UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    Form 10-Q


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

For the quarter ended March 31, 1998
                                                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                (IRS 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: (502)793-7717


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 _


The number of shares outstanding of the issuer's class of common stock on
May 14, 1998: 11,739,293 shares.




<PAGE>


                         Part I - Financial Information


Item 1. Financial Statements

<TABLE>

 Consolidated Balance Sheets
 (Unaudited)
 In thousands, except share data 
<CAPTION>

                                             March 31    December 31      March 31
                                                1998          1997           1997
 Assets
<S>                                         <C>           <C>           <C>        
Cash and due from banks ..................  $    84,651   $    70,774   $    60,746
Interest-bearing deposits with banks .....           99            99            98
Mortgage loans held for sale .............      189,511       118,485        70,836
Securities available for sale (amortized
   cost of $260,855 as of  March 31, 1998;
   $276,554 as of December 31, 1997;
   and $256,732 as of March 31, 1997) ....      262,465       278,098       254,718
Loans, net of unearned income ............    1,556,665     1,537,820     1,448,765
Less allowance for loan losses ...........       22,777        22,017        19,010
                                            -----------   -----------   -----------
   Net loans .............................    1,533,888     1,515,803     1,429,755
Premises and equipment, net ..............       38,843        37,429        37,670
Mortgage servicing rights ................       45,180        46,870        42,845
Other assets .............................       49,167        47,453        41,274
                                            ===========   ===========   ===========
   Total assets ..........................  $ 2,203,804   $ 2,115,011   $ 1,937,942
                                            ===========   ===========   ===========

Liabilities and Shareholders' Equity
Deposits:
   Non-interest bearing ..................  $   254,151   $   235,695   $   205,414
   Interest bearing ......................    1,370,282     1,338,143     1,311,540
                                            -----------   -----------   -----------
   Total deposits ........................    1,624,433     1,573,838     1,516,954
Federal funds purchased and
   repurchase agreements .................      125,391       109,348        58,317
Other short-term borrowings ..............       70,000        70,000        55,000
Long-term debt ...........................      195,125       185,293       140,796
Other liabilities ........................       28,521        25,755        32,517
                                            -----------   -----------   -----------
   Total liabilities .....................    2,043,470     1,964,234     1,803,584
Shareholders' equity:
   Common stock, no par value. Authorized
      50,000,000 shares; issued and
      outstanding 11,717,356; 11,471,689;
      and 11,417,749 shares, respectively        21,970        21,510        21,408
   Additional paid-in capital ............       50,723        46,284        45,294
   Retained earnings .....................       88,422        83,947        71,401
   Accumulated other comprehensive income ...       898           882        (1,395)
   Employee Stock Ownership Plan shares
      purchased with debt ................       (1,679)       (1,846)       (2,350)
                                            -----------   -----------   -----------
   Total shareholders' equity ............      160,334       150,777       134,358
                                            -----------   -----------   -----------
   Total liabilities
     and shareholders' equity ............  $ 2,203,804   $ 2,115,011   $ 1,937,942
                                            ===========   ===========   ===========

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



<PAGE>



 Consolidated Statements of Income
 (Unaudited)
 In thousands, except per share data
 For the three months ended March 31
                                         1998      1997

 Interest income
  Loans, including fees ..............  $35,786  $33,608
  Securities available for sale ......    3,817    3,820
  Mortgage loans held for sale .......    2,468    1,229
  Interest-bearing deposits with banks        7        2
                                        -------  -------
  Total interest income ..............   42,078   38,659
Interest expense
  Deposits ...........................   16,466   15,505
  Federal funds purchased
    and repurchase agreements ........    1,075      591
  Long-term debt and other
    borrowings .......................    4,207    3,263
                                         ------  -------
  Total interest expense .............   21,748   19,359
                                        -------  -------
Net interest income ..................   20,330   19,300
  Provision for loan losses ..........    2,220    1,950
                                        -------  -------
Net interest income after
  provision for loan losses ..........   18,110   17,350
Non-interest income
  Service charges on deposit accounts     2,471    2,495
  Mortgage banking income ............    4,610    2,757
  Gains on sales of securities
    available for sale, net ..........      150      221
  Trust services .....................      617      561
  Brokerage income ...................      802      710
  Other ..............................    1,615    1,175
                                         ------  -------
  Total non-interest income ..........   10,265    7,919
Non-interest expenses
  Compensation and benefits ..........    9,384    8,608
  Net occupancy expense ..............    1,160    1,150
  Furniture and equipment expense ....    1,809    1,566
  Deposit insurance ..................      102      103
  Professional fees ..................      642      666
  Postage, printing & supplies .......    1,064      980
  Processing fees ....................      591      495
  Communications .....................      748      658
  Other ..............................    2,995    2,813
                                         ------  -------
  Total non-interest expenses ........   18,495   17,039
                                         ------  -------
Income before income taxes ...........    9,880    8,230
Income tax expense ...................    3,306    2,682
                                       --------  -------
                                                 
Net income ...........................  $ 6,574  $ 5,548
                                         ======  =======
Diluted earnings per share ...........  $  0.55  $  0.48
                                         ======  =======
Basic earnings per share .............  $  0.57  $  0.49
                                        =======  =======

 See accompanying notes to consolidated financial statements.




<PAGE>



 Consolidated Statements of Comprehensive Income
 (Unaudited)
 In thousands
 For the three months ended March 31 
                                                          1998       1997


Net income ............................................  $ 6,574     5,548
Other comprehensive income, net of tax:
    Unrealized holding gains (losses) during the period
       on securities available for sale ...............      182    (1,096)
    Reclassification adjustments for (gains)losses
       on securities included in net income ...........     (166)     (207)
                                                         -------   -------
Total other comprehensive income ......................       16    (1,303)
                                                         =======   =======
Comprehensive income ..................................  $ 6,590   $ 4,245
                                                         ========  ========     

 See accompanying notes to consolidated financial statements.




Consolidated Statements of Changes in Shareholders' Equity
 (Unaudited)
 In thousands                                                                   
                                             1998         1997

Balance January 1 .......................  $ 150,777   $ 131,316
  Net income ............................      6,574       5,548
  Other comprehensive income ............         16      (1,303)
  Issuance of common stock ..............      4,900         633
  Cash dividends declared on common stock     (2,100)     (1,937)
  ESOP debt reduction ...................        167         101
                                           =========   =========
Balance at end of period ................  $ 160,334   $ 134,358
                                           =========   =========

  See accompanying notes to consolidated financial statements.



