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, 1998
                         Commission File Number 0-13030



                              Trans Financial, Inc.
             (Exact name of registrant as specified in its charter)



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


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


Registrant's telephone number, including area code: (502)793-7717


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes X No _


The number of shares outstanding of the issuer's class of common stock on
August 10, 1998: 11,887,923 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
                                                        1998            1997           1997

 Assets
<S>                                                 <C>            <C>            <C>
 Cash and due from banks ........................   $    85,884    $    70,774    $    72,131
 Interest-bearing deposits with banks ...........            99             99             98
 Mortgage loans held for sale ...................       238,608        118,485         81,543
 Securities available for sale (amortized
    cost of $258,785 as of  June 30, 1998;
    $276,554 as of December 31, 1997;
    and $252,082 as of June 30, 1997) ...........       260,230        278,098        251,829
 Loans, net of unearned income ..................     1,552,666      1,537,820      1,473,337
 Less allowance for loan losses .................        23,677         22,017         21,016
                                                    -----------    -----------    -----------
    Net loans ...................................     1,528,989      1,515,803      1,452,321
 Premises and equipment, net ....................        40,755         37,429         36,488
 Mortgage servicing rights ......................        51,892         46,870         44,343
 Other assets ...................................        48,282         47,453         41,937
                                                    ===========    ===========    ===========
    Total assets ................................   $ 2,254,739    $ 2,115,011    $ 1,980,690
                                                    ===========    ===========    ===========

 Liabilities and Shareholders' Equity
 Deposits:
    Non-interest bearing ........................   $   253,041    $   235,695    $   226,140
    Interest bearing ............................     1,313,674      1,338,143      1,314,609
                                                    -----------    -----------    -----------
    Total deposits ..............................     1,566,715      1,573,838      1,540,749
 Federal funds purchased and
    repurchase agreements .......................       203,827        109,348         93,607
 Other short-term borrowings ....................        95,500         70,000         45,000
 Long-term debt .................................       194,932        185,293        140,628
 Other liabilities ..............................        26,641         25,755         20,812
                                                    -----------    -----------    -----------
    Total liabilities ...........................     2,087,615      1,964,234      1,840,796
 Shareholders' equity:
    Common stock, no par value. Authorized
       50,000,000 shares; issued and
       outstanding 11,778,545; 11,471,689;
       and 11,437,962 shares, respectively ......        22,078         21,510         21,446
    Additional paid-in capital ..................        52,404         46,284         45,570
    Retained earnings ...........................        93,339         83,947         75,317
    Accumulated other comprehensive income ......           813            882           (257)
    Employee Stock Ownership Plan shares
       purchased with debt ......................        (1,510)        (1,846)        (2,182)
                                                    -----------    -----------    -----------
    Total shareholders' equity ..................       167,124        150,777        139,894
                                                    -----------    -----------    -----------
    Total liabilities
      and shareholders' equity ..................   $ 2,254,739    $ 2,115,011    $ 1,980,690
                                                    ===========    ===========    ===========

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

Consolidated Statements of Income
 (Unaudited)
 In thousands, except per share data
<CAPTION>

                                                                     2nd Qtr.            Six Months

 For the periods ended June 30                                    1998      1997        1998      1997

 Interest income
<S>                                                            <C>         <C>         <C>       <C>
  Loans, including fees ....................................   $ 36,317    $ 34,337    $72,103   $67,945
  Securities available for sale ............................      3,691       3,597      7,508     7,417
  Mortgage loans held for sale .............................      3,959       1,568      6,427     2,797
  Interest-bearing deposits with banks .....................          2           2          9         4
                                                               --------    --------    -------   -------
  Total interest income ....................................     43,969      39,504     86,047    78,163
Interest expense
  Deposits .................................................     16,305      16,035     32,771    31,540
  Federal funds purchased
    and repurchase agreements ..............................      1,547         699      2,622     1,290
  Long-term debt and other
    borrowings .............................................      4,462       3,056      8,669     6,319
                                                               --------    --------    -------   -------
  Total interest expense ...................................     22,314      19,790     44,062    39,149
                                                               --------    --------    -------   -------
Net interest income ........................................     21,655      19,714     41,985    39,014
  Provision for loan losses ................................      2,300       2,900      4,520     4,850
                                                               --------    --------    -------   -------
Net interest income after
  provision for loan losses ................................     19,355      16,814     37,465    34,164
Non-interest income
  Service charges on deposit accounts ......................      2,673       2,582      5,144     5,077
  Mortgage banking income ..................................      5,113       2,612      9,723     5,369
  Gains (losses) on sales of securities
    available for sale, net ................................         (2)        (88)       148       133
  Trust services ...........................................        544         677      1,161     1,238
  Brokerage income .........................................      1,308         708      2,110     1,418
  Other ....................................................      1,236       2,684      2,851     3,859
                                                                --------    --------    -------   -------
  Total non-interest income ................................     10,872       9,175     21,137    17,094
Non-interest expenses
  Compensation and benefits ................................     10,062       8,577     19,446    17,185
  Net occupancy expense ....................................      1,164       1,156      2,324     2,306
  Furniture and equipment expense ..........................      1,828       1,615      3,637     3,181
  Deposit insurance ........................................        102         106        204       209
  Professional fees ........................................        570         712      1,212     1,378
  Postage, printing & supplies .............................      1,123         867      2,187     1,847
  Communications ...........................................        829         712      1,577     1,370
  Other ....................................................      3,930       3,411      7,516     6,719
                                                                --------    --------    -------   -------
  Total non-interest expenses ..............................     19,608      17,156     38,103    34,195
                                                                --------    --------    -------   -------
Income before income taxes .................................     10,619       8,833     20,499    17,063
Income tax expense .........................................      3,589       2,971      6,895     5,653
                                                               ========    ========    =======   =======
Net income .................................................   $  7,030    $  5,862    $13,604   $11,410
                                                               ========    ========    =======   =======

Diluted earnings per share .................................   $   0.58    $   0.50    $  1.13   $  0.98
                                                               ========    ========    =======   =======
Basic earnings per share ...................................   $   0.60    $   0.51    $  1.17   $  1.00
                                                               ========    ========    =======   =======

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



 Consolidated Statements of Comprehensive Income
 (Unaudited)
 In thousands
 For the periods ended June 30
                                                           1998          1997


   Net income                                              $13,604     $11,410
   Other comprehensive income, net of tax:
    Unrealized holding gains (losses) during the period
       on securities available for sale ...............        104          42
    Reclassification adjustments for (gains)losses
       on securities included in net income ...........       (173)       (207)
                                                          --------    --------
Total other comprehensive income ......................        (69)       (165)
                                                          ========    ========
Comprehensive income ..................................   $ 13,535    $ 11,245
                                                          ========    ========

 See accompanying notes to consolidated financial statements.


