<PAGE>   1
----------------------------------------------------------------------------
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

        FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

                  For the fiscal year ended December 31, 2000

                                       OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

                          Commission file number 0-7449

                            PEOPLE'S BANCSHARES, INC.
             (Exact name of registrant as specified in its charter)

MASSACHUSETTS                                                04-3272233
(State or other jurisdiction of                              (I.R.S. Employer
incorporation or organization)                               Identification No.)

545 PLEASANT STREET
NEW BEDFORD, MASSACHUSETTS                                   02740
(Address of principal executive offices)                     (Zip Code)

Registrant's telephone number, including area code           (508) 991-2601

Securities registered pursuant to Section 12(b) of the Act:  NONE

Securities registered pursuant to Section 12(g) of the Act:  COMMON STOCK, $0.10
                                                             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
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The aggregate market value of the voting stock held by non-affiliates of the
registrant, based on the closing price of the registrant's common stock $0.10
par value per share ("Common Stock") on March 15, 2001 on the Nasdaq National
Market was $46,381,156. Although directors and executive officers of the
registrant were assumed to be "affiliates" of the registrant for the purposes of
this calculation, this classification is not to be interpreted as an admission
of such status. As of March 15, 2001, 3,238,250 shares of the registrant's
Common Stock were issued and outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's definitive Proxy Statement for the Annual Meeting
of Stockholders to be held on June 12, 2001 are incorporated by reference into
Part III of this Form 10-K. Portions of the Registrant's Annual Report to
Shareholders for 2000 are incorporated by reference into Part II of this Form
10-K.

         Exhibit Index appears on page 30.
<PAGE>   2
                                     PART I

ITEM 1. BUSINESS

     Preliminary Note in Regard to Forward-Looking Statements. This Annual
Report on Form 10-K contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. For this purpose, any
statements contained herein that are not statements of historical fact may be
deemed to be forward-looking statements. Without limiting the foregoing, the
words "believes," "anticipates," "intends," "will," plans," "expects," and
similar expressions are intended to identify forward-looking statements.
Forward-looking statements should not be relied on because they involve known
and unknown risks, uncertainties and other factors, some of which are beyond the
control of the Company. These expressed or implied important risks,
uncertainties and other factors may cause the Company's actual results,
performance or achievements to differ materially from those expressed or implied
by such forward-looking statements. These forward-looking statements were based
upon information, plans and estimates at the date of this report, and we do not
promise to update any forward-looking statements to reflect changes in
underlying assumptions or factors, new information, future events or other
changes. These factors include, without limitation, those set forth under the
caption "Certain Factors That May Affect Future Results."

     Certain Factors That May Affect Future Results. The following important
factors, among others, could cause actual results to differ materially from
those expressed or implied by forward-looking statements made in this annual
report or presented elsewhere by management from time to time. A number of
uncertainties exist that could affect the Company's future operating results,
including, without limitation, the Bank's continued ability to originate loans,
fluctuation of interest rates, real estate market conditions in the Bank's
lending areas, general and local economic conditions, the Bank's continued
ability to attract and retain deposits, the Company's ability to control costs,
possible changes in the loan loss provision, the timing and proceeds from the
sale of certain investment securities, accounting matters and possible changes
related to regulatory matters, new accounting pronouncements, changing
regulatory requirements and new tax or other state and national legislation.
These forward-looking statements were based upon information, plans and
estimates at the date of this report, and we do not promise to update any
forward-looking statements to reflect changes in underlying assumptions or
factors, new information, future events or other changes. In connection with
certain risks related to regulatory matters, see the discussion below under the
caption "Government Regulation".

GENERAL

     The Company. People's Bancshares, Inc. (the "Company") is a unitary bank
holding company subject to the Bank Holding Company Act ("BHC"), the Company's
principal business is conducted through its principal subsidiary, People's
Savings Bank of Brockton (the "Bank"). The only significant assets of the
Company are the capital stock of the Bank and the Company's equity interest in
People's Bancshares Capital Trust, ("Trust I") and People's Bancshares Capital
Trust II ("Trust II," together with Trust I, the "Trusts"), business trusts
formed in 1997 and 2000, respectively. Although the Company is a legal entity
separate from the Bank and the Trusts, the Company itself is not engaged in any
business activities. Trust I issued $13.8 million of trust preferred securities
on June 26, 1997 and used the proceeds to purchase subordinated debentures from
the Company. Trust II issued $10.0 million of trust preferred securities on July
26, 2000 and used the proceeds to purchase subordinated debentures from the
Company. The net proceeds of these offerings were primarily used to increase the
capital level of the Bank.

     The Bank. The Bank was chartered as a Massachusetts mutual savings bank on
February 6, 1895. On October 30, 1986, the Bank converted to a Massachusetts
chartered savings bank in stock form. The Bank is engaged principally in the
business of attracting deposits from individuals, businesses and governmental
entities, and investing those funds in residential and commercial mortgages,
consumer, commercial and construction loans and securities, consisting primarily
of mortgage-backed securities and trust preferred securities. The Bank
originates loans for investment with the exception of residential mortgage
loans. The Bank and its mortgage banking subsidiary originate 1-4 family
residential loans primarily for sale in the secondary market, generally with the
sale of servicing rights of such loans. The Bank sold essentially all of its 1-4
family residential loan originations in 2000, 1999, and 1998. Loan sales are
made from loans originated by the Bank's mortgage banking subsidiary,

                                       2
<PAGE>   3
People's Mortgage Corporation ("PMC"), on which PMC has obtained purchase
commitments from investors prior to funding. The Company has two reportable
segments, the Bank and PMC.

     The Bank's revenues are derived principally from interest on its loans,
interest and dividends on its securities, customer fees, and gains on
residential mortgage loan sales. The Bank's primary sources of funds are
customer deposits, amortization and repayment of loan and securities principal,
interest and dividends on loans and securities, maturity or sale of securities,
secured and unsecured borrowings and proceeds from the sale of loans. The Bank
offers a variety of deposit accounts, including NOW accounts, regular savings
accounts, money market accounts, fixed rate certificates of deposits and various
retirement accounts. Prior to 1999, the Bank actively managed the purchase and
sale of investments and loans which are serviced by third parties. These
purchases were funded by FHLB advances, repurchase agreements, and municipal
deposits.

     The Bank has five wholly-owned subsidiaries. PMC, which was organized in
March 1995, acts as the mortgage banking subsidiary of the Bank. The remaining
subsidiaries of the Bank are primarily engaged in the management and sale of
foreclosed real estate. Two securities corporations that engaged in the purchase
and sale of securities were liquidated in October 2000.

MANAGEMENT STRATEGY

     The Company's overall strategy is to be a leading financial services
provider in the communities and markets that it serves, and to enhance
shareholder value. The Company intends to use its resources to identify,
develop, and deliver multifaceted financial products and services and create
strong and consistent earnings. The Company's primary emphasis is on soundness,
profitability and growth. The principal components of the Company's strategy
include:

     -    Resolving investment portfolio, liquidity and interest rate risk
          issues;
     -    Evaluating internal and external options to increase capital and
          improve efficiency to build sustainable returns;
     -    Enhancing long-term shareholder value;
     -    Evaluating investment and/or insurance product offerings;
     -    Continuing growth in mortgage originations through increased volume
          and improved client retention through cross selling programs;
     -    Evaluating, identifying and implementing a process for increasing fee
          income; and
     -    Emphasizing growth in core consumer deposits.

