UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    Form 10-Q


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

For the quarter ended September 30, 1997      Commission File Number  0-13030
                      ------------------                              --------
                     





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



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


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


Registrant's telephone number, including area code: (502)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 November 14, 1997: 11,454,315 shares.




<PAGE>


Part I - Financial Information


Item 1. Financial Statements

<TABLE>

 Consolidated Balance Sheets
 (Unaudited)
 In thousands, except share data
<CAPTION>
 
                                              September 30   December 31    September 30
                                                  1997             1996          1996
 Assets
<S>                                           <C>            <C>            <C>        
Cash and due from banks ...................   $    72,419    $    75,054    $    75,506
Interest-bearing deposits with banks ......            99             98             98
Mortgage loans held for sale ..............       103,229         67,999         46,853
Securities available for sale (amortized
   cost of $248,283; $285,264, and $290,274
   respectively) ..........................       248,593        285,155        288,538
Loans, net of unearned income .............     1,490,510      1,450,999      1,407,464
Less allowance for loan losses ............        21,839         18,065         17,166
                                              -----------    -----------    -----------
   Net loans ..............................     1,468,671      1,432,934      1,390,298
Premises and equipment, net ...............        36,307         37,377         36,799
Mortgage servicing rights .................        44,196         41,866         41,347
Other assets ..............................        58,632         63,469         47,436
                                              ===========    ===========    ===========
   Total assets ...........................   $ 2,032,146    $ 2,003,952    $ 1,926,875
                                              ===========    ===========    ===========

Liabilities and Shareholders' Equity
Deposits:
   Non-interest bearing ...................   $   241,458    $   231,717    $   226,031
   Interest bearing .......................     1,321,876      1,347,500      1,292,952
                                              -----------    -----------    -----------
   Total deposits .........................     1,563,334      1,579,217      1,518,983
Federal funds purchased and
   repurchase agreements ..................        46,476         71,879         62,621
Other short-term borrowings ...............       105,000         55,000         55,000
Long-term debt ............................       140,460        140,903        141,053
Other liabilities .........................        32,067         25,637         23,174
                                              -----------    -----------    -----------
   Total liabilities ......................     1,887,337      1,872,636      1,800,831
Shareholders' equity:
   Common stock, no par value. Authorized
      50,000,000 shares; issued and
      outstanding 11,446,677; 11,372,532;
      and 11,318,770 shares, respectively .        21,463         21,324         21,222
   Additional paid-in capital .............        45,716         44,745         44,209
   Retained earnings ......................        79,514         67,790         64,293
   Unrealized net gain (loss) on
      securities available for sale,
      net of tax ..........................           130            (92)        (1,129)
   Employee Stock Ownership Plan shares
      purchased with debt .................        (2,014)        (2,451)        (2,551)
                                              -----------    -----------    -----------
   Total shareholders' equity .............       144,809        131,316        126,044
                                              -----------    -----------    -----------
   Total liabilities
     and shareholders' equity .............   $ 2,032,146    $ 2,003,952    $ 1,926,875
                                              ===========    ===========    ===========

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



<PAGE>



<TABLE>

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

 Interest income
<S>                                       <C>         <C>       <C>          <C>     
  Loans, including fees ...............   $ 35,289    $32,761   $ 103,234    $ 93,667
  Securities available for sale .......      3,681      4,176      11,098      12,346
  Mortgage loans held for sale ........      1,910        954       4,707       2,863
  Other ...............................          4          5           8          64
                                           ---------  --------  ---------    --------
  Total interest income ...............     40,884     37,896     119,047     108,940
Interest expense
  Deposits ............................     16,275     15,148      47,815      44,159
  Federal funds purchased
    and repurchase agreements .........        969        364       2,259       1,384
  Short-term debt .....................        908        754       2,591       2,419
  Long-term debt ......................      2,389      2,360       7,025       5,889
                                            ---------  --------  ---------    -------
  Total interest expense ..............     20,541     18,626      59,690      53,851
                                           ---------   --------  ---------   --------
Net interest income ...................     20,343     19,270      59,357      55,089
  Provision for loan losses ...........      2,650      1,621       7,500      11,263
                                           ---------  --------  ---------     -------                      
Net interest income after
  provision for loan losses ...........     17,693     17,649      51,857      43,826
Non-interest income
  Service charges on deposit accounts .      2,576      2,435       7,653       7,090
  Mortgage banking income .............      2,918      2,626       8,287       7,610
  Gains (losses) on sales of securities
    available for sale, net ...........       (489)        26        (356)         20
  Gain on sale of mortgage servicing ..        889         --         889          --
  Trust services ......................        701        508       1,939       1,410
  Brokerage income ....................        880        455       2,298       1,783
  Other ...............................      1,555      1,344       5,414       4,020
                                            ---------  --------  ---------     ------- 
   Total non-interest income ..........      9,030      7,394      26,124      21,933
Non-interest expenses
  Compensation and benefits ...........      8,779      9,034      25,964      29,177
  Net occupancy expense ...............      1,189      1,119       3,495       4,057
  Furniture and equipment expense .....      1,808      1,509       4,989       5,348
  Deposit insurance ...................        102      2,941         311       3,452
  Professional fees ...................        570        576       1,948       2,492
  Postage, printing & supplies ........        845        970       2,692       3,100
  Communications ......................        716        689       2,086       1,873
  Other ...............................      3,458      3,634      10,177      13,857
                                           ---------  --------  ---------     -------
  Total non-interest expenses .........     17,467     20,472      51,662      63,356
                                           ---------  --------  ---------     ------- 
Income before income taxes ............      9,256      4,571      26,319       2,403
Income tax expense ....................      3,113      1,557       8,766         836
                                           ---------  --------  ---------     -------                                          
Net income ............................   $  6,143    $ 3,014   $  17,553    $  1,567
                                           =========  ========  =========    ========
Primary earnings per share ............   $   0.52    $  0.26   $    1.50    $   0.14
                                           =========  ========  =========    ========
Fully-diluted earnings per share ......   $   0.52    $  0.26   $    1.49    $   0.14
                                           =========  ========  =========    ======== 

 See accompanying notes to consolidated financial statements.

</TABLE>



<PAGE>



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

 Balance January 1                                 $131,316     $129,767
  Net income ..................................      17,553        1,567
  Issuance of common stock ....................       1,109          384
  Cash dividends declared on common stock .....      (5,828)      (5,426)
  Change in unrealized gain (loss) on
    securities available for sale, net of taxes         222         (726)
  ESOP debt reduction .........................         437          478
                                                  =========    =========
Balance at end of period ......................   $ 144,809    $ 126,044
                                                  =========    =========

 See accompanying notes to consolidated financial statements.



