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, 1997
                                       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. [X]

The  aggregate  market value of the 36,312  shares of the issuer's  voting stock
held by non-affiliates, as of March 9, 1998, was $1,379,856 (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 9, 1998,  was  2,812,834  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. Peoples offers a broad range of lending,
deposit,  loan  servicing and trust  services to  individual,  governmental  and
commercial  customers.  Peoples  conducts  its  business  through  its  downtown
Indianapolis  headquarters and through 12 offices located throughout the greater
Indianapolis  area.  Peoples  is  the  largest  and  oldest  locally  owned  and
headquartered commercial bank in Indianapolis.

The Company operates under a conservative management philosophy and is dedicated
to providing  personal  service coupled with  competitive  products and pricing.
Management believes that the acquisition of the three largest Indianapolis-based
commercial banks by out-of-state holding companies during the last several years
enables  the  Company  to  distinguish  itself  from  competitors  based  on its
established reputation, local ownership and local decision making authority.

Focusing on developing strong, primary banking relationships with businesses and
individuals in its market area,  Peoples generally limits its lending activities
to the greater Indianapolis area. Peoples focuses its commercial lending efforts
on small and medium-sized  independent  companies and its real estate lending 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' loan portfolio
is diversified, locally oriented and does not include any foreign loans.

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

Market Area

Peoples'  market area is the greater  Indianapolis  area which  includes  Marion
County,  Indiana and certain contiguous townships.  Indianapolis has experienced
significant  employment  growth in recent  years.  According to the 1990 Census,
Marion County had a total population of approximately  800,000,  representing an
increase of over 4% since 1980.  Employment in Marion County is  concentrated in
the following  industries:  durable and nondurable goods manufacturing,  retail,
financial and real estate services, health, education and professional services,
public administration and transportation.

Peoples'  service area is highly  competitive.  The four largest banks in Marion
County, each of which is controlled  out-of-state,  carry a substantial majority
of the total deposits of banks and thrifts in the County.  Management  estimates
that  Peoples'  market  share is  currently  between 2% and 3% of 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 its customers.

Lending Activities

Focusing on developing strong, primary banking relationships with businesses and
individuals in its market area,  Peoples generally limits its lending activities
to the greater Indianapolis area. Peoples focuses its commercial lending efforts
on  small  and   medium-sized   companies   and  its  real  estate   lending  on
owner-occupied   commercial   properties  and  one-to-four   family  residential
properties.






<PAGE>



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 nor does it have any foreign loans.

The amount of loans outstanding  (excluding loans held for sale) and the percent
of the total  represented  by each type on the dates  indicated are reflected in
the following table.

<TABLE>
<CAPTION>
                                                                         December 31,

                                  1997                  1996                1995                  1994               1993
                                  ----                  ----                ----                  ----               ----

<S>                       <C>         <C>        <C>         <C>     <C>        <C>        <C>         <C>      <C>       <C>  
Construction..........    $25,364     6.23%      $23,644     7.10%   $31,965    11.79%     $19,162     8.94%    $9,978    5.81%
Mortgage..............     94,276    23.17        75,247    22.60     72,852    26.87       48,021    22.40     34,287   19.95
Commercial loans......    185,089    45.49       156,755    47.08     97,914    36.12       78,870    36.79     68,394   39.80
Consumer..............    100,139    24.61        75,187    22.58     66,132    24.40       65,722    30.66     56,094   32.64
Tax-exempt loans......      2,025      .50         2,120     0.64      2,230     0.82        2,615     1.21      3,080    1.80
                          -------   ------       -------   ------    -------   ------      -------   ------    -------  ------ 

Total loans...........    406,893   100.00%      332,953   100.00%   271,093   100.00%     214,390   100.00%   171,833  100.00%

Less:
Allowance for
loan losses...........      5,516                  3,900               3,290                 2,704               2,513
                         --------               --------            --------              --------            --------

Net loans.............   $401,377               $329,053            $267,803              $211,686            $169,320
                         ========               ========            ========              ========            ========
</TABLE>


The loan  portfolio,  excluding  loans held for sale,  at December  31, 1997 was
comprised of approximately  52.22% commercial  loans,  23.17% mortgage loans and
24.61%  consumer  loans.  Peoples  had no "highly  leveraged  transactions,"  as
defined by the banking regulators,  and no foreign loans. 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
Peoples can loan to one  borrower,  generally  to 15% of capital and  unimpaired
surplus, or $7.1 million at December 31, 1997.

Commercial  Loans.  Commercial loans account for the largest portion of the loan
portfolio. Commercial lending is generally considered to have higher credit risk
than  other  forms of credit  because  of the higher  average  dollar  amount of
individual  credits and the risk  associated  with  potential  diminution of the
value  of  special  purpose  collateral  (which  often  serves  as  security  on
commercial loans) in economic downturns.  Commercial loans are made to a diverse
group of professional,  industrial,  and service business customers.  Commercial
loans include  working  capital lines of credit,  revolving  credit loans,  term
loans  (generally not to exceed 7 years),  single  payment or short-term  loans,
Small Business Administration loans (on which the SBA guarantees between 75% and
90% of the principal of the loans made to eligible borrowers) and, occasionally,
commercial  letters  of credit  and  lease  financing.  Commercial  loans may be
secured or unsecured depending on the quality of the credit.

The Company's  commercial  loan category  also includes  commercial  real estate
loans.  Such loans are loans to  businesses  or  individuals  where the  Company
relies upon the underlying  real estate for collateral and repayment.  The basis
for these loans includes income-producing  properties, such as office buildings,
warehouses,  shopping centers or apartment buildings and construction loans. The
Company will also provide land acquisition and development  loans, such as loans
to purchase land for the  development of a subdivision  or condominium  project.
Interest  rates on loans in  excess  of five  years  are  generally  adjustable.
Construction  loan terms are limited to one year and land development loan terms
are  limited  to  two  years.   Peoples'  policy   establishes   limits  on  the
loan-to-value  ratio for loans on improved  properties,  construction  loans and
land development loans.

Residential  Real Estate Loans.  Residential  real estate loans consist of loans
secured by one-to-four family residential  properties.  During the twelve months
ended  December  31,  1997,  Peoples  originated  $56.9  million in real  estate
mortgage  loans.  Residential  real estate  loans do not  include  loans made to
businesses to develop residential real estate,  which are considered  commercial
real estate loans.

Residential  real estate loans  originated for Peoples'  portfolio are generally
adjustable  rate  mortgages and certain fixed rate loans.  Peoples  offers one-,
three- and  five-year  adjustable  rate  mortgage  loans with initial fixed rate
periods  of one,  three,  and  five  years.  Certain  fixed  rate  loans  may be
considered for the portfolio  from time to time.  These could include loans with
one rate  adjustment  after  seven years  (7/23) and  15-year  fixed rate loans.
Peoples also offers residential  construction loans. The  construction/permanent
loan program offers  combined  construction  and permanent  financing  through a
single closing.  Other construction loans are made in which the borrower obtains
permanent financing through another lender.

Peoples'  residential  lending department is responsible for the origination and
closing of all of Peoples'  residential  real estate  loans.  In addition to the
loans described  above  originated for Peoples'  portfolio,  the bank originates
fixed-rate loans with terms up to 30 years,  adjustable rate mortgage loans with
terms up to 30 years and, occasionally, seven-year balloon loans for resale into
the secondary  market,  generally to the Federal National  Mortgage  Association
("FNMA").  Peoples retains  servicing rights on  substantially  all the mortgage
loans it  sells.  At  December  31,  1997,  Peoples  serviced,  for both its own
portfolio and for others, $196.2 million in residential mortgage loans.

In 1996 and 1997,  Peoples'  restructured its residential  lending department in
order to improve  profitability within the residential mortgage loan origination
process. The staff was reduced from 22 to 6 employees,  two offices were closed,
and the  remaining  staff was  relocated  to  existing  space at the  Operations
Center. As a result,  originations of residential real estate loans in 1997 were
down to $56.9 million as compared to 1995 when originations were $86.2 million.

Consumer  Loans.  Consumer loans offered by Peoples  include home equity line of
credit loans,  home  improvement  loans,  automobile and motor vehicle loans and
other secured and unsecured  personal loans.  Consumer loans generally involve a
higher level of risk than residential  mortgage loans, and have  correspondingly
higher  yields.   Home  equity  loans  are  generally   initiated  on  the  same
underwriting  standards as portfolio real estate mortgage loans.  They generally
bear interest at adjustable  rates and will only be made on the basis of a first
or second mortgage.  Peoples directly reviews all loan applications and does not
engage in indirect lending through auto dealers, building contractors or similar
third parties.

Asset Quality and Provision for Loan Losses

Loan Quality.  Peoples  seeks to maintain a high level of asset quality  through
careful  underwriting and by emphasizing  loan  originations in its market area.
Peoples focuses its commercial lending efforts on small and medium-sized, local,
independent,  commercial and  professional  firms,  manufacturing  companies and
individuals  who are the owners and principals of such firms.  Commercial  loans
are subjected to a detailed review of the borrower's financial performance,  the
value of the collateral and  guarantees.  Appraisals are generally  required for
all real estate  loans  including  residential  mortgages  and home equity loans
exceeding  $10,000.  Commercial loans may be approved by Peoples' officers up to
their established loan limits.  Beyond these limits, the officer responsible for
the account will recommend the loan to one or more senior executive officers.

The primary  functions of loan  portfolio  management are assuring loan quality,
maintaining  portfolio  diversification and monitoring  potential problem loans.
Each of Peoples'  commercial loan officers is accountable for the performance of
his or her loan  accounts.  Each loan  officer  monitors  his or her  borrowers'
performance  and  compliance  and receives a daily report of any loan payment on
which  payment is past due. On the basis of these  reports  they proceed to make
appropriate  contacts  with  any  delinquent  borrowers.   A  weekly  report  to
management  is  prepared  showing  the past due loans for which each  officer is
responsible. The commercial loan department then meets each month to discuss the
status of every loan that is more than 15 days past due.

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,  a change in an industry  which could  adversely  affect a
borrower,  a loan mentioned or classified by a regulatory  agency or independent
auditor, a loan in which the collateral has been affected or any other loan that
management desires to monitor specifically.

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.  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 commercial  loans larger than $350,000.
During 1997, 42% of commercial loan dollars were subject to such a review (using
the 1997 beginning portfolio balance as the denominator).

Peoples' collection department is responsible for past due mortgage and consumer
loans.  Telephone contact is made once such loans are between 5 and 10 days past
due. The senior vice president for loan administration,  the manager of consumer
lending and the  supervisor of  collections  meet monthly to discuss  delinquent
real estate and consumer loan accounts.  At this meeting they discuss  potential
foreclosures. Following this meeting the collection department prepares plans of
action for all cited  problem loan  accounts.  Recommendations  for  charge-offs
based on  collateral  value versus loan balance and the  likelihood of continued
non-payment are prepared and the decision whether to foreclose is made.

In 1997,  Peoples  recorded net charge-offs of $184,000 (0.05% of average loans)
as compared to net  charge-offs  of $515,000  (0.17% of average  loans) in 1996.
Peoples' ratio of nonperforming loans to total loans was 0.96% of total loans at
December 31, 1997  compared to 0.09% at December 31, 1996.  At December 31, 1997
and December 31, 1996,  Peoples' allowance for loan losses was 1.35% and 1.17% ,
respectively,  of total loans.  The allowance for loan losses as a percentage of
nonperforming  loans at December  31, 1997 and December 31, 1996 was 141.15% and
1,378.09% , respectively. See "Item 6. Selected Consolidated Financial Data" and
"Item 7.  Management's  Discussion  and  Analysis of Results of  Operations  and
Financial Condition" for supplemental information.

Loans. During 1997, total loans (excluding loans held for sale) increased $73.94
million or 22.2%.  During that period,  commercial loans increased $30.0 million
or 16.5%,  consumer loans  increased  $24.95 million or 33.2% and mortgage loans
increased  $19.03 million or 25.3%.  During 1996,  total loans increased  $61.86
million or 22.8%.  During that period,  commercial loans increased $50.4 million
or 38.16%,  mortgage loans  increased $2.4 million or 3.29%,  and consumer loans
increased $9.06 million, or 13.69%.

A classification of amounts due in the periods indicated for commercial and real
estate construction loans is indicated in the following table as of December 31,
1997.  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.

<PAGE>
<TABLE>
<CAPTION>
                                                          After 1
                                                            But
                                            Within         Within      After
                                            1 Year        5 Years     5 Years        Total
                                            ------        -------     -------        -----

                                                             (In thousands)
<S>                                         <C>           <C>         <C>          <C>     
Commercial...............................   $110,219      $71,759     $ 3,111      $185,089
Real estate -- construction..............     22,659        2,705           0        25,364
                                              ------        -----           -        ------

Total                                       $132,878      $74,464      $3,111      $210,453
                                            ========      =======      ======      ========

Interest sensitivity:
With fixed rates.........................                 $25,212      $2,396
With variable rates......................                  49,253         715
                                                           ------         ---

             Total.......................                 $74,465      $3,111
                                                          =======      ======
</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.

<TABLE>
<CAPTION>


                                                          December 31,
                                    1997         1996         1995         1994        1993
                                  -------      -------      -------      -------      -------
                                                     (Dollars in thousands)
Balance of allowance at
<S>                               <C>          <C>          <C>          <C>          <C>    
beginning of period ..........    $ 3,900      $ 3,290      $ 2,704      $ 2,513      $ 2,288
Recoveries of loans previously
charged off:
Commercial loans .............        255           36           83          113           98
Consumer loans ...............         49           41           92           66           69
Mortgage loans ...............          0           15            0            0            0
                                  -------      -------      -------      -------      -------

           Total recoveries ..        304           92          175          179          167
Loans charged off:
Commercial loans .............        382          257          103          275          199
Consumer loans ...............        106          350           74          136          292
Mortgage loans ...............          0            0          (52)         105           57

           Total charge-offs .        488          607          125          516          548
                                  -------      -------      -------      -------      -------

           Net charge-offs ...       (184)        (515)          50         (337)        (381)
Provision for loan losses ....      1,800        1,125          536          528          606
                                  -------      -------      -------      -------      -------

Balance of allowance at
end of period ................    $ 5,516      $ 3,900      $ 3,290      $ 2,704      $ 2,513
                                  =======      =======      =======      =======      =======

Net charge-offs to average
loans outstanding for period .        .05%        0.17%       (0.02)%       0.18%        0.23%
Allowance at end of period to
loans at end of period .......       1.35         1.17         1.20         1.26         1.42
Allowance to nonperforming
loans at end of period .......     141.15     1,378.09       256.43       164.38       117.98
</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,
                                     1997                               1996                                 1995
                                     ----                               ----                                 ----

                                              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.       $2,597       47.08%      52.22%     $1,124       28.82%    54.82%      $  839         25.50%      48.73%
Consumer loans ..          528        9.57       24.61         398       10.21     22.58          350         10.64       24.40
Mortgage loans ..          237        4.30       23.17         378        9.69     22.60          377         11.46       26.87
Unallocated .....        2,154       39.05         N/A       2,000       51.28       N/A        1,724         52.40         N/A
                        ------      ------      ------      ------      ------    ------       ------        ------      ------ 
Total ...........       $5,516      100.00%     100.00%     $3,900      100.00%   100.00%      $3,290        100.00%     100.00%
                        ======      ======      ======      ======      ======    ======       ======        ======      ======
</TABLE>

<TABLE>
<CAPTION>
                                              At December 31,
                                  1994                                1993
                     --------------------------------   --------------------------------  

                                           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     $  709       26.22%      46.94%    $  784       31.20%    47.41%
Consumer loans .        594       21.97       30.66        589       23.44     32.64
Mortgage loans .        121        4.47       22.40        194        7.72     19.95
Unallocated ....      1,280       47.34         N/A        946       37.64       N/A
                     ------      ------      ------     ------      ------    ------ 
Total ..........     $2,704      100.00%     100.00%    $2,513      100.00%   100.00%
                     ======      ======      ======     ======      ======    ======
</TABLE>


Other Real Estate. Other real estate ("ORE") are properties of which Peoples has
taken  possession.  The carrying value of ORE was $209,000 at December 31, 1997,
$236,000 at December 31, 1996, and $240,000 at December 31, 1995. ORE is carried
at the lower of cost (fair value at  foreclosure)  or fair value,  less expected
disposition  cost.  All carrying  costs (e.g.,  taxes,  insurance) are expensed.
Peoples generally has annual appraisals performed on all ORE. An amount required
to write  down the  carrying  value to  appraised  value is  charged  to income.
Peoples  utilizes the services of an outside  manager for ORE  properties.  That
person  maintains  the  properties,  provides for repairs and  improvements  and
pursues the disposition.