 Consolidated Statements of Changes in Shareholders' Equity
 (Unaudited)
 In thousands
 For the six months ended June 30
                                              1998            1997

 Balance January 1                           $150,777     $131,316
  Net income ............................      13,604       11,410
  Other comprehensive income ............         (69)        (165)
  Issuance of common stock ..............       6,690          946
  Cash dividends declared on common stock      (4,213)      (3,882)
  ESOP debt reduction ...................         335          269
                                            =========    =========
Balance at end of period ................   $ 167,124    $ 139,894
                                            =========    =========

 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>

                                                                          1998        1997

 Cash flows from operating activities:

<S>                                                                  <C>            <C>
Net income .......................................................   $    13,604    $  11,410
Adjustments to reconcile net income to cash provided by operating
 activities:
    Provision for loan losses ....................................         4,520        4,850
    Deferred tax expense(benefit) ................................          (915)        (472)
    Gain on sale of securities available for sale ................          (148)        (133)
    Gain on sale of mortgage loans held for sale .................        (5,306)      (1,910)
    Gain on sale of premises and equipment .......................          --             (3)
    Gain on sale of branches .....................................          (430)      (1,241)
    Depreciation and amortization of fixed assets ................         3,375        2,549
    Amortization of intangible assets ............................           792          647
    Amortization of premium on securities and loans, net .........           200          418
    Amortization of mortgage servicing rights ....................         3,696        2,957
Decrease in accrued interest receivable ..........................           244          895
Decrease in other assets .........................................          (836)      21,169
Decrease in accrued interest payable .............................          (333)        (102)
Increase(decrease)  in other liabilities .........................         1,301       (4,751)
Sale of mortgage loans held for sale .............................       943,702      410,164
Originations of mortgage loans held for sale .....................    (1,058,519)    (420,744)
                                                                     -----------    ---------
  Net cash provided by (used in) operating activities ............       (95,053)      25,703

Cash flows from investing activities:
Proceeds from sale of securities available for sale ..............         3,640        2,604
Proceeds from prepayment and call of securities available for sale        18,477        5,245
Proceeds from maturities of securities available for sale ........        46,876       30,670
Purchase of securities available for sale ........................       (51,277)      (5,622)
Net increase in loans ............................................       (18,568)     (25,560)
Net cash outflow from sale of Tennessee offices ..................        (8,826)     (13,789)
Proceeds from sale of mortgage servicing rights ..................         1,489         --
Purchase and origination of mortgage servicing rights ............       (10,207)      (6,488)
Proceeds from sale of foreclosed assets ..........................           731          407
Purchases of premises and equipment ..............................        (6,863)      (2,648)
Proceeds from disposal of premises and equipment .................           121          232
                                                                     -----------    ---------
  Net cash used in investing activities ..........................       (24,407)     (14,949)

Cash flows from financing activities:
Net increase (decrease) in deposits ..............................         2,140      (22,463)
Net increase in federal funds purchased
  and repurchase agreements ......................................        94,479       21,728
Net increase(decrease) in short-term borrowings ..................        25,500      (10,000)
Proceeds from issuance of long-term debt .........................        10,000         --
Repayment of long-term debt ......................................           (26)          (6)
Proceeds from issuance of common stock ...........................         6,690          946
Dividends paid ...................................................        (4,213)      (3,882)
                                                                     -----------    ---------
  Net cash provided by (used in) financing activities ............       134,570      (13,677)
                                                                     -----------    ---------
Net increase (decrease ) in cash and cash equivalents ............        15,110       (2,923)
Cash and cash equivalents at beginning of year ...................        70,774       75,054
                                                                     -----------    ---------
Cash and cash equivalents at end of period .......................   $    85,884    $  72,131
                                                                     ===========    =========

 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  includethe  accounts of Trans  Financial,  Inc. and its wholly-owned
subsidiaries.  All significant inter-company accounts and transactions have been
eliminated in  consolidation.  A  description  of other  significant  accounting
policies is presented in the 1997 annual report on Form 10-K.
     In the opinion of management,  all adjustments  (consisting  only of normal
recurring  accruals)  considered  necessary  for a fair  presentation  have been
reflected in the accompanying unaudited financial statements. Results of interim
periods are not  necessarily  indicative  of results to be expected for the full
year.

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

<TABLE>

 In thousands
<CAPTION>

                                                   2nd Qtr.                Six Months
 For the periods ended June 30                   1998        1997       1998        1997
<S>                                            <C>         <C>         <C>         <C>
Balance beginning of period ................   $ 22,777    $ 19,010    $ 22,017    $ 18,065
  Provision for loan losses ................      2,300       2,900       4,520       4,850

  Loans charged off ........................     (1,743)     (1,141)     (3,766)     (2,273)
  Recoveries of loans previously charged off        343         247         906         374
                                               --------    --------    --------    --------
  Net charge-offs ..........................     (1,400)       (894)     (2,860)     (1,899)
                                               --------    --------    --------    --------

Balance at end of period ...................   $ 23,677    $ 21,016    $ 23,677    $ 21,016
                                               ========    ========    ========    ========
</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  $14,127,000 at June 30,
1998. Of that amount,  $11,080,000  represents  loans for which an allowance for
loan losses,  in the amount of $2,486,000 has been  established  under SFAS 114.
Impaired  loans  totaled  $4,694,000 at June 30, 1997,  including  $2,356,000 of
loans for which an allowance was established totaling $639,000.
     The average  recorded  investment  of impaired  loans was  $14,406,000  and
$4,476,000 for the three months ended June 30, 1998 and 1997, respectively,  and
$15,133,000  and  $4,456,000  for the six months  ended June 30,  1998 and 1997,
respectively.  Interest income  recognized on impaired loans totaled $35,000 for
the three  months ended June 30, 1998,  and  $129,000 for the  six-month  period
ended June 30, 1998.  For the  comparable  periods in 1997,  interest  income on
impaired loans totaled $23,000 and $46,000, respectively.

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

In June 1998,  Statement of Financial  Accounting  Standards No. 133, 
Accounting for Derivative  Instruments and Hedging Activities ("SFAS 133") was 
issued by the FASB. SFAS 133 standardizes the accounting for derivative 
instruments,  including certain derivative instruments  imbedded in other 
contracts, requiring derivatives to be carried at fair value in the consolidated
balance sheet. Whether gains or losses are recognized in net income or in other
comprehensive  income depends on whether the derivative  instrument has been 
designated as a qualifying  hedge and, if so, on the reason for the hedge. 
If the  derivative is not designated as hedge,  any gain or loss is recognized 
in earnings in the period of the change in fair value. SFAS 133 must be adopted
by January 1, 2000; early adoption is permitted. The company has not determined
the impact that SFAS 133 will have on its financial  statements  and believes 
that such determination will not be meaningful until closer to the actual date
of adoption.

 (5) Pending Merger and Subsequent Event
     On April 9, 1998, the company  entered into an agreement and Plan of Merger
with  Star  Banc  Corporation,  based in  Cincinnati,  Ohio  ("Star  Banc").  In
accordance with the terms of the merger  agreement,  each share of the company's
common  stock will be  converted  into 0.9003  share of Star Banc common  stock.
During the second quarter of 1998,  the Federal  Reserve Board and the Office of
the  Comptroller  of  the  Currency  approved  the  merger,  and  the  company's
shareholders  approved the merger on July 20, 1998. With no additional approvals
required, management expects the merger to be consummated on August 21, 1998.


Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
     Trans Financial,  Inc. ("the company") is a bank holding company registered
under the Bank Holding  Company Act of 1956. The company has two commercial bank
subsidiaries--Trans Financial Bank, National Association ("TFB-KY"),  consisting
of all of the company's banking activities in Kentucky, and Trans Financial Bank
Tennessee, National Association ("TFB-TN"), consisting of all
of the company's  Tennessee banking  activity.  (On July 26, 1997, the company's
former thrift subsidiary--Trans  Financial Bank, F.S.B.--was merged into TFB-KY,
and  its  Tennessee   operations  were  sold  to  TFB-TN.   These   transactions
consolidated the company's banking operations into its current two national bank
charters.)
     In addition,  the company operates as subsidiaries of TFB-KY a full-service
securities  broker/dealer--Trans  Financial  Investment  Services,  Inc.--and  a
mortgage banking company--Trans Financial Mortgage Company ("TFMC").
     During April 1997,  the company  sold  substantially  all of the  deposits,
premises  and  equipment,  and certain  other  assets of its Lebanon and Sparta,
Tennessee  offices.  These two offices  represented $17 million of the company's
total  deposits as of March 31, 1997.  The  company's  Mt.  Pleasant,  Tennessee
office, consisting of $10 million of deposits, was sold on March 4, 1998.
     On August 29, 1997,  the Trans Adviser family of mutual funds ("the Funds")
was  transferred  to the  Countrywide  Family  of  Funds.  TFB-KY  had  acted as
investment  adviser to the Funds,  which had total  assets of $159 million as of
June 30, 1997. However, as a result of this transfer, TFB-KY no longer serves in
that capacity.  The transfer did not have a significant  impact on the company's
financial condition or results of operations.
     On March 6, 1998,  the company  entered into an agreement to purchase  $154
million in  deposits  and $27  million in loans from Banc One  Corporation.  The
acquisition  includes eight offices located in Hopkins and Christian Counties in
western Kentucky. Management expects the transaction to be completed on 
August 21, 1998.
     On April 9, 1998, the company  entered into an agreement and Plan of Merger
with  Star  Banc  Corporation,  based in  Cincinnati,  Ohio  ("Star  Banc").  In
accordance with the terms of the merger  agreement,  each share of the company's
common  stock will be  converted  into 0.9003  share of Star Banc common  stock.
During the second quarter of 1998,  the Federal  Reserve Board and the Office of
the  Comptroller  of  the  Currency  approved  the  merger,  and  the  company's
shareholders  approved the merger on July 20, 1998. With no additional approvals
required, management expects the merger to be consummated on August 21, 1998.
     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, 1998,  the company earned $7.0 million,
or $0.58 per  diluted  share,  compared  to $5.9  million,  or $0.50 per diluted
share,  for the second  quarter of 1997.  Results for the second quarter of 1998
produced an annualized return on average assets of 1.29% and a return on average
shareholders'  equity of 17.41%,  compared with 1.21% and 17.15%,  respectively,
for the second quarter of 1997.
     For the  first  half of 1998,  the  company  recorded  net  income of $13.6
million,  or $1.13 per diluted share,  compared to $11.4  million,  or $0.98 per
diluted  share,  in the same  period of 1997.  Return on average  assets for the
first six months of 1998 was 1.27% and the return on average  equity was 17.26%,
compared with 1.18% and 16.95%, respectively, for the first half of 1997.

Net Interest Income
     Net interest income on a tax-equivalent  basis totaled $21.9 million in the
second  quarter of 1998,  compared  with $20.0  million in the  comparable  1997
period--a 9% increase.  For the second quarter of 1998, the net interest  margin
(net interest  income as a percentage of average  interest-earning  assets) on a
tax-equivalent basis decreased 13 basis points, from 4.50% to 4.37%, compared to
the same  period in 1997.  For the first six  months of 1998,  the net  interest
margin decreased 14 basis points, from 4.47% to 4.33%, as compared to first half
1997.
     Approximately $718 million of the company's loans reprice  immediately with
changes in the prime rate, and another $35 million of loans reprice within three
months of a change in prime.  The prime  rate  increased  to 8.50% in late first
quarter  1997,  and has  remained  constant  since  then.  Since  late  1997,  a
significantly  larger  proportion of interest earning asset growth has come from
lower earning mortgage loans held for sale. Also during this time, the company's
funding  costs  continued  to rise,  as  greater  reliance  has been  placed  on
wholesale  funding sources,  such as brokered deposits and other borrowed funds.
As a result, the company's net interest-rate  spread (the difference between the
average  yield  on  interest-earning   assets  and  the  average  rate  paid  on
interest-bearing  liabilities)  decreased  19 basis  points  compared  to second
quarter 1997, negatively impacting the net interest margin. This negative impact
was partially  offset during 1998 by increased  interest income due to growth in
loans and in mortgage loans held for sale.
     The following tables show, for the three- and six-month  periods ended June
30, 1998 and 1997, the relationship  between interest income and expense and the
levels  of  average   interest-earning   assets  and  average   interest-bearing
liabilities.  The tables reflect increased volumes of commercial loans, mortgage
loans held for sale, brokered certificates of deposit and borrowed funds.


<PAGE>


<TABLE>

 Average Consolidated Balance Sheets and Net Interest Analysis

 For the three months ended June 30

 Dollars in thousands
<CAPTION>

                                                                  1998                                        1997
                                                   Average                     Average        Average                      Average
                                                   Balance      Interest         Rate         Balance       Interest         Rate
 Assets:
 Interest-earning assets:
<S>                                               <C>             <C>              <C>        <C>             <C>              <C>  
   Loans, net of unearned income                  $1,551,291      $36,376  *       9.41%      $1,452,174      $34,412  *       9.50%
   Securities                                        254,948        3,917  *       6.16%         253,617        3,863  *       6.11%
   Mortgage loans held for sale                      208,636        3,959          7.61%          80,848        1,568          7.78%
   Federal funds sold
     and other interest income                           100            2          8.02%             164            2          4.89%
                                                -------------  -----------                 --------------  -----------
 Total interest-earning assets /
   interest income                                 2,014,975       44,254  *       8.81%       1,786,803       39,845  *       8.94%
                                                               -----------                                 -----------
 Non-interest-earning assets:
   Cash and due from banks                            64,649                                      52,417
   Premises and equipment                             39,482                                      37,009
   Other assets                                       69,207                                      64,861
                                                =============                              ==============
 Total assets                                     $2,188,313                                  $1,941,090
                                                =============                              ==============
 Liabilities and Shareholders' Equity
 Interest-bearing liabilities:
   Interest-bearing deposits:
     Interest-bearing demand (NOW)                   $61,409         $509          3.32%         $35,059         $286          3.27%
     Savings deposits                                 97,434          581          2.39%         102,276          722          2.83%
     Money market accounts                           273,948        2,311          3.38%         270,721        2,236          3.31%
     Certificates of deposit                         702,101        9,691          5.54%         708,358        9,695          5.49%
     Brokered certificates of deposit                134,551        2,129          6.35%         123,363        1,925          6.26%
     Individual Retirement Accounts                   77,926        1,084          5.58%          82,246        1,171          5.71%
                                                -------------  -----------                 --------------  -----------
     Total interest-bearing deposits               1,347,369       16,305          4.85%       1,322,023       16,035          4.86%
 Federal funds purchased
   and repurchase agreements                         115,968        1,547          5.35%          53,481          699          5.24%
 Other short-term borrowings                          94,807        1,341          5.67%          48,957          700          5.74%
 Long-term debt                                      195,088        3,121          6.42%         140,786        2,356          6.71%
                                                -------------  -----------                 --------------  -----------
   Total borrowed funds                              405,863        6,009          5.94%         243,224        3,755          6.19%
                                                -------------  -----------                 --------------  -----------
 Total interest-bearing liabilities /
   interest expense                                1,753,232       22,314          5.10%       1,565,247       19,790          5.07%
                                                               -----------                                 -----------
 Non-interest-bearing liabilities:
   Non-interest-bearing deposits                     247,609                                     215,873
   Other liabilities                                  25,544                                      22,878
                                                -------------                              --------------
   Total liabilities                               2,026,385                                   1,803,998
 Shareholders' equity                                161,928                                     137,092
                                                -------------                              --------------
 Total liabilities
   and shareholders' equity                       $2,188,313                                  $1,941,090
                                                =============                              ==============
 Net interest-rate spread                                                          3.71%                                       3.87%
 Impact of non-interest bearing
   sources and other changes in
   balance sheet composition                                                       0.66%                                       0.63%
                                                                              -----------                                 ----------
 Net interest income /
   margin on interest-earning assets                              $21,940  *       4.37%                      $20,055  *       4.50%
                                                               ===========    ===========                  ===========    ==========

 *Includes tax-equivalent adjustment

 Net interest margin is net interest income divided by average  interest-earning
assets.   For  computational   purposes,   non-accrual  loans  are  included  in
interest-earning  assets. Net interest rate spread is the difference between the
average rate of interest earned on interest-earning  assets and the average rate
of interest expensed on interest-bearing liabilities. Average balances are based
on daily balances and average rates are based on a 365-day year.

