FORM 10-K

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   (Mark One)

  [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
                                   Act of 1934

                   For the fiscal year ended December 31, 1998
                                       or

       For the transition period from ________________ to ________________

             [ ] Transition Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934

                         Commission File Number 0-23134

                    PEOPLES BANK CORPORATION OF INDIANAPOLIS
             (Exact name of registrant as specified in its charter)

              INDIANA                                      35-1681096
     (State or other Jurisdiction                        (I.R.S. Employer
    of Incorporation or Organization                   Identification Number)

130 East Market Street, Indianapolis, Indiana                46204
 (Address of Principal Executive Offices)                  (Zip Code)

               Registrant's telephone number including area code:
                                 (317) 237-8059

           Securities Registered Pursuant to Section 12(b) of the Act:
                                      NONE

           Securities Registered Pursuant to Section 12(g) of the Act:

                   Nonvoting Common Shares, without par value
                                (Title of Class)

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 |_|

Indicate by check mark if disclosure of delinquent  filers pursuant to Item 405,
Regulation S-K (ss. 229.405 of this chapter) is not contained  herein,  and will
not be contained,  to the best of Registrant's knowledge, in definitive proxy or
information  statements  incorporated by reference in Part III of this form 10-K
or any amendment to this Form 10-K. [ ]

The  aggregate  market value of the shares of the issuer's  voting stock held by
non-affiliates, as of March 12, 1999, was $1,283,363 (assuming the Voting Common
Shares have a value equal to the Nonvoting Common Shares).

The number of  Nonvoting  Common  Shares of the  Registrant,  without par value,
outstanding  as of March 12, 1999,  was 2,734,194  shares.  The number of Voting
Common Shares of the Registrant, without par value, as of such date was 264,096.


<PAGE>



                                     PART I

Item 1.  Business

Overview

Peoples Bank  Corporation of Indianapolis  (the "Company") is a one bank holding
company  which  owns  Peoples  Bank & Trust  Company  ("Peoples").  Peoples  has
operated continuously since 1891 and its business activities are concentrated in
the greater  Indianapolis,  Indiana area.  The Company has two classes of common
stock - Voting Common Shares and Nonvoting  Common Shares.  The Nonvoting Common
Shares began trading on the NASDAQ National  market  following an initial public
offering in February,  1994. The Company has experienced  significant  growth in
the five years since its intial  public  offering.  Total assets have  increased
from $366 million on December 31, 1993 to $635 million on December 31, 1998.

Peoples  offers a broad  range of lending,  deposit,  loan  servicing  and trust
services to  individual,  governmental  and  commercial  customers.  The Company
operates  under  a  conservative  management  philosophy  and  is  dedicated  to
providing  personal  service  coupled  with  competitive  products  and pricing.
Management  believes  that  Peoples'  position as the largest  locally owned and
headquartered  commercial  bank  in  Indianapolis   distinguishes  it  from  its
competitors  based on its  established  reputation,  local  ownership  and local
decision  making  authority.  With an emphasis  on  developing  strong,  primary
banking  relationships  with  businesses  and  individuals  in its market  area,
Peoples  focuses  its  commercial  lending  efforts  on small  and  medium-sized
independent  companies  and its real estate  lending  efforts on  owner-occupied
commercial  properties and one-to-four family residential  properties.  Peoples'
loan  underwriting and review  functions are centralized to provide  consistency
and timely asset quality  monitoring.  Peoples conducts its business through its
downtown Indianapolis headquarters and through 12 offices located throughout the
greater  Indianapolis  area. In March 1999,  Peoples  announced its intention to
close  three  branches  during  1999.  At  December  31,  1998,  Company had 223
full-time equivalent employees. 

The  Company's   principal   office  is  located  at  130  East  Market  Street,
Indianapolis, Indiana, 46204.

Competition

Peoples'  market area is the greater  Indianapolis  area,  which includes Marion
County,  Indiana and certain contiguous townships of surrounding counties.  This
market area is highly  competitive.  Peoples has a relatively small share of the
market,  which  management  currently  estimates  as being  between 2% and 3% of
aggregate deposits with financial  institutions in Marion County. In addition to
competition  from  commercial  banks  and  savings  associations,  Peoples  also
competes with numerous credit unions,  finance companies,  insurance  companies,
mortgage  companies,  securities and brokerage firms, money market mutual funds,
loan  production  offices and other providers of financial  services  generally.
Some of Peoples' competitors,  including certain regional bank holding companies
which have  operations  in Peoples'  market  area,  have  substantially  greater
resources  than  Peoples,  may have  higher  lending  limits and may offer other
services  not  available   through  Peoples.   Peoples  also  faces  significant
competition,  particularly  with  respect  to  interest  rates  paid on  deposit
accounts, from certain local thrift institutions.  Peoples competes on the basis
of rates of interest charged on loans, the rates of interest paid for funds, the
availability,  quality and diversity of services and responsiveness to the needs
of the customer.


Loans

Peoples provides loans to both individuals and businesses principally within the
greater Indianapolis area. Peoples has no material concentration of loans to any
single  borrower  or  industry,  no  foreign  loans,  and no  "highly  leveraged
transactions," as defined by the banking regulators.  Peoples generally does not
lend outside its market area and  historically  has not  acquired  participation
interests from other financial institutions. State law restricts the amount that
Peoples can loan to one  borrower,  generally  to 15% of capital and  unimpaired
surplus, or $8.1 million at December 31, 1998.  The amount of loans  outstanding
(excluding loans held for sale) and the percent of the total represented by each
type of loan on the dates indicated are reflected in the following table.


<PAGE>
<TABLE>
<CAPTION>
                                                                 December 31,

                           1998                 1997                1996                 1995                  1994
                   ------------------   ------------------   ------------------   ------------------   ------------------
<S>                <C>          <C>     <C>          <C>     <C>          <C>     <C>         <C>      <C>          <C>  
Construction ...   $ 34,840     7.71%   $ 25,364     6.23%   $ 23,644     7.10%   $ 31,965    11.79%   $ 19,162     8.94%
Mortgage .......     97,755    21.62      94,276    23.17      75,247    22.60      72,852    26.87      48,021    22.40
Commercial .....    211,115    46.70     185,089    45.49     156,755    47.08      97,914    36.12      78,870    36.79
Consumer .......    106,431    23.54     100,139    24.61      75,187    22.58      66,132    24.40      65,722    30.66
Tax-exempt loans      1,924      .43       2,025      .50       2,120     0.64       2,230     0.82       2,615     1.21
                                                                                                       
Total loans ....    452,065   100.00%    406,893   100.00%    332,953   100.00%    271,093   100.00%    214,390   100.00%
                                                                                                    
Less:
Allowance for
loan losses.....      7,684                5,516                3,900                3,290                2,704
                   --------             --------             --------             --------             --------

Net loans.......   $444,381             $401,377             $329,053             $267,803             $211,686
                   ========             ========             ========             ========             ========
</TABLE>


A classification of amounts due in the periods indicated for commercial and real
estate  construction loans as of December 31, 1998 is indicated in the following
table.  Amounts due are based on remaining  scheduled  repayments  of principal.
Amounts due after one year are also classified according to their sensitivity to
changes in interest rates.

<TABLE>
<CAPTION>
                                                                    After 1
                                                                      But
                                                   Within            Within        After
                                                   1 Year           5 Years       5 Years          Total
                                                   ------           -------       -------          -----
                                                                       (In thousands)
<S>                                                 <C>             <C>           <C>            <C>     
Commercial......................................    $103,427        $95,236       $12,452        $211,115
Real estate -- construction.....................      26,552          7,137         1,151          34,840
                                                      ------          -----         -----          ------

                Total                               $129,979       $102,373       $13,603        $245,955
                                                    ========       ========       =======        ========

Interest sensitivity: loans maturing after 1 year with:
Fixed rates.....................................                    $33,980        $1,546
Variable rates..................................                     68,393        12,057
                                                                     ------        ------

                Total...........................                   $102,373       $13,603
                                                                   ========       =======
</TABLE>




Allowance  for Loan  Losses.  The  allowance  for  loan  losses  is a  valuation
allowance providing for losses inherent in the loan portfolio. The allowance for
loan losses is reduced by the charge-off of loans and increased by the provision
for  loan  losses  and  by  recoveries  of  loans  previously  charged-off.  The
appropriate level of the valuation allowance is determined in an ongoing process
involving the credit  analysis staff,  the loan officers and senior  management.
Specific  loans are  monitored  on an on-going  basis and  included on the watch
list.

The  allowance  for loan  losses is  determined  based upon  characteristics  of
particular  groups of loans.  Those  characteristics  include  past due amounts,
historical loss trends and any other  determinations made by management,  credit
analysis and the loan officers.  For larger loans,  when any reasonable  concern
exists as to the  collectibility  of interest or principal,  the potential  loss
exposures are estimated as part of the reserve analysis  process.  The allowance
for loan losses also  includes an amount that is not  specifically  allocated to
particular loan categories in the event of unanticipated  losses.  An evaluation
of the  adequacy of the level of the  allowance  for loan losses is performed by
the loan review  officer at least  quarterly.  That  analysis is reviewed by the
Board and senior  management and an appropriate  level of monthly  provision for
loan losses is  identified.  The senior  manager of lending  reviews  delinquent
loans with loan officers monthly or more frequently if deemed necessary.

The  following  table  presents  information  concerning  the  activity  in  the
allowance for loan losses for the periods indicated.


<PAGE>
<TABLE>
<CAPTION>

                                                      December 31,
                                  1998        1997        1996        1995        1994
                                 -------     -------     -------     -------     -------
                                                   (Dollars in thousands)
<S>                              <C>         <C>         <C>         <C>         <C>    
Balance of allowance at
beginning of period ..........   $ 5,516     $ 3,900     $ 3,290     $ 2,704     $ 2,513
Recoveries of loans previously
charged off:
Commercial loans .............     1,420         255          36          83         113
Consumer loans ...............        39          49          41          92          66
Mortgage loans ...............         0           0          15           0           0
                                 -------     -------     -------     -------     -------

             Total recoveries      1,459         304          92         175         179
Loans charged off:
Commercial loans .............     2,647         382         257         103         275
Consumer loans ...............       144         106         350          74         136
Mortgage loans ...............         0           0           0         (52)        105
                                 -------     -------     -------     -------     -------

             Total charge-offs     2,791         488         607         125         516
                                 -------     -------     -------     -------     -------

             Net charge-offs .    (1,332)       (184)       (515)         50        (337)
Provision for loan losses ....     3,500       1,800       1,125         536         528
                                 -------     -------     -------     -------     -------

Balance of allowance at
end of period ................   $ 7,684     $ 5,516     $ 3,900     $ 3,290     $ 2,704
                                 =======     =======     =======     =======     =======

Net charge-offs to average
loans outstanding for period .       .31%        .05%       0.17%      (0.02)%
                                                                                    0.18%
Allowance at end of period to
loans at end of period .......      1.69        1.35        1.17        1.20        1.26
Allowance to underperforming
loans at end of period .......  1,074.69      141.15    1,378.09      256.43      164.38
</TABLE>


As  part  of  its  evaluation  process,  management  allocates  portions  of the
allowance for loan losses to certain  segments of the loan portfolio  based upon
the specific  review of credits and historical  loss  experience.  The following
table  presents a breakdown  of the  portions of the  allowance  for loan losses
allocated  to each  category of loans,  the  percentage  of total loans that the
category  comprises at the dates indicated,  and the percentage of the allowance
for loan losses allocated to that category.

<TABLE>
<CAPTION>

                                                             At December 31,
                               1998                               1997                                        1996
                  ----------------------------------  -------------------------------------  ---------------------------------------
                                        Percent of                              Percent of                               Percent of
                              Percent      Loan                   Percent          Loan                     Percent        Loan
                   Reserve      of      Category to    Reserve      of         Category to    Reserve         of        Category to
                  Allocated   Reserve   Total Loans   Allocated   Reserve       Total Loans  Allocated      Reserve     Total Loans
                  ---------   -------   -----------   ---------   -------       -----------  ---------      -------     -----------
                                                                  (Dollars in thousands)
<S>                 <C>        <C>         <C>         <C>           <C>           <C>         <C>            <C>           <C>   
Commercial loans    $4,552     59.24%      54.84%      $2,597        47.08%        52.22%      $1,124         28.82%        54.82%
Consumer loans ..    1,588     20.67       23.54          528         9.57         24.61          398         10.21         22.58
Mortgage loans ..      267      3.47       21.62          237         4.30         23.17          378          9.69         22.60
Unallocated .....    1,277     16.62         N/A        2,154        39.05           N/A        2,000         51.28           N/A
                    ------    ------      ------       ------       ------        ------       ------        ------        ------ 
Total ...........   $7,684    100.00%     100.00%      $5,516       100.00%       100.00%      $3,900        100.00%       100.00%
                    ======    ======      ======       ======       ======        ======       ======        ======        ====== 
</TABLE>


<TABLE>
<CAPTION>
                                             At December 31,                
                               1995                               1994                      
                  ----------------------------------  ------------------------------------- 
                                        Percent of                           Percent of  
                              Percent      Loan                   Percent       Loan     
                   Reserve      of      Category to    Reserve      of      Category to  
                  Allocated   Reserve   Total Loans   Allocated   Reserve    Total Loans 
                  ---------   -------   -----------   ---------   -------    ----------- 
                                          (Dollars in thousands)
<S>                <C>          <C>       <C>         <C>          <C>          <C>   
Commercial loans   $  839       25.50%    48.73%      $  709       26.22%       46.94%
Consumer loans .      350       10.64     24.40          594       21.97        30.66
Mortgage loans .      377       11.46     26.87          121        4.47        22.40
Unallocated ....    1,724       52.40       N/A        1,280       47.34          N/A
                   ------      ------    ------       ------      ------       ------
                                                                              
Total ..........   $3,290      100.00%   100.00%      $2,704      100.00%      100.00%
                   ======      ======    ======       ======      ======       ======
</TABLE>

Underperforming Loans. Loans on which the Company no longer accrues interest are
referred to as "nonaccrual loans." Management places a loan on nonaccrual status
when  collection  of  additional  interest  is  unlikely  and  the  loan  is not
considered to be well secured and in the process of  collection.  When a loan is
placed on nonaccrual  status,  interest  recognized but not received is reversed
from  interest  income to the  extent the  interest  was  recognized  during the
current  year.  Interest  recognized  but not received in prior years is charged
against the allowance for loan losses.

Underperforming  loans include those loans that are on nonaccrual status, are 90
days  or  more  past  due  as  to  principal  or  interest  or  those  that  are
restructured.  Problem  assets consist of  underperforming  loans and other real
estate (more fully  described  below).  The following  table shows the principal
balance of problem assets at the dates indicated.

<TABLE>
<CAPTION>

                                                             December 31,
                                         1998        1997        1996        1995        1994
                                       --------    --------    --------    --------
                                                        (Dollars in thousands)
<S>                                    <C>         <C>         <C>         <C>         <C>     
Nonaccrual .........................   $    356    $  3,626    $    234    $    838    $    970
Contractually past due 90
days or more as to
principal or interest ..............        105          16          49         445         675
Restructured .......................        254         266           0           0           0
                                       --------    --------    --------    --------    --------

Total underperforming loans ........        715       3,908         283       1,283       1,645
Other real estate ..................          0         209         236         240           0
                                       --------    --------    --------    --------    --------

Total problem assets ...............   $    715    $  4,117    $    519    $  1,523    $  1,645
                                       ========    ========    ========    ========    ========

Total loans, including loans
held for sale ......................   $454,412    $407,454    $333,374    $273,650    $215,151
Allowance for loan losses ..........      7,684       5,516       3,900       3,290       2,704
Underperforming loans to total loans        .16%        .96%       0.09%       0.47%       0.76%
Problem assets to total
loans plus other real estate
owned ..............................        .16%       1.01%       0.16%       0.56%       0.76%
Allowance for loan losses
to underperforming loans ...........   1,074.69%     141.15%   1,378.09%     256.43%     164.38%
</TABLE>


Other Real Estate. Other real estate ("ORE") are properties of which Peoples has
taken  possession.  The  carrying  value  of ORE was $0 at  December  31,  1998,
$209,000 at December 31, 1997, and $236,000 at December 31, 1996. ORE is carried
at the lower of cost (fair value at  foreclosure)  or fair value,  less expected
disposition cost.

Management  typically  evaluates  loss  exposure  on loans are loans  which have
deteriorated  to the point that the  borrower is no longer  paying as agreed and
have  become  90 days or more  past  due,  or where  management,  as a result of
delinquent  status or significant  concern about the ultimate  collectibility of
the loan, has ceased recognizing  interest income  (nonaccrual  status) based on
the liquidation value of the underlying collateral.  The relatively large volume
of nonaccrual loans in 1997 was primarily  attributable to a single large credit
which was  subsequently  charged-off  in March of 1998.  At December  31,  1998,
excluding  nonaccrual  loans,  loans which were 60 days or more past due were as
follows:

<TABLE>
<CAPTION>
                                                          December 31, 1998
                                                         (Dollars in thousands)
                                       Commercial               Mortgage              Consumer
<C>                                          <C>                    <C>                <C>   
60-89 days past due...............           $0                     $0                 $1,299
More than 90 days past due........            0                      0                    105
</TABLE>



Impaired Loans. Loans are considered impaired when management determines that it
is probable that the customer will not comply with the contractual  terms of the
note. Peoples evaluates the commercial business and commercial real estate loans
considered during its quarterly allowance for loan loss analysis. All commercial
loans  exceeding  $500,000 and rated as doubtful are  considered  impaired.  All
commercial  loans exceeding  $500,000 and rated as substandard are  individually
considered for impairment.  Residential  mortgage loans and consumer credits are
not  typically  individually   considered  for  the  purpose  of  assessing  any
impairment.  Impaired  loans are carried at the present  value of expected  cash
flows,  discounted at the loan's effective interest rate or at the fair value of
collateral if such loans are deemed to be collateral dependent. A portion of the
allowance  for loan losses is  allocated  to impaired  loans and changes in that
allowance  are  elements of People's  provision  for loan  losses.  During 1998,
Peoples  identified loans with an average balance of $3,081,000 as impaired.  At
year end, $0 of loans were so designated and none of the allowance was allocated
to such loans.  Generally,  only income received in cash is recorded as interest
income after a loan has been designated as impaired.

Other Loans of Concern.  Through a loan rating  process  monitored by the credit
analysis staff, and the loan officers' ongoing monitoring of borrowers,  Peoples
develops  its loan  "watch  list." A loan may be placed on the watch  list for a
variety of  reasons,  including  an existing or  continuing  past due status,  a
change in the borrower's financial condition,  change in an industry which could
adversely affect a borrower, concern about the borrower's financial condition or
the value of the collateral securing the loan, substandard classification during
regulatory examinations, or simply as a result of management's desire to monitor
more closely a borrower's financial condition and performance.

Any loan with a rating of five through eight or with any other basis for concern
as to security or collectibility,  is placed on the watch list, which is updated
weekly. All watch list loans are subject to additional  scrutiny and monitoring.
The Company's  philosophy  encourages  loan officers to identify  borrowers that
should be monitored in this  fashion and believes  that this process  ultimately
results in the  identification  of problem loans in a more timely fashion.  Each
loan  officer  with a loan that  appears  on the watch list is  responsible  for
preparing a plan of action for such loan. The commercial  loan  department  then
meets  quarterly to review the status of handling  the past due loans.  Based on
this  meeting,  allowance for loan losses is reviewed to determine its adequacy.
The allowance for loan losses is also reviewed by the President  monthly and the
adequacy of the allowance for loan losses is evaluated quarterly by the Board of
Directors.  The ongoing  evaluation of potential losses includes a review of the
current  financial  status and credit  standing  of  borrowers  and their  prior
history, an evaluation of available  collateral,  a review of loss experience in
relation to  outstanding  loans and  management's  judgment as to prevailing and
anticipated  economic  conditions,  among  other  relevant  factors.  To provide
assurance  that  the  watch  list is  complete  and  loan  grades  assigned  are
reasonable and consistent,  Peoples engages an independent  loan review provider
to annually review a sample of loans.

Watch  category  loans may  include  loans  with loss  potential  that are still
performing and accruing  interest and may be current under the terms of the loan
agreement.  However,  management  has a significant  degree of concern about the
borrowers'  ability to continue to perform  according  to the terms of the loan.
Loss exposure on these loans is also, typically,  evaluated based primarily upon
the estimated liquidation value of the collateral securing the loan. Also, watch
category  loans  include  credits  which,   although   adequately   secured  and
performing,  reflect a past delinquency problem or unfavorable  financial trends
exhibited by the  borrower.  At December  31,  1998,  the Company had a total of
$16.6 million of loans on its commercial loan watch list.


Securities

Peoples' securities  portfolio is maintained in high quality,  liquid,  short to
medium-term  securities.  The goal of Peoples'  investment policy is to maximize
return  over  the long  term in a  manner  consistent  with  Peoples'  liquidity
requirements,  its asset  and  liability  management  strategies  and  safety of
principal.  Peoples  seeks to  maintain a  relatively  short  overall  portfolio
maturity to reflect  interest-earning  characteristics  more consistent with its
deposit  base.  Peoples'  securities  policy  is  established  by the  Board  of
Directors and monitored by the Investment  Policy  Committee,  which consists of
three executive officers and a Board member. The Company's  securities portfolio
includes U.S.  Treasury  securities,  obligations of U.S.  government  agencies,
obligations  of states and political  subdivisions,  corporate  investments  and
mortgage-backed  investments  issued  by  U.S.  government  agencies  and  other
intermediaries.  Securities are designated as "available-for-sale"  because they
might be sold in response to liquidity needs or for  asset/liability  management
purposes.  Such  securities  are required to be carried at fair value,  with the
resultant  unrealized  gain or loss  reflected,  net of tax, as a  component  of
shareholders'  equity.  All other securities are designated as  held-to-maturity
securities  because  management has the positive intent and ability to hold such
securities  until  maturity.  Such  securities are carried at amortized cost. At
December 31, 1998,  all  securities  were  considered  "available for sale." The
following  table  presents,  by  category of  investment  and  designation,  the
carrying value of securities at the dates indicated.

<TABLE>
<CAPTION>
                                                                      Carrying Value
                                                                         December 31,
                                                    1998                    1997                    1996
                                                    ----                    ----                    ----

                                                                      (In thousands)
<S>                                              <C>                            <C>                   <C>   
Available-for sale securities:
U.S. Treasury securities.....................    $        0                     $7,093                $7,031
Obligations of U.S. Government
agencies and government
sponsored agencies...........................         8,520                     13,855                 8,989
Obligations of states and
political subdivisions.......................        24,855                     27,846                32,634
Mortgage-backed investments:
Issued by U.S. Government
              agencies.......................        91,785                    100,932                41,620
Issued by other corporate
              entities.......................             0                          0                   731
Debt securities issued by foreign
governments..................................            75                         75                    75
Corporate securities.........................         6,981                      4,069                 3,509
                                                   --------                   --------               -------

              Total securities...............      $132,216                   $153,870               $94,589
                                                   ========                   ========               =======

</TABLE>

The maturities of securities are a principal source of funds for loan growth and
other liquidity  needs.  The following table  illustrates,  based on the date of
maturity,  the amortized cost and the weighted  average yield of securities held
as of  December  31,  1998.  The  maturity  classification  for  mortgage-backed
investments is determined by the estimated  average life. Refer to Note 2 of the
Company's consolidated financial statements for additional information.