<PAGE>

<TABLE>


 Consolidated Statements of Cash Flows
 (Unaudited)
 In thousands
 For the three months ended March 31 
<CAPTION>

                                                                         1998         1997

 Cash flows from operating activities:
<S>                                                                  <C>          <C>      
Net income .......................................................   $   6,574    $   5,548
Adjustments to reconcile net income to cash
  provided by operating activities:
    Provision for loan losses ....................................       2,220        1,950
    Deferred tax expense .........................................        (609)        (472)
    Gain on sale of securities available for sale ................        (150)        (221)
    Gain on sale of mortgage loans held for sale .................      (2,288)        (980)
    Gain on sale of premises and equipment .......................        --             (6)
    Gain on sale of Mt. Pleasant, Tennessee office ...............        (430)        --
    Depreciation and amortization of fixed assets ................       1,665        1,215
    Amortization of intangible assets ............................         396          323
    Amortization of premium on securities and loans, net .........         130          199
    Amortization of mortgage servicing rights ....................       1,803        1,460
Decrease in accrued interest receivable ..........................       1,110        1,984
Decrease in other assets .........................................       1,528       20,345
Increase(decrease) in accrued interest payable ...................      (2,863)       1,585
Increase in other liabilities ....................................       5,661        5,897
Sale of mortgage loans held for sale .............................     378,844      187,861
Originations of mortgage loans held for sale .....................    (447,582)    (189,097)
                                                                     ---------    ---------
  Net cash provided by (used in) operating activities ............     (53,991)      37,591

Cash flows from investing activities:
Proceeds from sale of securities available for sale ..............        --          2,154
Proceeds from prepayment and call of securities available for sale       9,798        2,295
Proceeds from maturities of securities available for sale ........      30,754       24,335
Purchase of securities available for sale ........................     (24,864)        (231)
Net decrease(increase) in loans ..................................     (20,562)         838
Net cash outflow from sale of Mt. Pleasant, Tennessee office .....      (8,826)        --
Proceeds from sale of mortgage servicing rights ..................       1,489         --
Purchase and origination of mortgage servicing rights ............      (5,830)      (3,060)
Proceeds from sale of foreclosed assets ..........................         329          407
Purchases of premises and equipment ..............................      (3,158)      (1,713)
Proceeds from disposal of premises and equipment .................          38          211
                                                                     ---------    ---------
  Net cash provided by (used in) investing activities ............     (20,832)      25,236

Cash flows from financing activities:
Net increase (decrease) in deposits ..............................      59,858      (62,263)
Net increase (decrease) in federal funds purchased
  and repurchase agreements ......................................      16,043      (13,562)
Proceeds from issuance of long-term debt .........................      10,000         --
Repayment of long-term debt ......................................        --             (6)
Proceeds from issuance of common stock ...........................       4,899          633
Dividends paid ...................................................      (2,100)      (1,937)
                                                                     ---------    ---------
  Net cash provided by (used in) financing activities ............      88,700      (77,135)
                                                                     ---------    ---------
Net increase (decrease) in cash and cash equivalents .............      13,877      (14,308)
Cash and cash equivalents at beginning of year ...................      70,774       75,054
                                                                     ---------    ---------
Cash and cash equivalents at end of period .......................   $  84,651    $  60,746
                                                                     =========    =========


 See accompanying notes to consolidated financial statements.

</TABLE>
<PAGE>



 Notes to Consolidated Financial Statements

 (1) Summary of Significant Accounting Policies
     The  accounting  and reporting  policies of Trans  Financial,  Inc. and its
subsidiaries (the "company") conform to generally accepted accounting principles
and general  practices within the banking industry.  The consolidated  financial
statements  include the accounts of Trans  Financial,  Inc. and its wholly-owned
subsidiaries.  All significant inter-company accounts and transactions have been
eliminated in  consolidation.  A  description  of other  significant  accounting
policies is presented in the 1997 annual report on Form 10-K.
     In the opinion of management,  all adjustments  (consisting  only of normal
recurring  accruals)  considered  necessary  for a fair  presentation  have been
reflected in the accompanying unaudited financial statements. Results of interim
periods are not  necessarily  indicative  of results to be expected for the full
year.

(2) Allowance for Loan Losses
     An analysis of the changes in the allowance for loan losses follows:

 In thousands
 For the periods ended March 31
                                                 1998         1997
 Balance beginning of period ...............   $ 22,017    $ 21,016
   Provision for loan losses ...............      2,220       2,650
   Loans charged off .......................     (2,023)     (2,098)
   Recoveries of loans previously charged off       563         271
                                               ---------   ---------
   Net charge-offs .........................     (1,460)     (1,827
                                               ---------   ---------
 Balance at end of period ..................   $ 22,777    $ 21,839
                                                           

(3) Impaired Loans
     The  company's  recorded   investment  in  loans  considered   impaired  in
accordance with Statement of Financial  Accounting Standards No. 114, Accounting
by Creditors for Impairment of a Loan ("SFAS 114"), was $14,514,000 at March 31,
1998. Of that amount,  $12,423,000  represents  loans for which an allowance for
loan losses,  in the amount of $3,068,000 has been  established  under SFAS 114.
Impaired  loans totaled  $4,258,000 at March 31, 1997,  including  $1,715,000 of
loans for which an allowance was established totaling $590,000.
     The average  recorded  investment  of impaired  loans was  $15,829,000  and
$4,436,000  for the three  months  ended March 31, 1998 and 1997,  respectively.
Interest  income  recognized  on impaired  loans  totaled  $94,000 for the three
months ended March 31, 1998. For the comparable period in 1997,  interest income
on impaired loans totaled $22,000.

 (4) New Accounting and Disclosure Standard
     During 1997, the Financial  Accounting  Standards Board issued Statement of
Financial  Accounting  Standards No. 130, Reporting  Comprehensive Income ("SFAS
130"). SFAS 130, which became effective in the first quarter of 1998, requires a
presentation of comprehensive income in a full set of general-purpose  financial
statements.  In addition to net income,  comprehensive income includes all other
changes  in  shareholders'  equity  during the  reporting  period  except  those
resulting from investments by shareholders and distributions to shareholders. To
comply  with  SFAS  130,  the  company  is  presenting  in  this  report  a  new
Consolidated Statement of Comprehensive Income.

