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 June 30, 1997 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  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 August
12, 1997: 11,441,035 shares.




<PAGE>


Part I - Financial Information




Item 1. Financial Statements
<TABLE>

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

                                              June 30     December 31    June 30
                                                1997         1996          1996
 Assets
<S>                                        <C>           <C>           <C>        
Cash and due from banks .................  $    72,131   $    75,054   $    56,902
Interest-bearing deposits with banks ....           98            98            98
Mortgage loans held for sale ............       80,489        67,999        56,232
Securities available for sale (amortized
   cost of $252,082 as of  June 30, 1997;
   $285,264 as of December 31, 1996;
   and $290,696 as of June 30, 1996) ....      251,829       285,155       287,481
Loans, net of unearned income ...........    1,473,337     1,450,999     1,348,906
Less allowance for loan losses ..........       21,016        18,065        16,344
                                           -----------   -----------   -----------
   Net loans ............................    1,452,321     1,432,934     1,332,562
Premises and equipment, net .............       36,488        37,377        39,795
Mortgage servicing rights ...............       45,397        41,866        41,425
Other assets ............................       41,937        63,469        52,201
                                           ===========   ===========   ===========
   Total assets .........................  $ 1,980,690   $ 2,003,952   $ 1,866,696
                                           ===========   ===========   ===========

Liabilities and Shareholders' Equity
Deposits:
   Non-interest bearing .................  $   226,140   $   231,717   $   226,807
   Interest bearing .....................    1,314,609     1,347,500     1,280,526
                                           -----------   -----------   -----------
   Total deposits .......................    1,540,749     1,579,217     1,507,333
Federal funds purchased and
   repurchase agreements ................       93,607        71,879        29,530
Other short-term borrowings .............       45,000        55,000        45,000
Long-term debt ..........................      140,628       140,903       141,179
Other liabilities .......................       20,812        25,637        19,971
                                           -----------   -----------   -----------
   Total liabilities ....................    1,840,796     1,872,636     1,743,013
Shareholders' equity:
   Common stock, no par value. Authorized
      50,000,000 shares; issued and
      outstanding 11,437,962; 11,372,532;
      and 11,312,500 shares, respectively       21,446        21,324        21,211
   Additional paid-in capital ...........       45,570        44,745        44,108
   Retained earnings ....................       75,317        67,790        63,089
   Unrealized net loss on
      securities available for sale,
      net of tax ........................         (257)          (92)       (2,073)
   Employee Stock Ownership Plan shares
      purchased with debt ...............       (2,182)       (2,451)       (2,652)
                                           -----------   -----------   -----------
   Total shareholders' equity ...........      139,894       131,316       123,683
                                           -----------   -----------   -----------
   Total liabilities
     and shareholders' equity ...........  $ 1,980,690   $ 2,003,952   $ 1,866,696
                                           ===========   ===========   ===========

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




<PAGE>


<TABLE>

 Consolidated Statements of Income
 (Unaudited)
 In thousands, except per share data
 For the periods ended June 30 
<CAPTION>
 
                                             Three Months         Six Months
                                           1997        1996    1997        1996

 Interest income
<S>                                      <C>        <C>        <C>      <C>     
  Loans, including fees ...............  $ 34,337   $ 30,905   $67,945  $ 60,906
  Federal funds sold and resale
    agreements ........................      --           48      --          50
  Securities available for sale .......     3,597      4,129     7,417     8,170
  Mortgage loans held for sale ........     1,568      1,128     2,797     1,909
  Interest-bearing deposits with banks          2          5         4         9
                                           -------  --------   -------  --------
  Total interest income ...............    39,504     36,215    78,163    71,044
Interest expense
  Deposits ............................    16,035     14,668    31,540    29,011
  Federal funds purchased
    and repurchase agreements .........       699        428     1,290     1,020
  Long-term debt and other
    borrowings ........................     3,056      2,844     6,319     5,194
                                          -------  --------    -------  --------
  Total interest expense ..............    19,790     17,940    39,149    35,225
                                                               -------  --------
Net interest income ...................    19,714     18,275    39,014    35,819
  Provision for loan losses ...........     2,900      8,421     4,850     9,642
                                          -------   --------   -------  --------
Net interest income after
  provision for loan losses ...........    16,814      9,854    34,164    26,177
Non-interest income
  Service charges on deposit accounts .     2,582      2,419     5,077     4,655
  Mortgage banking income .............     2,612      2,331     5,369     4,984
  Gains (losses) on sales of securities
    available for sale, net ...........       (88)       (21)      133        (6)
  Trust services ......................       677        441     1,238       902
  Brokerage income ....................       708        667     1,418     1,328
  Other ...............................     2,684      1,467     3,859     2,676
                                           -------   --------  -------  --------
  Total non-interest income ...........     9,175      7,304    17,094    14,539
Non-interest expenses
  Compensation and benefits ...........     8,577     10,910    17,185    20,143
  Net occupancy expense ...............     1,156      1,734     2,306     2,938
  Furniture and equipment expense .....     1,615      2,172     3,181     3,839
  Deposit insurance ...................       106        267       209       511
  Professional fees ...................       712      1,219     1,378     1,915
  Postage, printing & supplies ........       867      1,153     1,847     2,130
  Communications ......................       712        615     1,370     1,184
  Other ...............................     3,411      6,695     6,719    10,224
                                           -------   --------  -------  --------
  Total non-interest expenses .........    17,156     24,765    34,195    42,884
                                           -------   --------  -------  --------
Income (loss) before income taxes .....     8,833     (7,607)   17,063    (2,168)
Income tax expense (credit) ...........     2,971     (2,424)    5,653      (721)
                                           -------   --------  -------  --------
                                                               
Net income (loss) .....................  $  5,862   $ (5,183)  $11,410  $ (1,447)

Primary earnings (loss) per share .....  $   0.50   $  (0.45)  $  0.98  $  (0.13)
                                           =======   ========  =======  ========
Fully-diluted earnings (loss) per share  $   0.50   $  (0.45)  $  0.97  $  (0.13)
                                           =======   ========  =======  ========

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




<PAGE>



 Consolidated Statements of Changes in Shareholders' Equity
 (Unaudited)
 In thousands
 For the six months ended June 30                     1997              1996

 Balance January 1                                  $131,316          $129,767
   Net income                                         11,410            (1,447)
   Issuance of common stock                              946               272
   Cash dividends declared:
     Common stock                                     (3,882)           (3,616)
   Change in unrealized loss on
     securities available for sale,
     net of taxes                                       (165)           (1,670)
   ESOP debt reduction                                   269               377
                                              ==============     =============
 Balance at end of period                           $139,894          $123,683
                                              ==============     =============

 See accompanying notes to consolidated financial statements.