     During 2000, the Bank entered into a Memorandum of Understanding (the
"MOU") with the Massachusetts Commissioner of Banks and the Federal Deposit
Insurance Corporation (the "FDIC," together with the Massachusetts Commissioner
of Banks the "Bank Regulators"). In addition, People's Bancshares, Inc. (the
"Company") entered into a Written Agreement (the "Written Agreement") with the
Federal Reserve Bank of Boston (the "Reserve Bank") with respect to the
operation of the Company. A primary regulatory issue was of the Company's
leverage program in effect from 1996 to 1999 and the resulting investment
portfolio's concentrations. The leverage program was cited as responsible for
limiting liquidity, increasing interest rate risk and impairing Tier 1 capital.
In response, the Company has developed a strategy which is primarily focused on
transitioning the balance sheet from one of high risk liquidity to one with
improved liquidity, reducing interest rate risk, improving asset quality and
strengthening underlying capital. The Company's strategy calls for balance sheet
restructuring through deleveraging. At December 31, 2000, the Company determined
that it did not have the intent and ability to hold its securities to maturity
and consequently transferred all held-to-maturity securities to the
available-for-sale classification to facilitate the orderly liquidation of
certain volatile securities. It is the intent of the Company to replace borrowed
funds and volatile liabilities with monthly cash flows as borrowings are called
and/or at their maturity. The holding company issued $10 million in subordinated
debt in July 2000, which was invested in the Bank as additional capital.

     The Company believes that as a result of these strategies it will achieve
and maintain minimum Tier 1 leverage capital ratios of 6.5% at the Bank level
and 5.0% on a consolidated basis as required by the Bank Regulators and the
Reserve Bank, respectively. The Bank's Tier 1 leverage capital ratio at December
31, 2000 was 6.36% and the consolidated ratio was 5.67%.

                                       3
<PAGE>   4
     Another base strategy for the Company is to increase its retail and
commercial deposits within the communities it serves and the developing
non-deposit business opportunities as well as increasing fee income. Non-deposit
business opportunities include enhanced cash management services, insurance
sales and mutual funds and the introduction of financial planning services. The
Company also plans to institute an incentive program designed to reward lending
staff for attracting commercial deposits of existing and prospective customers
to achieve commercial deposit growth.

     Currently, PMC maintains 11 loan production offices in Massachusetts,
Connecticut, Maryland and Virginia. PMC's primary function is the origination of
1-4 family residential mortgage loans. The majority of these loans are sold in
the secondary market, generally with the servicing rights of such loans, with
the Bank realizing the gains on loans sold. PMC sold over 95% of its 1-4 family
residential loans originated in the last three years. PMC obtains purchase
commitments from investors prior to funding these loans.

     Throughout most of 2000 loan originations at PMC were adversely effected by
the rise in the 30 and 10 year T-bill interest rates. Due to the adverse effect
of these interest rate increases the Bank consolidated the operations of PMC in
an effort to effectively manage operating margins. Given the recent lower rate
environment PMC anticipates it will produce substantial originations in 2001. If
interest rates continue to decrease, a controlled expansion, designed to take
advantage of opportunities in the residential mortgage market, will be
considered. In the event interest rates increase to their prior levels or
higher, a further reduction of PMC's operations will be examined.

     As the balance sheet restructuring continues, efforts will be initiated to
increase outstanding commercial and consumer loan balances and improve interest
income. Given a favorable rate environment, the commercial lending function will
seek to add lenders in its commercial and industrial and commercial real estate
areas. These lenders will be used to increase the Bank's commercial lending
commitment within the communities and surrounding markets it serves. In addition
to increasing the number of lenders serving these markets, the Bank will seek to
expand its Small Business Administration (the "SBA") lending effort.

     Other areas of emphasis by the commercial and consumer lending departments
are the development of commercial mortgage broker relationships, the maintaining
of the officer calling program and implementation of an incentive program for
deposit gathering through commercial relationships.

RECENT DEVELOPMENTS

     In the fourth quarter of 2000 the Company revised financial, capital and
other strategic plans to better position the Company to respond to interest rate
risk, improve liquidity and address other issues raised by the Bank Regulators.
Consistent with these strategies, the Company determined that it no longer had
the intent and ability to hold its investment securities to maturity and that it
was appropriate to reclassify all securities as available-for-sale at December
31, 2000. This reclassification allows the Company maximum flexibility in
managing its liquidity, interest rate risk and balance sheet deleveraging
strategy. As part of this deleveraging strategy the Company sold approximately
$30 million in higher risk securities in the fourth quarter of 2000 and
approximately $192 million of securities and loans through March 26, 2001.

     James K. Hunt joined the Company as Chief Financial Officer in November
2000. Mr. Hunt has over 30 years experience in the banking industry.

     The Company also engaged the firm of Fox-Pitt Kelton to provide financial
advisory services relating to strategic alternatives available to the Company
and general investment banking services.

     The Company elected to suspend its common stock dividend in the first
quarter of 2001 and terminated its stock repurchase program in the third quarter
of 2000. These actions are intended to accelerate capital growth and maintain
compliance with targeted regulatory capital levels.

                                       4
<PAGE>   5
MARKET AREA AND COMPETITION

     The Bank's main office is located in Easton, Massachusetts. The Bank also
has eleven other branch offices, three of which are located in the Plymouth
County community of Brockton, one of which is located in the Norfolk County
community of Stoughton, two of which are located in the Bristol County community
of Taunton, two of which are located in the Bristol County community of New
Bedford, and one of which is located in each of the Bristol County communities
of Mansfield, Mattapoisett and South Dartmouth. In 1996, the Bank relocated its
service center to New Bedford, Massachusetts. The Bank's primary market area is
the City of Brockton, City of New Bedford, and surrounding towns, including
portions of Plymouth, Norfolk, and Bristol counties. In addition, the Bank
conducts its residential lending activities principally in southern New England,
Maryland and Virginia through its mortgage banking subsidiary, PMC.

     The Bank faces significant competition both in generating loans and in
attracting deposits. The southeastern Massachusetts area is a highly competitive
market. The Bank faces direct competition from a significant number of financial
institutions operating in its market area, many with a state-wide or regional
presence and, in some cases, a national presence. Many of these financial
institutions are significantly larger and have greater financial resources than
the Bank. The Bank's competition for loans comes principally from commercial
banks, savings banks, mortgage banking companies, credit unions and insurance
companies. Its most direct competition for deposits has historically come from
credit unions located in the Bank's market area that have been able to offer
higher deposit rates due to their exemption from federal and state taxation. The
Bank also faces competition from savings and commercial banks. In addition, the
Bank faces increasing competition for deposits from non-bank institutions such
as brokerage firms and insurance companies in such instruments as short-term
money market funds, corporate and government securities funds, mutual funds, and
annuities.

REGULATION OF THE COMPANY AND THE BANK

The Company. As a business corporation incorporated under Massachusetts law, the
Company is subject to regulation by the Secretary of Commonwealth of
Massachusetts and the rights of its stockholders are governed by Massachusetts
corporate law. As a bank holding company, the Company is subject to regulation
and supervision by the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board") pursuant to the Bank Holding Company Act ("BHCA"). The
Company is required to file annually a report of its operations with, and is
subject to examination by, the Federal Reserve Board and the Commissioner. The
Federal Reserve Board has the authority to issue orders to bank holding
companies to cease and desist from unsound banking practices and violations of
conditions imposed by, or violations of agreements with, the Federal Reserve
Board. SEE the discussion under the caption "Government Regulation" below. The
Federal Reserve Board is also empowered to assess civil monetary penalties
against companies or individuals who violate the BHCA or orders or regulations
thereunder, to order termination of non-banking activities of non-banking
subsidiaries of bank holding companies, and to order termination of ownership
and control of a non-banking subsidiary by a bank holding company.

