7,304     7,235      7,062     5,764     6,925     4,660
 Non-interest expenses       17,286    20,472    24,765    18,119     17,500    15,801    17,185    15,563
                            -------  --------   -------   -------    -------   -------   -------   -------
 Income before income taxes   7,599     4,571    (7,607)    5,439      4,235     6,719     6,157     5,620
 Income tax expense           2,284     1,557    (2,424)    1,703      1,378     2,175     2,038     1,825
                            -------  --------   -------   -------    -------   -------   -------   -------
 Net income                 $ 5,315   $ 3,014   $(5,183)  $ 3,736    $ 2,857   $ 4,544   $ 4,119   $ 3,795
                            =======   =======   =======   =======    =======   =======   =======   =======

 Earnings per common share  $  0.46   $  0.26   $ (0.45)  $  0.33    $  0.25   $  0.40   $  0.36   $  0.34
                            =======   =======   =======   =======    =======   =======   =======   =======
</TABLE>

     Significant  factors  affecting the  comparability of quarterly results for
1996 include the second  quarter  pretax  charge of $5.8 million  related to the
commitment to refocus on core financial services,  reduce operating expenses and
exit  from  less-profitable  initiatives,  and a $7.2  million  increase  in the
quarterly  loan loss  provision  in the second  quarter as compared to the first
quarter.  These second quarter charges resulted in a net loss for the first half
of 1996. Deposit insurance expense for the third quarter of 1996 was impacted by
the $2.7 million (pretax) SAIF assessment. Due to a decline in deposit insurance
premiums  following the  re-capitalization  of the SAIF, the company received in
the fourth quarter of 1996 a $122 thousand refund of deposit insurance premiums.
     Non-interest  income in the second  quarter of 1995 included a $1.7 million
pre-tax gain from the sale of mortgage  servicing rights.  For the third quarter
of 1995, deposit insurance expense was reduced by a $585 thousand refund of FDIC
premiums  paid  in the  second  quarter.  The  refund  was  associated  with  an
over-capitalization of the Bank Insurance Fund.


===============================================================================
This discussion  contains  forward-looking  statements under the Private 
Securities  Litigation Reform Act of 1995 that involve risks and  uncertainties.
Although the company believes that the assumptions  underlying the  forward-
looking  statements  contained herein are reasonable,  any of the assumptions  
could be inaccurate, and therefore, there can be no assurance that the forward-
looking statements included herein will prove to be accurate. Factors that could
cause actual results to differ from the results discussed in the forward-looking
statements include, but are not limited to: economic conditions (both generally 
and more specifically in the markets in which the company and its banks 
operate);  competition for the company's customers from other providers of 
financial services;  government legislation and regulation (which changes from 
time to time and over which the company has no control);  changes in interest  
rates;  material unforeseen changes in the liquidity, results of operations, or 
financial condition of the company's customers; delays in,customer reactions to,
and other unforeseen complications with respect to, the implementation of the 
cost containment measures; and other risks detailed in the company's filings 
with the Securities and Exchange Commission, all of which are difficult to 
predict and many of which are beyond the control of the company.
================================================================================



<PAGE>



<TABLE>
                        

 Consolidated Statistical Information (F1)(F2)
 For the years ended December 31
 Dollars in thousands, except per share data

<CAPTION>

                                                         1996          1995          1994          1993           1992

<S>                                                   <C>           <C>           <C>          <C>             <C>    
 Interest income                                        $147,935      $134,228      $113,982     $102,819        $95,343
 Interest expense                                         73,066        64,599        47,375       44,250         46,763
                                                        --------      --------      --------      -------        -------
 Net interest income                                      74,869        69,629        66,607       58,569         48,580
 Provision for loan losses                                13,914         5,260         2,212        2,794          2,618
                                                        --------      --------      --------      -------        -------
 Net interest income after provision for loan losses      60,955        64,369        64,395       55,775         45,962
 Non-interest income                                      29,689        24,411        17,170       17,032         13,793
 Non-interest expenses                                    80,642        66,049        60,070       52,830         39,890
                                                        --------      --------      --------      -------        -------
 Income before income taxes and cumulative
   effect of change in accounting principle               10,002        22,731        21,495       19,977         19,865
 Income tax expense                                        3,120         7,416         7,075        6,223          6,400
                                                        --------      --------      --------      -------        -------
 Income before cumulative effect
   of change in accounting principle                       6,882        15,315        14,420        13,754        13,465
 Cumulative effect of change in accounting principle           -             -             -           296             -
                                                        --------      --------      --------      --------       -------
 Net income                                             $  6,882      $ 15,315      $ 14,420      $ 14,050       $13,465
                                                        ========      ========      ========      ========       =======
 Net income applicable to common stock                  $  6,882      $ 15,315      $ 14,366      $ 13,969       $13,328
                                                        ========      ========      ========      ========       =======

 Per common share:
   Primary earnings per share                           $   0.60    $     1.35     $    1.28     $    1.24     $    1.25
   Fully-diluted earnings per share                         0.59          1.34          1.28          1.24          1.25
   Common shareholders' equity at year end                 11.55         11.49          9.96          9.96          9.01
   Cash dividends declared                                  0.64          0.60          0.56          0.51          0.44
   Year-end common stock price                             23.00         17.88        1 3.00         16.50         15.19
 At year end:
   Total assets                                       $2,003,952    $1,795,649    $1,617,835    $1,597,453    $1,380,626
   Total loans, net of unearned income                 1,450,999     1,258,511     1,143,833     1,005,089       780,300
   Total deposits                                      1,579,217     1,444,483     1,335,509     1,376,227     1,222,050
   Long-term debt                                        140,903        86,605        37,334        54,217        21,957
   Total shareholders' equity                            131,316       129,767       111,632       112,036        99,406
   Common shareholders' equity                           131,316       129,767       111,632       111,026        98,396
   Allowance for loan losses                              18,065        15,779        12,529        12,505         9,596
 Selected ratios:
   Return on average assets                                 0.37%         0.92%         0.91%         0.96%         1.10%
   Return on average shareholders' equity                   5.32         12.55         12.89         13.24         14.56
   Return on average common shareholders' equity            5.32         12.55         12.92         13.29         14.57
   Average shareholders' equity to average 
     total assets                                           6.97          7.30          7.05          7.25          7.58
   Leverage ratio                                           6.12          6.70          6.95          6.47          6.57
   Tier 1 risk-based capital ratio                          7.68          8.64          9.47          9.36         11.05
   Total risk-based capital ratio                          10.87         12.15         13.31         13.50         12.51
   Common dividend payout ratio                           106.52         44.49         43.88         41.05         35.10
   Allowance for loan losses as a percentage
     of year-end loans                                      1.25          1.25          1.10          1.24          1.23
   Allowance for loan losses as a percentage
     of non-performing loans                              170.68         91.00        158.21        126.39        107.03
   Non-performing loans as a percentage
     of year-end loans                                      0.73          1.38          0.69          0.98          1.15
   Net charge-offs as a percentage of 
     average loans                                          0.86          0.17          0.20          0.26          0.24
   Net interest margin                                      4.42          4.56          4.57          4.32          4.31
 Other data:
   Number of full-time-equivalent employees at 
     year end                                                881           932           836           829           672
   Number of common shareholders of record at 
     year end (F2)                                         1,706         1,810         1,907         1,273         1,031
   Common share trading volume                         9,275,700     4,520,000     3,404,400     4,992,300     5,598,900
<FN>

(F1) During 1995, 1993 and 1992, the company  acquired one commercial bank, three
thrift  institutions  and certain  branches  of another  thrift  institution  in
transactions  accounted for using the purchase  method of accounting.  Financial
information  pertaining to the acquired entities since the acquisition dates has
been  included  in the  consolidated  financial  statements.  See  note 4 to the
consolidated financial statements.
(F2) In 1994 and 1992, the company merged with four bank holding companies in 
transactions   accounted   for  using  the pooling-of-interests method of
accounting.  Accordingly,  all financial data has been restated as if the 
entities were  combined for all periods  presented.  See note 4 to the
consolidated financial statements. Shareholders of record for 1993
and 1992  have not  been  restated  to  reflect  holders  of  shares  issued  in
connection with these business combinations.

</FN>
</TABLE>


<PAGE>



Item 8. Financial Statements and Supplementary Data
     The  following  consolidated  financial  statements of the  registrant  and
report of independent auditors are included herein:
       Report  of KPMG  Peat  Marwick  LLP,  Independent  Auditors
       Consolidated Balance Sheets--December 31, 1996 and 1995
       Consolidated Statements of Income--Years ended December 31, 1996, 1995 
          and 1994
       Consolidated  Statements of Changes in Shareholders'  Equity--Years ended
       December  31,  1996,  1995  and  1994
       Consolidated  Statements  of  Cash Flows--Years ended December 31, 1996,
       1995 and 1994
       Notes to Consolidated Financial Statements

     Additional  information  for this item is  included  in the table  entitled
"Quarterly Results of Operations" in Item 7 of this report.






                          Independent Auditors' Report



The Board of Directors and Shareholders of Trans Financial, Inc.:


     We have audited the accompanying consolidated  balance sheets of Trans  
Financial, Inc. and subsidiaries as of December 31, 1996 and 1995, and the 
related consolidated statements of income, changes in shareholders' equity and 
cash flows for each of the years in the three-year period ended December 31, 
1996. These consolidated financial statements are the responsibility of the 
company's management.  Our responsibility is to express an opinion on these  
consolidated financial statements based on our audits.
     We conducted  our audits in accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
     In our opinion,  the consolidated  financial  statements  referred to above
present  fairly,  in all  material  respects,  the  financial  position of Trans
Financial, Inc. and subsidiaries as of December 31, 1996 and 1995, and the 
results of their operations and their cash flows for each of the years in the  
three-year period ended December 31, 1996, in conformity with generally accepted
accounting principles.
     As discussed in note 2 to the consolidated  financial  statements,  in 1995
the company adopted the provisions of the Financial Accounting Standards Board's
Statement of Financial  Accounting  Standards No. 122, "Accounting  for Mortgage
Servicing Rights."

                                   /s/ KPMG Peat Marwick LLP
                                   -------------------------

KPMG Peat Marwick LLP
Louisville, Kentucky
January 20, 1997



<PAGE>

<TABLE>


 Consolidated Balance Sheets
 December 31 - In thousands, except share data
<CAPTION>

                                                                                 1996           1995
 Assets
<S>                                                                          <C>           <C>        
Cash and due from banks ...................................................  $    75,054   $    81,703
Interest-bearing deposits with banks ......................................           98           197
Mortgage loans held for sale ..............................................       67,999        46,311
Securities available for sale (amortized cost of $285,264 as of
   December 31, 1996 and $298,798 as of December 31, 1995) ................      285,155       298,222
Loans, net of unearned income .............................................    1,450,999     1,258,511
Less allowance for loan losses ............................................       18,065        15,779
                                                                                --------       -------
   Net loans ..............................................................    1,432,934     1,242,732
Premises and equipment, net ...............................................       37,377        41,458
Mortgage servicing rights .................................................       41,866        28,284
Other assets ..............................................................       63,469        56,742
                                                                                --------       -------
   Total assets ...........................................................  $ 2,003,952   $ 1,795,649
                                                                              ==========     =========                  

Liabilities and Shareholders' Equity
Deposits:
   Non-interest bearing ...................................................  $   231,717   $   206,725
   Interest bearing .......................................................    1,347,500     1,237,758
                                                                               ---------     ---------  
   Total deposits .........................................................    1,579,217     1,444,483
Federal funds purchased and repurchase agreements .........................       71,879        75,594
Other short-term borrowings ...............................................       55,000        45,014
Long-term debt ............................................................      140,903        86,605
Other liabilities .........................................................       25,637        14,186
                                                                               ---------     --------- 
   Total liabilities ......................................................    1,872,636     1,665,882
Commitments and contingencies (notes 13 and 14)
Shareholders' equity:
   Preferred stock ........................................................         --            --
   Common stock, no par value. Authorized 50,000,000 shares;
      issued and outstanding 11,372,532 and 11,293,291 shares, respectively       21,324        21,175
   Additional paid-in capital .............................................       44,745        43,872
   Retained earnings ......................................................       67,790        68,152
   Net unrealized gain(loss) on securities available for sale, net of tax .          (92)         (403)
   Employee Stock Ownership Plan shares purchased with debt ...............       (2,451)       (3,029)
                                                                                ---------     --------- 
   Total shareholders' equity .............................................      131,316       129,767
                                                                                ---------     ---------
   Total liabilities and shareholders' equity .............................  $ 2,003,952   $ 1,795,649
                                                                               =========     =========
 See accompanying notes to consolidated financial statements.