Nonperforming  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.

Nonperforming  loans are those loans that are on nonaccrual  status, are 90 days
or more past due as to  principal  or interest  or those that are  restructured.
Nonperforming assets consist of nonperforming loans and ORE. The following table
shows the principal balance of nonperforming assets at the dates indicated.



<TABLE>
<CAPTION>
                                                                      December 31,

                                                  1997        1996        1995        1994        1993
                                                --------    --------    --------    --------    --------

                                                                  (Dollars in thousands)
<S>                                             <C>         <C>         <C>         <C>         <C>     
Nonaccrual ..................................   $  3,626    $    234    $    838    $    970    $  1,762
Contractually past due 90
days or more as to
principal or interest .......................         16          49         445         675         368
Restructured ................................        266           0           0           0           0
                                                --------    --------    --------    --------    --------

Total nonperforming loans ...................      3,908         283       1,283       1,645       2,130
Other real estate ...........................        209         236         240           0         101
                                                --------    --------    --------    --------    --------

Total nonperforming assets ..................   $  4,117    $    519    $  1,523    $  1,645    $  2,231
                                                ========    ========    ========    ========    ========

Total loans, including loans
held for sale ...............................   $407,454    $333,374    $273,650    $215,151    $176,840
Allowance for loan losses ...................      5,516       3,900       3,290       2,704       2,513
Nonperforming loans to total loans ..........        .96%       0.09%       0.47%       0.76%       1.20%
Nonperforming assets to total
loans plus other real estate
owned .......................................       1.01%       0.16%       0.56%       0.76%       1.26%
Allowance for loan losses
to nonperforming loans ......................     141.15%   1,378.09%     256.43%     164.38%     117.98%
</TABLE>


As of December  31,  1997,  nonperforming  loans have  increased  $3,625,000  to
$3,908,000  from $0.3 million at December 31, 1996.  The increase in  nonaccrual
loans is primarily  attributable  to a large credit totaling  aproximately  $2.3
million and consists of credit facilities  extended to two related companies and
their owner. Management is continuing to monitor the status of this loan and, if
it deems necessary,  may charge-off the loan, and make a significant addition to
the  provision  for loan  losses in respect of such loan which may be charged to
earnings in the current quarter.

At December 31, 1997,  excluding  nonaccrual loans,  loans which were 60 days or
more past due were as follows:


<TABLE>
<CAPTION>
                                                            December 31, 1997
                                                          (Dollars in thousands)
                                          Commercial            Mortgage               Consumer
<C>                                             <C>                 <C>                   <C>
60-89 days past due...................          $0                  $0                    $99
More than 90 days past due............           0                   0                     16
</TABLE>


Nonperforming  loans  have  deteriorated  to the point that the  borrower  is no
longer  paying  as  agreed  and has  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) on the loan. Management typically evaluates loss exposure on
these credits based on the liquidation value of the underlying collateral.

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 for impairment.
Residential  mortgage loans and consumer credits are not typically  individually
considered in that analysis.  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 1997,  Peoples  identified  loans with an average  balance of  $4,253,000
million as impaired.  At year end,  $5,241,000 of loans were so  designated  and
$1,145,000 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.  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.

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.


At December 31, 1997,  the Company had a total of $15.6  million of loans on its
commercial loan watch list. Loans may be placed on the watch list as a result of
delinquent status, 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.

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 four 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, 1997, all securities were considered
"available for sale."

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 or  repricing,  the  amortized  cost and the weighted  average yield of
securities  held as of  December  31,  1997.  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
                           Amount    Yield      Amount       Yield      Amount      Yield      Amount      Yield     Total
                           ------    -----      ------       -----      ------      -----      ------      -----     -----
                                                                      (Dollars in thousands)
Obligation of U.S.
government
agencies and
government
<S>                      <C>          <C>         <C>            <C>       <C>            <C>     <C>            <C>       <C>     
sponsored agencies ...   $  2,000     6.08%       $ 13,488       6.46%     $  5,353       6.58%       $---        ---%     $ 20,841
Obligations of states                                                                                            
and political                                                                                                    
subdivisions .........      6,585     6.26          15,294       5.57         4,905       5.61         450        5.00       27,233
                                                                                                                 
Debt securities issued                                                                                           
by foreign                                                                                                       
governments ..........         --       --              75       7.98            --        --           --         --            75
                                                                                         
Corporate securities .         --       --              --         --         1,698       6.29       2,365       8.00         4,063
Mortgage-backed                                                                                                  
investments ..........      9,439     6.24          87,790       6.6         53,101       6.73         309       6.62       100,640
                         --------                 --------                 --------               --------                  --------
                                                                                                                                
                                                                                                                 
Total ................   $ 18,024     6.23        $116,647       6.49      $ 15,057       6.26    $  3,124       7.43      $152,852
                         ========                 ========                 ========               ========                 ========
</TABLE>  

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,
                                             1997                 1996                 1995
                                             ----                 ----                 ----

                                                             (In thousands)
Available-for sale securities:
<S>                                       <C>                       <C>               <C>      
U.S. Treasury securities...............   $    7,093                $  7,031          $  19,100
Obligations of U.S. Government
agencies and government
sponsored agencies.....................       13,855                   8,989              8,980
Obligations of states and
political subdivisions.................       27,846                  32,634             38,173
Mortgage-backed investments:
Issued by U.S. Government
            agencies...................      100,932                  41,620             35,589
Issued by other corporate
            entities...................            0                     731              2,289
Debt securities issued by foreign
governments............................           75                      75                 70
Corporate securities...................        4,069                   3,509              3,544
                                            --------                 -------           --------

            Total securities...........     $153,870                 $94,589           $107,745
                                            ========                 =======           ========
</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,
                                       1997              1996          1995
                                       ----              ----          ----

                                                   (In thousands)
Deposits:
Non-interest bearing............      $  82,132        $  83,911     $  67,966
Interest-bearing................        426,179          327,894       283,796
                                       --------          -------       -------

Total deposits..................       $508,311         $411,805      $351,762
                                       ========         ========      ========

Total deposits/total assets.....          84.93%           87.34%        84.35%

Peoples  regularly  accepts time deposits issued in denominations of $100,000 or
more.  Balances of such  deposits  were $69.5  million at December  31, 1997 and
$13.6 million at December 31, 1996.  The  contractual  maturity of such deposits
was as follows:

                                                          December 31,

                                                    1997               1996
                                                    ----               ----

                                                         (In thousands)
Maturity distribution of time 
certificates in amounts of $100,000 or more:
Three months or less............................    $39,571           $  5,196
Over three months to six months.................      9,281              2,000
Over six months.................................      3,018              2,599
Over twelve months..............................     17,603              3,811
                                                     ------              -----

            Total...............................    $69,473            $13,606
                                                    =======            =======



Short-Term  Borrowings.  Summary information  regarding  repurchase  agreements,
which comprised the majority of Peoples'  short-term  borrowings during 1997, is
presented below. 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 and have been a relatively stable source of
funds for Peoples.

                                                      December 31,
                                          1997          1996           1995
                                          ----          ----           ----

                                                      (In thousands)
Repurchase agreements:
Average for the year:
Amount outstanding...................    $11,064        $11,964        $26,413
Weighted average interest rate.......       4.32%          4.69%          5.95%
At year-end:
Amount outstanding...................    $12,180        $10,266        $16,056
Weighted average interest rate.......       4.30%          4.38%          4.95%
Maximum amount outstanding at any
month-end during the year............    $12,180        $14,052        $46,578



Trust Operations

Peoples' Trust and Investment Management Group offers a variety of fiduciary and
trust  services  and provides a growing  source of fee income to Peoples.  Trust
fees were  $1,546,000  in 1997,  $1,342,000 in 1996,  $1,304,000  in 1995.  This
reflects  increases  for 1997 and 1996 of $204,000  (15.2%) and $38,000  (2.9%),
respectively.  Trust assets were $523.9  million at December  31,  1997,  $427.0
million at December 31, 1996 and $376.1  million at December 31, 1995.  Peoples'
Trust and  Investment  Management  Group serves as trustee or agent for over 200
employee benefit plans, is trustee for over 500 personal trust accounts, estates
and guardianships and provides a variety of corporate trust and agency services.
The Trust and  Investment  Management  Group  obtains  referrals  from  existing
customers,  attorneys and  accountants,  and is actively  seeking to develop new
business,  especially among non-profit  corporations and employee benefit plans.
The Company believes that opportunities exist for growth in Trust and Investment
Management activities.

Employees

As of December 31, 1997, the Company and Peoples had approximately 179 full-time
and 28 part-time employees.  Turnover increased slightly from 28% in 1996 to 34%
in 1997.  The majority of the turnover was seen in part-time  teller  positions.
Significant  effort was spent in 1997 on building the bank's management  talent,
including three new senior  vice-presidents.  Additionally,  the testing process
for officers was enhanced.  The bank continued to build toward  incentive  plans
for all staff  linked to each unit's  performance  and  profitability.  A strong
emphasis  was also  placed on  bringing  compensation  in line with the  market,
revising the non-exempt  performance  appraisal system, and revising the process
for achieving  officer  title status.  The bank embraced a new Sales and Service
culture in 1997. The new culture  resulted in sales and product training for all
staff.  Leadership  training and sexual  harassment  training were also provided
this year.  Benefit  improvements  included an increased 401(k) match,  expanded
educational  assistance  policy,  and a slight change in the vacation  policy to
bring  it in  line  with  the  competition.  The  bank  considers  its  employee
relationships to be good.

Electronic Data Processing

In 1990, Peoples purchased two IBM AS400 computers and new banking software when
it established its Operations  Center on the north side of  Indianapolis.  These
changes have enabled Peoples to achieve  substantial  efficiencies in electronic
data  processing  ("EDP") and to keep pace with  developments  in the  financial
services industry by continuing to offer new competitive  financial services and
products.  An example is  Peoples'  "Cash  Manager"  account  which  offers both
checking and  investment  features  through a "sweep"  arrangement.  Peoples has
enhanced this commercial service by adding the first Windows based PC-based cash
management  service.  This  product  has  proven to be  attractive  to  business
customers.

The Company has an established technology maximization committee to keep abreast
of  technological  developments  and to consider new products and more efficient
ways to employ the technological capabilities.

In 1997 Peoples installed an image-based  wholesale lockbox processing system to
accommodate the growth in this product.  The system is designed to significantly
increase worker productivity and improve quality.

Peoples offers 24-hour telephone banking that provides balance inquiry and funds
transfer.  Peoples Bank has 12 ATMs and is affiliated with the MAC network which
affords  Peoples'  customers access to MAC ATMs nationwide as well as all Cirrus
ATMs  worldwide.  Peoples has  introduced a check card  affording  customers the
ability to use their ATM cards at all merchants  accepting VISA. This capability
is  expected  to  increase  usage of the ATM card and  generate  additional  fee
revenues.

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.
Peoples has  identified  a number of critical  software  vendors,  and is in the
process of  communicating  with each vendor about their compliance with the Year
2000  issue.  Peoples  has no  internally  generated  code,  and all of its core
processing is supplied by FISERV, one of the nation's leading software suppliers
for community banks.  Management  believes that Peoples' core processing systems
will be Year 2000 compliant by the middle of 1998, and anticipates completion of
testing by the end of 1998.  As a result,  management  does not believe that the
Year 2000 issue  represents a significant risk to Peoples'  operations,  and the
expense in connection  with Year 2000  compliance is not expected to be material
to its overall financial condition.

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. The
Federal Reserve has issued  regulations  under the BHCA requiring a bank holding
company  to  serve as a source  of  financial  and  managerial  strength  to its
subsidiary banks. It is the policy of the Federal Reserve that, pursuant to this
requirement,  a bank holding  company should stand ready to use its resources to
provide  adequate  capital  funds to its  subsidiary  banks  during  periods  of
financial stress or adversity. Additionally, under the Federal Deposit Insurance
Corporation  Improvement  Act of 1991  ("FDICIA"),  a bank  holding  company  is
required to  guarantee  the  compliance  of any insured  depository  institution
subsidiary that may become  "undercapitalized"  (as defined in the statute) with
the terms of any  capital  restoration  plan filed by such  subsidiary  with its
appropriate federal banking agency up to the lesser of (i) an amount equal to 5%
of  the  institution's   total  assets  at  the  time  the  institution   became
undercapitalized,  or (ii) the  amount  that is  necessary  (or would  have been
necessary) to bring the institution into compliance with all applicable  capital
standards  as of the time the  institution  fails to comply  with  such  capital
restoration  plan.  Under the BHCA,  the Federal  Reserve has the  authority  to
require a bank holding  company to terminate any activity or relinquish  control
of a nonbank  subsidiary  (other than a nonbank  subsidiary  of a bank) upon the
Federal  Reserve's  determination  that such  activity or control  constitutes a
serious risk to the financial  soundness and stability of any bank subsidiary of
the bank holding company.

Under the BHCA, a bank  holding  company must obtain  Federal  Reserve  approval
before:  (i)  acquiring,  directly or  indirectly,  ownership  or control of any
voting  shares  of  another  bank  or  bank  holding   company  if,  after  such
acquisition,  it would own or  control  more than 5% of such  shares  (unless it
already owns or controls the majority of such  shares);  (ii)  acquiring  all or
substantially  all of the assets of another  bank or bank  holding  company;  or
(iii) merging or consolidating with another bank holding company.

Prior to  September  29,  1995,  the BHCA  prohibited  the Federal  Reserve from
approving any direct or indirect  acquisition by a bank holding  company of more
than 5% of the voting shares, or of all or substantially all of the assets, of a
bank located  outside of the state in which the  operations  of the bank holding
company's  banking  subsidiaries are principally  located unless the laws of the
state in which the bank to be acquired is located specifically authorize such an
acquisition.  Pursuant to amendments to the BHCA which took effect September 29,
1995, the Federal  Reserve may now allow a bank holding company 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,  including  limitations on the aggregate amount of deposits
that  may be held  by the  acquiring  holding  company  and  all of its  insured
depository  institution affiliates and state law provisions requiring the target
bank to have existed for some period of time (not exceeding five years) prior to
the date of acquisition.

The BHCA also prohibits the Company,  with certain  exceptions noted below, from
acquiring direct or indirect  ownership or control of more than 5% of the voting
shares of any  company  which is not a bank and from  engaging  in any  business
other  than  that of  banking,  managing  and  controlling  banks or  furnishing
services to banks and their subsidiaries, except that bank holding companies may
engage in, and may own shares of companies engaged in, certain  businesses found
by the  Federal  Reserve to be "so  closely  related to banking . . . as to be a
proper incident thereto." Under current regulations of the Federal Reserve,  the
Company and any non-bank subsidiaries it may control are permitted to engage in,
among other activities,  such  banking-related  businesses as 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.

Capital Adequacy  Guidelines for Bank Holding Companies.  The Federal Reserve is
the federal regulatory and examining  authority for bank holding companies.  The
Federal  Reserve  has  adopted  capital  adequacy  guidelines  for bank  holding
companies.

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%. 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  and Peoples  are  required  to comply  with  capital  requirements
promulgated  by their  primary  regulators  that  affect  their  ability  to pay
dividends  and can  affect  their  operations.  Those  regulations  require  the
maintenance  of  specified  levels of capital (as  defined) to total assets (the
leverage  ratio) and to risk weighted  assets (the  risk-based  capital  ratio).
These regulations  require the maintenance of a leverage ratio of at least 3.00%
(only for the most sound institutions, others will be required to maintain 4% or
5%) and a total risk-based capital ratio of at least 8.00%.