BHCA-Activities and Other Limitations. The BHCA prohibits a bank holding company
from acquiring substantially all the assets of a bank or acquiring direct or
indirect ownership or control of more than 5% of the voting shares of any bank,
or increasing such ownership or control of any bank, or merging or consolidating
with any bank holding company without prior approval of the Federal Reserve
Board. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "Interstate Act") generally authorizes bank holding companies to acquire
banks located in any state, possibly subject to certain state-imposed age and
deposit concentration limits, and also generally authorizes interstate mergers
and to a lesser extent, interstate branching.

Provided that a bank holding company does not become a "financial holding
company" under the Gramm-Leach-Bliley Act of 1999 (as discussed below), the BHCA
also prohibits a bank holding company from acquiring a direct or indirect
interest in or control of more than 5% of the voting shares of any company which
is not a bank or bank holding company and from engaging directly or indirectly
in activities other than those of banking, managing or controlling banks or
furnishing services to its subsidiary banks, except that it may engage in and
may own shares of companies engaged in certain activities the Federal Reserve
Board has determined to be so closely related to banking or managing and
controlling banks as to be a proper incident thereto. In making such
determinations, the Federal Reserve Board is required to weigh the expected
benefit to the public, such as greater convenience, increased competition or
gains in efficiency, against the possible adverse effects, such as undue
concentration of resources, decreased or unfair competition, conflicts of
interests or unsound banking practices.

The Gramm-Leach-Bliley Act repeals provisions of the Glass-Steagall Act: Section
20, which restricted the affiliation of banks with firms "engaged principally"
in specified securities activities; and Section 32, which restricted officer,
director, or employee interlocks between a bank and any company or person
"primarily engaged" in specified securities activities. Moreover, the general
effect of the law is to establish a comprehensive framework to permit
affiliations among commercial banks, insurance companies, securities firms, and
other financial


                                       5
<PAGE>   6
service providers by revising and expanding the BHCA framework to permit a
holding company, such as the Company, to engage in a full range of financial
activities through a new entity known as a financial holding company. "Financial
activities" is broadly defined to include not only banking, insurance, and
securities activities, but also merchant banking and additional activities that
the Federal Reserve Board, in consultation with the Secretary of the Treasury,
determines to be financial in nature, incidental to such financial activities,
or complementary activities that do not pose a substantial risk to the safety
and soundness of depository institutions or the financial system generally. In
sum, the Gramm-Leach-Bliley Act permits bank holding companies that qualify and
elect to be treated as a financial holding company to engage in a significantly
broader range of financial activities than the companies described above that
are not so treated.

Generally, the Gramm-Leach-Bliley Act and its implementing regulations:

-    repeal historical restrictions on, and eliminate many federal and state law
     barriers to, affiliations among banks, securities firms, insurance
     companies, and other financial service providers;

-    permit investment in non-financial enterprises, subject to significant
     operational, holding period and other restrictions;

-    provide a uniform framework for the functional regulation of the activities
     of banks, savings institutions, and their holding companies;

-    broaden the activities that may be conducted by national banks (and
     derivatively state banks), banking subsidiaries of bank holding companies,
     and their financial subsidiaries;

-    require all financial institutions to provide notice of their privacy
     policies at specified times to their retail customers and consumers of
     their financial products or services, and permits retail customers and
     consumers, under certain circumstances, to prohibit financial institutions
     from sharing certain nonpublic personal information pertaining to them by
     opting out of such sharing;

-    establish guidelines for safeguarding the security, confidentiality and
     integrity of customer information;

-    adopt a number of provisions related to the capitalization, membership,
     corporate governance, and other measures designed to modernize the Federal
     Home Loan Bank system;

-    modify the laws governing the implementation of the Community Reinvestment
     Act of 1977; and

-    address a variety of other legal and regulatory issues affecting both
     day-to-day operations and long-term activities of financial institutions.


                                       6
<PAGE>   7
In order to elect to become a financial holding company and engage in the new
activities, a bank holding company, such as the Company, must meet certain tests
and file an election form with the Federal Reserve Board, which generally is
acted on within thirty days. To qualify, all of a bank holding company's
subsidiary banks must be well-capitalized (as discussed below under `Investors
Bank') and well-managed, as measured by regulatory guidelines. In addition, to
engage in the new activities each of the bank holding company's banks must have
been rated `satisfactory' or better in its most recent federal Community
Reinvestment Act evaluation. Furthermore, a bank holding company that elects to
be treated as a financial holding company may face significant consequences if
its banks fail to maintain the required capital and management ratings,
including entering into an agreement with the Federal Reserve Board which
imposes limitations on its operations and may even require divestitures. Such
possible ramifications may limit the ability of a bank subsidiary to
significantly expand or acquire less than well-capitalized and well-managed
institutions. The Company does not expect to apply to become a financial holding
company in 2001.

The Federal Reserve Board has adopted capital adequacy guidelines that generally
require bank holding companies to maintain total capital equal to 8% of total
risk-weighted assets, with at least one-half of that amount consisting of Tier 1
capital. Tier 1 capital for bank holding companies generally consists of the sum
of common stockholders' equity and other qualifying securities (subject in the
case of the latter to limitations on the kind and amount of such stocks which
may be included as Tier 1 capital), less goodwill and other intangibles. Total
capital consists of Tier 1 capital plus supplementary capital, which includes
hybrid capital instruments and perpetual debt; perpetual preferred stock which
is not eligible to be included as Tier 1 capital; term subordinated debt and
intermediate-term preferred stock; and, subject to limitations, general
allowances for loan losses. Assets are adjusted under the risk-based guidelines
to take into account different levels of credit risk, with the categories
ranging from 0% (requiring no additional capital) for assets such as cash to
100% for higher risk assets, including commercial real estate loans, commercial
business loans and consumer loans. The Federal Reserve Board also has imposed
credit conversion standards for interest rate and exchange rate contracts. In
addition to the risk-based capital requirements, the Federal Reserve Board
requires bank holding companies to maintain a minimum ratio of Tier 1 capital to
total assets of 3%, with most bank holding companies required to maintain a 4%
ratio. SEE the discussion under the caption "Government Regulations" below.

Limitations on Acquisitions of Common Stock. The Federal Change in Bank Control
Act prohibits a person or group of persons from acquiring "control" of a bank
holding company unless the Federal Reserve Board has been given at least 60 days
to review the proposal. Under a rebuttable presumption established by the
Federal Reserve Board, the acquisition of 10% or more of a class of voting stock
of a bank holding company, such as us, with a class of securities registered
under Section 12 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") would, under the circumstances set forth in the presumption,
constitute the acquisition of control.

In addition, any company, as that term is broadly defined in the statute, would
be required to obtain the approval of the Federal Reserve Board under the BHCA
before acquiring 25% (5% in the case of an acquirer that is a bank holding
company) or more, or such lesser percentage as the


                                       7
<PAGE>   8
Federal Reserve Board deems to constitute control over us, of the outstanding
common stock of ours.