</TABLE>


<PAGE>

<TABLE>


 Consolidated Statements of Income
 Years Ended December 31
 In thousands, except per share data
<CAPTION>

                                                                          1996        1995       1994

 Interest income
<S>                                                                    <C>         <C>         <C>    
   Loans, including fees                                               $131,466    $115,757    $94,020
   Federal funds sold and resale agreements                                  52         804        540
   U.S. Treasury and federal agencies                                    11,450      13,532     15,444
   State and municipal obligations                                        2,820       2,861      2,770
   Other securities                                                       2,133       1,257      1,104
   Interest-bearing deposits with banks                                      14          17        104
                                                                        --------    -------    -------
     Total interest income                                              147,935     134,228    113,982
 Interest expense
   Deposits                                                              59,795      56,465     41,724
   Federal funds purchased and repurchase agreements                      1,949       2,014      1,253
   Other short-term borrowings                                            3,117       2,983      1,715
   Long-term debt                                                         8,205       3,137      2,683
                                                                        --------    -------    -------
     Total interest expense                                              73,066      64,599     47,375
                                                                        --------    -------    -------
 Net interest income                                                     74,869      69,629     66,607
                                                                        --------    -------    -------
   Provision for loan losses                                             13,914       5,260      2,212
                                                                        --------    -------    -------
 Net interest income after provision for loan losses                     60,955      64,369     64,395
 Non-interest income
   Service charges on deposit accounts                                    9,541       8,472      7,384
   Mortgage banking income                                               10,381       6,009      2,752
   Gain on sale of mortgage servicing rights                                  -       1,687          -
   Gain on sale of securities, net                                           20         200        257
   Trust services                                                         1,955       1,392      1,247
   Brokerage income                                                       2,201       1,728      1,305
   Other                                                                  5,591       4,923      4,225
                                                                        --------    -------    -------
     Total non-interest income                                           29,689      24,411     17,170
 Non-interest expenses
   Compensation and benefits                                             37,927      30,588     26,330
   Net occupancy expense                                                  5,206       4,836      4,572
   Furniture and equipment expense                                        7,005       6,126      5,284
   Deposit insurance                                                      3,585       2,095      3,183
   Professional fees                                                      3,170       3,424      3,742
   Postage, printing & supplies                                           4,125       3,643      3,516
   Communications                                                         2,516       1,607      1,131
   Processing fees                                                        2,043       1,112        800
   Writedowns and losses on sale of fixed assets                          1,790           -          -
   Other                                                                 13,275      12,618     11,512
                                                                        --------    -------    -------
     Total non-interest expenses                                         80,642      66,049     60,070
                                                                        --------    -------    -------
 Income before income taxes                                              10,002      22,731     21,495
                                                                        --------    -------    -------
 Income tax expense                                                       3,120       7,416      7,075
                                                                         -------    -------    -------
 Net income                                                            $  6,882    $ 15,315   $ 14,420
                                                                          =====      ======    =======
 Net income applicable to common stock                                 $  6,882    $ 15,315   $ 14,366
                                                                          =====      ======    =======

 Primary earnings per common share                                        $0.60       $1.35      $1.28
 Fully-diluted earnings per common share                                   0.59        1.34       1.28

 See accompanying notes to consolidated financial statements.

</TABLE>



<PAGE>

<TABLE>

 Consolidated Statements of Changes in Shareholders' Equity                                     
 In thousands, except share and per share data
<CAPTION>
                                                                                                  Net
                                                                                              Unrealized   Employee
                                                                                              Gain (Loss)   Stock
                                                                                                  on       Ownership
                                     Preferred Stock     Common Stock     Additional          Securities  Plan Shares     Total
                                    Number             Number              Paid-in   Retained  Available   Purchased  Shareholders'
                                    of shares  Amount  of shares   Amount  Capital   Earnings  for Sale    With Debt      Equity

<S>                                 <C>       <C>     <C>         <C>      <C>        <C>        <C>         <C>         <C>     
 Balance, December 31, 1993          1,010    $1,010  11,149,722  $20,906  $42,256    $51,006    $   719     $(3,861)    $112,036

 Net income for the year                                                               14,420                              14,420
 Cash dividends declared:
   Common stock, $.56 per share                                                        (5,785)                             (5,785)
   Preferred stock                                                                        (54)                                (54)
 Redemption of preferred stock      (1,010)   (1,010)                                                                      (1,010)
 Stock options exercised                                  22,018       41      178                                            219
 Common stock issued in connection
   with dividend reinvestment and 
   stock purchase plan and 
   other issuances                                        31,507       59      376                                            435
 Net unrealized loss on securities
   available for sale, net of tax                                                                 (8,792)                  (8,792)
 ESOP debt reduction, net                                                                                        163          163
                                    ------    ------  ----------  -------  -------    -------    -------     -------     --------
 Balance, December 31, 1994              -         -  11,203,247   21,006   42,810     59,587     (8,073)     (3,698)     111,632

 Net income for the year                                                               15,315                              15,315
 Cash dividends declared:
   Common stock, $.60 per share                                                        (6,750)                             (6,750)
 Common stock issued in connection
   with business combination 
   accounted for as a purchase                            25,000       47      384                                            431
 Stock options exercised, net of
     shares redeemed                                      30,887       58      205                                            263
 Common stock issued in connection
   with dividend reinvestment
   and stock purchase plan                                34,157       64      473                                            537
 Decrease in net unrealized loss on
   securities available for sale,
   net of tax                                                                                      7,670                    7,670
 ESOP debt reduction                                                                                             669          669
                                    ------    ------  ----------  -------  -------    -------    -------     -------     -------- 
 Balance, December 31, 1995              -         -  11,293,291   21,175   43,872     68,152       (403)     (3,029)     129,767

 Net income for the year                                                                6,882                               6,882
 Cash dividends declared:
   Common stock, $.64 per share                                                        (7,244)                             (7,244)
 Common stock issued in connection
     with the exercise of
     stock warrants                                       46,666       88      428                                            516
 Stock options exercised, net of
     shares redeemed                                       6,026       11       28                                             39
 Common stock issued in connection
   with dividend reinvestment and
   stock purchase plan                                    26,549       50      417                                            467
 Decrease in net unrealized loss on
   securities available for sale,
   net of tax                                                                                        311                      311
 ESOP debt reduction                                                                                             578          578
                                    ------    ------  ----------  -------  -------    -------    -------     -------     --------
 Balance, December 31, 1996              -    $    -  11,372,532  $21,324  $44,745    $67,790    $   (92)    $(2,451)    $131,316
                                    ======    ======  ==========  =======  =======    =======    =======     =======     ========

 See accompanying notes to consolidated financial statements.

</TABLE>

<PAGE>
                                                 
<TABLE>


 Consolidated Statements of Cash Flows
 Years Ended December 31
 In thousands, except per share data
<CAPTION>
 
                                                                           1996       1995       1994
<S>                                                                     <C>        <C>        <C>     
 Cash flows from operating activities:
 Net income                                                             $  6,882   $ 15,315   $ 14,420
 Adjustments to reconcile net income to cash
   provided by operating activities:
     Provision for loan losses                                            13,914      5,260      2,212
     Deferred tax expense                                                 (3,215)    (2,387)      (882)
     Gain on sale of securities                                              (20)      (200)      (257)
     Loss (gain) on sale of mortgage loans held for sale                  (3,642)    (1,888)       200
     Loss (gain) on sale of premises and equipment, net                    1,790       (174)      (231)
     Gain on sale of mortgage servicing rights                                 -     (1,687)         -
     Depreciation and amortization of fixed assets                         5,959      5,473      5,032
     Amortization of intangible assets                                     1,361      1,394      1,087
     Amortization of premium on securities and loans, net                    975      1,077      2,094
     Amortization of mortgage servicing rights                             5,271      2,720      1,013
 Increase in accrued interest receivable                                  (1,391)    (1,736)    (1,593)
 Increase in other assets                                                 (5,890)   (10,759)    (3,159)
 Increase in accrued interest payable                                        916      3,588        114
 Increase (decrease) in other liabilities                                  9,880     (4,993)     4,197
 Sale of mortgage loans held for sale                                    344,293    150,359    133,598
 Originations of mortgage loans held for sale                           (362,339)  (188,241)   (95,049)
                                                                        --------   --------   --------
   Net cash provided by (used in) operating activities                    14,744    (26,879)    62,796
 Cash flows from investing activities:
 Net decrease in interest-bearing deposits with banks                         99          -        250
 Net decrease in federal funds sold and resale agreements                      -          -     32,778
 Proceeds from sale of securities:
   Available for sale                                                      9,417     33,165      5,183
   Held to maturity                                                            -      2,568          -
 Proceeds from prepayment and call of securities:
   Available for sale                                                     37,794     22,940     50,975
   Held to maturity                                                            -      4,758     12,363
 Proceeds from maturities of securities:
   Available for sale                                                     52,601     33,726     20,412
   Held to maturity                                                            -      3,140      9,492
 Purchase of securities:
   Available for sale                                                    (87,233)   (70,136)   (21,566)
   Held to maturity                                                            -     (3,000)   (20,047)
 Net increase in loans                                                  (202,802)  (117,938)  (140,546)
 Purchase and origination of mortgage servicing rights                   (18,354)   (22,331)    (7,778)
 Proceeds from sale of mortgage servicing rights                               -      2,180          -
 Proceeds from sale of foreclosed assets                                   3,337      1,705      1,950
 Purchases of premises and equipment                                      (8,835)   (10,555)    (9,785)
 Proceeds from disposal of premises and equipment                          2,924        836      1,569
 Net cash and cash equivalents inflow from acquisitions                        -     36,815          -
                                                                        --------   --------   --------
   Net cash used in investing activities                                (211,052)   (82,127)   (64,750)
 Cash flows from financing activities:
 Net increase (decrease) in deposits                                     134,734     67,869    (40,718)
 Net increase (decrease) in federal funds purchased
   and repurchase agreements                                              (3,715)     1,041     44,849
 Net increase (decrease) in other short-term borrowings                    9,986     (3,019)    23,033
 Proceeds from issuance of long-term debt                                 55,000     50,000          -
 Repayment of long-term debt                                                (124)       (60)    (6,720)
 Proceeds from issuance of common stock                                    1,022        800        654
 Redemption of preferred stock                                                 -          -     (1,010)
 Dividends paid                                                           (7,244)    (6,750)    (5,839)
                                                                        --------   --------   --------
   Net cash provided by financing activities                             189,659    109,881     14,249
 Net increase (decrease) in cash and cash equivalents                    (6,649)        875     12,295
 Cash and cash equivalents at beginning of year                           81,703     80,828     68,533
                                                                        --------   --------   --------
 Cash and cash equivalents at end of year                               $ 75,054   $ 81,703   $ 80,828
                                                                        ========   ========   ========

 See accompanying notes to consolidated financial statements.
</TABLE>

<PAGE>

Notes to Consolidated Financial Statements

(1) Nature of Operations
     Trans  Financial,  Inc.  ("the  company")  is a bank and  savings  and loan
holding  company  registered  under the Bank Holding Company Act of 1956 and the
Home Owners' Loan Act. The company's principal subsidiaries are: Trans Financial
Bank, National Association ("TFB-KY"); Trans Financial Bank Tennessee,  National
Association;  and  Trans  Financial  Bank,  F.S.B.  Collectively,   these  three
subsidiaries  are referred to in this report as "the banks." In addition,  Trans
Financial  Bank,  National  Association  has two operating  subsidiaries:  Trans
Financial  Investment  Services,  Inc.,  a securities  broker/dealer,  and Trans
Financial Mortgage Company, a mortgage banking company.
     The  company's  financial  services  network  is  comprised  of  52  office
locations   serving  37  communities  in  Kentucky  and  Tennessee  by  offering
commercial and consumer banking,  brokerage,  mortgage and trust services. As of
December 31, 1996, the company employed 929 employees and serviced more than 130
thousand customer households.
     The company actively  competes in its markets with other commercial  banks,
savings  and  loan  associations,  credit  unions,  brokerage  firms,  insurance
companies,  other financial  institutions and  institutions  which have expanded
into the financial market.
     Bank  holding  companies,  commercial  banks and savings  institutions  are
extensively  regulated  under both federal and state law.  Changes in applicable
laws or regulations  may have a material  effect on the businesses and prospects
of the company and the banks.