<PAGE>

<TABLE>


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

                                                                        1997         1996

 Cash flows from operating activities:
<S>                                                                  <C>          <C>      
Net income .......................................................   $  17,553    $   1,567
Adjustments to reconcile net income to cash
  provided by operating activities:
    Provision for loan losses ....................................       7,500       11,263
    Deferred tax expense .........................................        (472)        (281)
    Loss (gain) on sale of securities available for sale .........         356          (20)
    Gain on sale of mortgage loans held for sale .................      (3,106)      (1,797)
    Writedown of premises and equipment ..........................        --            593
    Gain on sale of premises and equipment .......................          (7)        (105)
    Gain on sale of Tennessee offices ............................      (1,241)        --
    Gain on sale of mortgage servicing rights ....................        (889)        --
    Depreciation and amortization of fixed assets ................       4,557        4,702
    Amortization of intangible assets ............................         970          687
    Amortization of premium on securities and loans, net .........         585          797
    Amortization of mortgage servicing rights ....................       4,539        3,834
Increase in accrued interest receivable ..........................        (444)        (844)
Decrease in other assets .........................................       5,295       11,918
Increase in accrued interest payable .............................       3,534          326
Increase in other liabilities ....................................       2,650        6,445
Sale of mortgage loans held for sale .............................     688,369      266,242
Originations of mortgage loans held for sale .....................    (720,493)    (265,547)
                                                                     ---------    ---------
  Net cash provided by operating activities ......................       9,256       39,780

Cash flows from investing activities:
Net decrease(increase) in interest-bearing deposits with banks ...          (1)          99
Proceeds from sale of securities available for sale ..............      25,722        8,898
Proceeds from prepayment and call of securities available for sale      11,360       35,520
Proceeds from maturities of securities available for sale ........      76,295       45,377
Purchase of securities available for sale ........................     (77,295)     (81,964)
Net increase in loans ............................................     (44,921)    (159,135)
Net cash outflow from sale of Tennessee offices ..................     (13,789)        --
Proceeds from sale of mortgage servicing rights ..................       4,951         --
Purchase and origination of mortgage servicing rights ............     (10,931)     (14,330)
Proceeds from sale of foreclosed assets ..........................         963        1,326
Purchases of premises and equipment ..............................      (4,588)      (6,684)
Proceeds from disposal of premises and equipment .................         349        3,519
                                                                     ---------    ---------
  Net cash used in investing activities ..........................     (31,885)    (167,374)

Cash flows from financing activities:
Net increase in deposits .........................................         122       74,500
Net decrease in federal funds purchased
  and repurchase agreements ......................................     (25,403)     (12,973)
Net increase in other short-term borrowings ......................      50,000        9,986
Proceeds from issuance of long-term debt .........................        --         55,000
Repayment of long-term debt ......................................          (6)         (74)
Proceeds from issuance of common stock ...........................       1,109          384
Dividends paid ...................................................      (5,828)      (5,426)
                                                                     ---------    ---------
  Net cash provided by  financing activities .....................      19,994      121,397
                                                                     ---------    ---------
Net decrease in cash and cash equivalents ........................      (2,635)      (6,197)
Cash and cash equivalents at beginning of year ...................      75,054       81,703
                                                                     ---------    ---------
Cash and cash equivalents at end of period .......................   $  72,419    $  75,506
                                                                     =========    =========
 See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
 Notes to Consolidated Financial Statements

 (1) Summary of Significant Accounting Policies
     The  accounting  and reporting  policies of Trans  Financial,  Inc. and its
subsidiaries (the "company") conform to generally accepted accounting principles
and general  practices within the banking industry.  The consolidated  financial
statements  include the accounts of Trans  Financial,  Inc. and its wholly-owned
subsidiaries.  All significant inter-company accounts and transactions have been
eliminated in  consolidation.  A  description  of other  significant  accounting
policies is presented in the 1996 annual report on Form 10-K.
     In the opinion of management,  all adjustments  (consisting  only of normal
recurring  accruals)  considered  necessary  for a fair  presentation  have been
reflected in the accompanying unaudited financial statements. Results of interim
periods are not  necessarily  indicative  of results to be expected for the full
year.

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

<TABLE>

 In thousands                                                                    

 For the periods ended September 30
<CAPTION>

                                                  Three Months               Nine Months
                                                 1997        1996         1997        1996

<S>                                            <C>         <C>         <C>         <C>     
Balance beginning of period ................   $ 21,016    $ 16,344    $ 18,065    $ 15,779
  Provision for loan losses ................      2,650       1,621       7,500      11,263
  Loans charged off ........................     (2,098)       (961)     (4,371)    (10,480)
  Recoveries of loans previously charged off        271         162         645         604
                                                 -------    --------    --------   --------
  Net charge-offs ..........................     (1,827)       (799)     (3,726)     (9,876)
                                                 -------    --------    --------   --------                        
                                                                        
Balance at end of period ...................   $ 21,839    $ 17,166    $ 21,839    $ 17,166
                                                ========   ========     ========   ========

</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 $18,684,000 at September
30, 1997. Of that amount,  $16,234,000  represents  loans for which an allowance
for loan losses,  in the amount of $3,390,000  has been  established  under SFAS
114.  Impaired  loans  totaled  $6,663,000  at  September  30,  1996,  including
$3,226,000 of loans for which an allowance was established totaling $1,404,000.
     The average  recorded  investment  of impaired  loans was  $11,689,000  and
$6,580,000 for the three months ended September 30, 1997 and 1996, respectively,
and $6,867,000  and $9,608,000 for the nine months ended  September 30, 1997 and
1996,  respectively.  Interest  income  recognized  on  impaired  loans  totaled
$469,000  for the three months ended  September  30, 1997,  and $512,000 for the
nine-month period ended September 30, 1997. For the comparable  periods in 1996,
interest income on impaired loans totaled $32,000 and $84,000, respectively.