<TABLE>
<CAPTION>

                                     Less than          1 to 5              5 to 10            More than
                                      1 Year             Years               Years             10 Years             Total
                                 Amount    Yield    Amount     Yield    Amount     Yield    Amount    Yield    Amount    Yield
                                 ------    -----    ------     -----    ------     -----    ------    -----    ------    -----

                                                                     (Dollars in thousands)
<S>                             <C>         <C>    <C>         <C>                                            <C>         <C>  
Obligation of U.S.
government agencies and
government sponsored agencies   $  1,695    6.92%  $  6,826    6.51%        --     --           --     --     $  8,520    6.59%
Obligations of states                                                                                         
and political                                                                                                 
subdivisions ................      2,972    6.04%     5,031    5.99     12,826      5.63     4,025      5.10    24,855    5.67
                                                                                                              
Debt securities issued                                                                                        
by foreign governments ......         --   --            75    7.95         --     --           --     --           75    7.95
                                                                                                              
Corporate securities ........      2,782    8.43      1,699    6.30         --     --        2,500      8.00     6,981    7.76
Mortgage-backed  investments      59,728    6.52     31,456    6.44        601      6.24        --     --       91,785    6.49
                                --------    ----   --------    ----   --------      ----  --------      ----  --------    ----
Total .......................   $ 67,177    6.58   $ 45,087    6.39   $ 13,427      5.66  $  6,525      6.21  $132,216    6.41
                                ========    ====   ========    ====   ========      ====  ========      ====  ========    ====
</TABLE>


The Company has no  concentration in securities of any single issuer except that
a majority of the municipal  portfolio  consists of issuers of bonds with taxing
authority on  properties in the State of Indiana.  The  Company's  investment in
U.S.   Government   securities  and  government  agencies  exceeds  10%  of  its
shareholders' equity.

Sources of Funds

Deposits.  Deposits represent the primary source of funds for Peoples.  Deposits
are attracted  principally from within the greater Indianapolis area through the
offering   of   a   broad   selection   of   deposit    instruments    including
non-interest-bearing  and  interest-bearing   checking  accounts,  money  market
accounts, fixed and variable rate certificates of deposit, individual retirement
accounts and regular  savings  accounts.  Peoples  does not actively  solicit or
advertise for deposits outside the greater  Indianapolis  area.  Deposit account
terms vary with principal  differences being the minimum balance  required,  the
amount of time the funds  remain  on  deposit  and the  interest  rate,  if any.
Interest  rates are  established  by Peoples  generally on a weekly  basis.  The
determination  of rates and other terms (such as  maturities,  service  fees and
withdrawal  penalties)  is  predicated  on  rates  paid  and  terms  offered  by
competitors and Peoples' funds acquisition and liquidity requirements.

The following reflects the noninterest-bearing  and interest-bearing  components
of deposits at the dates indicated.

                                                  December 31,
                                  1998               1997             1996
                                  ----               ----             ----

                                                    (In thousands)
Deposits:
Non-interest bearing..........     $ 98,851          $82,132          $83,911
Interest-bearing..............      452,178          426,179          327,894
                                    -------          -------          -------

Total deposits................     $551,029         $508,311         $411,805
                                    =======         ========         ========

Total deposits/total assets...        86.84%           84.93%           87.34%



<PAGE>

Peoples  regularly  accepts time deposits issued in denominations of $100,000 or
more.  The  contractual  maturity of such  deposits  was as follows at the dates
indicated:

                                                            December 31,
                                                        1998          1997
                                                        ----          ----

(In thousands)
Maturity distribution of time
certificates in amounts of $100,000 or more:
Three months or less...............................     $28,543       $39,571
Over three months to six months....................      10,191         9,281
Over six months....................................       9,008         3,018
Over twelve months.................................       8,246        17,603
                                                          -----        ------

               Total...............................     $55,988       $69,473
                                                        =======       =======

Borrowings.   Repurchase   agreements  comprised  the  single  largest  form  of
non-deposit borrowings of Peoples during 1998. Such agreements provide customers
with the opportunity to make short-term  investments of sums,  usually in excess
of  $100,000,   secured  by  obligations   of  the  U.S.   Treasury  or  a  U.S.
government-sponsored  agency.  These  agreements are generally  short-term,  are
exclusively  made with corporate  customers,  and have been a relatively  stable
source of funds for  Peoples.  Peoples  also  borrows from the Federal Home Loan
Bank of Indianapolis ("FHLB").  Long-term FHLB advances are secured by a blanket
pledge of Peoples' assets and mature during January 2008, but are convertible to
a  LIBOR-based  rate at the option of the FHLB in January  2003.  If  converted,
Peoples  has the  option  to pay  off the  advance.  Peoples  also  occasionally
borrowed from the FHLB on an overnight  basis during 1998.  Peoples also borrows
from the U.S. Treasury through the Treasury Tax & Loan program. These borrowings
are due on demand and bear interest at market rates.

No category of borrowings had average balances  outstanding  during 1998 of more
than 30% of shareholders' equity at the end of the period.


Supervision and Regulation

Bank Holding  Company  Regulation.  The Company is  registered as a bank holding
company,  and is subject to the  regulations  of the Board of  Governors  of the
Federal Reserve System ("Federal Reserve") under the Bank Holding Company Act of
1956, as amended ("BHCA").  Bank holding companies are required to file periodic
reports  with and are subject to periodic  examination  by the Federal  Reserve.
Under the BHCA, a bank holding company must obtain Federal  Reserve  approval to
acquire  or hold  more  than a 5% voting  interest  in any bank or bank  holding
company.  The BHCA  also  restricts  non-banking  activities  of a bank  holding
company to those  activities  which are closely related to banking.  Permissible
activities  include the operation of a thrift, the operation of a trust company,
sales and  consumer  finance,  equipment  leasing,  the  operation of a computer
service  bureau,  including  software  development,  and  mortgage  banking  and
brokerage. The BHCA does not place territorial restrictions on the activities of
non-bank  subsidiaries of bank holding companies.  Amendments to the BHCA, which
took effect  September 29, 1995,  allow bank holding  companies to acquire banks
located  in  any  state  of the  United  States  without  regard  to  geographic
restriction  or  reciprocity  requirements  imposed by state law, but subject to
certain conditions.

Bank  Regulation.  Peoples is organized under the laws of Indiana and as such is
subject to the supervision of the Indiana  Department of Financial  Institutions
("DFI"),  whose examiners conduct periodic  examinations of state banks. Peoples
is not a member of the Federal Reserve System,  so its primary Federal regulator
is the FDIC,  which also conducts  periodic  examinations of the bank.  Peoples'
deposits are insured by the Bank Insurance Fund ("BIF") administered by the FDIC
and are subject to FDIC's  rules and  regulations  respecting  the  insurance of
deposits.

Both federal and state law extensively  regulate  various aspects of the banking
business such as reserve  requirements,  truth-in-lending  and  truth-in-savings
disclosure,  equal  credit  opportunity,   fair  credit  reporting,  trading  in
securities  and other aspects of banking  operations.  Current  federal law also
requires banks,  among other things,  to make deposited  funds available  within
specified time periods.

The payment of dividends from Peoples to the Company may be restricted if income
or capital fall below certain prescribed levels. The payment of dividends by the
Company to  shareholders  may also be restricted by the Federal Reserve and FDIC
if income is not deemed sufficient.

Lending  Limits.  Under Indiana law, the total loans and extensions of credit by
an  Indiana-chartered  bank to a borrower  outstanding at one time and not fully
secured may not exceed 15% of such bank's capital and unimpaired surplus.  Also,
regulations  promulgated by the FDIC pursuant to FDICIA place limitations on the
ability  of  insured  depository  institutions  to  accept,  renew or roll  over
deposits by offering rates of interest which are  significantly  higher than the
prevailing  rates of interest on deposits  offered by other  insured  depository
institutions  having the same type of charter in such  depository  institution's
normal market area.

On August 9, 1995,  the federal  banking  agencies  final  safety and  soundness
standards  for  all  insured  depository  institutions  became  effective.   The
standards,  which were issued in the form of guidelines rather than regulations,
relate to internal controls,  information systems,  internal audit systems, loan
underwriting  and  documentation,  compensation  and interest rate exposure.  In
general,  the standards are designed to assist the federal  banking  agencies in
identifying and addressing  problems at insured depository  institutions  before
capital becomes impaired.  If an institution fails to meet these standards,  the
appropriate  federal  banking  agency may  require the  institution  to submit a
compliance  plan.  Failure to submit a compliance plan may result in enforcement
proceedings. Additional standards on earnings and classified assets are expected
to be issued in the near future.

Branching and Acquisitions or Dispositions. Establishment of branches is subject
to approval of the DFI and FDIC and geographic limits established by state laws.
Indiana branch banking law permits a bank having its principal place of business
in the State of Indiana  to  establish  branch  offices in any county in Indiana
without  geographic  restrictions.  A bank may also merge with any  national  or
state chartered bank located anywhere in the State of Indiana without geographic
restrictions.  Indiana banks and savings  associations  are permitted to acquire
other  Indiana  banks  and  savings   associations  and  to  establish  branches
throughout  Indiana.  In  addition,   The  Riegle-Neal  Interstate  Banking  and
Branching  Efficiency Act of 1994 (the  "Riegle-Neal  Act") permits bank holding
companies to acquire  banks in other states and,  with state consent and subject
to certain  limitations,  allows banks to acquire  out-of-state  branches either
through merger or de novo expansion.  The State of Indiana  enacted  legislation
establishing  interstate branching provisions for Indiana  state-chartered banks
consistent with those established by the Riegle-Neal Act (the "Indiana Branching
Law"). The Indiana  Branching Law authorizes  Indiana banks to branch interstate
by merger or de novo expansion. The Indiana Branching Law became effective March
15, 1996.

Capital Adequacy  Guidelines for Bank Holding Companies.  The Company is subject
to regulatory capital  requirements  promulgated by its various regulators - the
Federal Reserve,  the FDIC, and the DFI. Bank holding  companies are required to
comply with the Federal Reserve's  risk-based capital guidelines which require a
minimum  ratio of total  capital  to  risk-weighted  assets  (including  certain
off-balance  sheet  activities  such as  standby  letters  of credit) of 8%.This
establishes a systematic  analytical  framework  that makes  regulatory  capital
requirements  more  sensitive to  differences  in risk  profiles  among  banking
organizations.  At least  half of the  total  required  capital  must be "Tier I
capital," consisting  principally of common stockholders' equity,  noncumulative
perpetual  preferred stock, a limited amount of cumulative  perpetual  preferred
stock  and   minority   interests  in  the  equity   accounts  of   consolidated
subsidiaries, less certain goodwill items. The remainder ("Tier II Capital") may
consist of a limited amount of subordinated debt and intermediate-term preferred
stock, certain hybrid capital instruments and other debt securities,  cumulative
perpetual  preferred  stock,  and a  limited  amount  of the  general  loan loss
allowance. In addition to the risk-based capital guidelines, the Federal Reserve
has adopted a Tier I  (leverage)  capital  ratio  under  which the bank  holding
company  must  maintain  a minimum  level of Tier I  capital  to  average  total
consolidated  assets of 3% in the case of bank holding  companies which have the
highest  regulatory  examination  ratings and are not contemplating  significant
growth or expansion. All other bank holding companies are expected to maintain a
ratio of at least 1% to 2% above the stated minimum.

 The Company was in full compliance with all regulatory capital  requirements at
December 31, 1998. The following  table  indicates the Company's  actual capital
levels at the dates indicated:

                                                    At December 31,
                                            1998         1997        1996
                                                (Dollars in thousands)
Total assets (1) .......................   $633,283    $597,861    $471,192
Risk-based assets ......................    482,817     428,689     346,971
Tier I capital .........................     51,235      48,192      45,063
Total capital ..........................     57,291      53,553      48,963
Leverage ratio .........................       8.01%       8.26%       9.62%
Tier I risk-based capital ratio.........      10.61       11.24       12.99
Total risk-based capital ratio .........      11.87       12.49       14.11
                                  

(1)  Adjusted  to  exclude  net  unrealized   gain/loss  on   available-for-sale
     securities.


The FDIC has adopted  risk-based  capital  ratio  guidelines to which Peoples is
subject.  The FDIC has  established  a regulatory  minimum for total  risk-based
capital ratio of 8% of risk-weighted  assets and a minimum Tier I leverage ratio
of 4% for all but the most  highly-rated  institutions,  which are  subject to a
leverage  ratio of 3%. Capital ratios for Peoples at December 31, 1998 are shown
below:


                                             Peoples
Total Risk-Based Capital to Risk-Weighted Assets..................11.07%
Tier I Capital to Risk-Weighted Assets............................  9.82
Tier I Leverage Ratio.............................................  7.40

The most stringent capital  requirements  affecting Peoples,  however, are those
established  by  the  prompt  corrective  action  provisions  of  FDICIA,  which
requires,  among other  things,  federal  bank  regulatory  authorities  to take
"prompt  corrective  action"  with  respect  to banks  that do not meet  minimum
capital requirements. For these purposes, FDICIA establishes five capital tiers:
well  capitalized,  adequately  capitalized,   undercapitalized,   significantly
undercapitalized,  and  critically  undercapitalized.  The FDIC may order a bank
that has insufficient  capital to take corrective actions.  Peoples currently is
categorized  as  "well  capitalized,"  meaning  that it has a  total  risk-based
capital  ratio of 10% or greater,  a Tier I  risk-based  capital  ratio of 6% or
greater, and a leverage ratio of 5% or greater.

Federal  Securities  Law.  The  Nonvoting  Common  Shares  of  the  Company  are
registered  with the SEC under the 1934  Act.  The  Company  is  subject  to the
information,   proxy  solicitation,   insider  trading  restrictions  and  other
requirements of the 1934 Act and the rules of the SEC thereunder.

Community  Reinvestment  Act  Matters.  Federal  law  requires  that  ratings of
depository  institutions under the Community Reinvestment Act of 1977 ("CRA") be
disclosed.  The  disclosure  includes  both a  four-unit  descriptive  rating --
outstanding,  satisfactory,  needs to improve, and substantial  noncompliance --
and a  written  evaluation  of  each  institution's  performance.  Each  FHLB is
required to  establish  standards of  community  investment  or service that its
members must maintain for continued access to long-term advances from the FHLBs.
The  standards  take into account a member's  performance  under the CRA and its
record of lending to first-time home buyers.  The examiners have determined that
Peoples has a satisfactory record of meeting community credit needs.

Additional  Matters. In addition to the matters discussed above, the Company and
Peoples are subject to additional  regulation of their  activities,  including a
variety of consumer protection regulations affecting their lending,  deposit and
collection  activities  and  regulations  affecting  secondary  mortgage  market
activities.  The earnings of financial  institutions,  including the Company and
Peoples,  are also  affected  by  general  economic  conditions  and  prevailing
interest  rates,  both  domestic  and  foreign  and by the  monetary  and fiscal
policies of the U.S.  Government  and its  various  agencies,  particularly  the
Federal Reserve. Additional legislation and administrative actions affecting the
banking  industry may be considered by the United States  Congress,  the Indiana
General Assembly and various  regulatory  agencies,  including those referred to
above.  It cannot be  predicted  with  certainty  whether  such  legislation  or
administrative  action  will be  enacted  or the  extent  to which  the  banking
industry in general or the Company and Peoples in  particular  would be affected
thereby.

Forward Looking Statements

This  Annual  Report  on Form  10-K  ("Form  10-K")  contains  statements  which
constitute  forward  looking  statements  within  the  meaning  of  the  Private
Securities Litigation Reform Act of 1995. These statements appear in a number of
places in this Form 10-K and include  statements  regarding the intent,  belief,
outlook,  estimate or  expectations of the Company or Peoples or their directors
or officers,  primarily  with respect to future events and the future  financial
performance  of the  Company.  The Company  may also make other  written or oral
forward  looking  statements  from  time  to  time.  Any  such  forward  looking
statements are not guarantees of future events or performance, involve risks and
uncertainties and are subject to important factors that may cause actual results
to differ  materially  from those  projected or suggested in the forward looking
statements.  The accompanying information contained in this Form 10-K identifies
important  factors  that could cause such  differences.  These  factors  include
changes in interest rates;  competition,  including the risk of loss of deposits
and  loan  demand  to  other  financial  institutions;  substantial  changes  in
financial  markets;  changes in real estate  values and the real estate  market;
regulatory changes; or unanticipated results in pending legal proceedings.

Item 2.  Properties.

The Company's  executive  offices are located at Peoples' main office  building,
which is a twelve  story  building  located in  downtown  Indianapolis  owned by
Peoples Building Corporation,  a wholly-owned subsidiary of Peoples Bank & Trust
Company. The main office,  executive offices,  and other administrative  offices
occupy seven floors of this  building,  and the remaining five floors are leased
to other tenants.  At December 31, 1998,  Peoples  operated 13 customer  service
offices,  8 of which are owned  (including  the main  office) and 5 of which are
leased under lease agreements with remaining terms  (including  renewal options)
ranging from .6 to 21.2 years. The Company has announced plans to close three of
its service  offices  during 1999.  The Company  will develop  plans and analyze
opportunities  to expand or contract the number of locations if the  opportunity
appears profitable. Peoples' operations center on the north side of Indianapolis
is leased for a term  (including  renewal  options)  ending 2010.  The Company's
total investment in premises and equipment at December 31, 1998 was $8,105,000.


Item 3.  Legal Proceedings.

From time to time the  Company or Peoples  is  subject  to various  pending  and
threatened  lawsuits in which  claims for  monetary  damages are asserted in the
ordinary  course of  business.  While any  litigation  involves  an  element  of
uncertainty,  in the opinion of management,  liabilities,  if any,  arising from
such  litigation  or  threat  thereof  will not have a  material  effect  on the
financial position or results of operations of the Company or Peoples.




Item 4.  Submission of Matters to a Vote of Security Holders.

No  matters  were  submitted  during  the  fourth  quarter  of 1998 to a vote of
security holders, through the solicitation of proxies or otherwise.



                                     PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters.

Nonvoting  Common  Shares  are quoted on the Nasdaq  National  Market  under the
symbol  "PPLS." The  following  table sets forth the high and low bid prices per
Nonvoting Common Share between January 1, 1995 and March 5, 1999.

Trading Period                   High                        Low

01/01/95 - 12/31/95             12 5/8                       9 1/2
01/01/96 - 12/31/96             18 3/8                      12 1/8
01/01/97 - 03/31/97             22 1/4                      17 1/2
04/01/97 - 06/30/97             26 1/4                      21 3/4
07/01/97 - 09/30/97             35 1/4                      25 1/2
10/01/97 - 12/31/97             37 3/4                      29 3/4

01/01/98 - 03/31/98               403/4                      351/4
04/01/98 - 06/30/98             38 3/8                          32
07/01/98 - 09/30/98                 36                      27 5/8
10/01/98 - 12/31/98             34 3/8                          28
01/01/99 - 3/5/99                 343/4                        32

As of March  12,  1999,  there  were 208  holders  of  record  of the  Company's
Nonvoting Common Shares,  of which 2,734,194 were issued and outstanding.  As of
such  date,  there  were 35 holders  of record of the  Company's  Voting  Common
Shares,  of which  264,096  were issued and  outstanding.  The market for Voting
Common Shares is inactive and  management has no plans to list the Voting Common
Shares on Nasdaq or any exchange.

In the fiscal year ended December 31, 1998, the Company issued  Nonvoting Common
Shares to certain  individuals  upon the exercise of options  granted  under the
Company's  option plans.  The Company issued 200 shares to a former  director of
the Company in respect of options exercised  pursuant to the Directors Plan, and
issued 500 shares and 2,460 shares,  respectively,  to two executive officers in
respect of options exercised  pursuant to the 1996 Plan. All of such shares were
issued pursuant to the exemption  provided in Section 4(2) of the Securities Act
of 1933, as amended.

The Company has paid cash dividends on its Common Shares every year since it was
formed in 1986 and Peoples paid regular  dividends for many years prior thereto.
The per share amount of cash dividends declared for each quarter since the first
quarter of 1997 are as follows:

                                                             Cash Dividends
                                                            Per Common Share
Calandar Quarter
                                                                   1997
First Quarter...................................                  $0.105
Second Quarter..................................                   0.11
Third Quarter...................................                   0.115
Fourth Quarter..................................                   0.12

                                                                   1998
First Quarter...................................                  $0.125
Second Quarter..................................                   0.13
Third Quarter...................................                   0.135
Fourth Quarter..................................                   0.14

On March 18, 1999,  the Company  declared a dividend of $0.145 per share payable
to  shareholders  of record March 31, 1999.  The Company  currently  anticipates
paying  quarterly  cash  dividends  at the rate  indicated  above,  although the
payment of dividends is subject to the discretion of the Board of Directors. The
declaration  of future  dividends  will  depend  on,  among  other  things,  the
earnings,  financial  condition and cash requirements of the Company at the time
such  payment  is  considered,  and on the  ability  of the  Company  to receive
dividends from Peoples the amount of which is subject to regulatory limitations.
On June 19, 1997, the Board of Directors of the Company  approved a split of the
Company's Voting Common Shares and Nonvoting Common Shares,  on the basis of two
shares for each one of the issued and  outstanding  shares of each class,  as of
the close of business on June 30,  1997.  The  foregoing  data give  retroactive
effect to such 2-for-1 share split.

Item 6.  Selected Consolidated Financial Data.

The following table sets forth certain selected financial information reflecting
the operations and financial  condition of the Company for each year in the five
year period ended  December 31,  1998.  This data should be read in  conjunction
with the Company's  consolidated  financial statements and related notes thereto
and "Management's Discussion and Analysis of Results of Operations and Financial
Condition" included elsewhere herein.


<PAGE>
<TABLE>
<CAPTION>

                                                                        As Of and For The
                                                                       Year Ended December 31,
                                                  1998         1997            1996             1995           1994
                                                  ----         ----            ----             ----           ----
                                                             (Dollars in  thousands,  except per share data)
<S>                                                <C>            <C>             <C>             <C>            <C>    
Consolidated Statements of Income Data:
Interest income..............................      $47,554        $39,729         $32,251         $31,034        $24,806
Interest expense.............................       22,601         18,119          14,044          14,869         10,462
                                                    ------         ------          ------          ------         ------

Net interest income..........................       24,953         21,610          18,207          16,165         14,344
Provision for loan losses....................        3,500          1,800           1,125             536            528
                                                     -----          -----           -----             ---            ---

Net interest income after
           provision for loan losses.........       21,453         19,810          17,082          15,629         13,816
Non-interest income..........................        6,981          5,953           5,437           4,868          4,819
Non-interest expense.........................       19,028         16,469          14,794          15,316         14,885
                                                    ------         ------          ------          ------         ------

Income before income taxes...................        9,406          9,294           7,725           5,181          3,750
Income taxes.................................        2,999          3,016           2,316           1,295            865
                                                     -----          -----           -----           -----            ---

           Net income........................      $ 6,407         $6,278          $5,409          $3,886         $2,885
                                                   =======         ======          ======          ======         ======

Consolidated Balance Sheets Data:
Assets.......................................    $ 634,505       $598,476        $471,478        $417,019       $425,075
Held-to-maturity securities..................            0             --              --              --        113,823
Available-for-sale securities................      132,216        153,870          94,589         107,745         55,177
Loans held for sale..........................        2,346            561             421           2,557            761
Total loans..................................      452,065        406,893         332,953         271,093        214,390
Allowance for loan losses....................        7,684          5,516           3,900           3,290          2,704
Deposits.....................................      551,029        508,311         411,805         351,762        346,577
Shareholders' equity.........................       52,025         48,817          45,349          41,636         38,477
Average shares outstanding basic.............    3,061,172      3,112,319       3,168,260       3,190,644      3,364,042
Average shares outstanding diluted...........    3,137,880      3,153,051       3,178,202       3,190,644      3,364,042
Per Share Data:
Net Income basic.............................         2.09           2.02            1.71            1.22           0.86
diluted......................................         2.04           1.99            1.70            1.22           0.86
Cash dividends declared......................          .53           0.45            0.38            0.35           0.33
Book value (1)...............................        17.21          15.87           14.42           13.10          11.82
Other Statistics and Operating Data:
Return on average assets.....................         1.02%          1.18%           1.21%           0.89%          0.73%
Return on average equity.....................        12.90          13.40           12.62            9.70           7.56
Net interest margin (2)......................         4.34           4.48            4.67            4.27           4.21
Efficiency ratio (3).........................        57.19          57.90           60.06           69.18          73.48
Average loans to average deposits............        79.15          75.80           76.27           70.65          57.75
Dividend payout ratio........................        25.27          22.24           21.91           28.64          38.37
Allowance for loan losses to loans
at the end of period.........................         1.69           1.35            1.17            1.20           1.26
Allowance for loan losses to
Underperforming loans........................     1,074.69         141.15        1,378.09          256.43         164.38
Underperforming loans to loans
at the end of period.........................          .16           0.96            0.09            0.47           0.76
Net charge-offs to average loans.............          .31            .05            0.17          (0.02)           0.18
Number of offices............................           13             13              13              15             15
Capital Ratios:
Average shareholders' equity to
average assets...............................         7.94%          8.78%           9.61%           9.14%          9.62%
Leverage ratio...............................         8.01           8.26            9.62            9.93           9.26
Total risk-based capital ratio...............        11.87          12.49           14.11           14.83          15.34
</TABLE>


(1)  Based on Common Shares outstanding at the end of the period.