(2) Summary of Significant Accounting Policies
     The consolidated financial statements have been prepared in accordance with
generally  accepted  accounting  principles,  which  require  management to make
estimates and  assumptions  that affect both the reported  amounts of assets and
liabilities  at the date of the  financial  statements,  and  also the  reported
amounts of revenues and expenses  during the reporting  periods.  Actual results
could differ from those estimates. Generally accepted accounting principles also
require  disclosure  of  contingent  assets and  liabilities  at the date of the
financial statements.
     A description of the more significant accounting policies follows.
     Principles of Consolidation
     The  consolidated  financial  statements  include  the  accounts  of  Trans
Financial,  Inc. (parent company) and its subsidiaries,  all of which are wholly
owned.  All  significant  intercompany   transactions  and  accounts  have  been
eliminated in  consolidation.  Certain prior year amounts have been reclassified
to conform with 1996 presentations.
     Securities
     The company accounts for securities under Statement of Financial Accounting
Standards  No.  115,  "Accounting  for  Certain  Investments  in Debt and Equity
Securities."  Accordingly, all debt securities in which the company does not
have the ability or management does not have the positive intent to hold to
maturity are classified as securities available for sale and are carried at
market value.All equity securities are classified as available for sale.
Unrealized gains and losses on securities  available for sale are reported as a
separate component of shareholders'  equity (net of income  taxes).  Securities
classified as held to maturity are carried at amortized cost. The company's
asset/liability management policy does not permit securities to be purchased for
the purpose of trading.
     Amortization  of premiums  and  accretion  of  discounts  are recorded by a
method   which   approximates   a  level  yield  and  which,   in  the  case  of
mortgage-backed   securities,    considers   prepayment   risk.   The   specific
identification method is used to determine the cost of securities sold.
     Loans and Allowance for Loan Losses
     Loans are stated at the unpaid principal balance.  Interest income on loans
is recorded on the accrual basis except for those loans in a non-accrual status.
Loans are placed in non-accrual status when principal or interest is past due 90
days or more and the loan is not adequately collateralized and in the process of
collection, or when, in the opinion of management,  principal or interest is not
likely to be paid in accordance with the terms of the obligation.  Loans are not
reclassified  as accruing  until  principal  and  interest  payments are brought
current and future payments appear reasonably certain.  Unearned income, arising
principally  from  consumer  installment  loans or the  deferral of certain loan
fees,  is  recognized  as income using a method that  approximates  the interest
method.
     The  allowance  for loan losses is  maintained  at a level that  adequately
provides for estimated losses in the loan portfolio.  The level of the allowance
is based on management's  evaluation of the loan  portfolio,  which includes the
review of individual credits,  consideration of past loan loss experience,  loan
delinquency  trends,  changes in the  composition  of the loan portfolio and the
impact of current and  projected  economic  conditions.  The  allowance for loan
losses  is  increased  by the  provision  for loan  losses  and  reduced  by net
charge-offs. The level of the allowance and the amount of the provision for loan
losses involve  uncertainties and matters of judgment and, therefore,  cannot be
determined with precision and could be susceptible to significant  change in the
future. In addition, bank and thrift regulatory authorities,  as a part of their
periodic  examinations of the banks, may reach different  conclusions  regarding
the quality of the loan  portfolio and the level of the  allowance,  which could
result in additional provisions being made in future periods.
     The  company  adopted on a  prospective  basis  effective  January 1, 1995,
Statement of Financial Accounting Standards No.114, "Accounting by Creditors for
Impairment of a Loan" ("SFAS 114").  SFAS 114 requires  that  impaired  loans be
measured at the present value of expected  future cash flows,  discounted at the
loan's effective interest rate, at the loan's observable market price, or at the
fair value of the  collateral  if the loan is collateral  dependent.  Generally,
impaired  loans  are  also in  non-accrual  status.  In  certain  circumstances,
however,  the company may continue to accrue  interest on an impaired loan. Cash
receipts on impaired  loans are applied to the recorded  investment in the loan,
including any accrued interest  receivable.  The company does not apply SFAS 114
to loans which are part of a large group of  smaller-balance  homogeneous loans,
such as residential  mortgage and consumer  loans.  Such loans are  collectively
evaluated  for  impairment.  The  adoption  of SFAS 114 did not have a  material
effect on the company's consolidated financial statements.
     Mortgage Loans Held for Sale
     Mortgage  loans held for sale are carried at the lower of aggregate cost or
market value, as determined by outstanding  loan  commitments  from investors or
current yield  requirements.  Gain or loss is recorded at the time of sale in an
amount reflecting the difference  between the contractual  interest rates of the
loans sold and the current market rate.
     Mortgage Servicing Portfolio
     The  company  adopted on a  prospective  basis  effective  January 1, 1995,
Statement of Financial  Accounting  Standards No. 122, "Accounting  for Mortgage
Servicing Rights" ("SFAS 122"). SFAS 122 requires that rights to service
mortgage loans for others be recognized as assets, without regard to whether
those assets were  acquired in  purchase  transactions or were acquired through
loan originations.  SFAS 122 also eliminates the previous requirement that gains
on mortgage loan sales be offset against the related  mortgage  servicing  right
asset.  The adoption of this  statement  resulted in  $1,243,000 of the mortgage
banking  income  recognized in 1995 and  $1,417,000  in 1996,  which amounts are
included  in the gain on sale of  mortgage  loans  held  for  sale  shown on the
consolidated statements of cash flows.
     The carrying value of mortgage  servicing  rights ("MSR's") and the related
amortization  are  evaluated  quarterly  in  relation  to  estimated  future net
servicing  revenues.  The company evaluates the value of the MSR's by estimating
the future net servicing  income of the rights,  stratified by interest rate and
loan type,  using a  discounted  valuation  method  based on  management's  best
estimate of remaining loan lives.  Impairment and subsequent adjustments in each
stratum,  if any, are  recognized by a valuation  allowance and a charge against
servicing income.
     The  normal  agency  (GNMA,  FNMA or FHLMC)  servicing  fee was used in the
capitalization of any excess service fees. When participating interests in loans
sold had an average contractual  interest rate, as adjusted for normal servicing
costs,  which differed from the agreed yield to the  purchaser,  gains or losses
were  recognized  equal  to the  present  value  of such  differential  over the
estimated  remaining  life of such loans.  Amortization  of  capitalized  excess
servicing fees was reflected as a reduction of loan  servicing  income using the
interest  method over the estimated  remaining life of such loans,  adjusted for
actual prepayments.
     Interest Rate Contracts
     The company uses interest rate  contracts  (swaps and floors) to manage its
sensitivity to interest rate risk.  Interest income and expense are accrued over
the  terms  of the swap  agreements,  and  transaction  fees  are  deferred  and
amortized  through interest income and expense over the terms of the agreements.
The fair market  value of these  instruments  is not  included in the  financial
statements.
     Premises and Equipment
     Premises and equipment are carried at cost, less  accumulated  depreciation
and  amortization.  Depreciation of premises and equipment is computed using the
straight-line  method over the estimated  useful lives of the assets.  Leasehold
improvements  are  amortized  on the  straight-line  method over the term of the
related lease or over the useful life of the improvements, whichever is shorter.
Leasing commitments are described in note 8.
     Other Assets
     Included in other assets is real estate  acquired in  settlement  of loans,
which is  carried  at the lower of cost or fair  value  less  estimated  selling
costs.  The excess of cost over fair value less  estimated  costs to sell at the
time of foreclosure is charged to the allowance for loan losses.  Provisions for
subsequent  declines in fair value are included in other  non-interest  expense.
Other costs relating to holding real estate  acquired in settlement of loans are
charged to other non-interest expense as incurred.  Costs related to real estate
in the process of development  are capitalized to the extent that total carrying
value does not exceed fair value less costs to sell.
     Income Taxes
     The company  accounts  for income  taxes in  accordance  with  Statement of
Financial Accounting Standards No. 109,"Accounting for Income Taxes." Under this
statement, a current or deferred income tax liability is recognized,  subject to
certain limitations,  for the current or deferred tax consequences of all events
that have been recognized in the financial  statements.  The deferred income tax
liability or asset is measured by the provisions of enacted tax laws.
     Stock Options
     Prior to January 1, 1996, the company  accounted for employee stock options
in accordance with Accounting  Principles  Board Opinion No. 25, "Accounting for
Stock  Issued to Employees" ("APB 25"),  and related  interpretations.  As such,
compensation  expense  would be  recognized  on the  date of  grant  only if the
current market price of the underlying  stock  exceeded the exercise  price.  On
January 1, 1996, the company adopted Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based  Compensation" ("SFAS 123"),  which permits
entities to recognize  as expense over the vesting  period the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS 123 allows entities
to continue to apply the  provisions  of APB 25 and provide  disclosures  of pro
forma net income and pro forma  earnings  per share for  employee  stock  option
grants made in 1995 and future years as if the  fair-value-based  method defined
in SFAS 123 had been  applied.  The company has elected to continue to apply the
provisions of APB 25 and to provide the pro forma disclosure  provisions of SFAS
123. Information regarding stock options is included in note 10.
     Earnings Per Common Share
     Primary earnings per share is computed by dividing net income applicable to
common stock by the weighted average number of shares of common stock and common
stock equivalents outstanding during the period. Net income applicable to common
stock is net income reduced by dividends on preferred stock.
     The weighted  average number of shares  outstanding used in the calculation
of earnings per share follows:

--------------------------------------------------------------------------------
     In thousands                     1996              1995             1994
     Primary                         11,454            11,353           11,258
     Fully-diluted                   11,576            11,402           11,258
--------------------------------------------------------------------------------


(3) Statement of Cash Flows
   For purposes of reporting cash flows, cash and cash equivalents  include cash
on hand and amounts due from banks. The following  summarizes  supplemental cash
flow data for the years ended December 31, 1996, 1995 and 1994:

 In thousands                                      1996       1995        1994
 Cash paid for interest                          $72,266    $60,366     $47,261
 Cash paid for income taxes                       1,955     10,323       8,537

 Certain  non-cash  investing  and  financing  activities  of  the  company  and
subsidiaries are summarized below:

For the parent company
  Issuance of stock in business combination            -        431          -
  Change in net unrealized gain (loss) on
     securities available for sale, net of tax       467      7,670     (8,792)
  Effect on shareholders' equity of reductions
     in Employee Stock Ownership Plan debt, net      578        669        163
For the subsidiaries
  Loans transferred to foreclosed real estate
    and other foreclosed assets                    1,161      1,493      1,326
  Securities transferred from held to maturity
     to securities available for sale:
        Related to business combinations               -          -     58,641
        Under special one-time reassessment
        guidance issued by the Financial
        Accounting Standards Board                     -     76,921          -
  Reclassification of debt from
        long-term to short-term                        -          -     10,000


(4) Business Combinations
     On  February  21,  1995,  the company  assumed $41 million of deposits  and
acquired  three branch  facilities  and $360 thousand of consumer  loans.  These
deposits and assets were related to the Bowling Green and Scottsville,  Kentucky
branches  of Fifth  Third Bank of  Kentucky,  Inc.  The two  offices  located in
Bowling  Green,   Kentucky  were  consolidated  into  existing  Trans  Financial
locations  and the  company's  existing  location in  Scottsville,  Kentucky was
consolidated  into the other  purchased  location.  On  September  1, 1995,  the
company acquired  AirLanse Travel, a Louisville,  Kentucky,  travel agency,  for
cash and stock of the company.  On November 15, 1995,  the company  acquired for
cash the assets of Correspondents Mortgage Company, L.P., located in Greensboro,
North Carolina.  AirLanse Travel was  consolidated  into the operations of Trans
Travel,  Inc. and  Correspondents  Mortgage  Company was  consolidated  into the
operations  of Trans  Financial  Mortgage  Company.  In addition to the deposits
assumed,  the company  received net cash of $36,815,000 and issued 25,000 shares
of common stock in connection with these acquisitions.  These three acquisitions
were accounted for using the purchase method of accounting.  Accordingly,  their
results of operations and cash flows were included in the consolidated financial
statements since the dates of acquisition.
     Following is a summary of the assets  acquired and  liabilities  assumed in
these transactions:

--------------------------------------------------------------------------------
In thousands
   Cash and due from banks                                            $ 36,815
   Loans, net of unearned income                                           360
   Premises and equipment                                                  598
   Other assets                                                            154
   Deposits                                                            (41,105)
   Other liabilities                                                      (628)
   Common stock issued                                                    (431)
     Excess of costs over net assets acquired                            4,237
--------------------------------------------------------------------------------

     The excess of the costs over the value of net assets  acquired was recorded
as deposit base premium and goodwill.
     On February  15,  1994,  Trans  Financial  merged with  Kentucky  Community
Bancorp, Inc. ("KCB") of Maysville,  Kentucky, the holding company for The State
National Bank,  Peoples First Bank, and Farmers  Liberty Bank. As of the date of
consummation,  KCB  had  consolidated  assets  of  approximately  $175  million,
year-to-date   net  interest  income  of   approximately   $915  thousand,   and
year-to-date net income of approximately  $325 thousand.  Under the terms of the
merger, the shares of KCB common stock outstanding were converted into 1,374,962
shares of common stock of the company.
     On April 22, 1994, Trans Financial merged with Peoples Financial  Services,
Inc. ("PFS") of Cookeville,  Tennessee, the holding company for Peoples Bank and
Trust of the  Cumberlands  and Citizens  Federal Savings Bank. As of the date of
consummation,  PFS  had  consolidated  assets  of  approximately  $123  million,
year-to-date  net  interest  income  of  approximately   $1,520  thousand,   and
year-to-date net income of approximately  $330 thousand.  Under the terms of the
merger,  the shares of PFS common stock were converted into 1,302,254  shares of
common stock of the company.
     On August 31, 1994, Trans Financial merged with FGC Holding Company ("FGC")
of Martin, Kentucky, the holding company for First Guaranty National Bank. As of
the date of  consummation,  FGC had consolidated  assets of  approximately  $127
million,  year-to-date net interest income of approximately $3,420 thousand, and
year-to-date net income of approximately $1,290 thousand. Under the terms of the
merger,  the shares of FGC common stock were converted into 1,050,000  shares of
common stock of the company and the shares of FGC preferred stock were retired.
     The consolidated  financial  statements of the company give effect to these
three  mergers,  each of which  was  accounted  for as a pooling  of  interests.
Accordingly,  financial  statements for all periods were restated to reflect the
results of operations of these  companies on a combined  basis from the earliest
period presented.
     Goodwill and deposit base premium from the above purchase transactions,  as
well as  acquisitions  consummated  in prior  years,  are being  amortized  over
periods  ranging from five to twenty years using  straight-line  and accelerated
methods and had a combined  unamortized balance of $8,900,000 and $10,409,000 at
December 31, 1996 and 1995,  respectively.  These intangible assets are reviewed
for  possible  impairment  when events or changed  circumstances  may affect the
underlying basis of the asset.
     Trans Travel, Inc. was sold during the fourth quarter of 1996.