<PAGE>

<TABLE>


 Consolidated Statements of Cash Flows
 (Unaudited)
 In thousands
 For the six months ended June 30 
<CAPTION>

                                                                        1997        1996

 Cash flows from operating activities:
<S>                                                                 <C>         <C>       
Net income (loss) ................................................  $  11,410   $  (1,447)
Adjustments to reconcile net income to cash
  provided by operating activities:
    Provision for loan losses ....................................      4,850       9,642
    Deferred tax expense .........................................       (472)       (281)
    Loss (gain) on sale of securities available for sale .........       (133)          6
    Gain on sale of mortgage loans held for sale .................     (1,910)     (1,797)
    Writedown of premises and equipment ..........................       --           593
    Gain on sale of premises and equipment .......................         (3)        (60)
    Gain on sale of Tennessee offices ............................     (1,241)       --
    Depreciation and amortization of fixed assets ................      2,549       3,447
    Amortization of intangible assets ............................        647         687
    Amortization of premium on securities and loans, net .........        418         586
    Amortization of mortgage servicing rights ....................      2,957       2,407
Decrease (increase) in accrued interest receivable ...............        895        (844)
Decrease in other assets .........................................     21,169       7,153
Increase (decrease)  in accrued interest payable .................       (102)        326
Increase (decrease) in other liabilities .........................     (4,751)      3,777
Sale of mortgage loans held for sale .............................    410,164     171,529
Originations of mortgage loans held for sale .....................   (420,744)   (165,982)
                                                                    ---------   ---------
  Net cash provided by operating activities ......................     25,703      29,742

Cash flows from investing activities:
Net decrease in interest-bearing deposits with banks .............       --            99
Proceeds from sale of securities available for sale ..............      2,604       5,118
Proceeds from prepayment and call of securities available for sale      5,245      28,028
Proceeds from maturities of securities available for sale ........     30,670      12,195
Purchase of securities available for sale ........................     (5,622)    (37,747)
Net decrease in loans ............................................    (25,560)   (114,009)
Net cash outflow from sale of Tennessee offices ..................    (13,789)       --
Purchase and origination of mortgage servicing rights ............     (6,488)    (12,981)
Proceeds from sale of foreclosed assets ..........................        407       1,326
Purchases of premises and equipment ..............................     (2,648)     (5,296)
Proceeds from disposal of premises and equipment .................        232         345
                                                                    ---------   ---------
  Net cash used in investing activities ..........................    (14,949)   (122,922)

Cash flows from financing activities:
Net increase (decrease) in deposits ..............................    (22,463)     62,850
Net increase (decrease) in federal funds purchased
  and repurchase agreements ......................................     21,728     (46,064)
Net decrease in other short-term borrowings ......................    (10,000)        (14)
Proceeds from issuance of long-term debt .........................       --        55,000
Repayment of long-term debt ......................................         (6)        (49)
Proceeds from issuance of common stock ...........................        946         272
Dividends paid ...................................................     (3,882)     (3,616)
                                                                    ---------   ---------
  Net cash provided by (used in) financing activities ............    (13,677)     68,379
                                                                    ---------   ---------
Net decrease in cash and cash equivalents ........................     (2,923)    (24,801)
Cash and cash equivalents at beginning of year ...................     75,054      81,703
                                                                    ---------   ---------
Cash and cash equivalents at end of period .......................  $  72,131   $  56,902
                                                                    =========   =========

  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 1996 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:
<TABLE>


 In thousands                                                         
 For the periods ended June 30
<CAPTION>
                                       
                                                     Three Months            Six Months
                                                    1997       1996       1997       1996

<S>                                              <C>        <C>        <C>        <C>     
Balance beginning of period .................... $ 19,010   $ 16,051   $ 18,065   $ 15,779
  Provision for loan losses ....................    2,900      8,421      4,850      9,642
  Loans charged off ............................   (1,141)    (8,398)    (2,273)    (9,519)
  Recoveries of loans previously charged off ...      247        270        374        442
                                                 --------   --------   --------   --------
  Net charge-offs ..............................     (894)    (8,128)    (1,899)    (9,077)
                                                 --------   --------   --------   --------

Balance at end of period ....................... $ 21,016   $ 16,344   $ 21,016   $ 16,344
                                                 ========   ========   ========   ========
</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 $4,694,000 at June 30,
1997.  Of that amount,  $2,356,000  represents  loans for which an allowance for
loan losses,  in the amount of $639,000,  has been  established  under SFAS 114.
Impaired  loans  totaled  $6,534,000 at June 30, 1996,  including  $2,101,000 of
loans for which an allowance was established totaling $759,000.
     The average  recorded  investment  of  impaired  loans was  $4,476,000  and
$9,644,000 for the three months ended June 30, 1997 and 1996, respectively,  and
$4,456,000  and  $11,122,000  for the six months  ended June 30,  1997 and 1996,
respectively.  Interest income  recognized on impaired loans totaled $23,000 for
the three months ended June 30, 1997, and $46,000 for the six-month period ended
June 30, 1997. For the comparable  periods in 1996,  interest income on impaired
loans totaled $1,000 and $15,000, respectively.