 (4) New Accounting and Disclosure Standards
     Earnings per Share
     During the first quarter of 1997, the Financial  Accounting Standards Board
issued Statement of Financial  Accounting  Standards No. 128, Earnings per Share
("SFAS  128"),   which   established  new  standards  for  the  calculation  and
presentation  of earnings per share ("EPS") in financial  statements.  SFAS 128,
which will become effective in the fourth quarter of 1997 and may not be adopted
earlier, replaces primary EPS with basic EPS, and fully-diluted EPS with diluted
EPS. Basic EPS for the company will be slightly  higher than primary EPS because
common stock  equivalents  will not be considered in basic EPS;  diluted EPS for
the company will be essentially the same as  fully-diluted  EPS. When adopted in
the fourth quarter of 1997, all prior periods will be restated to conform to the
SFAS 128 presentation.
     Under SFAS 128,  basic  earnings  per share would have been $0.54 and $0.27
for the  quarters  ended  September  30,  1997 and 1996,  respectively.  Diluted
earnings per share would have been $0.52 and $0.26, respectively, for those same
periods.  For the nine months ended September 30, 1997 and 1996,  basic earnings
per share would have been $1.54 and $0.14,  respectively,  and diluted  earnings
per share would have been $1.49 and $0.14, respectively.
     Derivatives and Certain Other Financial Instruments
     Also  during  the  first  quarter  of 1997,  the  Securities  and  Exchange
Commission  in Release  #33-7386  clarified  and  expanded  existing  disclosure
requirements for derivatives and other financial instruments sensitive to market
risk. This release  mandates  additional  detail regarding  accounting  policies
followed with respect to derivatives,  and expanded qualitative and quantitative
information  regarding  the  market  risk  inherent  in  derivatives  and  other
financial instruments.
     The company will provide the market risk  information  in its Annual Report
on Form 10-K for the year ended  December 31,  1997.  Accounting  policies  with
respect to derivatives are as follows:
         The company uses interest rate  contracts  (swaps and floors) to manage
     its sensitivity to interest rate risk. These off-balance-sheet transactions
     are  employed  to  hedge  the  inherent  interest  rate  risk  of  specific
     on-balance-sheet assets or liabilities, rather than for speculative trading
     activity.  These instruments are designated as hedges on the trade date and
     would not be entered  into  unless  highly  correlated  with the  financial
     instruments  being hedged.  Generally,  a high correlation  exists when the
     contract and the hedged  instrument have the same maturity and similar rate
     characteristics.  Interest  income and expense for each contract is accrued
     over the term of the agreement as an adjustment to the yield of the related
     asset or liability. Similarly,  transaction fees are deferred and amortized
     through  interest income and expense over the lives of the agreements.  The
     fair market value of these  instruments  is not  included in the  financial
     statements.
         Interest  rate floor  contracts  are  currently  being  utilized by the
     company  to  mitigate  the market  risk of the  mortgage  servicing  rights
     portfolio due to prepayments  associated  with a decline in interest rates.
     Under these  contracts the company  would receive  interest on the notional
     amount  to the  extent  that a  specified  market  rate for  U.S.  Treasury
     securities  falls  below the  designated  "floor"  rate.  The cost of these
     contracts is included in other assets in the consolidated balance sheet and
     is amortized against mortgage banking income on a straight-line  basis over
     the lives of the contracts.



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.
     During April 1997,  the company  sold  substantially  all of the  deposits,
premises  and  equipment,  and certain  other  assets of its Lebanon and Sparta,
Tennessee  offices.  These two offices  represented $17 million of the company's
total deposits as of March 31, 1997.
     On 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 will no longer ac
as investment adviser to the Funds.  The transfer did not have a significant
impact on the company's financial condition or results of operations.
     The discussion that follows is intended to provide  additional insight into
the company's  financial  condition and results of operations.  This  discussion
should be read in conjunction  with the  consolidated  financial  statements and
accompanying notes presented in Item 1 of Part I of this report.

Results of Operations
Overview
     For the three months ended  September  30,  1997,  the company  earned $6.1
million,  or $0.52 per share,  compared to $3.0 million, or $0.26 per share, for
the third quarter of 1996. The 1996 quarter was negatively impacted by a pre-tax
charge of $2.7 million related to an assessment for the  recapitalization of the
Savings  Association  Insurance Fund ("SAIF").  Results for the third quarter of
1997  produced an annualized  return on average  assets of 1.22% and a return on
average  shareholders'  equity  of  17.09%,   compared  with  0.64%  and  9.52%,
respectively, for the third quarter of 1996.
     For the first nine months of 1997, the company recorded net income of $17.6
million,  or $1.50 per share,  compared to $1.6 million,  or $0.14 per share, in
the same  period of 1996.  In addition  to the SAIF  assessment,  the first nine
months of 1996 reflects  pre-tax  charges  totaling  $5.8 million  related to an
initiative to refocus the company's  resources on its core  financial  services,
reduce operating expenses and exit from less-profitable initiatives. The company
also recorded an $8.4 million provision for loan losses in the second quarter of
1996,  after  taking  partial   charge-offs   totaling  $7.0  million  on  three
non-performing loans. Return on average assets for the first nine months of 1997
was 1.20%(annualized) and the return on average equity was 17.00%, compared with
0.11% and 1.62%, respectively, for the first nine months of 1996.

Net Interest Income
     Net interest income on a tax-equivalent  basis totaled $20.7 million in the
third  quarter of 1997,  compared  with $19.7  million  in the  comparable  1996
period--a 5% increase.  For the third quarter of 1997,  the net interest  margin
(net interest  income as a percentage of average  interest-earning  assets) on a
tax-equivalent basis decreased seven basis points, from 4.55% to 4.48%, compared
to the same period in 1996.  For the first nine months of 1997, the net interest
margin  decreased  three basis points,  from 4.51% to 4.48%,  as compared to the
first nine months of 1996.
     Approximately  $650  million of the  company's  loans are tied to the prime
rate. The prime rate increased to 8.25% in February 1996, and remained  constant
through the  remainder  of 1996 and through  most of the first  quarter of 1997.
During this time, the company's  funding costs continued to rise, as the company
placed greater reliance on wholesale funding sources,  such as brokered deposits
and other borrowed funds. As a result,  the company's net  interest-rate  spread
(the  difference  between the average yield on  interest-earning  assets and the
average  rate  paid  on  interest-bearing  liabilities)  decreased,   negatively
impacting the net interest  margin.  This negative  impact was partially  offset
during 1996 by increased  interest income due to loan growth. As loan growth has
slowed during 1997,  the net  interest-rate  spread dropped nine basis points as
compared to the first nine months of 1996. The prime rate increased  twenty-five
basis points to 8.50% near the end of the first quarter of 1997, which has had a
slight  positive  impact on net interest income in the second and third quarters
of 1997.
     The  following  tables show,  for the nine- and  three-month  periods ended
September  30,  1997 and 1996,  the  relationship  between  interest  income and
expense  and  the  levels  of  average   interest-earning   assets  and  average
interest-bearing  liabilities.  The tables also reflect the general  increase in
interest  rates on total  interest-bearing  liabilities  over the past year, and
increased  volumes of  commercial  loans,  certificates  of  deposit  (primarily
brokered  certificates of deposit),  and borrowed funds. During 1996 the company
implemented a program that sweeps  excess funds from  targeted  interest-bearing
demand  accounts  into money market  accounts.  This  program has  significantly
reduced the Federal Reserve Bank reserve  requirements  for the company,  and is
the primary  reason for the change in average  balances  shown in the tables for
these two types of interest-bearing accounts.


