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 September 30, 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                (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) 781-5000


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 tofile 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 November 14, 1996: 11,366,015 shares.


The Exhibit Index is on page 20. This filing contains 21 pages (including this
facing sheet).


<PAGE>


                         Part I - Financial Information




Item 1. Financial Statements
<TABLE>

 Consolidated Balance Sheets
 (Unaudited)
<CAPTION>

 In thousands, except share data                September 30   December 31   September 30
                                                      1996         1995           1995
 Assets
<S>                                             <C>           <C>           <C>        
Cash and due from banks ......................  $    75,506   $    81,703   $    68,751
Interest-bearing deposits with banks .........           98           197           197
Federal funds sold and
   resale agreements .........................         --            --             575
Mortgage loans held for sale .................       46,853        46,311        30,993
Securities available for sale (amortized
   cost of $290,274 as of September 30, 1996;
   $298,798 as of December 31, 1995;
   and $212,236 as of  September  30, 1995) ..      288,538       298,222       209,357
Securities held to maturity (market
   value of $80,116 as of  September 30, 1995)         --            --          78,478
Loans, net of unearned income ................    1,407,464     1,258,511     1,236,676
Less allowance for loan losses ...............       17,166        15,779        13,659
                                                -----------   -----------   -----------
   Net loans .................................    1,390,298     1,242,732     1,223,017
Premises and equipment, net ..................       36,799        41,458        38,600
Mortgage servicing rights ....................       41,347        28,284        28,143
Other assets .................................       47,436        56,742        37,039
                                                ===========   ===========   ===========
   Total assets ..............................  $ 1,926,875   $ 1,795,649   $ 1,715,150
                                                ===========   ===========   ===========

Liabilities and Shareholders' Equity
Deposits:
   Non-interest bearing ......................  $   226,031   $   206,725   $   171,788
   Interest bearing ..........................    1,292,952     1,237,758     1,240,421
                                                -----------   -----------   -----------
   Total deposits ............................    1,518,983     1,444,483     1,412,209
Federal funds purchased and
   repurchase agreements .....................       62,621        75,594        76,429
Other short-term borrowings ..................       55,000        45,014        38,019
Long-term debt ...............................      141,053        86,605        36,891
Other liabilities ............................       23,174        14,186        24,873
                                                -----------   -----------   -----------
   Total liabilities .........................    1,800,831     1,665,882     1,588,421
Shareholders' equity:
   Common stock, no par value. Authorized
      50,000,000 shares; issued and
      outstanding 11,318,770; 11,293,291;
      and 11,284,604 shares, respectively ....       21,222        21,175        21,154
   Additional paid-in capital ................       44,209        43,872        43,754
   Retained earnings .........................       64,293        68,152        66,988
   Unrealized net loss on
      securities available for sale,
      net of tax .............................       (1,129)         (403)       (1,887)
   Employee Stock Ownership Plan shares
      purchased with debt ....................       (2,551)       (3,029)       (3,280)
                                                -----------   -----------   -----------
   Total shareholders' equity ................      126,044       129,767       126,729
                                                -----------   -----------   -----------
   Total liabilities
     and shareholders' equity ................  $ 1,926,875   $ 1,795,649   $ 1,715,150
                                                ===========   ===========   ===========

 See accompanying notes to consolidated financial statements.

</TABLE>



<PAGE>



 Consolidated Statements of Income

 (Unaudited)
 In thousands, except per share data        Three Months          Nine Months

 For the periods ended September 30        1996      1995       1996      1995

 Interest income
  Loans, including fees ...............  $32,761  $ 29,197   $ 93,667  $ 84,026
  Federal funds sold and resale
    agreements ........................        2       177         52       730
  Securities available for sale .......    4,176     3,083     12,346     9,581
  Securities held to maturity .........     --       1,234       --       3,812
  Mortgage loans held for sale ........      954       527      2,863       969
  Interest-bearing deposits with banks         3         4         12        13
                                         -------  --------   --------  --------
  Total interest income ...............   37,896    34,222    108,940    99,131
Interest expense
  Deposits ............................   15,148    14,839     44,159    41,809
  Federal funds purchased
    and repurchase agreements .........      364       522      1,384     1,379
  Long-term debt and other
    borrowings ........................    3,114     1,325      8,308     4,167
                                         -------  --------   --------  --------
  Total interest expense ..............   18,626    16,686     53,851    47,355
                                         -------  --------   --------  --------
Net interest income ...................   19,270    17,536     55,089    51,776
  Provision for loan losses ...........    1,621       780     11,263     2,080
                                         -------  --------   --------  --------
Net interest income after
  provision for loan losses ...........   17,649    16,756     43,826    49,696
Non-interest income
  Service charges on deposit accounts .    2,435     2,127      7,090     6,272
  Mortgage banking income .............    2,626     1,658      7,610     3,691
  Gains (losses) on sales of securities
    available for sale, net ...........       26       (21)        20       (21)
  Gain on sale of mortgage servicing ..     --        --         --       1,687
  Trust services ......................      508       329      1,410       979
  Brokerage income ....................      455       438      1,783     1,316
  Other ...............................    1,344     1,233      4,020     3,425
                                         -------  --------   --------  --------
  Total non-interest income ...........    7,394     5,764     21,933    17,349
Non-interest expenses
  Compensation and benefits ...........    9,034     7,891     29,177    22,584
  Net occupancy expense ...............    1,119     1,266      4,057     3,554
  Furniture and equipment expense .....    1,509     1,529      5,348     4,535
  Deposit insurance ...................    2,941       215      3,452     1,754
  Professional fees ...................      576       685      2,492     2,404
  Postage, printing & supplies ........      970       826      3,100     2,659
  Communications ......................      689       365      1,873     1,155
  Other ...............................    3,634     3,024     13,857     9,904
                                         -------  --------   --------  --------
  Total non-interest expenses .........   20,472    15,801     63,356    48,549
                                         -------  --------   --------  --------
Income before income taxes ............    4,571     6,719      2,403    18,496
Income tax expense ....................    1,557     2,175        836     6,038
                                         --------  --------  --------  --------
                                         