 (4) New Accounting and Disclosure Standards
     Earnings per Share
     During the first quarter of 1997, the Financial  Accounting Standards Board
issued Statement of Financial  Accounting  Standards No. 128, Earnings per Share
("SFAS  128"),   which   established  new  standards  for  the  calculation  and
presentation  of earnings per share ("EPS") in financial  statements.  SFAS 128,
which will become effective in the fourth quarter of 1997 and may not be adopted
earlier, replaces primary EPS with basic EPS, and fully-diluted EPS with diluted
EPS. Basic EPS for the company will be slightly  higher than primary EPS because
common stock  equivalents  will not be considered in basic EPS;  diluted EPS for
the company will be essentially the same as  fully-diluted  EPS. When adopted in
the fourth quarter of 1997, all prior periods will be restated to conform to the
SFAS 128 presentation.
     Under SFAS 128, basic  earnings  (loss) per share would have been $0.51 and
$(0.46) for the  quarters  ended June 30, 1997 and 1996,  respectively.  Diluted
earnings (loss) per share would have been $0.50 and $(0.45),  respectively,  for
those same  periods.  For the six months  ended  June 30,  1997 and 1996,  basic
earnings (loss) per share would have been $1.00 and $(0.13),  respectively,  and
diluted   earnings   (loss)  per  share  would  have  been  $0.97  and  $(0.13),
respectively.
     Derivatives and Certain Other Financial Instruments
     Also  during  the  first  quarter  of 1997,  the  Securities  and  Exchange
Commission  in Release  #33-7386  clarified  and  expanded  existing  disclosure
requirements for derivatives and other financial instruments sensitive to market
risk. This release  mandates  additional  detail regarding  accounting  policies
followed with respect to derivatives,  and expanded qualitative and quantitative
information  regarding  the  market  risk  inherent  in  derivatives  and  other
financial instruments.
     The company will provide the market risk  information  in its Annual Report
on Form 10-K for the year ended  December 31,  1997.  Accounting  policies  with
respect to derivatives are as follows:
         The company uses interest rate  contracts  (swaps and floors) to manage
     its sensitivity to interest rate risk. These off-balance-sheet transactions
     are  employed  to  hedge  the  inherent  interest  rate  risk  of  specific
     on-balance-sheet assets or liabilities, rather than for speculative trading
     activity.  These instruments are designated as hedges on the trade date and
     would not be entered  into  unless  highly  correlated  with the  financial
     instruments  being hedged.  Generally,  a high correlation  exists when the
     contract and the hedged  instrument have the same maturity and similar rate
     characteristics.  Interest  income and expense for each contract is accrued
     over the term of the agreement as an adjustment to the yield of the related
     asset or liability. Similarly,  transaction fees are deferred and amortized
     through  interest income and expense over the lives of the agreements.  The
     fair market value of these  instruments  is not  included in the  financial
     statements.
         Interest  rate floor  contracts  are  currently  being  utilized by the
     company  to  mitigate  the market  risk of the  mortgage  servicing  rights
     portfolio due to prepayments  associated  with a decline in interest rates.
     Under these  contracts the company  would receive  interest on the notional
     amount  to the  extent  that a  specified  market  rate for  U.S.  Treasury
     securities  falls  below the  designated  "floor"  rate.  The cost of these
     contracts is included in other assets in the consolidated balance sheet and
     is amortized against mortgage banking income on a straight-line  basis over
     the lives of the contracts.



<PAGE>


Item 2. Management's Discussion and Analysis of Financial Condition and Results
        of Operations
General
     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. As of June 30, 1997, the company had two commercial  bank
subsidiaries--Trans  Financial Bank, National  Association  ("TFB-KY") and Trans
Financial  Bank  Tennessee,  National  Association  ("TFB-TN")--and  one  thrift
subsidiary--Trans  Financial Bank,  F.S.B.("TFB-FSB").  In addition, the company
operates    as    subsidiaries    of    TFB-KY   a    full-service    securities
broker/dealer--Trans   Financial  Investment  Services,   Inc.  ("TFIS")--and  a
mortgage   banking   company--Trans   Financial   Mortgage   Company   ("TFMC").
Collectively,  the thrift and the two bank  subsidiaries are referred to in this
report as "the banks."
     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.
     On July 26,  1997,  TFB-FSB  was  merged  into  TFB-KY,  and its  Tennessee
operations were sold to TFB-TN.  These  transactions  consolidated the company's
banking operations into two national bank charters--one consisting of all of the
company's  banking activities in Kentucky  and the other of all of the Tennessee
banking activity.
     On June 26,  1997,  the company  announced  an  agreement  for the proposed
transfer  of the Trans  Adviser  family of mutual  funds  ("the  Funds")  to the
Countrywide  Family of Funds,  subject to  approval by the  shareholders  of the
Funds. TFB-KY currently acts as investment adviser to the Funds, which had total
assets of $159 million  as of June 30,  1997.  The proposed  transfer will not
have a  significant  impact  on the  company's  financial condition or results 
of operations.
     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 June 30, 1997,  the company earned $5.9 million,
or $0.50 per share,  compared to a net loss of $5.2 million, or $0.45 per share,
for the second  quarter of 1996. The loss in the second quarter of 1996 reflects
pre-tax  charges  totaling $5.8 million  related to an initiative to refocus the
company's  resources on its core financial  services,  reduce operating expenses
and exit from  less-profitable  initiatives.  The company also  recorded an $8.4
million  provision for loan losses in the second  quarter of 1996,  after taking
partial charge-offs totaling $7.0 million on three non-performing loans. Results
for the second  quarter of 1997 produced an annualized  return on average assets
of 1.21% and a return on average  shareholders' equity of 17.15%,  compared with
(1.13)% and (15.78)%, respectively, for the second quarter of 1996.
     For the  first  half of 1997,  the  company  recorded  net  income of $11.4
million,  or $0.98 per share,  compared to a net loss of $1.4 million,  or $0.13
per  share,  in the same  period  of 1996,  which  includes  the  impact  of the
previously-mentioned  charges and the increase in the provision for loan losses.
Return on  average  assets  for the  first six  months of 1997 was 1.18% and the
return on  average  equity  was  16.95%,  compared  with  (0.16)%  and  (2.21)%,
respectively, for the first half of 1996.