<PAGE>

<TABLE>



 Average Consolidated Balance Sheets and Net Interest Analysis
 For the nine months ended September 30
 Dollars in thousands

<CAPTION>

                                                         1997                                                1996
                                         Average                      Average          Average                             Average
                                         Balance       Interest         Rate           Balance            Interest         Rate
 Assets:
 Interest-earning assets:
<S>                                   <C>          <C>                 <C>          <C>                   <C>              <C>  
   Loans, net of unearned income ...  $1,460,440   $  103,464*          9.47%        1,320,882             94,012  *        9.52%
                                                                                                         
   Securities ......................     261,966       11,907*          6.08%          294,210             13,259  *        6.03%
                                                                                                         
   Mortgage loans held for sale ....      81,755        4,707           7.70%           52,446              2,863           7.30%
   Federal funds sold
     and other interest income .....         120            8           8.91%            1,324                 64           6.46%
                                       ---------      -------                       ----------           ---------
 Total interest-earning assets /
   interest income .................   1,804,281      120,086           8.90%        1,668,862            110,198           8.83%
                                                      -------                                             -------
 Non-interest-earning assets:
   Cash and due from banks .........      53,880                                        59,451
   Premises and equipment ..........      37,104                                        40,871
   Other assets ....................      66,507                                        64,059
                                      -----------                                  -----------                   
 Total assets ......................  $1,961,772                                    $1,833,243
                                      ==========                                    ==========
 Liabilities and Shareholders'
Equity
 Interest-bearing liabilities:
   Interest-bearing deposits:
     Interest-bearing demand (NOW) .  $   37,228   $      877           3.15%          133,840              2,878           2.87%
     Savings deposits ..............     101,897        2,094           2.75%          115,334              2,303           2.67%
     Money market accounts .........     269,579        6,600           3.27%          152,042              3,503           3.08%
     Certificates of deposit .......     833,855       34,804           5.58%          770,385             31,863           5.53%
     Other time deposits ...........      82,087        3,440           5.60%           86,399              3,612           5.59%
                                       ---------      -------                       ----------             ------
     Total interest-bearing deposits   1,324,646       47,815           4.83%        1,258,000             44,159           4.69%
 Federal funds purchased
   and repurchase agreements .......      58,042        2,259           5.20%           40,293              1,384           4.59%
 Other short-term borrowings .......      61,703        2,591           5.61%           56,707              2,418           5.70%
 Long-term debt ....................     140,768        7,025           6.67%          121,925              5,890           6.46%
                                       ---------      -------                       ----------              -----
   Total borrowed funds ............     260,513       11,875           6.09%          218,925              9,692           5.92%
                                       ---------      -------                       ----------              -----
 Total interest-bearing liabilities
                                                                                                         
   interest expense ................   1,585,159       59,690           5.03%        1,476,925             53,851           4.87%
                                                     --------                                              ------
 Non-interest-bearing liabilities:
   Non-interest-bearing deposits ...     214,628                                       207,120
   Other liabilities ...............      23,950                                        19,620
                                      ----------                                       -------
   Total liabilities ...............   1,823,737                                     1,703,665
 Shareholders' equity ..............     138,035                                       129,578
                                      ----------                                     ---------
 Total liabilities
   and shareholders' equity ........  $1,961,772                                    $1,833,243
                                      ==========                                    ==========
 Net interest-rate spread ..........                                     3.87%                                              3.96%
 Impact of non-interest bearing
   sources and other changes in
   balance sheet composition .......                                     0.61%                                              0.55%
                                                                      ---------                                             -----
 Net interest income /
   margin on interest-earning assets               $   60,396            4.48%      $   56,347                              4.51%
                                                    =========           =======     ==========                              ====
<FN>

 *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.
</FN>
</TABLE>
<PAGE>

<TABLE>

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

                                                                1997                                            1996
                                             Average                         Average         Average                      Average
                                             Balance          Interest         Rate          Balance          Interest     Rate
 Assets:
 Interest-earning assets:
<S>                                          <C>                <C>            <C>           <C>               <C>        <C>  
   Loans, net of unearned income             $1,474,951         $35,363         9.51%         1,377,739         32,898*    9.47%
                                                                        *
   Securities                                   260,717           3,946         6.00%           294,744          4,470*    6.02%
                                                                        *
   Mortgage loans held for sale                  96,530           1,910         7.85%            48,808            954     7.75%
   Federal funds sold
     and other interest income                       98               4        16.19%               250              5     7.93%
                                             -----------        --------                      ---------          ------
 Total interest-earning assets /
   interest income                            1,832,296          41,223         8.93%         1,721,541         38,327     8.83%
                                                                --------                                        ------
 Non-interest-earning assets:
   Cash and due from banks                       59,521                                          53,633
   Premises and equipment                        36,705                                          37,269
   Other assets                                  67,251                                          71,614
                                             ==========                                      ==========
 Total assets                                $1,995,773                                      $1,884,057
                                             ==========                                      ===========
 Liabilities and Shareholders' Equity
 Interest-bearing liabilities:
   Interest-bearing deposits:
     Interest-bearing demand (NOW)              $42,646            $336         3.13%           $31,819            $243    3.03%
     Savings deposits                            99,324             685         2.74%           110,669             751    2.69%
     Money market accounts                      267,655           2,224         3.30%           257,185           2,022    3.12%
     Certificates of deposit                    836,369          11,891         5.64%           798,551          10,954    5.44%
     Other time deposits                         80,641           1,139         5.60%            85,358           1,178    5.48%
                                              ---------         -------                       ---------         -------
     Total interest-bearing deposits          1,326,635          16,275         4.87%         1,283,582          15,148    4.68%
 Federal funds purchased
   and repurchase agreements                     72,443             969         5.31%            33,978              364   4.25%
 Other short-term borrowings                     63,423             908         5.68%            54,022              753   5.53%
 Long-term debt                                 140,626           2,389         6.74%           141,168            2,361   6.64%
                                               --------        --------                       ---------            -----
   Total borrowed funds                         276,492           4,266         6.12%           229,168            3,478   6.02%
                                               --------        --------                       ---------            -----
 Total interest-bearing liabilities /
   interest expense                           1,603,127          20,541         5.08%         1,512,750           18,626   4.88%
                                                               --------                                           ------
 Non-interest-bearing liabilities:
   Non-interest-bearing deposits                225,986                                         224,493
   Other liabilities                             24,058                                          20,907
                                             ----------                                       ---------
   Total liabilities                          1,853,171                                       1,758,150
 Shareholders' equity                           142,602                                         125,907
                                             ----------                                       ---------
 Total liabilities
   and shareholders' equity                  $1,995,773                                      $1,884,057
                                            ===========                                     ===========
 Net interest-rate spread                                                       3.85%                                      3.95%
 Impact of non-interest bearing
   sources and other changes in
   balance sheet composition                                                    0.63%                                      0.60%
                                                                              -------                                      -----
 Net interest income /
   margin on interest-earning assets                            $20,682         4.48%                            $19,701   4.55%
                                                                =======        ======                            =======   =====
<FN>
 *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.
</FN>
</TABLE>



<PAGE>



Analysis of Changes in Net Interest Income
     Shown in the following  tables are changes in interest  income and interest
expense  resulting  from changes in volumes  (average  balances)  and changes in
interest rates for the nine- and  three-month  periods ended September 30, 1997,
as compared to the same periods in 1996.