Net income ............................  $ 3,014  $  4,544   $  1,567  $ 12,458
                                         =======  ========   ========  ========
Primary earnings per share ............  $  0.26  $   0.40   $   0.14  $   1.10
                                         =======  ========   ========  ========
Fully-diluted earnings per share ......  $  0.26  $   0.40   $   0.14  $   1.09
                                         =======  ========   ========  ========

 See accompanying notes to consolidated financial statements.




<PAGE>



 Consolidated Statements of Changes in Shareholders' Equity
 (Unaudited)
 In thousands
 For the nine months ended September 30    1996       1995

Balance January 1 ...................  $ 129,767   $ 111,632
  Net income ........................      1,567      12,458
  Issuance of common stock ..........        384       1,093
  Cash dividends declared
    on common stock .................     (5,426)     (5,059)
  Change in unrealized gain (loss) on
    securities available for sale,
    net of taxes ....................       (726)      6,186
  ESOP debt reduction ...............        478         419
                                       =========   =========
Balance September 30 ................  $ 126,044   $ 126,729
                                       =========   =========

 See accompanying notes to consolidated financial statements.



<PAGE>



 Consolidated Statements of Cash Flows
 (Unaudited)
 In thousands
 For the nine months ended September 30                       1996       1995

Cash flows from operating activities:
Net income/(loss) ......................................  $   1,567   $ 12,458
Adjustments to reconcile net income to cash
  provided by operating activities:
    Provision for loan losses ..........................     11,263      2,080
    Deferred tax expense ...............................       (281)    (1,447)
    Loss (gain) on sale of securities available for sale        (20)        21
    Loss (gain) on sale of mortgage loans held for sale      (1,797)      (935)
    (Gain) on sale of premises and equipment ...........       (105)      (174)
     Writedown of premises and equipment ...............        593       --
    Gain on sale of mortgage servicing rights ..........       --       (1,687)
    Depreciation and amortization of fixed assets ......      4,702      4,061
    Amortization of intangible assets ..................        687      1,009
    Amortization of premium on securities
      and loans, net ...................................        797      1,004
    Amortization of mortgage servicing rights ..........      3,834      1,679
(Increase) in accrued interest receivable ..............       (844)    (1,209)
Decrease  in other assets ..............................     11,918      6,480
Increase  in accrued interest payable ..................        326      2,328
Increase (decrease) in other liabilities ...............      6,445      8,065
Sale of mortgage loans held for sale ...................    266,242     76,694
Originations of mortgage loans held for sale ...........   (265,547)   (99,849)
                                                          ---------   --------
  Net cash provided by (used in) operating activities ..     39,780     10,578

Cash flows from investing activities:
Net decrease in interest-bearing deposits
  with banks ...........................................         99       --
Net decrease in federal funds sold
  and resale agreements ................................       --         (575)
Proceeds from sale of securities:
  Available for sale ...................................      8,898     17,524
  Held to maturity .....................................       --        2,568
Proceeds from prepayment and call of securities:
  Available for sale ...................................     35,520     10,359
  Held to maturity .....................................       --        3,798
Proceeds from maturities of securities:
  Available for sale ...................................     45,377     23,757
  Held to maturity .....................................       --        2,585
Purchase of securities:
  Available for sale ...................................    (81,964)   (22,493)
  Held to maturity .....................................       --       (3,000)
Net increase in loans ..................................   (159,135)   (94,109)
Purchase and origination of mortgage servicing rights ..    (14,330)   (21,107)
Proceeds from sale of mortgage servicing rights ........       --        2,180
Proceeds from sale of foreclosed assets ................      1,326        422
Purchases of premises and equipment ....................     (6,684)    (6,153)
Proceeds from disposal of premises and equipment .......      3,519        644
Net cash and cash equivalents inflow
  from acquisitions ....................................       --       37,479
                                                          ---------   --------
  Net cash used in investing activities ................   (167,374)   (46,121)

Cash flows from financing activities:
Net increase in deposits ...............................     74,500     35,595
Net (decrease) in federal funds purchased
  and repurchase agreements ............................    (12,973)     1,876
Net increase(decrease) in other short-term borrowings .       9,986    (10,014)
Proceeds from issuance of long-term debt ...............     55,000       --
Repayment of long-term debt ............................        (74)       (25)
Proceeds from issuance of common stock .................        384      1,093
Dividends paid .........................................     (5,426)    (5,059)
                                                          ---------   --------
  Net cash provided by financing activities ............    121,397     23,466
                                                          ---------   --------
Net decrease in cash and cash equivalents ..............     (6,197)   (12,077)
Cash and cash equivalents at beginning of year .........     81,703     80,828
                                                          ---------   --------
Cash and cash equivalents at end of year ...............  $  75,506   $ 68,751
                                                          =========   ========

 See accompanying notes to consolidated financial statements.