 (5) Subsequent Event
     On April 9, 1998, the company  entered into an agreement and Plan of Merger
with  Star  Banc  Corporation,  based in  Cincinnati,  Ohio  ("Star  Banc").  In
accordance with the terms of the merger  agreement,  each share of the company's
common stock will be converted into 0.9003 share of Star Banc common stock.  The
merger is subject to various  conditions,  including approval by shareholders of
the company and by the appropriate bank regulatory authorities.



<PAGE>



Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
     Trans Financial,  Inc. ("the company") is a bank holding company registered
under the Bank Holding  Company Act of 1956. The company has two commercial bank
subsidiaries--Trans Financial Bank, National Association ("TFB-KY"),  consisting
of all of the company's banking activities in Kentucky, and Trans Financial Bank
Tennessee, National Association ("TFB-TN"), consisting of all
of the company's  Tennessee banking  activity.  (On July 26, 1997, the company's
former thrift subsidiary--Trans  Financial Bank, F.S.B.--was merged into TFB-KY,
and  its  Tennessee   operations  were  sold  to  TFB-TN.   These   transactions
consolidated the company's banking operations into its current two national bank
charters.)
     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").
     During April 1997,  the company  sold  substantially  all of the  deposits,
premises  and  equipment,  and certain  other  assets of its Lebanon and Sparta,
Tennessee  offices.  These two offices  represented $17 million of the company's
total  deposits as of March 31, 1997.  The  company's  Mt.  Pleasant,  Tennessee
office, consisting of $10 million of deposits, was sold on March 4, 1998.
     On August 29, 1997,  the Trans Adviser family of mutual funds ("the Funds")
was  transferred  to the  Countrywide  Family  of  Funds.  TFB-KY  had  acted as
investment  adviser to the Funds,  which had total  assets of $159 million as of
June 30, 1997. However, as a result of this transfer, TFB-KY no longer serves in
that capacity.  The transfer did not have a significant  impact on the company's
financial condition or results of operations.
     On April 9, 1998, the company  entered into an agreement and Plan of Merger
with  Star  Banc  Corporation,  based in  Cincinnati,  Ohio  ("Star  Banc").  In
accordance with the terms of the merger  agreement,  each share of the company's
common stock will be converted into 0.9003 share of Star Banc common stock.  The
merger is subject to various  conditions,  including approval by shareholders of
the company and by the appropriate bank regulatory authorities.
     The discussion that follows is intended to provide  additional insight into
the company's  financial  condition and results of operations.  This  discussion
should be read in conjunction  with the  consolidated  financial  statements and
accompanying notes presented in Item 1 of Part I of this report.

Results of Operations
Overview
     For the three months ended March 31, 1998, the company earned $6.6 million,
or $0.55 per  diluted  share,  compared  to $5.5  million,  or $0.48 per diluted
share,  for the first  quarter of 1997.  Results  for the first  quarter of 1998
produced an annualized return on average assets of 1.25% and a return on average
shareholders'  equity of 17.10%,  compared with 1.16% and 16.75%,  respectively,
for the first quarter of 1997.

Net Interest Income
     Net interest income on a tax-equivalent  basis totaled $20.6 million in the
first  quarter of 1998,  compared  with $19.7  million  in the  comparable  1997
period--a 5% increase.  For the first quarter of 1998,  the net interest  margin
(net interest  income as a percentage of average  interest-earning  assets) on a
tax-equivalent basis decreased 15 basis points, from 4.44% to 4.29%, compared to
the same period in 1997.
     Approximately $770 million of the company's loans reprice immediatlely with
changes in the prime rate, and another $65 million of loans reprice within three
months of a change in prime.  The prime  rate  increased  to 8.50% in late first
quarter  1997,  and has  remained  constant  since  then.  Since  late  1997,  a
significantly  larger  proportion of interest earning asset growth has come from
lower earning mortgage loans held for sale. Also during this time, the company's
funding  costs  continued  to rise,  as  greater  reliance  has been  placed  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
average  yield  on  interest-earning   assets  and  the  average  rate  paid  on
interest-bearing  liabilities)  decreased  twenty basis  points  compared to the
first quarter 1997,  negatively impacting the net interest margin. This negative
impact was  partially  offset  during 1998 by increased  interest  income due to
growth in loans and in mortgage loans held for sale.
     The following tables show, for the three-month periods ended March 31, 1998
and 1997, the relationship between interest income and expense and the levels of
average  interest-earning assets and average interest-bearing  liabilities.  The
tables reflect increased  volumes of commercial  loans,  mortgage loans held for
sale, brokered certificates of deposit and borrowed funds.


<PAGE>

<TABLE>


 Average Consolidated Balance Sheets and Net Interest Analysis

 For the three months ended March 31
 Dollars in thousands
<CAPTION>

                                                           1998                                 1997
                                         Average                      Average     Average                 Average
                                         Balance       Interest       Rate        Balance     Interest     Rate
 Assets:
 Interest-earning assets:
<S>                                    <C>           <C>              <C>        <C>            <C>         <C>  
  Loans, net of unearned income ....   $1,543,321    $   35,859*      9.42%      $1,453,965     $33,690*    9.40%
                                                                                         
  Securities .......................      264,957         4,067*      6.23%         271,685       4,103*    6.12%
                                                                                         