(2)  Net interest income as a percentage of average  interest-earning assets, on
     a fully tax equivalent basis.

(3)  The efficiency ratio is calculated by dividing  non-interest expense by the
     sum of net interest income,  on a fully tax equivalent basis, and recurring
     non-interest income.


<PAGE>

Item 7. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations

General

The business of Peoples Bank Corporation ("the Company") consists of holding and
administering  its interest in Peoples  Bank & Trust  Company  ("Peoples").  The
principal business of Peoples consists of attracting  deposits from consumer and
commercial  customers and making loans to individuals  and  businesses.  Peoples
offers various products for depositors, including checking and savings accounts,
certificates  of deposit and safe deposit  boxes.  Loans consist  principally of
loans to  individuals  secured  by  mortgage  liens on  residential  properties,
consumer loans  generally  secured by liens on personal  property,  and loans to
businesses  generally  secured by liens on business  assets  such as  inventory,
accounts  receivable,  commercial real estate and other  property.  Peoples also
offers  trust  and   investment   services  to   individuals,   businesses   and
institutions.  Peoples  operates  12  banking  offices  in  Indianapolis  and an
operations center on the north side of Indianapolis. Peoples has announced plans
to close three  branches  during 1999 as part of its ongoing  evaluation  of its
business activities. The Company will develop plans and analyze opportunities to
expand  or  further  contract  its  number  of  locations  if the  expansion  or
contraction appears to represent a profitable opportunity.

Earnings Summary

The  Company's net income for 1998 was  $6,407,000  compared with net income for
1997 of  $6,278,000,  an increase  of $129,000 or 2.1%.  Net income for 1996 was
$5,409,000.  Earnings per share assuming full dilution were $2.04 in 1998, $1.99
in 1997,  and $1.70 for 1996.  The fully  diluted  number of shares  used in the
computation  of  earnings  per  common  share  were  3,137,880  shares  in 1998,
3,153,051 shares in 1997, and 3,178,202 shares in 1996.

Net Interest Income

Net interest income is the principal component of net income for the Company and
is  determined  by the relative size and  characteristics  of  interest-earnings
assets and interest-bearing  liabilities. For the years ended December 31, 1998,
1997,  and  1996,  net  interest  income  was  $24,953,000,   $21,610,000,   and
$18,207,000,  respectively.  This  represents  an increase in 1998 of $3,343,000
(15.5%),  and an increase in 1997 of $3,403,000 (18.7%).  Increased net interest
income contributed significantly to the net income growth during the period.

Average earning assets  increased to  $590,906,000 in 1998 from  $502,485,000 in
1997, an increase of $88,421,000  (17.6%).  Average loans increased  $68,633,000
(18.7%) to $434,788,000 in 1998.  Increasing loan balances were a primary driver
for the increase in net interest  income  during 1998.  Increases in  investment
security  balances  were  also a source of growth  in net  interest  income,  as
investment  securities increased $24,148,000 to $145,862,000 in 1998. As part of
its efforts to balance interest rate risk, the Company increased the balances in
fixed rate investment  securities during 1997. As interest rates declined during
1998,  this  contributed  to an increase in the  unrealized  gain on  investment
securities  (net of tax) to  $737,000  at  December  31,  1998 from  $615,000 at
December  31,  1997.  Increases  in loans and  securities  were  funded  through
significant  increases in time deposits.  Average interest  bearing  liabilities
increased $82,777,000 (20.7%) to $483,439,000 in 1998 from $400,662,000 in 1997.
The following table sets forth, for the periods indicated, information regarding
the  average   balances   of   interest-earning   assets  and   interest-bearing
liabilities,  the dollar amount of interest income and interest expense, and the
resulting yield on average earning assets and rates on average  interest-bearing
liabilities.   Average  balances  are  also  provided  for  non-earning  assets,
non-interest-bearing liabilities and shareholders' equity.
<TABLE>
<CAPTION>


Year ended December 31,                   1998                               1997                               1996
------------------------   --------------------------------     -------------------------------   ---------------------------------
                                   Average          Average          Average           Average          Average          Average
                             Balance    Interest     Rate      Balance     Interest     Rate      Balance     Interest     Rate
                           --------------------------------------------------------------------------------------------------------
                                     (Dollars in thousands)            (Dollars in thousands)             (Dollars in thousands)
<S>                            <C>         <C>         <C>     <C>            <C>         <C>        <C>         <C>         <C>  
Assets
Interest-earning assets:
  Interest-earning deposits    $    --     $    --     0.00%   $      --      $    --     0.00%      $   833     $   45      5.40%
  Federal funds sold            10,256         557     5.43%      14,616          730     4.99%       15,995        844      5.28%
  Investment securities
       Taxable                 122,710       7,938     6.47%      87,529        5,758     6.58%       62,814      3,372      5.37%
       Tax-exempt               23,152       1,248     5.39%      34,185        1,577     4.61%       35,167      1,779      5.06%
  Loans                        432,812      37,686     8.71%     364,081       31,532     8.66%      294,141     26,074      8.86%
  Tax-exempt loans               1,976         125     6.33%       2,074          132     6.35%        2,169        137      6.32%
                           ------------------------          -------------------------          ------------------------
  Total interest-
     earning assets            590,906      47,554     8.05%     502,485       39,729     7.91%      411,119     32,251      7.84%
Non-earning assets:
  Cash and due from banks
                                21,819                            21,570                              24,571
  Bank premises and
equipment, net                   6,853                             6,515                               7,127
  Other non-earning assets      12,123                             7,722                               6,957
  Allowance for loan
losses                          (6,616)                           (4,739)                             (3,634)
                           ------------                      ------------                       -------------
    Total Assets             $ 625,085                        $  533,553                           $ 446,140
                           ============                      ============                       =============

Liabilities and Shareholders' Equity
Interest-bearing liabilities:
  Transaction accounts        $ 37,695         465     1.23%    $ 36,262          574     1.58%     $ 37,342        772      2.07%
  Savings deposits             188,789       7,638     4.05%     180,701        6,826     3.78%      168,726      6,483      3.84%
  Time deposits                233,501      13,371     5.73%     171,281       10,163     5.93%      103,597      6,216      6.00%
  Short-term borrowings         23,454       1,127     4.81%      12,418          556     4.48%       12,222        573      4.69%
                           ------------------------          -------------------------          ------------------------
                                                                                                              
Total interest-bearing         483,439      22,601     4.68%     400,662       18,119     4.52%      321,887     14,044      4.36%
liabilities

Non-interest-bearing liabilities:
  Demand deposits               87,133                            82,367                              78,825
  Other liabilities              4,862                             3,656                               2,556
Shareholders' equity            49,651                            46,868                              42,872
                           ------------                      ------------                       -------------
  Total liabilities and
    shareholders' equity      $625,085                          $533,553                           $ 446,140
                           ============                      ============                       =============
Net interest income
                                            24,953                             21,610                            18,207
Net interest spread                                    3.37%                              3.39%                              3.48%
Net interest margin                                    4.22%                              4.30%                              4.43%
Tax-equivalent data:
  Tax-equivalent adjustment                    707                                880                               987
                                       ------------                      -------------                       -----------
  Adjusted net interest income          $   25,660                           $ 22,490                          $ 19,194
                                       ============                        ==========                        ===========
                                                                                                       
  Net interest spread                                  3.49%                              3.56%                              3.72%
  Net interest margin                                  4.34%                              4.48%                              4.67%

</TABLE>
The spread between the rate paid on interest-earning assets and the rate paid on
interest-bearing liabilities was roughly unchanged,  decreasing to 3.37% in 1998
from 3.39% in 1997. On a tax-adjusted  basis,  the spread  decreased to 3.49% in
1998 from 3.56% in 1997. Net interest income also depends on the rates earned on
assets and paid on liabilities.  The net interest margin represents net interest
income as a percent of average earning assets. The net interest margin decreased
to 4.22% in 1998 from 4.30% in 1997. On a tax-adjusted  basis,  the net interest
margin  decreased  to 4.34% in 1998  from  4.48% in 1997.  The  decrease  in the
tax-adjusted  margin can be attributed to the maturity of municipal bonds and to
the  increasing   reliance  on   interest-bearing   deposits,   rather  than  on
non-interest bearing deposits and equity, to fund loan growth.

The table below presents information regarding the Company's interest income and
interest  expense for the periods  indicated.  The table  presents the change in
interest  income or interest  expense which is attributable to the change in the
average balance  (volume) and the change in interest income or interest  expense
which is related to change in rates. Changes in balances were responsible for an
increase in net interest  income of $2,738,000  during 1998 as both  investments
and loans grew and were funded by growth in time  deposits  and, to some extent,
savings  deposits  and  borrowings.  Savings  rates were  somewhat  higher while
certificate  of deposit  and  interest-bearing  transaction  account  rates were
somewhat lower during 1998.
<PAGE>

<TABLE>
<CAPTION>

Year ended December 31,                                  1998 vs. 1997                            1997 vs. 1996
                                                           Change                                    Change        Change
                                              Total        Due to                       Total        Due to        Due to
                                              Change       Volume                      Change        Volume         Rate
                                                    (Dollars in Thousands)                   (Dollars in Thousands)
Interest Income:
<S>                                               <C>            <C>            <C>          <C>          <C>             <C>
         Federal Funds Sold & Interest           -$173          -$227           $54         -$159        -$118           -$41
         Earning Deposits
         Securities                             $1,851          1,488           363         2,184        1,248            936
         Loans                                   6,147          5,952           195         5,453        6,191           -738
                  Total Interest Income          7,825          7,213           612         7,478        7,321            157
Interest Expense:
         Transaction Deposits                     -109             20          -129          -198          -22           -176
         Savings Deposits                          812            316           496           343          460           -117
         Time Deposits                           3,208          3,627          -419         3,947        4,061            114
         Short-Term Borrowings                     571            512            59           -17            9            -26
                  Total Interest Expense         4,482          4,475             7         4,075        4,508          -$433

         Net Interest Income                    $3,343          2,738           605        $3,403       $2,813           $590

</TABLE>

Non-Interest Income

Non-interest  income was $6,981,000 in 1998,  $5,953,000 in 1997, and $5,437,000
in 1996. This reflected an increase in 1998 of $1,028,000  (17.3%)  following an
increase of of $516,000  (9.5%) in 1997.  Trust and investment  management  fees
increased  both in  1998  and  1997,  $701,000  (40.5%),  and  389,000  (29.0%),
respectively.  The  increase  in  revenue  from  Peoples'  Trust and  Investment
Management  Group in 1998  reflected  continuing  sales efforts within the trust
department.  Peoples also experienced strong growth in revenues from the sale of
investment products, which began during 1997. Management believes that the Trust
& Investment  Management  Group  possesses a  competitive  advantage by offering
customers local service and management of customers'  funds.  Service charges on
deposit  accounts and other retail related fees decreased  $70,000 to $2,893,000
during 1998 following an increase of $452,000 to $2,963,000 during 1997.

Mortgage banking  revenues  included net gains and losses realized when mortgage
loans are sold into the secondary  market,  and service fee revenue  earned from
servicing  those  loans  after  they are  sold.  Mortgage  banking  revenue,  as
reflected in the  Company's  financial  statements,  has not been reduced by the
associated costs, such as compensation expense,  which is shown elsewhere within
non-interest expense. Mortgage banking revenue was $699,000 in 1998, $430,000 in
1997,  and  $713,000  in 1996.  This  reflects  an  increase in 1998 of $269,000
(62.6%)  against a decrease in 1997 of $283,000  (39.7%).  The strong  growth in
mortgage  banking  revenues  during 1998 can be attributed to a focus on pricing
and high  performance  service  rather than on volume.  The decrease in mortgage
banking revenue during 1997 reflected a change in strategy which focused on less
volume  and which  placed an  emphasis  on loans that would not be sold into the
secondary market but would remain on the balance sheet. At December 31, 1998 the
Company serviced mortgage loans with an aggregate  outstanding principal balance
of approximately $99,120,000.

The Company  does not engage in the  purchase  and sale of  securities  with the
intent to generate gains. The Company may sell available-for-sale securities for
liquidity or to manage its asset/liability position. During 1998, such sales, as
well as gains and losses  realized  when  securities  were called prior to their
maturity,  generated  net gains of  $47,000,  compared  to net losses of $50,000
during 1997.


Non-Interest Expense

Non-interest expense, or overhead,  includes the costs of personnel,  occupancy,
equipment, insurance, and other costs of sustaining operations. Overhead for the
years ended December 1998,  1997, and 1996, was  $19,028,000,  $16,469,000,  and
$14,794,000,  respectively.  This reflects an increase of $2,559,000  (15.5%) in
1998  compared to an increase of $1,675,000  (11.3%) in 1997.  More than half of
total  non-interest  expense was  comprised of salaries  and employee  benefits.
Salaries and employee benefit expense increased  $2,030,000  (22.6%) compared to
an increase of $965,000  (12.0%) in 1997.  During 1997 and 1998,  Peoples  added
staff in critical areas to enhance its sales and service capacity to accommodate
its strong growth.  Advertising  expense decreased $151,000 in 1998 following an
increase of $147,000 in 1997. The  variability of advertising  costs was related
to the costs of direct mail required to originate second mortgages.  Peoples has
been a relatively  large  investor in  low-income  housing  partnerships.  These
partnerships  are intended to generate  significant  benefits in the form of tax
credits  over a ten year  period.  Peoples  accounts  for these  investments  by
amortizing the cost of the partnerships over the same period as the benefits are
received.  During 1998, Peoples  recognized expense of $785,000,  as compared to
expenses of $195,000 in 1997 and $129,000 in 1996. During 1997, Peoples invested
in a partnership to renovate an existing  property in Indianapolis.  The project
did not meet financial expectations.  Since the project's inception,  its losses
have exceeded Peoples' investment.  Therefore, during 1997 and 1998, Peoples was
required  to  write-down  the value of this  investment  to zero.  At this time,
Peoples does not anticipate that the project will generate any tax credits.  The
Company believes that it is entitled to recover its investment of $648,000,  but
there can be no assurance that such recovery will ultimately be realized.  


Income Taxes

Tax  expense  for 1998  decreased  $17,000  due to slight  growth in net income,
following an increase in tax expense of $700,000  during 1997.  The Company from
time to time purchases  tax-free  securities and originates  tax-free loans as a
means of generating  tax-free  income,  effectively  mitigating tax expense.  As
previously  mentioned,  the  Company  also has  invested  in several  low income
housing tax partnerships  with the intent of generating lower income tax expense
in future years in addition to serving the  community  by  providing  subsidized
housing for lower-income families.

Net  deferred  tax assets at December  31, 1998 and 1997 , were  $2,981,000  and
$1,963,000. Deferred tax assets result, primarily, from book bad debt deductions
in excess of those  deductible  for tax purposes.  The asset will be realized as
loans are  charged  off in future  periods.  Based on the  Company's  historical
levels of taxable  income and the  relatively  small  size of the  deferred  tax
assets  recorded,  management  does not believe a valuation  allowance for those
assets was needed at December 31, 1998.



Asset and Liability Management

The Company  engages in a formal process of measuring and defining the amount of
interest  rate risk.  Interest  rate risk is the effect on net  interest  income
resulting  from changes in interest  rates.  The goal of the asset and liability
management  process is to maintain a high,  yet stable,  net interest  margin by
identifying  the  degree  of  interest  rate  risk and  developing  tactics  and
strategies to mitigate the extent to which net interest  income will be affected
by changes in interest rates.

The  following  tables   illustrate  the  repricing   opportunities,   or  "rate
sensitivity" of  interest-earning  assets and  interest-bearing  liabilities.  A
repricing  may occur if the rate on the asset or  liability  changes as interest
rates change,  or, when the rate is fixed, at the time they mature. The "gap" is
the  difference  between rate sensitive  assets and rate  sensitive  liabilities
within a specific  time frame.  Gap is  considered  an indicator of the effect a
change in interest rates may have on net interest income.



<TABLE>
<CAPTION>
At December 31, 1998                                                     Repriceable or Maturing Within
------------------------------------------------------------------------------------------------------------------------------------
                                           0 to 3         3 to 6          6 Months         1 to 5          After 5
                                           Months         Months         to 1 Year         Years            Years         Total
                                         -------------  -------------   -------------   -------------    -------------  ------------
                                                                          (Dollars in thousands)
<S>                                        <C>           <C>              <C>             <C>            <C>             <C>     
Interest-earning assets:
  Loans                                    $  207,469    $    33,270      $ 54,022        $152,497       $    7,153      $454,411
  Available for sale securities                35,458         15,954        23,237          47,971            9,596       132,216
                                         -------------  -------------   -----------   -------------    -------------    ----------
    Total interest-earning assets             242,927         49,224        77,259         200,468           16,749       586,627

Interest-bearing liabilities:
  Savings accounts                            234,430                                                                     234,430
                                                                                                 -
  Time deposits                                57,345         47,017        48,255          64,820                        217,748
                                                                                                                311
  Short-term borrowings                        16,918                                        6,000                         22,918
                                         -------------  -------------   -----------   -------------    -------------    ----------
    Total interest-bearing liabilities        308,693         47,017        48,255          70,820                        475,096
                                                                                                                311
                                         -------------  -------------   -----------   -------------    -------------    ----------
    Asset (liability) gap                $   (65,766)    $     2,207      $ 29,004        $129,648        $  16,438      $111,531
                                         =============  =============   ===========   =============    =============    ==========

    Cumulative asset (liability) gap     $   (65,766)   $   (63,559)     $(34,555)       $  95,093         $111,531
    Cumulative gap to total assets            -10.36%        -10.02%        -5.45%          14.99%           17.58%
</TABLE>


As of December 31, 1998, the Company's rate sensitive  liabilities exceeded rate
sensitive assets through one year. This would indicate that when rates increase,
net interest income may decline. In order to accurately  determine the effect of
changes in interest rates, the repricing effect of each type of interest-earning
asset and  interest-bearing  liability must be measured.  Assets and liabilities
have  different  characteristics  and the magnitude of change  differs for each.
Management  continually  monitors the changes to net  interest  income which may
result from changing interest rates.

A significant assumption that creates the large negative gap in the 0 to 3 month
category is that all interest-bearing demand and savings accounts are subject to
immediate  repricing.  While it is true that  contractually,  those accounts are
subject  to  immediate  repricing,  the  rates  paid on those  accounts  are not
generally tied to specific  indices and are influenced by market  conditions and
other factors.  Accordingly,  a general movement in interest rates, either up or
down,  may not have any  immediate  effect  on the rates  paid on these  deposit
accounts.  The foregoing table  illustrates only one source of information about
sensitivity  to interest rate  movements.  The core of the  Company's  asset and
liability  management process consists of simulations that take into account the
time that  various  assets and  liabilities  may reprice and the degree to which
various  categories  of such  assets  and  liabilities  will  respond to general
interest  rate  movements.  Interest  rate  risk  can only be  represented  by a
measurement of the effects of changing interest rates given the capacity for and
magnitude of change on specific assets and liabilities.

Liquidity

Liquidity refers to the availability of funds to meet deposit withdrawals,  fund
loan commitments and pay expenses. The Company's loan portfolio, excluding loans
held for sale,  increased to $452,065,000 at December 31, 1998 from $406,893,000
at December 31, 1997, an increase of $45,172,000 (11.1%).  Increases in deposits
provided  funding for loan growth in 1998.  Total  deposits at December 31, 1998
were $551,029,000,  an increase of $42,718,000 from balances of $508,311,000, at
December 31, 1997.

A common measure of liquidity is the loan to deposit  ratio.  As of December 31,
the net loan to  deposit  ratio was 82.0% in 1998,  and 80.1% in 1997.  At these
levels,  management  believes  that Peoples had  adequate  liquidity to meets it
current and future needs.

Loan  commitments  include  unfunded  portions of lines of credit and commercial
letters of credit. These unfunded commitments may or may not require funding. At
December  31,  1998  and  1997,  such  commitments   totaled   $156,562,000  and
$114,769,000,  respectively.  Loan  commitments  generate  fee  income  for  the
Company.



Loan Quality

The  Company  has  maintained  a high level of  quality  in the loan  portfolio.
Non-performing  loans are those  loans  which are past due more than 90 days and
still  accruing  interest and those loans on which the Company no longer accrues
interest.  As of  December  31,  1998 and  1997,  non-performing  loans  totaled
$416,000,   and  $3,642,000,   respectively.   As  a  percent  of  total  loans,
non-performing  loans were 0.10% at December 31, 1998,  and .89% at December 31,
1997.

The  provision  for loan losses is a charge to earnings to provide for potential
future  loan  losses.  The  provision  for loan losses was  $3,500,000  in 1998,
$1,800,000 in 1997,  and  $1,125,000 in 1996.  The  significant  increase in the
provision for loan losses in 1998 was  considered  appropriate  by management in
response to higher net charge-offs  and continued  growth in the loan portfolio.
Management  believes that Peoples' loan portfolio is less diversified than those
of  similarly-sized  community banks operating in smaller  communities since the
competitive  landscape of the Indianapolis  marketplace requires Peoples to make
loans to corporate  entities whose size may exceed those  typically  serviced by
community  banks  with  assets  of less than $1  billion.  The  adequacy  of the
allowance for loan losses is evaluated at least  quarterly by  management  based
upon a review  of  identified  loans  with  more  than a normal  degree of risk,
historical  loss  percentages,  and present  and  forecast  economic  conditions
affecting  borrowers.  At  December  31,  the  allowance  for  loan  losses  was
$7,684,000 for 1998,  and $5,516,000 for 1997. As a percent of total loans,  the
allowance for loan losses was 1.69% at December 31, 1998,  and 1.35% at December
31, 1997.  Management's analysis indicates that the allowance for loan losses at
December 31, 1998 was adequate to cover  potential  losses on  identified  loans
with  credit  problems  and on  the  remaining  portfolio  based  on  historical
percentages.

Gross loan charge-offs in 1998, 1997, and 1996, were $2,791,000,  $488,000,  and
$607,000, respectively. As a percentage of average loans, gross loan charge-offs
were .64%,  .13%, and .21% for those periods.  During the first quarter of 1998,
the Company  recognized  loan  charge-offs  of  $2,211,000,  which were  related
primarily to a single  borrower.  A significant  portion of this  charge-off was
recovered  during the remainder of the year. Gross recoveries in 1998, 1997, and
1996 were  $1,459,000,  $304,000,  and $92,000.  Net  charge-offs  for 1998 were
$1,332,000, compared to net charge-offs for 1997 of $184,000.