<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 1995 annual report on Form 10-K.
     In the opinion of management,  all  adjustments  (consisting of only normal
recurring accruals except those listed in Note 4 below) 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:
<TABLE>
<CAPTION>

 In thousands                                      Three Months           Nine Months
 For the periods ended September 30              1996       1995       1996      1995

<S>                                           <C>        <C>        <C>        <C>     
Balance beginning of period ................  $ 16,344   $ 13,429   $ 15,779   $ 12,529
  Provision for loan losses ................     1,621        780     11,263      2,080
  Loans charged off ........................      (961)      (681)   (10,480)    (1,313)
  Recoveries of loans previously charged off       162        131        604        363
                                              --------   --------   --------   --------
  Net charge-offs ..........................      (799)      (550)    (9,876)      (950)
                                              --------   --------   --------   --------

Balance September 30 .......................  $ 17,166   $ 13,659   $ 17,166   $ 13,659
                                                ======     ======     ======     ======
</TABLE>

(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 $6,663,000 at September
30, 1996. Of that amount, $3,226,000 represents loans for which an allowance for
loan losses,  in the amount of $1,404,000,  has been established under SFAS 114.
The average recorded  investment of impaired loans was $6,580,000 and $8,518,000
for the three  months  ended  September  30,  1996 and 1995,  respectively,  and
$9,608,000 and $6,713,000 for the nine months ended September 30, 1996 and 1995,
respectively.  Interest income  recognized on impaired loans totaled $32,000 for
the three months ended September 30, 1996, and $84,000 for the nine-month period
ended September 30, 1996.

(4) Second Quarter Initiatives
     In conjunction with a change in senior management during the second quarter
of 1996,  the company began  implementing  a plan under which certain  corporate
activities  are being  discontinued.  The plan calls for the company to exit the
venture capital,  human resources consulting and travel businesses;  to sell the
corporate aircraft; to close the company's Louisville, Kentucky office; to close
the mortgage loan  production  offices in  Chattanooga,  Jackson and  Knoxville,
Tennessee;  and to  realize  additional  cost  savings in the  company's  retail
delivery  system.  In  addition,  the plan calls for the company to  consolidate
office space in Nashville, Tennessee and Bowling Green, Kentucky.
     Costs  recognized in the second quarter of 1996 which are  associated  with
this plan include  severance and related payroll taxes and benefits,  writedowns
of fixed assets  expected to be sold or  abandoned,  legal and  accounting  fees
associated  with  discontinuing  certain  activities  and  various  other  costs
associated with the disposition of assets.  The classification of these costs in
the consolidated statement of income is shown below (in thousands):
 Compensation and benefits                                             $1,798
 Net occupancy expense                                                    475
 Furniture and equipment expense                                          325
 Professional fees                                                        340
 Other                                                                  2,869
                                                                        -----
 Total costs associated with the plan 
(recognized in the second quarter of 1996)                             $5,807



Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations

General
     Incorporated in 1981, 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,  headquartered  in Bowling Green,
Kentucky;  and Trans Financial Bank Tennessee,  National Association,  and Trans
Financial   Bank,   F.S.B.,   both   headquartered   in  Nashville,   Tennessee.
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 had total  consolidated  assets of $1.927  billion on September
30,  1996.  Loans  totaled  $1.407  billion on that date,  deposits  were $1.519
billion and shareholders' equity was $126 million.
     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 nine months  ended  September  30, 1996,  the company  recorded net
income of $1.6  million,  or $0.14 per common  share,  compared to net income of
$12.5 million,  or $1.10 per common share,  in the same period of 1995.  Results
for the first nine months of 1996 reflect pre-tax charges  totaling $5.8 million
related to the company's  commitment to refocus on its core  financial  services
business, reduce expenses and exit from less profitable business lines, taken in
the second quarter of 1996, and a pre-tax charge of $2.7 million  resulting from
recently enacted  legislation  designed to recapitalize the Savings  Association
Insurance Fund (SAIF),  taken during the third quarter of 1996. The company also
increased  its  year-to-date  1996  provision  for loan  losses by $9.2  million
compared to the same period in 1995, after taking partial  charge-offs  totaling
$7.0  million  on three  non-performing  loans in the  second  quarter  of 1996.
Results  for the first nine  months of 1996  produced  an  annualized  return on
average assets of 0.11% and a return on average common equity of 1.62%, compared
with returns of 1.01% and 13.95%,  respectively,  for the  comparable  period of
1995.
     For the third quarter of 1996,  net income  decreased to $3.0  million,  or
$0.26 per  common  share,  from $4.5  million,  or $0.40 per  common  share,  as
compared to the third quarter of 1995.  Excluding the special SAIF assessment of
$2.7 million from the third quarter of 1996, and the previously  reported refund
of $585 thousand associated with the  over-capitalization  of the Bank Insurance
Fund (BIF) in the third  quarter of 1995,  earnings  would have  increased  $623
thousand,  or $0.06 per common  share,  in the third quarter of 1996 compared to
the third  quarter of 1995.  Return on average  assets for the third  quarter of
1996 was 0.64% and the return on average common equity was 9.52%,  compared with
returns  of 1.07%  and  14.58%,  respectively,  for the third  quarter  of 1995.
Excluding  the special  SAIF  assessment  and the BIF refund  from each  period,
return on average  assets  would  have  increased  from 0.98% to 1.01%,  and the
return on average common equity from 13.33% to 15.10%, for the third quarters of
1995 and 1996, respectively.