The Bank. The Bank is subject to extensive regulation and examination by the
Commissioner of Banks of Massachusetts (the "Commissioner") and by the FDIC,
which insures its deposits to the maximum extent permitted by law, and to
certain requirements established by the Federal Reserve Board. The federal and
state laws and regulations which are applicable to banks regulate, among other
things, the scope of their business, their investments, their reserves against
deposits, the timing of the availability of deposited funds and the nature and
amount of and collateral for certain loans. The laws and regulations governing
the Bank generally have been promulgated to protect depositors and not for the
purpose of protecting stockholders.

The Bank pays deposit insurance premiums to the FDIC based on an assessment rate
established by the FDIC for [Bank] Insurance Fund-member institutions. The FDIC
has established a risk-based assessment system under which institutions are
classified, and generally pay premiums according to their perceived risk to the
federal deposit insurance funds. Proposals have been made to revise the FDIC
deposit insurance system. Should such proposals be adopted, the deposit premiums
paid by the Bank may be substantially increased.

Pursuant to the FDIC's risk-based assessment system, an institution is assigned
to one of three capital groups based solely on the level of the institution's
capital "well capitalized," "adequately capitalized" and "undercapitalized"
which would be defined in generally the same manner as the regulations
establishing the prompt corrective action system under Section 38 of the Federal
Deposit Insurance Act (the "FDIA"). The three capital groups are divided into
three subgroups which reflect varying levels of supervisory concern, from those
considered to be healthy to those considered to be of substantial supervisory
concern. The matrix so created results in nine assessment risk classifications.
Beginning with the first semi-annual assessment period of 1996, rates under
these classifications will range from 0% for well capitalized, healthy
institutions to 0.27% for undercapitalized institutions with substantial
supervisory concerns, subject to a statutory requirement that all institutions
pay at least $2,000 annually for FDIC insurance.

The FDIC has promulgated regulations and adopted a statement of policy regarding
the capital adequacy of state-chartered banks which, like the Bank, are not
members of the Federal Reserve System. These requirements are substantially
similar to those adopted by the Federal Reserve Board regarding bank holding
companies, as described above.

The federal banking agencies continue to consider capital requirements
applicable to banking organizations. The federal banking agencies have adopted
amendments to their risk-based capital regulations to provide for the
consideration of interest rate risk in the determination of a bank's minimum
capital requirements. The amendments presently do not codify a measurement
framework but rather more generally require that banks effectively measure and
monitor their interest rate risk and that they maintain capital adequate for
that risk. The agencies also have published a joint policy statement to gather
information to eventually establish an explicit capital charge for interest rate
risk. In addition, the federal banking agencies have adopted amendments to their
risk-based capital standards to provide for the concentration of credit risk and
certain


                                       8
<PAGE>   9
risks arising from nontraditional activities, as well as a bank's ability to
manage these risks, as important factors in assessing a bank's overall capital
adequacy. Failure to meet the minimum regulatory capital requirements could
subject a banking institution to a variety of enforcement remedies available for
federal regulatory authorities, including the termination of deposit insurance
by the FDIC and seizure of the institution.

At December 31, 2000, the Bank was in compliance with all minimum Federal
regulatory capital requirements which are generally applicable to FDIC-insured
banks. As of such date, the Bank's Tier 1 risk-based capital ratio and total
risk-based capital ratio equaled 11.97% and 12.72%, respectively, and Tier 1
leverage capital ratio equaled 6.36%. However, SEE the discussion under the
caption "Governmental Regulations" below.

In response to a Massachusetts law enacted in 1996, the Commissioner has
proposed rules that generally would give Massachusetts banks powers equivalent
to those of national banks. The Commissioner also has adopted procedures
expediting branching by strongly capitalized banks.

In 1996, Massachusetts enacted interstate banking laws in response to the
Riegl-Neal Interstate Banking and Branching Efficiency Act of 1994. The laws
permit, subject to certain deposit and other limitations, interstate
acquisitions, mergers and branching on a reciprocal basis. The new interstate
banking law is likely to make it easier for out-of-state institutions to attempt
to purchase or otherwise acquire or to compete with the Bank in Massachusetts,
and similarly makes it easier for Massachusetts banks to compete outside the
state.

Brokered Deposits. The FDIA restricts the use of brokered deposits by certain
depository institutions. Under the FDIA and applicable regulations, (i) a well
capitalized institution may solicit and accept, renew or roll over any brokered
deposit without restriction, (ii) an adequately capitalized institution may not
(w) accept, renew or roll over any brokered deposit unless it has applied for
and been granted a waiver of this prohibition by the FDIC or (x) solicit
deposits by offering an effective yield that exceeds by more than 75 basis
points the prevailing effective yields on insured deposits of comparable
maturity in such institution's normal market area or in the market area in which
such deposits are being solicited and (iii) an undercapitalized institution may
not (y) accept, renew or roll over any brokered deposits or (z) solicit deposits
by offering an effective yield that exceeds by more than 75 basis points the
prevailing effective yields on insured deposits of comparable maturity in such
institution's normal market area or in the market area in which such deposits
are being solicited. Recent changes in federal law enable banks to avoid having
to register as deposit brokers with the FDIC. Currently, the Bank is deemed to
be a well capitalized insured depository institution for purposes of the
restriction on the use of brokered deposits by such institutions. At December
31, 2000, the Bank had brokered deposits of $4.9 million.

Transactions with Affiliates. The FDIA restricts the range of permissible
transactions between a bank and an affiliated company. The Bank is subject to
certain restrictions on loans to the Company, on investment in the stock or
securities thereof, on the taking of such stock or securities as collateral for
loans to any borrower, and on the issuance of a guarantee or letter of credit on
behalf of the Company. The Bank also is subject to certain restrictions on most
types


                                       9
<PAGE>   10
of transactions with the Company, requiring that the terms of such transactions
be substantially equivalent to terms to similar transactions with
non-affiliates.

Activities and Investments of Insured State-Chartered Banks. Section 24 of the
FDIA generally limits the activities as principal and equity investments of
FDIC-insured, state-chartered banks to those that are permissible for national
banks. In 1999, the FDIC substantially revised its regulations implementing
Section 24 to ease the ability of state banks to engage in certain activities
not permissible for national banks, and to expedite FDIC review of bank
applications and notice to engage in such activities.

Further, the Gramm-Leach-Bliley Act, which includes new sections of the National
Bank Act and the Federal Deposit Insurance Act governing the establishment and
operation of financial subsidiaries, permits national banks and state banks, to
the extent permitted under state law, to engage in certain new activities which
are permissible for subsidiaries of a financial holding company. Further, it
expressly preserves the ability of national banks and state banks to retain all
existing subsidiaries. In order to form a financial subsidiary, a national bank
or state bank must be well-capitalized, and such banks would be subject to
certain capital deduction, risk management and affiliate transaction rules.
Also, the FDIC recently issued final rules governing the establishment of
financial subsidiaries by insured state nonmember banks. The final rules restate
the FDIC's position that activities that a national bank could only engage in
through a financial subsidiary, such as securities underwriting, only may be
conducted in a financial subsidiary by a state nonmember bank. However,
activities that a national bank could not engage in through a financial
subsidiary, such as real estate development or investment, will continue to be
governed by the FDIC's standard activities rules. Moreover, to mirror the
Federal Reserve Board's actions with respect to state member banks, the final
rules provide that a state bank subsidiary that engages only in activities that
the bank could engage in directly (regardless of the nature of the activities)
will not be deemed a financial subsidiary.