The Company was in full compliance with all regulatory  capital  requirements at
December 31, 1997. The following  table  indicates the Company's  actual capital
levels at the dates indicated:

                                                      At December 31,
                                               1997         1996       1995
                                             --------    --------    --------
                                                   (Dollars in thousands)
Total assets (1) .........................   $597,861    $471,192    $416,781
Risk-based assets ........................    428,689     346,971     301,426
Tier I capital ...........................     48,192      45,063      41,398
Total capital ............................     53,553      48,963      44,688
Leverage ratio ...........................       8.26%       9.62%       9.93%
Tier I risk-based capital ratio...........      11.24       12.99       13.73
Total risk-based capital ratio............      12.49       14.11       14.83
                                
(1)  Adjusted  to  exclude  net  unrealized   gain/loss  on   available-for-sale
     securities.

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. See "--Deposit Insurance."

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.

Insured  state-chartered  banks are  prohibited  under  FDICIA from  engaging as
principal in activities that are not permitted for national banks,  unless:  (i)
the FDIC  determines  that the activity  would pose no  significant  risk to the
appropriate  deposit  insurance fund, and (ii) the bank is, and continues to be,
in  compliance  with all  applicable  capital  standards.  The Company  does not
believe  that  these  restrictions  will have a material  adverse  effect on its
current operations.

Federal Home Loan Bank System.  During 1994, Peoples was approved for membership
in the Federal Home Loan Bank  ("FHLB")  System.  FHLB  membership  will provide
Peoples with a ready source from which to borrow  short-term  funds from time to
time. The FHLB System consists of 12 regional banks. The Federal Housing Finance
Board ("FHFB"),  an independent  agency,  controls the FHLB System including the
FHLB of  Indianapolis.  The FHLB  System  provides  a  central  credit  facility
primarily for member savings and loan  associations  and savings banks and other
member  financial  institutions.  Peoples is  required to hold shares of capital
stock in the FHLB of  Indianapolis in an amount at least equal to the greater of
1% of the aggregate  principal amount of its unpaid residential  mortgage loans,
home  purchase  contracts  and similar  obligations  at the end of each calendar
year. Peoples is currently in compliance with this requirement.  At December 31,
1997, Peoples' investment in stock of the FHLB of Indianapolis was $2.3 million.

In past years,  Peoples has received  dividends on its FHLB stock.  All 12 FHLBs
are  required by law to provide  funds for the  resolution  of troubled  savings
associations and to establish  affordable  housing programs through direct loans
or  interest  subsidies  on  advances  to  members  to be used  for  lending  at
subsidized interest rates for low- and moderate-income,  owner-occupied  housing
projects, affordable rental housing, and certain other community projects. These
contributions  and obligations  could adversely affect the FHLBs' ability to pay
dividends and the value of FHLB stock in the future. For the year ended December
31, 1997, dividends paid to Peoples by the FHLB of Indianapolis totaled $137,000
for an annual rate of 7.98%.

The FHLB of  Indianapolis  serves  as a  reserve  or  central  bank  for  member
institutions  within its assigned  region.  It is funded primarily from proceeds
derived from the sale of consolidated  obligations of the FHLB System.  It makes
advances to members in accordance  with policies and  procedures  established by
the FHFB and the Board of Directors of the FHLB of Indianapolis.

All FHLB advances  must be fully secured by sufficient  collateral as determined
by the FHLB. Eligible collateral includes first mortgage loans less than 90 days
delinquent or securities  evidencing  interests therein,  securities  (including
mortgage-backed  securities)  issued,  insured  or  guaranteed  by  the  federal
government or any agency thereof,  FHLB deposits and, to a limited extent,  real
estate with readily  ascertainable  value in which a perfected security interest
may  be  obtained.   Other  forms  of   collateral   may  be  accepted  as  over
collateralization  or,  under  certain   circumstances,   to  renew  outstanding
advances.  All long-term  advances must be used to provide funds for residential
home financing and the FHLB has established  standards of community service that
members must meet to maintain access to long-term advances.

Interest rates charged for advances vary  depending  upon maturity,  the cost of
funds to the FHLB of Indianapolis and the purpose of the borrowing.

Bank  Capital  Requirements.  The  FDIC has  adopted  risk-based  capital  ratio
guidelines to which Peoples is subject.  The  guidelines  establish a systematic
analytical  framework that makes regulatory capital  requirements more sensitive
to differences in risk profiles among banking organizations.  Risk-based capital
ratios are  determined by  allocating  assets and  specified  off-balance  sheet
commitments  to four risk  weighted  categories,  with higher  levels of capital
being required for the categories perceived as representing greater risk.

Like the capital guidelines  established by the Federal Reserve for the Company,
these  guidelines  divide a bank's capital into two tiers. The first tier ("Tier
I") includes common equity,  certain  non-cumulative  perpetual  preferred stock
(excluding  auction rate issues) and  minority  interests in equity  accounts of
consolidated  subsidiaries,  less goodwill and certain other  intangible  assets
(except  mortgage  servicing  rights and  purchased  credit card  relationships,
subject to certain  limitations).  Supplementary  ("Tier II") capital  includes,
among other items,  cumulative  perpetual and long-term  limited life  preferred
stock,  mandatory  convertible  securities,  certain hybrid capital instruments,
term subordinated  debt and the allowance for loan and lease losses,  subject to
certain limitations,  less required deductions. Banks are required to maintain a
total  risk-based  capital ratio of 8%, of which 4% must be Tier I capital.  The
FDIC may,  however,  set higher capital  requirements  when a bank's  particular
circumstances warrant. Banks experiencing or anticipating significant growth are
expected to maintain capital ratios, including tangible capital positions,  well
above the minimum levels.

In  addition,  the FDIC  established  guidelines  prescribing  a minimum  Tier I
leverage  ratio (Tier I capital to adjusted  total  assets as  specified  in the
guidelines).  These guidelines provide for a minimum Tier I leverage ratio of 3%
for banks that meet certain  specified  criteria,  including  that they have the
highest  regulatory rating and are not experiencing or anticipating  significant
growth.  All other banks are required to maintain a Tier I leverage  ratio of 3%
plus an additional cushion of at least 100 to 200 basis points.

Certain regulatory capital ratios under the FDIC's risk-based capital guidelines
for Peoples at December 31, 1997 are shown below:


Tier I Capital to Risk-Weighted Assets................            9.96%
Total Risk-Based Capital to Risk-Weighted Assets......           11.21
Tier I Leverage Ratio.................................            7.33

Dividend  Limitations.  Under Federal Reserve supervisory policy, a bank holding
company  generally  should not maintain its existing  rate of cash  dividends on
common  shares  unless (i) the  organization's  net income  available  to common
shareholders  over the past year has been sufficient to fully fund the dividends
and (ii) the prospective rate of earnings  retention appears consistent with the
organization's  capital needs, asset quality,  and overall financial  condition.
The  Company's  Board of Directors  has adopted a policy  consistent  with these
guidelines. The FDIC also has authority to prohibit a bank from paying dividends
if, in its  opinion,  the payment of  dividends  would  constitute  an unsafe or
unsound practice in light of the financial condition of the bank.

Under Indiana law, the Company is precluded from paying cash dividends if, after
giving effect to such dividends, the Company would be unable to pay its debts as
they become due or the Company's total assets would be less than its liabilities
and obligations to preferential shareholders. Under Indiana law, Peoples may pay
dividends so long as its capital is unimpaired  and it has  unimpaired  retained
surplus equal to 25% of capital.  Dividends may not exceed undivided  profits on
hand  (less  losses,  bad  debts  and  expenses).  The  most  stringent  capital
requirements  affecting  Peoples,  however,  are those established by the prompt
corrective  action  provisions of FDICIA,  which are discussed  below.  Peoples'
capital levels currently  exceed the criteria  established to be designated as a
"well capitalized"  institution.  Such institutions are required to have 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.  At  December  31,  1997,
Peoples'  total  risk-based  capital,  Tier I  risk-based  capital and  leverage
capital  exceeded the amounts  required to be designated  "well  capitalized" by
$5.2 million, $16.9 million and $13.5 million, respectively.

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.  An
additional amount up to 10% of the bank's capital and unimpaired  surplus may be
loaned to the same borrower if such loan is fully secured by readily  marketable
collateral  having a market value,  as  determined by reliable and  continuously
available  price  quotations,  at least  equal to the amount of such  additional
loans outstanding.

Limitations  on Rates Paid for  Deposits.  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.  Under these
regulations,  "well-capitalized"  depository  institutions may accept,  renew or
roll such deposits over without restriction, "adequately capitalized" depository
institutions may accept, renew or roll such deposits over with a waiver from the
FDIC   (subject   to   certain   restrictions   on   payments   of  rates)   and
"undercapitalized"  depository  institutions may not accept,  renew or roll such
deposits  over.  The  regulations  contemplate  that  the  definitions  of "well
capitalized,"  "adequately  capitalized" and "undercapitalized" will be the same
as the  definition  adopted by the agencies to implement the  corrective  action
provisions of FDICIA.  Peoples does not believe that these regulations will have
a materially adverse effect on its current operations.

Safety and Soundness Standards.  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.

Transactions with Affiliates.  Peoples is subject to Sections 22(h), 23A and 23B
of the Federal Reserve Act which restrict financial  transactions  between banks
and affiliated companies.  The statute limits credit transactions between a bank
and its executive  officers and its affiliates,  prescribes terms and conditions
for bank  affiliate  transactions  deemed to be  consistent  with safe and sound
banking practices,  and restricts the types of collateral  security permitted in
connection with a bank's extension of credit to an affiliate.

Prompt  Corrective  Action.  FDICIA 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. For example, a bank that is categorized as "undercapitalized"  would be
subject  to  growth  limitations  and  would be  required  to  submit a  capital
restoration  plan,  and a holding  company  that  controls  such a bank would be
required  to  guarantee  that  the bank  complies  with  the  restoration  plan.
"Significantly   undercapitalized"   banks   would  be  subject  to   additional
restrictions. Banks deemed by the FDIC to be "critically undercapitalized" would
be subject to the appointment of a receiver or conservator.

Deposit  Insurance.  Peoples'  deposits  are insured up to $100,000  per insured
account by the Bank Insurance Fund ("BIF") of the FDIC. As an institution  whose
deposits  are insured by the BIF,  Peoples is required to pay deposit  insurance
premiums to the BIF.

The FDIC administers two separate  insurance funds, the BIF for commercial banks
and state savings banks and the Savings Association  Insurance Fund ("SAIF") for
savings  associations  and  banks  that  have  acquired  deposits  from  savings
associations.  The FDIC is required to maintain designated levels of reserves in
each fund.  As of  December  31,  1997,  the  reserves  of the BIF met the level
required by law.

The FDIC is authorized to establish separate annual assessment rates for deposit
insurance for members of the BIF and members of the SAIF.  The FDIC may increase
assessment  rates for either fund if  necessary  to restore the fund's  ratio of
reserves to insured  deposits to the target level  within a reasonable  time and
may  decrease  such  rates  if such  target  level  has been  met.  The FDIC has
established a risk- based assessment system for both SAIF and BIF members. Under
this system, assessments vary depending on the risk the institution poses to its
deposit insurance fund. Such risk level is determined based on the institution's
capital level and the FDIC's level of supervisory concern about the institution.
Because of the  differing  reserve  levels of the SAIF and the BIF,  the deposit
insurance assessments paid by healthy BIF-insured institutions were reduced over
time so as to be significantly lower than the level paid by healthy SAIF-insured
institutions.

On September  30, 1996,  President  Clinton  signed into law  legislation  which
included  provisions  designed  to  recapitalize  the  SAIF  and  eliminate  the
significant  premium  disparity between the BIF and the SAIF. Under the new law,
members of SAIF were charged a one-time  special  assessment based on assessable
deposits at March 31, 1995. BIF institutions pay only 20% of the rate being paid
by SAIF institutions on their deposits with respect to obligations issued by the
federally-chartered  corporation which provided  financing to resolve the thrift
crisis in the 1980's ("FICO"). As a result, BIF institutions such as Peoples pay
lower assessments than comparable SAIF institutions.


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.

Limitations  on  Repurchase  of Common  Stock of  Holding  Company.  Regulations
promulgated by the Federal Reserve provide that a bank holding company must file
written  notice with the Federal  Reserve prior to any  repurchase of its equity
securities if the gross consideration for the purchase, when aggregated with the
net  consideration  paid by the bank holding company for all repurchases  during
the preceding 12 months,  is equal to 10% or more of the bank holding  company's
consolidated net worth. This notice requirement is not applicable, however, to a
bank  holding  company  that  exceeds  the  thresholds  established  for a  well
capitalized  state  member  bank and that  satisfies  certain  other  regulatory
requirements.

Under Indiana law, the Company will be precluded  from  repurchasing  its equity
securities  if, after giving  effect to such  repurchase,  the Company  would be
unable to pay its debts as they become due or the Company's assets would be less
than its liabilities and obligations to preferential shareholders.

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.
Peoples owns the main office  building  through a wholly-owned  subsidiary.  The
main  office   building  is  a  twelve  story   building   located  in  downtown
Indianapolis.  The main  office  branch is  located  on the  first  level of the
building and, in addition, Peoples occupies the second, third, fourth, fifth and
part of the sixth  floors.  The Board Room and training  area are located on the
twelfth floor. All other areas are leased to other tenants.


At December 31, 1997,  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 1.6 to
22.2 years.  The Company will develop plans and analyze  opportunities to expand
its number of  locations  if the  expansion  appears to  represent a  profitable
opportunity.  Peoples  operations  center on the north side of  Indianapolis  is
leased for a term  (including  renewal  options)  ending 2010.  In January 1997,
Peoples  closed  its  northside  mortgage  office  and  moved  the  staff to the
operations center.


The  following  table  provides  certain  information  with  respect to Peoples'
properties  as  of  December  31,  1997.  All  offices  listed  are  located  in
Indianapolis, Indiana.

                                                                 Approximate
                                  Year Opened    "ART" ATM         Square
Description and Address           or Acquired    Location          Footage
-----------------------           -----------    --------          -------
Main Office
130 East Market Street               1905           ATM           3,500
Castleton Office
6071 East 82nd Street                1983           ATM           3,400
Chapel Hill Office (1)
7365 West 10th Street                1965           ATM           3,200
College Park Office (2)
8910 Wesleyan Road                   1985           ATM           6,647
Lafayette Road Office (1)
2802 Lafayette Road                  1956           ATM           3,200
Greenwood Place Office
7921 South U.S. Hwy. 31              1986           ATM           3,520
Lawrence Office
6909 East 38th Street                1951           ATM           3,275
Madison/Thompson Office
4940 Madison Avenue                  1963           ATM           2,800
71st & Keystone Office
2411 East 71st Street                1967           ATM           2,000
West 86th Street Office
1851 West 86th Street                1970           ATM           3,525
Winona Office (1)
3266 North Meridian                  1970                         2,000
Washington Square Office (1)
10001 East Washington Street         1995           ATM           2,801
Operations Center (1)
5840 West 74th Street                1990                         21,905

(1)      Leased facility.
(2)      Includes 2,927 square feet leased to a tenant through July 1998

Peoples has 24-hour automatic teller machines ("ATMs") at eleven of its branches
as indicated  above.  The automatic teller machines operate under the trade name
"ART".  Peoples' ATMs participate in the nationwide CIRRUS and MAC ATM networks.
See "Item 1. Business--Electronic Data Processing."

Peoples owns  substantially  all of its computer and data  processing  equipment
used  for  transaction  processing,   accounting,  financial  forecasting,  loan
documentation  and all other data  processing and reporting  services.  The main
data processing facility is at the Operations Center.

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.

None

<PAGE>


                                     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 9, 1997.