Net Interest Income
     Net interest income on a tax-equivalent  basis totaled $56.3 million in the
first nine months of 1996,  compared with $53.1 million in the  comparable  1995
period - a 6.0% increase. For the first nine months of 1996, net interest margin
(net interest  income as a percentage of average  interest-earning  assets) on a
tax-equivalent basis decreased 19 basis points, from 4.70% to 4.51%.
     Approximately  $550 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
the first nine months of 1996, compared to the same period in 1995.  As the
prime rate stabilized in February 1996, increases in the company's funding 
costs, which had lagged behind the increases in loan yields, continued to rise.
As a result, the company's net interest 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.  This
negative  impact was partially  offset by increased  net interest  income due to
loan growth.
     The following tables show, for the nine- and  three-month  periods ended
 September  30, 1996 and 1995, the relationship  between  interest  income and
 expense and the levels  of average interest-earning  assets  and  average
 interest-bearing liabilities. They also reflect 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.

<PAGE>

<TABLE>


 Average Consolidated Balance Sheets and Net Interest Analysis

 For the nine months ended September 30
 Dollars in thousands
<CAPTION>

                                                         1996                           1995
                                           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 ....  $1,320,882  $   94,012*     9.51%   $1,172,796   $ 84,488*     9.63%
                                                                                                         
  Securities .......................     294,210      13,259*     6.02%      306,209     14,293*     6.24%
                                                                                                          
  Mortgage loans held for sale .....      52,446       2,863      7.29%       14,564        969      8.90%
  Federal funds sold
    and other interest income ......       1,324          64      6.46%       16,803        743      5.91%
                                     ------------   ----------             ----------  ----------
Total interest-earning assets /
  interest income ..................   1,668,862     110,198      8.82%    1,510,372    100,493      8.90%
                                                    --------                            -------
Non-interest-earning assets:
  Cash and due from banks ..........      59,451                              63,874
  Premises and equipment ...........      40,871                              37,659
  Other assets .....................      64,059                              38,614
                                     ------------                         ----------- 
Total assets .......................  $1,833,243                          $1,650,519
                                     ============                         ===========
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
  Interest-bearing deposits:
    Interest-bearing demand (NOW) ..  $  133,840       2,878      2.87%     $231,383      4,626      2.67%
    Savings deposits ...............     115,334       2,303      2.67%      133,800      2,917      2.91%
    Money market accounts ..........     152,042       3,503      3.08%       47,292      1,124      3.18%
    Certificates of deposit ........     770,385      31,863      5.52%      725,912     29,620      5.46%
    Other time deposits ............      86,399       3,612      5.58%       88,653      3,522      5.31%
                                     ------------   ----------              ---------    -------
    Total interest-bearing deposits    1,258,000      44,159      4.69%    1,227,040     41,809      4.56%
Federal funds purchased
  and repurchase agreements ........      40,293       1,384      4.59%       44,465      1,379      4.15%
Long-term debt and
  and other borrowings .............     178,632       8,308      6.21%       79,664      4,167      6.99%
                                     -------------   --------               --------     ------
  Total borrowed funds .............     218,925       9,692      5.91%      124,129      5,546      5.97%
                                     -------------   --------               --------     ------
Total interest-bearing liabilities /
  interest expense .................   1,476,925      53,851      4.87%    1,351,169     47,355      4.69%
                                     -------------    ------
Non-interest-bearing liabilities:
  Non-interest-bearing deposits ....     207,120                             165,522
  Other liabilities ................      19,620                              14,435
                                        --------                           ---------
  Total liabilities ................   1,703,665                           1,531,126
Shareholders' equity ...............     129,578                             119,393
                                       ---------                          ----------
Total liabilities
  and shareholders' equity .........  $1,833,243                          $1,650,519
                                      ==========                          ==========
Net interest-rate spread ...........                              3.95%                              4.21%
Impact of non-interest bearing
  sources and other changes in
  balance sheet composition ........                              0.56%                              0.49%
                                                               --------                              ----
Net interest income /
  margin on interest-earning assets               $   56,347      4.51%              $   53,138      4.70%
                                                 =============   =======             ==========      ====
<FN>
 *Includes tax-equivalent interest

   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 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.
</FN>
</TABLE>


<PAGE>

<TABLE>


 Average Consolidated Balance Sheets and Net Interest Analysis

 For the three months ended September 30
 Dollars in thousands
<CAPTION>

                                                               1996                                        1995
                                           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           $1,377,739          $32,907  *     9.50%      $1,203,501          $29,343  *       9.70%
   Securities                                 294,744            4,488  *     6.06%         298,359            4,629  *       6.17%
   Mortgage loans held for sale                48,808              954        7.78%          24,411              527          8.59%
   Federal funds sold
     and other interest income                    250                5        7.96%          12,302              181          5.85%
                                        --------------     ------------               --------------  ---------------
 Total interest-earning assets /
   interest income                          1,721,541           38,354        8.86%       1,538,573           34,680          8.97%
                                                           ------------                               ---------------
 Non-interest-earning assets:
   Cash and due from banks                     53,633                                        60,091
   Premises and equipment                      37,269                                        38,253
   Other assets                                71,614                                        42,379
                                        ==============                                ==============
 Total assets                              $1,884,057                                    $1,679,296
                                        ==============                                ==============
 Liabilities and Shareholders' Equity
 Interest-bearing liabilities:
   Interest-bearing deposits:
     Interest-bearing demand (NOW)            $31,819              243        3.04%        $232,321            1,590          2.72%
     Savings deposits                         110,669              751        2.70%         131,183              954          2.89%
     Money market accounts                    257,185            2,022        3.13%          46,611              382          3.26%
     Certificates of deposit                  798,551           10,954        5.46%         745,842           10,658          5.68%
     Other time deposits                       85,358            1,178        5.49%          89,292            1,255          5.59%
                                        --------------     ------------               --------------  ---------------
     Total interest-bearing deposits        1,283,582           15,148        4.69%       1,245,249           14,839          4.74%
 Federal funds purchased
   and repurchase agreements                   33,978              364        4.26%          49,234              522          4.22%
 Long-term debt and
   and other borrowings                       195,190            3,114        6.35%          75,007            1,325          7.03%
                                        --------------     ------------               --------------  ---------------
   Total borrowed funds                       229,168            3,478        6.04%         124,241            1,847          5.91%
                                        --------------     ------------               --------------  ---------------
 Total interest-bearing liabilities /
   interest expense                         1,512,750           18,626        4.90%       1,369,490           16,686          4.85%
                                                           ------------                               ---------------
 Non-interest-bearing liabilities:
   Non-interest-bearing deposits              224,493                                       167,794
   Other liabilities                           20,907                                        18,330
                                        --------------                                --------------
   Total liabilities                        1,758,150                                     1,555,614
 Shareholders' equity                         125,907                                       123,682
                                        --------------                                --------------
 Total liabilities
   and shareholders' equity                $1,884,057                                    $1,679,296
                                        ==============                                ==============
 Net interest-rate spread                                                     3.96%                                           4.12%
 Impact of non-interest bearing
   sources and other changes in
   balance sheet composition                                                  0.60%                                           0.53%
                                                                           ---------                                     -----------
 Net interest income /
   margin on interest-earning assets                           $19,728        4.56%                          $17,994          4.65%
                                                           ============    =========                  ===============    ===========
<FN>