</TABLE>

<PAGE>


<TABLE>

 Average Consolidated Balance Sheets and Net Interest Analysis
 For the six months ended June 30
 Dollars in thousands
<CAPTION>
  
                                                                1998                                        1997
                                                   Average                     Average        Average                      Average
                                                   Balance      Interest         Rate         Balance       Interest         Rate
 Assets:
 Interest-earning assets:
<S>                                               <C>             <C>              <C>        <C>             <C>              <C>  
   Loans, net of unearned income                  $1,547,328      $72,234  *       9.41%      $1,453,064      $68,101  *       9.45%
   Securities                                        259,925        7,984  *       6.19%         262,601        7,961  *       6.11%
   Mortgage loans held for sale                      177,428        6,427          7.30%          75,160        2,797          7.50%
   Federal funds sold
     and other interest income                           265            9          6.85%             131            4          6.16%
                                                -------------  -----------                 --------------  -----------
 Total interest-earning assets /
   interest income                                 1,984,946       86,654  *       8.80%       1,790,956       78,863  *       8.88%
                                                               -----------                                 -----------
 Non-interest-earning assets:
   Cash and due from banks                            64,747                                      51,013
   Premises and equipment                             38,816                                      37,307
   Other assets                                       69,768                                      65,214
                                                =============                              ==============
 Total assets                                     $2,158,277                                  $1,944,490
                                                =============                              ==============
 Liabilities and Shareholders' Equity
 Interest-bearing liabilities:
   Interest-bearing deposits:
     Interest-bearing demand (NOW)                   $63,933       $1,071          3.38%         $34,474         $541          3.16%
     Savings deposits                                 96,371        1,168          2.44%         103,205        1,409          2.75%
     Money market accounts                           266,930        4,478          3.38%         270,557        4,376          3.26%
     Certificates of deposit                         709,624       19,491          5.54%         715,698       19,273          5.43%
     Brokered certificates of deposit                139,677        4,390          6.34%         116,879        3,640          6.28%
     Individual Retirement Accounts                   78,428        2,173          5.59%          82,822        2,301          5.60%
                                                -------------  -----------                 --------------  -----------
     Total interest-bearing deposits               1,354,963       32,771          4.88%       1,323,635       31,540          4.81%
 Federal funds purchased
   and repurchase agreements                          99,647        2,622          5.31%          50,722        1,290          5.13%
 Other short-term borrowings                          87,627        2,500          5.75%          60,829        1,683          5.58%
 Long-term debt                                      194,306        6,169          6.40%         140,840        4,636          6.64%
                                                -------------  -----------                 --------------  -----------
   Total borrowed funds                              381,580       11,291          5.97%         252,391        7,609          6.08%
                                                -------------  -----------                 --------------  -----------
 Total interest-bearing liabilities /
   interest expense                                1,736,543       44,062          5.12%       1,576,026       39,149          5.01%
                                                               -----------                                 -----------
 Non-interest-bearing liabilities:
   Non-interest-bearing deposits                     237,232                                     208,855
   Other liabilities                                  25,569                                      23,894
                                                -------------                              --------------
   Total liabilities                               1,999,344                                   1,808,775
 Shareholders' equity                                158,933                                     135,715
                                                -------------                              --------------
 Total liabilities
   and shareholders' equity                       $2,158,277                                  $1,944,490
                                                =============                              ==============
 Net interest-rate spread                                                          3.68%                                       3.87%
 Impact of non-interest bearing
   sources and other changes in
   balance sheet composition                                                       0.65%                                       0.60%
                                                                              -----------                                 ----------
 Net interest income /
   margin on interest-earning assets                              $42,592  *       4.33%                      $39,714  *       4.47%
                                                               ===========    ===========                  ===========    ==========

*Includes tax-equivalent adjustment

 Net interest margin is net interest income divided by average  interest-earning
assets.   For  computational   purposes,   non-accrual  loans  are  included  in
interest-earning  assets. Net interest rate spread is the difference between the
average rate of interest earned on interest-earning  assets and the average rate
of interest expensed on interest-bearing liabilities. Average balances are based
on daily balances and average rates are based on a 365-day year.

</TABLE>

<PAGE>


Analysis of Changes in Net Interest Income
     Shown in the following  tables are changes in interest  income and interest
expense  resulting  from changes in volumes  (average  balances)  and changes in
interest  rates for the three- and  six-month  periods  ended June 30, 1998,  as
compared to the same period in 1997.

 Second Quarter 1998 vs. 1997
                                         Increase (decrease)
                                      in interest income and expense
 In thousands                           due to changes in:
                                     Volume     Rate      Total
 Interest-earning assets:
Loans ............................   $ 2,327    $(363)   $ 1,964
Securities .......................        20       34         54
Mortgage loans held for sale .....     2,426      (35)     2,391
Federal funds sold
  and other interest income ......        (1)       1       --
                                     -------    -----    -------
Total interest-earning assets ....     4,772     (363)     4,409

Interest-bearing liabilities:
Interest-bearing demand (NOW) ....       218        5        223
Savings deposits .................       (33)    (108)      (141)
Money market accounts ............        27       48         75
Certificates of deposit ..........       (86)      82         (4)
Brokered certificates of deposit .       177       27        204
Other time deposits ..............       (61)     (26)       (87)
                                     -------    -----    -------
  Total interest-bearing deposits        242       28        270
Federal funds purchased
  and repurchase agreements ......       833       15        848
Other short-term borrowings ......       649       (8)       641
Long-term debt ...................       873     (108)       765
                                     -------    -----    -------
  Total borrowed funds ...........     2,355     (101)     2,254
                                     -------    -----    -------
Total interest-bearing liabilities     2,597      (73)     2,524
                                     -------    -----    -------
Increase (decrease)
  in net interest income .........   $ 2,175    $(290)   $ 1,885
                                     =======    =====    =======

 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>



 Six Months 1998 vs. 1997 
                                           Increase (decrease)
                                     in interest income and expense
 In thousands                              due to changes in:
                                     Volume     Rate      Total
 Interest-earning assets:
Loans ............................   $ 4,402    $(269)   $ 4,133
Securities .......................       (82)     105         23
Mortgage loans held for sale .....     3,706      (76)     3,630
Federal funds sold
  and other interest income ......         5     --            5
                                     -------    -----    -------
Total interest-earning assets ....     8,031     (240)     7,791

Interest-bearing liabilities:
Interest-bearing demand (NOW) ....       491       39        530
Savings deposits .................       (89)    (152)      (241)
Money market accounts ............       (59)     161        102
Certificates of deposit ..........      (165)     383        218
Brokered certificates of deposit .       716       34        750
Other time deposits ..............      (122)      (6)      (128)
                                     -------    -----    -------
  Total interest-bearing deposits        772      459      1,231
Federal funds purchased
  and repurchase agreements ......     1,286       46      1,332
Other short-term borrowings ......       763       54        817
Long-term debt ...................     1,703     (170)     1,533
                                     -------    -----    -------
  Total borrowed funds ...........     3,752      (70)     3,682
                                     -------    -----    -------
Total interest-bearing liabilities     4,524      389      4,913
                                     -------    -----    -------
Increase (decrease)
  in net interest income .........   $ 3,507    $(629)   $ 2,878
                                     =======    =====    =======