 Loans are considered  impaired if full  principal or interest  payments are not
anticipated.  Impaired  loans are carried at the present  value of expected cash
flows discounted at the loan's  effective  interest rate or at the fair value of
the collateral if the loan is collateral  dependent.  A portion of the allowance
for loan losses is allocated to impaired loans.  The Company  includes all loans
with  outstanding  balances  exceeding  $500,000  and  rated  as  "Doubtful"  as
impaired.  Further,  the Company  evaluates all Substandard  Loans with balances
exceeding  $500,000  for  classification  as  impaired.  The  Company's  average
investment in impaired  loans during 1998 and 1997 was $3,081,000 and $4,253,000
respectively.  At December 31, 1998,  $0 of loans were deemed to be impaired and
$0 of the  allowance  for loan losses was  allocated to those loans.  Generally,
impaired  loans are placed on non-accrual  status.  Loans that are classified as
impaired  and are still  accruing  interest  are  generally  collateralized  and
currently making payments.  However,  based on past experience with the customer
and their analysis of the situation, management believes that it is not probable
that these loans will be repaid in accordance with the contractual  terms of the
loan agreement.

Capital Position

In  February,  1994,  the Company  completed an initial  public  offering of its
Non-Voting  Common Shares.  The shares were registered for trading on the NASDAQ
National Market System. Between 1994 and 1997 the Company repurchased a total of
373,134 of such shares.  During 1998, 57,120 shares were  repurchased.  Both the
Company and Peoples are required to comply with capital requirements promulgated
by their  primary  regulators.  Those  regulations  require the  maintenance  of
specified  levels  of  capital  to total  assets  (the  leverage  ratio)  and to
risk-weighted  assets (the risk-based capital ratio).  These regulations require
maintaining  a  minimum  Tier I  leverage  ratio  of 4% for  all  but  the  most
highly-rated institutions, which are subject to a leverage ratio of 3%, and they
require a total risk-based capital ratio of at least 8%. The Company and Peoples
were in full compliance with all regulatory capital requirements at December 31,
1998. The following table  indicates the Company's  actual capital levels at the
dates indicated.


At December 31,                       1998          1997          1996

Tier I capital                        $51,235       $48,192       $45,063
Total capital                         $57,291       $53,553       $48,963
Leverage ratio                           8.01%         8.26%         9.62%
Tier 1 risk-based capital ratio         10.61%        11.24%        12.99%

Total risk-based capital ratio          11.87%        12.49%        14.11%

New Accounting Pronouncements

The Financial  Accounting  Standards Board ("FASB") issues Financial  Accounting
Standards ("FAS") that affect Peoples.

FAS NO. 133,  "Accounting for Derivative  Instruments  and Hedging  Activities,"
will become  effective  January 1, 2000. FAS 133 will require all derivatives to
be recorded at fair value.  Unless  designated as hedges,  changes in these fair
values will be recorded in the income  statement.  Fair value changes  involving
hedges will generally be recorded by offsetting  gains,  and losses on the hedge
and on the  hedged  item,  even if the  fair  value  of the  hedged  item is not
otherwise  recorded.  Upon adoption of this Standard,  entities may  redesignate
securities as either available-for-sale or held-to-maturity. Management does not
expect  adoption of this Standard to have a material  effect but the effect will
depend upon derivative holdings upon adoption.

 Year 2000 Compliance

Because  computer  memory was so expensive on early  mainframe  computers,  some
computer  programs used only the final two digits for the year in the date field
and assumed  that the first two digits  were "19".  As a result,  some  computer
applications  may be unable to interpret the change from year 1999 to year 2000.
In 1997, the Company  established a Year 2000 ("Y2K")  initiative to address the
issues  associated  with the Year 2000 date change.  The Company relies on third
party data processing servicers or purchased  applications software and hardware
for its technology  needs. The Company's  initiative  involves five separate and
distinct   steps   -   awareness,   assessment,   renovation,   validation   and
implementation.

The awareness phase defined the Y2K problem for  management,  and gained support
for the  resources  needed to  successfully  complete the  project.  During this
phase,  Peoples  installed a risk assessment  system,  established a Y2K project
team, and began gathering vendor  information.  The awareness  phase,  which was
completed  in  January  1998,  involved  a  complete  inventory  of all  systems
including  software,  hardware.  firmware,  and environmental.  Each item in the
inventory was assigned a system significance rating. Corporate clients were also
contacted to assess their program Year 2000 compliance. The assessment phase was
completed in April 1998.

The renovation  phase consisted of ongoing  discussions and monitoring of vendor
progress  toward Y2K  compliance.  As of December 31, 1998, all of the Company's
systems  and  applications  are Year  2000  compliant.  The  final  two  phases,
validation and  implementation,  are substantially  completed,  with over 90% of
Peoples'  mission-critical  technology  solutions  tested and  accepted by their
respective business units.

By June 30, 1999,  management will complete  business  resumption  plans for all
systems and  applications  to address any potential  system  failures  caused by
actions  or  influences,   such  as  the  failure  of  power  or  communications
technologies outside the control of the Company. Estimated costs associated with
the  Y2K  initiative  total  slightly  over  $100,000.  Most of  these  expenses
represent capital  expenditures for software and hardware that will be amortized
over five years. Therefore, management believes that the financial impact of the
Y2K initiative is immaterial.

On the other hand,  the risks for the  Company in the event that either  certain
mission-critical  systems  are not Year 2000  compliant  or  outside  influences
prevent  Peoples'  systems from being fully  operational are  substantial.  As a
financial   institution,   Peoples'  largest  volume  of  transactions   involve
loan-related matters (such as loan origination, the acceptance of loan payments,
escrow-handling,   and  related  matters)  and  deposit  accounts  (new  account
openings,  additions and withdrawls from accounts, interest crediting,  checking
account  transactions and related matters).  Peoples' inability to process these
transactions  in an  efficient  and  timely  manner  would  greatly  impact  its
operations.  No estimate is available  concerning  possible  lost revenue in the
event of a material  Year 2000  problem.  However,  such loss of  revenue  would
likely be a material amount which could have a materially  adverse effect on the
Company's financial performance and operations.

Federal and state bank regulators have reviewed the Company's plans and progress
in 1998 and early 1999 to verify that critical computer systems are modified and
tested, and that they will run smoothly when the year 2000 arrives.



Item 7A.  Quantitative and Qualitative Disclosures about Market Risk

A derivative  financial  instrument  includes futures,  forwards,  interest rate
swaps,   option  contracts,   and  other  financial   instruments  with  similar
characteristics.  At March 12,  1999,  Peoples had  entered  into  variable  pay
interest rate swaps in the notional  amount of $80 million with other  financial
institutions.  This  means  that  Peoples  receives  a fixed  rate  of  interest
calculated on $80 million and pays a variable rate of interest, based on indices
such as LIBOR or the  prime  rate,  calculated  on $80  million.  A total of $50
million of these  swaps have  delayed  start  features.  The  agreements  expire
between  September 1999 and December  2000.  Only $30 million of these swaps are
currently  active.  These swaps were purchased to hedge risk because Peoples had
funded growth in variable  rate assets with fixed rate CD's.  If interest  rates
had declined,  bank earnings would have decreased on variable rate loans,  which
would have been offset with  earnings on the swaps.  The Board of Directors  has
approved a policy regarding derivative financial  instruments,  and has included
limits  on the use of  these  instruments  tied to the  term of the swap and the
credit  risk of the  other  financial  institution.  Peoples  is also a party to
financial  instruments  with  off-balance  sheet  risk in the  normal  course of
business to meet the financing needs of customers.  These financial  instruments
include  commitments  to extend  credit and  standby  letters  of credit.  These
instruments  involve,  to varying degrees,  elements of credit and interest rate
risk in excess of the amount  recognized  in the  consolidated  balance  sheets.
Commitments  to extend  credit are  agreements  to lend to a customer as long as
there is no violation of any condition established in the contract.  Commitments
generally  have  fixed  expiration  dates and may  require  collateral  from the
borrower  if  deemed  necessary  by  Peoples.  Standby  letters  of  credit  are
conditional  commitments  issued by Peoples to guarantee  the  performance  of a
customer to a third party up to a stipulated amount and with specified terms and
conditions.  Commitments to extend credit and standby  letters of credit are not
recorded  as an asset or  liability  by the  Company  until  the  instrument  is
exercised.  Peoples'  exposure to market risk is reviewed on a regular  basis by
the Asset/Liability  Committee.  Interest rate risk is the potential of economic
losses  due to future  interest  rate  changes.  These  economic  losses  can be
reflected as a loss of future net interest  income and/or a loss of current fair
market values. The objective is to measure the effect on net interest income and
to adjust the balance sheet to minimize the inherent risk while at the same time
maximize income.  Management  realizes that certain risks are inherent,  and the
goal is to identify and minimize the risks. Tools used by management include the
standard GAP report and an interest rate shock simulation report. Peoples has no
market risk-sensitive instruments held for trading purposes. Management believes
that Peoples'  market risk is reasonable at this time.  The condensed GAP report
summarizing the Company's interest rate sensitivity is as follows:


TABLE OF MARKET RISK SENSITIVE INSTRUMENTS

The following  table presents  (dollars in thousands) the scheduled  maturity of
market risk sensitive instruments at December 31, 1998:

<TABLE>
<CAPTION>

                                                                                                               Fair    
Maturing in:                               1999        2000          2001       2002       2003       2004+    Total        Value

ASSETS
<S>                                    <C>         <C>         <C>           <C>        <C>        <C>        <C>         <C>     
         Fixed Securities              $ 66,838    $ 27,153    $   13,981    $ 6,769    $ 2,697    $ 5,397    $122,835    $122,835
         Rate                              6.70%       6.84%         6.24%      5.81%      5.45%      5.85%       6.55%
         Variable Securities           $  3,287    $  1,440    $    1,879    $   275    $    --    $ 2,500    $  9,381    $  9,381
         Rate                              6.87%       5.95%         6.28%      6.65%      0.00%      8.00%       6.91%

         Fixed Rate Loans              $ 55,212    $ 35,741    $   19,702    $ 6,679    $ 3,572    $ 1,235    $122,141    $126,584
         Rate                              8.19%       8.30%         8.26%      8.08%      7.74%      7.31%       8.19%

         Variable Rate Loans           $ 76,423    $ 27,862    $   13,876    $11,254    $ 9,562    $36,365    $175,343    $176,049
         Rate                              8.40%       8.51%         8.44%      8.42%      7.97%      8.35%       8.40%

         Adjustable Rate Loans         $ 49,340    $ 32,240    $   21,330    $15,153    $10,383    $26,134    $154,581    $156,354
         Rate                              7.92%       7.82%         7.70%      7.65%      7.47%      7.24%       7.69%

         Total                         $251,101    $124,437    $   70,768    $40,129    $26,214    $71,630    $584,280    $591,203
         Rate                              7.79%       7.88%         7.68%      7.62%      7.48%      7.72%       7.75%



LIABILITIES
         Savings, NOW, MMKT deposits   $234,430    $   -       $       --    $    --    $    --    $    --    $234,430    $234,430
         Rate                              3.37%                       --         --         --         --          --        3.37%

         CD's                          $152,617    $ 57,232    $    4,020    $ 2,956    $   612    $   311    $217,748    $217,748
         Rate                              5.56%       5.24%         5.61%      6.04%      4.83%      7.44%       5.48%

         Borrowings                    $ 16,918    $     --    $       --    $    --    $ 6,000    $    -     $ 22,918    $ 24,374
         Rate                              3.98%         --            --         --       5.53%       --         4.39%

         Total                         $403,965    $ 57,232    $    4,020    $ 2,956    $ 6,612    $   311    $475,096    $476,552
         Rate                              4.22%       5.24%         5.61%      6.04%      5.47%      7.44%       4.39%
</TABLE>

The following  table presents  (dollars in thousands) the scheduled  maturity of
market risk sensitive instruments at December 31, 1997:

Maturing in:
<TABLE>
<CAPTION>
                                                                                                                     Fair
                                     1998       1999        2000       2001        2002       2003+      Total       Value
                                     ----       ----        ----       ----        ----       -----      -----       -----

ASSETS
<S>                                <C>        <C>         <C>        <C>          <C>        <C>      <C>         <C>    
Fixed Securities............       48,221     35,398      23,925     13,145       9,271      8,841    138,801     138,801
Rate........................         6.48%      6.44%       6.52%      6.39%       6.12%      6.16%      6.42%

Variable Securities.........        4,519      3,528       2,478      1,100         725      2,719     15,069      15,069
Rate........................         6.62%      6.59%       6.65%      6.67%       6.70%      7.76%      6.83%

Fixed Rate Loans............       43,899     22,232      11,309      5,056       1,472      1,388     85,356      86,518
Rate........................         8.63%      8.68%       8.83%      8.88%       8.12%      8.13%      8.66%

Fixed Rate Loans............       90,068     29,361      15,250     10,006       8,054     29,615    182,354     182,480
Rate........................         9.06%      9.17%       9.17%      9.11%       9.11%      9.14%      9.11%

Adjustable Rate Loans.......       43,527     29,214      21,096     14,030       9,743     22,134    139,744     140,456
Rate........................         8.16%      8.11%       8.02%      7.96%       7.91%      9.59%      8.32%
                                     -----      -----       -----      -----       -----      -----      -----

Total.......................      230,234    119,733      74,058     43,337      29,265     64,697    561,324     563,324
Rate........................         8.16%      7.94%       7.85%      7.83%       7.65%      8.81%      8.12%

LIABILITIES
Savings, NOW,
MMKT Deposits...............      215,295                                                             215,295   (215,295)
Rate........................         3.60%                                                               3.60%

CD's........................       99,398     78,555      26,859      3,013       2,752        307    210,884   (211,773)
Rate........................         5.36%      5.99%       6.09%      5.86%       6.09%      7.45%      5.71%

Short-Term Borrowings.......       34,380                                                              34,380    (34,380)
Rate........................         5.44%                                                               5.44%
                                     -----                                                               -----

Total.......................      349,073     78,555      26,859      3,013       2,752        307    460,559   (461,448)
Rate........................         4.67%      5.99%       6.09%      5.86%       6.09%      7.45%      4.70%
</TABLE>
<PAGE>




                         Report of Independent Auditors

Board of Directors and  Shareholders  
Peoples Bank  Corporation of Indianapolis,
Indianapolis Indiana

We have audited the  consolidated  balance sheets of Peoples Bank Corporation of
Indianapolis  as of  December  31, 1998 and 1997,  and the related  consolidated
statements of income, changes in shareholders' equity and cash flows for each of
the  three  years  in the  period  ended  December  31,  1998.  These  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  financial  position  of Peoples  Bank
Corporation of Indianapolis as of December 31, 1998 and 1997, and the results of
its  operations  and its cash  flows for each of the three  years in the  period
ended  December 31, 1998,  in  conformity  with  generally  accepted  accounting
principles.

Crowe, Chizek and Company LLP

Indianapolis, Indiana
February 4, 1999




<PAGE>



                              Consolidated Balance Sheets
                              December 31, 1998 and 1997
                             (Dollar amounts in thousands)
<TABLE>
<CAPTION>


Assets                                                                           1998                      1997
<S>                                                                             <C>                         <C>    
Cash and cash equivalents                                                       $35,136                     $25,462
Available-for-sale securities                                                   132,216                     153,870
Loans held for sale, net                                                          2,346                         561
Loans (net of allowance of $7,684 and $5,516)                                   444,381                     401,377
Premises and equipment, net                                                       8,105                       7,482
Accrued income and other assets                                                  12,321                       9,724
                                                                                 ------                       -----
                                                                               $634,505                    $598,476
                                                                               ========                    ========

Liabilities and Shareholders' Equity

Liabilities
Deposits
          Non interest-bearing accounts                                         $98,851                     $82,132
          Savings and NOW                                                       234,430                     215,295
          Time deposits                                                         217,748                     210,884
                                                                                -------                     -------
                Total deposits                                                  551,029                     508,311
Borrowings                                                                       22,918                      34,380
Accrued expenses and other liabilities                                            8,533                       6,968
                                                                                  -----                       -----
          Total liabilities                                                     582,480                     549,659
                                                                                -------                     -------

Shareholders' equity Common shares, no par value:
          Authorized:
                Voting - 300,000 shares
                Non-voting - 4,000,000 shares
          Issued:
                Voting - 264,096  shares (1998)
                   and 264, 216 shares (1997)                                       896                         897
                Non-voting - 2,758,794 shares (1998)
                   and 2,812,634 shares (1997)                                   11,384                      13,085
Retained earnings                                                                39,008                      34,220
Accumulated other comprehensive income                                              737                         615
                                                                                    ---                         ---
          Total shareholders' equity                                             52,025                      48,817
                                                                                 ------                      ------
                                                                               $634,505                    $598,476
                                                                               ========                    ========
</TABLE>


See accompanying notes.




<PAGE>



                        Consolidated Statements of Income
                  Years ended December 31, 1998, 1997 and 1996
             (Dollar amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>


                                                                   1998              1997                 1996
Interest income
<S>                                                              <C>               <C>                     <C>    
Loans, including related fees                                    $37,811           $31,664                 $26,211
Federal funds sold                                                   557               730                     889
Securities
Taxable                                                            7.938             5,758                   3,372
Tax exempt                                                         1,248             1,577                   1,779
                                                                   -----             -----                   -----
          Total interest income                                   47,554            39,729                  32,251

Interest expense
Deposits                                                          21,474            17,563                  13,471
Borrowings                                                         1,127               556                     573
                                                                   -----               ---                     ---
          Total interest expense                                  22,601            18,119                  14,044
                                                                  ------            ------                  ------

Net interest income                                               24,953            21,610                  18,207
Provision for loan losses                                          3,500             1,800                   1,125
                                                                   -----             -----                   -----

Net interest income after provision for loan losses               21,453            19,810                  17,082

Non-interest income
Trust and Investment Management                                    2,432             1,731                   1,342
Service charges and fees                                           2,893             2,963                   2,511
Mortgage banking revenue                                             699               430                     713
Net gain/loss on securities                                           47               (50)                   (63)
Other                                                                910               879                     934
                                                                     ---               ---                     ---
          Total non-interest income                                6,981             5,953                   5,437

Non-interest expense
Salaries and employee benefits                                    11,024             8,994                   8,029
Occupancy (net)                                                    1,634             1,546                   1,602
Equipment                                                          1,714             1,078                   1,010
Advertising                                                          370               521                     374
Other                                                              4,286             4,330                   3,779
                                                                   -----             -----                   -----
          Total non-interest expense                              19,028            16,469                  14,794
                                                                  ------            ------                  ------

Income before income taxes                                         9,406             9,294                   7,725
Income tax expense                                                 2,999             3,016                   2,316
                                                                   -----             -----                   -----

Net income                                                        $6,407            $6,278                   $5,409
                                                                  ======            ======                   ======

Per share data
Earnings per share                                                 $2.09               $2.02                 $1.71
                                                                   =====               =====                 =====
Earnings per share, assuming dilution                              $2.04               $1.99                 $1.70
                                                                   =====               =====                 =====

</TABLE>
See accompanying notes.




<PAGE>



                       Consolidated Statements of Changes
                             in Shareholders' Equity

                     Years ended December 31, 1998, 1997 and
          1996 (Dollar amounts in thousands, except per share amounts)

<TABLE>
<CAPTION>


                                                Common           Retained                 Accumulated Other
                                                Shares           Earnings           Comprehensive Income      Total

<S>                                             <C>                  <C>                      <C>             <C>    
Balance January 1, 1996                         $16,284              $25,114                  $238            $41,636
Comprehensive income
     Net income                                       -                5,409                    -               5,409
     Change in net unrealized gain/(loss)             -                    -                   48                  48
                                                      -                    -                    -                   -
         Total comprehensive income                                                                             5,457

Cash dividends ($.38 per share)                       -               (1,185)                   -              (1,185)
Redemption of 33,560 non-voting  shares            (559)                   -                                     (559)
                                                -------              -------                 ----             -------
Balance December 31, 1996                        15,725               29,338                  286              45,349

Comprehensive income
      Net income                                      -                6,278                    -               6,278
      Change in net unrealized gain/(loss)            -                    -                  329                 329
                                                      -                    -                                      ---
           Total comprehensive income                                                                           6,607
Cash dividends ($.45 per share)                       -               (1,396)                    -             (1,396)
Redemption of 15,784 voting and                                            -                    -
53,790 non-voting shares                         (1,743)                   -                  -                 (1,743)
                                                -------              -------                 ----             -------
Balance December 31, 1997                        13,982               34,220                  615              48,817

Comprehensive income
     Net income                                       -                6,407                    -               6,407
     Change in net unrealized gain/(loss)             -                    -                  122                 122
                                                      -                    -                                      ---
           Total comprehensive income                                                                           6,529

Cash dividends ($.53 per share)                       -               (1,619)                   -              (1,619)

Exercise of stock options
3,160 non-voting shares                              45                                                             45

Redemption of 120 voting and
57,000 non-voting shares                         (1,747)                   -                    -              (1,747)
                                                -------              -------                 ----             -------

Balance December 31, 1998                       $12,280              $39,008                 $737             $52,025
                                                =======              =======                 ====             =======
</TABLE>

See accompanying notes.




<PAGE>

                      Consolidated Statements of Cash Flows
                        December 31, 1998, 1997 and 1996
                          (Dollar amounts in thousands)

<TABLE>
<CAPTION>
                                                               1998         1997         1996
                                                            ---------    ---------    ---------

<S>                                                         <C>          <C>          <C>      
Cash flows from operating activities
       Net income                                           $   6,407    $   6,278    $   5,409
       Adjustments to reconcile net income to net cash
            from operating activities
            Depreciation and amortization                       1,182        1,067        1,032
            Provision for loan losses                           3,500        1,800        1,125
            Net loss(gain) on securities                          (47)          50           63
          Net amortization on securities                           18          104          362
          Net change in
            Interest receivable and other assets               (2,663)      (2,699)        (447)
            Interest payable and other liabilities              1,565        2,910          462
            Loans held for sale                                (1,785)        (140)       2,136
                                                            ---------    ---------    ---------

                  Net cash from operating activities            8,177        9,370       10,142

Cash flows from investing activities
     Proceeds from sales of available-for-sale securities       5,068       16,707        8,605
     Proceeds from maturities of available-for-sale
         securities                                            77,471       24,066       49,771
    Purchase of available-for-sale securities                 (60,668)     (99,664)     (45,566)
    Loans made to customers, net of principal
         collections thereon                                  (46,504)     (74,124)     (62,375)
    Property and equipment expenditures, net                   (1,805)        (626)        (211)
                                                            ---------    ---------    ---------

          Net cash from investing activities                  (26,438)    (133,641)     (49,776)

Cash flows from financing activities
    Net change in deposits                                     42,718       96,506       60,043
    Net change in short-term borrowings                       (17,462)      24,114       (9,790)
    Federal Home Loan Bank Advances                             6,000
    Proceeds from exercise of stock options                        45
    Redemption of common shares                                (1,747)      (1,743)        (559)
    Dividends paid                                             (1,619)      (1,396)      (1,185)
                                                            ---------    ---------    ---------

          Net cash from financing activities                   27,935      117,481       48,509
                                                            ---------    ---------    ---------

Net change in cash and cash equivalents                         9,674       (6,790)       8,875
Cash and cash equivalents at beginning of year                 25,462       32,252       23,377
                                                            ---------    ---------    ---------

Cash and cash equivalents at end of year                    $  35,136    $  25,462    $  32,252
                                                            =========    =========    =========

Cash paid during the year for:
          Interest                                          $  22,274    $  16,985    $  13,903
          Income taxes                                          3,840        3,591        2,870

</TABLE>
See accompanying notes.