 *Includes tax-equivalent interest

   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 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.
</FN>
</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 nine- and  three-month  periods ended September 30, 1996,
as compared to the same periods in 1995.

 Nine Months 1996 vs. 1995                    Increase (decrease)

                                         in interest income and expense

 In thousands                                 due to changes in:

                                      Volume      Rate     Total
 Interest-earning assets:
Loans ............................  $ 10,551   $(1,027)  $ 9,524
Securities .......................      (550)     (484)   (1,034)
Mortgage loans held for sale .....     2,097      (203)    1,894
Federal funds sold
  and other interest income ......      (742)       63      (679)
                                    --------   -------   -------
Total interest-earning assets ....    11,356    (1,651)    9,705

Interest-bearing liabilities:
Interest-bearing demand (NOW) ....    (2,075)      327    (1,748)
Savings deposits .................      (382)     (232)     (614)
Money market accounts ............     2,414       (35)    2,379
Certificates of deposit ..........     1,835       408     2,243
Other time deposits ..............       (91)      181        90
                                    --------   -------   -------
  Total interest-bearing deposits      1,701       649     2,350
Federal funds purchased
  and repurchase agreements ......      (136)      141         5
Long-term debt and
  and other borrowings ...........     4,650      (509)    4,141
                                    --------   -------   -------
  Total borrowed funds ...........     4,514      (368)    4,146
                                    --------   -------   -------
Total interest-bearing liabilities     6,215       281     6,496
                                    --------   -------   -------
Increase (decrease)
  in net interest income .........  $  5,141   $(1,932)  $ 3,209
                                    ========   =======   =======

 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
relationship of absolute dollar amounts of the change in each.


<PAGE>




 Third Quarter 1996 vs. 1995             Increase (decrease)

                                   in interest income and expense

 In thousands                             due to changes in:

                                     Volume    Rate     Total
 Interest-earning assets:
Loans ............................  $ 4,172   $(608)  $ 3,565
Securities .......................      (56)    (85)     (141)
Mortgage loans held for sale .....      481     (54)      427
Federal funds sold
  and other interest income ......     (224)     48      (176)
                                    -------   -----   -------
Total interest-earning assets ....    4,373    (699)    3,675

Interest-bearing liabilities:
Interest-bearing demand (NOW) ....   (1,512)    165    (1,347)
Savings deposits .................     (142)    (61)     (203)
Money market accounts ............    1,656     (16)    1,640
Certificates of deposit ..........      734    (438)      296
Other time deposits ..............      (55)    (22)      (77)
                                    -------   -----   -------
  Total interest-bearing deposits       681    (372)      309
Federal funds purchased
  and repurchase agreements ......     (163)      5      (158)
Long-term debt and
  and other borrowings ...........    1,930    (140)    1,790
                                    -------   -----   -------
  Total borrowed funds ...........    1,767    (135)    1,632
                                    -------   -----   -------
Total interest-bearing liabilities    2,448    (507)    1,941
                                    -------   -----   -------
Increase (decrease)
  in net interest income .........  $ 1,925   $(192)  $ 1,734
                                    =======   =====   =======

 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
relationship of absolute dollar amounts of the change in each.
      
Provision for Loan Losses
     The provision for loan losses was $11.3 million (1.14% of average loans, on
an annualized basis,  excluding mortgage loans held for sale) for the first nine
months of 1996,  compared  with $2.1  million  (0.4% of  average  loans) for the
comparable  period of 1995. Net loan  charge-offs were $9,876 thousand (1.00% of
average  loans) for the first nine months of 1996,  compared  with $950 thousand
(0.11% of average loans) for the first nine months of 1995.
     For the third  quarter of 1996,  the  provision  for loan losses was $1,621
thousand (0.47% of average loans,  on an annualized  basis,  excluding  mortgage
loans held for sale),  compared with $780 thousand  (0.26% of average  loans) in
the comparable period of 1995. Net loan charge-offs were $799 thousand (0.23% of
average loans) for the third quarter of 1996,  compared to $550 thousand  (0.18%
of average loans) for the third quarter of 1995.
     The company  increased its  year-to-date  1996 provision for loan losses by
$9.2 million  compared to year-to-date  1995,  after taking partial  charge-offs
totaling $7.0 million on three non-performing loans during the second quarter of
1996.  The  provision  for loan losses and the level of the  allowance  for loan
losses  reflect the quality of the loan  portfolio and result from  management's
evaluation  of the risks in the loan  portfolio.  The increased  provision  also
provides for overall growth in the loan  portfolio.  Further  discussion on loan
quality and the  allowance  for loan  losses is  included  in the Asset  Quality
discussion later in this report.