Trading Period                        High                   Low
-------------------                  --------               ------
01/01/95 - 03/27/95                  10 15/16               9.5
04/01/95 - 06/30/95                  10 1/4                 9.5
07/01/95 - 09/30/95                  12                     9.5
10/01/95 - 12/31/95                  12 5/8                 11 5/8
01/01/96 - 03/31/96                  14 3/4                 12 1/8
04/01/96 - 06/30/96                  15 1/8                 12 3/8
07/01/96 - 09/30/96                  17 1/8                 14 1/4
10/01/96 - 12/31/96                  18 3/8                 16 1/2
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 - 03/09/98                  40 3/4                 35 1/4

As of March 9, 1998, there were 220 holders of record of the Company's Nonvoting
Common Shares, of which 2,812,834 were issued and outstanding.  As of such date,
there were 37 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.

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 1995 are as follows:

                                                 Cash Dividends
                                              Per Common Share
Calandar Quarter
1995
First Quarter.......................                  $0.085
Second Quarter.........................                0.085
Third Quarter..........................                0.09
Fourth Quarter.........................                0.09

1996
First Quarter.......................                  $0.09
Second Quarter.........................                0.09
Third Quarter..........................                0.095
Fourth Quarter.........................                0.10

1997
First Quarter.......................                  $0.105
Second Quarter.........................                0.11
Third Quarter..........................                0.115
Fourth Quarter.........................                0.12


On March 19, 1998,  the Company  declared a dividend of $0.125 per share payable
to  shareholders  of record March 31, 1998.  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,  1997.  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.

<TABLE>
<CAPTION>
                                                                       As Of and For The
                                                                      Year Ended December 31,
                                                  1997         1996            1995            1994           1993
                                              -----------    -----------    -----------     -----------    -----------
                                                                       (Dollars in thousands, except per share data)
Consolidated Statements of Income Data:
<S>                                                <C>            <C>        <C>             <C>            <C>        
Interest income ............................       $39,729        $32,251    $    31,034     $    24,806    $    23,132
Interest expense ...........................        18,119         14,044         14,869          10,462          8,747
                                               -----------    -----------    -----------     -----------    -----------

Net interest income ........................        21,610         18,207         16,165          14,344         14,385
Provision for loan losses ..................         1,800          1,125            536             528            606
                                               -----------    -----------    -----------     -----------    -----------

Net interest income after
          provision for loan losses ........        19,810         17,082         15,629          13,816         13,779
Other operating income .....................         5,953          5,437          4,868           4,819          4,912
Other operating expense ....................        16,469         14,794         15,316          14,885         13,293
                                               -----------    -----------    -----------     -----------    -----------

Income before income taxes
          and cumulative effect of change in
          accounting method (1) ............         9,294          7,725          5,181           3,750          5,398
Income taxes ...............................         3,016          2,316          1,295             865          1,676
                                               -----------    -----------    -----------     -----------    -----------

Income before cumulative effect of
          change in accounting method (1) ..         6,278          5,409          3,886           2,885          3,722
Cumulative effect of change in
accounting method (1) ......................             0              0              0                          0 100
                                               -----------    -----------    -----------     -----------    -----------

          Net income .......................   $     6,278    $     5,409    $     3,886     $     2,885    $     3,822
                                               ===========    ===========    ===========     ===========    ===========

Consolidated Balance Sheets Data:
Assets .....................................   $   598,476    $   471,478    $   417,019     $   425,075    $   366,304
Held-to-maturity securities ................            --             --             --                    113,823 100,349
Available-for-sale securities ..............       153,870         94,589        107,745          55,177         43,939
Loans held for sale ........................           561            421          2,557             761          5,007
Total loans ................................       406,893        332,953        271,093         214,390        171,833
Allowance for loan losses ..................         5,516          3,900          3,290           2,704          2,513
Deposits ...................................       508,311        411,805        351,762         346,577        315,074
Shareholders' equity .......................        48,817         45,349         41,636          38,477         29,216
Average shares outstanding basic ...........     3,112,319      3,168,260      3,190,644       3,364,042      2,548,024
Average shares outstanding diluted .........     3,153,051      3,178,202      3,190,644       3,364,042      2,548,024
Per Share Data:
Income before cumulative effect of
change in accounting method (1) basic ......          2.02           1.71           1.22            0.86           1.46
    diluted ................................          1.99           1.70           1.22            0.86           1.46
Net Income basic ...........................          2.02           1.71           1.22            0.86           1.50
     diluted ...............................          1.99           1.70           1.22            0.86           1.50
Cash dividends declared ....................          0.45           0.38           0.35            0.33           0.18
Book value (2) .............................         15.87          14.42          13.10           11.82          11.47
Other Statistics and Operating Data:
Return on average assets ...................          1.18%          1.21%          0.89%           0.73%          1.05%
Return on average equity ...................         13.40          12.62           9.70            7.56          14.16
Net interest margin (3) ....................          4.48           4.67           4.27            4.21           4.61
Efficiency ratio (4) .......................         57.90          60.06          69.18           73.48          66.01
Average loans to average deposits ..........         75.80          76.27          70.65           57.75          54.02
Dividend payout ratio ......................         22.24          21.91          28.64           38.37          11.66
Allowance for loan losses to loans
at the end of period .......................          1.35           1.17           1.20            1.26           1.42
Allowance for loan losses to non-
performing loans ...........................        141.15       1,378.09         256.43          164.38         117.98
Nonperforming loans to loans
at the end of period .......................          0.90           0.09           0.47            0.76           1.20
Net charge-offs to average loans ...........           .05           0.17          (0.02)           0.18           0.23
Number of offices ..........................            13             13             15              15             13
Capital Ratios:
Average shareholders' equity to
average assets .............................          8.78%          9.61%          9.14%           9.62%          7.45%
Leverage ratio .............................          8.26           9.62           9.93            9.26           7.98
Total risk-based capital ratio .............         12.49          14.11          14.83           15.34          14.44
                                               -----------    -----------    -----------     -----------    -----------
</TABLE>

(1)  Effective  January  1,  1993,  the  Company  adopted  Financial  Accounting
     Standard No, 109, Accounting for Income Taxes.

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

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

(4)  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.

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  services to  individuals,  businesses  and  institutions.  Peoples
operates 12 banking  offices in  Indianapolis,  and an operations  center on the
north  side  of  Indianapolis.  The  Company  will  develop  plans  and  analyze
opportunities  to expand its number of  locations  if the  expansion  appears to
represent a profitable opportunity.

Earnings Summary

The  Company's net income for 1997 was  $6,278,000  compared with net income for
1996 of  $5,409,000,  an increase of $869,000 or 16.1%.  Net income for 1995 was
$3,886,000.  Earnings per share assuming full dilution were $1.99 in 1997, $1.70
for 1996 and $1.22 for 1995.

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, 1997,
1996 and 1995, net interest income was $21,610,000, $18,207,000 and $16,165,000,
respectively.  This represents an increase in 1997 of $3,403,000 (18.7%), and an
increase  in  1996  of  $2,042,000   (12.6%).   Increased  net  interest  income
contributed significantly to the net income growth during the period.

Average earning assets  increased to  $502,486,000 in 1997 from  $411,118,000 in
1996, an increase of $91,368,000  (22.2%).  Average loans increased  $69,845,000
(23.6%) to $366,155,000 in 1996.  Increasing loan balances were a primary driver
for the  increase in net  interest  income  during  1997.  Increases in security
balances  were also a source of growth in net  interest  income.  As part of its
efforts to manage  interest  rate risk,  the Company  increased  its balances of
fixed rate securities.

As interest rates  declined,  this  contributed to an increase in the unrealized
gain on  securities  (net of tax) to $615,000 at December 31, 1997 from $286,000
at December 31,  1996.  Increases in loans and  securities  were funded  through
significant  increases in time deposits.  Average deposits increased $82,121,000
(21.1%) to $470,611,000  in 1997 from  $388,490,000 in 1996. 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>
                                                               Years ended December 31,

                                               1997                                1996                          1995

                                                              (Dollar amounts in thousands)

                                         Average               Average   Average            Average    Average             Average
                                         Balance      Interest  Rate     Balance Interest    Rate      Balance   Interest    Rate
<S>                                       <C>         <C>       <C>     <C>       <C>          <C>    <C>          <C>       <C> 
Assets
Interest-earning assets:
   Interest-earning deposits                  $--        $--     --%       $833      $45       5.40%     $384         $22    5.73%

   Federal funds sold                      14,617        730    4.99     15,995      844       5.28     7,530         444    5.90
   Investment securities:
      Taxable                              87,529      5,758    6.58     62,814    3,372       5.37    99,280       5,614    5.65
      Tax-exempt                           34,185      1,577    4.61     35,167    1,779       5.06    38,901       1,984    5.10
   Loans (1)                              364,081     31,532    8.66    294,141   26,074       8.86   256,035      22,805    8.91
   Tax-exempt loans                         2,074        132    6.35      2,169      137       6.32     2,460         165    6.71

   Total interest-earning assets          502,486     39,729    7.91    411,119   32,251       7.84   404,590      31,034    7.67
Non-earning assets:
   Cash and due from banks                 21,570                        24,571                        22,743
   Bank premises and equipment, net         6,514                         7,127                         8,461
   Other non-earning assets                 7,722                         6,957                         5,782
   Allowance for loan losses               (4,739)                       (3,634)                       (3,091)
                                                                                                       ------
      Total assets                      $ 533,553                     $ 446,140                      $438,485
                                                   
Liabilities and shareholders'
  equity Interest-bearing liabilities:
   Transaction accounts                    36,262        574    1.58%    37,342      772       2.07%   37,488         778    2.08%
   Savings deposits                       180,701      6,826    3.78    168,726    6,483       3.84   147,281       6,087    4.13
   Time deposits                          171,281     10,163    5.93    103,597    6,216       6.00   106,279       3,305    5.93
   Short-term borrowings                   12,418        556    4.48     12,222      573       4.69    29,941       1,699    5.67

      Total interest-bearing liabilities  400,662     18,119    4.52    321,887   14,044       4.36   320,989      14,869    4.63

Non-interest-bearing liabilities:
   Demand deposits                         82,367                        78,825                        74,816
   Other liabilities                        3,656                         2,556                         2,612
Shareholders' equity                       46,868                        42,872                        40,068
   Total liabilities and                                         
     shareholders' equity               $ 533,553                     $ 446,140                      $438,485
Net interest income                                   21,610                      18,207                           16,165
Net interest spread                                             3.39%                          3.48%                         3.04%
Net interest margin                                             4.30                           4.43                          4.00

Tax-equivalent data: (2)
   Tax-equivalent adjustment                             880                         987                            1,107

   Adjusted net interest income                    $  22,490                     $19,194                      $    17,272
   Net interest spread                                          3.56%                         3.72%                          3.31%
   Net interest margin                              4.48                     4.67                             4.27

</TABLE>

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 4.30% in 1997
from 4.43% in 1996,  but was still up from 4.00% in 1995.  The most  significant
reason for the decrease in the net  interest  margin in 1997 was the increase in
security balances.  While this strategy reduced interest rate risk, enhanced net
interest income,  and resulted in significant  unrealized gains, it also reduced
the net interest margin.  Had the Company not initiated this transaction  during
1997,  the net interest  margin would have  increased  between 1996 and 1997. In
addition, during 1997, the Company repositioned much of its securities portfolio
to be longer term as part of a strategy to balance  interest rate risk,  further
contributing to the increase in the unrealized  gain on securities,  and locking
in a higher rate of return on that  portfolio.  The following 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 $2,814,000  during 1997 as
both  securities  and loans grew and were funded by growth in time deposits and,
to some extent,  savings deposits.  The most significant  change due to rate was
the increase in the yield on securities,  more than  offsetting  declines in net
interest  income  resulting  from lower loan  rates.  Also,  deposit  rates were
generally lower in 1997 as compared to 1996,  despite the significant  growth in
balances.

<TABLE>
<CAPTION>
                                                     Year ended December 31,

                                                          1997 vs. 1996

                                                             Change            Change
                                             Total           Due To            Due To
                                            Change           Volume             Rate

                                                     (Dollars in thousands)
Interest income:
<S>                                  <C>               <C>                <C>            
    Interest-earning deposits        $         (45)    $         (45)     $        -
    Federal funds sold                        (114)              (73)             (41)
    Securities                               2,184             1,248              936
    Loans                                    5,453             6,191             (738)
                                      ------------      ------------    ------------- 
       Total interest income                 7,478             7,321              157
    Interest expense:
    Transaction accounts                      (198)              (22)            (176)
    Savings deposits                           343               460             (117)
    Time deposits                            3,947             4,061             (114)
    Short-term borrowings                      (17)                9              (26)
                                      ------------      ------------    ------------- 
          Total interest expense             4,075             4,508             (433)
                                      ------------      ------------    ------------- 
       Net interest income             $     3,403       $     2,813    $         590
</TABLE>



Non-Interest Income

Non-interest income was $5,953,000 in 1997, $5,437,000 in 1996 and $4,868,000 in
1995. The increase in 1997 of $516,000  (9.5%)  followed an increase of $569,000
(11.7%) in 1996.  Trust fees increased both in 1997 and 1996,  $204,000  (15.2%)
and $38,000 (2.9%), respectively.

The increase in revenue from the Trust & Investment  Management Group in 1997 is
reflective of the  continuing  sales effort and the  increased  focus on growth.
Management  believes that the Trust & Investment  Management  Group  possesses a
competitive  advantage by offering  customers  local trust and funds  management
services.  Service  charges on deposit  accounts and other  retail  related fees
increased  $452,000 to $2,963,000  during 1997 following an increase of $463,000
in 1996.  Fee  income  increased  for a variety  of  services.  Fees  charged to
customers  for  overdrawn  accounts  were up in 1997,  as were fees  charged  to
business  customers  who did not  maintain  significant  balances but utilized a
variety of cash management  related  services.  Peoples  provides free access to
automated teller machines to customers who maintain  checking  accounts with the
bank,  but  implemented a fee for  non-customers  who use Peoples Bank automated
teller  machines.  This new fee produced  $230,000 during 1997, an increase from
$105,000 in 1996 when the fee was only in place for six months.

Mortgage  banking  revenue  includes net gains and losses realized when mortgage
loans are sold into the  secondary  market,  service  fee  revenue  earned  from
servicing  those loans  after they are sold and, in 1995,  a gain on the sale of
loan servicing rights.  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 $430,000 in 1997,  $713,000 in 1996 and $843,000 in
1995. This reflects a decrease in 1997 of $283,000 (39.7%) against a decrease in
1996 of  $130,000  (15.4%).  The  sale  of loan  servicing  rights  during  1995
generated  $380,000.  The decrease in mortgage banking revenue can be attributed
to a change in strategy which focused Peoples on generating less volume, with an
emphasis on loans which  would not be sold into the  secondary  market but would
remain on the balance sheet. At December 31, 1997 the Company serviced  mortgage
loans with an aggregate  outstanding  principal  balance of  approximately  $101
million.

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 1997, such sales, as
well as gains and losses  realized  when  securities  were called prior to their
maturity,  generated  net  losses of $50,000  compared  to net losses of $63,000
during 1996.


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  1997,  1996 and 1995 was  $16,469,000,  $14,794,000  and
$15,316,000,  respectively.  This reflects an increase of $1,675,000  (11.3%) in
1997 compared to a decrease of $522,000  (3.4%) in 1996. More than half of total
non-interest  expense is comprised of salaries and employee  benefits.  Salaries
and employee benefit expense  increased  $965,000 (12.0%) compared to a decrease
of $564,000 (6.6%) in 1996.  During 1997,  Peoples added staff in critical areas
to enhance its sales and service  capacity and to accommodate  the bank's strong
growth. The decrease in salary and benefit expense during 1996 resulted from the
reorganization of certain operations to improve process efficiency.  Advertising
expense  increased  $147,000 in 1997,  following a decrease of $106,000 in 1996.
FDIC insurance expense was $52,000 during 1997, up from $2,000 in 1996, but down
from $386,000 during 1995 as a result of changes in the FDIC's  assessment rate.
Other expenses  increased $501,000 due to increases in training and professional
services aimed at improving the bank's ability to increase market share,  retain
existing relationships, and improve profitability.