Community Reinvestment Act. The Federal Community Reinvestment Act ("CRA")
requires the FDIC and the Commissioner to evaluate the Bank's performance in
helping to meet the credit needs of the community. As a part of the CRA program,
the Bank is subject to periodic examinations by the FDIC and the Commissioner,
and maintains comprehensive records of its CRA activities for this purpose.
Management believes the Bank is currently in compliance with all CRA
requirements.

Regulation Under Federal Securities Laws. The Company's common stock is
registered under the Exchange Act, which is administered by the Securities and
Exchange Commission ("SEC"). Pursuant to the Exchange Act, the Company files
annual, quarterly and periodic reports with the SEC. The Company's officers and
directors are also subject to the insider trading requirements of Sections 16(a)
and 16(b) of the Exchange Act as administered by the SEC.

The foregoing references to laws and regulations which are applicable to the
Company and the Bank are brief summaries thereof which do not purport to be
complete and which are qualified in their entirety by reference to such laws and
regulations.


                                       10
<PAGE>   11
LOAN PORTFOLIO

     The Bank's commercial and consumer lending activities are conducted
principally in southeastern Massachusetts and the Bank's residential lending
activities are conducted principally in southern New England, Maryland and
Virginia. The Bank's loan portfolio includes single-family and multi-family
residential loans, commercial real estate loans, commercial loans, and a variety
of consumer loans. In addition, the Bank grants loans for the construction of
residential homes, commercial real estate properties, and for land development.
Approximately 90% of the loans granted by the Bank are secured by real estate
collateral. The ability and willingness of the single-family residential and
consumer borrowers to honor their repayment commitments is generally dependent
on, among other things, the level of overall economic activity within the
borrowers' geographic areas and real estate values. The ability and willingness
of a commercial real estate, commercial, or construction loan borrowers to honor
their repayment commitments is generally affected by changing economic
conditions in the borrowers, particular geographic area, business or industry
that could impair the borrowers' future operating performance.

     At December 31, 2000, the Bank had net loans and loans held for sale of
$434.0 million of which $414.6 million, or 95%, were mortgage loans. The Bank
also had $23.6 million of other loans not secured by real estate, composed of
commercial and consumer loans other than home equity loans. Of the Bank's total
loans and loans held for sale, 73% were secured by 1-4 family residential
mortgages, 17% by commercial properties, 2% by multi-family properties, and 3%
represent residential construction loans. Of the Bank's loans not secured by
real estate, 4% of total loans are small business commercial loans not secured
primarily by commercial real estate and 2% of total loans are to consumers.

     The types of loans that the Bank may originate are subject to federal and
state law and regulations. Interest rates charged by the Bank on loans are
affected principally by the demand for such loans, the supply of money available


                                       11
<PAGE>   12
for lending purposes and the rates offered by competitors. These factors are, in
turn, affected by general economic conditions, monetary policies of the federal
government, including the Federal Reserve Board, legislative tax policies, and
governmental budgetary matters. The following table presents the outstanding
balance of loans as of the end of the years indicated:


                                       12
<PAGE>   13
<TABLE>
<CAPTION>
                                                              At December 31,
                                       --------------------------------------------------------
                                       2000         1999         1998         1997         1996
                                       ----         ----         ----         ----         ----
                                                        (Dollars in thousands)
<S>                                   <C>         <C>          <C>          <C>          <C>
Mortgage loans:
   Residential 1-4 family            $266,363     $290,195     $321,612     $293,402     $160,730
   Residential multi-family             8,767        9,455       11,264       11,030       11,217
   Commercial real estate              75,331       67,018       54,104       44,714       44,149
   Construction                        11,074       19,156       15,143        8,923        5,909
   Equity lines of credit              12,737       11,105       10,197       10,152       10,297
                                     --------     --------     --------     --------     --------
     Total principal balances         374,272      396,929      412,320      368,221      232,302
   Deferred loan origination fees
      net                                (199)        (166)         (56)        (113)         (49)
                                     --------     --------     --------     --------     --------
       Total mortgage loans           374,073      396,763      412,264      368,108      232,253
                                     --------     --------     --------     --------     --------
Other loans:
   Retail installment sales
    contracts                             565          294          375          915        1,830
   Consumer                             6,447        5,043        4,806        5,007        6,161
   Commercial lines of credit           6,860        5,614        5,030        6,089        5,622
   Commercial loans                     9,669        9,525        6,098        6,433        4,838
   Education                               19           72           71          146          207
                                     --------     --------     --------     --------     --------
     Total other loans                 23,560       20,548       16,380       18,590       18,658
                                     --------     --------     --------     --------     --------
       Total loans                    397,633      417,311      428,644      386,698      250,911

Allowance for loan losses              (4,182)      (4,096)      (4,866)      (4,291)      (4,716)
                                     --------     --------     --------     --------     --------
     Loans, net                      $393,451     $413,215     $423,778     $382,407     $246,195
                                     ========     ========     ========     ========     ========
</TABLE>

     At December 31, 2000, the Bank had 28 credit relationships exceeding $1
million in size that aggregated $52.5 million or 13.21% of total loans. All of
these relationships are composed of performing loans. All non-performing credit
relationships are under $500,000.

     Residential Mortgage Lending. The Bank offers first mortgage loans and home
equity lines of credit secured by 1-4 family residences. Typically, such
residences are single family homes that serve as the primary residence of the
owner. Loan originations are generally obtained from existing or past customers
and referrals from real estate agents, builders, and members of communities to
which the Bank provides services.

     Through PMC the Bank seeks to expand its residential loan origination
market share and profitably increase revenues from loan sales. PMC approves new
loans only after obtaining purchase commitments from investors. Currently, PMC
secures such commitments on a loan-by-loan basis. PMC uses commissioned loan
originators to obtain 1-4 family residential mortgages based upon investors'
underwriting standards, which may differ from those of the Bank. The Bank's
strategy is to sell new loans originated by PMC in the secondary market,
including the related servicing rights. However, as part of its asset/ liability
management strategy, or to accommodate borrowers who desire a local servicer,
the Bank may buy 1-4 family residential mortgages from PMC. The Bank's policy is
to purchase ARMs that meet FNMA or FHLMC underwriting guidelines, except that
loans may exceed the maximum loan limits of FNMA or FHLMC. In 1996, the Bank
began to purchase residential mortgage loans with servicing retained by the
seller. During 1998 and 1999, the Bank purchased $174.7 million and $48.0
million, respectively, of these loan packages, which include loans originated
throughout the United States. These purchased 1-4 family residential loan
packages exhibit many of the characteristics of mortgage-backed securities
except that the Bank earns a higher yield for assumption of credit risk.

     At December 31, 2000, 73% of the Bank's total loans and loans held for sale
were secured by 1-4 family residential mortgages, of which 60% were ARMs.
Generally, ARMs pose credit risks that differ from the risks inherent in
fixed-rate loans because the borrower's payments rise as interest rates rise,
thereby increasing the potential for default. However, long-term fixed-rate
mortgages expose the Bank to higher interest-rate risk.


                                       13
<PAGE>   14
     Commercial Real Estate Lending. Of the Bank's loans at December 31, 2000,
17% were secured by commercial properties that typically have terms of 3 years
or less and that are ARMs. Of loans secured by properties other than 1-4 family
residences, 71% are ARMs. These loans are made to owners who use properties for
business purposes (owner-user properties) or rent the properties to other
businesses (commercial investment properties). The Bank believes that such
loans, underwritten and monitored prudently, should be a focus of its loan
growth, along with commercial lending to small businesses.