Net Interest Income
     Net interest income on a tax-equivalent  basis totaled $20.1 million in the
second  quarter of 1997,  compared  with $18.7  million in the  comparable  1996
period--a 7% increase.  For the second quarter of 1997, the net interest  margin
(net interest  income as a percentage of average  interest-earning  assets) on a
tax-equivalent basis increased three basis points, from 4.47% to 4.50%, compared
to the same period in 1996.  For the first six months of 1997,  the net interest
margin  decreased three basis points,  from 4.50% to 4.47%, as compared to first
half 1996.
     Approximately  $640  million of the  company's  loans are tied to the prime
rate. The prime rate increased to 8.25% in February 1996, and remained  constant
through the  remainder  of 1996 and through  most of the first  quarter of 1997.
During this time, the company's  funding costs continued to rise, as the company
placed greater reliance on wholesale funding sources,  such as brokered deposits
and other borrowed funds. As a result,  the company's net  interest-rate  spread
(the  difference  between the average yield on  interest-earning  assets and the
average  rate  paid  on  interest-bearing  liabilities)  decreased,   negatively
impacting the net interest  margin.  This negative  impact was partially  offset
during 1996 by increased  interest income due to loan growth. As loan growth has
slowed during the first half of 1997, the net interest-rate  spread dropped nine
basis  points  as  compared  to the first six  months  of 1996.  The prime  rate
increased twenty-five basis points to 8.50% near the end of the first quarter of
1997,  which  has had a slight  positive  impact on net  interest  income in the
second quarter of 1997.
     The following tables show, for the six- and three-month  periods ended June
30, 1997 and 1996, the relationship  between interest income and expense and the
levels  of  average   interest-earning   assets  and  average   interest-bearing
liabilities.  The tables also reflect the general  increase in interest rates on
total interest-bearing  liabilities over the past year, and increased volumes of
commercial loans,  certificates of deposit (primarily  brokered  certificates of
deposit), and borrowed funds.  During 1996 the company implemented a program 
that sweeps excess funds from targeted  interest-bearing  demand  accounts
into money market accounts.  This program has significantly reduced the Federal
Reserve Bank reserve requirements for the company, and is the primary reason for
the change in average balances shown in the tables for these two types of
interest-bearing accounts.




<TABLE>


 Average Consolidated Balance Sheets and Net Interest Analysis

 For the six months ended June 30
 Dollars in thousands
<CAPTION>

                                                                          1997                             1996
                                                           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 * .....................  $1,453,064   $   68,101    9.45     $1,292,141   $61,114    9.54%
  Securities * ........................................     262,601        7,961    6.11        293,940     8,788    6.03%
  Mortgage loans held for sale ........................      74,245        2,797    7.60         54,285     1,909    7.09%
  Federal funds sold
    and other interest income .........................         131            4    6.16          1,867        59    6.37%
                                                         ----------      -------             ----------   -------
Total interest-earning assets /
  interest income .....................................   1,790,041       78,863    8.88      1,642,233    71,870    8.83%
                                                                         -------                          -------
Non-interest-earning assets:
  Cash and due from banks .............................      51,013                              62,392
  Premises and equipment ..............................      37,307                              42,692
  Other assets ........................................      66,129                              60,240
                                                            =======                             =======
Total assets ..........................................  $1,944,490                          $1,807,557
                                                         ==========                          ==========
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
  Interest-bearing deposits:
    Interest-bearing demand (NOW) .....................      34,474          541    3.16     $  185,411   $ 2,635    2.87%
    Savings deposits ..................................     103,205        1,409    2.75        117,692     1,552    2.66%
    Money market accounts .............................     270,557        4,376    3.26         98,893     1,481    3.02%
    Certificates of deposit ...........................     832,577       22,913    5.55        756,147    20,909    5.58%
    Other time deposits ...............................      82,822        2,301    5.60         86,925     2,434    5.65%
                                                          ---------      -------             ----------   -------
    Total interest-bearing deposits ...................   1,323,635       31,540    4.81      1,245,068    29,011    4.70%
Federal funds purchased
  and repurchase agreements ...........................      50,722        1,290    5.13         43,485     1,020    4.73%
Long-term debt and
  and other borrowings ................................     201,669        6,319    6.32        170,262     5,194    6.15%
                                                          ---------      -------             ----------   -------
  Total borrowed funds ................................     252,391        7,609    6.08        213,747     6,214    5.86%
                                                          ---------      -------             ----------   -------
Total interest-bearing liabilities /
  interest expense ....................................   1,576,026       39,149    5.01      1,458,815    35,225    4.87%
                                                                         -------                          -------
Non-interest-bearing liabilities:
  Non-interest-bearing deposits .......................     208,855                             198,338
  Other liabilities ...................................      23,894                              18,969
                                                          ---------                           ---------
  Total liabilities ...................................   1,808,775                           1,676,122
Shareholders' equity ..................................     135,715                             131,435
                                                          ---------                           ---------
Total liabilities
  and shareholders' equity ............................  $1,944,490                          $1,807,557
                                                          =========                           =========
Net interest-rate spread ..............................                             3.87%                            3.96%
Impact of non-interest bearing
  sources and other changes in
  balance sheet composition ...........................                             0.60%                            0.54%
                                                                                  ------                           ------
Net interest income /
  margin on interest-earning assets ...................                  $39,714    4.47%                 $36,645    4.50%
                                                                         =======  ======                =========  ======

 *Includes tax-equivalent adjustment
</TABLE>





<PAGE>

<TABLE>


 Average Consolidated Balance Sheets and Net Interest Analysis
 For the three months ended June 30
 Dollars in thousands
<CAPTION>