(5) Cash and Due from Banks
     Regulatory authorities require the banks to maintain reserve balances on
customer deposits. The amounts of required reserves totaled approximately
$14,740,000 at December 31, 1996, and $27,706,000 at December 31, 1995.


(6) Securities
     The company accounts for securities under Statement of Financial Accounting
Standards  No.  115, "Accounting  for  Certain  Investments  in Debt and  Equity
Securities" ("SFAS 115")On  November 30, 1995,  $76,921,000 of  held-to-maturity
securities were reclassified to available for sale as permitted by the Financial
Accounting Standards Board in a special one-time reassessment. The fair value of
these reclassified securities was $79,049,000 on November 30, 1995, resulting in
a net unrealized gain (loss) of $2,128,000. No securities were classified as 
held to maturity or trading securities as of December 31, 1996 or 1995. The 
following summarizes securities available for sale at December 31, 1996 and 
1995.
<TABLE>


<CAPTION>
                                                       Amortized           Unrealized          Market
                                                       Cost             Gains     Losses        Value
 December 31, 1996 (In thousands)
<S>                                                    <C>             <C>        <C>        <C>     
 U.S.Treasury and federal agency securities            $129,330        $  131     $1,165     $128,296
 Collateralized mortgage obligations
   and mortgage-backed securities                        68,052           278        704       67,626
 State and municipal obligations                         49,937         1,501        127       51,311
 Corporate debt securities                               14,530           108         13       14,625
 Equity securities                                       23,415           209        327       23,297
                                                       --------        ------     ------     --------
      Total securities available for sale              $285,264        $2,227     $2,336     $285,155
                                                       ========        ======     ======     ========

 December 31, 1995 (In thousands)
 U.S.Treasury and federal agency securities            $143,762        $  116     $1,679     $142,199
 Collateralized mortgage obligations
   and mortgage-backed securities                        82,169           481        750       81,900
 State and municipal obligations                         54,219         1,588        255       55,552
 Corporate debt securities                                5,123            67         10        5,180
 Equity securities                                       13,525            98        232       13,391
                                                       --------        ------     ------     --------
      Total securities available for sale              $298,798        $2,350     $2,926     $298,222
                                                       ========        ======     ======     ========

</TABLE>

     Included in equity securities at December 31, 1996, are Federal Home Loan
Bank and Federal Reserve Bank stock of $13,375,000 and $1,977,000  respectively.
At December 31, 1995, these stock investments were $6,009,000 and $1,977,000,
respectively.
     The  amortized  cost and  approximate  market value of debt  securities  at
December 31, 1996, by contractual maturity, are shown below. Expected maturities
may differ from contractual  maturities  because borrowers may have the right to
call or  prepay  obligations  with or  without  call  or  prepayment  penalties.
Mortgage-backed  obligations generally have contractual  maturities in excess of
ten years, but shorter expected maturities as a result of prepayments.

                                                 Amortized         Market
 In thousands                                         Cost          Value

 Due in one year or less                          $ 86,906       $ 86,936
 Due after one year through five years              54,601         54,147
 Due after five years through ten years             40,727         41,007
 Due after ten years                                11,563         12,142
                                                  --------       --------
                                                   193,797        194,232
 Collateralized mortgage obligations and
     mortgage-backed securities                     68,052         67,626
                                                  --------       --------
                                                  $261,849       $261,858
                                                  ========       ========

     Securities with a carrying value of approximately  $141,675,000 and
$162,779,000 at December 31, 1996 and 1995, respectively, were pledged to secure
public funds, trust funds and for other purposes.
     Gross  gains of  $105,000;  $293,000;  and  $257,000;  and gross  losses of
$85,000;  $93,000;  and $-0- were realized on sales of securities in 1996, 1995,
and 1994,  respectively.  In 1995, the company sold  mortgage-backed  securities
with a carrying value of $2,568,000 from the held-to-maturity  portfolio.  A net
loss of $82,000 was  recognized  on these sales,  which is included in the gross
realized  gains  and  losses  shown  above for  1995.  At the time of sale,  the
outstanding  principal  balances of these  securities  were less than 15% of the
outstanding principal balances at the time the securities were acquired.


(7) Loans
     The company extends credit in the form of commercial loans,  commercial and
residential  real estate loans and consumer loans to customers  primarily in the
immediate market areas of its subsidiaries. The composition of loans at December
31, 1996 and 1995, follows:

 In thousands                               1996              1995

 Commercial                           $  466,365        $  372,822
 Commercial real estate                  470,235           397,741
 Residential real estate                 385,894           357,697
 Consumer                                130,444           132,401
 Unearned income                          (1,939)           (2,150)
                                      ----------        ----------
    Loans net of unearned income      $1,450,999        $1,258,511
                                      ==========        ==========

     Substantially all of the company's loans are to customers  located in
Kentucky and Tennessee, in the immediate market areas of the banks. No industry
group represents 10% or more of the company's total loans.
     The principal balance of non-accrual and restructured loans at December 31,
1996 and 1995, was $4,721,000 and $12,722,000,  respectively.  The interest that
would  have  been  recorded  if all those  loans  were in an  accrual  status in
accordance  with their original terms was $543,000 in 1996;  $1,441,000 in 1995;
and $519,000 in 1994. The amount of interest  income that was actually  recorded
for those loans was $38,000 in 1996; $490,000 in 1995; and $81,000 in 1994.
     The  company  adopted on a  prospective  basis  effective  January 1, 1995,
Statement of Financial Accounting Standards No. 114,"Accounting by Creditors for
Impairment of a Loan" ("SFAS 114"). The company's recorded investment in
impaired loans was $4,613,000 at December 31, 1996, and $12,444,000 at
December 31, 1995.  Of those amounts, $2,042,000 and $11,130,000, respectively,
represent loans for which an allowance for loan losses,  in the amounts of
$809,000 and  $4,912,000, have been established  under SFAS 114. For the years
ended December 31, 1996 and 1995,  the  recorded  investment of  impaired  loans
averaged  $8,611,000  and $7,491,000, respectively.  Interest income recognized
on impaired loans totaled $127,000 in 1996 and $57,000 for 1995.
     An analysis of the changes in the allowance for loan losses follows:

 In thousands                           1996         1995         1994

 Balance at January 1               $ 15,779     $ 12,529     $ 12,505
   Provision for loan losses          13,914        5,260        2,212
   Loans charged off                 (12,467)      (2,525)      (2,791)
   Recoveries of loans previously
      charged off                        839          515          603
                                    --------     --------     --------
   Net charge-offs                   (11,628)      (2,010)      (2,188)
                                    --------     --------     --------
 Balance at December 31             $ 18,065     $ 15,779     $ 12,529
                                    ========     ========     ========

     Loans to executive  officers and directors and their associates,  including
loans to affiliated  companies for which these individuals are principal owners,
amounted to  $55,397,000  at December 31, 1996 and  $52,832,000  at December 31,
1995.  During  1996,  new  loans of  $34,914,000  were  made and  repayments  of
$31,319,000  were received.  Other changes  include net decreases for changes in
executive  officers  and  directors  of  $1,030,000.  These  loans  were made on
substantially the same terms, including interest rates and collateral,  as those
prevailing at the time for other customers.


(8) Premises and Equipment
     A summary of premises and equipment at December 31, 1996 and 1995, follows:

 In thousands                                         1996              1995

 Land and improvements                             $ 6,393           $ 7,017
 Buildings and improvements                         31,912            34,249
 Furniture and equipment                            39,405            36,743
                                                   -------           -------
                                                    77,710            78,009
 Less accumulated depreciation and amortization     40,333            36,551
                                                   -------           -------
    Total premises and equipment                   $37,377           $41,458
                                                   =======           =======

     The company leases office space in Bowling Green,  Kentucky, and Nashville,
Tennessee,  under  long-term  lease  agreements.  Rental  expense  for all  real
property totaled $1,357,000 and $603,000, respectively for 1996 and 1995.
     Future  minimum  lease   commitments   as  of  December  31,  1996,   under
non-cancelable leases with remaining terms exceeding one year are as follows:

   In thousands
   Year ended December 31
      1997                                                             $  754
      1998                                                                760
      1999                                                                766
      2000                                                                772
      2001                                                                804
      Later years                                                       4,888
                                                                       ------
                                                                       $8,744


(9) Long-Term Debt and Other Short-Term Borrowings
     Long-term debt consisted of the following at December 31, 1996 and 1995:

 In thousands                                                 1996        1995

 7.25% Subordinated Notes; due September 15, 2003;
   interest payable quarterly                            $  32,746     $32,870
 Senior bank notes; due October 23, 1998; interest
   at 6.48% payable semi-annually                           30,000      30,000
 Senior bank notes; due October 17, 1997; interest
   at 6.32% payable semi-annually                           20,000      20,000
 Senior bank notes; due May 30, 2000; interest
   at 7.13% payable semi-annually                           25,000           -
 Advance from the Federal Home Loan Bank due
   March 6, 1998; interest at 5.50% payable monthly         30,000           -
 Employee Stock  Ownership Plan ("ESOP") note payable
   to bank; due September 30, 2000; interest at the
   prime rate; principal and interest payable quarterly      2,451       2,854
 ESOP note payable to bank; due July 31, 1996;
   interest at 82.5% of the prime rate,
   principal and interest payable quarterly                     -          175
 Unsecured demand notes; interest at the
   prime rate payable quarterly                               706          706
                                                         --------     --------
    Total long-term debt                                 $140,903      $86,605
                                                         ========      =======

     Other short-term borrowings consisted of the following at December 31, 1996
and 1995:

 In thousands                                                1996         1995

 Advance from the Federal Home Loan Bank,
    due January 12, 1996; interest at
    7.45% payable monthly                                $      -      $25,000
 Advance from the Federal Home Loan Bank,
    due March 5, 1996; interest at
    5.70% payable monthly                                       -       20,000
 Advance from the Federal Home Loan Bank,
    due January 6, 1997; interest at
    5.45% payable monthly                                  15,000            -
 Advance from the Federal Home Loan Bank,
    due February 8, 1997; interest at
    5.41% payable monthly                                  40,000            -
 All other short-term borrowings                                -           14
                                                          -------      -------
    Total other short-term borrowings                     $55,000      $45,014
                                                          =======      =======

     The prime interest rate  associated  with certain of the above  obligations
     was 8.25% at December 31, 1996, and 8.50% at December 31, 1995. 
     Information concerning  securities sold under agreements  to repurchase is
     presented below:

 Dollars in thousands
                                                             1996         1995
   Average balance during the year                        $18,415      $38,591
   Weighted average rate during the year                     3.43 %       3.88 %
   Maximum month-end balance                               27,810       50,054

     Advances from the Federal Home Loan Bank are  collateralized  by the
company's  Federal Home Loan Bank stock and certain first mortgage loans in the
approximate  amount of 150% of the debt.
     The company has guaranteed  the ESOP notes payable.  The loan agreement for
the ESOP note  payable  due  September  30,  2000,  has a number of  restrictive
covenants,  including maintaining capital levels of the company and the banks at
least  at  the  minimum  levels  required  by  applicable  regulatory  agencies;
maintaining the company's  risk-weighted  capital ratio, as defined, at not less
than 9.25%;  maintaining the company's  leverage ratio, as defined,  at not less
than 5.25%; maintaining the company's annualized return on assets at the date of
financial  reports  required by regulations  at no less than 0.50%;  maintaining
non-performing  loans, as defined, at less than 2.50% of gross loans at the date
of required  financial  reports;  and  maintaining  on a  consolidated  basis an
allowance  for loan losses of at least 0.75% of gross loans.  Prior  consent was
obtained  from the holder of the ESOP note for  reporting in 1996 an  annualized
return on assets of less than 0.50%,  as required by the covenants  noted above.
The ESOP note payable due July 31, 1996, was also guaranteed by the company.
     The loan obligations of the ESOP are recorded on the  consolidated  balance
sheet with a  corresponding  amount  recorded  as a reduction  of the  company's
shareholders'   equity.   Both  the  loan   obligation   and  the  reduction  of
shareholders'  equity are reduced by the amount of any loan  repayments  made by
the ESOP. The company's Employee Stock Ownership Plan is described in note 13 to
the consolidated financial statements.
     Principal  payments required on long-term debt as of December 31, 1996, are
as follows:

   In thousands
   Year ended December 31
      1997                                                             $20,604
      1998                                                              60,672
      1999                                                                 671
      2000                                                              25,504
      2001                                                                   -
      Later years                                                       33,452

     The company has a  $5,000,000  unsecured  operating  line of credit with an
unaffiliated  bank.  This  obligation  has  substantially  the same  restrictive
covenants as the ESOP loan due  September  30, 2000.  The line was not in use at
December 31, 1996 or 1995.