     Loans made on commercial investment properties are based upon several
factors. These include the property's sustainable cash flow, expenses, quality
of tenants, location, and market factors such as the demand for similar
properties. Management reviews such loans at least annually through the analysis
of market trends, property cash flows, financial statements, and federal income
tax returns. When it appears that such loans are in danger of becoming
collateral dependent through the properties' inability to generate or achieve
sustainable cash flows to service the debt, then the Bank will assign the credit
to its internal "Classified and Watch List Loan Report" to closely monitor the
loan and assess the likelihood of loss.

     Loans made on commercial owner-user properties include loans made to small
and medium sized local businesses where the underlying collateral is
predominantly commercial real estate used by the business. The Bank underwrites
such loans on the borrower's cash flow and ability to service debt from earnings
and seeks to structure such loans to have more than one source of repayment. The
borrower is required to provide the Bank with sufficient information to allow an
informed credit decision to be made. This generally includes three years of
financial statements, projected cash flows, current financial information on
guarantors, and reports that show financial trends such as accounts receivable
agings and concentrations, inventory reports, accounts payable reports, and
sales reports. The Bank considers such loans to be a focus for future loan
growth.

     Loans secured by commercial real estate properties are generally larger and
involve a greater degree of risk than 1-4 family residential mortgage loans.
Because payments on loans secured by commercial real estate properties are often
dependent on successful operation or management of the properties, repayment of
such loans may be subject largely to the then prevailing conditions in the real
estate market or the economy. The Bank seeks to minimize these risks through its
underwriting standards.

     Commercial Lending. Of the Bank's loans at December 31, 2000, 4% are small
business commercial loans not secured primarily through commercial real estate.
Such loans are underwritten using the same standards as for commercial
owner-user real estate properties. The Bank considers such loans to be a focus
for future loan growth.

     The Bank's commercial loans are usually secured by all the borrower's
business assets. Commercial loans are generally larger and involve a greater
degree of risk than 1-4 family residential mortgage loans. Because payments on
commercial loans secured by business assets are often dependent on the
successful operation of the business, repayment of the loans may be dependent
largely on the then prevailing conditions in the economy. The Bank seeks to
minimize these risks through its underwriting policies.

     Residential Construction Lending. Of the Bank's loans at December 31, 2000,
3% represent residential construction lending. Such lending is to local real
estate developers with a demonstrated success in responding to residential home
building cycles or to individuals who are contracting to build homes for their
use.

     Construction and land financing is generally considered to involve a higher
degree of credit risk than long-term financing on improved, owner-occupied real
estate. Risk of loss on a construction loan is dependent largely upon the
accuracy of the initial estimate of the property's value at completion of
construction or development compared to the estimated cost (including interest)
of construction. If the estimate of value proves to be inaccurate, the Bank may
be confronted with a project that when completed, has a value that is
insufficient to assure full repayment. The Bank seeks to minimize these risks
through its underwriting policies.

     Consumer Lending. Of the Bank's total loans at December 31, 2000, 2% are
consumer loans. Growth in consumer loans is subject to the increasing
competition from non-bank lenders for automobile and personal loans as well as
the effect of government actions on education loan originations. The Bank does
not consider this area to be a focus of future loan growth, but offers such
loans as an accommodation to deposit customers.


                                       14
<PAGE>   15
     Multi-Family Residential Lending. Of the Bank's loans at December 31, 2000,
2% were secured by multi-family properties. The Bank rarely makes such loans,
except to facilitate sales of foreclosed properties or to replace existing
borrowers with borrowers who are more financially secure.

     Loans secured by apartment buildings and other multi-family residential
properties are generally larger and involve a greater degree of risk than 1-4
family residential mortgage loans. Because payments on loans secured by
multi-family properties are often dependent on the successful operation or
management of the properties, repayment of such loans may be subject to a
greater extent to the then prevailing conditions in the real estate market or
the economy. The Bank seeks to minimize these risks through its underwriting
policies.

     Credit Administration. The Board of Directors, through its policies and
procedures, has directed the management team to be proactive in its risk
management. This process involves the implementation of systems that promote the
identification of credit risk and actions that mitigate such risk. Management
plays an active role in promoting a credit culture in which each employee
involved in the lending function is expected to manage the risk in that portion
of the portfolio for which such employee is responsible with systems that
provide management with important information on a frequent basis.

     Approval Process. The Bank uses a committee process to approve its loans.
Loans between $300,000 and $500,000 must be authorized by the Credit Committee.
Loans over $500,000 are submitted to the Executive Committee of the Board of
Directors. If any proposed loan has a policy exception, the loan requires
approval by the Board of Directors or Executive Committee. The Executive
Committee meets bi-weekly to approve loans and review reports pertaining to the
portfolio's performance.

     Management may also delegate loan authority to certain senior loan
officers, whereby the designated officer may lend up to pre-established limits,
provided that the loan meets minimum underwriting criteria and is documented
according to the Bank's customary procedures. These loans are subsequently
reported to senior management and the Executive Committee.

     Credit Administration Oversight. The Bank's credit administration
department uses various systems to monitor the loan portfolio and lending
activity. These include reports generated by the Bank's data processing system
to monitor loan performance.

     The Board of Directors requires that all loans be classified on a grading
system according to measurable elements of risk. The system used is standard
throughout the banking industry and recognized by the Bank's primary regulators,
the Commissioner and the FDIC. This system allows management to track pools of
similar credits for potential risk of loss. These pools consist of same grade
credits that have similar levels of risk and establish a framework for migration
analysis used to determine the levels of loan loss reserves.

     The grading system assigns loan pools to eight categories ranging from
"pass" to "loss." There are four pools in the "pass" category, which consists of
credits found to be of acceptable risk. Generally, loans in this category are to
companies that have profit records, adequate capital for normal operations, and
sufficient cash flow to service the loan. When a loan shows signs of potential
weaknesses that may affect repayment of the loan or the collateral, the loan is
reclassified as "specially mentioned." A loan that has further deterioration and
exhibits defined weaknesses in the borrower's capacity to repay is reclassified
as "substandard." Loans that exhibit signs of doubtful repayment are graded
"doubtful" and loans that show signs of partial or full loss are charged off
immediately.

     Management provides its lenders with training and systems to monitor the
risk of credits and requires a formal process to change the risk grade. When a
credit is downgraded, or the risk element has increased due to some potential
repayment weaknesses, the credit is given more attention to protect the Bank's
ability to collect the loan.

     Portfolio Reviews. The Bank uses a "loan officer driven" grading system,
whereby all loans are periodically reviewed by loan officers as well as by
management for common risk trends. The loan review officer independently reviews
the portfolio annually in accordance with guidelines established in the loan
policy to insure that loans are rated properly and verify that loan officers
identify and report problems in a timely manner so that corrective action may be
taken to avoid or reduce future loan losses.

     Classified Asset Management. All classified assets and specially mentioned
credits that are currently


                                       15
<PAGE>   16
outstanding or recently downgraded are reported to management semi-annually.
These reports are prepared by the Credit Administrative Officer and draw
attention to the credit problems, strategies to correct the same, and dates for
accomplishing such strategies. The reports also point out projected weaknesses
or strengths that could cause the credit to be downgraded or upgraded.