 Nine Months 1997 vs. 1996                  Increase (decrease)
                                      in interest income and expense
 In thousands                                due to changes in:
                                       Volume       Rate      Total
 Interest-earning assets:
Loans ............................   $  9,889    $  (437)   $ 9,452
Securities .......................     (1,465)       113     (1,352)
Mortgage loans held for sale .....      1,680        164      1,844
Federal funds sold
  and other interest income ......        (74)        18        (56)
                                     --------    -------    -------
Total interest-earning assets ....     10,030       (142)     9,888

Interest-bearing liabilities:
Interest-bearing demand (NOW) ....     (2,253)       252     (2,001)
Savings deposits .................       (275)        66       (209)
Money market accounts ............      2,865        232      3,097
Certificates of deposit ..........      2,647        294      2,941
Other time deposits ..............       (181)         9       (172)
                                     --------    -------    -------
  Total interest-bearing deposits       2,803        853      3,656
Federal funds purchased
  and repurchase agreements ......        672        203        875
Other short-term borrowings ......        210        (37)       173
Long-term debt ...................        935        200      1,135
                                     --------    -------    -------
  Total borrowed funds ...........      1,817        366      2,183
                                     --------    -------    -------
Total interest-bearing liabilities      4,620      1,219      5,839
                                     --------    -------    -------
Increase (decrease)
  in net interest income .........   $  5,410    $(1,361)   $ 4,049
                                     ========    =======    =======

 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>



 Third Quarter 1997 vs. 1996               Increase (decrease)
                                      in interest income and expense
 In thousands                              due to changes in:
                                      Volume     Rate      Total
Interest-earning assets:
Loans ............................   $ 2,330    $ 135    $ 2,465
Securities .......................      (515)      (9)      (524)
Mortgage loans held for sale .....       944       12        956
Federal funds sold ...............                             `
  and other interest income ......        (4)       3         (1)
                                     -------    -----    -------
Total interest-earning assets ....     2,755      141      2,896

Interest-bearing liabilities:
Interest-bearing demand (NOW) ....        85        8         93
Savings deposits .................       (78)      12        (66)
Money market accounts ............        84      118        202
Certificates of deposit ..........       529      408        937
Other time deposits ..............       (66)      27        (39)
                                     -------    -----    -------
  Total interest-bearing deposits        554      573      1,127
Federal funds purchased
  and repurchase agreements ......       496      109        605
Other short-term borrowings ......       134       21        155
Long-term debt ...................        (9)      37         28
                                     -------    -----    -------
  Total borrowed funds ...........       621      167        788
                                     -------    -----    -------
Total interest-bearing liabilities     1,175      740      1,915
                                     -------    -----    -------
Increase (decrease)
  in net interest income .........   $ 1,580    $(599)   $   981
                                     =======    =====    =======

 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 $2.7 million  (0.71% of average loans on
an  annualized  basis,  excluding  mortgage  loans  held for sale) for the third
quarter of 1997,  compared  with $1.6 million  (0.47% of average  loans) for the
comparable  period of 1996.  Net loan  charge-offs  were $1.8 million  (0.49% of
average loans) for the third quarter of 1997, compared with $799 thousand (0.23%
of average loans) for the third quarter of 1996.
     For the first nine months of 1997,  the  provision for loan losses was $7.5
million (0.69% of average loans),  compared with $11.3 million (1.14% of average
loans) for the comparable period of 1996. Net loan charge-offs were $3.7 million
(0.34% of average  loans) for the first nine months of 1997,  compared with $9.9
million  (1.00% of  average  loans)  for the  first  nine  months  of 1996.
     The provision for loan losses and the level of the allowance for loan
losses reflect the quality of the loan portfolio and result from management's
evaluation of the risks in the loan portfolio.  The increases from 1996 to 1997 
reflect in part management's  review  of  the  growth  in the  loan  portfolio, 
the  continuing concentrations of credit among the company's largest credit
relationships,  and anticipated general economic conditions in the company's
markets.
     For the first nine months of 1996,  the $11.3  million loan loss  provision
was due to several factors:
     1) The  charge-off of $7.0 million on three problem loans during the second
     quarter.  Prior to the second quarter of 1996,  management  expected two of
     these  three  borrowers  to be sold as going  concerns  and the loans to be
     repaid from the sales  proceeds.  As a result,  the company had  previously
     allocated  $4.2  million in the  allowance  for loan losses for these three
     loans. Due to the rapid  deterioration in the financial  condition of those
     borrowers in the second  quarter of 1996 and the resulting loss of interest
     by  several  potential  buyers,  sale  prospects  became  unlikely.  As the
     possibility  of  sales as  going  concerns  grew  less  likely,  management
     concluded  that  the  collateral  securing  the  loans  would  have  to  be
     liquidated,  resulting in larger than  anticipated  losses on the loans. 2)
     Recent adverse loss trends for consumer loans resulting from  unprecedented
     levels of bankruptcies,  particularly personal bankruptcies in Kentucky and
     Tennessee.  3)  Three  additional  loans  over $1  million  (totaling  $6.6
     million)  for which  information  became  known to the  company  during the
     quarter which caused management to have serious doubts as to the ability of
     the borrowers to comply with the loan repayment  terms. 4) Continued strong
     growth   in  the  loan   portfolio,   particularly   in  large   commercial
     relationships (over $5 million). 
     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 third quarter of 1997  increased  $1.6 million
over the third quarter of 1996. This increase  includes a $889 thousand  pre-tax
gain from the sale of $256 million of mortgage  servicing.  The sale allowed the
company to take advantage of attractive  market prices,  while reducing exposure
to future  prepayment risk. The company also experienced  increases in trust and
brokerage  income ($608  thousand),  service  charges on deposit  accounts ($141
thousand)  and,  even  with the  third  quarter  sale,  growth  in the  mortgage
servicing portfolio during the past year resulted in a $331 thousand increase in
mortgage  banking,  transfer and  underwriting  fees for the quarter.  Partially
offsetting  these  favorable  variances was a total of $489 thousand in security
losses  taken  to  reposition  the  investment  portfolio  into  higher-yielding
securities.
     For the nine-month periods, non-interest income increased $4.2 million from
1996 to 1997. This increase reflects a $1.2 million gain on the sales of the two
Tennessee  offices  which were sold  during the second  quarter,  as well as the
third quarter  mortgage  servicing gain and securities  losses.  Excluding these
transactions  and  securities  gains and losses  from both  nine-month  periods,
non-interest  income  increased  $2.4  million.  Significant  improvements  were
achieved in trust ($529 thousand),  brokerage ($515 thousand), mortgage banking,
transfer and  underwriting  fees ($580  thousand) and service charges on deposit
accounts ($564 thousand).