(10) Shareholders' Equity
Stock Options
     The company has  incentive  stock option  plans which permit  options to be
granted for a maximum of 1,057,888 shares of common stock of the company.  Under
the terms of the plans,  options with  ten-year  terms may be granted to certain
key employees to purchase common stock at not less than fair value of the common
stock at the date of grant.
     In 1995 the company adopted a non-qualified stock option plan which permits
options  to  purchase  up to  313,000  shares of common  stock to be  granted to
certain  executive  officers of the company at 120% of fair market  value at the
date of grant.  Options  granted under the plan have  ten-year  terms and become
exercisable three years after the date of grant.
     The per share  weighted-average  fair value of stock options granted during
1996 and 1995 was $6.65 and $4.64, respectively, on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions:
                                                       1996               1995
     Risk-free interest rate                           6.56%              5.74%
     Expected life (years)                               10                 10
     Expected dividend yield                           3.00%              3.00%
     Stock price volatility                           32.00%             32.00%

     A summary of the company's  incentive stock option plans and non-qualified
stock option plan as of December 31, 1996, 1995 and 1994 and changes during the
years then ended is shown below:

 Incentive Stock Options                                           Weighted
                                                     Weighted       Average
                                                      Average    Fair Value
                                           Number    Exercise    of Options
                                        of shares       Price       Granted
 Options outstanding December 31, 1993    256,977      $10.99
    Granted in 1994                       141,550       16.70
    Exercised in 1994                     (18,018)       8.73
    Forfeited in 1994                     (32,852)      13.97
                                         --------      ------
 Options outstanding December 31, 1994    347,657       13.15
    Granted in 1995                       233,350       13.59         $4.75
    Exercised in 1995                     (29,807)       7.66
    Forfeited in 1995                     (56,273)      13.41
                                         --------      ------
 Options outstanding December 31, 1995    494,927       13.66
    Granted in 1996                       332,975       18.91          6.96
    Exercised in 1996                      (9,265)       9.77
    Forfeited in 1996                    (104,849)      15.30
                                         --------      ------
 Options outstanding December 31, 1996    713,788      $15.92
                                         ========



 Non-qualified Stock Options                                       Weighted
                                                     Weighted       Average
                                                      Average    Fair Value
                                           Number    Exercise    of Options
                                        of shares       Price       Granted
 Options outstanding December 31, 1994          -
    Granted in 1995                       202,000      $17.67         $4.51
                                         --------      ------
 Options outstanding December 31, 1995    202,000       17.67
    Granted in 1996                       150,000       21.95          5.95
    Forfeited in 1996                    (136,000)      18.84
                                         --------      ------
 Options outstanding December 31, 1996    216,000      $19.91
                                         ========


     The following table summarizes information about both stock option plans at
December 31, 1996:

 Options Outstanding                                                Weighted
 December 31, 1996                                   Weighted        Average
                                                      Average      Remaining
                                           Number    Exercise    Contractual
 Range of Exercise Prices               of shares       Price           Life
 $8.156 to $11.531                        91,529      $ 9.70      3.9 years
 $13.00 to $16.00                         207,367       13.76      7.5 years
 $16.50 to $17.85                         341,492       17.17      8.2 years
 $20.125 to $24.15                        289,400       20.96      9.8 years
                                          -------     -------
 $8.156 to $24.15                         929,788      $16.85      8.1 years
                                          =======



 Options Exercisable                                                Weighted
 December 31, 1996                                                   Average
                                                       Number       Exercise
 Range of Exercise Prices                           of shares          Price
 $8.156 to  $11.531                                    91,529         $ 9.70
 $13.00 to $16.00                                      33,380          15.97
 $16.50 to $17.85                                      33,702          16.50
                                                      -------         ------
 $8.156 to $17.85                                     158,611         $12.47
                                                      =======


     The  company  applies  Accounting   Principles  Board  Opinion  No.  25  in
accounting for its stock option plans and, accordingly, no compensation cost has
been  recognized  for its stock  options in the  financial  statements.  Had the
company  determined  compensation cost based on the fair value at the grant date
for its stock options under Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), the company's net income
and  earnings  per share  would  have  been  reduced  to the pro  forma  amounts
indicated below:

                                                         1996           1995
 Net income:
    As reported                                        $6,882        $15,315
    Pro forma                                           6,030         14,918
 Primary earnings per share:
    As reported                                          0.60           1.35
    Pro forma                                            0.53           1.31
 Fully-diluted earnings per share:
    As reported                                          0.59           1.34
    Pro forma                                            0.52           1.31


     The pro forma net income and earnings per share in the table above  reflect
only options granted in 1996 and 1995. Therefore, the full impact of calculating
the cost for  stock  options  under  the fair  value  method  of SFAS 123 is not
reflected in the pro forma net income and earnings per share  amounts  presented
above because  compensation  cost is reflected over the options' vesting periods
and  compensation  cost for  options  granted  prior to  January  1, 1995 is not
considered.


Preferred Stock and Rights Plan
     The company's Articles of Incorporation authorize 5,000,000 shares of Class
B Preferred Stock, of which the Board of Directors has designated 350,000 shares
as Class B Preferred  Stock,  Series  1992,  to be issued in  connection  with a
Shareholder  Rights Plan which was adopted by the Board of  Directors on January
20, 1992.  These shares carry the right to cumulative  annual dividends of $6.00
per share or 133 times  dividends  per common  share  (subject  to  adjustment),
whichever  is  greater.  There  were  no  shares  of  Class  B  Preferred  Stock
outstanding during the three-year period ending December 31, 1996.
     Under  the  plan,  the  Board  declared  a  dividend  of one right for each
outstanding share of common stock. In addition, the company will issue one right
with  respect  to each share of common  stock  issued  subsequent  to that date.
Initially,  the  rights  are not  exercisable  and are not  detachable  from the
company's common stock.  Each right,  when and if it becomes  exercisable,  will
generally  entitle the registered holder to purchase from the company 1/100 of a
share of Series  1992 Class B  Preferred  Stock,  subject to  adjustment,  at an
exercise  price of $45. The rights are detached from the common stock and become
exercisable only if a person or group acquires, or obtains the right to acquire,
beneficial  ownership of 15% or more of the company's  outstanding common stock,
the Board  determines  that a beneficial  owner of at least 10% of the company's
outstanding  common  stock  has a  detrimental  effect  on  the  company  or its
shareholders,  or a tender or exchange offer is commenced for 25% or more of the
outstanding  common stock. The description and terms of the rights are set forth
in a Rights  Agreement,  dated as of January 20,  1992,  between the company and
First Union National  Bank, as Rights Agent.  The Board may redeem the rights in
whole, but not in part, at a price of $.01 per right.
     After the rights become  exercisable,  if any person becomes the beneficial
owner of more than 15% of the outstanding  common stock, or the Board determines
that a  beneficial  owner of at least 10% of the  company's  outstanding  common
stock has a  detrimental  effect on the  company or its  shareholders,  then the
rights will  entitle  each holder of a right  (except the  beneficial  owners of
common stock  described in the preceding  clauses of this sentence) to purchase,
for the exercise  price,  the number of shares of  preferred  stock which at the
time of the transaction would have a market value twice the exercise price.
     On September 1, 1994, the company redeemed the two classes of FGC preferred
stock which were outstanding on the date of the FGC acquisition.


(11) Dividend Restrictions
     Payment  of  dividends  by the  company's  subsidiaries  is  restricted  by
national  banking and thrift laws and regulations.  Also,  certain notes payable
described in note 9 include restrictive  covenants related to the maintenance of
minimum capital ratios by the banks,  which effectively  restrict the payment of
dividends.  At December 31, 1996, the aggregate  retained  earnings of the banks
were  approximately  $69.7  million,  of which  approximately  $24.0  million is
available  as of January 1, 1997,  for the  payment of  dividends  to the parent
company under the most restrictive of the above restrictions.
     State law restricts the payment of dividends by the company.  Also, certain
notes payable described in note 9 include  restrictive  covenants related to the
maintenance of minimum capital ratios,  and regulatory  capital  requirements of
the banks and of the company  effectively  restrict the company's ability to pay
dividends to its shareholders. At December 31, 1996, the most restrictive of the
covenants limited the payment of dividends by the company to approximately $12.0
million.


(12) Income Taxes
     Total income tax expense  (benefit) for the years ended  December 31, 1996,
1995 and 1994 was allocated as follows:

 In thousands                                      1996      1995      1994
 Income from operations                          $3,120   $ 7,416   $ 7,075
 Shareholders' equity, for unrealized net
   gain (loss) on securities available for sale     157     4,188    (4,818)
                                                 ------   -------   -------
                                                 $3,277   $11,604   $ 2,257
                                                 ======   =======   =======

     The components of income tax expense (benefit) were as follows:

 In thousands                                      1996      1995      1994
 Current federal tax                             $5,926   $ 9,303    $7,574
 Current state tax                                  409       500       383
 Deferred income taxes                           (3,215)   (2,387)     (882)
                                                 ------   -------    ------
                                                 $3,120   $ 7,416    $7,075
                                                 ======   =======    ======

     An analysis of the differences between the effective tax rates and the
statutory U.S. federal income tax rate is as follows:

                                                   1996      1995      1994
 U.S. federal income tax rate                      35.0 %    35.0 %    35.0 %
 Changes from the statutory rate:
   Tax exempt investment income                   (10.8)     (4.4)     (5.1)
   Change in deferred tax valuation allowance      (1.1)        -         -
   Amortization of goodwill                         2.1        0.8      0.8
   Acquisition costs                                  -          -      1.2
   State income taxes, net of federal
      tax benefit                                   2.7        1.3      1.2
   Other, net                                       3.3       (0.1)    (0.2)
                                                  -----       ----     ----
                                                   31.2 %     32.6 %   32.9 %
                                                  =====       ====     ====

     The tax effects of temporary  differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1996 and 1995, are presented below:

 In thousands                                           1996          1995
 Deferred tax assets:
 Allowance for loan losses                            $6,313        $5,463
 Deferred compensation                                   370           285
 Second quarter initiatives (see note 16)              1,470             -
 Deferred loan fees                                      430             -
 Investment securities                                   320           302
 Purchase accounting adjustments                         525           667
                                                      ------        ------
       Total gross deferred tax assets                 9,428         6,717
       Less valuation allowance                            -          (108)
                                                      ------        ------
       Total deferred tax asset                        9,428         6,609
 Deferred tax liabilities:
 Purchase accounting adjustments                       1,121         1,681
 Depreciation                                            200           206
 FHLB stock                                              417           209
 Other                                                   173           162
                                                      ------        ------
       Total deferred tax liabilities                  1,911         2,258
                                                      ------        ------
       Net deferred tax asset                         $7,517        $4,351
                                                      ======        ======

     The valuation  allowance for deferred tax assets as of January 1, 1994, was
$108,000.  There was a reduction in the valuation  allowance of $108,000 for the
year ended  December 31, 1996.  For the years ended  December 31, 1995 and 1994,
there  was  no  change  in the  total  valuation  allowance.  In  assessing  the
realizability of deferred tax assets,  management  considers  whether it is more
likely than not that some  portion or all of the deferred tax assets will not be
realized.  The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those  temporary
differences  become deductible.  Management  considers the scheduled reversal of
deferred tax  liabilities,  projected  future taxable  income,  and tax planning
strategies in making this assessment. Based upon the level of historical taxable
income and  projections  for future taxable income over the periods in which the
deferred tax assets are deductible,  management  believes it is more likely than
not the company  will realize the benefits of these  deductible  differences  at
December 31, 1996.
     Shareholder's equity of Trans Financial Bank, F.S.B., at December 31, 1996,
includes  $5,101,000 for which no deferred federal income tax liability has been
recognized.  This  amount  represents  an  allocation  of  income  to  bad  debt
deductions for tax purposes only. Reduction of amounts so allocated for purposes
other than tax bad debt losses or  adjustments  arising from  carrying  back net
operating  losses to prior years may create income for tax purposes only,  which
would be subject to the then current corporate income tax rate.