Income Taxes

The Company's income tax expense was affected  primarily by the level of pre-tax
income.  As income  increased,  tax  expense  did as well.  Tax expense for 1997
increased  $700,000 following an increase of $1,021,000 during 1996. The Company
can and does purchase  tax-free  securities and  originates  tax-free loans as a
means of generating  tax-free income,  effectively  mitigating tax expense.  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.  Another  measure of the  Company's  tax expense is the  effective tax
rate. It increased from 25.0% in 1995 to 30.0% in 1996 to 32.5% in 1997. Without
tax  favored  and  tax  credit  producing  investments,  the  Company's  maximum
effective tax rate would be approximately 40.0%.

Net  deferred  tax assets at  December  31,  1997 and 1996 were  $1,963,000  and
$1,346,000. 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, 1997.

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, 1997

                                                                   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)
Interest-earning assets:
<S>                                      <C>         <C>          <C>           <C>        <C>              <C>     
  Loans                                  $210,991    $  32,666    $  49,999     $111,753   $    2,045       $407,454
  Available-for-sale securities             8,683       18,467       14,368      101,332       11,020        153,870
                                    --------------------------------------------------------------------------------
    Total interest-earning assets         219,674       51,133       64,367      213,085       13,065        561,324

Interest-bearing liabilities:
  Savings accounts                        215,295            -            -            -            -        215,295
  Time deposits                            54,589       23,142       22,255      110,591          307        210,884
  Short-term borrowings                    34,380            -            -            -            -         34,380
                                    --------------------------------------------------------------------------------
    Total interest-bearing liabilities    304,264       23,142       22,255      110,591          307        460,559
                                    --------------------------------------------------------------------------------
   Asset (liability) gap                $ (84,590)   $  27,991    $  42,112     $102,494    $  12,758       $100,765
                                    ================================================================================

   Cumulative asset (liability) gap     $ (84,590)   $ (56,599)   $ (14,487)     $88,007     $100,765

   Cumulative gap to total assets           -14.1%        -9.5%        -2.4%        14.7%         16.8%
</TABLE>


As of December 31, 1997, 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 $406,893,000 at December 31, 1997 from $332,953,000
at December 31, 1996, an increase of $73,940,000 (22.2%).  Increases in deposits
provided  funding for loan growth in 1997.  Total  deposits at December 31, 1997
were  $508,311,000,  an increase of $96,506,000 from balances of $411,805,000 at
December 31, 1996.

A measure of liquidity is the loan to deposit ratio.  As of December 31, the net
loan to deposit  ratio was 80.1% in 1997,  and 80.9% in 1996.  At these  levels,
management  believes that Peoples had adequate liquidity to meet its 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,  1997  and  1996,  such  commitments   totaled   $114,769,000  and
$106,546,000,  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,  1997 and  1996,  non-performing  loans  totaled
$3,908,000   and   $283,000,   respectively.   As  a  percent  of  total  loans,
non-performing  loans were .96% at December  31,  1997 and .09% at December  31,
1996. 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's  average
investment in impaired  loans during 1997 and 1996 was $4,253,000 and $1,068,000
respectively.  At  December  31,  1997,  $5,241,000  of loans were  deemed to be
impaired and  $1,145,000 of the allowance for loan losses was allocated to those
loans. The 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.  As a  result,
management classifies these loan relationships as impaired.

The  provision  for loan losses is a charge to earnings to provide for potential
loan losses. The provision for loan losses was $1,800,000 in 1997, $1,125,000 in
1996 and $536,000 in 1995. The increase in the provision for loan losses in 1997
and 1996 was  considered  necessary by management to maintain the allowance at a
desirable  level and provide for the  substantial  loan growth during the years.
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  $5,516,000  for 1997 and  $3,900,000 for 1996. As a percent of total loans,
the  allowance  for loan  losses  was 1.35% at  December  31,  1997 and 1.17% at
December 31, 1996.  Management's  analysis indicates that the allowance for loan
losses at December 31, 1997 was adequate to cover potential losses on identified
loans with credit  problems and on the remaining  portfolio  based on historical
percentages.  See also, "Item 1. Business - Asset Quality and Provision for Loan
Losses," above.

Gross  loan  charge-offs  in 1997,  1996 and 1997 were  $488,000,  $607,000  and
$125,000, respectively. As a percentage of average loans, gross loan charge-offs
were .13%, .21% and .05% for those periods.

Capital Position

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  leverage  ratio of 3% for  sound  entities  and 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, 1997.

The table indicates the Company's actual capital levels at the dates indicated.

<TABLE>
<CAPTION>
                                                      At December 31,
                                        1997               1996                 1995
                                                 (Dollars in thousands)

<S>                                 <C>                  <C>                   <C>      
Tier I capital                      $  48,192            $  45,063             $  41,398
Total capital                          53,553               48,963                44,688
Leverage ratio                           8.26%                9.62%                9.93%
Tier 1 risk-based capital ratio         11.24%               12.99%               13.73%
Total risk-based capital ratio          12.49%               14.11%               14.83%
</TABLE>

New Accounting Pronouncements

Financial  Accounting  Standard No. 130,  "Reporting  Comprehensive  Income," is
effective for both interim and year-end  financial  statements  for fiscal years
beginning  after December 15, 1997 and  establishes  standards for reporting and
display of comprehensive income and its components  (revenues,  expenses,  gains
and losses) in a full set of general-purpose financial statements. Comprehensive
income is defined  as all  changes in equity  other  than those  resulting  from
investments by owners or distributions to owners.  Net income is,  therefore,  a
component of  comprehensive  income.  While full  disclosure  for each  reported
period  is  required  in  year-end  financial   statements,   interim  financial
statements  need only  disclose  total  comprehensive  income for each  reported
period.   The  Standard  does  not  mandate  a  specific  format  for  reporting
comprehensive  income,  but does  require that all items that are required to be
recognized  as  components  of  comprehensive  income be reported in a financial
statement  that is  displayed  with  the  same  prominence  as  other  financial
statements.  Implementation of this Standard will require additional disclosures
in future financial reports but will not otherwise affect the Company.

Financial  Accounting  Standard  No.  131,  "Disclosures  About  Segments  of an
Enterprise and Related  Information," is effective for reported periods included
in year-end  financial  statements for fiscal years beginning after December 15,
1997 and for all reported periods in interim financial  statements for reporting
periods following the first required full fiscal year  disclosures.  FAS No. 131
establishes  new guidance for the way that public  business  enterprises  report
information about operating segments in annual financial statements and requires
that those enterprises  report selected  information about reportable  operating
segments  in  interim  financial  reports  issued to  shareholders.  FAS No. 131
supersedes the industry approach to segment  disclosures  previously required by
FAS No. 14, "Financial Reporting for Segments of Business Enterprise," replacing
it with a method of  segment  reporting  which is based on the  structure  of an
enterprise's  internal  organization  reporting.  The Statement also establishes
standards for related disclosures about products and services,  geographic areas
and major customers. Management expects that implementation of this Standard may
result in the identification of other reportable business segments.

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.
Peoples has  identified  a number of critical  software  vendors,  and is in the
process of  communicating  with each vendor about their compliance with the Year
2000  issue.  Peoples  has no  internally  generated  code,  and all of its core
processing is supplied by FISERV, one of the nation's leading software suppliers
for community banks.  Management  believes that Peoples' core processing systems
will be Year 2000 compliant by the middle of 1998, and anticipates completion of
testing by the end of 1998.  As a result,  management  does not believe that the
Year 2000 issue  represents a significant risk to Peoples'  operations,  and the
expense in connection  with Year 2000  compliance is not expected to be material
to its overall financial condition.

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.  Peoples has entered into  variable pay interest  rate swaps in
the notional amount of $20 million with other financial institutions. This means
that  Peoples  receives a fixed rate of interest  calculated  on $20 million and
pays a variable  rate of interest  calculated  on $20 million.  These swaps were
purchased  to hedge risk  because  Peoples had funded  growth in  variable  rate
assets with fixed rate CD's. If interest  rates  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
a recently  instituted  interest rate shock  simulation  report.  Peoples has no
market  risk-sensitive  instruments held for trading  purposes.  It appears 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, 1997:


<TABLE>
<CAPTION>
Maturing in:
                                                                                                                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>

Item 8. Financial Statements and Supplementary Data.

                         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, 1997 and 1996,  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,  1997.  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, 1997 and 1996, and the results of
its  operations  and its cash  flows for each of the three  years in the  period
ended  December 31, 1997,  in  conformity  with  generally  accepted  accounting
principles.





Crowe, Chizek and Company LLP

Indianapolis, Indiana
February 12, 1998


<PAGE>

<TABLE>
<CAPTION>

                           Consolidated Balance Sheets
                           December 31, 1997 and 1996
                          (Dollar amounts in thousands)

Assets                                                                    1997                    1996
<S>                                                                    <C>                      <C>      
Cash and cash equivalents                                              $  25,462                $  32,252
Available-for-sale securities (Note 2)                                   153,870                   94,589
Loans held for sale, net                                                     561                      421
Total loans (Note 3)                                                     406,893                  332,953
     Allowance for loan losses (Note 4)                                   (5,516)                  (3,900)
                                                                     -----------              ----------- 
         Loans, net                                                      401,377                  329,053
Premises and equipment, net (Note 5)                                       7,482                    7,923
Accrued income and other assets                                            9,556                    7,026
Gold, at fair value                                                          168                      214
                                                                    ------------             ------------
                                                                        $598,476                 $471,478
                                                                        ========                 ========

Liabilities and Shareholders' Equity



Liabilities
     Deposits
         Non interest-bearing accounts                                 $  82,132                $  83,911
         Savings and NOW                                                 215,295                  216,146
         Time deposits (Note 6)                                          210,884                  111,748
                                                                       ---------                ---------
              Total deposits                                             508,311                  411,805
     Short-term borrowings (Note 7)                                       34,380                   10,266
     Accrued expenses and other liabilities                                6,968                    4,058
                                                                     -----------              -----------
         Total liabilities                                               549,659                  426,129
                                                                       ---------                ---------

Shareholders' equity
     Common shares, no par
value:
         Authorized:
              Voting - 300,000 shares
              Non-voting - 4,000,000 shares
         Issued:
              Voting - 264,456 shares (1997)
                 and 280,000 shares (1996)                                   897                      950
              Non-voting - 2,812,394 shares (1997)
                 and 2,866,424 shares (1996)                              13,085                   14,775
     Retained earnings                                                    34,220                   29,338
     Net unrealized gain on available-for-sale securities                    615                      286
                                                                    ------------             ------------
         Total shareholders' equity                                       48,817                   45,349
                                                                      ----------               ----------
                                                                        $598,476                 $471,478
                                                                        ========                 ========
</TABLE>
See accompanying notes.


<PAGE>


                        Consolidated Statements of Income
                  Years ended December 31, 1997, 1996 and 1995
             (Dollar amounts in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                             1997             1996               1995
Interest income
<S>                                                      <C>              <C>                  <C>      
     Loans, including related fees                       $  31,664        $  26,211            $  22,970
     Federal funds sold                                        730              889                  466
     Securities
       Taxable                                               5,758            3,372                5,614
       Tax exempt                                            1,577            1,779                1,984
                                                        ----------      -----------          -----------
         Total interest income                              39,729           32,251               31,034

Interest expense
     Deposits                                               17,563           13,471               13,170
     Short-term borrowings                                     556              573                1,699
                                                      ------------     ------------          -----------
         Total interest expense                             18,119           14,044               14,869
                                                        ----------       ----------           ----------

Net interest income                                         21,610           18,207               16,165
Provision for loan losses (Note 4)                           1,800            1,125                  536
                                                       -----------      -----------         ------------

Net interest income after provision for loan losses         19,810           17,082               15,629

Non-interest income
     Trust fees                                              1,546            1,342                1,304
     Service charges and fees                                2,963            2,511                2,048
     Mortgage banking revenue                                  430              713                  843
     Net gain/loss on securities (Note 2)                      (50)             (63)                (112)
     Other                                                   1,064              934                  785
                                                       -----------     ------------         ------------
         Total non-interest income                           5,953            5,437                4,868

Non-interest expense
     Salaries and employee benefits (Note 8)                 8,994            8,029                8,593
     Occupancy (net)                                         1,546            1,602                1,427
     Equipment                                               1,078            1,010                1,248
     FDIC insurance                                             52                2                  386
     Advertising                                               521              374                  480
     Other                                                   4,278            3,777                3,182
                                                        ----------       ----------          -----------
         Total non-interest expense                         16,469           14,794               15,316
                                                         ---------        ---------           ----------

Income before income taxes                                   9,294            7,725                5,181
Income tax expense (Note 9)                                  3,016            2,316                1,295
                                                       -----------      -----------          -----------

Net income                                             $    6,278       $    5,409          $      3,886
                                                       ==========       ==========          ============

Per share data (Note 10)
     Earnings per share                                $      2.02      $       1.71        $       1.22
     Earnings per share, assuming dilution             $      1.99      $       1.70        $       1.22

</TABLE>
See accompanying notes.

<PAGE>

                       Consolidated Statements of Changes
                             in Shareholders' Equity

                  Years ended December 31, 1997, 1996 and 1995
             (Dollar amounts in thousands, except per share amounts)


<TABLE>
<CAPTION>
                                                                                 Net Unrealized
                                                                                Gain/(Loss) on
                                            Common           Retained           Available-for-
                                              Shares          Earnings           Sale Securities         Total

<S>                                        <C>                 <C>               <C>                   <C>     
Balance January 1, 1995                     $  17,119           $  22,341         $      (983)          $ 38,477
Net income                                          -               3,886                   -               3,886
Cash dividends ($.35 per share)                     -              (1,113)                  -             (1,113)
Redemption of 77,248 non-voting
   shares                                        (835)                  -                  -                (835)
     Change in net unrealized gain/(loss)           -                   -               1,221              1,221
                                         --------------    --------------          ----------         ----------

Balance December 31, 1995                      16,284              25,114                 238             41,636
Net income                                          -               5,409                   -              5,409
Cash dividends ($.38 per share)                     -              (1,185)                  -             (1,185)
Redemption of 33,560 non-voting                  (559)                  -                   -               (559)
     shares
Change in net unrealized gain/(loss)                -                   -                  48                 48
                                       --------------      --------------        ------------       ------------

Balance December 31, 1996                      15,725              29,338                 286             45,349

Net income                                          -               6,278                   -              6,278
Cash dividends ($.45 per share)                     -              (1,396)                  -             (1,396)
Redemption of 15,544 voting and
   54,030 non-voting shares                    (1,743)                  -                   -             (1,743)
Change in net unrealized gain/(loss)                -                   -                 329                   329
                                       --------------      --------------         -----------           -----------

Balance December 31, 1997                   $  13,982           $  34,220         $       615          $  48,817
                                            =========           =========         ===========          =========

</TABLE>
See accompanying notes.


<PAGE>




                      Consolidated Statements of Cash Flows
                        December 31, 1997, 1996 and 1995
                          (Dollar amounts in thousands)

<TABLE>
<CAPTION>
                                                                  1997               1996              1995
                                                              --------------------------------------------------
Cash flows from operating activities
<S>                                                           <C>              <C>               <C>        
     Net income                                               $     6,278      $     5,409       $     3,886
     Adjustments to reconcile net income to net cash
        from operating activities
         Depreciation and amortization                              1,067            1,032             1,252
         Provision for loan losses                                  1,800            1,125               536
         Net loss on securities                                        50               63               112
         Net amortization on securities                               104              362               540
         Net gain on sale of loans                                   (200)            (488)             (238)
         Net change in loans originated for sale                       60            2,624            (1,558)
         Deferred tax benefit                                        (832)            (399)             (346)
         Change in assets and liabilities
           Interest receivable                                       (617)             383               298
           Interest payable                                         1,134              141               384
           Income tax payable                                         257               38               546
           Other liabilities                                        1,776              321             1,121
           Other assets                                            (1,507)            (469)           (1,138)
                                                              -----------     ------------       ----------- 
                Net cash from operating activities                  9,370           10,142             5,395

Cash flows from investing activities
     Proceeds from maturities of held-to-maturity
        securities                                                      -                -            21,013
     Proceeds from sales of available-for-sale securities          16,707            8,605            36,104
     Proceeds from maturities of available-for-sale
        securities                                                 24,066           49,771            16,590
     Purchase of available-for-sale securities                    (99,664)         (45,566)          (11,085)
     Loans made to customers, net of principal
        collections thereon                                       (74,124)         (62,375)          (56,653)
     Property and equipment expenditures, net                        (626)            (211)           (1,044)
                                                             ------------     ------------       ----------- 
         Net cash from investing activities                      (133,641)         (49,776)            4,925

Cash flows from financing activities
     Net change in deposits                                        96,506           60,043             5,185
     Net change in short-term borrowings                           24,114           (9,790)          (17,905)
     Redemption of common shares                                   (1,743)            (559)             (835)
     Dividends paid                                                (1,396)          (1,185)           (1,113)
                                                              -----------      -----------       ----------- 
         Net cash from financing activities                       117,481           48,509           (14,668)
                                                               ----------      -----------        -----------

Net change in cash and cash equivalents                            (6,790)           8,875            (4,348)
Cash and cash equivalents at beginning of year                     32,252           23,377            27,725
                                                              -----------      -----------       -----------

Cash and cash equivalents at end of year                       $   25,462       $   32,252        $   23,377
                                                               ==========       ==========        ==========
     Cash paid during the year for:
         Interest                                              $   16,985       $   13,903        $   14,485
         Income taxes                                               3,591            2,870             1,495

</TABLE>
See accompanying notes.