<PAGE>


Non-Interest Income
     Non-interest  income  for the  first  nine  months of 1996  increased  $4.6
million over the first nine months of 1995. The second quarter of 1995, however,
included a $1.7 million pre-tax gain from the sale of mortgage servicing rights.
Excluding  this gain from the first  nine  months of 1995,  non-interest  income
increased $6.3 million.  This reflects an increase in service charges on deposit
accounts of $818 thousand,  due in part to the  introduction  of new transaction
account  products in April of 1996. The strong growth in the mortgage  servicing
portfolio  during  the past year  resulted  in an  increase  of $3.9  million of
mortgage banking income. An increase in trust and investment  services income of
$901 thousand,  reflecting the company's expanding trust and brokerage services,
accounts for most of the remaining improvement in non-interest income.
     Comparing  the  third  quarter  of 1996 to the  comparable  period of 1995,
non-interest  income  increased  $1.6  million.  This  reflects a $968  thousand
improvement  in mortgage  banking  income,  a $308 thousand  increase in service
charges on deposit accounts and a $196 thousand increase in trust and investment
services income.

Non-Interest Expenses
     Non-interest  expenses increased $14.8 million for the first nine months of
1996, compared to the first nine months of 1995.  Excluding the previously noted
pre-tax  charges  totaling $5.8 million  related to the company's  commitment to
refocus on its core  financial  services,  the  pre-tax  charge of $2.7  million
associated with the SAIF recapitalization, and the previously reported refund of
$585 thousand associated with the  over-capitalization  of the BIF, non-interest
expenses would have increased $5.7 million.  Increased expenses during the first
half of 1996 on  activities  which have been  discontinued  under the  company's
refocus on core financial services account for $1.1 million of this $5.7 million
increase.  The expanding  mortgage banking business  accounted for $1.9 million,
and expenses  related to the customer care center (which became  operational  in
the fourth quarter of 1995) accounted for $1.5 million of the increased expenses
in the first nine months of 1996.
     The efficiency ratio (non-interest expenses as a percentage of net interest
income plus non-interest income) for the third quarter of 1996 was 76.8%, versus
67.8% for the same period in 1995. Excluding the previously noted charge of $2.7
million associated with the SAIF recapitalization from the third quarter of 1996
and the BIF refund of $585 from the third quarter of 1995, the efficiency  ratio
would have improved from 70.3% to 66.7%.

Income Taxes
     Income tax expense totaled $836 thousand for the first nine months of 1996,
compared  with $6.0  million in the  comparable  1995  period.  These  represent
effective tax rates of 34.8% and 32.6%,  respectively.  For the third quarter of
1996, income tax expense was $1.6 million, versus expense of $2.2 million in the
second  quarter  of 1995,  reflecting  effective  tax rates of 34.1% and  32.4%,
respectively.


Balance Sheet Review
Overview
     Assets at September 30, 1996 totaled $1.927  billion,  compared with $1.796
billion at December  31,  1995,  and $1.715  billion a year ago.  Average  total
assets for the third quarter  increased $205 million (12%) over the past year to
$1.884 billion. Average interest-earning assets increased $183 million to $1.722
billion.

Loans
     The company continues to experience strong loan growth. Total loans, net of
unearned income, averaged $1.378 billion in the third quarter of 1996, excluding
mortgage  loans held for sale of $48.8  million.  For the  comparable  period in
1995,  loans averaged  $1.204  billion,  excluding the $24.4 million of mortgage
loans held for sale.
     At September 30, 1996,  loans net of unearned  income  (excluding  mortgage
loans held for sale) totaled  $1.407  billion,  compared with $1.259  billion at
December  31,  1995,  and  $1.237  billion a year  ago.  Loans  increased  at an
annualized rate of 15.8% from year-end 1995 to September 30, 1996.

Asset Quality
     Nonperforming  loans, which include  nonaccrual loans,  accruing loans past
due 90 days or more and restructured  loans,  totaled $11.6 million at September
30, 1996,  down $5.7 million from December 31, 1995,  and down $1.5 million from
the end of the third quarter of 1995.  The decline from  December 31, 1995,  was
primarily due to the partial  charge-off of three loans which had been placed on
nonaccrual  status during 1995. The ratio of nonperforming  loans to total loans
(net of unearned income) was 0.82% at September 30, 1996, compared with 1.38% at
the end of 1995  and  1.06% a year  ago.  Nonperforming  assets,  which  include
nonperforming  loans,  foreclosed  real  estate and other  foreclosed  property,
totaled  $15.0  million at  September  30,1996 as compared  to $17.8  million at
September 30, 1995. The ratio of nonperforming  assets to total assets decreased
to 0.78% at September 30, 1996, from 1.04% a year ago.
     The following table presents information  concerning  nonperforming assets,
including  nonaccrual and restructured  loans.  Management  classifies a loan as
nonaccrual  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  installment  loans are
charged off after 120 days of delinquency  unless adequately  secured and in the
process of collection.  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.