  Mortgage loans held for sale .....      145,873         2,468       6.86%          69,409       1,229     7.18%
  Federal funds sold
    and other interest income ......          432             7       6.57%              98           2     8.28%
                                        ---------    ----------                  ----------     -------
Total interest-earning assets /
  interest income ..................    1,954,583        42,401       8.80%       1,795,157      39,024     8.82%
                                                        -------                                  ------
Non-interest-earning assets:
  Cash and due from banks ..........       64,846                                    49,593
  Premises and equipment ...........       38,143                                    37,608
  Other assets .....................       70,335                                    65,569
                                       ----------                                ----------                  
Total assets .......................   $2,127,907                                $1,947,927
                                       ==========                                ==========
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
  Interest-bearing deposits:
    Interest-bearing demand (NOW) ..   $   66,485    $      562       3.43%      $   33,883     $   255     3.05%
    Savings deposits ...............       95,296           587       2.50%         104,144         687     2.68%
    Money market accounts ..........      259,834         2,167       3.38%         270,391       2,140     3.21%
    Certificates of deposit ........      717,231         9,800       5.54%         723,120       9,578     5.37%
    Brokered certificates of deposit      144,860         2,261       6.33%         110,323       1,715     6.30%
    Individual Retirement Accounts .       78,936         1,089       5.60%          83,404       1,130     5.49%
                                        ---------    ----------                   ----------    -------   
    Total interest-bearing deposits     1,362,642        16,466       4.90%       1,325,265      15,505     4.74%
Federal funds purchased
  and repurchase agreements ........       83,145         1,075       5.24%          47,932         591     5.00%
Other short-term borrowings ........       80,367         1,159       5.85%          72,833         983     5.47%
Long-term debt .....................      193,515         3,048       6.39%         140,895       2,280     6.56%
                                        ---------    ----------                   ----------    -------                             
  Total borrowed funds .............      357,027         5,282       6.00%         261,660       3,854     5.97%
                                        ---------    ----------                   ----------    -------               
Total interest-bearing liabilities /
  interest expense .................    1,719,669        21,748       5.13%       1,586,925      19,359     4.95%
                                                        -------                                 -------
Non-interest-bearing liabilities:
  Non-interest-bearing deposits ....      226,740                                   201,759
  Other liabilities ................       25,593                                    24,921
                                        ---------                                  --------
  Total liabilities ................    1,972,002                                 1,813,605
Shareholders' equity ...............      155,905                                   134,322
                                        ---------                                 ---------
Total liabilities
  and shareholders' equity .........   $2,127,907                                $1,947,927
                                       ==========                                 =========
Net interest-rate spread ...........                                  3.67%                                 3.87%
Impact of non-interest bearing
  sources and other changes in
  balance sheet composition ........                                  0.62%                                 0.57%
                                                                    -------                                 -----
Net interest income /
  margin on interest-earning assets                  $   20,653       4.29%                     $19,665     4.44%
                                                        =======     ========                    =======     ====

 *Includes tax-equivalent adjustment

 Net interest margin is net interest income divided by average  interest-earning
assets.   For  computational   purposes,   non-accrual  loans  are  included  in
interest-earning  assets. 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. Average balances are based
on daily  balances and average  rates are based on a 365-day  year.
</TABLE>
<PAGE>
  Analysis of Changes in Net Interest Income
     Shown in the following  tables are changes in interest  income and interest
expense  resulting  from changes in volumes  (average  balances)  and changes in
interest rates for the  three-month  period ended March 31, 1998, as compared to
the same period in 1997.

 First Quarter 1998 vs. 1997
                                         Increase (decrease)
                                      in interest income and expense
                                        due to changes in:
 In thousands                                                         

                                      Volume     Rate     Total
 Interest-earning assets:
Loans ............................   $ 2,076    $  93    $ 2,169
Securities .......................      (103)      67        (36)
Mortgage loans held for sale .....     1,296      (57)     1,239
Federal funds sold
  and other interest income ......         5     --            5
                                     -------    -----    -------
Total interest-earning assets ....     3,274      103      3,377

Interest-bearing liabilities:
Interest-bearing demand (NOW) ....       272       35        307
Savings deposits .................       (56)     (44)      (100)
Money market accounts ............       (85)     112         27
Certificates of deposit ..........       (79)     301        222
Brokered certificates of deposit .       539        7        546
Other time deposits ..............       (61)      20        (41)
                                     -------    -----    -------
  Total interest-bearing deposits        530      431        961
Federal funds purchased
  and repurchase agreements ......       454       30        484
Other short-term borrowings ......       106       70        176
Long-term debt ...................       830      (62)       768
                                     -------    -----    -------
  Total borrowed funds ...........     1,390       38      1,428
                                     -------    -----    -------
Total interest-bearing liabilities     1,920      469      2,389
                                     -------    -----    -------
Increase (decrease)
  in net interest income .........   $ 1,354    $(366)   $   988
                                     =======    =====    =======

 The  change in  interest  due to both rate and  volume  has been  allocated  to
changes in average  volume and  changes in average  rates in  proportion  to the
absolute dollar amounts of the change in each.

Provision for Loan Losses
     The provision  for loan losses was $2.2 million  (0.58% of average loans on
an  annualized  basis,  excluding  mortgage  loans  held for sale) for the first
quarter of 1998,  compared  with $2.0 million  (0.54% of average  loans) for the
comparable  period of 1997.  Net loan  charge-offs  were $1.5 million  (0.38% of
average loans) for the first quarter of 1998,  compared with $1.0 million (0.28%
of average loans) for the first quarter of 1997.
     The  provision  for loan  losses  and the level of the  allowance  for loan
losses reflect  management's  evaluation of the risk in the loan portfolio.  The
increased  provision in 1998 as compared to 1997 reflects  overall growth in the
loan  portfolio  as well as a higher  level  of  non-performing  loans.  Further
discussion  on loan quality and the allowance for loan losses is included in the
Asset Quality discussion later in this report.

Non-Interest Income
     Non-interest  income for the first quarter of 1998  increased $2.3 million,
or 30%, over the first quarter of 1997. Mortgage banking income, which increased
56% from the year-ago quarter,  accounted for $1.7 million of the total increase
in non-interest  income. The Surety Mortgage (Cape Coral,  Florida)  acquisition
and the new mortgage office in Little Rock, Arkansas, represent $501 thousand of
the increase in mortgage banking income. In addition,  the company  recognized a
net pre-tax gain of $430  thousand on the sale of the Mt.  Pleasant,  Tennessee,
sales center. This gain is included in other non-interest income.
     During the first  quarter of 1998,  the company  sold $459 million from the
mortgage  servicing  portfolio  to reduce the risk of future  impairment  in the
carrying  value  of the  mortgage  servicing  asset.  No net  gain or  loss  was
recognized on the sale.