                                                       1997                              1996
                                         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 * ..  $1,452,174   $   34,412      9.50    $1,314,453   $30,999     9.46%
  Securities * .....................     253,617        3,863      6.11       294,674     4,441     6.04%
  Mortgage loans held for sale .....      79,882        1,568      7.87        62,370     1,128     7.25%
  Federal funds sold
    and other interest income ......         164            2      4.89         3,451        53     6.16%
                                       ---------    ---------               ---------    ------
Total interest-earning assets /
  interest income ..................   1,785,837       39,845      8.95     1,674,948    36,621     8.77%
                                                    ---------                            ------
Non-interest-earning assets:
  Cash and due from banks ..........      52,417                               58,738
  Premises and equipment ...........      37,009                               43,215
  Other assets .....................      65,828                               64,107
                                       =========                            =========
Total assets .......................  $1,941,091                           $1,841,008
                                       =========                            =========
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
  Interest-bearing deposits:
    Interest-bearing demand (NOW) ..  $   35,059   $      286      3.27$      124,530   $   922     2.97%
    Savings deposits ...............     102,276          722      2.83       114,834       761     2.66%
    Money market accounts ..........     270,721        2,236      3.31       156,933     1,166     2.98%
    Certificates of deposit ........     831,721       11,620      5.60       774,824    10,610     5.49%
    Other time deposits ............      82,246        1,171      5.71        86,501     1,209     5.61%
                                       ---------    ---------               ---------    ------
    Total interest-bearing deposits    1,322,023       16,035      4.86     1,257,622    14,668     4.68%
Federal funds purchased
  and repurchase agreements ........      53,481          699      5.24        37,084       428     4.63%
Long-term debt and
  and other borrowings .............     189,743        3,056      6.46       187,520     2,844     6.08%
                                       ---------    ---------               ---------    ------
  Total borrowed funds .............     243,224        3,755      6.19       224,604     3,272     5.84%
                                       ---------    ---------               ---------    ------
Total interest-bearing liabilities /
  interest expense .................   1,565,247       19,790      5.07     1,482,226    17,940     4.85%
                                                    ---------                            ------
Non-interest-bearing liabilities:
  Non-interest-bearing deposits ....     215,873                              205,683
  Other liabilities ................      22,879                               21,038
                                       ---------                            ---------
  Total liabilities ................   1,803,999                            1,708,947
Shareholders' equity ...............     137,092                              132,061
                                       ---------                            ---------
Total liabilities
  and shareholders' equity .........  $1,941,091                           $1,841,008
                                       =========                            =========
Net interest-rate spread ...........                               3.88%                            3.92%
Impact of non-interest bearing
  sources and other changes in
  balance sheet composition ........                               0.62%                            0.55%
                                                                   ----                             ----
Net interest income /
  margin on interest-earning assets                   $20,055      4.50%                $18,681     4.47%
                                                      =======      ====                  ======     ====

 *Includes tax-equivalent adjustment
</TABLE>

 
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.



<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 six- and  three-month  periods  ended June 30, 1997,  as
compared to the same periods in 1996.

 Six Months 1997 vs. 1996
 In thousands

                                           Increase (decrease)
                                    in interest income and expense
                                           due to changes in:

                                      Volume     Rate      Total
Interest-earning assets:
Loans ............................   $ 7,547    $(560)   $ 6,987
Securities .......................      (949)     122       (827)
Mortgage loans held for sale .....       744      144        888
Federal funds sold
  and other interest income ......       (53)      (2)       (55)
                                     -------    -----    -------
Total interest-earning assets ....     7,289     (296)     6,993

Interest-bearing liabilities:
Interest-bearing demand (NOW) ....    (2,343)     249     (2,094)
Savings deposits .................      (196)      53       (143)
Money market accounts ............     2,767      128      2,895
Certificates of deposit ..........     2,104     (100)     2,004
Other time deposits ..............      (114)     (19)      (133)
                                     -------    -----    -------
  Total interest-bearing deposits      2,218      311      2,529
Federal funds purchased
  and repurchase agreements ......       179       91        270
Long-term debt and
  and other borrowings ...........       981      144      1,125
                                     -------    -----    -------
  Total borrowed funds ...........     1,160      235      1,395
                                     -------    -----    -------
Total interest-bearing liabilities     3,378      546      3,924
                                     -------    -----    -------
Increase (decrease)
  in net interest income .........   $ 3,911    $(842)   $ 3,069
                                     =======    =====    =======

 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.


<PAGE>



 Second Quarter 1997 vs. 1996 
 In thousands
                                        Increase (decrease)
                                   in interest income and expense
                                         due to changes in:
                                      Volume     Rate      Total

Interest-earning assets:
Loans ............................   $ 3,263    $ 150    $ 3,413
Securities .......................      (625)      47       (578)
Mortgage loans held for sale .....       337      103        440
Federal funds sold
  and other interest income ......       (42)      (9)       (51)
                                     -------    -----    -------
Total interest-earning assets ....     2,933      291      3,224

Interest-bearing liabilities:
Interest-bearing demand (NOW) ....      (722)      86       (636)
Savings deposits .................       (87)      48        (39)
Money market accounts ............       927      143      1,070
Certificates of deposit ..........       791      219      1,010
Other time deposits ..............       (60)      22        (38)
                                     -------    -----    -------
  Total interest-bearing deposits        849      518      1,367
Federal funds purchased
  and repurchase agreements ......       209       62        271
Long-term debt and
  and other borrowings ...........        34      178        212
                                     -------    -----    -------
  Total borrowed funds ...........       243      240        483
                                     -------    -----    -------
Total interest-bearing liabilities     1,092      758      1,850
                                     -------    -----    -------
Increase (decrease)
  in net interest income .........   $ 1,841    $(467)   $ 1,374
                                     =======    =====    =======

 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 $2.9 million (1.34% of average loans,  on
an  annualized  basis,  excluding  mortgage  loans held for sale) for the second
quarter of 1997,  compared  with $8.4 million  (2.58% of average  loans) for the
comparable  period of 1996. Net loan  charge-offs  were $894 thousand  (0.25% of
average loans) for the second quarter of 1997, compared with $8.1 million (2.49%
of average loans) for the second quarter of 1996.
     The $8.4 million loan loss  provision in the second quarter of 1996 was due
to several factors:
     1) The  charge-off  of $7.0 million on three  problem  loans.  Prior to the
     second quarter of 1996, management expected two of these three borrowers to
     be sold as going  concerns  and the  loans  to be  repaid  from  the  sales
     proceeds. As a result, the company had previously allocated $4.2 million in
     the  allowance  for loan  losses for these  three  loans.  Due to the rapid
     deterioration  in the financial  condition of those borrowers in the second
     quarter of 1996 and the  resulting  loss of interest  by several  potential
     buyers,  sale prospects  became  unlikely.  As the  possibility of sales as
     going concerns grew less likely,  management  concluded that the collateral
     securing  the loans would  probably  have to be  liquidated,  resulting  in
     larger than anticipated  losses on the loans. 2) Recent adverse loss trends
     for consumer loans  resulting from  unprecedented  levels of  bankruptcies,
     particularly  personal  bankruptcies  in Kentucky and  Tennessee.  3) Three
     additional  loans  over  $1  million  (totaling  $6.6  million)  for  which
     information  became  known to the company  during the quarter  which caused
     management  to have  serious  doubts as to the ability of the  borrowers to
     comply  with the loan  repayment  terms,  but which  were not  included  in
     non-performing  loans at June 30, 1996.  4) Continued  strong growth in the
     loan portfolio,  particularly in large  commercial  relationships  (over $5
     million).
     For the first six months of 1997,  the provision for loan losses was $4.9
million (0.67% of average loans), compared with $9.6 million  (1.50% of average
loans) for the  comparable  period of 1996. Net loan charge-offs  were $1.9 
million  (0.26% of average  loans) for the first half of 1997,  compared  with 
$9.1  million  (1.41% of average  loans) for the first six months 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.