 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 $2.3 million  (0.59% of average loans on
an  annualized  basis,  excluding  mortgage  loans held for sale) for the second
quarter of 1998,  compared  with $2.9 million  (1.34% of average  loans) for the
comparable  period of 1997.  Net loan  charge-offs  were $1.4 million  (0.36% of
average loans) for the second quarter of 1998, compared with $0.9 million (0.25%
of average loans) for the second quarter of 1997.
     For the first six months of 1998,  the  provision  for loan losses was $4.5
million (0.58% of average  loans),  compared with $4.9 million (0.67% of average
loans) for the comparable period of 1997. Net loan charge-offs were $2.9 million
(0.37% of average loans) for the first half of 1998,  compared with $1.9 million
(0.26% of average loans) for the first six months of 1997.
     The  provision  for loan  losses  and the level of the  allowance  for loan
losses  reflect  management's  evaluation  of the  risk in the  loan  portfolio.
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 1998 increased $1.7 million,
or 18%, over the second  quarter of 1997.  During the second quarter of 1997 the
company  recognized a $1.2 million gain on the sale of the two Tennessee offices
which were sold during the quarter. Excluding this gain, non-interest income for
the second quarter of 1998 would have  increased  $2.9 million,  or 37% over the
second quarter of 1997.
     For the  first  six  months  of 1998  non-interest  income  increased  $4.0
million,  or 24%, over the comparable  period in 1997. The first quarter of 1998
included  a $430  thousand  gain on the  sale of the  Mt.  Pleasant,  Tennessee,
office.  Excluding  this gain and the $1.2 million gain in the second quarter of
1997,  non-interest  income for the first half of 1998 would have increased $4.9
million, or 31% over the first half of 1997.
     The higher level of non-interest  income in 1998 is primarily  attributable
to increased  mortgage loan  origination  and refinancing  activity.  During the
second quarter of 1998,  mortgage  banking income improved $2.2 million over the
year-earlier period,  despite taking a $630 thousand provision for impairment of
the mortgage  servicing  rights ("MSR) asset  resulting from increased  mortgage
loan prepayment activity.  The Surety Mortgage (Cape Coral, Florida) acquisition
and the new mortgage office in Little Rock, Arkansas,  represent $1.3 million of
the increase in mortgage banking income for the second quarter. A record quarter
for brokerage income (a $600 thousand  increase) also contributed to the rise in
quarterly  non-interest  income.  Mortgage  banking income (up $4.4 million) and
brokerage  income (up $692 thousand) were also  principally  responsible for the
increase in  non-interest  income for the  six-months  ended June 30,  1998,  as
compared to the first six months of 1997.

Non-Interest Expenses
     Non-interest expenses increased $2.5 million, or 14%, in the second quarter
of 1998,  compared  to the  second  quarter  of 1997.  As a result of  increased
mortgage production  activities,  total non-interest expense for Trans Financial
Morgage  Company  increased  $1.5  million  over  the  second  quarter  of 1997,
including $1.0 million in operating  expenses  associated  with the new mortgage
offices in Florida and Arkansas.  Higher non-mortgage retail sales and brokerage
activity,  and an increased emphasis on performance-based pay led to an increase
of $373  thousand  in  commission  and  incentive  expense  during the  quarter.
Technology-related  initiatives  and  expansion  of  the  convenience-store  ATM
network  resulted in a $330 thousand  increase in non-interest  expense compared
with the second quarter of 1997.  The  efficiency  ratio (a measure of operating
expenses per dollar of income)  decreased to 60.3% in the second quarter of 1998
(excluding  the  branch  sale  gains  and  securities   gains  and   losses)--an
improvement over the 61.9% efficiency ratio in the second quarter of 1997.
     For the six-month periods, non-interest expenses increased $3.9 million, or
11%,  in  1998  as  compared  to the  first  half of  1997.  Operating  expenses
associated  with the new Florida and Arkansas  mortgage  offices  represent $1.4
million of the increased expenses,  while mortgage and brokerage commissions and
other  incentive-based pay rose $668 thousand from the first half of 1997 to the
first half of 1998.  Technology expenses and ATM network expansion added another
$573 thousand, period-to-period.

Income Taxes
     Income tax expense  totaled  $3.6  million for the second  quarter of 1998,
compared  with $3.0  million in the  comparable  1997  period.  These  represent
effective tax rates of 33.8% and 33.6%,  respectively.  For the six months ended
June 30, 1998, the company's effective tax rate was 33.6%,  compared to 33.1% in
the first half of 1997.


Balance Sheet Review
Overview
     Assets at June 30, 1998 totaled $2.25 billion,  compared with $2.12 billion
at December 31, 1997, and $1.98 billion a year ago. Average total assets for the
second quarter increased $247 million (13%) over the past year to $2.19 billion.
Average interest-earning assets increased $228 million to $2.01 billion.

Loans
     The company  experienced  annualized  loan growth of 2% from  December  31,
1997, to June 30 1998.  For the second  quarter of 1998,  loans  decreased  $4.0
million from March 31, 1998 (a 1% annualized  rate). At June 30, 1998, loans net
of  unearned  income  (excluding  mortgage  loans held for sale)  totaled  $1.55
billion,  compared with $1.54 billion at December 31, 1997,  and $1.47 billion a
year ago.
     Total loans, net of unearned  income,  averaged $1.55 billion in the second
quarter of 1998, excluding mortgage loans held for sale of $209 million. For the
comparable  period in 1997,  loans  averaged  $1.45  billion,  excluding the $81
million of mortgage loans held for sale.

Asset Quality
     Non-performing  loans, which include non-accrual loans, accruing loans past
due 90 days or more and restructured loans, totaled $28.3 million as of June 30,
1998,  an increase of $3.8  million from  December 31, 1997,  and an increase of
$18.8  million from the end of the second  quarter of 1997.  The increase from a
year ago is primarily  attributable  to $12.8  million of loans to a coal mining
operation. The $3.7 million increase over the first quarter of 1998 is primarily
due to three loans.  Two of these loans,  totaling $2.4 million,  are secured by
commercial  real estate and the third is a $1.0 million  commercial  loan to the
coal mining  operation.  The  company is closely  monitoring  its $23.9  million
exposure to the coal industry,  which is down from $33.5 million at December 31,
1997,  primarily  due to  several  paydowns  on  loans.  At June 30,  1998,  the
company's coal exposure  consisted of the  non-accrual  loans mentioned above as
well as an additional  102  relationships,  with the next largest  single credit
exposure totaling $2.5 million.
     The ratio of  non-performing  loans to total loans (net of unearned income)
was 1.82% at June 30, 1998,  compared  with 1.59% at the end of 1997 and 0.64% a
year ago.  Non-performing assets, which include non-performing loans, foreclosed
real estate and other foreclosed property,  totaled $29.3 million as of June 30,
1998, as compared to $10.7 million at June 30, 1997. The ratio of non-performing
assets to total assets  increased  to 1.30% at June 30, 1998,  from 0.54% a year
ago.
     The following table presents information concerning  non-performing assets,
including non-accrual and restructured loans.
<TABLE>

 Non-performing Assets
 Dollars in thousands
<CAPTION>

                                                     June 30    March 31    December 31   June 30
                                                       1998        1998       1997         1997
<S>                                                   <C>         <C>         <C>         <C>    
Non-accrual loans ...............................     $22,404     $20,593     $21,803     $ 6,186
Accruing loans which are contractually
  past due 90 days or more ......................       5,331       3,403       1,991       2,611
Restructured loans ..............................         557         622         687         679
                                                      -------     -------     -------     -------
  Total non-performing and restructured loans ...      28,292      24,618      24,481       9,476
Foreclosed real estate ..........................         868         727         845         872
Other foreclosed property .......................         127         258         217         354
                                                      -------     -------     -------     -------
  Total non-performing and restructured loans and
    foreclosed property .........................     $29,287     $25,603     $25,543     $10,702
                                                      =======     =======     =======     =======

 Non-performing and restructured loans
 as a percentage of loans, net of unearned income        1.82%       1.58%       1.59%       0.64%
 Total non-performing and restructured loans and
 foreclosed property as a percentage of total assets     1.30%       1.16%       1.21%       0.54%
</TABLE>