<PAGE>



                   Notes to Consolidated Financial Statements
                        December 31, 1998, 1997 and 1996
                    (Dollar amounts in thousands, except per
                       share amounts) Note 1 - Summary of
                         Significant Accounting Policies

Basis of Reporting

The  consolidated  financial  statements  include  Peoples Bank  Corporation  of
Indianapolis ("the Company"), its wholly-owned subsidiary,  Peoples Bank & Trust
Company ("Peoples") and Peoples' wholly-owned  subsidiaries,  PIC, Ltd., Peoples
Building  Corporation  and  Peoples  Investment  Services,   Inc.   Intercompany
transactions are eliminated in consolidation.

Description of Business

Peoples  provides  commercial  and  retail  banking  and trust  services  to its
customers from its main office and branches  located in Marion County,  Indiana.
The majority of Peoples'  income is derived from  commercial and retail business
lending  activities and  investments.  The loan portfolio is diversified and the
ability of debtors to repay loans is not dependent upon any single industry. The
majority of Peoples' loans are secured by specific items of collateral including
business assets, real property and consumer assets. Peoples Investment Services,
Inc. sells investment products to customers.  PIC, Ltd. is a Bermuda Corporation
formed to hold certain  securities.  Peoples Building  Corporation owns the main
office building.

Use of Estimates

Management  makes  estimates and assumptions in preparing  financial  statements
that affect the amounts  reported  therein and the disclosures  provided.  These
estimates and  assumptions  may change in the future,  and future  results could
differ.  The  allowance  for  loan  losses  and the  fair  values  of  financial
instruments are particularly subject to change.

Securities

Available-for-sale  securities  might be sold before maturity and are carried at
fair value with the net  unrealized  holding  gain or loss is  included in other
comprehensive  income.  Securities are written down to fair value when a decline
in fair  value is not  temporary.  Premium  amortization  is  deducted  from and
discount accretion is added to interest income using the level yield method. The
cost of securities sold is computed on the identified securities method.

Mortgage Banking Activities

Loans  held for sale are  carried at the lower of cost or  estimated  fair value
determined on an aggregate basis. Mortgage banking revenue includes gains/losses
realized when such loans are sold and service fee revenue earned after the sale,
offset by the amortization of capitalized loan servicing rights.

Servicing  rights  represent the allocated value of servicing rights retained on
loans sold.  Servicing rights are expensed in proportion to, and over the period
of, estimated net servicing revenues.  Impairment is evaluated based on the fair
value of the rights,  using  groupings  of the  underlying  loans as to interest
rates and then,  secondarily,  as to geographic and prepayment  characteristics.
Any impairment of a grouping is reported as a valuation allowance.

Loans

Loans  are  reported  at the  principal  balance  outstanding,  net of  unearned
interest,  deferred  loan fees and  costs,  and an  allowance  for loan  losses.
Interest income is reported on the interest method and includes  amortization of
net  deferred  loan fees and costs  over the loan term.  Interest  income is not
reported  when  full loan  repayment  is in  doubt,  typically  when the loan is
impaired or payments are significantly past due. Payments received on such loans
are reported as principal reductions.


Allowance for Loan Losses

The  allowance  for loan  losses  is a  valuation  allowance,  increased  by the
provision  for  loan  losses  and  decreased  by  charge-offs  less  recoveries.
Management  estimates the  allowance  balance  required  based on past loan loss
experience,  known  and  inherent  risks  in the  portfolio,  information  about
specific  borrower  situations,   and  estimated  collateral  values,   economic
conditions,  and other  factors.  Allocations  of the  allowance may be made for
specific  loans,  but the entire  allowance is available  for any loan that,  in
management's judgment, should be charged-off.

Loan  impairment  is  reported  when full  payment  under the loan  terms is not
expected.  Impairment is evaluated  collectively  for  smaller-balance  loans of
similar  nature  such  as  residential  mortgage,  consumer  loans,  and  on  an
individual loan basis for other loans.  If a loan is impaired,  a portion of the
allowance is allocated so that the loan is reported,  net, at the present  value
of estimated  future cash flows using the loan's  existing  rate, or at the fair
value of collateral if repayment is expected solely from the collateral.

Premises and Equipment

Premises  and  equipment  are  stated  at cost  less  accumulated  depreciation.
Premises   and   equipment   are   depreciated   on   the    straight-line   and
declining-balance  methods  over  the  estimated  useful  lives  of the  assets.
Maintenance and repairs are expensed and major improvements are capitalized.


Foreclosed Assets

Assets acquired through or instead of loan foreclosure are initially recorded at
fair value when acquired, establishing a new cost basis. If fair value declines,
a valuation  allowance is recorded through expense.  Costs after acquisition are
expensed.

Long-term Assets

These assets are reviewed for  impairment  when events  indicate  their carrying
amount may not be recoverable from future  undiscounted cash flows. If impaired,
the assets are recorded at discounted amounts.

Repurchase Agreements

Substantially all repurchase agreement liabilities represent amounts advanced by
various customers.  Securities are pledged to cover these liabilities, which are
not covered by federal deposit insurance.

Income Taxes

Income tax expense is the sum of the current year income tax due,  plus or minus
the  change in  deferred  taxes.  Deferred  tax  liabilities  and assets are the
expected future tax consequences of temporary  differences  between the carrying
values and tax bases of assets and  liabilities  computed using enacted rates. A
valuation  allowance,  if  needed,  reduces  deferred  tax  assets to the amount
expected to be realized.

Pension Plan

Peoples  maintains a defined benefit  pension plan for all qualified  employees.
The benefits are based  primarily  on years of service and  employees'  pay near
retirement. Peoples' funding policy is to contribute annually the maximum amount
that can be deducted for federal income tax purposes.

Stock Options

No expense for stock  options is recorded,  as the grant price equals the market
price of the stock at grant  date.  Pro  forma  disclosures  show the  effect on
income and earnings per share had the options' fair value been recorded using an
option  pricing  model.  The  pro-forma  effect is  expected  to increase in the
future.

Derivatives

The Company has only limited involvement with derivative  financial  instruments
and does not use them for trading  purposes.  The Company  enters into  interest
rate swap  agreements  as a means of  managing  the  interest  rate  exposure on
certain variable rate loans. The interest rate swaps are accounted for under the
accrual method.  Under this method,  the  differential to be paid or received on
the swap  agreements is recognized  over the lives of the agreements in interest
income.  Changes in fair value of interest  rate swaps  accounted  for under the
accrual  method are not  reflected  in the  accompanying  financial  statements.
Realized  gains and losses on terminated  interest rate swaps are deferred as an
adjustment to the carrying  amount of the designated  instruments  and amortized
over the remaining original life of the agreements.

If the designated  instruments  are disposed of, the fair values of the interest
rate  swap  or  unamortized  deferred  gains  or  losses  are  included  in  the
determination  of the gain or loss on disposal.  To qualify for such accounting,
the interest rate swap is designated to specific pools of loans and alters their
interest rate characteristics.

Fair Value of Financial Instruments

Fair  values of  financial  instruments  are  estimated  using  relevant  market
information  and other  assumptions,  as more fully disclosed  separately.  Fair
value  estimates  involve  uncertainties  and  matters of  significant  judgment
regarding interest rates, credit risk, prepayments and other factors, especially
in the absence of broad markets for particular items.  Changes in assumptions or
in market conditions could significantly affect the estimates.

Cash Flow Reporting

Cash and cash  equivalents  include  cash on hand,  amounts due from banks,  and
daily federal funds sold.  The Company  reports net cash flows for customer loan
and deposit transactions,  interest-bearing  balances with banks, and short-term
borrowings with maturities of 90 days or less.

Dividend Restriction

Banking  regulations  require the  maintenance of certain capital levels and may
limit the  amount  of  dividends  which  may be paid by the bank to the  holding
company or by the holding company to shareholders.

Per Share Data

Earnings  per share is based on  weighted  average  common  shares  outstanding.
Diluted  earnings per share  further  assumes  issue of any  dilutive  potential
common shares.  All share and per share data are restated for  subsequent  stock
dividends and splits.

Future Accounting Changes

Loss Contingencies

Loss  contingencies,  including claims and legal actions arising in the ordinary
course of business,  are recorded as liabilities  when the likelihood of loss is
probable and an amount or range of loss can be reasonably estimated.  Management
does not believe there now are such matters that will have a material  effect on
the financial statements.

Comprehensive Income

Comprehensive  income  consists  of net income and other  comprehensive  income.
Other  comprehensive  income includes  unrealized gains and losses on securities
available for sale which are also recognized as a separate  component of equity.
The  accounting  standard that  requires  reporting  comprehensive  income first
applies for 1998, with prior information restated to be comparable.

New Accounting Pronouncements

Beginning  January  1,  2000,  a  new  accounting   standard  will  require  all
derivatives to be recorded at fair value.  Unless designated as hedges,  changes
in these  fair  values  will be  recorded  in the income  statement.  Fair value
changes  involving  hedges will  generally be recorded by  offsetting  gains and
losses on the hedge and on the hedged item, even if the fair value of the hedged
item is not otherwise  recorded.  This is not expected to have a material effect
but the effect will depend on derivative holdings when this standard applies.

Industry Segment

Internal  financial  information  is primarily  reported and aggregated in three
lines of business, Commercial Banking, Retail Banking, and Mortgage Banking.


                               Note 2 - Securities

The amortized cost and fair value of  available-for-sale  securities at year-end
are as follows:
<TABLE>
<CAPTION>

                                                                                Gross             Gross
                                                             Amortized        Unrealized        Unrealized         Fair
December 31, 1998                                              Cost             Gains             Losses           Value

<S>                                                        <C>                <C>                 <C>           <C>     
U.S. Government and federal  agencies                      $  8,426           $    99             $   (5)       $  8,520
States and municipal                                         24,135               723                 (3)         24,855
Mortgage-backed                                              91,430               398                (43)         91,785
Other                                                         7,019                37                  -           7,056
                                                              -----                --              -----        --------
                                                           $131,010            $1,257              $(51)        $132,216
                                                            =======            ======              =====        ========
                                                                                                           
                                                                                Gross             Gross
                                                             Amortized        Unrealized        Unrealized         Fair
December 31, 1997                                              Cost             Gains             Losses           Value

U.S. Government and federal  agencies                     $  20,841            $  127              $(20)        $   20,948
State and municipal                                          27,233               619                (6)            27,846
Mortgage-backed                                             100,640               386               (94)           100,932
Other                                                         4,138                 6                 -              4,144
                                                           --------            ------             -----           --------
                                                           $152,852            $1,138             $(120)          $153,870
                                                           ========            ======             ======          ========

</TABLE>

The amortized cost and fair value of  available-for-sale  securities at December
31, 1998 are shown below by contractual maturity. Expected maturities may differ
from contractual maturities because issuers may have the right to call or prepay
obligations with or without call or prepayment penalties.

<TABLE>
<CAPTION>

                                               Amortized                Fair
                                                  Cost                  Value

<S>                                               <C>                 <C>     
Due in one year or less                           $ 7,422             $  7,449
Due after one year through five years              13,204               13,631
Due after five years through ten years             12,458               12,826
Due after ten years                                 6,496                6,525
Mortgage-backed                                    91,430               91,785
                                                   ------               ------
                                                 $131,010             $132,216
                                                 ========             ========
</TABLE>




Sales of  available-for-sale  securities  during 1998, 1997 and 1996 resulted in
gross gains of $39, $7 and $0 and gross  losses of $0, $52 and $63.  During 1998
and 1997 securities  were called  resulting in net gains of $8 and net losses of
$5 respectively.

Securities with a carrying value of $37,462 and $29,013 at December 31, 1998 and
1997,  respectively,  were  pledged to secure  public  deposits  and  repurchase
agreements and for other purposes required or permitted by law.

                                 Note 3 - Loans

Year-end loans, excluding loans held for sale, are comprised of the following:

December 31,                                    1998             1997

Commercial and Commercial Real Estate         $211,115         $185,089
Residential Mortgage                            97,755           94,276
Construction                                    34,840           25,364
Consumer                                       106,431          100,139
Tax-exempt                                       1,924            2,025
                                                 -----           -----

Gross loans                                    452,065          406,893
Less allowance for loan losses                  (7,684)          (5,516)
                                               -------         --------
                                              $444,381         $401,377
                                              ========         ========

Peoples  services   mortgage  loans  sold  to  the  Federal  National   Mortgage
Association.  These  loans are not  included  in the  accompanying  consolidated
balance sheets. The unpaid principal balance of these loans at December 31, 1998
and 1997 was $99,120 and $101,168.

Activity for loan servicing  rights and the related  valuation  allowance was as
follows:

                                     1998             1997             1996
                                                                    
Balance as of January 1             $ 253            $ 177            $  --
Additions                             332              104              193
Amortization                          (77)             (28)             (16)
Valuation allowance                    --               --               --
                                    -----            -----            -----
                                                                    
Balance as of December 31           $ 508            $ 253            $ 177
                                    =====            =====            =====
                                                              
Certain of the Company's directors were loan customers of Peoples. A schedule of
the aggregate activity in these loans follows:

                                                      1998

Balance as of January 1                               $2.814
Change in persons included                               300
New loans/credit line draws                            1,210
Loan reductions                                         (151)
                                                        -----

Balance as of December 31                             $4,173
                                                      ======




<PAGE>




Activity in the allowance for loan losses is as follows:

<TABLE>
<CAPTION>


                                                  1998             1997                 1996

<S>                                              <C>                <C>                 <C>   
Beginning balance                                $5,516             $3,900              $3,290
Provision charged to operations                   3,500              1,800               1,125
Loans charged off                                (2,791)             (488)                (607)
Recoveries                                        1,459                304                  92
                                                  -----                ---                  --

Ending balance                                   $7,684             $5,516              $3,900
                                                 ======             ======              ======

</TABLE>
Information regarding impaired loans is as follows:

<TABLE>
<CAPTION>
                                                               1998     1997     1996

<S>                                                           <C>      <C>      <C>   
Average investment in impaired
loans during the year                                         $3,081   $4,253   $1,068
                                                              ======   ======   ======

Interest  income recognized
on  impaired  loans  including
interest income recognized
on cash basis of $0, $329 and $173                                 0   $  329   $  173
                                                              ======   ======   ======

Balance of impaired loans at year end                              0   $5,241   $  743

Less portion for which no allowance for loan
losses is allocated                                                0      613      159
                                                              ------   ------   ------

Portion for which an allowance for loan losses is allocated        0   $4,628   $  584
                                                              ======   ======   ======

Portion of allowance for loan losses allocated                $    0   $1,145   $  155
                                                              ======   ======   ======

</TABLE>


                         Note 4 - Premises and Equipment

Year-end premises and equipment are as follows:

December 31,                        1998        1997

Land                              $  1,103    $  1,103
Buildings and improvements          11,017      11,109
Furniture and equipment              7,557       7,788
                                  --------    --------
     Total                          19,677      20,000
Accumulated depreciation           (11,572)    (12,518)
                                  --------    --------
     Net premises and equipment   $  8,105    $  7,482
                                  ========    ========


                       Note 5 - Interest-Bearing Deposits

Time  deposits of $100 or greater  totaled  $55,988 and $69,473 at December  31,
1998 and 1997. Interest expense in 1998, 1997 and 1996 for such deposits totaled
$4,183, $2,840 and $965, respectively.

At December 31, 1998, stated maturities of time deposits were:

                Year                                       Amount

                1999                                      $152,617
                2000                                        57,232
                2001                                         4,020
                2002                                         2,956
                2003                                           612
         Thereafter                                            311
                                                          --------
                                                          $217,748
                                                          ========


                               Note 6 - Borrowings

Borrowings are comprised of the following:
                                            1998              1997
Repurchase agreements                     $14,526           $12,180
Overnight borrowings from the                              
  Federal Home Loan                                        
  Bank (FHLB)                                  --            22,200
Long-term FHLB advances                     6,000                --
Note payable -U.S. Government               2,392                --
                                          -------           -------
                                          $22,918           $34,380
                                          =======           =======
                                                       
Repurchase agreements  outstanding as of December 31, 1998 had maturities of one
day.  Long-term FHLB advances are secured by a blanket pledge of Peoples' assets
and mature during January 2008, but are convertible to a LIBOR-based rate at the
option of the FHLB in January 2003. If converted,  Peoples has the option to pay
off the advance.  The note payable to the U.S.  Government  is due on demand and
bears interest at market rates.  Information about repurchase agreements for the
year follows:

                                                         1998             1997
                                                                     
Average balance during the year                        $12,100          $11,064
Weighted average interest rate during the year            4.18%            4.32%
Maximum month-end balance during the year              $14,526          $12,180
                                                                

                            Note 7 - Retirement Plans


Information about the pension plan was as follows.

                                          1998       1997
                                         -------    -------
Change in benefit obligation:
    Beginning benefit obligation         $ 4,940    $ 4,521
    Service cost                             315        306
    Interest cost                            318        314
    Actuarial gain                           192        314
    Benefits paid and expenses              (166)      (515)
                                         -------    -------
    Ending benefit obligation              5,599      4,940
                                         -------    -------

Change in plan assets, at fair value:
    Beginning plan assets                  5,623      5,111
    Actual return                            790      1,027
    Employer contribution                     --         --
    Benefits paid and expenses              (166)      (515)
                                         -------    -------
    Ending plan assets                     6,247      5,623
                                         -------    -------

Funded status                                648        683
Unrecognized net actuarial (gain)/loss    (1,277)    (1,238)
Unrecognized prior service cost              119        130
                                         -------    -------

Accrued benefit cost                     $  (510)   $  (425)
                                         =======    =======

The  components of pension  expense and related  actuarial  assumptions  were as
follows.

                                           1998         1997         1996
                                          -----        -----        -----
                                                                 
Service cost                              $ 315        $ 306        $ 344
Interest cost                               318          314          327
Expected return on plan assets             (474)        (431)        (407)
Amortization of prior service cost           11           11           11
Recognized net actuarial (gain) loss        (86)         (71)         (65)
                                          -----        -----        -----
    Net                                   $  84        $ 129        $ 210
                                          =====        =====        =====
                                                                 
Discount rate on benefit obligation        6.50%        6.50%        7.00%
Long-term expected rate of return                                
  on plan assets                           8.50         8.50         8.50
Rate of compensation increase              5.00         5.00         5.50
                                                              


Peoples  also  maintains a  voluntary  401(k)  plan in which  substantially  all
employees may participate.  Peoples matches employees' contributions at up to 50
percent  (25% in 1996) of each  participant's  contributions  subject to certain
limits.
Expense for the plan was $139, $108 and $46 for 1998, 1997 and 1996.

                           Note 8 - Income Tax Expense

Income tax expense consists of the following components:

                               1998             1997             1996
                                                             
Income tax/(benefit)                                         
Current                      $ 4,083          $ 3,848          $ 2,715
Deferred                      (1,084)            (832)            (399)
                             -------          -------          -------
                                                             
Total                        $ 2,999          $ 3,016          $ 2,316
                             =======          =======          =======
                                                       

The following is a reconciliation  of income tax expense and the amount computed
by applying the effective federal income tax rate of 34% to income before income
taxes:

                                                   1998       1997       1996

Statutory rate applied to income before
income taxes                                     $ 3,198    $ 3,160    $ 2,625
Add/(deduct)
Tax exempt interest income                          (465)      (579)      (646)
Non-deductible interest                               57         64         68
State tax expense (net of federal tax benefit)       525        545        450
Affordable housing credit                           (253)      (155)      (190)
Other                                                (63)       (19)         9
                                                 -------    -------    -------

Total income taxes                               $ 2,999    $ 3,016    $ 2,316
                                                 =======    =======    =======

The net deferred tax asset at year-end is comprised of the following components:

                                                         1998       1997

Deferred tax assets from:
Loan loss provisions                                   $ 2,841    $ 1,925
Deferred compensation                                      692        446
Pension                                                    198        164
Other                                                       59          7
                                                       -------    -------

                                                         3,790      2,542
Deferred tax liabilities for:
Depreciation                                               (57)        (2)
Accretion                                                  (12)       (11)
Net unrealized gain on available-for-sale securities      (469)      (403)
Mortgage servicing rights                                 (201)      (100)
Other                                                      (70)       (63)
                                                       -------    -------

                                                          (809)      (579)

Valuation allowance                                         --         --
                                                       -------    -------
                                                       $ 2,981    $ 1,963
                                                       =======    =======



                           Note 9 - Earnings Per Share

The following table presents share data used to compute earnings per share:
<TABLE>
<CAPTION>


                                                         1998        1997        1996

<S>                                                   <C>         <C>         <C>      
Weighted average shares outstanding during the year   3,061,172   3,112,319   3,168,260
Dilutive effect of potential shares                      76,708      40,732       9,942
                                                      ---------   ---------   ---------

Shares used to compute diluted earnings per share     3,137,880   3,153,051   3,178,202
                                                      =========   =========   =========
</TABLE>



                     Note 10 - Commitments and Contingencies

Peoples is committed  under various  non-cancelable  lease contracts for certain
facilities  which  expire at various  dates  through the year 2005.  Most of the
leases contain renewal  provisions at Peoples' option and contain no restrictive
provisions of consequence.

Expense for leased  premises  was $390,  $387 and $489 for 1998,  1997 and 1996.
Minimum lease payments at December 31, 1998 for all non-cancelable leases are as
follows:

                           Year               Amount
                           1999                 $360
                           2000                  204
                           2001                   97
                           2002                   87
                           2003                   90
                    Thereafter                   124
                                                 ---
  Total minimum lease payments                   962
                                                 ===

In  the  ordinary  course  of  business,  Peoples  has  loans,  commitments  and
contingent  liabilities,  such as guarantees  and  commitments to extend credit,
which  are  not  reflected  in the  accompanying  consolidated  balance  sheets.
Peoples'  exposure  to credit loss in the event of  nonperformance  by the other
party to the financial instrument for commitments to make loans, standby letters
of credit, and financial  guarantees is represented by the contractual amount of
those instruments.  Peoples uses the same credit policy to make such commitments
as it used for on-balance sheet items. At year-end,  these financial instruments
are summarized as follows:

December 31,                                         1998            1997
Financial instruments whose contract amount                       
represents credit risk:                                           
Unused commercial lines of credit                   $52,309         $39,431
Unused home equity lines of credit                   77,922          59,020
Standby letters of credit                             6,389           4,518
Commitments to make loans                            19,942          11,800
                                                             
The unused home equity and commercial lines of credit are predominantly variable
rate agreements. Loan commitments are agreements to lend to a customer, provided
they accept the terms and conditions  offered by Peoples.  These commitments are
generally  extended  for terms of up to 60 days and,  in many  cases,  allow the
customer to select from one of several  financing  options offered.  At December
31, 1998, these commitments  included $ 11,327 of fixed rate loan commitments at
a weighted  average rate of 7.38%.  Since many  commitments to make loans expire
without  being  used,  the amount  does not  necessarily  represent  future cash
commitments.  Collateral  obtained upon exercise of the commitment is determined
using management's  credit evaluation of the borrower,  and may include accounts
receivable, inventory, property, land and other items.

At December 31,  1998,  the Company was party to interest  rate swap  agreements
with a notional principal balance of $60,000. The agreements require the Company
to make  variable  rate  payments,  based on indices such as LIBOR and the prime
rate.  They  entitle the Company to receive  fixed rate  payments,  and serve to
manage the  Company's  interest  rate  exposure on  variable  rate loans tied to
similar  indices.  Some of the  agreements  have  delayed  start  features.  The
agreements  expire  between  September  1999 and November  2000.  The Company is
exposed to credit loss in the event that the counterparty does not perform under
the  agreement  in an amount equal to the interest  rate  differential  when the
fixed rate exceeds the variable rate.  Information  about  outstanding  swaps at
December 31, 1998 follows:

                         Notional           Average         Average
                         Principal          Rate            Rate
                         Balance            Received        Payable
All agreements           $ 60,000           6.53%           5.79%
Delayed start              30,000           5.45            4.89
Currently active           30,000           7.60            6.68


At December  31,  1998,  Peoples was required to have $6,544 on deposit with the
Federal Reserve or as cash on hand as reserve.