<TABLE>

 Nonperforming Assets
 Dollars in thousands

<CAPTION>
                                                 September 30  June 30  December 31  September 30
                                                       1996      1996      1995         1995
<S>                                                  <C>        <C>        <C>        <C>    
Nonaccrual loans .................................   $ 6,718    $ 5,570    $12,708    $ 9,497
Accruing loans which are contractually
  past due 90 days or more .......................     4,881      5,517      4,617      3,625
Restructured loans ...............................         5          6         14         17
                                                     -------    -------    -------    -------
  Total nonperforming and restructured loans .....    11,604     11,093     17,339     13,139
Foreclosed real estate ...........................     3,108      3,342      4,329      4,115
Other foreclosed property ........................       241        303        677        569
                                                     -------    -------    -------    -------
  Total nonperforming and restructured loans and
foreclosed property ..............................   $14,953    $14,738    $22,345    $17,823
                                                     =======    =======    =======    =======

Nonperforming and restructured loans
as a percentage of loans, net of unearned income      0.82%      0.82%      1.38%      1.06%
Total nonperforming and restructured loans and
foreclosed property as a percentage of total ...      0.78%      0.79%      1.24%      1.04%
assets
</TABLE>

     Three commercial credit relationships  account for $3.7 million, or 54%, of
the  company's  nonaccrual  loans  at  September  30,  1996,  and  32% of  total
nonperforming and restructured loans. An allowance for loan losses in the amount
of $539  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  nonaccrual  balance consists of various
commercial  and consumer  loans,  with no single loan  exceeding  $500,000.  The
increase in accruing  loans past due 90 days or more from  September 30, 1995 to
September 30, 1996, is principally residential real estate loans.
     Foreclosed real estate at September 30, 1996,  includes two properties with
an aggregate book value of $1.5 million, or 47% of the outstanding  balance. The
first 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  any
significant loss to be incurred on disposition.  The second property included in
foreclosed  real estate is a  manufacturing  facility  which was acquired in the
fourth quarter of 1995. The property is listed for sale and management  does not
anticipate  any  significant  loss on the sale of the  property.  The  remaining
balance of foreclosed real estate consists of several properties, with no single
property exceeding $250,000.
     As of September 30, 1996,  the company had $6.5 million of loans which were
not included in the past due,  nonaccrual 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 September 30, 1996,  the allowance was $17.2  million,  up from $15.8
million at December  31, 1995,  and $13.7  million at  September  30, 1995.  The
allowance as a percentage of nonperforming  loans increased to 148% at September
30, 1996, from 91% at year-end 1995 and 104% at September 30, 1995. The ratio of
the allowance for loan losses to total loans (excluding  mortgage loans held for
sale) at September  30,  1996,  was 1.22%,  compared  with 1.25% at December 31,
1995, and 1.10% at September 30, 1995.
     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 and the size of the loan  portfolio.  The
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 September 30, 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.

Securities, Federal Funds Sold and Resale Agreements
     Securities,  including  those  classified as held to maturity and available
for sale,  increased  from $288 million at September 30, 1995 to $298 million at
year-end 1995,  and then decreased to $289 million at September 30, 1996.  Funds
provided by the reduction in securities  from December 31, 1995 to September 30,
1996 were utilized to fund growth in the loan portfolio.

Deposits and Borrowed Funds
     Total  deposits  averaged  $1.508  billion in the third quarter of 1996, an
increase  of $95  million,  or 7%,  from the  comparable  1995  period.  Average
interest-bearing  accounts increased $38.3 million in the third quarter of 1996,
compared to the same period in 1995, while average non-interest-bearing accounts
increased $56.7 million.
     Long-term  debt totaled $141 million at September  30, 1996, an increase of
$104 million from  September 30, 1995. In order to support  internally-generated
growth in the loan  portfolio,  TFB-KY issued in the fourth  quarter of 1995 $20
million of two-year notes and $30 million of three-year notes, and in the second
quarter of 1996 $25 million of four-year notes, under a $250 million senior bank
note  program.  The notes issued to date bear  interest at fixed rates of 6.32%,
6.48%,  and  7.13%,  respectively.  The first two issues  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 a fixed rate of 8.60%.  An  additional  $175 million of bank
notes  may be  issued  from  time to  time  under  this  book-entry  program  in
maturities  varying from 30 days to 30 years.  The  remainder of the increase in
long-term  debt can be attributed to a long-term  Federal Home Loan Bank advance
obtained  by TFB-KY in the first  quarter  of 1996 to assist in  funding of loan
growth.  This $30  million  advance  matures in March 1998 and bears an interest
rate of 5.50%.

Capital Resources and Liquidity
     The company's capital ratios at September 30, 1996,  December 31, 1995, and
September 30, 1995 (calculated in accordance with regulatory guidelines) were as
follows:

                                      September 30,  December 31,  September 30,
                                             1996       1995        1995
Tier 1 risk based .....................      7.55%      8.64%      8.95%
     Regulatory minimum ...............      4.00       4.00       4.00
Total risk based ......................     10.77      12.15      12.47
     Regulatory minimum ...............      8.00       8.00       8.00
Leverage ..............................      6.12       6.70       6.94
     Regulatory minimum ...............      3.00       3.00       3.00

     The decrease in these  capital  ratios during the first nine months of 1996
is primarily due to the loss associated with the $5.8 million in charges and the
increased loan loss provision, both taken during the second quarter of 1996, and
the $2.7 million charge associated with the SAIF recapitalization,  taken during
the third quarter of 1996.  The decrease  prior to the second quarter of 1996 is
primarily  due to growth  in the  balance  sheet,  particularly  commercial  and
commercial   real  estate  loans.   Capital  ratios  of  all  of  the  company's
subsidiaries  are in excess  of  applicable  minimum  regulatory  capital  ratio
requirements at September 30, 1996.
     Generally  speaking,  the  company  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,
advances  from the  Federal  Home Loan Bank and lines of credit.  The  company's
primary  investing  activities  include  the  purchase  of  securities  and loan
originations,  offset by maturities,  prepayments  and sales of securities,  and
loan payments.