Non-Interest Income
     Non-interest  income for the second  quarter of 1997 increased $1.9 million
over the second quarter of 1996.  This increase  reflects a $1.2 million gain on
the sales of the two Tennessee  offices which were sold during the quarter.  The
growth in the mortgage  servicing  portfolio  during the past year resulted in a
$281 thousand  increase in mortgage  banking  income,  while trust and brokerage
income  increased $287 thousand,  reflecting the company's  expanding  trust and
investment services business.
     For the six-month periods  (excluding the $1.2 million gain),  non-interest
income increased $1.3 million from 1996 to 1997. The improvement was provided in
approximately  equal amounts from service charges on deposit accounts,  from the
mortgage banking business and from the trust and investment services business.

Non-Interest Expenses
     Non-interest  expenses  decreased  $1.8  million for the second  quarter of
1997,  compared to the second  quarter of 1996  (excluding  the $5.8  million of
charges related to the refocus initiative).  This represents a 10% decrease from
second quarter 1996 and is a result of the refocus initiative.
     For the six-month periods, non-interest expenses decreased $2.9 million, or
8%, in 1997 as compared to the first half of 1996 (excluding the $5.8 million of
charges related to the refocus initiative).
     Based on a comparison of  non-interest  expenses for the second  quarter of
1997 to the  second  quarter  of 1996  (excluding  the $5.8  million  of charges
related to the refocus  initiative),  total operating expenses have been reduced
by  approximately  $7 million on an  annualized  pre-tax  basis.  With the major
components  of the  refocus  initiative  in place by year-end  1996,  management
believes  the  non-interest  expenses  incurred  in the  first  half of 1997 are
representative of the company's operating expense for the remainder of 1997.
     As a result of higher revenues and lower operating expenses, the efficiency
ratio (a measure of operating  expenses per dollar of income) decreased to 62.1%
in the second quarter of 1997 (excluding the $1.2 million  gain)--a  substantial
improvement  over the 74.2% efficiency  ratio in second quarter 1996 (excluding
the $5.8 million of charges related to the refocus initiative).

Income Taxes
     Income tax expense  totaled  $3.0  million for the second  quarter of 1997,
compared with a tax credit of $2.4 million in the comparable 1996 period.  These
represent  effective  tax rates of 33.6% and  31.9%,  respectively.  For the six
months ended June 30, 1997, the company's effective tax rate was 33.1%, compared
to 33.3% in the first half of 1996.


Balance Sheet Review
Overview
     Assets at June 30,  1997  totaled  $1.981  billion,  compared  with  $2.004
billion at December  31,  1996,  and $1.867  billion a year ago.  Average  total
assets for the second quarter  increased $100 million (5%) over the past year to
$1.941 billion. Average interest-earning assets increased $111 million to $1.786
billion.

Loans
     The  company  experienced  annualized  loan  growth of 7% during the second
quarter of 1997. Total loans, net of unearned income, averaged $1.452 billion in
the second  quarter  of 1997,  excluding  mortgage  loans held for sale of $79.9
million.  For the  comparable  period in 1996,  loans averaged  $1.314  billion,
excluding the $62.4 million of mortgage loans held for sale.
     At June 30, 1997,  loans net of unearned income  (excluding  mortgage loans
held for sale) totaled $1.473 billion,  compared with $1.451 billion at December
31, 1996,  and $1.349  billion a year ago. The company  experienced  slower loan
growth during the first half of 1997 than in the past several  quarters,  due to
the payoff of several of the company's larger  commercial  relationships.  These
payoffs were the result of permanent  refinancings  of real estate loans and the
sale  of  one  borrower  to  a  publicly-held  company.  The  company  currently
anticipates  mid- to  upper-single-digit  loan  growth to  continue  through the
remainder of 1997.
     As of  June  30,  1997,  the  company's  47  largest  credit  relationships
consisted  of loans  and  loan  commitments  ranging  from $5  million  to $16.5
million, none of which was classified as non-performing. The aggregate amount of
these credit  relationships was $453 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 loan growth.

Asset Quality
     Non-performing  loans, which include non-accrual loans, accruing loans past
due 90 days or more and restructured loans,  totaled $9.5 million as of June 30,
1997,  down $1.1 million from December 31, 1996,  and down $1.6 million from the
end of the second  quarter of 1996. The ratio of  non-performing  loans to total
loans (net of unearned  income) was 0.64% at June 30, 1997,  compared with 0.73%
at the end of 1996 and 0.82% a year ago.  Non-performing  assets,  which include
non-performing  loans,  foreclosed  real estate and other  foreclosed  property,
totaled  $10.7 million as of June 30, 1997, as compared to $14.7 million at June
30, 1996. The ratio of non-performing  assets to total assets decreased to 0.54%
at June 30, 1997, from 0.79% a year ago.
     The following table presents information concerning  non-performing assets,
including  non-accrual and restructured loans.  Management classifies commercial
and commercial  real estate loans as  non-accrual  when principal or interest is
past due 90 days or more and the loan is not  adequately  collateralized  and in
the process of collection,  or when, in the opinion of management,  principal or
interest  is  not  likely  to be  paid  in  accordance  with  the  terms  of the
obligation.  Consumer loans are charged off after 120 days of delinquency unless
adequately  secured and in the process of collection.  Non-accrual loans are not
reclassified  as accruing  until  principal  and  interest  payments are brought
current and future payments appear reasonably certain.  Loans are categorized as
restructured  if the  original  interest  rate,  repayment  terms,  or both were
restructured due to a deterioration in the financial condition of the borrower.