     Management  classifies  commercial  and  commercial  real  estate  loans as
non-accrual  when principal or interest is past due 90 days or more and the loan
is not adequately  collateralized and in the process of collection,  or when, in
the  opinion of  management,  principal  or interest is not likely to be paid in
accordance  with the terms of the  obligation.  Consumer  loans are  charged off
after 120 days of delinquency  unless  adequately  secured and in the process of
collection.  Non-accrual  loans are not reclassified as accruing until principal
and interest  payments are brought current and future payments appear reasonably
certain.  Loans are categorized as  restructured if the original  interest rate,
repayment  terms, or both were modified due to a deterioration  in the financial
condition of the borrower.
     Seven commercial credit relationships account for $19.7 million, or 88%, of
the company's  non-accrual  loans at June 30, 1998. The largest of these credits
is the $12.8  million  relationship  with the coal  mining  operation  mentioned
above. The other six credits consist of $2.0 million to a motel franchisee, $1.7
million to a grocery  chain,  $1.4 million to a mobile home  manufacturer,  $0.8
million  to a real  estate  developer,  $0.6  million  to a  tobacco  processing
company,  and $0.5 million to a trucking company.  Of the $2.5 million allowance
for loan losses established in accordance with Statement of Financial Accounting
Standards No. 114, Accounting by Creditors for the Impairment of a Loan, four of
these  large  non-accrual  credits  account  for  $2.4  million.  The  remaining
non-accrual loan balance consists of various commercial and consumer loans, with
no single borrower representing more than $400,000.
     Foreclosed  real estate at June 30, 1998,  consists of several  properties,
with no  single  property  exceeding  $350,000. 
     As of June 30,  1998,  the company had $4.8  million of loans which were
not included in the past due non-accrual or restructured  categories,  but for
which known information about possible credit problems  caused  management  to 
have  serious  doubts as to the  ability of the borrowers to comply with the
present loan repayment terms. Based on management's evaluation,  including
current market conditions, cash flow generated and recent appraisals,  no 
significant  losses are  anticipated at this time in connection
with these loans. These loans are subject to continuing management attention and
are considered in determining the level of the allowance for loan losses.
     The allowance represents an amount which, in management's judgment, will be
adequate  to absorb  probable  losses on  existing  loans.  The  adequacy of the
allowance for loan losses is determined on an ongoing basis through  analysis of
the  overall  size and  quality  of the loan  portfolio,  historical  loan  loss
experience,   loan  delinquency   trends  and  current  and  projected  economic
conditions.  Additional  allocations of the allowance are based on  specifically
identified  potential  loss  situations.   The  potential  loss  situations  are
identified by account  officers'  evaluations of their own portfolios as well as
by an independent loan review function.
     The allowance for loan losses is  established  through a provision for loan
losses charged to expense. At June 30, 1998, the allowance was $23.7 million, up
from $22.0 million at December 31, 1997, and $21.0 million at June 30, 1997. The
ratio of the allowance for loan losses to total loans (excluding  mortgage loans
held for sale) at June 30, 1998, was 1.52%,  compared with 1.43% at December 31,
1997,  and 1.43% at June 30, 1997.  The increase  from June 30, 1997 reflects in
part  management's  review of the growth in the loan  portfolio,  the continuing
concentrations of credit among the company's largest credit  relationships,  and
anticipated general economic conditions in the company's markets.
     The allowance as a percentage of  non-performing  loans was 84% at June 30,
1998, as compared to 90% at year-end 1997 and 222% at June 30, 1997,  due to the
previously-mentioned   coal  mining  loans,   which  were  first  classified  as
non-accrual in the second half of 1997.
     Management believes that the allowance for loan losses at June 30, 1998, is
adequate to absorb losses  inherent in the loan portfolio as of that date.  That
determination  is based on the best  information  available to  management,  but
necessarily  involves  uncertainties  and  matters of judgment  and,  therefore,
cannot be determined  with  precision and could be  susceptible  to  significant
change in the future.  In addition,  bank regulatory  authorities,  as a part of
their  periodic  examinations  of  the  company's  banks,  may  reach  different
conclusions  regarding  the quality of the loan  portfolio  and the level of the
allowance,  which could  result in  additional  provisions  being made in future
periods.  Further  discussion of the allowance for loan losses is included later
in this review in the Year 2000 Risks section.

Securities Available for Sale
     Securities  (all  classified  as available  for sale)  decreased  from $278
million at  December  31,  1997 to $260  million at June 30,  1998.  A year ago,
securities  totaled $252 million.  Funds provided by the reduction in securities
in the first half of 1998 were utilized to fund growth in the loan portfolio.

Deposits and Borrowed Funds
     Total  deposits  averaged  $1.59 billion in the second  quarter of 1998, an
increase  of $57  million,  or 4%,  from the  comparable  1997  period.  Average
interest-bearing  accounts  increased $25 million in the second quarter of 1998,
compared to the same period in 1997, while average non-interest-bearing accounts
increased  $32 million.  The  increase in  interest-bearing  accounts  primarily
represents balances of NOW accounts related to a few large corporate  customers.
As of June 30, 1998 and 1997,  brokered  certificates of deposit  comprised $125
million  and  $130  million,  respectively,  of the  company's  deposits.  These
brokered  deposits have various  maturities  ranging from ten months to over two
years.
     Long-term  debt  totaled  $195 million at June 30, 1998 and $141 million at
June 30,  1997.  In order to support  growth in the loan  portfolio,  TFB-KY has
outstanding $55 million of notes (included in the long-term debt totals),  under
a $250 million senior bank note program. These bank notes bear interest at fixed
rates of 6.48% and  7.13%.  Other  long-term  borrowings  principally  represent
Federal  Home Loan Bank  ("FHLB")  advances to TFB-KY and TFB-TN  (with  varying
maturity dates),  which are funding  residential  mortgage and commercial loans.
Long-term debt also includes financing from an unaffiliated  commercial bank for
the company's leveraged ESOP. Total ESOP debt was $1.5 million at June 30, 1998,
and $2.2 million at June 30, 1997.
     Certain of the above brokered  certificates of deposit, bank notes and FHLB
advances have been effectively  converted to floating rate  instruments  through
the use of interest rate swap  transactions.  Other swap agreements are utilized
to hedge the commercial lending exposure of the company. TFB-KY pays interest at
the prime  rate,  and  receives  fixed  rates from 8.60% to 9.52% under all swap
agreements.  Further discussion of interest rate swaps is included later in this
review in the Asset/Liability Management and Market Risks Section.

Capital Resources and Liquidity
     The company's  capital ratios at June 30, 1998,  December 31, 1997, 
and June 30, 1997 (calculated in accordance with regulatory
guidelines) were as follows:


                                   June 30,   December 31,   June 30,
                                      1998        1997       1997

Tier 1 risk-based capital ...         8.77%      8.48%      8.36%
     Regulatory minimum .....         4.00       4.00       4.00
     Well-capitalized minimum         6.00       6.00       6.00
Total risk-based capital ....        11.91      11.71      11.69
     Regulatory minimum .....         8.00       8.00       8.00
     Well-capitalized minimum        10.00      10.00      10.00
Leverage ratio ..............         6.99       6.81       6.82
     Regulatory minimum .....         3.00       3.00       3.00
     Well-capitalized minimum         5.00       5.00       5.00


     The  increase  in  these  capital  ratios  in 1998 is due to the  company's
increased earnings.  Capital ratios of all of the company's  subsidiaries are in
excess of applicable  minimum  regulatory capital ratio requirements at June 30,
1998.
     To maintain a desired level of liquidity,  the company has several  sources
of funds available.  The company  primarily relies upon net inflows of cash from
financing  activities,  supplemented  by net  inflows  of  cash  from  operating
activities, to provide cash used in these investing activities. As is typical of
most banking  companies,  significant  financing  activities include issuance of
common stock and long-term debt,  deposit  gathering,  and the use of short-term
borrowing facilities,  such as federal funds purchased,  repurchase  agreements,
FHLB advances and lines of credit.  The company's primary  investing  activities
include  purchases of securities  and loan  originations,  offset by maturities,
prepayments and sales of securities, and loan payments.