<PAGE>




Asset/Liability Management
     Managing  interest  rate  risk is  fundamental  to the  financial  services
industry.  The company manages 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 within established policy guidelines.
     The company's  Asset/Liability Committee (ALCO) approves policy guidelines,
provides oversight to the asset/liability  management process,  and monitors and
adjusts exposure to interest rates in response to loan and deposit flows. ALCO's
overall  objective is to optimize net interest  income within the constraints of
prudent  capital  adequacy,  liquidity  needs,  the  interest  rate and economic
outlook,   market  opportunities  and  customer  requirements.   Asset/liability
activity is reviewed monthly by the company's board of directors.
     An earnings  simulation  model is used to monitor and evaluate the exposure
and impact of changing interest rates on earnings.  The simulation model used by
the   company   reflects   the   dynamics   of  all   interest-earning   assets,
interest-bearing  liabilities and off-balance-sheet  financial  instruments.  It
combines the various factors affecting rate sensitivity into a two-year earnings
outlook that  incorporates  management's  view of the most likely  interest rate
environment.  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,  or random,  view of net  interest  income can be  obtained  once
probabilities have been assigned to those key rates.
     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,  such as loans and  investment
securities,  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.  These and  certain  other  effects  are  evaluated  to develop
multiple scenarios from which the sensitivity of earnings to changes in interest
rates is determined.
     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 September 30, 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 6.00% and  9.00%,  respectively,  by
September 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 at September 1996:


Basis point change         +200 bp      +100 bp         -100 bp       -200 bp
Increase (decrease)
in net interest income     4.37%         2.31%          (1.17)%       (1.09)%


     As of September 30, 1996,  management  believes 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.  It should be noted that the results of the
simulation  model do 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 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  predominantly all expected future cash flows.  Assets and liabilities
with option  characteristics  are valued  based on numerous  interest  rate path
valuations  using Monte Carlo rate simulation  techniques.  The company utilizes
this tool as another  component of interest  rate risk  management to supplement
the results achieved through net interest income simulations.
         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 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 largely neutralized.


<PAGE>
<TABLE>


Interest Rate Swaps
 Dollars in thousands
<CAPTION>
 
                                     Notional           Fixed Rate        Floating Rate
                                      Amount           (Receiving)          (Paying)                 Maturity
                                  ---------------   ------------------    -----------------    ---------------
<S>                                     <C>              <C>                  <C>                 <C>
                                          50,000          9.25%               8.25% (Prime)        November, 1996
                                          30,000         10.40%               8.25% (Prime)         January, 1997
                                          50,000          8.33%               8.25% (Prime)            June, 1997
                                          50,000          8.50%               8.25% (Prime)            July, 1997
                                          20,000          8.60%               8.25% (Prime)         October, 1997
                                          30,000          8.23%               8.25% (Prime)           March, 1998
                                          30,000          8.60%               8.25% (Prime)         October, 1998
                                  ---------------

 Total / weighted average               $260,000          8.82%               8.25%                    July, 1997
                                  ===============

</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 swaps will mitigate the company's  exposure to
reduced net interest income.
     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.


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 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>


                           Part II - Other Information

Item 1. 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,   Frank
Mastrapasqua,  C. Cecil Martin,  James D. Scott,  and William B. Van Meter.  Mr.
Lester claims that the company  wrongfully  terminated  him on June 4, 1996. Mr.
Lester claims 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,  $1,000,000 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 position of the company
and intends to vigorously defend the action.

Items 2 through 5.
     No information is required to be filed for these items.

Item 6. Exhibits and Reports on Form 8-K
   (a) Exhibits
       The exhibits  listed on the Exhibit Index on pages 20 and 21 of this Form
10-Q are filed as a part of this report.

   (b) Reports on Form 8-K
       During the quarter  ended  September  30, 1996,  the  registrant  filed a
       Current  Report on Form 8-K dated July 16, 1996.  This Current  Report on
       Form 8-K  reported  the  registrant's  financial  results for the quarter
       ended June 30, 1996. No financial  statements  were filed under Item 7 of
       the report.



<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: November  14, 1996                               /s/ Vince A. Berta
      ------------------                               ------------------
                                                           Vince A. Berta
                                                        Acting President and
                                                        Chief Executive Officer

                                                Principal Financial Officer:


Date:  November 14, 1996                            /s/ Edward R. Matthews
       -----------------                            ----------------------
                                                        Edward R. Matthews
                                                      Chief Financial Officer


<PAGE>



21



                                    Exhibits
                                                                  Sequentially
                                                                 Numbered Pages

   4(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.

   4(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.

   4(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(d)    Rights Agreement dated January 20, 1992 between Manufacturers Hanover
           Trust Company (subsequently  assigned to First Union National Bank of
           North  Carolina) and the registrant is  incorporated  by reference to
           Exhibit 1 to the  registrant's  report on Form 8-K dated  January 24,
           1992.

   4(e)    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 the  Registration  Statement on Form S-2 of the registrant (File
           No. 33-67686).

  4(f)     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).

11         Statement Regarding Computation of Per Share Earnings..............21

27         Financial Data Schedule(for SEC use only)..........................--

<PAGE>