-------------------------------------------------------------------------------
<TABLE>
 
Non-performing Assets
 Dollars in thousands
<CAPTION>

                                                        June 30   March 31  December 31    June 30
                                                          1997       1997         1996        1996

<S>                                                     <C>        <C>          <C>        <C>    
 Non-accrual loans ..................................   $ 6,186    $ 5,528      $ 4,717    $ 5,570
 Accruing loans which are contractually
   past due 90 days or more .........................     2,611      3,388        5,863      5,517
 Restructured loans .................................       679        633            4          6
                                                        -------    -------      -------    ------- 
   Total non-performing and restructured loans ......     9,476      9,549       10,584     11,093
 Foreclosed real estate .............................       871      1,328        1,608      3,342
 Other foreclosed property ..........................       354        175          184        303
                                                        -------    -------      -------    -------
   Total non-performing and restructured loans and
    foreclosed property .............................   $10,701    $11,052      $12,376    $14,738
                                                       ========    =======      =======    =======
 Non-performing and restructured loans
   as a percentage of loans, net of unearned income .      0.64%      0.66%        0.73%      0.82%
 Total non-performing and restructured loans and
   foreclosed property as a percentage of total assets     0.54%      0.57%        0.62%      0.79%
</TABLE>
                                                                                

     Three commercial credit relationships  account for $3.1 million, or 51%, of
the company's  non-accrual  loans at June 30, 1997. An allowance for loan losses
in the  amount  of $95  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.  Management  believes the remaining
balance of these  three  credits  is  adequately  secured.  The other 49% of the
non-accrual loan balance consists of various commercial and consumer loans, with
no single borrower representing more than $500,000.
     Foreclosed real estate consists of several properties, the largest of which
is recorded at $350,000.  Based upon  appraisals of the  properties and previous
sales  experience,  management  does not anticipate any  significant  loss to be
incurred on disposition of these properties.
     As of June 30,  1997,  the  company had loans to eight  borrowers  totaling
$24.1  million  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. Of the $17.1 million
increase in these potential  problem loans from March 31, 1997, $15.0 million is
due to a downturn in the coal industry,  including $12.7 million of loans to one
borrower. 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 June 30,1997,  the allowance was $21.0 million, up
from $18.1 million at December 31, 1996, and $16.3 million at June 30, 1996. The
ratio of the allowance for loan losses to total loans (excluding  mortgage loans
held for sale) at June 30, 1997, was 1.43%,  compared with 1.25% at December 31,
1996, and 1.21% at June 30, 1996.  These increases from June 30, 1996 reflect 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 increased to 222% at June 30, 1997, from
171% at year-end 1996 and 147% at June 30, 1996,  as a result of provisions  for
loan losses of $9.1 million  since June 30, 1996,  and net loan  charge-offs  of
$4.4 million during that period.
     Management believes that the allowance for loan losses at June 30, 1997, 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 Available for Sale
     Securities (all classified as available for sale) decreased  from $287
million  at June 30,  1996 to $285  million  at year-end  1996,  and then 
decreased  to $252  million at June 30,  1997.  Funds provided by the reduction
in securities were utilized to fund growth in the loan portfolio.

Deposits and Borrowed Funds
     Total  deposits  averaged  $1.538 billion in the second quarter of 1997, an
increase  of $75  million,  or 5%,  from the  comparable  1996  period.  Average
interest-bearing accounts increased $64.4 million in the second quarter of 1997,
compared to the same period in 1996, while average non-interest-bearing accounts
increased  $10.2  million.  Of the $64.4  million  increase in  interest-bearing
accounts,  94% represents  brokered  certificates of deposit issued to fund loan
growth. As of June 30, 1997 and 1996, brokered certificates of deposit comprised
$130 million and $85 million,  respectively,  of the company's  deposits.  These
brokered  deposits  have  various  maturities  ranging from three months to five
years.
     For the six month periods,  average total deposits increased $89 million,
or 6%, from $1.443 billion in 1996 to $1.532 billion in 1997.     
     Long-term  debt totaled $141 million at June 30, 1997 and 1996. In order to
support  growth in the loan  portfolio,  TFB-KY issued in the second  quarter of
1996 $25  million of  four-year  notes,  under a $250  million  senior bank note
program. Bank notes issued to date bear interest at fixed rates of 6.32%, 6.48%,
and 7.13%, respectively.  Certain of these notes 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.

Capital Resources and Liquidity
     The company's  capital ratios at June 30, 1997,  December 31, 1996, and
June 30, 1996 (calculated in accordance with regulatory guidelines) were as
follows:


                              June 30,   December 31,            June 30,
                                 1997           1996                1996

Tier 1 risk based                8.36%          7.68%               7.71%
     Regulatory minimum          4.00           4.00                4.00
Total risk based                11.69          10.87               10.99
     Regulatory minimum          8.00           8.00                8.00
Leverage                         6.69           6.12                6.24
     Regulatory minimum          3.00           3.00                3.00


     The  decrease in these  capital  ratios from June 30, 1996 to December  31,
1996 was primarily  due to a $2.7 million  charge taken during the third quarter
of  1996  which  was  associated  with  the   recapitalization  of  the  Savings
Association  Insurance Fund.  These ratios improved in 1997 due to the company's
increased  earnings  combined  with a decline in total assets from  December 31,
1996.  Capital  ratios  of all of the  company's  subsidiaries  are in excess of
applicable minimum regulatory capital ratio requirements at June 30, 1997.
     To maintain a desired level of liquidity,  the company has several  sources
of funds available. The company's primary investing activities include purchases
of securities and loan originations, offset by maturities, prepayments and sales
of securities,  and loan payments. 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. When compared to retail deposits
attracted through a branch network, wholesale funding sources are generally more
sensitive  to changes  in  interest  rates and the  inherent  volatility  of the
capital  markets.  In  addition,  brokered  deposits  may be more  sensitive  to
significant  changes in the financial  condition of the company.  As a result of
the  company's  use of wholesale  funding  sources,  significant  changes in the
prevailing  interest rate  environment,  or in the  availability  of alternative
investments  for individual  and  institutional  investors,  or in the company's
financial condition,  among other factors,  could affect the company's liquidity
and results of operations.