<PAGE>

                   Notes to Consolidated Financial Statements
                        December 31, 1997, 1996 and 1995
             (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,  Peoples Building
Corporation and Peoples Investment Services, Inc. Intercompany  transactions are
eliminated in consolidation.

Description of Business

The Company  operates  primarily in the banking industry which accounts for more
than  90% of  its  revenues,  operating  income  and  assets.  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.

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.  Significant  areas  involving  the use of  management's  estimates  and
assumptions  that are more  susceptible  to change in the near term  include the
allowance  for loan  losses,  the fair  values of  certain  securities,  and the
deter-mination and carrying value of impaired loans.

Securities

The  Company  has  designated  all  of  its  securities  as   available-for-sale
securities.  Available-for-sale  securities are those  securities which might be
sold before maturity, and they are carried at fair value with the net unrealized
holding gain or loss  reflected,  net of tax, as an adjustment to  shareholders'
equity.

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

Peoples sells certain fixed rate first mortgage  loans on the secondary  market.
Loans  held for sale are  carried at the lower of cost or  estimated  fair value
determined on an aggregate  basis.  At December 31, 1997 and 1996, the estimated
fair value of loans held for sale exceeded their cost.  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 in 1996 and 1997. 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.

Interest Income on Loans

Interest  income is accrued  over the term of the loans  based on the  principal
outstanding.  Loans are  placed on  nonaccrual  status  when the  collection  of
interest  becomes  doubtful.  Loan fees, net of certain direct loan  origination
costs,  are deferred and  recognized  as an element of interest  income over the
term of the loan using the level yield method.

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 and credit card 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.  Management
evaluates all loans  selected for specific  review during their  analysis of the
allowance  for loan losses for  impairment.  In  general,  loans  classified  as
doubtful or loss are considered impaired,  while loans classified as substandard
are individually evaluated for impairment. Depending on the relative size of the
credit relationship,  late or insufficient  payments of 30 to 90 days will cause
management to reevaluate the credit under its normal evaluation procedures.

The carrying values of impaired loans are periodically  adjusted to reflect cash
payments,  revised  estimates of future cash flows, and increases in the present
value  of  expected  cash  flows  due to the  passage  of  time.  Cash  payments
representing  interest  income are  reported as such.  Other cash  payments  are
reported as reductions in carrying  value,  while  increases or decreases due to
changes  in  estimates  of future  payments  and due to the  passage of time are
included in the provision for loan losses expense.

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.

Other Real Estate

Other real estate acquired  through  foreclosure is carried at the lower of cost
(fair value at foreclosure) or fair value less estimated selling costs. Expenses
incurred in carrying other real estate are charged to operations as incurred.

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.
Recognition  of  deferred  tax  assets  is  limited  by the  establishment  of a
valuation reserve unless management concludes that they are more likely than not
going to result in future tax benefits to the Company.

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  second  mortgage  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 such instruments.  To qualify for such accounting, the interest
rate swap is designated to the second  mortgage  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.


<PAGE>

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.

Earnings Per Share

Earnings  per share is based on  weighted  average  common  shares  outstanding.
Diluted  earnings per share  further  assumes  issue of any  dilutive  potential
common  shares.  The  accounting  standard for computing  earnings per share was
revised for 1997, and all earnings per share previously reported are restated to
follow the new  standard.  Earnings per share are  restated  for all  subsequent
stock dividends and splits.

Future Accounting Changes

New accounting standards have been issued which will require future reporting of
comprehensive   income  (net  income  plus   unrealized   gains  and  losses  on
available-for-sale  securities)  and may  require  redetermination  of  industry
segment financial information.


                               Note 2 - Securities


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

<TABLE>
<CAPTION>
                                                           Gross           Gross            Gross
                                                         Amortized       Unrealized       Unrealized        Fair
December 31, 1997                                          Cost            Gains            Losses          Value

Obligations of U.S. Government
<S>                                                    <C>            <C>             <C>              <C>      
   and its agencies                                    $  20,841      $       127     $        (20)    $  20,948
Obligations of states and
   political subdivisions                                 27,233              619               (6)       27,846
Mortgage-backed investments                              100,640              386              (94)      100,932
Other                                                      4,138                6                   -      4,144
                                                     -----------   --------------      -------------------------
                                                        $152,852       $    1,138      $      (120)     $153,870
                                                        ========       ==========      ===========      ========


                                                           Gross           Gross            Gross
                                                         Amortized       Unrealized       Unrealized        Fair
December 31, 1996                                          Cost            Gains            Losses          Value

Obligations of U.S. Government
   and its agencies                                    $  15,997     $         26    $          (3)    $  16,020
Obligations of states and
   political subdivisions                                 32,215              535             (116)       32,634
Mortgage-backed investments                               42,321              119              (89)       42,351
Other                                                      3,582                2                -         3,584
                                                     -----------   --------------   --------------   -----------
                                                       $  94,115      $       682      $      (208)    $  94,589
                                                        ========       ==========      ===========      ========

</TABLE>

The amortized cost and fair value of  available-for-sale  securities at December
31, 1997 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.

                                                 Amortized           Fair
                                                   Cost              Value

Due in one year or less                         $    8,585       $    8,604
Due after one year through five years               27,999           28,513
Due after five years through ten years              12,813           13,006
Due after ten years                                  2,815            2,815
                                               -----------      -----------
     Subtotal                                       52,212           52,938
Mortgage-backed investments                        100,640          100,932
                                                 ---------        ---------
                                                  $152,852         $153,870
                                                  ========         ========

The  securities  portfolio  includes   mortgage-backed   investments  which  are
collateralized  by  residential  mortgage loans and are repaid as the underlying
loans are repaid.  The majority of the  mortgage-backed  investments  consist of
Collateralized  Mortgage Obligations (CMOs) with projected average lives between
one and five years and underlying mortgages which are guaranteed by U.S.
Government agencies or government sponsored entities.

Sales of  available-for-sale  securities  during 1997, 1996 and 1995 resulted in
gross  gains of $7, $0 and $130 and gross  losses of $52,  $63 and $246.  During
1997 and 1995,  securities  were  called  resulting  in net losses of $5 and net
gains of $4, respectively.

Securities with a carrying value of $29,013 and $26,193 at December 31, 1997 and
1996,  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,                     1997                     1996

Commercial                    $185,089                  $156,755
Real estate                     94,276                    75,247
Construction                    25,364                    23,644
Consumer                       100,139                    75,187
Tax-exempt                       2,025                     2,120
                           -----------               -----------
                              $406,893                  $332,953
                              ========                  ========

The  Bank  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, 1997
and 1996 was $101,168 and $104,084.

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

                                            1997                      1996

Balance as of January 1              $       177             $           -
Additions                                    104                       193
Amortization                                 (28)                      (16)
Valuation allowance                            -                         -
                                  --------------            --------------
Balance as of December 31            $       253               $       177
                       ==            ===========               ===========


Certain of the Company's directors were loan customers of Peoples. A schedule of
the aggregate activity in these loans follows:

                                                                     1997

Balance as of January 1                                        $    1,660
New loans                                                           1,500
Loan reductions                                                      (346)
                                                               ---------- 
Balance as of December 31                                      $    2,814
                                                               ==========


                       Note 4 - Allowances for Loan Losses

Activity in the allowance for loan losses is as follows:

Year ended December 31                   1997          1996             1995

Beginning balance                  $     3,900     $    3,290      $     2,704
Provision charged to operations          1,800          1,125              536
Loans charged off                         (488)          (607)            (125)
Recoveries                                 304             92              175
                                  ------------     ----------    -------------
Ending balance                     $     5,516     $    3,900      $     3,290
                                   ===========     ==========      ===========



Information regarding impaired loans is as follows:

<TABLE>
<CAPTION>
                                                                    1997              1996              1995

<S>                                                             <C>               <C>              <C>        
Average investment in impaired loans during the year            $     4,253       $     1,068      $     1,394
                                                                ===========       ===========      ===========
Interest income recognized on impaired loans including
   interest income recognized on cash basis of $329,
   $173 and $84                                                $        329      $        173    $          84
                                                                ===========       ===========      ===========
Balance of impaired loans at year end                           $     5,241      $        743      $     1,343
Less portion for which no allowance for loan
   losses is allocated                                                  613               159              233
                                                              -------------     -------------    -------------
Portion for which an allowance for loan losses is allocated     $     4,628      $        584      $     1,110
                                                                ===========       ===========      ===========
Portion of allowance for loan losses allocated                  $     1,145      $        155     $        306
                                                                ===========       ===========      ===========
</TABLE>


<PAGE>

                         Note 5 - Premises and Equipment

Year-end premises and equipment are as follows:

December 31,                             1997                      1996

Land                                 $    1,103                 $   1,103
Buildings and improvements               11,109                    10,991
Furniture and equipment                   7,788                     7,410
                                    -----------                ----------
     Total                               20,000                    19,504
Accumulated depreciation                (12,518)                  (11,581)
                                      ---------                 --------- 
     Net premises and equipment      $    7,482                $    7,923
                                     ==========                ==========


                       Note 6 - Interest-Bearing Deposits

Time deposits  issued in  denominations  of $100 or greater  totaled $69,473 and
$13,606 at December 31, 1997 and 1996.  Interest  expense in 1997, 1996 and 1995
for such deposits totaled $2,840, $965 and $2,243, respectively.

At December 31, 1997, stated maturities of time deposits were:

                             Year                               Amount

                             1998                             $  99,986
                             1999                                77,965
                             2000                                26,860
                             2001                                 3,013
                             2002                                 2,753
                       Thereafter                                   307
                                                               --------
                                                               $210,884
                                                               ========

                          Note 7 - Short-Term Borrowing

Short-term   borrowings  are  comprised  of  retail  repurchase  agreements  and
short-term  Federal  Home  Loan Bank  (FHLB)  advances.  Repurchase  agreements,
essentially,  represent  borrowings  by  Peoples  from  its  customers  and  are
accounted for as such.  Peoples  pledges certain of its securities as collateral
for those borrowings but maintains control over all such securities.  Repurchase
agreements  outstanding as of December 31, 1997 had maturities  ranging from one
day to two months.  FHLB advances are secured by a blanket  pledge of the Bank's
assets and mature during January 1998.



                                                    1997           1996

Balance of repurchase agreements at year-end    $   12,180     $  10,266
Average balance during the year                     11,064        11,964
Weighted average interest rate during the year        4.32%         4.69%
Maximum month-end balance during the year       $   12,180     $  14,052

Balance of FHLB borrowings at year end              22,200             -
Weighted average interest rate                       6.17%             -

<PAGE>

                            Note 8 - Retirement Plans

Peoples  has a defined  benefit  pension  plan which  covers a  majority  of its
employees.

The following  sets forth the Plan's funded status and the amount  recognized in
the balance sheet at year-end.

<TABLE>
<CAPTION>
December 31,                                                                1997                      1996

<S>                                                                     <C>                     <C>       
Accumulated benefit obligation (including
   vested benefits of $3,419 and $3,051)                                $    3,621              $    3,272
                                                                        ==========              ==========
Plan assets at fair value (primarily listed stocks)                     $    5,623              $    5,110
Projected benefit obligation for service
   rendered to date                                                         (4,940)                 (4,521)
Unrecognized gain                                                             (712)                   (422)
Unrecognized transition asset, amortized over 18 years                        (396)                   (463)
                                                                      ------------             ----------- 
Accrued pension cost                                                   $      (425)            $      (296)
                                                                        ==========              ==========

</TABLE>
Net pension expense for the year included the following:

<TABLE>
<CAPTION>
                                                                      1997            1996             1995

<S>                                                             <C>               <C>              <C>        
Service cost for the year                                       $       306       $       344      $       293
Interest cost on projected benefit obligation                           314               327              294
Actual return on plan assets                                           (999)             (731)            (922)
Net amortization and deferral                                           508               270              535
                                                               ------------      ------------     ------------
                                                                $       129       $       210      $       200
                                                                ===========       ===========      ===========


</TABLE>

Significant  assumptions made in computing pension liability and expense were as
follows:

                                       1997              1996             1995

Weighted average discount rate         6.50%             7.00%            6.50%
Increase in future compensation        5.00              5.50             5.50
Long-term rate of return               8.50              8.50             8.50

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 $108, $46 and $45 for 1997, 1996 and 1995.


                           Note 9 - Income Tax Expense

Income tax expense consists of the following components:

                                 1997             1996              1995

Income tax/(benefit)
     Current                $    3,848        $    2,715       $    1,641
     Deferred                     (832)             (399)            (346)
                          ------------      ------------      ----------- 
       Total                $    3,016        $    2,316       $    1,295
                            ==========        ==========       ==========



<PAGE>

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:

<TABLE>
<CAPTION>
                                                             1997            1996               1995


Statutory rate applied to income before
<S>                                                    <C>               <C>              <C>       
   income taxes                                        $    3,160        $    2,625       $    1,762
Add/(deduct)
     Tax exempt interest income                              (579)             (646)            (729)
     Non-deductible interest                                   64                68               77
     State tax expense (net of federal tax benefit)           545               450              306
     Affordable housing credit                               (155)             (190)            (140)
     Other                                                    (19)                9               19
                                                      -----------    --------------    -------------
       Total income taxes                              $    3,016        $    2,316       $    1,295
                                                       ==========        ==========       ==========
</TABLE>



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

<TABLE>
<CAPTION>
                                                                     1997           1996

Deferred tax assets from:
<S>                                                              <C>               <C>       
     Loan loss provisions                                        $    1,925        $    1,209
     Deferred compensation                                              446               369
     Pension                                                            164               113
     Other                                                                7                10
                                                             --------------     -------------
                                                                      2,542             1,701
Deferred tax liabilities for:
     Depreciation                                                        (2)              (67)
     Accretion                                                          (11)              (10)
     Net unrealized gain on available-for-sale securities              (403)             (188)
     Mortgage servicing rights                                         (100)                (71)
Other                                                                   (63)              (19)
                                                              -------------      ------------ 
                                                                       (579)             (355)
                                                               ------------       ----------- 
Valuation allowance                                                       -                 -
                                                                 $    1,963        $    1,346
                                                                 ==========        ==========
</TABLE>



                          Note 10 - Earnings Per Share

The following table presents share data used to compute earnings per share:

<TABLE>
<CAPTION>
                                                                     1997             1996              1995

<S>                                                               <C>               <C>              <C>      
Weighted average shares outstanding during the year               3,112,319         3,168,260        3,190,644
Dilutive effect of potential shares                                  40,732             9,942                -
                                                                -----------      ------------  ---------------
Shares used to compute diluted earnings per share                 3,153,051         3,178,202        3,190,644
                                                                  =========         =========        =========
</TABLE>


<PAGE>

                     Note 11 - 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 $387,  $489 and $488 for 1997,  1996 and 1995.
Minimum lease payments at December 31, 1997 for all non-cancelable leases are as
follows:

                                        Year                         Amount

                                        1998                    $       390
                                        1999                            360
                                        2000                            204
                                        2001                             97
                                        2002                             87
                                  Thereafter                            214
                                                                 ----------
                   Total minimum lease payments                  $    1,352
                                                                 ==========

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:

<TABLE>
<CAPTION>
December 31,                                                         1997             1996
Financial instruments whose contract amount
   represents credit risk:
<S>                                                               <C>               <C>      
       Unused commercial lines of credit                          $  39,431         $  41,460
       Unused home equity lines of credit                            59,020            50,147
       Standby letters of credit                                      4,518             2,686
       Commitments to make loans                                     11,800            12,253
</TABLE>


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, 1997, these commitments included $10,406 of fixed rate loan commitments at a
weighted  average  rate of 8.25%.  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.