Non-Interest Expenses
     Non-interest  expenses increased $1.5 million,  or 9%, in the first quarter
of 1998,  compared to the first quarter of 1997. The increased  expenses in 1998
include $410  thousand in operating  expenses  associated  with the new mortgage
offices in Florida and  Arkansas.  Technology  initiatives  for  investments  in
branch automation,  expanding the  convenience-store  ATM network and additional
enhancements to  customer-oriented  decision-support  systems resulted in a $243
thousand  increase  in  non-interest  expense.   Performance-based  compensation
initiatives  resulted in an additional $295 thousand in incentive  compensation,
and annual  employee merit increases added another $288 thousand in compensation
expense.  The  efficiency  ratio (a measure of operating  expenses per dollar of
income)  decreased to 61.3% in the first quarter of 1998  (excluding  the branch
sale  gain and  securities  gains  and  losses)--an  improvement  over the 63.1%
efficiency ratio in the first quarter of 1997.

Income Taxes
     Income tax expense  totaled $3.3 million for the first  quarter of 1998, 
compared  with $2.7  million in the  comparable  1997 period. These represent
effective tax rates of 33.5% and 32.6%, respectively.


Balance Sheet Review
Overview
     Assets at March 31, 1998 totaled $2.20 billion, compared with $2.12 billion
at December 31, 1997, and $1.94 billion a year ago. Average total assets for the
first quarter  increased  $180 million (9%) over the past year to $2.13 billion.
Average interest-earning assets increased $159 million to $1.95 billion.

Loans
     The company  experienced  annualized  loan growth of 5% from  December  31,
1997,  to March 31,  1998.  At March 31,  1998,  loans  net of  unearned  income
(excluding  mortgage loans held for sale) totaled $1.56  billion,  compared with
$1.54 billion at December 31, 1997, and $1.45 billion a year ago.
     Total loans,  net of unearned  income,  averaged $1.54 billion in the first
quarter of 1998, excluding mortgage loans held for sale of $146 million. For the
comparable  period in 1997,  loans  averaged  $1.45  billion,  excluding the $69
million of mortgage loans held for sale.
     As of March  31,  1998,  the  company's  47  largest  credit  relationships
consisted of loans and loan commitments  ranging from $5 million to $19 million,
one of which  was  classified  as a  non-accrual  loan  (see the  Asset  Quality
discussion below).  The aggregate amount of these credit  relationships was $501
million.  These large credit relationships have been underwritten and structured
to minimize the company's exposure to loss. However, a significant deterioration
in the financial  condition of one or more of these borrowers could result in an
increase in the company's loan charge-offs.  In addition,  the prepayment of one
or more of these credits or their refinancing at another  financial  institution
may have a negative impact on the company's future net income and loan growth.

Asset Quality
     Non-performing  loans, which include non-accrual loans, accruing loans past
due 90 days or more and  restructured  loans,  totaled $24.6 million as of March
31,  1998,  essentially  flat as  compared to December  31,  1997,  and up $15.1
million from the end of the first quarter of 1997.  The increase from a year ago
is primarily  attributable to $11.8 million of loans to a coal mining operation.
The  company  is  closely  monitoring  its $26.5  million  exposure  to the coal
industry,  which is down from $33.5  million at December 31, 1997.  At March 31,
1998, the company's  exposure  consisted of the non-accrual loan mentioned above
as well as an additional 107 relationships,  with the next largest single credit
exposure totaling $2.5 million.
     The ratio of  non-performing  loans to total loans (net of unearned income)
was 1.58% at March 31, 1998,  compared with 1.59% at the end of 1997 and 0.66% a
year ago.  Non-performing assets, which include non-performing loans, foreclosed
real estate and other foreclosed property, totaled $25.6 million as of March 31,
1998,  as  compared  to  $11.1   million  at  March  31,  1997.   The  ratio  of
non-performing assets to total assets increased to 1.16% at March 31, 1998, from
0.57% a year ago.
     The following table presents information concerning  non-performing assets,
including non-accrual and restructured loans.


<PAGE>


<TABLE>


 Non-performing Assets
 Dollars in thousands
<CAPTION>

                                                      March 31   December 31    March 31
                                                         1998       1997         1997
<S>                                                     <C>        <C>        <C>    
Non-accrual loans ...................................   $20,593    $21,803    $ 5,528
Accruing loans which are contractually
  past due 90 days or more ..........................     3,403      1,991      3,388
Restructured loans ..................................       622        687        633
                                                       --------   --------     ------
  Total non-performing and restructured loans .......    24,618     24,481      9,549
Foreclosed real estate ..............................       727        845      1,328
Other foreclosed property ...........................       258        217        175
                                                       --------   --------     ------
  Total non-performing and restructured loans and
    foreclosed property .............................   $25,603    $25,543    $11,052

Non-performing and restructured loans
  as a percentage of loans, net of unearned income ..      1.58%      1.59%      0.66%
Total non-performing and restructured loans and
  foreclosed property as a percentage of total assets      1.16%      1.21%      0.57%

</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 modified due to a deterioration  in the financial
condition of the borrower.
     Six commercial credit  relationships  account for $16.3 million, or 79%, of
the company's  non-accrual loans at March 31, 1998. The largest of these credits
is the $11.8  million  relationship  with the coal  mining  operation  mentioned
above.  The other five credits consist of $1.7 million to a grocery chain,  $1.0
million to a tobacco  processing  company,  $0.5 million to a trucking  company,
$0.8  million  to a real  estate  developer  and $0.5  million  to a truck  stop
operation.  Of the  $3.1  million  allowance  for  loan  losses  established  in
accordance with Statement of Financial  Accounting Standards No. 114, Accounting
by Creditors for the  Impairment of a Loan,  these six credits  account for $2.8
million.  The remaining  non-accrual loan balance consists of various commercial
and consumer loans, with no single borrower representing more than $310,000.
     Foreclosed real estate at March 31, 1998,  consists of several  properties,
with no single  property  exceeding  $135,000. 
     As of March 31,  1998,  the company had $4.8  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 at this time 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 represents an amount which, in management's judgment, will be
adequate  to absorb  probable  losses on  existing  loans.  The  adequacy of the
allowance for loan losses is determined on an ongoing basis through  analysis of
the  overall  size and  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.   The  potential  loss  situations  are
identified by account  officers'  evaluations of their own portfolios as well as
by an independent loan review function.
     The allowance for loan losses is  established  through a provision for loan
losses  charged to expense.  At March 31, 1998, the allowance was $22.8 million,
up from $22.0 million at December 31, 1997, and $19.0 million at March 31, 1997.
The ratio of the  allowance for loan losses to total loans  (excluding  mortgage
loans  held for sale) at March 31,  1998,  was  1.46%,  compared  with  1.43% at
December 31, 1997, and 1.31% at March 31, 1997. The increase from March 31, 1997
reflects in part  management's  review of the growth in the loan portfolio,  the
continuing   concentrations   of  credit  among  the  company's  largest  credit
relationships,  and  anticipated  general  economic  conditions in the company's
markets.
     The allowance as a percentage of non-performing  loans was 93% at March 31,
1998, as compared to 90% at year-end 1997 and 199% at March 31, 1997, due to the
previously-mentioned $11.8 million of coal mining loans which were classified as
non-accrual at December 31, 1997 and March 31, 1998.
     Management  believes  that the allowance for loan losses at March 31, 1998,
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 regulatory  authorities,  as a part of
their  periodic  examinations  of  the  company's  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.  Further  discussion of the allowance for loan losses is included later
in this review in the Year 2000 Risks section.