(13) Employee Benefit Plans
     The company has an employee  stock  ownership plan ("ESOP") under which the
company and its subsidiaries  contribute to the ESOP an amount determined by the
Board of Directors at its  discretion.  In November  1993  Statement of Position
("SOP") 93-6,  "Employers' Accounting for Employee Stock Ownership Plans," was
issued by the  American  Institute  of  Certified  Public  Accountants.  The SOP
prescribes changes in the accounting for the company's ESOP once all unallocated
shares held by the ESOP on December 31, 1992,  are  exhausted.  Shares  acquired
after December 31, 1992,  are subject to the  accounting  prescribed in the SOP.
The changes include  recognition of compensation cost,  accounting for dividends
on  allocated  and  unallocated  shares and the  inclusion in earnings per share
calculations  of shares  committed  to be  released  from the  ESOP.  As debt is
repaid,  shares are released from  collateral and allocated to active  employees
based on total debt service for the year.  At December  31, 1996,  the ESOP held
343,521  allocated  and  183,110  unallocated  shares.  The  company  recognized
expenses  related to the ESOP  based on cash  contributions,  with such  amounts
exceeding the amount computed under the shares  allocated  method.  The interest
incurred on the ESOP note payable,  the amount contributed by the company to the
ESOP,  and the amount of  dividends  on ESOP shares used for debt service by the
ESOP for 1996, 1995, and 1994 were as follows:

-------------------------------------------------------------------------------
In thousands                                  1996         1995         1994
Interest incurred                             $215         $290         $263
Contributions                                  621          839          894
Dividends used for debt service                355          155          118
-------------------------------------------------------------------------------

     The company has a profit sharing plan qualified under Section 401(k) of the
Internal  Revenue Code.  Under the amended  profit sharing plan, the company and
its  subsidiaries   provide  funds  to  match  the  contribution   made  by  the
participating  employee  up  to a  maximum  of  4%  of  the  employee's  salary.
Contributions  in accordance with the profit sharing plan were $839,000 in 1996,
$668,000 in 1995, and $509,000 in 1994.
     KCB was the sponsor of a profit-sharing plan qualified under Section 401(k)
of the Internal  Revenue Code. Under the profit sharing plan, KCB provided funds
to match the contributions  made by the participating  employees up to a maximum
of  6%  of  the  employee's   salary.   Contributions  in  accordance  with  the
profit-sharing plan were $-0- in 1996, $-0- in 1995, and $9,000 in 1994.
     Former  full-time  employees  of  Kentucky  State  Bank  who  meet  certain
requirements  as to age and length of service are  covered by a defined  benefit
pension plan.  Pension  expense for this plan was $90,000 in 1996, $-0- in 1995,
and $5,000 in 1994.  The plan's funded status at December 31, 1996, was composed
of plan  assets of $549,000  and a projected  benefit  obligation  of  $549,000.
Subsequent  to year end,  the  company  filed to  terminate  the plan  effective
December 31, 1996.
     Full-time  employees  of KCB who meet  certain  requirements  as to age and
length of service were covered by a defined  benefit  pension  plan.  On May 31,
1993,  KCB froze the plan,  thereby  eliminating  the  accrual of  benefits  for
participants after that date. No pension expense was recognized for this plan in
1996,  1995 or 1994.  The plan was  terminated  in 1994 and final  distributions
totaling $1,180,455 were made in 1995.
     Former full-time  employees of PFS who meet certain  requirements as to age
and length of service are covered by a defined  benefit  pension plan. PFS was a
member of the  Financial  Institutions  Retirement  Fund,  which is a non-profit
pension  trust  through  which the  Federal  Home Loan Bank,  savings  banks and
similar  institutions  may  cooperate in providing  for the  retirement of their
employees. No contributions were required in 1996, 1995, or 1994.
     The  company  has no  significant  commitments  to pay  post-retirement  or
     post-employment  benefits  other than as  described  above.  Stock  options
     granted  to key  employees  are  described  in note 10 to the  consolidated
     financial statements.


(14) Commitments and Contingent Liabilities
Off-Balance-Sheet Financial Instruments
     The company's  consolidated  financial  statements  do not reflect  various
commitments  and  contingent  liabilities  which  arise in the normal  course of
business to meet the  financing  needs of customers  or to manage the  company's
exposure to interest rate risk.  These  include  commitments  to extend  credit,
standby  letters  of  credit,  and  derivative  financial   instruments.   These
instruments involve, to varying degrees,  elements of credit,  interest rate and
liquidity risk in excess of the amount  recognized in the  consolidated  balance
sheets.  The  extent of the  company's  involvement  in various  commitments  is
expressed by the contract amount of such instruments.
     Commitments to extend credit,  which amounted to  $328,026,000  at December
31, 1996,  and  $286,673,000  at December 31, 1995,  are agreements to lend to a
customer,  provided all  conditions  established  in the contract are fulfilled.
Commitments  generally have fixed expiration dates or other termination  clauses
and  generally  require  payment  of a fee.  Market  risk  arises on fixed  rate
commitments  if  interest  rates rise  subsequent  to the date the fixed rate is
determined. Management believes that market risk related to these commitments is
not  significant.  Since many of the  commitments are expected to expire without
being drawn upon, the total commitments do not necessarily represent future cash
requirements.  The  company  evaluates  each  customer's  creditworthiness  on a
case-by-case basis. The amount of collateral obtained,  if deemed necessary upon
extension  of  credit,  is based  upon  management's  credit  evaluation  of the
customer.  Collateral  varies, but may include accounts  receivable,  inventory,
property,   plant  and  equipment,   residential  properties,   income-producing
commercial properties, marketable securities and interest-bearing time deposits.
     Standby letters of credit are conditional commitments issued by the company
guaranteeing  the performance of a customer to a third party.  Those  guarantees
primarily consist of performance assurances made on behalf of customers who have
a  contractual  commitment  to  produce  or  deliver  goods  or  services.  Most
guarantees are for one year or less.  The company had standby  letters of credit
outstanding  totaling $46,724,000 and $36,816,000 at December 31, 1996 and 1995,
respectively. The risk to the company arises from its obligation to make payment
in the event of the customer's  contractual  default and is essentially the same
as that  involved in extending  loan  commitments  to  customers.  The amount of
collateral  obtained,  if deemed necessary,  is based upon  management's  credit
evaluation of the customer.  Collateral  held varies.  Management  believes that
market risk related to the standby letters of credit is not significant.
     Commercial  letters of credit are short-term  commitments  generally used
to finance a commercial  contract for the shipment of goods from seller to
buyer. At December 31, 1996 and 1995, the company had no commercial letters of
credit outstanding.
     Commitments  to  sell  mortgage  loans--The  company  enters  into  forward
delivery  contracts  to  sell  residential  mortgage  loans  or  mortgage-backed
securities to  broker/dealers at specific prices and dates in order to hedge the
interest  rate risk in its  portfolio  of  mortgage  loans held for sale and its
residential  mortgage  loan  commitments.  Credit risk  associated  with forward
contracts is limited to the  replacement  cost of those  forward  contracts in a
gain position.  At December 31, 1996,  the total of forward  contracts in a gain
position was not material.  There were no counterparty default losses on forward
contracts in 1996, 1995 or 1994.  Market risk with respect to forward  contracts
arises  from  changes in the value of  contractual  positions  due to changes in
interest rates. The company limits its exposure to market risk by monitoring the
differences   between  commitments  to  customers  and  forward  contracts  with
broker/dealers.   In  the  event  the  company  has  forward  delivery  contract
commitments in excess of available  mortgage  loans,  the company  completes the
transaction  by either  paying or  receiving a fee to or from the  broker/dealer
equal to the increase or decrease in the market  value of the forward  contract.
At December  31, 1996 and 1995,  the company had forward  contracts  outstanding
totaling $74,522,000 and $32,330,000, respectively.
     Derivative financial instruments are financial instruments whose values and
characteristics  are  derived  from  those of  other  financial  instruments  or
indices.  Derivatives can be a cost- and  capital-efficient  method of modifying
the  repricing  or  maturity  characteristics  of  on-balance-sheet  assets  and
liabilities--a  necessary  component of the company's  strategy for managing its
overall interest rate risk.  Off-balance-sheet  derivative transactions used for
interest  rate  sensitivity   management  could  include  interest  rate  swaps,
forwards,  futures and options with indices that directly  relate to the pricing
of specific assets and liabilities of the company.  Management believes there is
minimal risk that the derivatives used for rate sensitivity management will have
any  significant  unintended  effect on the  company's  financial  condition  or
results of operations.
     As of December 31, 1996 and 1995,  the  company's  balance  sheet was in an
asset-sensitive  position,  as the  repricing  characteristics  of the asset and
liability  portfolios  were such that an increase in interest rates would have a
positive  effect on  earnings  and a decrease  in  interest  rates  would have a
negative effect on earnings.  To assist in achieving a desired level of interest
rate  sensitivity the company has entered into  off-balance-sheet  interest rate
swap transactions,  which effectively  convert the bank notes (described in note
9) and certain  certificates  of deposit from fixed  interest  rates to floating
rates and certain commercial loans from floating rates to fixed rates.
The result is that the asset-sensitive position which is inherent in the balance
sheet is partially neutralized.
     Off-balance-sheet  derivative  instruments  do not  expose  the  company to
credit risk equal to the  notional  amount,  although  the company is exposed to
credit risk equal to the  aggregate  of the  positive  fair values of the swaps,
plus any accrued interest  receivable due from all  counterparties.  Fair values
are determined by discounting to present value the future cash flows which would
result from the  difference  between  current  market  rates and the actual swap
rates.  The company  minimizes the credit risk in these  instruments  by dealing
only with high quality  counterparties (i.e., those which have credit ratings of
investment  grade or better  from one of the  major  rating  agencies)  and each
transaction is specifically  approved for applicable  credit exposure.  Further,
the  company's  policy  is  to  require  all  transactions  be  governed  by  an
International  Swap  Dealers  Association  Master  Agreement  and be  subject to
bilateral collateral arrangements.
     The company pays a variable interest rate on each swap and receives a fixed
rate.  Interest  income and expense is accrued over the terms of the agreements.
Interest rate swap transactions as of December 31, 1996, are shown below:
<TABLE>

 Dollars in thousands
<CAPTION>

                                             Receiving a   Paying a
                                   Notional    Fixed       Floating     Fair       Credit
                                     Amount   Rate of:     Rate of:    Value     Exposure
<S>                                <C>           <C>        <C>       <C>            <C> 
 Prime-based swaps, maturing in:

    January 1997                   $ 30,000      10.40%     8.25%     $   14         $143
    June 1997                        50,000       8.33      8.25         (11)           -
    July 1997                        50,000       8.50      8.25          23           42
    October 1997                     20,000       8.60      8.25          30           35
    March 1998                       30,000       8.23      8.25        (112)           6
    June 1998                        70,000       8.50      8.25        (133)           9
    October 1998                     30,000       8.60      8.25         (45)           -
    December 1999                    25,000       8.74      8.25        (114)           6
                                   --------                            -----         ----
 Total / weighted average          $305,000       8.67%     8.25%      $(348)        $241
                                   ========                             =====        ====
</TABLE>

     Interest rate swaps outstanding as of December 31, 1995, were as follows:
<TABLE>

 Dollars in thousands
<CAPTION>

                                             Receiving a    Paying a
                                   Notional    Fixed        Floating    Fair       Credit
                                     Amount   Rate of:      Rate of:   Value     Exposure
<S>                                <C>          <C>         <C>       <C>          <C>
 LIBOR-based swap, maturing in   
    May, 1996                      $ 20,000      4.38%      5.88%     $  (78)      $    -
 Prime-based swaps, maturing in:
    August, 1996                     50,000      9.58       8.50         384          384
    November, 1996                   50,000      9.25       8.50         413          446
    January, 1997                    30,000     10.40       8.50         666          763
    June, 1997                       50,000      8.33       8.50         155          155
    July, 1997                       50,000      8.50       8.50         295          295
    October, 1997                    20,000      8.60       8.50         163          163
    October, 1998                    30,000      8.60       8.50         343          343
                                   --------                           ------       ------
 Total / weighted average          $300,000      8.71%      8.33%     $2,341       $2,549
                                   ========                           ======       ======
</TABLE>

     In a higher interest rate  environment,  the increased  contribution to net
interest  income  from  on-balance-sheet  assets will  substantially  offset any
negative impact on net interest income from these swap transactions. Conversely,
if interest rates decline,  these  off-balance-sheet  transactions will mitigate
the company's exposure to reduced net interest income.
     Prepayments of mortgage  loans can have a considerable  impact on the value
of mortgage servicing rights.  Prepayments result from a variety of factors, but
a declining  mortgage loan interest rate environment is generally  considered to
be the most  significant  of these.  Therefore,  the carrying value of the MSR's
could  become  impaired  in future  periods if  mortgage  rates  should  decline
substantially.  To  mitigate  this risk,  the  company  purchased  in 1996 a $75
million  (notional  amount)  interest rate "floor" contract in which the company
will  receive  interest on the  notional  amount to the extent that the interest
rate on 10-year  constant  maturity U.S.  Treasury Notes falls below 5.50%.  The
cost of this  contract  was  $548,000  and is  included  in other  assets in the
consolidated balance sheet. The cost is being amortized on a straight-line basis
over the five-year life of the contract.  Fair values are based on quoted market
prices for like  instruments  and can be expected to vary  inversely with market
expectations for intermediate-term  interest rates. As with interest rate swaps,
the company minimizes credit risk in these instruments by dealing only with high
quality counterparties, each transaction is specifically approved for applicable
credit exposure,  and all  transactions  are governed by an  International  Swap
Dealers  Association  Master  Agreement  and  subject  to  bilateral  collateral
arrangements.
     The company requires all off-balance-sheet  transactions be employed solely
with respect to asset/liability  management or for hedging specific transactions
or positions,
rather than for speculative trading activity.
Other Off-Balance-Sheet Risks
     Mortgage loans sold to investors are generally sold with servicing rights
retained,  with only the normal legal representations and warranties  regarding
recourse to the company. Management believes that any liabilities which may
result from such recourse provisions are not significant.
Legal Proceedings
     On August 12,  1996,  Douglas M. Lester,  the  company's  former  chairman,
president and chief executive  officer,  filed suit individually and purportedly
on behalf of the  shareholders  of the company in Warren Circuit Court,  Bowling
Green,  Kentucky,  against  the company and four of its  directors.  Mr.  Lester
claims that the company wrongfully terminated him on June 4, 1996, that the four
named directors breached their fiduciary duties to the company, and also alleges
fraud, breach of contract,  interference with contractual relations and invasion
of privacy.  Mr. Lester seeks,  among other things,  $1 million in  compensatory
damages,  the value of certain stock options,  and punitive damages.  Management
believes that the  litigation  will not have a material  adverse effect upon the
consolidated  financial  statements  of the company  and  intends to  vigorously
defend the action.
     On August 22,  1996,  two former  employees of the company and three former
employees  of  TFB-KY,  filed  suit  in  Jefferson  Circuit  Court,  Louisville,
Kentucky,  against the company. The five plaintiffs claim wrongful  termination,
sex  discrimination,  age  discrimination,  breach  of  contract  and  libel  in
connection with the termination of their employment in June 1996. The plaintiffs
seek,  among other things,  compensatory  damages in an unspecified  amount,  to
include the value of back pay and benefits;  the value of certain stock options;
reinstatement  as employees or  alternatively  the value of future  earnings and
benefits; and punitive damages. Management believes that the litigation will not
have a material adverse effect upon the consolidated financial statements of the
company and intends to vigorously defend the action.
     As of December  31,  1996,  there were various  pending  legal  actions and
proceedings against the company which arise in the normal course of business and
in which claims for damages are  asserted.  Management,  after  discussion  with
legal  counsel,  believes  that the ultimate  result of these legal  actions and
proceedings  will not  have a  material  adverse  effect  upon the  consolidated
financial statements of the company.