Asset/Liability Management and Market Risks
     Managing  interest  rate  risk is  fundamental  to the  financial  services
industry. The company's policies are designed to manage the inherently different
maturity and repricing  characteristics  of the lending and  deposit-acquisition
lines of  business  to achieve a desired  interest-sensitivity  position  and to
limit exposure to interest rate risk. The maturity and repricing characteristics
of  the   company's   lending   and  deposit   activities   create  a  naturally
asset-sensitive  structure.  By using a combination of on- and off-balance-sheet
financial  instruments,  the company  manages  interest rate  sensitivity  while
optimizing  net  interest  income  within the  constraints  of  prudent  capital
adequacy,  liquidity  needs,  the  interest  rate and economic  outlook,  market
opportunities and customer requirements.
     The company uses an earnings  simulation  model to monitor and evaluate the
impact of changing interest rates on earnings.  The simulation model used by the
company is  designed to reflect the  dynamics  of all  interest-earning  assets,
interest-bearing   liabilities  and  off-balance-sheet   financial  instruments,
combining  the  various  factors  affecting  rate  sensitivity  into a  two-year
earnings  outlook.  Among the factors the model  utilizes are 1)  rate-of-change
differentials,  such as federal funds rates versus  savings  account  rates;  2)
maturity effects, such as calls on securities;  3) rate barrier effects, such as
caps or floors on loans;  4) changes in balance sheet levels;  5)  floating-rate
financial  instruments that may be tied or related to prime,  Treasury Notes, CD
rates or other rate indices,  which do not necessarily move identically as rates
change; 6) leads and lags that occur as rates move away from current levels; and
7) the effects of prepayments on various assets, such as residential  mortgages,
mortgage-backed securities and consumer loans.
     The model is updated  bi-monthly  (or more  frequently,  if necessary)  for
multiple interest rate scenarios,  projected changes in balance sheet categories
and other  relevant  assumptions.  In  developing  multiple rate  scenarios,  an
econometric  model is  employed  to forecast  key rates,  based on the  cyclical
nature and historic volatility of those rates. A stochastic view of net interest
income is derived once  probabilities  have been assigned to those key rates. By
forecasting a most likely rate  environment,  the effects on net interest income
of  adjusting  those  rates  up or down can  reveal  the  company's  approximate
interest  rate  risk  exposure  level.   Several  rate  index  and  yield  curve
assumptions are used in the model. As an example, the company's most likely rate
environment  as of June 30,  1998,  assumed the 3-month  Treasury  rate at 5.09%
through January, 1999, then falling to 4.58% in June, 1999.
     A second  interest  rate  sensitivity  tool  utilized by the company is the
quantification of market value changes for all assets and liabilities,  given an
increase or decrease in interest  rates.  This  approach  provides a longer-term
view of interest rate risk, capturing all expected future cash flows. Assets and
liabilities with option  characteristics are measured based on numerous interest
rate path valuations using statistical rate simulation techniques.
     As of June 30, 1998, management believes the company's balance sheet was in
an  asset-sensitive  position,  as the repricing  characteristics of the balance
sheet were such that an increase in interest rates would have a positive  effect
on earnings  and a decrease in  interest  rates would have a negative  effect on
earnings.


<PAGE>


     The   following   illustrates   the  effects  of  an   immediate   100-  or
200-basis-point  shift in market  interest rates on 1) fair values of assets and
liabilities as compared to June 30, 1998 fair values, and 2) net interest income
for one  year as  compared  to the  most  likely  rate  assumptions  used in the
company's model:

<TABLE>

 Market Risk Analysis
 June 30, 1998 - In thousands                                                              Increase (Decrease) in Fair Value
<CAPTION>
                                                                               -----------------------------------------------------
                                                                                  Decrease in Rates            Increase in Rates
                                                                               -------------------------   -------------------------
                                                      Carrying       Fair          200         100             100          200
                                                       Value         Value        b.p.         b.p.            b.p.         b.p.
 Market Risk-Sensitive Assets
<S>                                                   <C>           <C>          <C>          <C>             <C>          <C>     
 Securities available for sale                          $260,230      $260,230     $11,354       $5,487        $(5,134)     $(9,952)
 Mortgage loans held for sale                            238,608       239,135         391          196           (193)        (387)
 Loans, net                                            1,552,666     1,666,834      51,164       24,317        (21,138)     (39,435)
 Mortgage servicing rights
     and interest rate floor contracts                    52,522        54,518    (13,635)      (8,357)           3,673        5,256
 Interest rate swaps                                           -         (197)       5,564        2,807         (2,807)      (5,638)
                                                   -----------------------------------------------------   -------------------------
                Total market risk-sensitive assets    $2,104,026    $2,220,520     $54,838      $24,450       $(25,599)    $(50,156)
                  % change in fair value of assets                                   2.47%        1.10%          -1.15%       -2.26%
 Market Risk-Sensitive Liabilities
 Transaction deposit accounts                           $581,543      $590,568      $(695)       $(347)            $347         $687
 Savings accounts                                         98,303        91,688     (2,411)      (1,220)           1,267        2,498
 Certificates of deposit                                 886,864       910,574    (11,959)      (5,975)           5,706       11,362
 Short-term borrowings                                   299,327       295,266       (458)        (229)             226          452
 Long-term debt                                          194,932       201,378     (7,115)      (3,507)           3,402        6,720
                                                   -----------------------------------------------------   -------------------------
           Total market risk-sensitive liabilities    $2,060,969    $2,089,474   $(22,638)    $(11,278)         $10,948      $21,719
                                                   -----------------------------------------------------   -------------------------
             % change in fair value of liabilities                                  -1.08%       -0.54%           0.52%        1.04%

</TABLE>


<TABLE>
Dollars in thousands    
<CAPTION>
                                                                                                Increase (Decrease)
                                                                     Most                  in Interest Income and Expense
                                                                               -----------------------------------------------------
                                                                    Likely        Decrease in Rates            Increase in Rates
                                                                               -------------------------   -------------------------
                                                                     Rate          200         100             100          200
                                                                    Scenario       b.p.         b.p.            b.p.         b.p.
 Projected Interest Income (annualized)
<S>                                                                   <C>        <C>            <C>             <C>         <C>   
 Securities available for sale                                         $15,130    $(1,974)       $(987)            $988       $1,975
 Mortgage loans held for sale                                           14,193     (3,623)      (1,812)           1,811        3,622
 Loans, net                                                            144,836    (15,577)      (7,161)           8,130       15,301
 Interest rate swaps                                                       935       3,398        1,478         (1,823)      (3,307)
                                                                      ---------------------------------------   --------------------
                             Total interest income                    $175,094   $(17,776)     $(8,482)          $9,106      $17,591
                       % change in interest income                                 -10.15%       -4.84%           5.20%       10.05%
 Projected Interest Expense (annualized)
 NOW and money market deposit accounts                                 $11,341    $(2,594)     $(1,254)            $316         $622
 Savings accounts                                                        2,427       (937)        (483)             330          659
 Certificates of deposit                                                49,654     (8,569)      (4,098)           4,386        8,489
 Short-term borrowings                                                  14,031     (5,094)      (2,546)           2,506        5,008
 Long-term debt                                                         12,561       (439)        (218)             221          439
                                                                      ---------------------------------------   --------------------
                            Total interest expense                     $90,014   $(17,633)     $(8,599)          $7,759      $15,217
                                                                      ---------------------------------------   --------------------
                      % change in interest expense                                 -19.59%       -9.55%           8.62%       16.91%

                               Net interest income                     $85,080      $(143)         $117          $1,347       $2,374
                   % change in net interest income                                  -0.17%        0.14%           1.58%        2.79%