During 1997,  the Company  entered into an  employment  contract  with its Chief
Operating  Officer.  The  agreement  has an initial  term of three  years and an
additional  year  is  added  at  each  anniversary  date,   subject  to  certain
conditions. The contract provides for severance payments and other benefits, the
amount of which depend upon the nature of the  separation.  No amount is accrued
at December 31, 1998 under this agreement.


                    Note 11 - Stock Based Compensation Plans

The  Company  has  granted  stock  options  to  directors  and  key  members  of
management.  A total of 270,000  shares was made  available for grant at a price
equal to the market price of the stock at the date of grant.  The specific terms
of each  agreement are determined by the  Compensation  Committee at the date of
the grant.

A  summary  of the  Company's  stock  option  activity,  and  related  per share
information follows: (restated for stock splits)
<TABLE>
<CAPTION>



                                       1998                        1997                      1996
                                --------------------      -----------------------     -----------------------
                                            Weighted                     Weighted                  Weighted
                                             Average                     Average                   Average
                                            Exercise                    Exercise                   Exercise
                                Shares        Price        Shares        Price         Shares       Price
                                ------        -----        ------        -----         ------       -----
<S>                             <C>         <C>            <C>         <C>                        <C>
Outstanding beginning of year   190,246     $   17.27      112,020     $   13.28           --     $-
Granted                          12,707         36.33       78,226         22.98      112,020        13.28
Exercised                         3,160         14.09           --         --              --        --
Forfeited                            --         --              --         --              --        --
                                -------                    -------                    -------  
                                                                                                
Outstanding at end of year      199,793         18.53      190,246         17.27      112,020        13.28
                                =======                    =======                    =======  
</TABLE>



<TABLE>
<CAPTION>
                                                                          1998            1997            1996

<S>                                                                      <C>              <C>            <C>   
Options exercisable at year end                                          128,846          85,028         45,592
Weighted average price of options exercisable                             $16.22          $15.30       $  12.76
Weighted average remaining life (years) of
options outstanding                                                          7.6             8.5            9.0
Range of exercise price (per share) of options outstanding:
High                                                                      $39.63          $26.06        $ 15.13
Low                                                                        12.44           12.44          12.44
</TABLE>


During  1997,  the Company  entered into a cash award  agreement  with its Chief
Operating  Officer.  The amount  payable  under the  agreement is based upon the
value of the  Company's  stock at the time of  payment  and the award  vests and
becomes payable only after the achievement of specified performance targets. The
term  of the  award  is ten  years  and  the  timing  of the  payment  is at the
executive's  discretion.  The Company accrues its current  obligation  under the
plan.  At  December  31,  1998,  a total of $338 has been  accrued  toward  this
obligation.




<PAGE>



The estimated per share fair value of options  granted  during 1998,  1997,  and
1996  was  $14.03,  $9.02,  and  $4.14.  Fair  value  is  estimated  based  upon
assumptions  about a stock's  dividend yield,  the expected time until exercise,
the volatility of a company's stock price and the risk-free  interest rate. Fair
values  are  determined  at the date of grant and  estimates  amount and are not
subsequently   changed.   The  fair   value   estimates   used   the   following
weighted-average assumptions:

                                            1998       1997         1996

Risk free interest rate                    5.73%        7.03%       6.74%
Dividend yield                             1.38%        1.82%       2.62%
Expected volatility of stock price          .22          .21         .22
Expected life (years)                      10.0         10.0         9.7

The following pro forma  information  presents net income and earnings per share
had the fair  value  method  been used to  measure  compensation  cost for stock
option plans.

                                                   1998       1997       1996

Net income as reported                            $6,407     $6,278      $5,409
Pro forma net income                               6,182      6,055       5,157
Diluted earnings per share as reported              2.04       1.99        1.70
Pro forma diluted earnings per share                1.98       1.93        1.63

                         Note 12 - Capital Requirements

The Company and Peoples are subject to various regulatory  capital  requirements
administered  by the federal banking  agencies.  Failure to meet minimum capital
requirements   can  result  in  certain   mandatory   and  possibly   additional
discretionary  actions by regulators  that, if  undertaken,  could have a direct
material effect on the financial statements. These guidelines and the regulatory
framework for prompt corrective action involve quantitative measures of capital,
assets,  liabilities,  and certain  off-balance  sheet items as calculated under
regulatory  accounting  practices,  as  well  as  qualitative  judgments  by the
regulators about components, risk weightings and other factors.

Compliance  with these  regulations  can limit  dividends paid by either entity.
Both entities must comply with  regulations  that  establish  minimum  levels of
capital adequacy. Peoples must also comply with capital requirements promulgated
by the FDIC  under  its  "prompt  corrective  action"  rules.  Peoples'  deposit
insurance assessment rate is based, in part, on these requirements.  At December
31, 1998 and 1997,  Peoples'  capital  level  results in it being  designated as
"well capitalized."


The Company's  consolidated  and Peoples' (bank only) capital amounts and ratios
at December 31, 1998 are presented below:

<TABLE>
<CAPTION>
                                                                                                          To Be Well
                                                                                                         Capitalized
                                                                           For Capital                   Under Prompt
                                                                             Adequacy                 Corrective Action
                                                 Actual                      Purposes                     Provisions
                                          ---------------------         ---------------------        -------------------
                                           Amount       Ratio            Amount       Ratio          Amount        Ratio
                                           ------       -----            ------       -----          ------        -----

<S>                                       <C>            <C>             <C>               <C>           <C>         <C>
Total capital
   (to Risk Weighted Assets)
       Consolidated                       $57,291        11.87%          $38,625           8%            $48,282     10%
        Peoples                            53,160        11.07            38,405           8              48,007     10

Tier I Capital
   (to Risk Weighted Assets)
        Consolidated                      $51,235        10.61           $19,313           4             $28,969      6
        Peoples                            47,138         9.82            19,203           4              28,804      6

Tier 1 Capital
   (to Average Assets)
      Consolidated                        $51,235         8.01           $25,581           4             $31,976      5
      Peoples                              47,138         7.40            25,465           4              31,831      5
</TABLE>



Note 13 - Disclosures About Fair Value of Financial Instruments


Carrying value and fair value of the Company's financial instruments at year-end
were as follows:
<TABLE>
<CAPTION>


                                                               1998                           1997
                                                     Carrying        Fair           Carrying             Fair
                                                        Value         Value          Value              Value

Financial assets
<S>                                                    <C>          <C>              <C>            <C>    
Cash and equivalents                                   $35,136      $35,136          $25,462        $25,462
Available-for-sale securities                          132,216      132,216          153,870        153,870
Loans and loans held for sale (net)                    446,727      451,303          401,938        403,938
Accrued interest receivable                              3,882        3,882            3,642          3,642
Financial liabilities
Deposits                                              (551,029)    (552,065)        (508,311)      (509,200)
Borrowings                                             (22,918)     (24,374)         (34,380)       (34,380)
Accrued interest payable                                (2,805)      (2,805)          (2,478)        (2,478)
Off-balance-sheet instruments
Interest rate swaps                                          0          499                0             44

</TABLE>

The estimated fair value approximates carrying amount for all items except those
described below. Estimated fair value for loans is based on the rates charged at
year end for new  loans  with  similar  maturities,  applied  until  the loan is
assumed to reprice or be paid.  Estimated  fair value for time deposits is based
on the rates paid at year-end  for new  deposits or  borrowings,  applied  until
maturity. Estimated fair value of the interest rate swaps is based on the amount
the Company would have to pay to enter into an equivalent agreement at year-end.
Estimated fair value for other  off-balance-sheet loan commitments is considered
nominal.




<PAGE>

                  Note 14 - Parent Company Financial Statements

Presented  below  are  condensed   balance  sheets  and  the  related  condensed
statements of income and cash flows for the parent company:

<TABLE>
<CAPTION>

Condensed Balance Sheets - December 31,                               1998              1997

Assets
<S>                                                                  <C>                <C>   
    Cash on deposit                                                  $2,075             $2,604
    Investment in Peoples                                            47,869             43,099
    Available-for-sale securities                                     1,624              2,884
    Other assets                                                      2,083              1,037
                                                                      -----              -----

      Total assets                                                  $53,651            $49,624
                                                                    =======            =======

Liabilities                                                          $1,626               $807

Shareholders' equity                                                 52,025             48,817
                                                                     ------             ------

                 Total liabilities and shareholders' equity         $53,651            $49,624
                                                                    =======            =======

</TABLE>


<TABLE>
<CAPTION>
Condensed Statements of Income -
Years ended December 31,                                                    1998             1997               1996

<S>                                                                       <C>                <C>               <C>   
Operating income
      Dividends from Peoples                                              $1,621             $1,395            $1,186
      Other operating income                                                 223                263               292
                                                                             ---                ---               ---

             Total operating income                                        1,844              1,658             1,478

Operating expenses                                                            42                 41                59
                                                                              --                 --                --

Income before income tax benefit and equity
in undistributed income of Peoples                                         1,802              1,617             1,419
Income tax expense                                                            44                 38                20
                                                                              --                 --                --

Income before equity in undistributed
income of Peoples                                                          1,758              1,579             1,399
Equity in undistributed income of Peoples                                  4,649              4,699             4,010
                                                                           -----              -----             -----

Net income                                                                $6,407             $6,278            $5,409
                                                                          ======             ======            ======

</TABLE>

<PAGE>



<TABLE>
<CAPTION>
Condensed Statements of Cash Flows -
Years ended December 31,                                                   1998              1997               1996

<S>                                                                       <C>                <C>               <C>   
Cash flows from operating activities
     Net income                                                           $6,407             $6,278            $5,409
     Adjustments to reconcile net income to net
         cash from operating activities:
            Equity in undistributed income of Peoples                     (4,649)            (4,699)           (4,010)
            Net amortization on securities                                   32                  57                83
            Change in other assets                                        (1,046)              (507)              (13)
            Change in other liabilities                                      818                254               236
                                                                             ---                ---               ---

                Net cash from operating activities                         1,562              1,383             1,705

Cash flows from investing activities
      Sales and maturities of available-for-sale
         securities                                                        1,230              1,075             2,750
                                                                           -----              -----             -----

            Net cash from investing activities                            1,230                1075             2,750

Cash flows from financing activities
     Dividends paid                                                       (1,619)            (1,396)           (1,185)
     Redemption of shares                                                 (1,747)            (1,743)             (559)
     Proceeds from exercise of stock options                                   45                  -                 -
                                                                               --                  -                 -

          Net cash from financing activities                              (3,321)            (3,139)           (1,744)
          ----------------------------------                              -------            -------           -------

Net change in cash                                                          (529)             (681)             2,711
Cash at beginning of year                                                  2,604              3,285                574
                                                                           -----              -----                ---

Cash at end of year                                                       $2,075             $2,604            $3,285
                                                                          ======             ======            ======
</TABLE>

NOTE 15 - OTHER COMPREHENSIVE INCOME

Other comprehensive income components and related taxes were as follows.

                                                    1998     1997     1996
                                                   -----    -----    -----

     Unrealized holding gains and losses on
       available-for-sale securities               $ 235    $ 494    $  16
     Less reclassification adjustments for gains
       and losses later recognized in income         (47)      50       63
                                                   -----    -----    -----
     Net unrealized gains and losses                 188      544       79
     Tax effect                                      (66)    (215)     (31)
                                                   -----    -----    -----

Other comprehensive income                         $ 122    $ 329    $  48
                                                   =====    =====    =====

NOTE 16 - SEGMENT INFORMATION

Peoples  operates  three  principal  segments,  determined  by the  products and
services offered and the customers  served.  These three segments are Commercial
Banking,  Retail Banking,  and Mortgage Banking.  Commercial Banking derives its
revenues from lending to middle market businesses, generally in the Indianapolis
metropolitan  area.  Retail  Banking  derives its revenues from lending to small
business customers,  lending to retail households  primarily through home equity
loans, and depository  services provided to both business and retail households.
Mortgage banking derives its revenues from the origination,  sale, and servicing
and of residential  real estate loans.  Other  activities not included in one of
these three principal segments include Trust and Investment Management services.
Segment  performance is evaluated using net interest income. Net interest income
is determined for assets as the difference  between the actual  interest  income
and an  estimate  of the cost of funding the asset as of the date that the asset
last repriced.  Likewise,  net interest income for deposits is determined as the
difference  between the actual  interest  expense and an estimate of the rate at
which those  deposits might have been invested on the date that the deposit last
repriced.  Provision expense for each segment is based on historical  charge-off
experience  across  the  banking  industry.  A portion of the  provision  is not
allocated to any segment.  Non-interest  income  measures actual service charges
and fees earned on customer  relationships  for each segment.  Indirect expenses
are  allocated  to  lines  of  business  based  on  various  methodologies.  The
accounting  policies  used are the same as those  described  in the  summary  of
significant  accounting  policies.  Income taxes are assessed to each segment at
40% of pre-tax profit. Equity is allocated based on regulatory  requirements and
on the perceived risk of each business unit.  Items not allocated to any segment
are  presented  in the  "other"  column.  Assets  not  allocated  are  primarily
securities.  Income and expense not allocated  include  interest  income/expense
related to these  assets,  unallocated  provision  expense  and the  related tax
benefit,  and the tax benefits associated with other tax advantaged  investments
in low income housing  partnerships.  Unallocated  net interest  income includes
income  received on  municipals  bonds,  which was not  accounted for on a fully
taxable equivalent basis for internal accounting purposes. For 1998, unallocated
net interest  income also included the amortized  expenses  associated  with the
origination of consumer loans in prior periods.  FAS 91 is not used for internal
accounting  purposes.  Unallocated net interest income also includes the effects
of allocating  funding  expense against loans and interest income against actual
deposit expense.  If the net of these effects is negative,  it suggests that the
costs allocated to fund actual loans exceed the costs  allocated  against actual
deposits,  which would be associated  with the balance sheet of a bank which has
more short-term  deposits and long-term assets.  Unallocated  "other revenue" in
1996  and  1997  was  primarily  attributable  to the  expense  associated  with
write-downs  on low income  housing  partnerships  which offset the tax benefits
obtained.  These expenses were reclassified as an expense for 1998.  Information
reported internally for performance assessment follows.


1998                           Commercial     Retail     Mortgage      Total
                                Banking      Banking     Banking      Segments
                                -------      -------    ---------     --------

Net Interest Income               8,054       14,442      2,604        25,100
Other Revenue                        12        3,890        699         4,601
Noncash Items:                                                        
   Depreciation                      30          502         46           578
   Provision for Loan Losses        855          298         99         1,252
   Net Gain on Loan Sale             --           --        389           389
Income Tax Expense                1,858        2,220        919         4,997
Segment Profit                    2,921        3,384      1,400         7,705
Segment Assets                  221,292      155,021    102,255       478,568
                                                                         
                               Reportable      Other                Consolidated
                                Segments      Segments    Other       Totals

Net Interest Income              25,100          254       (401)       24,953
Other Revenue                     4,601        2,432        (52)        6,981
Provision for Loan Losses         1,252           --      2,248         3,500
Net Gain on Loan Sale               389           --         --           389
Income Tax Expense                4,997          205     (2,203)        2,999
Profit                            7,705          311     (1,609)        6,407
Assets                          478,568        1,794    154,143       634,505
                                                                    
                                                                  
1997                           Commercial     Retail     Mortgage      Total
                                Banking      Banking     Banking      Segments
                                -------      -------    ---------     --------

Net Interest Income              7,494        11,811      1,909        21,214
Other Revenue                       18         3,681        726         4,425
Noncash Items:                                                       
   Depreciation                     41           333         64           438
   Provision for Loan Losses       801           112         86           999
   Net Gain on Loan Sale            --            --        117           117
Income Tax Expense               1,721         2,024        523         4,268
Segment Profit                   2,722         3,083        796         6,601
Segment Assets                 190,372       131,773     97,953       420,098
                                                                 
                               Reportable      Other                Consolidated
                                Segments      Segments    Other       Totals

Net Interest Income             21,214           210        186        21,610
Other Revenue                    4,425         1,731       (203)        5,953
Provision for Loan Losses          999            --        801         1,800
Net Gain on Loan Sale              117            --         --           117
Income Tax Expense               4,268            21     (1,273)        3,016
Profit                           6,601            32       (355)        6,278
Assets                         420,098         1,353    177,025       598,476
                                                                  

1996                           Commercial     Retail     Mortgage      Total
                                Banking      Banking     Banking      Segments
                                -------      -------    ---------     --------

Net Interest Income              6,169        10,136      1,958        18,263
Other Revenue                       22         3,278      1,010         4,310
Noncash Items:                                                      
   Depreciation                     44           386         73           503
   Provision for Loan Losses       449           264         78           791
   Net Gain on Loan Sale            --            --        313           313
Income Tax Expense               1,492         1,308        360         3,160
Segment Profit                   2,389         1,990        545         4,924
Segment Assets                 148,743       103,955     75,426       356,761
                                                                  


<PAGE>



                               Reportable      Other                Consolidated
                                Segments      Segments    Other       Totals
                                --------     ---------    -----     ------------
Net Interest Income              18,263         209         (265)      18,207
Other Revenue                     4,310       1,342         (215)       5,437
Provision for Loan Losses           791          --          334        1,125
Net Gain on Loan Sale               313          --           --          313
Income Tax Expense                3,160         167       (1,011)       2,316
Profit                            4,924         252          233        5,409
Assets                          356,761         762      113,955      471,478
                                                                  
Amounts included in the "other" column are as follows.

Net Interest Income
                          1998     1997     1996
                         -----    -----    -----
 Investment Portfolio    $ 702    $ 548    $ 417
Amortized Fees on Loan
    Originations          (251)     (91)      --
Other                     (852)    (271)    (682)
                         -----    -----    -----
                         $(401)   $ 186    $(265)
                         =====    =====    =====

Income Tax Expense

Tax Benefit on State &
    Municipal Securities    $   (93)   $  (114)   $  (126)
Tax Benefit on Low Income
Housing Partnerships           (588)      (245)       (52)
Other                        (1,522)      (914)      (833)
                            -------    -------    -------
                            $(2,203)   $(1,273)   $(1,011)
                            =======    =======    =======

Profit
    Unallocated Provision for Loan
       Losses                        $(1,343)   $  (433)   $  (318)
    Other                               (266)        78        551
                                     -------    -------    -------
                                     $(1,609)   $  (355)   $   233
                                     =======    =======    =======

Assets    
Parent Company                      $  3,253   $  3,533   $  4,164
Securities and Federal Funds Sold    135,392    150,986     95,594
Non-Earning Assets                    15,498     22,506     14,197
                                    --------   --------   --------
                                    $154,143   $177,025   $113,955
                                    ========   ========   ========




                                    PART III

Item 10.        Directors and Executive Officers of the Registrant


The directors and executive  officers of the Company,  their  respective ages at
March 1, 1999 and their  respective  positions  with the Company and Peoples are
listed below:
<TABLE>
<CAPTION>


<S>                                <C>       <C> 
Name                               Age             Position*
William E. McWhirter               48         Director, Chairman of the Board and Chief Executive
                                                 Officer of the Company and Peoples
Gerald R. Francis                  55         Director,  President  and  Chief  Operating  Officer  of  the Company and Peoples
Charles R. Farber                  49         Director, Executive Vice President of the Company and Peoples
Robert B. Hirschman, D.D.S.        64         Director
Ethan Jackson                      62         Director
David W. Knall                     54         Director
Mary Ellen Rodgers                 46         Director
Stephen R. West                    67         Director
Darell E, Zink, Jr.                52         Director
C. William Butcher                 34         Senior Vice President, Retail Banking for Peoples
Stephen J. Beck                    54         Senior Vice  President,  Senior  Commercial  Lender of Peoples
Robert R. Connors                  49         Senior Vice  President,  Director of Operations  and Cashier of Peoples
Thomas J. Flynn                    52         Senior Vice President, Senior Commercial Real Estate Lender for Peoples
Charles R. Hageboeck               36         Senior  Vice  President  and  CFO of the  Company  and Peoples
John S. Loeber                     54         Senior Vice President, Senior Credit Officer of Peoples
Craig G. Stilwell                  43         Senior Vice President, Director of Sales & Marketing of Peoples
Terry L. Young                     52         Senior Vice President, Senior Trust Officer of Peoples

</TABLE>

Effective  February 26,  1999,  Senior Vice  President  Elliot Lese retired from
Peoples.  Mr. Lese had served  Peoples as the Senior Credit  Officer until 1998.
During  1998,  Mr. Lese  assisted  with the  transition  of duties of the Senior
Credit Officer to Mr. Loeber.

Mr. Mac  McWhirter  became  Chairman  of the Board of the Company and Peoples in
April  1997.  He has been  Chief  Executive  Officer  of the  Company  since its
formation  in 1986.  He has served  Peoples in various  capacities  since  1969,
including  the position of President  from 1984 to 1997.  Mr.  McWhirter is also
Chairman of Peoples Building Corporation and Peoples Investment Services,  Inc.,
and  serves on the Board of PIC,  Ltd.  In  addition  to serving on the Board of
Directors of Peoples and the Company,  Mr. McWhirter serves on all committees of
the Board,  except the Board Related Affairs  Committee and the Audit Committee,
described  below. He is Chairman of the Investment  Committee.  Mr. McWhirter is
currently  servicing as  Vice-Chairman of the Indiana Bankers  Association.  Mr.
McWhirter  serves as a  director  of the  United  Way of  Central  Indiana,  the
Salvation  Army,  St. Vincent  Hospital  Foundation,  Crossroads  Rehabilitation
Center,  Goodwill  Industries  Foundation,  and the Kiwanis Club of Indianapolis
Foundation. Mr. McWhirter is Past President of the Kiwanis Club of Indianapolis,
Past  Treasurer  of the United  Way of Central  Indiana  and Past  Director  and
Treasurer of the Community  Bankers  Association of Indiana.  Mr. McWhirter is a
member of Tabernacle Presbyterian Church and the Young Presidents Organization.

Mr.  Francis was elected  President of the Company and Peoples in April 1997. He
joined the Company in February of 1996 as an Executive  Vice-President.  He also
serves as the Chief  Operating  Officer for the Company  and  Peoples.  Prior to
joining the  Company,  Mr.  Francis was employed by Bank One,  Cincinnati  N.A.,
where he was the Chairman of the Board and Chief Executive  Officer between 1992
and 1995.  Between 1989 and 1992, Mr.  Francis served as Regional  President for
Bank One Ohio  Corporation.  Between 1982 and 1989, Mr. Francis was President of
Metropolitan Bank in Lima, Ohio. Before joining  Metropolitan  Bank, Mr. Francis
was Senior Vice  President and Senior Loan Officer with the First  National Bank
of Dayton, Ohio, having joined the bank in 1971.

Mr. Farber joined  Peoples in 1972. He is Executive  Vice President in charge of
the Commercial Services of the Company. He is a member of the Board of Directors
of  the  Company  and  Peoples  and  serves  on  the  Loan   Committee  and  the
Asset/Liability Management Committee.

Dr.  Hirschman  has served on the Board of  Directors  since 1967.  In 1991,  he
retired from a thirty-year practice as an orthodontist in the Indianapolis area.

Mr.  Jackson  joined the Company's  Board of Directors in 1998.  Mr.  Jackson is
Chairman  and CEO of  Basic  American  Financial,  Inc.  He is the  founder  and
Chairman of Indiana Sports  Outreach,  Inc., and Chairman of the Ethan and Joyce
Jackson Foundation. He is a member of the International Public Affairs Center in
Brussels,  Belgium.  He serves on the Board of Directors for Unisurge  Holdings,
Inc. of Atlanta,  Georgia;  Tier 4 Partners of Bloomington,  Indiana; and Master
Golf,  Inc.  of  Scottsdale,  Arizona.  He serves the Company as a member of the
Audit Committee and Board Related Affairs Committee.