(15) Fair Value of Financial Instruments

     The estimated  fair values of the company's  financial  instruments  are as
follows:
<TABLE>
<CAPTION>

                                                    December 31, 1996        December 31, 1995
                                                    -----------------        -----------------
                                                  Carrying        Fair      Carrying        Fair
 In thousands                                      Amount        Value      Amount         Value
 Financial assets:
<S>                                               <C>         <C>          <C>          <C>     
   Cash and short-term investments                $  75,152   $  75,152     $  81,900    $ 81,900
   Securities                                       285,155     285,155       298,222     298,222
   Loans                                          1,500,933   1,666,263     1,289,043   1,287,873
   Other assets (interest rate floor contracts)         548         479             -           -
 Financial liabilities:
   Deposits                                       1,579,217   1,606,223     1,444,483   1,446,836
   Federal funds purchased and repurchases           71,879      71,879        75,594      75,594
   Other short-term borrowings                       55,000      55,235        45,014      45,052
   Long-term debt                                   140,903     145,259        86,605      89,388

 Interest rate swaps                                      -        (348)            -       2,341
</TABLE>

     The following  methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Cash, Short-Term Investments, Federal Funds Purchased and Repurchases
     For these short-term  instruments,  the financial statement carrying amount
approximates fair value.
Securities
     The fair value of securities is based on quoted market prices or, if market
prices are not available,  is estimated by discounting future cash flows using
current rates at which investments would be made in similar instruments with
similar credit ratings and equivalent remaining maturities.
Loans
     The fair value of loans is estimated by  discounting  the future cash flows
using current rates at which similar loans would be made to borrowers with
similar credit ratings and for equivalent remaining maturities.
Deposits
     The fair  value of demand  deposits,  savings  accounts,  and money  market
deposits is the amount  payable on demand at the reporting  date. The fair value
of fixed-maturity certificates of deposit is estimated by discounting the future
cash flows using the rates currently  offered for deposits of similar  remaining
maturities.
Long-term Debt and Other Short-term Borrowings
     Rates  currently  available to the company for debt with similar  terms and
remaining maturities are used to estimate fair value of existing debt.
Off-Balance-Sheet Financial Instruments
     The fair  value of  interest  rate  swap and floor  agreements  is based on
quoted market prices or, if market quoted prices are not available, is estimated
by discounting  future cash flows using prevailing  market rates for instruments
of a similar type. The fair values of loan commitments and letters of credit are
estimated  using the fees  currently  charged to enter into similar  agreements,
taking  into  account  the  remaining  terms of the  agreements  and the present
creditworthiness  of the  counterparties.  The  values of loan  commitments  and
letters of credit were not material at December  31, 1996 and 1995.  Limitations
on Fair Value Reporting
     The fair  value  estimates  are made at a  discrete  point in time based on
relevant market  information and  information  about the financial  instruments.
Because no active  market  exists  for a  significant  portion of the  company's
financial  instruments,  fair value  estimates are based on judgments  regarding
future   expected   loss   experience,   current   economic   conditions,   risk
characteristics  of various  financial  instruments,  and other  factors.  These
estimates  are  subjective  in nature and involve  uncertainties  and matters of
significant  judgment  and,  therefore,  cannot be  determined  with  precision.
Changes in assumptions could significantly affect the estimates.
     The fair value  estimates  are based on  financial  instruments  only.  The
company has not  attempted to estimate the value of assets and  liabilities  not
considered  to be financial  instruments,  such as premises and  equipment,  the
mortgage  banking  operation and the  intangible  value of its core deposits and
branch  system.  Accordingly,  the fair value  estimates do not represent a fair
value for the company as a whole.


(16) Second Quarter Initiatives
     Costs  recognized in the second quarter of 1996 which are  associated  with
the  initiative to refocus the company's  resources on core  financial  services
include  severance and related payroll taxes and benefits,  write-downs of fixed
assets to be sold or abandoned,  professional fees associated with discontinuing
certain  activities and various other costs  associated  with the disposition of
assets.  These charges provide for the cost of exiting several initiatives which
the company  entered in recent years,  such as human  resources  consulting  and
venture capital, which were outside the company's core financial services.  Also
included in the charges are expenses  associated  with  closing the  Louisville,
Kentucky office;  mortgage loan production  offices in Chattanooga,  Jackson and
Knoxville,   Tennessee;  and  consolidation  of  operations  in  Bowling  Green,
Kentucky.  Severance expense was also recognized  related to changes designed to
reduce costs in the retail  delivery  system and in investment  management.  The
company sold its  corporate  jet, with the cost of its  disposition  included in
second quarter expenses.  The  classification of these costs in the consolidated
statement of income is as follows:
--------------------------------------------------------------------------------
In thousands
     Compensation and employee benefits                                  $1,798
     Net occupancy expense                                                  475
     Furniture and equipment expense                                        325
     Professional fees                                                      340
     Writedowns and losses on sale of fixed assets                        1,698
     Other expenses                                                       1,171
                                                                          -----
         Total costs associated with the second quarter initiatives      $5,807
                                                                         ======
--------------------------------------------------------------------------------


(17) Mortgage Banking and Servicing Activities
     The portfolio of mortgage  loans  serviced for others  totaled $3.3 billion
and $2.2  billion at December 31, 1996 and 1995,  respectively.  At December 31,
1996, the company had  capitalized  mortgage  servicing  rights of  $41,866,000,
which related to  approximately  $3.1 billion of the  aggregate  $3.3 billion of
loans serviced. The mortgage servicing rights associated with the remaining $200
million of loans  serviced are not subject to  capitalization  because the loans
were  originated  and sold prior to the  company's  adoption  of SFAS No. 122 on
January 1, 1995 (see note 2). At December 31, 1995, the company had  capitalized
purchased  mortgage  servicing  rights  of  $28,284,000.  During  1996 and 1995,
respectively,  MSR's  totaling  $1,417,000  and  $1,243,000  were  recognized on
mortgage loans  originated;  and $17,436,000 and $21,088,000  were recognized on
servicing portfolios purchased.  Approximately $499,000 of the purchase price of
servicing  portofolios  purchased in 1996 was held back pending  transfer of all
documentation for the underlying mortgage loans.
     The company assesses the fair values of the capitalized  mortgage servicing
rights by stratifying  the underlying  loans by interest rate. The fair value of
the  mortgage  servicing  rights is then  determined  through  a  present  value
analysis of the  estimated  future net  servicing  revenues  and  expenses,  and
assumptions  based upon  market  estimates  for future  servicing  revenues  and
expenses. Significant estimates in the valuation process include loan prepayment
expectations,  delinquency  and  foreclosure  rates,  ancillary  fee  income and
earnings  on  escrow  balances.  The  fair  value  of the  capitalized  mortgage
servicing  rights was  $47,576,000  and  $32,318,000 as of December 31, 1996 and
1995, respectively.  The fair value of the mortgage servicing rights not subject
to capitalization because the underlying loans were originated and sold prior to
the  adoption of SFAS No. 122 was  $2,624,000  at December  31,  1996.  Based on
management's estimate of the fair value of each strata, no impairment existed at
December 31, 1996 and, consequently, no valuation allowance was necessary.
     The  cost  of  capitalized   mortgage  servicing  rights  is  amortized  in
proportion  to, and over the period of,  estimated  net  servicing  income.  The
amortization for the periods ended December 31, 1996 and 1995 was $5,271,000 and
$2,720,000, respectively.
     During  1996  and  1995,  the  company  sold  into  the  secondary   market
$344,293,000  and  $150,359,000,  respectively,  of residential  mortgage loans.
These sales  resulted in net gains of  $2,225,000  and  $645,000,  respectively,
excluding the portion capitalized in the MSR asset.


(18) Regulatory Capital Requirements
     The  company  and the banks  are  subject  to  various  regulatory  capital
requirements  administered  by the  federal  banking  agencies.  Failure to meet
minimum capital requirements can initiate certain actions by regulators that, if
undertaken,  could have a material effect on the company's financial statements.
Under  capital  adequacy  guidelines  and the  regulatory  framework  for prompt
corrective  action,  the  company  and the  banks  must  meet  specific  capital
guidelines  that involve  quantitative  measures of the assets,  liabilities and
certain  off-balance-sheet  items.  Capital amounts and  classification are also
subject to  qualitative  judgments  by the  regulators  about  components,  risk
weightings and other factors.
     Quantitative  measures established by regulation to ensure capital adequacy
require the company and the banks to maintain a minimum  ratio of Tier I capital
(as defined in the regulations) to  risk-weighted  assets (as defined) of 4.00%,
total  capital  (as  defined)  to  risk-weighted  assets of 8.00%,  and a Tier I
leverage ratio (as defined) of 3.00%.  Regulatory capital ratios for the company
and the banks at December 31, 1996 and 1995, were as follows:

 December 31 - Dollars in thousands                      1996             1995

 Trans Financial Bank, National Association:
 Tier I capital                                    $  109,783       $  101,907
 Total risk-based capital                             123,555          114,506
 Total risk-adjusted assets                         1,194,394        1,007,904

 Tier I risk-based capital ratio                         9.19%           10.11%
 Total risk-based capital ratio                         10.34            11.36
 Tier I leverage ratio                                   7.67             8.25

 Trans Financial Bank Tennessee, National Association:
 Tier I capital                                     $  16,955        $  15,662
 Total risk-based capital                              19,032           17,109
 Total risk-adjusted assets                           166,129          148,287

 Tier I risk-based capital ratio                        10.21%           10.56%
 Total risk-based capital ratio                         11.46            11.54
 Tier I leverage ratio                                   8.35             8.60

 Trans Financial Bank, F.S.B.:
 Tier I capital                                     $  28,380        $  34,168
 Total risk-based capital                              30,525           35,826
 Total risk-adjusted assets                           230,242          224,049

 Tier I risk-based capital ratio                        12.33%           15.25%
 Total risk-based capital ratio                         13.26            15.99
 Tier I leverage ratio                                   7.77             9.19

 Trans Financial, Inc. (consolidated):
 Tier I capital                                    $  122,180       $  119,625
 Total risk-based capital                             172,991          168,274
 Total risk-adjusted assets                         1,590,970        1,384,708

 Tier I risk-based capital ratio                         7.68%            8.64%
 Total risk-based capital ratio                         10.87            12.15
 Tier I leverage ratio                                   6.12             6.70

     For deposit  insurance  premiums and other supervisory  purposes,  the bank
regulatory authorities have established four levels of capital adequacy based on
these ratios.  The highest of these is well capitalized,  with a required Tier I
risk-based  capital ratio of at least 6.00%, a total risk-based capital ratio of
at least 10.00%,  and a Tier I leverage ratio of at least 5.00%. The most recent
notifications received from the bank regulatory authorities  categorized each of
the banks as well capitalized.  As of December 31, 1996, no conditions or events
have occurred since those  notifications  which management believes would change
any of the banks' capital categories.


(19) Deposits
     Time deposits of $100,000 or more totaled $336.1 million at December 31,
1996, and $206.9 million at December 31, 1995. Interest expense on time deposits
of $100,000 or more was $16.5 million in 1996, $11.8 million in 1995 and $6.3
million in 1994.
     The  following  table  shows the  maturities  of  certificates  of deposit,
including individual  retirement accounts and brokered  certificates of deposit,
as of December 31, 1996.