Non-Interest Expenses
     Non-interest  expenses decreased $320 thousand, or 2%, in the third quarter
of 1997,  compared to the third quarter of 1996 (excluding the $2.7 million SAIF
assessment).  For the nine-month periods,  non-interest  expenses decreased $3.2
million,  or 6%, in 1997 as compared to the first nine months of 1996 (excluding
the SAIF  assessment  and the $5.8  million  of charges  related to the  refocus
initiative).
      The decreased expenses in 1997 are due to the company's refocus initiative
which began at the end of the second  quarter of 1996.  Based on a comparison of
non-interest  expenses  for the third  quarter of 1997 to the second  quarter of
1996 (excluding the $5.8 million of charges related to the refocus  initiative),
total  operating  expenses have been reduced by  approximately  $6 million on an
annualized  pre-tax basis.  As a result of higher  revenues and lower  operating
expenses,  the efficiency  ratio (a measure of operating  expenses per dollar of
income)  decreased to 60.3% in the third quarter of 1997 (excluding the mortgage
servicing gain and securities losses)--a substantial  improvement over the 66.7%
efficiency  ratio  in third  quarter  1996  (excluding  the  $2.7  million  SAIF
assessment).

Income Taxes
     Income tax expense  totaled  $3.1  million  for the third  quarter of 1997,
compared  with $1.6  million in the  comparable  1996  period.  These  represent
effective tax rates of 33.6% and 34.1%, respectively.  For the nine months ended
September  30, 1997,  the company's  effective  tax rate was 33.3%,  compared to
34.8% in the first nine months of 1996.


Balance Sheet Review
Overview
     Assets at September  30, 1997 totaled  $2.03  billion,  compared with $2.00
billion at December 31, 1996, and $1.93 billion a year ago. Average total assets
for the third  quarter  increased  $112 million (6%) over the past year to $2.00
billion.  Average  interest-earning  assets  increased  $111  million  to  $1.83
billion.

Loans
     The  company  experienced  annualized  loan  growth of 5% during  the third
quarter of 1997. Total loans, net of unearned income,  averaged $1.48 billion in
the  third  quarter  of  1997,  excluding  mortgage  loans  held for sale of $97
million.  For the  comparable  period in 1996,  loans  averaged  $1.38  billion,
excluding the $49 million of mortgage loans held for sale.
     At September 30, 1997,  loans net of unearned  income  (excluding  mortgage
loans held for sale)  totaled  $1.49  billion,  compared  with $1.45  billion at
December 31,  1996,  and $1.41  billion a year ago. The company has  experienced
slower loan growth  during  1997 than in  previous  years,  due to the payoff of
several of the company's larger commercial relationships. These payoffs were the
result  of  permanent  refinancings  of real  estate  loans  and the sale of one
borrower  to  a  publicly-held   company.  The  company  currently   anticipates
mid-single-digit loan growth to continue through the remainder of 1997.
     As of September  30, 1997,  the company's 43 largest  credit  relationships
consisted  of loans  and  loan  commitments  ranging  from $5  million  to $16.7
million,  one of which  was  classified  as a  restructured  loan (see the Asset
Quality discussion  below).  The aggregate amount of these credit  relationships
was $435 million.  These large credit  relationships  have been underwritten and
structured to minimize the company's  exposure to loss.  However,  a significant
deterioration in the financial condition of one or more of these borrowers could
result in an  increase in the  company's  loan  charge-offs.  In  addition,  the
prepayment  of one or more of these  credits  or their  refinancing  at  another
financial  institution may have a negative  impact on the company's  future loan
growth.

Asset Quality
     Non-performing  loans, which include non-accrual loans, accruing loans past
due 90 days  or  more  and  restructured  loans,  totaled  $24.3  million  as of
September 30, 1997,  up $13.7 million from December 31, 1996,  and $12.7 million
from  the  end  of  the  third  quarter  of  1996.  The  increase  is  primarily
attributable to an $11.5 million loan to a coal mining  operation.  The terms of
this loan were modified during the quarter to defer principal  payments  through
December 31, 1997.  Accordingly,  the loan has been classified as  restructured.
The  interest  rate on this loan  remains the same,  and the loan  continues  to
accrue interest.  The company is closely  monitoring its $27 million exposure to
the coal industry consisting of the restructured loan mentioned above as well 
as an additional 124 relationships, with the next largest single credit
exposure totalling $3 million.
     The ratio of  non-performing  loans to total loans (net of unearned income)
was 1.63% at  September  30,  1997,  compared  with 0.73% at the end of 1996 and
0.82% a year ago.  Non-performing  assets, which include  non-performing  loans,
foreclosed real estate and other foreclosed  property,  totaled $25.3 million as
of September 30, 1997,  as compared to $15.0 million at September 30, 1996.  The
ratio of  non-performing  assets to total assets increased to 1.24% at September
30, 1997, from 0.78% a year ago.
     The following table presents information concerning  non-performing assets,
including  non-accrual and restructured loans.  Management classifies commercial
and commercial  real estate loans as  non-accrual  when principal or interest is
past due 90 days or more and the loan is not  adequately  collateralized  and in
the process of collection,  or when, in the opinion of management,  principal or
interest  is  not  likely  to be  paid  in  accordance  with  the  terms  of the
obligation.  Consumer loans are charged off after 120 days of delinquency unless
adequately  secured and in the process of collection.  Non-accrual loans are not
reclassified  as accruing  until  principal  and  interest  payments are brought
current and future payments appear reasonably certain.  Loans are categorized as
restructured  if the  original  interest  rate,  repayment  terms,  or both were
modified due to a deterioration in the financial condition of the borrower.
<TABLE>

 Non-performing Assets
 Dollars in thousands
<CAPTION>
                                                                  
                                                               September 30    June 30  December 31  September 30
                                                                       1997       1997       1996       1996

<S>                                                                 <C>        <C>        <C>        <C>    
Non-accrual loans ...............................................   $ 8,269    $ 6,186    $ 4,717    $ 6,718
Accruing loans which are contractually
  past due 90 days or more ......................................     3,919      2,611      5,863      4,881
Restructured loans ..............................................    12,134        679          4          5
                                                                    -------    -------    -------    -------
  Total non-performing and restructured loans ...................    24,322      9,476     10,584     11,604
Foreclosed real estate ..........................................       736        872      1,608      3,108
Other foreclosed property .......................................       232        354        184        241
                                                                    -------    -------    -------    -------
  Total non-performing and restructured loans and
    foreclosed property .........................................   $25,290    $10,702    $12,376    $14,953
                                                                    =======    =======    =======    =======