During 1997,  the Company  entered into  interest  rate swap  agreements  with a
notional  principal  balance of $20,000.  The agreements  require the Company to
make variable rate payments,  based on the prime rate, and entitle it to receive
fixed rate payments, and serve to manage the Company's interest rate exposure on
variable rate second  mortgage  loans tied to the prime rate. The agreements are
for two to three  years.  At  December  31,  1997,  the rate  payable  under the
agreements  was 8.50% and the  weighted  average  fixed rate being  received was
8.67%.  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.


<PAGE>

At December  31,  1997,  Peoples was required to have $5,563 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
Executive  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, 1997 under this agreement.

The Company is also subject to claims and lawsuits which arise  primarily in the
ordinary  course  of  business.  It  is  the  opinion  of  management  that  the
disposition  or ultimate  resolution of such claims and lawsuits will not have a
material adverse effect on the financial position of the Company.

                    Note 12 - Stock Based Compensation Plans

The  Company  has  granted  stock  options  to  directors  and  key  members  of
management.  A total of 220,000  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.  Generally,  options granted have a ten-year term and vest and become
exercisable  based either on the passage of time or the achievement of specified
performance targets.

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

<TABLE>
<CAPTION>
                                                        Weighted           Weighted
                                                         Average            Average
                                                        Exercise          Fair Value
1996                                  Options             Price           of Grants
<S>                                 <C>              <C>                <C>        
Outstanding beginning of year             -                   
Granted                             112,020          $    13.28         $      4.14
Exercised                                 -
Forfeited                                                    
                                    -------
Outstanding at end of year          112,020

1997
Granted                              78,226               22.98                9.02
Exercised                                 -
                                    -------
Forfeited                                                     -

Outstanding at end of year          190,246
                                    =======
</TABLE>


Information about the Company's stock options at year-end is as follows:

December 31,                                                  1997      1996

Options exercisable                                         85,028       45,592
Weighted average price of options exercisable              $ 15.30   $    12.76
Weighted average remaining life (years) of
   options outstanding                                         8.5          9.0
Range of exercise price (per share) of options outstanding:
     High                                                  $ 26.06   $    15.13
     Low                                                     12.44        12.44

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. During 1997, the Company accrued and expensed $161 related to this award.


<PAGE>

The fair value of options  granted 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 are not subsequently  changed. The
fair value estimates used the following weighted-average assumptions:

                                             1997            1996

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

                                                   1997             1996

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



                         Note 13 - 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, 1997 and 1996,  Peoples'  capital  level  results in it being  designated as
"well capitalized."





<PAGE>

The Company's  consolidated  and Peoples' (bank only) capital amounts and ratios
at December 31, 1997 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


Total capital
   (to Risk Weighted Assets)
<S>                                   <C>              <C>          <C>                <C>        <C>           <C>
     Consolidated                     $  53,553        12.49%       $  34,295          8%         $  42,869     10%
Peoples                                  47,823        11.21           34,122          8             42,653     10
Tier I Capital                                                                      
   (to Risk Weighted Assets)                                                        
     Consolidated                     $  48,192        11.24        $  17,148          4          $  25,721      6
     Peoples                             42,489         9.96           17,069          4             25,603      6
                                                                                    
Tier 1 Capital                                                                      
   (to Average Assets)                                                              
       Consolidated                   $  48,192         8.26        $  23,351          4          $  29,189      5
     Peoples                             42,489         7.33           23,186          4             28,982      5
                                                                                
</TABLE>

         Note 14 - Disclosures About Fair Value of Financial Instruments

The  following  table  presents  the  carrying  value and the fair  value of the
Company's  financial  instruments  at  year-end.  Items which are not  financial
instruments are not included.

<TABLE>
<CAPTION>
                                                       1997                       1996
                                              Carrying      Fair         Carrying          Fair
                                                Value        Value        Value           Value


Financial assets
<S>                                           <C>        <C>            <C>         <C>       
     Cash and equivalents                     $  25,462  $  25,462      $  32,252   $   32,252
     Available-for-sale securities              153,870    153,870         94,589       94,589
     Loans and loans held for sale (net)        401,938    403,938        329,474      331,878
Financial liabilities
     Deposits                                  (508,311)  (509,200)      (411,805)    (411,679)
     Short-term borrowings                      (34,380)   (34,380)       (10,266)     (10,266)
Off-balance-sheet instruments
     Interest rate swaps                              0         44              0            0
</TABLE>



The estimated fair value approximates carrying amount for all items except those
described  below.  Estimated fair value for securities is based on quoted market
values for the  individual  securities or for equivalent  securities.  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 15 - Parent Company Financial Statements

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

Consolidated Balance Sheets - December 31,               1997           1996

Assets
     Cash on deposit                                $    2,604      $    3,285
     Investment in Peoples                              43,099          38,084
     Available-for-sale securities                       2,884           3,994
     Other assets                                        1,037             530
                                                    ----------      ----------
       Total assets                                  $  49,624       $  45,893
                                                     =========       =========
Liabilities                                          $     807       $     544

Shareholders' equity                                    48,817          45,349
                                                    ----------      ----------
       Total liabilities and shareholders' equity    $  49,624       $  45,893
                                                     =========       =========


<TABLE>
<CAPTION>
Condensed Statements of Income -
Years ended December 31,                                               1997            1996              1995

Operating income
<S>                                                              <C>               <C>              <C>       
     Dividends from Peoples                                      $    1,395        $    1,186       $    1,130
     Other operating income                                             263               292              290
                                                               ------------      ------------     ------------
       Total operating income                                         1,658             1,478            1,420

Operating expenses                                                       41                59               43
                                                              -------------     -------------    -------------

Income before income tax benefit and equity
   in undistributed income of Peoples                                 1,617             1,419            1,377
Income tax expense                                                       38                20                1
                                                              -------------     -------------   --------------

Income before equity in undistributed
   income of Peoples                                                  1,579             1,399            1,376
Equity in undistributed income of Peoples                             4,699             4,010            2,510
                                                                -----------       -----------      -----------

Net income                                                       $    6,278        $    5,409       $    3,886
                                                                 ==========        ==========       ==========

</TABLE>

<PAGE>



<TABLE>
<CAPTION>
Condensed Statements of Cash Flows -
Years ended December 31,                                              1997             1996              1995

Cash flows from operating activities
<S>                                                              <C>               <C>              <C>       
     Net income                                                  $    6,278        $    5,409       $    3,886
     Adjustments to reconcile net income to net
        cash from operating activities:
         Equity in undistributed income of Peoples                   (4,699)           (4,010)          (2,510)
         Net loss on securities                                           -                 -                8
         Net amortization on securities                                  57                83              121
         Change in other assets                                        (507)              (13)             (45)
         Change in other liabilities                                    254               236               31
                                                               ------------      ------------    -------------
         Net cash from operating activities                           1,383             1,705            1,491

Cash flows from investing activities
     Sales and maturities of available-for-sale
        securities                                                    1,075             2,750            2,145
     Investment in Peoples                                                -                 -           (1,000)
                                                             --------------    --------------      ----------- 
         Net cash from investing activities                           1,075             2,750            1,145

Cash flows from financing activities
     Dividends paid                                                  (1,396)           (1,185)          (1,113)
     Redemption of shares                                            (1,743)             (559)            (835)
                                                                -----------      ------------     ------------ 
         Net cash from financing activities                          (3,139)           (1,744)          (1,948)
                                                                -----------       -----------      ----------- 

Net change in cash                                                     (681)            2,711              688
Cash at beginning of year                                             3,285               574             (114)
                                                                -----------      ------------     ------------ 

Cash at end of year                                              $    2,604        $    3,285      $       574
                                                                 ==========        ==========      ===========

</TABLE>

Item  9.  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
Financial Disclosure.

Not Applicable.



                                    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, 1997 and their  respective  positions  with the Company and Peoples are
listed below:

Name                           Age        Position
William E. "Mac" McWhirter      47   Director, Chairman of the Board 
                                           and Chief Executive
                                           Officer of the Company and Peoples
Gerald R. Francis               54   Director,  President and Chief 
                                           Operating  Officer of the 
                                           Company and Peoples
Charles R. Farber               48   Director, Executive Vice President of 
                                           the Company and Peoples
Elbert L. Bradshaw              70   Director, Retiring in 1998
Robert B. Hirschman, D.D.S.     63   Director
Ethan Jackson                        Director Nominee
David W. Knall                  53   Director
Mary Ellen Rodgers              45   Director

Henry C. Ryder                  70   Director, Retiring in 1998
Stephen R. West                 66   Director
Darrell E. Zink, Jr.            51   Director Nominee
William L. Butcher              33   Senior Vice President, 
                                            Retail Banking for Peoples
Stephen J. Beck                 53   Senior Vice President, 
                                            Senior Commercial Lender of Peoples
Robert R. Connors               48   Senior Vice President, 
                                            Director of Operations and Cashier 
                                            of Peoples
Thomas J. Flynn                 51   Senior Vice President, Senior Commercial 
                                            Real Estate Lender for Peoples
Charles R. Hageboeck            35   Senior Vice President and CFO of the 
                                            Company and Peoples
Elliott R. Lese                 64   Senior Vice President, Director of Loan 
                                            Administration of Peoples
Craig G. Stilwell               42   Senior Vice President, Director of Sales 
                                            & Marketing of Peoples
Terry L. Young                  51   Senior Vice President, Senior Trust 
                                            Officer of Peoples


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 1985 to 1997.  Mr.  McWhirter is also
Chairman of Peoples Building Corporation and Peoples Investment  Services,  Inc.
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 serves as a director of the United Way
of Central  Indiana,  the  Salvation  Army,  St.  Vincent  Hospital  Foundation,
Crossroads  Rehabilitation  Center, the Kiwanis Club of Indianapolis  Foundation
and the Greater Indianapolis Progress Committee. 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 currently a member of the Indiana Bankers Association
Government Relations Committee 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
and serves on the Loan Committee and the Asset/Liability Management Committee.


Mr. Bradshaw, now semi-retired, owns and operates E. Bradshaw Enterprises, Inc.,
a consulting firm serving  primarily small  businesses.  He has been a member of
the Board of  Directors  since  1967.  Mr.  Bradshaw  will retire from the Board
effective April 16, 1998.


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 will be nominated for election to the Board of Directors of Peoples
Bank  Corporation  at the April 16, 1998  Shareholders  Meeting.  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.

Mr. Knall is Senior  Managing  Director of McDonald & Company  Securities,  Inc.
("McDonald"),  a leading regional  investment  banking  brokerage and investment
advisory  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  serves as a
director of 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 has served as Senior Vice  President,  Chief  Financial  Officer and
Secretary of American Home Patient, a diversified home health care company based
in Brentwood,  Tennessee,  since April, 1996. 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 and currently  chairs the  Asset/Liability
Management Committee and the Investment Policy Committee of Peoples.


Mr. Ryder joined the Board of Directors in 1986 and currently chairs the Pension
and  Retirement  Committee.  He founded the firm of Roberts & Ryder in 1960, and
came to the law firm of Barnes &  Thornburg  as a partner in 1987 as a result of
the  merger of the two firms.  Since  January  1,  1996,  Mr.  Ryder has been of
counsel at Barnes & Thornburg.  Mr. Ryder is involved in numerous  professional,
civic,  philanthropic,  and social  organizations  throughout Indiana. Mr. Ryder
will retire from the Board effective April 16, 1998.

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
served as trustee of Indiana Health and Hospital Corporation of Marion County.


Mr. Zink will be  nominated  for  election to the Board of  Directors of Peoples
Bank  Corporation  at the April  16,  1998  Shareholders  Meeting.  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.  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 member of the Board of the Venture  Club of Indiana,  Inc.
Mr. Beck is a member of the Board of Directors  for the Indiana State Chamber of
Commerce - Small  Business Board of Directors and a Board Member and Chairman 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 served
as a Vice-President  of Retail Banking with Bank One of Cincinnati from November
1988 until 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 27 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  Strategic  Direction
Committee of the  Comprehensive  Banking System Users Group, a computer software
users  group  which  consists  of over 100  financial  institutions  around  the
country.

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 member of the
advisory Board, College of Real Estate, University of Cincinnati.


Mr.  Hageboeck  joined the Company in August of 1995 as Chief Financial  Officer
and  Director of Finance.  He also serves as Secretary to the Board of Directors
for the Company and Peoples.  Mr.  Hageboeck  was employed by NBD Bank,  N.A. in
Indiana from 1989 to 1995,  and for a portion of his tenure at NBD, he served as
the Chairman of the Asset/Liability  Committee 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,  Audit  Committee,  and the Board of  Directors  of Peoples  Building
Corporation and Peoples Investment Services, Inc. Mr. Hageboeck holds a Ph.D. in
Economics from Indiana University.

Mr. Lese came to Peoples  from  Marquette  National  Bank in Chicago,  Illinois,
where he served as a Senior Vice  President from 1985 to 1989.  Since  December,
1989,  Mr.  Lese  has  served  as  Senior  Vice  President  in  charge  of  Loan
Administration  for  Peoples.  Mr. Lese has over 30 years of banking  experience
including  the  areas of loan  administration,  executive  management,  finance,
operations and planning.  Mr. Lese serves on the Loan  Committee,  the Asset and
Liability Management  Committee,  and the ORE Committee.  Mr. Lese has served as
the Vice President of the Notre Dame Club of Indianapolis and is a member of the
Indiana CPA Society and the Rotary Club of Indianapolis.

Mr. Stilwell has been Senior Vice  President,  Director of Marketing for Peoples
since 1988.  He first came to Peoples in  September,  1978.  During his 19 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 as a member
of the Asset/Liability  Management  Committee and as a director and secretary 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  Chapter  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, 1997,  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, 1997, 1996, and
1995,  information  with  respect  to William E.  ("Mac")  McWhirter,  the Chief
Executive  Officer,  Gerald R. Francis,  the  President,  and Charles R. Farber,
Elliot R. Lese,  and Terry L. Young,  who were 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)         Options/SARs (#)          Compensation(5)

<S>                                     <C>          <C>              <C>                         <C>             <C>   
Mac McWhirter.......................    1997         $212,519         $74,632                     0               $3,499
President and.......................    1996          186,673          17,425             32,260(3)                  500
Chief Executive Officer.............    1995          178,680           5,425               ---                      500

Gerald R. Francis...................    1997         $167,363         $39,776             66,000/66,000(6)                $1,260
President...........................    1996          101,077          13,856             20,000(4)                 3,700
                                        1995              N/A             N/A                   N/A                   N/A


Charles R. Farber...................    1997         $125,143         $40,824                     0               $1,752
Executive Vice President............    1996          113,779          13,729             20,000(4)                  500
                                        1995          112,680           3,379                ---                     500

Elliot R. Lese......................    1997          $90,335         $21,247                632(7)               $2,088
Senior Vice President...............    1996           83,807          10,000              7,380(8)                  500
                                        1995           80,000           8,300                500

Terry L. Young......................    1997          $88,907         $20,583                624(7)                $1,991
Senior Vice President...............    1996           83,763          11,343              7,280(8)                   500
                                        1995           79,000           8,300                500

</TABLE>

(1)  Salary  figures shown above include  directors'  fees of $4,000 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. For fiscal year 1997, Mr. McWhirter deferred neither directors fees
     nor regular salary, Mr. Francis deferred neither directors fees nor regular
     salary,  Mr. Farber  deferred none of his directors  fees and $7,000 of his
     regular  salary,  Mr.  Young  deferred  $1,000 of his salary,  and Mr. Lese
     $15,000 of his salary.