   In thousands
   Year ended December 31
      1997                                                            $646,798
      1998                                                             176,045
      1999                                                              92,973
      2000                                                              16,923
      2001 and later years                                               8,196
                                                                      --------
                                                                      $940,935


(20) Parent Company Financial Statements
     Condensed  financial data for Trans Financial,  Inc. (parent company only)
as of December 31, 1996 and 1995 and for the years ended December 31, 1996, 1995
and 1994 are as follows:

 Condensed Balance Sheets
 December 31 - In thousands                                  1996         1995
 Assets
 Cash on deposit with subsidiaries                       $  3,277     $  1,608
 Investment in subsidiaries                               160,195      161,142
 Other investments                                            356          130
 Other assets                                              11,143        5,527
                                                         --------     --------
    Total assets                                         $174,971     $168,407
                                                         ========     ========

 Liabilities and Shareholders' Equity
 Long-term debt and other notes payable                  $ 35,903     $ 36,605
 Other liabilities                                          7,752        2,035
 Shareholders' equity                                     131,316      129,767
                                                         --------     --------
    Total liabilities and shareholders' equity           $174,971     $168,407
                                                         ========     ========

 Condensed Statements of Income
 Years Ended December 31
 In thousands                                   1996         1995         1994
 Income
   Dividends from subsidiaries               $10,000      $10,000      $15,860
   Other interest and dividends                   87          180          285
   Management fees from subsidiaries
     and other income                          6,846        5,317        3,732
                                             -------      -------      -------
   Total income                               16,933       15,497       19,877
 Expenses
   Interest on long-term debt and other
     notes payable                             2,441        2,462        2,657
   Other expenses                             12,155        9,819       10,071
                                             -------      -------      -------
   Total expenses                             14,596       12,281       12,728
                                             -------      -------      -------
 Income before income tax benefit and
   equity in undistributed earnings of
   subsidiaries                                2,337        3,216        7,149
 Federal income tax benefit                    2,506        2,083        2,621
                                             -------      -------      -------
 Income before equity in undistributed
   earnings of subsidiaries                    4,843        5,299        9,770
 Equity in undistributed earnings of
   subsidiaries                                2,039       10,016        4,650
                                             -------      -------      -------
 Net income                                  $ 6,882      $15,315      $14,420
                                             =======      =======      =======

 Condensed Statements of Cash Flows
 Years Ended December 31
 In thousands                                     1996        1995        1994
 Cash flows from operating activities:
 Net income                                     $6,882     $15,315     $14,420
 Adjustments to reconcile net income to
   cash provided by operating activities:
     Amortization                                  858         680         932
     Equity in undistributed earnings
     of subsidiaries                            (2,039)    (10,016)     (4,650)
 Increase in other assets                       (6,013)     (1,639)       (986)
 Increase in other liabilities                   5,717         771         143
                                                ------     -------     -------
   Net cash provided by operating activities     5,405       5,111       9,859

 Cash flows from investing activities:
 Investments in and acquisitions
     of subsidiaries                                 -           -     (10,440)
 Repayment of advances to subsidiaries           2,710           -           -
 Purchase of securities available for sale        (100)          -           -
                                                ------     -------     -------
   Net cash used in investing activities         2,610           -     (10,440)

 Cash flows from financing activities:
 Repayment of long-term debt and other
     notes payable                                (124)        (60)     (6,694)
 Proceeds from issuance of common stock          1,022         800         654
 Redemption of preferred stock                       -           -      (1,010)
 Dividends paid                                 (7,244)     (6,750)     (5,839)
                                                ------      ------      ------
   Net cash used in financing activities        (6,346)     (6,010)    (12,889)
                                                ------      ------      ------
 Net increase (decrease) in cash and
    cash equivalents                             1,669        (899)    (13,470)
 Cash and cash equivalents at beginning
    of year                                      1,608       2,507      15,977
                                                ------      ------     -------
 Cash and cash equivalents at end of year       $3,277      $1,608     $ 2,507
                                                ======      ======     =======

 Supplemental information:
   Cash paid for interest                       $2,438      $1,866      $2,710
   Non-cash transactions (note 3)                1,045       8,770      (8,629)



Item 9. Changes in and Disagreements with Accountants on Accounting and
   Financial Disclosure
     None.



                                    Part III

Item 10. Directors and Executive Officers of the Registrant
     The information set out in the sections  entitled "Section 16(a) Beneficial
Ownership Reporting  Compliance  and Election of Directors" in the  registrant's
Proxy Statement for the 1997 Annual Meeting of Shareholders  and the information
set out in the section entitled "Executive Officers of the Registrant" on pages
6 and 7 of Part I of this report are incorporated herein by reference.


Item 11. Executive Compensation
     The information set out in the section entitled "Executive Compensation and
Other Information" (except the information under the sections entitled "Report
of Compensation Committee of the Board of Directors on Executive Compensation
and "Performance Graph") in the registrant's Proxy Statement for the 1997 Annual
Meeting of Shareholders is incorporated herein by reference.


Item 12. Security Ownership of Certain Beneficial Owners and Management
     The information set out in the section entitled "Voting Securities and
Ownership Thereof" in the registrant's  Proxy Statement for the 1997 Annual
Meeting of Shareholders is incorporated herein by reference.


Item 13. Certain Relationships and Related Transactions
     The information set out in the sections  entitled  "Compensation  Committee
Interlocks and Insider Participation" and "Transactions with Management and
Others" in the registrant's Proxy Statement for the 1997 Annual Meeting of
Shareholders is incorporated herein by reference.




<PAGE>


                                     Part IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
   (a) (1) Financial statements filed
           The list of  consolidated  financial  statements  together  with the
           report  thereon of KPMG Peat  Marwick  LLP,  as set forth in Part II,
           Item 8 of this  report is incorporated herein by reference.
       (2) Financial statement schedules
           Schedules to the consolidated financial statements are omitted, as
           the required information is not applicable.
       (3) List of exhibits
           The list of exhibits  listed on the Exhibit  Index on pages 59 and 60
           of this report is  incorporated  herein by reference.  The management
           contracts and compensatory plans or arrangements required to be filed
           as  exhibits  to this Form 10-K  pursuant  to Item 14(c) are noted by
           asterisk (*) in the Exhibit Index.

   (b) Reports on Form 8-K
       No reports on Form 8-K were filed  during the last  quarter of the period
covered by this report.

   (c) Exhibits
       The exhibits  listed on the Exhibit Index on pages 59 and 60 of this Form
10-K are filed as a part of this report.

   (d) Financial statement schedules
       No financial  statement  schedules  are required to be filed as a part of
this report.


<PAGE>


                                   SIGNATURES

     Pursuant to the  requirements  of Section 13 or 15(d) 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.

                                                       Trans Financial, Inc.
                                                           (Registrant)



                                           By:   /s/ Vince A. Berta
                                                 Vince A. Berta
                                                 President
                                                 and Chief Executive Officer
                                           Date: February 21, 1997


     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report has been signed below on February 17, 1997, by the  following  persons on
behalf of the registrant and in the capacities indicated.


   (a) Principal Executive Officer:



     /s/ Vince A. Berta
     Vince A. Berta
     President, Chief Executive Officer
       and Director



   (b) Principal Financial Officer:



     /s/ Edward R. Matthews
     Edward R. Matthews
     Chief Financial Officer



   (c) Principal Accounting Officer:



     /s/ Ronald B. Pigeon
     Ronald B. Pigeon
     Controller

<PAGE>







                                  
   (d) Directors:



     /s/ Mary D. Cohron
     Mary D. Cohron



     /s/ Floyd H. Ellis
     Floyd H. Ellis



     /s/ David B. Garvin
     David B. Garvin



     ----------------------------
     Wayne Gaunce



     /s/ C.C. Howard Gray
     C.C. Howard Gray



     /s/ Charles A. Hardcastle
     Charles A. Hardcastle



     /s/ Carroll F. Knicely
     Carroll F. Knicely



     -----------------------------
     C. Cecil Martin



     -----------------------------
     Frank Mastrapasqua





     /s/ James D. Scott
     James D. Scott



     -----------------------------
     William B. Van Meter



     /s/ Thomas R. Wallingford
     Thomas R. Wallingford


<PAGE>


                                    Exhibits


   3(a)  Restated Articles of Incorporation of the registrant are incorporated
           by reference to Exhibit 4(a) of the registrant's report on Form 10-Q
           for the quarter ended March 31, 1995.

   3(b)  Articles of Amendment to the Restated  Articles of  Incorporation  of
           the registrant are  incorporated  by reference to Exhibit 4(b) of the
           registrant's  report on Form  10-Q for the  quarter  ended  March 31,
           1995.

   3(c)  Restated Bylaws of the registrant are incorporated by reference to
           Exhibit 4(b) of the registrant's report on Form 10-K for the year
           ended December 31, 1993.

   4(a)  Rights  Agreement  dated January 20, 1992 between  Manufacturers
           Hanover Trust Company and Trans Financial, Inc. is incorporated by
           reference to Exhibit 1 to the registrant's report on Form 8-K dated
           January 24, 1992.

   4(b)  Form of Indenture  (including Form of Subordinated  Note) dated as of
           September 1, 1993, between the registrant and First Tennessee Bank
           National Association as Trustee,  relating to the issuance of 7.25%
           Subordinated Notes due 2003, is incorporated by reference to Exhibit
           4 of Registration Statement on Form S-2 of the registrant  (File No.
           33-67686).

   4(c)  Subordinated  Note dated as of September 16, 1993, by Trans Financial,
           Inc. is incorporated by reference to Exhibit 1 to Registration
           Statement on Form S-2 of the registrant (File No. 33-67686).

   10(a) Trans Financial, Inc. 1987 Stock Option Plan is incorporated by
           reference to Exhibit 4(a) of Registration Statement on Form S-8 of
           the registrant (File No. 33-43046).*

   10(b) Trans  Financial, Inc. 1990 Stock Option Plan is incorporated by
           reference to Exhibit 10(d) of the registrant's Report on Form 10-K
           for the year ended December 31, 1990.*

   10(c) Trans Financial, Inc. 1992 Stock Option Plan is incorporated by
           reference to Exhibit 28 of the registrant's Report on Form 10-Q for
           the quarter ended March 31, 1992.*

   10(d) Trans Financial, Inc. 1994 Stock Option Plan is incorporated by
           reference to the registrant's Proxy Statement dated March 18, 1994,
           for the April 25, 1994 Annual Meeting of Shareholders.*

   10(e) Employment Agreement between Douglas M. Lester and Trans Financial,
           Inc. is incorporated by reference to Exhibit 10(e) of the
           registrant's Report on Form 10-K for the year ended December 31,
           1995.*

   10(f) Description of the registrant's Performance Incentive Plan.*

   10(g) Form of Deferred  Compensation  Agreement between registrant and Vince
           A. Berta, Barry D. Bray, James G. Campbell,  Tommy W. Cole, Roger E.
           Lundin,  Michael L. Norris, Jay B. Simmons and certain other officers
           of the registrant is incorporated by reference to Exhibit 10(g) of
           the registrant's Report on Form 10-K for the year ended December 31,
           1992.*

   10(h) Trans Financial,  Inc.  Dividend  Reinvestment  and Stock Purchase Plan
           is incorporated by reference to Registration Statement on Form S-3 of
           the registrant dated May 15, 1991 (File No. 33-40606).

   10(i) Warrant dated as of February 13, 1992 between  Morgan Keegan & Company,
           Inc. and Trans Financial, Inc. incorporated by reference to Exhibit
           10(m) of Registration Statement on Form S-2 of the registrant
           (File No. 33-45483).

   10(j) Loan Agreement dated as of July 6, 1993 between First Tennessee Bank
           National Association and Trans Financial, Inc. is incorporated by
           reference to Exhibit 10(p) to the Registration Statement on Form S-2
           of the registrant (File No. 33-67686).

   10(k)   Distribution  Agreement dated September 28, 1995 between  Registrant,
           Trans  Financial   Bank,  N.A.  and  Donaldson,   Lufkin  &  Jenrette
           Securities  Corporation is incorporated by reference to Exhibit 10(a)
           of the  registrant's  report  on  Form  10-Q  for the  quarter  ended
           September 30, 1995.

   10(l) Fiscal and Paying Agency  Agreement  dated  September 28, 1995 between
           Trans Financial Bank, N.A. and First Fidelity Bank, N.A. is
           incorporated by reference to Exhibit 10(b) of the registrant's report
           on Form 10-Q for the quarter ended September 30, 1995.

   10(m) 1995 Executive Stock Option Plan is incorporated by reference to the
           registrant's Proxy Statement dated March 9, 1995, for the April 24,
           1995, Annual Meeting of Shareholders.*

   10(n) Investment and Financial Advisory Services Agreement between Trans
           Financial Bank, National Association, and Mastrapasqua & Associates,
           Inc.*

   10(o) Form of Retention Agreements between Registrant and Vince A. Berta,
           James G. Campbell, Tommy W. Cole, Ronald Szejner, and certain other
           officers.*

   10(p) 1996 Directors Stock  Compensation Plan is incorporated by reference to
           Exhiibt 10(n) of the registrant's report on Form 10-Q for the quarter
           ended March 31, 1996.*

   11    Statement of Computation of Per Share Earnings

   21    List of Subsidiaries of the Registrant

   23    Consent of Independent Auditors

   27    Financial Data Schedule (for SEC use only)


   * Denotes a management  contract or  compensatory  plan or arrangement of the
registrant required to be filed as an exhibit pursuant to Item 601 (10) (iii) of
Regulation S-K.