Non-performing and restructured loans
  as a percentage of loans, net of unearned income ..............      1.63%      0.64%      0.73%      0.82%
Total non-performing and restructured loans and
  foreclosed property as a percentage of total assets ...........      1.24%      0.54%      0.62%      0.78%
</TABLE>

     Five commercial credit  relationships  account for $5.4 million, or 65%, of
the  company's  non-accrual  loans at September  30, 1997. An allowance for loan
losses in the amount of $1.3 million has been  established  for these credits in
accordance with Statement of Financial  Accounting Standards No. 114, Accounting
by Creditors  for the  Impairment of a Loan.  Management  believes the remaining
balance  of these  five  credits  is  adequately  secured.  The other 35% of the
non-accrual loan balance consists of various commercial and consumer loans, with
no single borrower representing more than $450,000.
     Foreclosed real estate consists of several properties, the largest of which
is recorded at $209,000.  Based upon  appraisals of the  properties and previous
sales  experience,  management  does not anticipate any  significant  loss to be
incurred on disposition of these properties.
     As of  September  30, 1997,  the company had loans to 4 borrowers  totaling
$5.2  million  which  were  not  included  in  the  past  due,   non-accrual  or
restructured  categories,  but for which known information about possible credit
problems  caused  management  to have  serious  doubts as to the  ability of the
borrowers to comply with the present loan repayment terms. 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  September  30, 1997,  the  allowance  was $21.8
million,  up from $18.1  million at  December  31,  1996,  and $17.2  million at
September  30, 1996.  The ratio of the  allowance for loan losses to total loans
(excluding  mortgage  loans held for sale) at  September  30,  1997,  was 1.47%,
compared with 1.25% at December 31, 1996, and 1.22% at September 30, 1996. These
increases  from  September 30, 1996 reflect in part  management's  review of the
growth in the loan portfolio, the continuing  concentrations of credit among the
company's  largest  credit  relationships,   and  anticipated  general  economic
conditions  in  the  company's  markets.   The  allowance  as  a  percentage  of
non-performing  loans  decreased  to 90% at  September  30,  1997,  from 171% at
year-end  1996 and 148% at  September  30, 1996,  due to the $11.5  million loan
classified as restructured at September 30, 1997.
     Management  believes  that the  allowance  for loan losses at September 30,
1997,  is adequate to absorb  losses  inherent in the loan  portfolio as of that
date.  That  determination  is  based  on  the  best  information  available  to
management,  but necessarily involves uncertainties and matters of judgment and,
therefore,  cannot be  determined  with  precision and could be  susceptible  to
significant change in the future.

Securities Available for Sale
     Securities  (all  classified  as available  for sale)  decreased  from $289
million at September 30, 1996 to $285 million at year-end 1996, and then to $249
million at September  30, 1997.  Funds  provided by the  reduction in securities
were utilized to fund growth in the loan portfolio.

Deposits and Borrowed Funds
     Total  deposits  averaged  $1.55  billion in the third  quarter of 1997, an
increase of $44.6  million,  or 2%, from the  comparable  1996  period.  Average
interest-bearing  accounts increased $43.1 million in the third quarter of 1997,
compared to the same period in 1996, while average non-interest-bearing accounts
increased $1.5 million.  The increase in  interest-bearing  accounts  represents
brokered certificates of deposit issued to fund loan growth. As of September 30,
1997 and 1996,  brokered  certificates of deposit comprised $130 million and $85
million,  respectively,  of the company's deposits. These brokered deposits have
various maturities ranging from three months to five years.
     For the nine-month  periods,  average total deposits increased $74 million,
or 5%, from $1.47  billion in 1996 to $1.54  billion in 1997.  This  increase is
primarily attributable to brokered certificates of deposit.
     Long-term  debt totaled $140 million at September 30, 1997 and $141 million
at September 30, 1996. In order to support growth in the loan portfolio,  TFB-KY
has  outstanding  $75 million of notes  (included in the long-term debt totals),
under a $250 million  senior bank note  program.  Bank notes issued to date bear
interest at fixed rates of 6.32%,  6.48%,  and 7.13%,  respectively.  Certain of
these notes have been effectively converted to floating rate instruments through
the use of interest rate swap transactions.  Under these swap agreements, TFB-KY
pays  interest  at the prime  rate,  and  receives  a fixed  rate of  8.60%.  An
additional $175 million of bank notes may be issued from time to time under this
book-entry program in maturities varying from 30 days to 30 years.

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


                           September 30,     December 31,   September 30,
                                    1997            1996          1996

Tier 1 risk based .....             8.47%          7.68%          7.55%
     Regulatory minimum             4.00           4.00           4.00
Total risk based ......            11.74          10.87          10.77
     Regulatory minimum             8.00           8.00           8.00
Leverage ..............             6.88           6.12           6.12
     Regulatory minimum             3.00           3.00           3.00

     The  increase  in  these  capital  ratios  in 1997 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 September
30, 1997.
     To maintain a desired level of liquidity,  the company has several  sources
of funds available. The company's primary investing activities include purchases
of securities and loan originations, offset by maturities, prepayments and sales
of securities,  and loan payments. The company primarily relies upon net inflows
of cash from  financing  activities,  supplemented  by net  inflows of cash from
operating activities,  to provide cash used in these investing activities. As is
typical of most banking  companies,  significant  financing  activities  include
issuance of common stock and long-term debt, deposit  gathering,  and the use of
short-term  borrowing  facilities,  such as federal funds purchased,  repurchase
agreements,  FHLB advances and lines of credit. When compared to retail deposits
attracted through a branch network, wholesale funding sources are generally more
sensitive  to changes  in  interest  rates and the  inherent  volatility  of the
capital  markets.  In  addition,  brokered  deposits  may be more  sensitive  to
significant  changes in the financial  condition of the company.  As a result of
the  company's  use of wholesale  funding  sources,  significant  changes in the
prevailing  interest rate  environment,  or in the  availability  of alternative
investments  for individual  and  institutional  investors,  or in the company's
financial condition,  among other factors,  could affect the company's liquidity
and results of operations.