Mr. Knall is Senior Managing Director of McDonald  Investments,  Inc., a KeyCorp
Company. He joined McDonald in 1969; in 1975 was elected a General Partner;  and
in 1983, upon that firm's initial public  offering,  became a Managing  Director
and was  appointed to the Board of  Directors.  Prior to joining  McDonald,  Mr.
Knall was a First  Lieutenant  in the United  States Army. He is a member of the
Indianapolis   Society  of  Securities  Analysts  and  holds  directorship  with
Indianapolis  Zoological  Foundation,  T.M.  Englehart,  Regenstrief  Institute,
Goodwill  Industries  Foundation and the Indianapolis Public Library Foundation.
He is also a trustee of the  Indianapolis  Museum of Art,  Wabash  College,  the
Christian  Theological  Seminary and is a member of the Board of  Arbitrators of
the National Association of Securities Dealers (NASD). Mr. Knall joined People's
Board of Directors in 1991.

Ms.  Rodgers  currently  serves as a consultant to American  Home Patient,  Inc.
("AHOM"), a diversified home health care company based in Brentwood,  Tennessee.
She had served as Senior Vice President,  Chief Financial  Officer and Secretary
of AHOM from April 1996 to December 1998. From 1981 through 1995 Ms. Rodgers was
employed with Eli Lilly in various financial capacities. She had been Controller
of Lilly Research  Laboratories,  Assistant  Treasurer of Eli Lilly and Company,
and Treasurer of Lilly  International  Corporation  and was  Controllor  for the
Information  Technology  Division just prior to departure from Lilly. She joined
the Board of Directors in 1991, currently chairs the Asset/Liability  Management
Committee, and serves on the Investment Policy Committee of Peoples.

Mr. West has been on the Board of Directors since 1984 and currently  chairs the
Corporation's  Audit Committee.  During the past ten years, he has served as the
President and Treasurer of West Baking, Inc.,  Indianapolis,  Indiana. From 1957
to 1987,  he was an officer of West  Baking  Company,  Inc.,  and served as vice
president and treasurer from 1960 until its sale in 1987. He continued with this
company's  subsidiary,  Dunes  Transport,  Inc., as vice president and treasurer
until its liquidation in 1990. In addition, from 1972 to 1995, he was a six-term
elected member of the Indianapolis City-County Council. Since 1996, Mr. West has
been appointed as trustee of Indiana  Health and Hospital  Corporation of Marion
County.

Mr. Zink joined the Company's  Board of Directors in 1998. Mr. Zink is currently
Executive Vice-President and Chief Financial Officer of Duke Realty Investments,
Inc.  where he is also a Director.  In  addition,  Mr. Zink is a director of the
Indianapolis  Chamber of Commerce and the Corporate  Community Council,  and the
CICOA Operating Board. He is Chairman of the Pleasant Run Foundation,  the CICOA
Foundation,  and the Park Tudor Endowment.  In addition, he is past President of
the Park Tudor School Board of Trust.  Mr. Zink holds an MBA from the University
of Hawaii and a J.D. from Indiana  University.  Mr. Zink serves the Company as a
member of the Trust Policy Committee and the Pension and Retirement Committee.

Mr.  Beck joined  Peoples  Bank  Corporation  in  September  1997 as Senior Vice
President of Commercial  Lending.  Prior to joining Peoples,  Mr. Beck served as
Senior  Vice  President-Marketing  for First of America  Bank from April 1996 to
September 1997, and as Senior Vice  President-Commercial  Banking for Huntington
Bank from April 1986 to April  1996.  He is a founder of the  Indiana  Statewide
Certified Development Corp., where he is currently on the Board of Directors. He
is also a founder and Board Member of the Venture Club of Indiana, Inc. Mr. Beck
is a director for the Indiana  State  Chamber of Commerce  Small  Business,  the
Indianapolis Small Business Development Center, and The Midwest  Entrepreneurial
Education  Center,  Star Alliance,  Inc.. He currently serves as Chairman of the
Board of Directors of the U.S. Small Business  Administration - Indiana Advisory
Council.

Mr.  Butcher  joined  Peoples  Bank  Corporation  in  February  1998  as  Senior
Vice-President  of Retail Banking.  Prior to joining Peoples,  Mr. Butcher was a
Vice-President with Bank One of Cincinnati from November, 1988 to January, 1998.
He holds an M.B.A. from Indiana  University.  He serves Peoples Bank Corporation
as a member of the Asset/Liability Management Committee, and the Product Pricing
Committee.

Mr. Connors has served as Senior Vice President and Director of Operations since
he came to Peoples in 1984. He has 28 years of banking experience which includes
13 years with the Federal  Reserve.  His last position with the Federal  Reserve
was that of  Regional  Manager  for the  Indianapolis  office.  Mr.  Connors  is
Chairman  of  the  Research  and   Development   Committee  and  the  Technology
Maximization  Group. Mr. Connors is currently on the Executive  Committee of the
Comprehensive  Banking System Users Group, a computer software users group which
consists of over 100 financial institutions around the world.

Mr.  Flynn  joined  Peoples Bank  Corporation  in September  1997 as Senior Vice
President of Commercial Real Estate Lending. Prior to joining Peoples, Mr. Flynn
was Senior Vice-President and Manager of the Commercial Real Estate Division for
Bank One  Cincinnati  from  September,  1991 until August,  1997. He is a former
member of the advisory Board, College of Real Estate, University of Cincinnati .

Mr.  Hageboeck  has been CFO of the Company and Peoples  since 1995.  He is also
Secretary to the Board of Directors for the Company and Peoples.  Mr.  Hageboeck
was formerly the Chairman of the Asset/Liability Committee for NBD Bank, N.A. in
Indiana,  as well as manager of that bank's  funding and ALCO  departments.  Mr.
Hageboeck also serves the Company on the Asset/Liability  Management  Committee,
Investment Committee,  Product and Pricing Committee, and the Board of Directors
of Peoples Building  Corporation,  Peoples Investment  Services,  Inc., and PIC,
Ltd..  Mr.  Hageboeck  holds a Ph.D.  in  Economics at Indiana  University.  Mr.
Hageboeck serves on the Board of Directors of the Indianapolis  Arts Council and
on the  faculty of the  American  Bankers  Association  Graduate  School of Bank
Investments and Financial Management.

Mr. Loeber joined the Company in May, 1998 as the Chief Credit Officer. Prior to
joining the Company,  Mr.  Loeber was employed by First Union  National Bank and
its predecessor Signet Bank, Baltimore Maryland as the Executive  Vice-President
of the Secured Lending  Division  between 1992 and 1998.  Between 1990 and 1992,
Mr. Loeber served as Executive Vice President responsible for Risk Management at
First American Metro Corporation,  McLean,  Virginia (now First Union).  Between
1976 and 1990,  Mr.  Loeber  served as Senior Vice  President at Fleet  National
Bank,   Providence,   Rhode   Island,   where  he  held  various   positions  of
responsibility  including  Commercial and Retail  Banking.  Before joining Fleet
Bank, Mr. Loeber served as a commercial  lender at Citizens & Southern  National
Bank, Atlanta, Georgia (now BankAmerica) from 1974 to 1976.

Mr. Stilwell has been Senior Vice  President,  Director of Marketing for Peoples
since 1988.  He first came to Peoples in  September,  1978.  During his 20 years
with Peoples,  Mr. Stilwell has been the Assistant Cashier, a branch manager and
the  Director of  Marketing,  a position he has held since  1984.  Mr.  Stilwell
currently  serves as Chairman of the Product and Pricing  Committee  and the CRA
Committee  and as Secretary  of the  Compliance  Council.  He also serves on the
Asset/Liability  Management  Committee  and the Board of  Directors  of  Peoples
Investment Services, Inc. Mr. Stilwell is a member of the Indiana Chapter of the
Bank  Marketing  Association  and is a board  member  of the  Community  Bankers
Association Insurance Agency and the Indiana Communities for Drug Free Youth.

Mr.  Young  joined  Peoples  in 1980 and has had more  than 20 years of  banking
experience,  primarily in the areas of lending and trust. He currently serves on
the Trust  Policy  Committee.  Mr.  Young is the past  Chairman  of the  Indiana
Bankers  Association  Trust  Committee and Past President of the Central Indiana
Corporate Fiduciaries Association.

Compliance with Section 16(a) of the Exchange Act.

Section  16(a) of the  Securities  Exchange  Act of 1934,  as amended (the "1934
Act"),  requires the Company's  directors and executive  officers and beneficial
owners of more than 10% of the Company's equity  securities to file with the SEC
certain  reports  regarding  the  ownership of the  Company's  securities or any
changes in such ownership. Officers, directors and greater than 10% shareholders
are  required  by SEC  regulations  to furnish  the  Company  with copies of all
Section 16(a) forms that they file.

Based  solely on its review of the copies of such forms  received by it,  and/or
written  representations  from  certain  reporting  persons that no Forms 5 were
required for such persons,  the Company  believes  that,  during the fiscal year
ended  December 31, 1998,  all filing  requirements  applicable to its officers,
directors and greater than 10%  beneficial  owners with respect to Section 16(a)
of the 1934 Act were complied with.

Item 11.        Executive Compensation.

The following table sets forth, for the years ended December 31, 1996, 1997, and
1998,  information  with  respect to William E.  McWhirter,  Gerald R.  Francis,
Charles R.  Farber,  Thomas J. Flynn and Stephen J. Beck,  the five highest paid
executive  officers of the Company whose aggregate  compensation  and bonus from
Peoples exceeded $100,000:
<TABLE>
<CAPTION>


                                                                          Annual Compensation

Name and                                                                                   Long-Term
Principal Position                                                                        Compensation
                                                                                     Securities Underlying       All Other
                                        Year         Salary(1)        Bonus(2)         Option Awards(#)       Compensation(3)
<S>                                     <C>          <C>              <C>                         <C>             <C>   
Mac McWhirter.......................    1998         $247,538         $86,400                     0               $5,163
        Chairman and CEO............    1997          212,519          86,800                     0                3,499
         ...........................    1996          186,673          74,632             32,260(4)                  500

Gerald R. Francis...................    1998         $205,077         $70,600                     0                $4,435
        President and ..............    1997          167,363          74,000             66,000(5)                 1,260
        Chief Operating Officer.....    1996          101,077          39,776             20,000(6)                 3,700

Charles R. Farber...................    1998         $136,404         $44,300                495(7)              $   235
        Executive Vice President....    1997          125,143          49,000                     0                1,752
        ............................    1996          113,779          40,824             20,000(6)                  500

Thomas J. Flynn.....................    1998         $116,770         $55,500                444(7)              $13,927(9)
         Senior Vice President......    1997           33,000         $11,000              4,400(8)              $ 8,946(9)

Stephen J. Beck.....................    1998         $116,770         $12,000                444(7)              $ 2,179
         Senior Vice President......    1997           31,731         $10,789              4,400(8)              $15,574(10)
</TABLE>

     (1)  Salary figures shown above for 1998 include  directors' fees of $4,500
          for each of Mr. McWhirter,  Mr. Farber,  and Mr. Francis,  and amounts
          deferred  at the  election  of the  respective  officers  pursuant  to
          Peoples' Deferred  Compensation  Plan, more fully described below, for
          the year in which  earned.  Peoples pays its  employees on a bi-weekly
          schedule. During 1998, there were 27 pay periods as compared to 26 pay
          periods in each of the prior two  years.  For  fiscal  year 1997,  Mr.
          Francis  deferred his bonus of $74,000 earned for  performance  during
          1997 and paid in 1998. Mr. Flynn elected to defer $18,000 of his bonus
          earned for performance in 1998 and paid in 1999.

     (2)  Bonuses are based on discretionary guidelines established by the Board
          Related Affairs Committee and are contingent upon, among other things,
          individual   performance  reviews  and  the  attainment  of  strategic
          financial  goals. The bonus figures shown were awarded for performance
          in the  fiscal  year  shown  and paid in the  subsequent  fiscal  year
          pursuant to the Board and Senior Management Profit Sharing Plan.

     (3)  Includes 401(k) matching contributions for Mr. McWhirter,  Mr. Farber,
          Mr. Francis, Mr.Flynn and Mr. Beck.

     (4)  Mr.  McWhirter's  incentive  stock  option  for 7,308  shares  and his
          non-qualified  stock  option for 24,952  shares were  granted in March
          1996 and became exercisable in September 1996.


<PAGE>

     (5)  In April,  1997,  Mr.  Francis  was granted  stock  options for 66,000
          shares in three installments.  The first installment for 20,000 shares
          became exercisable in October, 1997 upon the attainment of a $30 share
          price for 20  consecutive  days.  The  second  installment  for 22,000
          shares became  exercisable  in January,  1998 upon the attainment of a
          $35 share price for 20  consecutive  days. The third  installment  for
          24,000 shares will become  exercisable  only upon the  attainment of a
          $40 share  price for 20  consecutive  days.  As of March 12,  1999 the
          third  installment  had not become  exercisable.  In 1997, the Company
          granted Mr. Francis a  free-standing  stock  appreciation  award,  the
          value of which is based on 60% of the value of the difference  between
          the fair market  value of the shares  subject to the award at the time
          of  exercise  and  a  base  price  of  $22.63  per  share.  The  stock
          appreciation  award is granted in three  spearate  installments  which
          vest and become  exercisable  upon the  achievement  of certain  stock
          price  appreciation  levels  that  correspond  to  the  exercisability
          triggers for Mr.  Francis'  non-qualified  stock  option  installments
          awarded in April,  1997. The term of the award is 10 years.  The first
          installment became exercisable in October, 1997 upon the attainment of
          a $30 per share price for 20 consecutive days. The second  installment
          became exercisable in January, 1998 upon the attainment of a $35 share
          price for 20  consecutive  days.  The third  installment  will  become
          exercisable  only  upon the  attainment  of a $40  share  price for 20
          consecutive  days. As of March 12, 1999 the third  installment had not
          become exercisable.

     (6)  Mr. Farber and Mr. Francis were granted stock options for an aggregate
          of  20,000  shares  each  in  January  1996,   which  options   became
          exercisable in three  installments.  The first  installment  for 6,666
          shares became  exercisable on December 1, 1996, the second installment
          for 6,666 shares on December 1, 1997,  and the third  installment  for
          6,668 shares January 1, 1998.

     (7)  Incentive   stock  options  granted  in  February  1998  which  become
          exercisable in three equal  installments  in February 2000,  2002, and
          2004.

     (8)  Incentive  stock options awarded in September 1997 as part of a hiring
          package for Mr. Flynn and Mr. Beck,  which options become  exercisable
          in equal installments in September 1999, 2001, 2003.

     (9)  Mr. Flynn  received a sign-on bonus of $5,000 in September of 1997 and
          $10,000 in January of 1998.  In  addition,  the Company paid Mr. Flynn
          additional   amounts  of  $2,910  and  $962   during  1997  and  1998,
          respectively, for certain temporary housing expenses.

     (10) A sign-on  bonus was  granted  in  September  1997 to Mr.  Beck in the
          amount of $15,000.


The following table sets forth information concerning individual grants of stock
options  made during the fiscal year ended  December  31, 1998 to the  executive
officers identified in the compensation table (the "Named Executive Officers").

           Stock Option Grants in Fiscal Year Ended December 31, 1998
<TABLE>
<CAPTION>


                                Individual Grants

                                                   % of Total
                            Securities Un-     Options Granted     Exercise or                             Value Using
                           derlying Options    to Employees in      Base Price          Expiration       Option Pricing
          Name               Granted (#)      Fiscal Year 1996        ($/Sh)              Date             Model (1)
          ----               -----------      ----------------        ------              ----             ---------

<S>                                 <C>              <C>               <C>              <C>  <C>          <C>         
         Charles R. Farber          495              3.97%             $39.63           2/25/08           $15.86/share
         Thomas J. Flynn            444              3.56%             $39.63           2/25/08           $15.86/share
         Stephen J. Beck            444              3.56%             $39.63           2/25/08           $15.86/share
</TABLE>


            (1) Options are valued at the date of grant using a standard  option
           pricing model. The value of the options  represents value on the date
           of  grant  based  on  the  underlying   stock  price,   its  expected
           volatility,  the length of the options,  the dividend  rate,  and the
           risk-free  rate of return at the time of the grant.  The value of the
           options was computed  using a volatility of .22, a dividend  yield of
           1.38%, a term of 10 years, and a risk-free rate of return of 5.73%.

The following table sets forth certain information regarding the total number of
stock options held by each of the Named  Executive  Officers,  and the aggregate
value of such stock options, as of December 31, 1998. None of such stock options
had been exercised as of such date.

       Aggregated Option Exercises in Fiscal Year Ended December 31, 1998
                        and Fiscal Year-End Option Values
<TABLE>
<CAPTION>


                                                         Number of Securities Underlying        Value of In-the-Money
                        Shares                                  Unexcercised Options            Unexercised Options at
                     Acquired on        Value Realized           at Fiscal Year-End             Fiscal Year-End ($)(5)
Name                  Exercise (#)          ($)             Exercisable    Unexercisable    Exercisable    Unexercisable 
----    ---------------------------------------             -------------------------------------------------------------
                                                             
<S>                      <C>               <C>                <C>                   <C>          <C>        <C>
Mac McWhirter              ---              ---               32,260(1)             0            $686,517        ---
Charles R. Farber          ---              ---               20,000(2)           495            $431,250        ---
Gerald Francis             ---              ---               62,000(3)        24,000(3)         $892,750   $272,880
Thomas J. Flynn            ---              ---                    0(4)         4,844(4)              ---   $ 34,925
Steven J. Beck             ---              ---                    0(4)         4,844(4)              ---   $ 34,925
</TABLE>

                                                       
     (1)  Mr.  McWhirter's  incentive  stock  option  for 7,308  shares  and his
          non-qualified  stock  option for 24,952  shares were  granted in March
          1996 and became exercisable in September 1996.


     (2)  Mr. Farber and Mr. Francis were granted stock options for an aggregate
          of  20,000  shares  each  in  January  1996,   which  options   became
          exercisable in three  installments.  The first  installment  for 6,666
          shares became  exercisable on December 1, 1996, the second installment
          for 6,666 on December  1, 1997,  and the third  installment  for 6,668
          shares  January 1, 1998. Mr. Farber was also granted stock options for
          495 shares in 1998.

     (3)  In April 1997, Mr. Francis was granted stock options for 66,000 shares
          in three installments.  The first installment for 20,000 shares became
          exercisable  in October 1997 upon the  attainment of a $30 share price
          for 20  consecutive  days.  The second  installment  for 22,000 shares
          became  exercisable in January 1998 upon the attainment of a $35 share
          price for 20 consecutive days. The third installment for 24,000 shares
          will become  exercisable only upon the attainment of a $40 share price
          for 20  consecutive  days. As of March 12, 1999 the third  installment
          has not become exercisable.

     (4)  Incentive  stock  options for 4,400  shares  each were  granted to Mr.
          Flynn and Mr. Beck in September  1997 and become  exercisable in three
          equal  installments in September  1999,  September 2001, and September
          2003.  Additionally,  each Mr. Beck and Mr. Flynn were awarded options
          for 444 shares in February  1998,  which  options are  exercisable  in
          three equal installments in February of 2000, 2002, and 2004.

     (5)  Based on the fair market value for the Nonvoting  Common Shares on the
          last  business day of the fiscal year ended  December 31, 1998,  which
          was $34 per share.

Stock  Appreciation  Award.  In 1997,  the  Company  granted  to Mr.  Francis  a
free-standing  stock  appreciation  award, the value of which is based on 60% of
the value of the difference  between the fair market value of the shares subject
to the award at the time of exercise  and a base price of $22.63 per share.  The
stock  appreciation  award is granted in three separate  installments which vest
and become  exercisable upon the achievement of certain stock price appreciation
levels  that  correspond  to  the  exercisability   triggers  for  Mr.  Francis'
non-qualified stock option installments  awarded in April, 1997. The term of the
award is 10 years,  and the timing of  exercise  is  generally  at Mr.  Francis'
discretion once an installment has become exercisable. Upon a Change of Control,
as  defined  in the  plan,  the stock  appreciation  award  becomes  immediately
exercisable  in  its  entirety.  In  addition,  the  first  installment  becomes
immediately  exercisable in its entirety if Mr. Francis' employment with Peoples
is  terminated  without  Cause or with  Good  Reason,  as  defined  in  Peoples'
employment  agreement  with Mr.  Francis  dated as of April 17, 1997.  The first
installment  expires  and  is  terminated  on the  date  thirty  days  following
termination of Mr.  Francis'  employment  for any reason other than  retirement,
disability, or death. In the event of retirement, disability or death, there are
various periods of  exerciability  for the first  installment that are triggered
immediately upon Mr. Francis'  termination of employment for any reason or cause
if those installments are not then exercisable.  The Company accrues its current
obligation  under the plan.  Through  1998,  the Company  accrued and expensed a
total of $338,000 related to the plan.  During 1999, the Company  anticipates an
accrual of $300,000 related to this plan.

Stock Option Plan. The Company's Board of Directors has adopted the Peoples Bank
Corporation  of  Indianapolis  Stock  Option  Plan (the "1996  Plan")  effective
January 1, 1996. The Plan was approved by the shareholders of the Company at the
annual meeting in April,  1996.  During 1998,  the Company's  Board of Directors
adopted the Peoples Bank Corporation of Indianapolis 1998 Stock Option Plan (the
"1998  Plan")  effective  January 1, 1998.  The 1998 Plan was  approved  the the
shareholders of the Company at the annual meeting in April, 1998. The purpose of
the Plans is to provide to officers  and other key  employees of the Company and
Peoples a favorable  opportunity to acquire  Nonvoting  Common  Shares,  thereby
providing  them  with an  increased  incentive  to work for the  success  of the
Company and Peoples and better  enabling  each such entity to attract and retain
capable executive personnel.

Each of the Plans  authorizes the granting of both  incentive  stock options and
non-qualified  stock  options to officers and other key employees of the Company
and its  subsidiaries  by a  committee  of  disinterested  directors,  which  is
currently the Board Related Affairs Committee ("BRAC").  However,  the 1998 Plan
contains  special  provisions  authorizing  the full Board of  Directors to make
grants on certain occasions and for a special committee to grant options of less
than 1,000 shares to officers who are not subject to Section 16 of the 1934 Act.
Stock  options  granted under the Plans will be  exercisable  at such times (not
after ten years and one day from the date of grant) and at such exercise  prices
(not less than 85% of the fair market  value per share of the  Nonvoting  Common
Shares at date of  grant) as the BRAC  determines  and will,  except in  limited
circumstances,  terminate  if  the  grantee's  employment  terminates  prior  to
exercise.  A total of 200,000  Nonvoting  Common  Shares have been  reserved for
issuance  under the 1996 Plan,  of which  options for 196,597  Nonvoting  Common
Shares had been granted to officers and key employees through December 31, 1998.
A total of 50,000  Nonvoting Common Shares have been reserved for issuance under
the 1998 Plan, of which no options had been granted  through  December 31, 1998.
The Board of  Directors  has adopted an  amendment  to the 1998 Plan in order to
increase  the number of Nonvoting  Common  Shares that are reserved for issuance
thereunder  to  100,000  shares,  and  has  recommended  this  amendment  to the
shareholders for approval at the annual meeting to be held in April, 1999.

During  1998,  the BRAC  granted an  aggregate  of 12,455  options  to  purchase
Nonvoting  Common  Shares  to  members  of  the  senior  management  team,  with
expiration  dates ranging from 2/25/00 through  5/19/06,  and at exercise prices
ranging from $34.50 to $39.63 per share. Charles R. Farber was awarded incentive
stock options for 495 shares, and Mr. Beck and Mr.
Flynn were each awarded options for 444 shares.