Securities Available for Sale
     Securities  (all  classified  as available  for sale)  decreased  from $278
million at December  31,  1997 to $262  million at March 31,  1998.  A year ago,
securities  totaled $255 million.  Funds provided by the reduction in securities
in the first quarter of 1998 were utilized to fund growth in the loan portfolio.

Deposits and Borrowed Funds
     Total  deposits  averaged  $1.59  billion in the first  quarter of 1998, an
increase of $62.4  million,  or 4%, from the  comparable  1997  period.  Average
interest-bearing  accounts increased $37.4 million in the first quarter of 1998,
compared to the same period in 1997, while average non-interest-bearing accounts
increased $25.0 million.  The increase in  interest-bearing  accounts  primarily
represents  brokered  certificates of deposit issued to fund loan growth.  As of
March 31, 1998 and 1997, brokered certificates of deposit comprised $145 million
and $105  million,  respectively,  of the  company's  deposits.  These  brokered
deposits have various maturities ranging from three months to three years.
     Long-term  debt  totaled $195 million at March 31, 1998 and $141 million at
March 31, 1997.  In order to support  growth in the loan  portfolio,  TFB-KY has
outstanding $50 million of notes (included in the long-term debt totals),  under
a $250 million senior bank note program. These bank notes bear interest at fixed
rates of 6.48% and  7.13%.  Other  long-term  borrowings  principally  represent
Federal  Home Loan Bank  ("FHLB")  advances to TFB-KY and TFB-TN  (with  varying
maturity dates), which are funding 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 $1.7 million at March 31,
1998, and $2.4 million at March 31, 1997.
     Certain of the above brokered  certificates of deposit, bank notes and FHLB
advances have been effectively  converted to floating rate  instruments  through
the use of interest rate swap transactions.  Under these swap agreements, TFB-KY
pays interest at the prime rate,  and receives  fixed rates from 8.60% to 8.81%.
Other swap agreements are utilized to hedge the commercial  lending  exposure of
the company.  TFB-KY pays interest at the prime rate,  and receives  fixed rates
from 8.50 % to 9.52% under these swap agreements. Further discussion of interest
rate swaps is included later in this review in the Asset/Liability Management 
and Market Risks Section.

Capital Resources and Liquidity
     The  company's  capital  ratios at March 31, 1998,  December 31, 1997,  and
March 31, 1997  (calculated in accordance  with regulatory  guidelines)  were as
follows:


                                March 31,  December 31,    March 31,
                                  1998        1997           1997

Tier 1 risk based ...........       8.66%     8.48%          8.08%              
     Regulatory minimum .....       4.00      4.00           4.00
     Well-capitalized minimum       6.00      6.00           6.00         
Total risk based ............      11.80     11.71          11.41
     Regulatory minimum .....       8.00      8.00           8.00
     Well-capitalized minimum      10.00     10.00          10.00
Leverage ....................       7.10      6.81           6.52
     Regulatory minimum .....       3.00      3.00           3.00               
     Well-capitalized minimum       5.00      5.00           5.00               

     The  increase  in  these  capital  ratios  in 1998 is due to the  company's
increased earnings.  Capital ratios of all of the company's  subsidiaries are in
excess of applicable  minimum regulatory capital ratio requirements at March 31,
1998.
     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 these 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.

Asset/Liability Management and Market Risks
     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 1)  rate-of-change
differentials,  such as federal funds rates versus  savings  account  rates;  2)
maturity effects, such as calls on securities;  3) rate barrier effects, such as
caps or floors on loans;  4) changes in balance sheet levels;  5)  floating-rate
financial  instruments 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; 6) leads and lags that occur as rates move away from current levels; and
7) the effects of prepayments on various assets, such as residential  mortgages,
mortgage-backed securities and consumer loans.
     The model is updated  bi-monthly  (or more  frequently,  if necessary)  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.   Several  rate  index  and  yield  curve
assumptions are used in the model. As an example, the company's most likely rate
environment  as of March 31, 1998,  assumed the 3-month  Treasury  rate at 5.20%
through September 30, 1998, then falling to 4.69% in March of 1999.
     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 measured based on numerous interest
rate path valuations using statistical rate simulation techniques.
     As of March 31, 1998,  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.
     The   following   illustrates   the  effects  of  an   immediate   100-  or
200-basis-point  shift in market  interest rates on 1) fair values of assets and
liabilities  as  compared  to March 31, 1998 fair  values,  and 2) net  interest
income for one year as compared to the most likely rate  assumptions used in the
company's model:


<PAGE>


<TABLE>

 Market Risk Analysis
<CAPTION>
                                                                                            Increase (Decrease) in Fair Value


                                                                           ----------------------------  ---------------------------
                                                                                     Decrease in Rates         Increase in Rates