</TABLE>

     It should  be noted  that  some of the  assumptions  made in the use of the
simulation  model will inevitably not materialize and  unanticipated  events and
circumstances  will occur; in addition,  the simulation model does not take into
account any future actions which could be undertaken to reduce an adverse impact
if there were a change in interest rate  expectations  or in the actual level of
interest rates.
     Derivative  financial  instruments  can be a  cost-  and  capital-efficient
method   of   modifying   the   repricing   or   maturity   characteristics   of
on-balance-sheet assets and liabilities--a  necessary component of the company's
strategy  for  managing  its  overall  interest  rate  risk.   Off-balance-sheet
derivative  transactions  used for interest rate  sensitivity  management  could
include interest rate swaps, forwards,  floors, futures and options with indices
that directly  relate to the pricing of specific  assets and  liabilities of the
company.
     Off-balance-sheet  derivatives  do not  expose the  company to credit  risk
equal to the  notional  amount,  although  the company is exposed to credit risk
equal to the  aggregate  of the  positive  fair  values of the  swaps,  plus any
accrued  interest  receivable  due  from all  counterparties.  Fair  values  are
determined  by  discounting  to present  value the future cash flows which would
result from the  difference  between  current  market  rates and the actual swap
rates.
     To assist in achieving a desired  level of interest rate  sensitivity,  the
company has entered into off-balance-sheet interest rate swap transactions which
partially  neutralize  the asset  sensitive  position  which is  inherent in the
balance  sheet.  The  company  pays a  variable  interest  rate on each swap and
receives a fixed rate.  In a higher  interest-rate  environment,  the  increased
contribution   to  net  interest  income  from   on-balance-sheet   assets  will
substantially  offset any negative  impact on net interest  income from interest
rate swap transactions.  Conversely,  if interest rates decline,  the swaps will
mitigate the company's  exposure to reduced net interest  income.  Interest rate
swap transactions as of June 30, 1998, are as follows:
<TABLE>

 Dollars in thousands
 <CAPTION>
                                               Notional            Fixed Rate            Floating Rate
                                                 Amount            (Receiving)             (Paying)                   Maturity
                                            ----------------     ----------------                              ---------------------
<S>                                                <C>               <C>                  <C>                        <C> 
                                                     30,000           8.60%                8.50% (Prime)               October, 1998
                                                     25,000           8.78%                8.50% (Prime)              November, 1999
                                                     25,000           8.74%                8.50% (Prime)              December, 1999
                                                     40,000           8.81%                8.50% (Prime)              December, 1999
                                                     50,000           9.52%                8.50% (Prime)                 April, 2000
                                                     50,000           8.87%                8.50% (Prime)                August, 2000
                                                     40,000           8.80%                8.50% (Prime)              November, 2000
                                                     40,000           8.61%                8.50% (Prime)              February, 2001
                                                   --------
 Total / weighted average                          $300,000           8.88%                8.50%                         April, 2000
                                                   ========
</TABLE>

     As shown in the table, $30 million of these interest rate swaps will mature
within twelve months. As these interest rate swaps mature,  management evaluates
whether new interest rate swap transactions are appropriate, given the company's
interest rate sensitivity position at that time.
     To mitigate its  prepayment  risk related to MSR's,  the company  purchases
from time to time interest rate "floor"  contracts  that provide for the company
to receive  interest on the  notional  amount of the contract to the extent that
the interest rate on ten-year  constant maturity U.S. Treasury Notes falls below
the contract rate. The cost of these contracts is included in with the MSR asset
in the consolidated balance sheet. Fair values can be expected to vary inversely
with market expectations for intermediate-term interest rates.
     The company minimizes the credit risk in all  off-balance-sheet  derivative
instruments by dealing only with high quality  counterparties (i.e., those which
have credit  ratings of investment  grade or better from one of the major rating
agencies) and each  transaction is specifically  approved for applicable  credit
exposure.  Further,  the  company's  policy is to require  all  transactions  be
governed by an International  Swap Dealers  Association  Master Agreement and be
subject to bilateral collateral arrangements.
     The company requires all off-balance-sheet  transactions be employed solely
with respect to asset/liability  management or for hedging specific transactions
or positions, rather than for speculative trading activity.  Management believes
there is minimal risk that the derivatives used for rate sensitivity  management
will have any significant unintended effect on the company's financial condition
or results of operations.

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









--------------------------------------------------------------------------------
This report contains  forward-looking  statements  under the Private  Securities
Litigation Reform Act of 1995 that involve risks and
uncertainties.  Although the company believes that the forward-looking 
statements are based upon reasonable assumptions,  there can be no assurance 
that the  forward-looking  statements  will prove to be accurate.  Factors that
could cause actual results to differ from the  results  anticipated  in the
forward-looking  statements  include,  but are not  limited to:  economic
conditions  (both generally  and more  specifically  in the  markets  in which
the  company  and its banks  operate);  competition  for the  company's
customers from other providers of financial services; government legislation and
regulation (which changes from time to time and
over  which the  company  has no  control);  changes  in  interest  rates  (both
generally and more specifically mortgage interest rates);
material unforeseen changes in the liquidity,  results of operations,  or
financial condition of the company's  customers;  material unforeseen 
complications  related to addressing  the Year 2000 Problem  experienced by the
company,  its  suppliers,  customers and governmental agencies;  and other risks
detailed in the company's filings with the Securities and Exchange Commission,
all of which are  difficult  to predict  and many of which are beyond the 
control of the  company.  The  company  undertakes  no  obligation  to
republish  forward-looking  statements to reflect events or circumstances  after
the date hereof or to reflect the occurrence of unanticipated events.
--------------------------------------------------------------------------------

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






<PAGE>


                           Part II - Other Information

Item 1. Legal Proceedings
     In the  ordinary  course  of  operations,  the  company  and the  banks are
defendants in various legal proceedings. In the opinion of management,  there is
no proceeding pending or, to the knowledge of management,  threatened,  in which
an  adverse   decision  could  result  in  a  material  adverse  change  in  the
consolidated financial condition or results of operations of the company.

Item 4. Submission of Matters to a Vote of Security Holders
     A Special  Meeting  of  Stockholders  was held  July 20,  1998 to vote on a
proposal to approve and adopt the Agreement  and Plan of Merger,  dated April 9,
1998,  by and  between  Star Banc  Corporation  ("Star  Banc") and the  company,
pursuant to which the company will be merged with and into Star Banc.  The total
number of shares of common stock  outstanding  as of June 14,  1998,  the record
date of the Special  Meeting,  was 11,321,317,  of which  8,667,236  shares were
represented  at the meeting.  The proposal was adopted by a vote of 8,586,816 in
favor of the proposal; 68,771 against; with 11,649 abstaining.


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

   (b) Reports on Form 8-K
        On April 15, 1998,  the company  filed a Form 8-K, Item 5. Other Events,
       reporting  that on April 9, 1998,  the company  entered into an Agreement
       and Plan of  Merger  with Star Banc  Corporation,  pursuant  to which the
       company will merge with and into Star Banc,  subject to  shareholder  and
       regulatory approvals, and certain other conditions.




<PAGE>



                                   SIGNATURES

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

                                                   Trans Financial, Inc.
                                                         (Registrant)



                                                 Principal Executive Officer:


Date:  August 14, 1998                                /s/ Vince A. Berta
                                                          Vince A. Berta
                                                        Chairman, President and
                                                        Chief Executive Officer

                                                 Principal Financial Officer:


Date: August 14, 1998                                   /s/ Edward R. Matthews
                                                            Edward R. Matthews
                                                      Executive Vice President
                                                    and Chief Financial Officer


<PAGE>






Exhibits
                                                                 Sequentially
                                                                  Numbered Pages

   2.1 Agreement  and Plan of Merger with Star Banc  Corporation  dated April 9,
       1998 is  incorporated  by  reference  to Exhibit 2.1 of the  Registrant's
       report on Form 10-Q for the three months ended March 31, 1998.

   2.2 Stock Option Agreement with Star Banc Corporation  dated April 9, 1998 is
       incorporated  by reference to Exhibit 2.2 of the  Registrant's  report on
       Form 10-Q for the three months ended March 31, 1998.

   10   Trans  Financial,  Inc. 1998 Stock Incentive Plan is incorporated by
        reference to Exhibit 10 of the Registrant's report on Form 10 Q for the
        three months ended March 31, 1998.*

   11  Statement Regarding Computation of Per Share Earnings... ..............23

   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.




<PAGE>