Asset/Liability Management
     Managing  interest  rate  risk is  fundamental  to the  financial  services
industry. The company's policies are designed to manage the inherently different
maturity and repricing  characteristics  of the lending and  deposit-acquisition
lines of  business  to achieve a desired  interest-sensitivity  position  and to
limit exposure to interest rate risk. The maturity and repricing characteristics
of  the   company's   lending   and  deposit   activities   create  a  naturally
asset-sensitive  structure.  By using a combination of on- and off-balance-sheet
financial  instruments,  the company  manages  interest rate  sensitivity  while
optimizing  net  interest  income  within the  constraints  of  prudent  capital
adequacy,  liquidity  needs,  the  interest  rate and economic  outlook,  market
opportunities and customer requirements.
     The company uses an earnings  simulation  model to monitor and evaluate the
impact of changing interest rates on earnings.  The simulation model used by the
company is  designed to reflect the  dynamics  of all  interest-earning  assets,
interest-bearing   liabilities  and  off-balance-sheet   financial  instruments,
combining  the  various  factors  affecting  rate  sensitivity  into a  two-year
earnings  outlook.  Among the factors the model  utilizes are 1)  rate-of-change
differentials,  such as federal funds rates versus  savings  account  rates;  2)
maturity effects, such as calls on securities;  3) rate barrier effects, such as
caps or floors on loans;  4) changes in balance sheet levels;  5)  floating-rate
financial  instruments that may be tied or related to prime,  Treasury Notes, CD
rates or other rate indices,  which do not necessarily move identically as rates
change; 6) leads and lags that occur as rates move away from current levels; and
7) the effects of prepayments on various assets, such as residential  mortgages,
mortgage-backed securities and consumer loans.
     The  model  is  updated  monthly  for  multiple  interest  rate  scenarios,
projected changes in balance sheet categories and other relevant assumptions. In
developing multiple rate scenarios, an econometric model is employed to forecast
key rates, based on the cyclical nature and historic  volatility of those rates.
A stochastic view of net interest income is derived once probabilities have been
assigned to those key rates. By forecasting a most likely rate environment,  the
effects on net interest  income of  adjusting  those rates up or down can reveal
the company's  approximate interest rate risk exposure level. Several rate index
and yield curve assumptions are used in the model. As an example,  the company's
most likely rate  environment  as of  September  30,  1997,  assumed the 3-month
Treasury rate at 5.20%,  rising to 5.53% by January  1998,  then falling back to
5.35% in July of 1998.
     A second  interest  rate  sensitivity  tool  utilized by the company is the
quantification of market value changes for all assets and liabilities,  given an
increase or decrease in interest  rates.  This  approach  provides a longer-term
view of interest rate risk, capturing all expected future cash flows. Assets and
liabilities with option  characteristics are measured based on numerous interest
rate path valuations using statistical rate simulation techniques.
     The  following  illustrates  the  effects of an  immediate  shift in market
interest rates on net interest  income and fair values of assets and liabilities
as compared to the most likely rate assumptions used in the company's model:
--------------------------------------------------------------------------------

<PAGE>
<TABLE>
<CAPTION>


                                 Basis-point change        +200 bp           +100 bp          -100 bp           -200 bp

-----------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>               <C>              <C>              <C>    
     Increase (decrease) in net interest income              3.57%             1.89%            (.69)%           (1.22)%
Balance sheet effects:
     Increase (decrease) in fair value of assets            (2.61)%           (1.36)%           1.47%             3.06%
     Increase (decrease) in fair value of liabilities        1.53%              .77%            (.78)%           (1.58)%
</TABLE>

     As of September 30, 1997,  management  believes the company's balance sheet
was in an  asset-sensitive  position,  as the repricing  characteristics  of the
balance sheet were such that an increase in interest rates would have a positive
effect on earnings and a decrease in interest rates would have a negative effect
on earnings.  It should be noted that some of the assumptions made in the use of
the simulation  model will inevitably not materialize and  unanticipated  events
and  circumstances  will occur; in addition,  the simulation model does not take
into account any future  actions  which could be undertaken to reduce an adverse
impact if there were a change in  interest  rate  expectations  or in the actual
level of interest rates.
     To assist in achieving a desired  level of interest  rate  sensitivity  the
company has entered into off-balance-sheet interest rate swap transactions which
partially  neutralize  the asset  sensitive  position  which is  inherent in the
balance  sheet.  The  company  pays a  variable  interest  rate on each swap and
receives a fixed rate.  In a higher  interest-rate  environment,  the  increased
contribution   to  net  interest  income  from   on-balance-sheet   assets  will
substantially  offset any negative  impact on net interest  income from interest
rate swap transactions.  Conversely,  if interest rates decline,  the swaps will
mitigate the company's  exposure to reduced net interest  income.  Interest rate
swap transactions as of September 30, 1997, are as follows:

<TABLE>

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

                                      Notional            Fixed Rate            Floating Rate
                                       Amount            (Receiving)              (Paying)                   Maturity

                                   ---------------    ------------------      ---------------               ----------------
<S>                                     <C>                <C>                  <C>                         <C> 
                                           20,000           8.60%               8.50% (Prime)                 October, 1997
                                           30,000           8.23%               8.50% (Prime)                   March, 1998
                                           70,000           8.50%               8.50% (Prime)                    June, 1998
                                           30,000           8.60%               8.50% (Prime)                 October, 1998
                                           25,000           8.74%               8.50% (Prime)                December, 1999
                                           50,000           9.52%               8.50% (Prime)                   April, 2000
                                           50,000           8.87%               8.50% (Prime)                  August, 2000
                                   ---------------
 Total / weighted average                $275,000           8.76%               8.50%                            April 1999
                                   ===============
</TABLE>

     As shown in the  table,  $120  million  of these  interest  rate swaps will
mature within twelve  months.  As these  interest rate swaps mature,  management
will evaluate whether new interest rate swap transactions are appropriate, given
the  company's  interest  rate  sensitivity  position at that time.  The company
requires all  off-balance-sheet  transactions be employed solely with respect to
asset/liability  management or for hedging  specific  transactions or positions,
rather than for speculative trading activity.

Year 2000 Compliance
     The  company  is  exposed  to  potential  future  losses  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 which 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 ensure that those systems are
brought into  compliance  well before the end of 1999. The  assessment  phase of
this project has been completed  whereby all systems have been  identified  that
need modification, and the corrective phase of the project has begun. Total cost
to the company of the  corrective  phase is projected to be  approximately  $500
thousand.  The company is  actively  managing  all of its third  party  software
vendors  to  ensure  all  software  corrections  and  warranty  commitments  are
obtained.  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.









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


<PAGE>


Part II - Other Information

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

   (b) Reports on Form 8-K
       There were no reports on Form 8-K filed during the quarter.




                                   SIGNATURES

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



                                                   Principal Executive Officer:


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


                                                   Principal Financial Officer:


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

<PAGE>


                                    Exhibits
                                                                   Sequentially
                                                                  Numbered Pages

   10(a)   Amendment to 1995 Executive Stock Option Plan*.................21

   10(b)   Agreement dated September 30, 1997 between registrant and executive
           officer*.......................................................22-28

   11      Statement of Computation of Per Share Earnings.................29

   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.