                                                                           ----------------------------  ---------------------------
                                                 Carrying        Fair           200          100            100           200
 March 31, 1998 - In thousands                    Value          Value         b.p.          b.p.           b.p.          b.p.
 Market Risk-Sensitive Assets
<S>                                           <C>           <C>             <C>          <C>          <C>         <C>         
Securities available for sale .............   $  262,465    $   262,465     $ 12,558     $  6,076     $ (5,702)   $   (11,064)
Mortgage loans held for sale ..............      189,511        189,811          311          154         (154)          (307)
Loans, net ..................................  1,556,665      1,665,504       49,150       23,191      (20,995)       (39,665)
Mortgage servicing rights
    and interest rate floor contracts ......      45,180         50,243       (9,805)      (6,965)       3,421          4,853
Interest rate swaps .........................         --           (298)       6,980        3,558       (3,546)        (7,098)
                                               ---------    -----------      -------      -------     --------     ----------
                                                                                                           
    Total market risk-sensitive assets ....   $2,053,821    $ 2,167,725       59,194     $ 26,014     $(26,976)      $(53,281)
                                                                                                                                   
    % change in fair value of assets ..                                         2.73%       1.20%        -1.24%         -2.46%
Market Risk-Sensitive Liabilities
Transaction deposit accounts ..............   $  578,958    $   577,971     $   (678)    $   (339)    $    333    $       669
Savings accounts ..........................       96,805         88,428       (3,457)      (1,408)       1,318          2,557
Certificates of deposit ...................      948,669        958,611      (13,225)      (6,612)       6,368         12,653
Short-term borrowings .....................      195,391        195,751         (457)        (227)         226            451
Long-term debt ............................      195,125        202,673       (7,786)      (3,835)       3,732          7,352
                                               ---------    -----------      -------      -------     --------     ----------   
 Total market risk-sensitive liabilities ...  $2,014,948    $ 2,023,434     $(25,603)    $(12,421)    $ 11,977       $ 23,682
                                                                                                                                    
                                                                                                                                    
 % change in fair value of liabilities ..                                      -1.27%       -0.61%        0.59%          1.17%

</TABLE>
<TABLE>
<CAPTION>
                                                                                       Increase (Decrease)
                                                                                in Interest Income and Expense

                                                                        ----------------------------------------------------       
                                                                             Decrease in Rates       Increase in Rates
                                                                Most   
                                                               Likely          -----------------     -------------------
                                                                Rate           200          100          100          200
Dollars in thousands                                          Scenario         b.p.         b.p.         b.p.           b.p.
Projected Interest Income (Annualized)
<S>                                                          <C>           <C>           <C>          <C>            <C>     
Securities available for sale ............................   $   15,259    $  (1,469)    $   (735)    $    734       $  1,468
Mortgage loans held for sale .............................        9,767       (2,476)      (1,238)       1,239          2,478
Loans, net ...............................................      145,647      (16,276)      (7,743)       7,775         16,091
Interest rate swaps ......................................          761        3,829        1,756       (1,829)        (3,844)
                                                             ----------   -----------   ---------      -------       ---------
                       Total interest income .............   $  171,434    $ (16,392)    $ (7,960)    $  7,919       $ 16,193
                 % change in interest income .............                     -9.56%       -4.64%        4.62%          9.45%
Projected Interest Expense (Annualized)
NOW and money market deposit accounts ....................   $   11,250    $  (2,486)    $ (1,191)    $    308       $    608
Savings accounts .........................................        1,922         (510)        (457)         327            651
Certificates of deposit ..................................       51,501       (8,635)      (4,217)       4,236          8,609
Short-term borrowings ....................................       10,001       (3,500)      (1,748)       1,710          3,400
Long-term debt ...........................................       12,653         (295)        (146)         147            295
                                                             ----------     -----------   ---------      -------     ---------      
                      Total interest expense ........... .   $   87,327    $ (15,426)    $ (7,759)    $  6,728       $ 13,563
                                                             ----------     -----------   ---------      -------     ---------      
             % change in net interest expense ..............                  -17.66%       -8.88%        7.70%         15.53%
                         Net interest income ..............  $   84,107    $    (966)    $   (201)    $  1,191          2,630
             % change in net interest income ..............                    -1.15%       -0.24%        1.42%          3.13%

</TABLE>
<PAGE>

     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.
     Derivative  financial  instruments  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,  floors, futures and options with indices
that directly  relate to the pricing of specific  assets and  liabilities of the
company.
     Off-balance-sheet  derivatives  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.
     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.  Interest rate
swap transactions as of March 31, 1998, are as follows:

<TABLE>

Interest Rate Swaps

As of March 31, 1998
 Dollars in thousands
<CAPTION>

                                      Notional            Fixed Rate           Floating
                                                                                Rate
                                       Amount            (Receiving)           (Paying)                          Maturity
<S>                                     <C>                <C>                 <C>                          <C>
                                        $   70,000          8.50%               8.50% (Prime)                    June, 1998
                                           30,000           8.60%               8.50% (Prime)                 October, 1998
                                           25,000           8.78%               8.50% (Prime)                November, 1999
                                           25,000           8.74%               8.50% (Prime)                December, 1999
                                           40,000           8.81%               8.50% (Prime)                December, 1999
                                           50,000           9.52%               8.50% (Prime)                   April, 2000
                                           50,000           8.87%               8.50% (Prime)                  August, 2000
                                           40,000           8.80%               8.50% (Prime)                November, 2000
                                           40,000           8.61%               8.50% (Prime)                February, 2001
                                   ---------------

 Total / weighted average                $370,000           8.81%               8.50%                        December, 1999

</TABLE>

     As shown in the  table,  $100  million  of these  interest  rate swaps will
mature within twelve  months.  As these  interest rate swaps mature,  management
is evaluating whether new interest rate swap transactions are appropriate, given
the  company's  interest  rate  sensitivity  position at that time.  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.
     To mitigate its prepayment risk related to MSR's, the company  purchased in
1997 and 1996 two interest rate "floor"  contracts  that provide for the company
to receive  interest on the  notional  amount of the contract to the extent that
the interest rate on the ten-year  CMT's falls below the contract rate. The cost
of these contracts is included in with the MSR asset in the consolidated balance
sheet.  Fair values can be expected to vary inversely  with market  expectations
for intermediate-term interest rates.
     The company minimizes the credit risk in all  off-balance-sheet  derivative
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 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.  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.