Other senior officers  received options totaling  11,072,  collectively,  all of
which are incentive stock options.  Such options generally become exercisable in
installments over a period of years ranging from 2000 to 2006.

Consulting  Agreement.  Felix T. McWhirter  entered into a consulting  agreement
with Peoples on January 15, 1987 for a ten- year term to allow him to serve as a
consultant upon the termination of his full-time active employment on that date.
Mr. Felix T.  McWhirter's  obligations with Peoples were completed as of January
15, 1997. The terms of his consulting  agreement  called for payments during the
remainder of his life. Mr. McWhirter currently receives $8,392 monthly,  subject
to the following adjustments:  (i) a ten percent reduction every five years, and
(ii) an annual adjustment to reflect cost-of-living  increases.  In the event of
his death, Mr. McWhirter's  surviving spouse is entitled to the payments for the
remainder of her life.

Compensation  of Directors.  All directors of the Company receive a retainer fee
of $4,500 per year.  Additionally,  outside  directors receive a fee of $450 per
board or committee  meeting.  Board members are also eligible to receive bonuses
pursuant  to the  Board and  Senior  Management  Profit  Sharing  Plan,  further
discussed below. Pursuant to Peoples' Deferred Compensation Plan, as amended and
restated,  directors may  participate  in such plan and, in accordance  with its
terms,  defer  payment  of any  portion  of  their  directors'  fees  until  the
termination of their service on the Board of Directors.

Directors  Stock Option Plan.  The Company's  Board of Directors has adopted the
Peoples Bank  Corporation of Indianapolis  1996 Directors Stock Option Plan (the
"Directors  Plan")  effective  June 20, 1996. The Directors Plan was approved at
the annual  meeting of  shareholders  held in April,  1997.  The  purpose of the
Directors  Plan is to provide  directors  of the Company who are not employed by
the Company ("Outside  Directors") a favorable  opportunity to acquire Nonvoting
Common Shares, thereby better enabling the Company to attract and retain capable
Outside Directors.

The Directors Plan provides for the granting of  non-qualified  stock options to
Outside Directors.  A total of 20,000 Nonvoting Common Shares have been reserved
for issuance  under the Directors  Plan,  of which  options for 6,356  Nonvoting
Common  Shares  have been  granted to seven  Outside  Directors  to date.  Stock
options  granted under the Plan are  exercisable  for a period  beginning on the
date of grant  and  ending  on the day  immediately  following  the  tenth  year
anniversary  of the date of grant,  and at an  exercise  price equal to the fair
market value per share of the Nonvoting  Common Shares on the date of grant. The
Directors Plan provides  that, on each April 1 thereafter  while there are still
shares  reserved  under  the  Directors  Plan for  which  options  have not been
granted,  the Company  will grant to each  Outside  Director who is serving as a
director of the Company on such grant date a non-qualified  option to purchase a
number of Nonvoting  Common  Shares  pursuant to a formula  based on  directors'
fees.

Deferred  Compensation  Plan.  Pursuant to Peoples' Deferred  Compensation Plan,
selected employees are given the opportunity to defer irrevocably the receipt of
income in anticipation of future benefits to be received at least 5 years in the
future. The benefits payable under the plan are to be paid from Peoples' general
assets.  The plan has been  amended to allow  participants  to elect to invest a
portion  of their  deferred  benefits  for a given  plan year at a fixed rate of
return or at a rate of return tied to the  adjusted S&P 500 Index for such year.
Peoples maintains  insurance policies on the lives of Mac McWhirter,  Charles R.
Farber,  Gerald R. Francis,  Thomas J. Flynn, and all other plan participants to
provide for eventual  payment of their  deferred  benefits.  Peoples is the sole
owner  and  beneficiary  of these  policies.  Peoples  has the right to amend or
terminate the plan at any time.

Profit Sharing Plan.  Peoples has adopted the Board and Senior Management Profit
Sharing Plan.  Pursuant to the plan,  members of senior management and the Board
of Directors are eligible to receive discretionary bonuses based on, among other
factors,  profits  achieved by Peoples in excess of those  budgeted  for a given
fiscal year. The schedule serves only as a discretionary  guideline and does not
represent a contractual obligation.

401(k) Plan.  Employees who have attained age 21 are entitled to  participate in
the 401(k) Profit Sharing Plan. The Plan was initiated in 1993.  Under the plan,
Peoples  makes a matching  contribution  of 50% of each  participating  employee
contribution up to the first 6% of compensation. Vested portions of the benefits
under  the  401(k)  Plan are  payable  upon the  employee's  retirement,  death,
disability or other termination of employment. In late 1995, Peoples amended the
401(k)  Plan to permit  participants  to direct  the  investment  of their  plan
account balances in Nonvoting Common Shares.

Pension Plan.  The "Peoples Bank & Trust Company  Employees'  Pension Plan" is a
tax-qualified  defined benefit pension plan.  People's employees are eligible to
participate  in the plan once they have completed one year of service and are 21
years of age.  Continued  eligibility  requires  completion  of  1,000  hours of
service in a calendar year.  Participants  are not required or permitted to make
contributions  under the plan.  An employee's  pension  benefits are 100% vested
after five years of service.

The plan provides for monthly retirement benefits determined on the basis of the
employee's  highest  five-year  average  salary  and  years  of  service.  Early
retirement,  disability  and death benefits are also payable under the plan. The
estimated base annual retirement  benefits presented on a straight-line  annuity
basis  payable  at  normal  retirement  age (65)  under  the plan to a person in
specified remuneration and years of service classifications are as follows:

                                       Years of Service

                       10         20          30         40         50
                       --         --          --         --         --

Remuneration
$100,000...........  $20,000    $40,000     $60,000    $80,000   $100,000
120,000............   24,000     48,000      72,000     96,000    120,000
140,000............   28,000     56,000      84,000    112,000    140,000
160,000............   32,000     64,000      96,000    128,000    160,000
180,000............   36,000     72,000     108,000    144,000    180,000
200,000............   40,000     80,000     120,000    160,000    200,000

Annual  compensation of Mr. McWhirter,  Mr. Francis,  Mr. Farber, Mr. Flynn, and
Mr. Beck covered by the Pension  Plan is the same as their  salary  compensation
illustrated  in  the  Annual  Compensation  Table  (excluding  directors  fees).
Benefits  are payable as a monthly life annuity and are not subject to deduction
for  Social  Security  or other  offset.  The years of service  credited  to Mr.
McWhirter,  Mr. Francis,  Mr. Farber,  Mr. Flynn, and Mr. Beck under the Pension
Plan  as  of  December  31,  1998  were  25.50,  2.92,  26.33,  1.624,  and  1.6
respectively.

SERP.  Peoples has adopted a  Supplemental  Executive  Retirement  Plan ("SERP")
which supplements the amount of benefits  otherwise  available to Mr. McWhirter,
Mr. Farber, and Mr. Francis under the Pension Plan upon their retirement. Annual
SERP  benefits  equal 2% of pay per year  subject  to the  maximum of 75% of the
executive's average annual compensation in the three highest years with Peoples,
less the executive's annual benefit payable (i) on a single life basis under the
Pension Plan and (ii) under Social Security. Only Mr. McWhirter, Mr. Farber, and
Mr.  Francis are SERP  participants  at this time, but additional key executives
may be added by the Board of Directors.

Employment  Agreement with Mr.  Francis.  The Company entered into an employment
agreement with Mr. Francis dated as of April 17, 1997. The term of the agreement
is for an initial term of three years, but may be extended for an additional one
year on each annual  anniversary of the effective date unless either party gives
written  notice to the other not to extend the term within  ninety days prior to
the anniversary.  In such a case, no further  extension occurs and the agreement
ends two years subsequent to the annual anniversary that immediately follows the
date on which notice not to extend is given.  The  agreement  provides  that Mr.
Francis is to receive an annual  salary of  $185,000,  subject to increase  from
time to time at the discretion of Peoples. In addition,  Mr. Francis is entitled
to  participate  in all  present and future  employee  benefit,  retirement  and
compensation plans generally available to employees of Peoples,  consistent with
his base  compensation and his position as President and Chief Operating Officer
of Peoples.  If Mr.  Francis is  involuntarily  separated  from Peoples  without
cause,  he is entitled to receive a severance  benefit of one year's  salary and
benefits for one year, and the first  installment  of options  granted to him in
April, 1997 becomes immediately exercisable.  The agreement provides that in the
event Mr. Francis is terminated following a Change of Control (as defined in the
Plan), he is entitled to receive a severance benefit equal to 299% of his annual
compensation,  with such severance  benefit  calculated in a manner  intended to
comply with Section 280G of the Internal  Revenue Code of 1986, as amended.  Mr.
Francis is entitled to  additional  perquisites,  including  vacation  benefits,
reimbursement of reasonable  business expenses and office space on terms no less
favorable than those in effect prior to the effectiveness of the agreement.  The
agreement also provides  that,  for a period of one year following  termination,
Mr.  Francis will not compete with Peoples in the financial  services  industry.
Peoples'  obligations  under the  employment  agreement  are  guaranteed  by the
company pursuant to a certain Guaranty Agreement dated as of April 17, 1997.

Split  Dollar  Insurance  Agreements.  Peoples has entered  into a  Split-Dollar
Insurance Agreement with each of Mr. McWhirter, Mr. Francis and Mr. Farber as an
inducement to each of them to continue his employment  with Peoples by assisting
him with personal life insurance needs.  Each of these agreements  provides that
Peoples is the owner of the life insurance  policy subject to agreement and pays
all premiums  with  respect  thereto.  Each  agreement  provides  that the death
benefits  payable  under the terms of the policy  entitle  the  employee  to the
lesser of a certain dollar  threshold or the total death benefits then available
under the policy, and entitle the bank to receive the death benefits, if any, in
excess of the  designated  threshold.  The threshold  amount of benefits in each
case is $250,000 for each of Mr.  Francis and Mr.  Farber,  and $600,000 for Mr.
McWhirter.

Compensation Committee Interlocks and Insider  Participation.  The Board Related
Affairs  Committee of the Board of Directors served as the board's  compensation
committee during fiscal 1998.  There are no interlocks  between the Company's or
Peoples'  boards of directors or  compensation  committee,  on the one hand, and
those of any other company, on the other hand.

Item 12.    Security Ownership of Certain Beneficial Owners and Management.

The  following  table  sets  forth  certain  information   regarding  beneficial
ownership of the Company's  Common Shares by (i) each person who is known by the
Company to own beneficially more than 5% of the outstanding Voting Common Shares
(ii) each  director and executive  officer  named in the executive  compensation
table, and (iii) all executive  officers and directors of the Company as a group
as of March  12,  1999.  Except as  otherwise  indicated,  based on  information
furnished by such owners,  the  beneficial  owners of the Common  Shares  listed
below have sole  investment and voting power with respect to such Common Shares,
subject to community property laws where applicable.






<PAGE>
<TABLE>
<CAPTION>




                                              Voting Common Shares                   Nonvoting Common
Name and Address                              Beneficially Owned                     Shares Beneficially Owned
of Beneficial Owner                           and Percentage or Class                and Percentage or Class
<S>                                               <C>                                     <C>
Steven J. Beck                                       ---                                   694 
130 E. Market St.                                                                          (3)
Indianapolis, Indiana 46204

Charles R. Farber                                                                       20,005 (2)
130 East Market Street                                                                     0.7%
Indianapolis, Indiana 46204

Thomas J. Flynn                                      ---                                  3,424 (1)
130 E. Market St.                                                                           0.1%
Indianapolis, Indiana 46204

Gerald R. Francis                                   103                                  94,253 (4)
130 East Market Street                              (3)                                       3.3%
Indianapolis, Indiana 46204

Robert B. Hirschman, D.D.S.                       2,800                                   4,914 (5)
5104 Plantation Drive                               1.1%                                    0.2%
Indianapolis, Indiana 46250

Ethan Jackson                                        ---                                 1,000
6900 South Gray Road                                                                       (3)
Indianapolis, IN 46237

David W. Knall                                       ---                                41,857 (5)
One American Square                                                                        1.5%
Suite 2615
Indianapolis, Indiana 46282

Luella M. Martin                                 24,808     (6)                         107,598    (6)
3738 Bay Road. South Drive                          9.4%                                    3.8%
Indianapolis, Indiana 46240

William E. McWhirter                            169,930     (7)                          34,772    (7)
130 E. Market Street                               64.3%                                    1.2%
Indianapolis, Indiana 46204

Felix T. McWhirter                                 ---                                  544,365    (8)
130 E. Market Street                                                                      19.0%
Indianapolis, Indiana 46204

Mary Ellen Rodgers                                 ---                                    1,714(10)(5)
5272 McGavock Road                                                                          (3)
Brentwood, Tennessee 37027

Evans McWhirter Rust                             26,440     (9)                         338,328    (9)
6917-B East Osborn                                 10.0%                                   11.8%
Scottsdale, Arizona 85251

Stephen R. West                                    ---                                   14,722      (5)
4120 North Illinois Street                                                                  0.5%
Indianapolis, Indiana 46208

Darell E. Zink, Jr.                                ---                                    4,400
8888 Keystone Crossing, Suite 1200                                                          0.2%
Indianapolis, IN 46240

All Directors and Executive                     173,736                                 371,576
Officers, as a group (17 persons)                  65.8%                                   13.0%
(footnotes on next page)

</TABLE>

<PAGE>

     (1)  Included 4,844 shares subject to incentive stock options granted under
          the 1996 Plan, none of which are currently exercisable.

     (2)  Includes  20,495 shares  subject to incentive  stock  options  granted
          under  the  Company's   1996  Plan,  of  which  20,000  are  currently
          exercisable.

     (3)  Less than 0.1%.

     (4)  Includes  86,000 shares  subject to incentive  stock  options  granted
          under  the  Company's   1996  Plan,  of  which  62,000  are  currently
          exercisable.  Also  includes  844 shares held in trusts,  of which Mr.
          Francis is trustee, for the benefit of Mr. Francis' three children.

     (5)  Includes 914 shares subject to options granted  exerciseable under the
          Directors Plan.

     (6)  Includes 80 Voting Common Shares and 69,128  shares  Nonvoting  Common
          Shares held by Peoples as trustee for Luella M. Martin.  Also includes
          38,470  Nonvoting  Common  Shares held in trustee by Wesley P. Martin,
          husband of Luella M. Martin, as trustee.

     (7)  Of  the  Voting  Common  Shares,  21,148  shares  are  held  by  Susan
          McWhirter,  wife of  William E.  McWhirter.  Of the  Nonvoting  Common
          Shares,  1,595  shares  are held by Mr.  McWhirter's  three  children.
          Includes 7,308 shares subject to an incentive  stock option and 24,952
          shares  subject to a  non-qualified  stock  option  granted  under the
          Company's  1996 Plan,  which  options  are  currently  exercisable  in
          accordance with their terms.

     (8)  Includes  364,000  shares  held by  Peoples as trustee of the Felix M.
          McWhirter  Trust for  Children  and  Grandchildren.  Pursuant  to such
          trust,  Felix T. McWhirter  holds voting power and shares with Peoples
          dispositive  power with respect to the shares.  Also  includes  94,094
          shares held by Margaret J. McWhirter, Mr. McWhirter's spouse. Includes
          872 shares subject to options granted under the Directors Plan.

     (9)  All Voting Common Shares and 257,128  Nonvoting Common Shares are held
          in trust by Evans  McWhirter  Rust as trustee.  Also  includes  81,200
          shares  held by Peoples as  trustee,  as to which Mr.  Rust  disclaims
          beneficial ownership.

     (10) Held jointly with spouse.


Item 13.       Certain Relationships and Related Transactions.

From  time  to  time  Peoples  makes  loans  to its  directors  and  significant
shareholders. At December 31, 1998, such loans and extensions of credit amounted
to  approximately  $4,173,000.  Such  loans and all  similar  loans or  advances
outstanding  during any of the three prior years,  were made (i) in the ordinary
course of business,  (ii) on substantially  the same terms,  including  interest
rates  and  collateral,   as  those   prevailing  at  the  time  for  comparable
transactions with other persons,  and (iii) did not involve more than the normal
risk of  collection  or present  other  unfavorable  features.  Peoples does not
generally make any loans to executive officers.

David W. Knall, one of the Company's directors, is a Senior Managing Director of
McDonald  Investments,  Inc., one of the  underwriters in the Company's  initial
public offering.  From time to time, the Company and Peoples utilize  investment
advisory and brokerage services provided by McDonald Investments, Inc.

Darrell E, Zink,  Jr., one of the Company's  directors,  is the Chief  Financial
Officer of Duke Realty Investments,  Inc. ("Duke Realty"). Duke Realty currently
serves as the  property  manager for space  leased to Peoples as its  Operations
Center, and Duke Realty Limited Partnership, of which Duke Realty is the general
partner, is the indirect owner of the building where such space is located.





<PAGE>



                                     PART IV

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

(a)       List the following documents filed as part of the report:

          Financial Statements -- Included Under Item 8:

          Report of Crowe, Chizek and Company LLP, Independent Auditors

          Consolidated Balance Sheets as of December 31, 1998 and 1997

          Consolidated  Statements  of Income for the Years Ended  December  31,
          1998, 1997 and 1996.

          Consolidated  Statements  of Changes in  Shareholders'  Equity for the
          Years Ended December 31, 1998, 1997, and 1996

          Consolidated Statements of Cash Flows for the Years Ended December 31,
          1998, 1997 and 1996

(b)       Reports on Form 8-K


Registrant  filed no reports on Form 8-K during the quarter ending  December 31,
1998.

(c)      The exhibits filed  herewith or  incorporated  by reference  herein are
         set forth on the Exhibit Index.






<PAGE>



                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, as amended,  the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereto duly authorized.

                                        PEOPLES BANK CORPORATION OF INDIANAPOLIS

                                        By: /s/ William E. McWhirter
                                        ----------------------------------------
                                        William E. McWhirter
                                        President and Chief Executive Officer

     Pursuant to the  requirements  of the  Securities  Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the date indicated.

Signature                                            Title           Date

(1)  Principal Executive Officer:

By: /s/ William E. McWhirter                  Chairman, Chief)
----------------------------                Executive Officer)
William E. McWhirter                                         )
                                                             )
                                                             )
(2)  Principal Financial/                                    )
Accounting Officer:                                          )
                                                             )
By: /s/ Charles R. Hageboeck                                 )
------------------------              Senior Vice President, )
Charles R. Hageboeck                  Chief Financial Officer)
                                                             )

(3)  A Majority of the                                       )
Board of Directors:                                          )
                                                             )
/s/ Charles R. Farber                                Director)
------------------------                                     )
Charles R. Farber                                            )   March 30, 1999
                                                             )
/s/ Gerald R. Francis                                Director)
------------------------                                     )
Gerald R. Francis                                            )
                                                             )
                                                     Director)
------------------------                                     )
Robert B. Hirschman                                          )
                                                             )
                                                             )
------------------------                                     )
Eathan Jackson                                               )
                                                             )
/s/ David W. Knall                                   Director)
------------------------                                     )
David W. Knall                                               )
                                                             )
/s/ William E. McWhirter                             Director)
------------------------                                     )
William E. McWhirter                                         )
                                                             )
                                                     Director)
------------------------                                     )
Mary Ellen Rodgers                                           )
                                                             )
/s/ Stephen R. West                                  Director)
------------------------                                     )
Stephen R. West                                              )
                                                             )
                                                     Director)
------------------------                                     )
Darell E. Zink, Jr.                                          )

<PAGE>

                                  EXHIBIT INDEX


Exhibit No.       Description                                           Page

         3.1      Registrant's  Articles  of  Incorporation,   as
                  amended                                                  *

         3.2      Registrant's Code of By-Laws, as amended                 *

         3.3      Form of Share Certificate                                *

         4.1      Articles V, VI, and VII and Sections 1,2, and 4
                  of Article IX of the  Registrant's  Articles of
                  Incorporation  respecting  the  terms of Common
                  Shares,  are  incorporated  by reference to the
                  Registrant's Articles of Incorporation filed as
                  Exhibit 3.1                                              *

         4.2      Articles I and VII of the Registrant's  Code of
                  By-Laws  respecting the terms of Common Shares,
                  are    incorporated   by   reference   to   the
                  Registrant's  Code of By-Laws  filed as Exhibit
                  3.2                                                      *

         10.1     Employment  Agreement  between  Registrant  and          **
                  Gerald R. Francis, dated April 17, 1997 (10.1)

         10.2     Guaranty   Agreement  between   Registrant  and          **
                  Gerald R. Francis, dated April 17, 1997 (10.2)

         10.3     Incentive   Stock  Option   Agreement   between          **
                  Registrant  and Gerald R. Francis,  dated April
                  17, 1997 (10.3)

         10.4     Stock  Appreciation Award for Gerald R. Francis          **
                  (10.4(a))

         10.5     Second  amendment and complete  restatement  of          **
                  the    Registrant's    Unfunded    Supplemental
                  Executive Retirement Plan (10.4(b))

         10.6     Split  Dollar   Insurance   Agreement   between          **
                  Registrant and Gerald R. Francis (10.6)

         10.7     Split  Dollar   Insurance   Agreement   between          **
                  Registrant and William E. McWhirter (10.7)

         10.8     Split  Dollar   Insurance   Agreement   between          **
                  Registrant and Charles R. Farber                         

         10.9     Lease  Agreement  by and between Park 100 Joint
                  Venture and Peoples Bank & Trust  Company dated
                  November 17, 1989, as amended                       * (10.1)

         10.10    Property  Management  Agreement between Peoples
                  Building  Corporation and F.C. Tucker Company,
                  Inc. dated September 30, 1986                       *(10.2)


<PAGE>

         10.11(a) Peoples   Bank  &  Trust   Company   Executives
                  Deferred  Compensation  Plan                        *(10.4(a))

         10.11(b) Restated   Peoples   Bank   &   Trust   Company
                  Executives    Deferred     Compensation    Plan
                  (Effective December 1, 1998)

         10.12(a) Peoples Bank & Trust  Company  Directors  
                  Deferred Fees Plan                                  *(10.4(b))

         10.12(b) First Amendment to Peoples Bank & Trust Company
                  Directors Deferred Fees Plan

         10.13    Peoples Bank & Trust  Company  Board and Senior
                  Management Profit Sharing Plan                      *(10.6)

         10.14    Peoples Bank Corporation of Indianapolis  Stock
                  Option Plan                                        ****(10.7)

         10.15    Peoples  Bank   Corporation   of   Indianapolis
                  Directors Stock Option Plan                         ***(10.8)

         10.16    Peoples Bank  Corporation of Indianapolis  1998
                  Stock Option Plan

         21       Subsidiaries of the Registrant

         23       Consent of Crowe Chizek

         27       Financial Data Schedule


*        Incorporated by reference to the  corresponding  exhibit
         number (or the  exhibit  number  indicated  above in the
         right  hand  column)  of the  Registrant's  registration
         statement on Form S-1, effective January 18, 1994, under
         the Securities Act of 1933, Reg. No. 33- 71988.

**       Incorporated by reference to the  corresponding  exhibit
         number (or the  exhibit  number  indicated  above in the
         right hand column) of the Registrant's  quarterly report
         on Form 10-Q for the fiscal quarter ended  September 30,
         1997.

***      Incorporated by reference to the  corresponding  exhibit
         number (or the  exhibit  number  indicated  above in the
         right hand column) of the Registrant's  annual report
         on Form 10-K for the fiscal  year ended  December 31,
         1996.

****     Incorporated by reference to the  corresponding  exhibit
         number (or the  exhibit  number  indicated  above in the
         right hand column) of the Registrant's  annual report
         on Form 10-K for the fiscal  year ended  December 31,
         1995.