     When evaluating the reports, management determines if specific reserves
should be established on the relevant credit, depending on the nature of the
problem and the underlying collateral. During this process, management evaluates
the borrower's cash flow and underlying collateral value. If there is erosion in
either case, prompt action is taken to protect the Bank's position. Such action
may include taking additional collateral, obtaining further guarantees,
declaring a default and accelerating the loan, and such other legal remedies as
may be available to the Bank under the loan documents to take control of the
collateral. Each month management provides reports to the Board of Directors
analyzing the allowance for loan losses, classified and non-performing assets,
and loan charge-offs.

     The reports are summarized on a tracking system used to monitor the
activity of the credits both for changing loan balances and required reporting
based on the initial target dates set by management.

     The allowance for loan losses has been established to absorb estimated
losses in the loan portfolio. Additions to the allowance are determined on a
periodic basis by management and the Board of Directors. The following presents
the allocation of the allowance for loan losses:

<TABLE>
<CAPTION>
                                                             At December 31,
                              --------------------------------------------------------------------------------
                                      2000                         1999                      1998
                              ------------------------    ------------------------    ------------------------
                                            Percent of                 Percent of                  Percent of
                                             Loans in                   Loans in                    Loans in
                                Amount        each         Amount        each          Amount         each
                                 of        Category to       of        Category to       of        Category to
                              Allowance    Total Loans    Allowance    Total Loans    Allowance    Total Loans
                              ---------    -----------    ---------    -----------    ---------    -----------
                                                          (Dollars in thousands)
<S>                           <C>          <C>            <C>          <C>            <C>           <C>
Residential 1-4 family
  and loans held for sale       $  679        70.01%       $  751         71.15%          950         78.26%
Residential multi-family           175         2.00           204          2.14           697          2.29
Commercial real estate           1,022        17.18         1,055         15.19         1,238         10.98
Construction                       111         2.53           192          4.34           151          3.07
Equity lines of credit             134         2.91           111          2.52           102          2.07
Commercial                         771         3.77           605          3.43           485          2.26
Other loans                        122         1.60            77          1.23            79          1.07
Unallocated                      1,168          N/A         1,101           N/A         1,164           N/A
                                ------       ------        ------        ------        ------        ------
Total                           $4,182       100.00%       $4,096        100.00%       $4,866        100.00%
                                ======       ======        ======        ======        ======        ======
</TABLE>

<TABLE>
<CAPTION>
                                                          At December 31,
                                ---------------------------------------------------------------
                                           1997                               1996
                                ---------------------------        ----------------------------
                                                Percent of                          Percent of
                                                 Loans in                            Loans in
                                 Amount            each             Amount             each
                                   of           Category to           of            Category to
                                Allowance       Total Loans        Allowance        Total Loans
                                ---------       -----------        ---------        -----------
                                                    (Dollars in thousands)
<S>                             <C>             <C>                <C>              <C>
Residential 1-4 family
  and loans held for sale        $  932             77.30%           $  464            67.37%
Residential multi-family            763              2.68               733             4.06
Commercial real estate            1,222             10.86             1,405            15.96
Construction                         89              2.17                59             2.14
Equity lines of credit              102              2.47               103             3.72
Commercial                          416              3.04               305             3.78
Other loans                          91              1.48               169             2.97
Unallocated                         676               N/A             1,478              N/A
                                 ------            ------            ------           ------
Total                            $4,291            100.00%           $4,716           100.00%
                                 ======            ======            ======           ======
</TABLE>

     In addition, the allowance incorporates the results of measuring impaired
loans as provided in:

     -    Statement of Financial Accounting Standards ("SFAS") No. 114,
          "Accounting by Creditors for Impairment of a Loan" and
     -    SFAS No. 118, "Accounting by Creditors for Impairment of a Loan -
          Income Recognition and Disclosures."

These accounting standards prescribe the measurement methods, income recognition
and disclosures concerning impaired loans.

     The general allowance is calculated by applying loss factors to outstanding
loans based on the internal risk grade of those loans. Changes in risk grades of
both performing and non-performing loans affect the amount of the general
allowance. Loss factors are based on our historical loss experience and may be
adjusted for significant factors that, in management's judgement, affect the
collectibility of the portfolio as of the evaluation date.

     Loss factors for graded, ungraded and pooled loans are based on long-term
industry benchmarks for losses adjusted for the particular attributes of the
Company's portfolio. Such factors are derived based upon the collective wisdom
and experience of management, examiners and auditors. Management annually
reviews risk factors to

                                       16
<PAGE>   17
determine if there have been significant changes in the risks inherent in a
particular sector of the loan portfolio to justify changing loss factors.

     Specific allowances are established where management has identified
significant conditions or circumstances related to a credit that management
believes indicate the probability that a loss has been incurred.

     The unallocated allowance is based upon management's evaluation of various
conditions, the effects of which are not directly measured in determining the
general and specific allowances. The evaluation of the inherent loss regarding
these conditions involves a higher degree of uncertainty because they are not
identified with specific problem credits or portfolio segments. The conditions
evaluated in connection with the unallocated allowance include the following
conditions that existed as of the balance sheet date:

     -    then existing general economic and business conditions affecting our
          key lending areas;
     -    credit quality trends, including trends in nonperforming loans
          expected to result from existing conditions;
     -    collateral values;
     -    loan volumes and concentrations;
     -    seasoning of the loan portfolio;
     -    specific industry conditions within portfolio segments;
     -    recent loss experience in particular segments of the portfolio;
     -    duration of the current business cycle;
     -    bank regulatory examination results; and
     -    findings of our internal credit examiners.

Executive management reviews these conditions periodically in discussion with
our senior credit officers. If any of these conditions is evidenced by a
specifically identifiable problem credit or portfolio segment as of the
evaluation date, management's estimate of the effect of this condition may be
reflected as a specific allowance applicable to this credit or portfolio
segment. Where any of these conditions is not evidenced by a specifically
identifiable problem credit or portfolio segment as of the evaluation date,
management's evaluation of the probable loss concerning this condition is
reflected in the unallocated allowance.

     The allowance for loan losses is based upon estimates of probable losses
inherent in the loan portfolio. The amount actually incurred for these losses
can vary significantly from the estimated amounts. The Bank's methodology
includes several features that are intended to reduce the differences between
estimated and actual losses. Furthermore, the Bank's methodology permits
adjustments to any loss factor used in the computation of the general allowance
in the event that, in management's judgement, significant factors that affect
the collectibility of the portfolio as of the evaluation date are not reflected
in the loss factors. By assessing the probable estimated losses inherent in the
loan portfolio periodically, management is able to adjust specific and inherent
loss estimates based upon any more recent information that has become available.

     In 2000 there was no provision (credit) to the allowance for loan losses.
In 1999, credits to the allowance for loan losses amounted to $850,000. A
continuing trend of decreased non-performing loans and favorable local real
estate conditions and improved asset quality resulted in the Bank's unallocated
portion of the allowance exceeding the Bank's upper limit.

     The accrual of interest on loans is discontinued at the time the loan is 90
days delinquent unless the credit is well-secured and in process of collection.
Loans are placed on nonaccrual or charged-off at an earlier date if collection
of principal or interest is considered doubtful.