(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 in the fiscal year shown for
     performance  in the prior  fiscal  year  pursuant  to the Board and  Senior
     Management Profit Sharing Plan.

(3)  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.


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

(5)  401(k) matching contributions for Messrs. McWhirter, Farber, Francis, Lese,
     and Young.

(6)  In April,  1997,  Mr.  Francis was granted  stock options for 66,000 shares
     vesting 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 9, 1998 the third installment has not become
     exercisable.  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. The first installment became exercisable
     in  October,  1997  upon the  attainment  of a $30 per  share  price for 20
     consecutive days.

(7)  The  incentive  stock options held by Mr. Lese and Mr. Young for 632 shares
     and 624  shares,  respectively,  were  granted  in March  1997  and  become
     exercisable in two equal installments. The first installment is exercisable
     on June 11,  2000 and the second  installment  is  exercisable  on June 11,
     2002.

(8)  The incentive stock options held by Mr. Lese and Mr. Young for 7,380 shares
     and 7,280  shares,  respectively,  were  granted  in June  1996 and  become
     exercisable  in  three  equal   installments.   The  first  installment  is
     exercisable on June 11, 1998, the second installment is exercisable on June
     11, 2000, and the last installment is exercisable on June 11, 2002.



         Stock Option/SAR Grants in Fiscal Year Ended December 31, 1997


<TABLE>
<CAPTION>
                                        Individual Grants
                                                   % of Total
                       Securities Underlying  Options/SAR Granted   Exercise or                   Value Using
                           Options/SAR        to Employees in      Base Price        Expiration    Option Pricing
          Name               Granted (#)      Fiscal Year 1996        ($/Sh)           Date         Model (4)
          ----               -----------      ----------------        ------           ----        ---------
<S>                         <C>                   <C>               <C>             <C>           <C>     
Gerald R. Francis (1)       66,000(1)             84.92%            $22.63          04/17/07       $584,364
Gerald R. Francis (2)       66,000(2)            100.00%(2)          22.63(2)       04/17/07(2)    $350,618(2)
Terry L. Young                 624(3)             0.80%              21.75          03/20/07         $5,313
Elliot R. Lese                 632(3)             0.81%              21.75          03/20/07         $5,381
</TABLE>

(1)  In April,  1997 Mr.  Francis was granted  stock  options for 66,000  shares
     vesting in three installments.  The first installment became exercisable in
     October 1997 upon the  attainment  of a $30 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 9, 1998 the third  installment
     has not become exercisable.

(2)  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. The first installment became exercisable in October,
     1997 upon the attainment of a $30 per share price for 20 consecutive days.

(3)  The  incentive  stock options held by Mr. Lese and Mr. Young for 632 shares
     and 624  shares,  respectively,  were  granted  in March  1997  and  become
     exercisable in two equal installments. The first installment is exercisable
     on June 11,  2000 and the second  installment  is  exercisable  on June 11,
     2002.


(4)  Options  and the SAR award are valued at the date of grant using a standard
     option pricing model.  The value of the options and the SAR award represent
     the value on the date of grant based on the  underlying  stock  price,  its
     expected  volatility,  the length of the options or the award, the dividend
     rate, and the risk-free rate of return at the time of the grant.  The value
     of the options and the SAR were  computed  using  volatility  of .21225,  a
     dividend  yield of 1.84%,  a term of ten  years,  and a  risk-free  rate of
     return of 7.09%. 

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, 1997. None of such stock options
had been exercised as of such date.

     Aggregated Option/SAR Exercises in Fiscal Year Ended December 31, 1997
                      and Fiscal Year-End Option/SAR Values

<TABLE>
<CAPTION>
                                                                     Number of Securities
                                   Shares                                  Underlying            Value of In-the-Money
                                 Acquired on      Value Realized    Unexercised Options at       Unexercised Options at
            Name                Exercise (#)           ($)               Fiscal Year-End         Fiscal Year-End ($)(5)
            ----                ------------           ---               ---------------         ----------------------

<S>                                 <C>                <C>                  <C>                           <C>     
Mac McWhirter                       ---                ---                 32,260(1)                     $751,036
Charles R. Farber                   ---                ---                 20,000(2)                     $471,202
Gerald Francis                      ---                ---                 86,000/66,000(3)(2)(6)        $1,337,750/$529,452 (6)
Terry Young                         ---                ---                  7,904(4)                     $168,915
Elliot Lese                         ---                ---                  8,012(4)                     $171,227
</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 in January  1996.
     Which become 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.

(3)  In April Mr. Francis was granted stock options for 66,000 shares vesting in
     three  installments.  The first installment  became  exercisable in October
     1997 upon the attainment of a $30 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 9, 1998 the third installment has not become
     exercisable.

(4)  Incentive stock options held by Mr. Lese and Mr. Young were granted in June
     1996  and  became  exercisable  in  three  equal  installments.  The  first
     installment  is  exercisable  on June 11, 1998,  the second  installment is
     exercisable  on June 11, 2000,  and the last  installment is exercisable on
     June 11,  2002.  Additional  options were granted Mr. Lese and Mr. Young in
     April of 1997 which are exercisable equally in two installments on June 11,
     2000 and June 11, 2002.

 (5) Based on the fair market value for the Nonvoting  Common Shares on the last
     business day of the fiscal year ended December 31, 1997,  which was $36 per
     share.

(6)  Second number in these columns represent number and value attributed to Mr.
     Francis' SAR award.


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  either 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  exercisability  for the first installment that are triggered
by the event  causing  termination.  The  second and third  installments  expire
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 with respect to the award for accounting  purposes.  During 1997, the
Company  accrued and expensed  $161,000  related to the award.  During the first
quarter of 1998,  the  Company  anticipates  expensing  an  additional  $174,000
related to the award.

Stock Option Plan. The Company's Board of Directors has adopted the Peoples Bank
Corporation of Indianapolis  Stock Option Plan (the "Plan") effective January 1,
1996.  The Plan was  approved by the  shareholders  of the Company at the annual
meeting in April,  1996.  The purpose of the Plan 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.

The  Plan   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").  Stock options granted
under the Plan 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 Plan, of which
options for 188,597  Nonvoting  Common  Shares have been granted to officers and
key employees to date.


During  1997,  the BRAC  granted an  aggregate  of 77,722  options  to  purchase
Nonvoting  Common  Shares  to  members  of  the  senior  management  team,  with
expiration  dates ranging from March 20, 2007 through  September 8, 2007, and at
exercise  prices ranging from $21.75 to $26.06 per share.  Gerald R. Francis was
awarded  incentive stock options for 66,000 shares.  Mr. Lese and Mr. Young were
awarded  incentive  stock  options for 632 and 624 shares,  respectively.  Other
senior officers received options totaling 10,466, collectively, all of which are
incentive  stock  options.   Such  options   generally  become   exercisable  in
installments over a period of years ranging from 1999 to 2003.

Peoples Bank  Corporation of  Indianapolis  1998 Stock Option Plan. The Board of
Directors  of  the  Company  has  adopted  the  Peoples  Bank   Corporation   of
Indianapolis  1998 Stock Option Plan (the "1998 Plan") effective March 19, 1998.
The purpose of the 1998 Plan is substantially  similar to that of the Plan, with
officers and other key  employees of the Company and Peoples  being  eligible to
receive both incentive stock options and non-qualified stock options thereunder.
The terms and  conditions  of the 1998 Plan are also  substantially  similar  to
those  of  the  Plan,  but  they  incorporate   several   provisions  that  make
administration  of the 1998 Plan more  flexible  as a result of  certain  recent
changes to the rules under  Section 16 of the  Securities  Exchange Act of 1934.
Like the  Plan,  the 1998  Plan  will  generally  be  administered  by the 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. The 1998 Plan is subject to  approval  by the  shareholders  of the
Company at the annual  meeting to be held in April,  1998.  To date,  no options
have been awarded under the 1998 Plan.


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 $8,260 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.

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 6,104  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.  Peoples  maintains  insurance  policies on the lives of Mac  McWhirter,
Charles R. Farber,  Gerald R.  Francis,  Elliot R. Lese,  Terry L. Young 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.

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.


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 on behalf of each participating  employee
up to 50% of the  first  3% and  25% of the  next  3%.  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. Lese, and Mr.
Young  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. Lese, and Mr. Young under the Pension
Plan as of  December  31,  1997  were  24.50,  1.92,  25.33,  8.01,  and  17.58,
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 Mac McWhirter, Mr. Farber, and
Mr.  Francis are SERP  participants  at this time, but additional key executives
may be added  by the  Board of  Directors.  In  September,  1997,  the  Board of
Directors of Peoples approved the Second  Amendment and Complete  Restatement of
the Peoples Bank & Trust Company  Unfunded  Supplemental  Retirement  Plan For a
Select  Group of  Management  Employees  in order to clarify  certain  terms and
conditions of the SERP.

Split-Dollar  Insurance  Arrangements.  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 1997.  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  9,  1998.  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>   
Elbert L. Bradshaw                   2,800                      3,872 (1)
13843 Driftwood Drive                  1.1%                       0.1%
Carmel, Indiana 46033


Charles R. Farber                       ---                    20,000 (2)

130 East Market Street0.7%
Indianapolis, Indiana 46204


Gerald R. Francis                       103 (10)               72,265  (3)
130 East Market Street                                            2.5%

Indianapolis, Indiana 46204

Robert B. Hirschman, D.D.S.          2,800                      4,872  (1)
5104 Plantation Drive                  1.1%                       0.2%
Indianapolis, Indiana 46250


Ethan Jackson                         ---                        ---%

David W. Knall                        ---                      35,552 (1)
One American Square                                              1.3%

Suite 2615
Indianapolis, Indiana 46282


Luella M. Martin                    24,808     (4)            107,598    (4)
3738 Bay Road. South Drive             9.4%                       3.8%

Indianapolis, Indiana 46240

William E. McWhirter               169,930     (5)             34,772    (5)
130 E. Market Street                  64.3%                       1.2%
Indianapolis, Indiana 46204


Felix T. McWhirter                    ---                     550,705 (6)(1)
130 E. Market Street                                             19.6%

Indianapolis, Indiana 46204

Mary Ellen Rodgers                    ---                       1,672 (7)(1)
 5272 McGavock Road                   0.1%
Brentwood, Tennessee 37027


Evans McWhirter Rust                26,440     (8)            338,328    (8)
6917-B East Osborn                    10.0%                      12.0%

Scottsdale, Arizona 85251

Henry C. Ryder                        ---                      12,372 (9)(1)
11 South Meridian Street                                          0.4%
Indianapolis, Indiana 46204

Stephen R. West                       ---                      14,680      (1)
4120 North Illinois Street                                        0.5%
Indianapolis, Indiana 46208


Darrell E. Zink, Jr.                   ---                        250 (10)

All Directors and Executive        175,736                    207,018
Officers, as a group (17 persons)     66.5%                       7.4%
(footnotes on next page)

</TABLE>

<PAGE>

(1)  Includes  872 shares  exerciseable  under the 1996  Directors  Stock Option
     Plan.

(2)  Includes  20,000 shares subject to an incentive  stock option granted under
     the Company's Stock Option Plan all of which are currently exercisable.


(3)  Includes  62,000 shares subject to an incentive  stock option granted under
     the  Company's  Stock  Option Plan which are  currently  exercisable.  Also
     includes  844 shares held in trusts for the benefit of Mr.  Francis'  three
     children, of which Mr. Francis serves as trustee.

(4)  Includes  eighty (80) Voting  Common  Shares and 69,128  shares  Non-Voting
     Common  Shares  held by  Peoples  as trustee  for  Luella M.  Martin.  Also
     includes  38,470  Non-Voting  Common  Shares  held in  trustee by Welsey P.
     Martin, husband of Luella M. Martin, as trustee.

(5)  Of the Voting Common  Shares,  21,148  shares are held by Susan  McWhirter,
     wife of William E. McWhirter.  Of the Nonvoting  Common Shares,  530 shares
     are held by  Elizabeth  McWhirter,  daughter of William E.  McWhirter,  535
     shares are held by Julia McWhirter,  daughter of William E. McWhirter,  and
     530 shares are held by Mark McWhirter,  son of William E.  McWhirter.  Also
     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
     Stock Option Plan,  which options are currently  exercisable  in accordance
     with their terms.

(6)  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  98,434  shares held by
     Margaret J. McWhirter, Mr. McWhirter's spouse.

(7)  Held jointly with spouse.

(8)  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.


(9)  Includes  10,800  shares  held by Society  National  Bank as trustee of Mr.
     Ryder's  401 (k)  Plan.  Also  includes  200  shares  held in a  Charitable
     Remainder Trust.  Includes 672 shares exerciseable under the 1996 Directors
     Stock Option plan.


(10) Less than 0.1%.


Item 13.       Certain Relationships and Related Transactions.

From  time  to  time  Peoples  makes  loans  to its  directors  and  significant
shareholders. At December 31, 1997, such loans and extensions of credit amounted
to  approximately  $2,814,000.  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 collectibility 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 & Company  Securities,  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 & Company
Securities, Inc.

Henry C. Ryder, one of the Company's directors,  is a partner in the law firm of
Barnes & Thornburg. Such firm provides legal services to the Company and Peoples
on a regular  basis.  Mr. Ryder will retire from the Board of Directors on April
16, 1998.

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  $8,260  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.



<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, 1997 and 1996

          Consolidated  Statements  of Income for the Years Ended  December  31,
          1997, 1996 and 1995.

          Consolidated  Statements  of Changes in  Shareholders'  Equity for the
          Years Ended December 31, 1997, 1996, and 1995

          Consolidated Statements of Cash Flows for the Years Ended December 31,
          1997, 1996 and 1995

          Notes to Consolidated Financial Statements

(b)       Reports on Form 8-K


Registrant  filed no reports on Form 8-K during the quarter ending  December 31,
1997.

(c)  The exhibits filed  herewith or  incorporated  by reference  herein are set
     forth on the Exhibit Index on page 38.






<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
                                       Chairman 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            )
William E. McWhirter                 Executive Officer          )
                                                                )

(2)  Principal Financial/                                       )
Accounting Officer:                                             )
                                                                )
By: /s/ Charles R. Hageboeck         Senior Vice President,     )
_____________________________        Chief Financial Officer    )
Charles R. Hageboeck                                            )
                                                                )
                                                                )
(3)  A Majority of the                                          )
Board of Directors:)
                                                                )
/s/ Felix T. McWhirter               Director                   )
-----------------------------                                   )
Felix T. McWhirter)
                                                                )
/s/ Elbert L. Bradshaw               Director                   )
-----------------------------                                   )
Elbert L. Bradshaw                                              )
                                                                )
/s/ Charles R. Farber                Director                   )
-----------------------------                                   )
Charles R. Farber                                               ) March 31, 1997
                                                                )
/s/ Robert B. Hirschman              Director                   )
-----------------------------                                   )
Robert B. Hirschman                                             )
                                                                )
/s/ David W. Knall                   Director                   )
-----------------------------                                   )
David W. Knall                                                  )
                                                                )
/s/ William E. McWhirter             Director                   )
-----------------------------                                   )
William E. McWhirter                                            )
                                                                )
/s/ Mary Ellen Rodgers               Director                   )
-----------------------------                                   )
Mary Ellen Rodgers                                              )
                                                                )
/s/ Henry C. Ryder                   Director                   )
-----------------------------                                   )
Henry C. Ryder                                                  )
                                                                )

/s/ Stephen R. West                  Director                   )
-----------------------------                                   )
Stephen R. West                                                 )





<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)

         10.11    Consulting  Agreement  between F. T.  McWhirter
                  and Peoples Bank & Trust  Company dated January
                  15, 1987                                            *(10.3)

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

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

         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                         ***

         21       Subsidiaries of the Registrant

         23       Consent of Crowe Chizek

         27(a)    Financial Data Schedule

         27(b)    Financial Data Schedule (restating earnings per
                  share for 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  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  quarter ended  December 31,
         1996.