Asset/Liability Management
     Managing  interest  rate  risk is  fundamental  to the  financial  services
industry. The company's policies are designed to manage the inherently different
maturity and repricing  characteristics  of the lending and  deposit-acquisition
lines of  business  to achieve a desired  interest-sensitivity  position  and to
limit exposure to interest rate risk. The maturity and repricing characteristics
of  the   company's   lending   and  deposit   activities   create  a  naturally
asset-sensitive  structure.  By using a combination of on- and off-balance-sheet
financial  instruments,  the company  manages  interest rate  sensitivity  while
optimizing  net  interest  income  within the  constraints  of  prudent  capital
adequacy,  liquidity  needs,  the  interest  rate and economic  outlook,  market
opportunities and customer requirements.
     The company uses an earnings  simulation  model to monitor and evaluate the
impact of changing interest rates on earnings.  The simulation model used by the
company is  designed to reflect the  dynamics  of all  interest-earning  assets,
interest-bearing   liabilities  and  off-balance-sheet   financial  instruments,
combining  the  various  factors  affecting  rate  sensitivity  into a  two-year
earnings  outlook.  Among the factors the model  utilizes are 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  monthly  for  multiple  interest  rate  scenarios,
projected changes in balance sheet categories and other relevant assumptions. In
developing multiple rate scenarios, an econometric model is employed to forecast
key rates, based on the cyclical nature and historic  volatility of those rates.
A stochastic view of net interest income is derived once probabilities have been
assigned to those key rates. By forecasting a most likely rate environment,  the
effects on net interest  income of  adjusting  those rates up or down can reveal
the company's  approximate interest rate risk exposure level. Several rate index
and yield curve assumptions are used in the model. As an example,  the company's
most likely rate  environment as of June 30, 1997,  assumed the 3-month Treasury
rate at 5.25%,  rising to 5.76% by year's end, then falling back to 5.63% in May
of 1998.
     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.
     The  following  illustrates  the  effects of an  immediate  shift in market
interest rates on net interest  income and fair values of assets and liabilities
as compared to the most likely rate assumptions used in the company's model:

<TABLE>

<CAPTION>
                       Basis-point change                +200 bp   +100 bp  -100 bp  -200 bp

Income statement effects:
<S>                                                       <C>       <C>      <C>      <C>    
     Increase (decrease) in net interest income .....      4.34%     2.02%   (1.45)%  (2.42)%
Balance sheet effects:
     Increase (decrease) in fair value of assets ....     (2.81)%   (1.44)%   1.55%    3.20%
     Increase (decrease) in fair value of liabilities      1.82%     0.93%   (0.96)%  (1.97)%

</TABLE>

     As of June 30, 1997, management believes the company's balance sheet was in
an  asset-sensitive  position,  as the repricing  characteristics of the balance
sheet were such that an increase in interest rates would have a positive  effect
on earnings  and a decrease in  interest  rates would have a negative  effect on
earnings. It should be noted that some of the assumptions made in the use of the
simulation  model will inevitably not materialize and  unanticipated  events and
circumstances  will occur; in addition,  the simulation model does not take into
account any future actions which could be undertaken to reduce an adverse impact
if there were a change in interest rate  expectations  or in the actual level of
interest rates.
     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 June 30, 1997, are as follows:

<TABLE>

Interest Rate Swaps
As of June 30, 1997
 Dollars in thousands
<CAPTION>

                                    Notional   Fixed Rate    Floating Rate
                                      Amount   (Receiving)         (Paying)         Maturity
                                    --------   ----------    -------------      ---------------
<S>                                 <C>             <C>       <C>               <C> 
                                     $50,000        8.50%     8.50% (Prime)          July, 1997
                                      20,000        8.60%     8.50% (Prime)       October, 1997
                                      30,000        8.23%     8.50% (Prime)         March, 1998
                                      70,000        8.50%     8.50% (Prime)          June, 1998
                                      30,000        8.60%     8.50% (Prime)       October, 1998
                                      25,000        8.74%     8.50% (Prime)      December, 1999
                                      50,000        9.52%     8.50% (Prime)         April, 2000
                                    --------
 Total / weighted average           $275,000        8.70%     8.50%             September, 1998
                                    ========
</TABLE>

     As shown in the  table,  $170  million  of these  interest  rate swaps will
mature within twelve  months.  As these  interest rate swaps mature,  management
will evaluate 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.












--------------------------------------------------------------------------------
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;  material  unforeseen  changes in the  liquidity,  results of operations,
or  financial  condition  of the  company's  customers;  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.
-------------------------------------------------------------------------------


<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 22,  1996,  two former  employees of the company and three former
employees of TFB-KY filed suit in Jefferson Circuit Court, Louisville, Kentucky,
against  the  company.  The five plaintiffs claimed  wrongful  termination, sex
discrimination,  age discrimination,  breach of contract and libel in connection
with the  termination of their  employment in June 1996.  During the second
quarter of 1997, this matter was settled, and on May 19, 1997, the Jefferson
Circuit Court issued an order dismissing this litigation.



Item 6. Exhibits and Reports on Form 8-K
   (a) Exhibits
       The exhibits listed on the Exhibit Index on page 20 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 quarter.




                             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:  August 14, 1997                          /s/ Vince A. Berta
                                                ------------------
                                                Vince A. Berta
                                                President and
                                                Chief Executive Officer


                                                Principal Financial Officer:


Date: August 14, 1997                           /s/ Edward R. Matthews
                                                ----------------------
                                                Edward R. Matthews
                                                Chief Financial Officer


<PAGE>






                                   Exhibits
                                                                   Sequentially
                                                                  Numbered Pages


   10   Summary of 1997 Trans Financial Leadership Incentive Plan*........... 20

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

   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.