Year 2000 Compliance
     The company is exposed to potential  future losses,  including  litigation,
due to  business  interruption  or  errors,  which  could  result  if any of its
computer  systems are not  modified to ensure that dates  beginning  in January,
2000 are not misinterpreted by the system as January,  1900. This eventuality is
commonly  referred  to as the Year 2000  Problem  ("Y2K").  A number of computer
systems  which are  affected  by Y2K are  utilized by the company to operate its
day-to-day  business.  Most of  these  systems  use  software  developed  by and
licensed from third party software vendors.  Some of these software applications
have  been  customized  by  the  company,   while  others  have  been  developed
internally.
     Management has established a task force to identify all instances where the
company is not currently Y2K  compliant,  and to take actions  designed to bring
those systems into  compliance  before the end of 1999. The assessment  phase of
this project has been completed, whereby the company has identified systems that
need  modification,  and the  correction  phase of the  project  has begun.  The
correction  phase is expected to be  completed  by the end of 1998,  with all of
1999 dedicated to the testing phase. Total cost to the company of the correction
and testing phases is projected to be approximately $500 thousand.
     The company is actively managing all of its third party software vendors to
obtain software corrections and warranty  commitments.  Management believes that
those software vendors which have been identified by the task force as essential
to the company's  operations are currently on schedule to meet the company's Y2K
timetable.  The  company is acting  upon the belief and  understanding  that all
federal  agencies are actively  managing the Y2K problems  which are inherent in
the global banking and payments systems.
     The company's  credit  customers are also subject to potential  losses as a
result of Y2K  exposure in their own  computer  systems as well as the  computer
systems of their  suppliers  and  customers.  The company is working  with those
customers that the company believes may be significantly affected to assess each
customer's  Y2K exposure and the extent to which the customer has  addressed the
problem.  Any exposure  which,  in the opinion of management,  is not adequately
addressed  will be taken into account in assessing the loss  potential,  if any,
associated with that credit relationship.










This report contains  forward-looking  statements  under the Private  Securities
Litigation Reform Act of 1995 that involve risks and uncertainties.  Although 
the company believes that the forward-looking  statements are based upon 
reasonable assumptions,  there can be no assurance that the  forward-looking  
statements  will prove to be accurate.  Factors that could cause actual results
to differ from the  results  anticipated  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 (both
generally and more specifically mortgage interest rates); material unforeseen
changes in the liquidity,  results of operations,  or financial condition of th
company's  customers;  material unforeseen  complications  related to addressing
the Year 2000 Problem experienced by the company, its suppliers,  customers and
governmental agencies;  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.  The  company 
undertakes  no  obligation  to republish  forward-looking  statements to reflect
events or circumstances  after the date hereof or to reflect the occurrence of 
unanticipated events.

Item 3. Quantitative and Qualitative Disclosures About Market Risk
     The  information  for  this  item  is  incorporated  by  reference  to  the
Asset/Liability  Management  and Market Risks  section of Item 2.,  Management's
Discussion and Analysis of Financial Condition and Results of Operations.






<PAGE>


                           Part II - Other Information

Item 1. 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
claimed that the company wrongfully terminated him on June 4, 1996, that the
four named directors breached their fiduciary duties to the company, and also 
alleged fraud, breach of contract, interference with contractual relations and
invasion of privacy.  Mr. Lester sought, among other things, $1 million in
compensatory damages, the value of certain stock options, and punitive damages.
This matter was settled by agreement among the parties and the Warren Circuit
Court issued an order dismissing this litigation on April 1,1998.


Item 4. Submission of Matters to a Vote of Security Holders
      The  registrant's  1998 Annual Meeting of Shareholders  was held April 20,
1998.  Proxies were solicited by the registrant's board of directors pursuant to
Regulation  14  under  the  Securities  Exchange  Act  of  1934.  There  was  no
solicitation  in  opposition  to the  board's  nominees  as  listed in the proxy
statement, and all of the nominees were elected by vote of the shareholders.
Voting results for each nominee were as follows:

                                      Votes For             Votes Withheld
         Mary D. Cohron               8,923,791                42,048
         David B. Garvin              8,947,444                18,395
         James D. Scott               8,938,123                27,716


     A proposal to approve the Trans  Financial,  Inc. Stock  Incentive Plan was
approved  by a majority of the  outstanding  shares of the  registrant's  common
stock. A total of 8,521,018 shares were voted in favor of the proposal;  299,882
shares  were voted  against;  and 144,939  shares  abstained  (including  broker
non-votes).  The  total  number of shares  of  common  stock  outstanding  as of
February  18,1998,  the record date of the Annual Meeting of  Shareholders,  was
11,641,651.



Item 6. Exhibits and Reports on Form 8-K
   (a) Exhibits
       The exhibits listed on the Exhibit Index on page 19 of this Form 10-Q are
filed as a part of this report.

   (b) Reports on Form 8-K
       There were no reports on Form 8-K filed during the period covered by this
report.

        On April 15, 1998,  the company filed a Form 8-K reporting that on April
       9, 1998,  the company  entered into an Agreement  and Plan of Merger with
       Star Banc  pursuant  to which the  company  will merge with and into Star
       Banc, subject to shareholder and regulatory approvals,  and certain other
       conditions.




<PAGE>



                                   SIGNATURES

   Pursuant to the  requirements  of the  Securities  Exchange Act of 1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned, thereunto duly authorized.

                                                     Trans Financial, Inc.
                                                          (Registrant)

                                         Principal Executive Officer:

Date:  May 15, 1998                             /s/ Vince A. Berta
                                                     Vince A. Berta
                                                 Chairman, President and
                                                 Chief Executive Officer


                                          Principal Financial Officer:


Date: May 15, 1998                             /s/ Edward R. Matthews
                                                   Edward R. Matthews
                                                   Executive Vice President and
                                                   Chief Financial Officer


<PAGE>







                                    Exhibits


                                                                 
                                                                  Sequentially
                                                                 Numbered Pages
   2.1     Agreement and Plan of Merger with Star Banc Corporation
           dated April 9, 1998............................................20-51

   2.2     Stock Option Agreement with Star Banc Corporation
           dated April 9, 1998............................................52-63

   10      Trans Financial, Inc. 1998 Stock Incentive Plan*...............64-73

   11      Statement Regarding Computation of Per Share Earnings.............74

   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.