                                       17
<PAGE>   18
     The following table presents a summary of the Bank's loan loss experience:

<TABLE>
<CAPTION>
                                                                Year Ended December 31,
                                                 ----------------------------------------------------
                                                 2000        1999        1998       1997         1996
                                                 ----        ----        ----       ----         ----
                                                                (Dollars in thousands)

<S>                                            <C>         <C>         <C>         <C>         <C>
Balance at beginning of year                   $4,096      $4,866      $4,291      $4,716      $ 3,813
   Provisions (credits) for loan losses            --        (850)        600         100           75
   Charge-offs:
     Residential 1-4 family                      (101)       (267)       (309)       (433)        (463)
     Residential multi-family                      --         (63)       (188)       (161)        (470)
     Commercial real estate                       (18)         --         (23)        (45)         (89)
     Equity lines of credit                        --          --         (17)         --          (20)
     Commercial                                    --         (26)         --         (20)          --
     Other                                        (37)        (47)        (38)        (68)         (89)
                                               ------      ------      ------      ------      -------
       Total                                     (156)       (403)       (575)       (727)      (1,131)
   Recoveries                                     242         483         550         202          307
                                               ------      ------      ------      ------      -------
     Net recoveries (charge offs)                  86          80         (25)       (525)        (824)
   Allowance acquired in acquisition               --          --          --          --        1,652
                                               ------      ------      ------      ------      -------
Balance at end of year                         $4,182      $4,096      $4,866      $4,291      $ 4,716
                                               ======      ======      ======      ======      =======

Ratio of net charge-offs (recoveries)
   to average loans outstanding
   during the year                              (0.02)%     (0.02)%      0.01%       0.17%        0.34%

Non-performing loans                           $  373      $  503      $1,517      $3,894      $ 3,863
Loans greater than 90 days delinquent
   and accruing                                   288         601         159          --           --
Troubled debt restructurings,
   included in non-performing loans               102         197         859       1,700        2,300
Troubled debt restructurings on
   accrual basis                                  161         117         849         339          355
Interest income recognized on a
   cash basis on non-performing loans              12          60         103         171          261
</TABLE>

     The maturity distribution and interest rate sensitivity of selected loan
categories at December 31, 2000 is presented in the following table.

<TABLE>
<CAPTION>
                                                   At December 31, 2000
                                    -----------------------------------------------
                                    Within          1-5         After
                                    1 Year         Years       5 Years        Total
                                    ------         -----       -------        -----
                                                   (Dollars in thousands)
<S>                                 <C>           <C>          <C>           <C>
Loan Maturity:
Mortgage loans:
   Construction                     $11,074       $   --        $   --       $11,074

Other loans:
   Commercial lines of credit         6,860           --            --         6,860
   Commercial                         3,469        3,974         2,226         9,669
                                    -------       ------        ------       -------
                                    $21,403       $3,974        $2,226       $27,603
                                    =======       ======        ======       =======
Rate Sensitivity:
   Floating interest rates                        $   838       $1,199       $ 2,037
   Fixed interest rates                             3,136        1,027         4,163
                                                  -------       ------       -------
   Total loans                                    $ 3,974       $2,226       $ 6,200
                                                  =======       ======       =======
</TABLE>


                                       18
<PAGE>   19
INVESTMENT SECURITIES

         Effective December 31, 2000, and in connection with developing a plan
to reduce over time the Bank's level of trust preferred securities to less than
100% of Tier 1 leverage capital, management determined that it no longer had the
intent and ability to hold all trust preferred securities to maturity. As a
result, all securities previously classified as held-to-maturity were
transferred to the available-for-sale category, and the net unrealized loss on
such securities of $27.2 million, net of tax effects of $14.5 million, was
charged to accumulated other comprehensive income in stockholders' equity at
December 31, 2000. Accordingly, at December 31, 2000, total stockholders equity
was reduced to $17.8 million or 1.77% of total assets. This transfer had no
impact on either the Company's or the Bank's Tier 1 leverage capital, defined
generally as stockholders' equity (excluding net unrealized losses on debt
securities and reduced by intangible assets) plus subordinated debentures to the
extent allowed. Realized gains and losses on securities sales will be included
in net income as incurred. During the fourth quarter of 2000, the Company sold
$30.2 million in higher risk securities at a pre-tax loss of $1.2 million. As of
March 26, 2001, the Bank had sold approximately $192 million of securities and
loans (including $13 million of trust preferred securities) since December 31,
2000 at a loss of approximately $1 million. It is anticipated that significant
additional sales will be executed over time. No assurances can be given as to
the amount of losses that will ultimately be realized as a result of these
sales, or the overall impact that such sales will have on the Bank's net
interest margin, stockholders' equity and regulatory capital levels. These
actions are consistent with management's strategies to deleverage the balance
sheet, improve liquidity and improve interest rate risk.

     At December 31, 2000, the carrying value of the Company's securities,
including restricted equity securities, amounted to $508.0 million, representing
50.7% of the Company's total assets. At December 31, 1999, the Company's
securities, including restricted equity securities, was $594.3 million
representing 55.5% of total assets and at December 31, 1998, securities,
including restricted equity securities, was $398.2 million representing 42.2% of
total assets.


     The following table sets forth the amortized cost and estimated fair value
for the Company's held-to-maturity securities portfolio:

<TABLE>
<CAPTION>
                                                                  At December 31,
                                  ---------------------------------------------------------------------------
                                          2000                      1999                       1998
                                  -------------------     ----------------------        ---------------------
                                  Amortized     Fair      Amortized        Fair         Amortized       Fair
                                    Cost        Value        Cost          Value           Cost         Value
                                  ---------     -----     ---------        -----        ---------       -----
                                                           (Dollars in thousands)
<S>                               <C>           <C>       <C>             <C>           <C>            <C>
U.S. Government and federal
   agency obligations                $--         $--        $116,012      $ 99,321       $ 73,844      $ 74,165
Mortgage-backed securities            --          --         248,096       239,936         14,408        14,453
Trust preferred securities            --          --         139,433       123,431         93,807        93,007
Corporate debt securities             --          --          21,040        18,330          4,500         4,500
                                     ---         ---        --------      --------       --------      --------
   Total held-to-maturity            $--         $--        $524,581      $481,018       $186,559      $186,125
                                     ===         ===        ========      ========       ========      ========
</TABLE>


                                       19
<PAGE>   20
     The following table sets forth the amortized cost and estimated fair value
for the Company's available-for-sale securities portfolio:

<TABLE>
<CAPTION>
                                                                      At December 31,
                                        ---------------------------------------------------------------------------
                                                 2000                      1999                       1998
                                        ----------------------    ----------------------     ----------------------
                                         Amortized       Fair       Amortized      Fair       Amortized      Fair
                                           Cost          Value        Cost         Value        Cost         Value
                                         ---------       -----      ---------      -----      ---------      -----
                                                                     (Dollars in thousands)
<S>                                      <C>           <C>          <C>           <C>         <C>          <C>
U.S. Government and federal
   agency obligations                    $141,142      $133,059      $    --      $    --     $     --     $     --
Mortgage-backed securities                214,571       212,610       23,648       23,416      155,880      153,908
Trust preferred securities                141,057       112,004        1,991        1,832       35,620       35,831
Municipal bank notes                        8,554         8,554        5,916        5,916        2,084        2,084
Corporate debt securities                  26,025        21,901       17,811       16,820           --           --
                                         --------      --------      -------      -------     --------     --------
   Total available for sale              $531,349      $488,128      $49,366      $47,984     $193,584     $191,823
                                         ========      ========      =======      =======     ========     ========
</TABLE>


                                       20
<PAGE>   21
     The following tables set forth as of the dates indicated, the maturities of
securities and the weighted-average yields of such securities, which have been
calculated on the cost basis, weighted for the scheduled maturity of each
security:

<TABLE>
<CAPTION>
                                                                              At December 31, 2000
                                                                  --------------------------------------------
                                                                                                      Weighted
                                                                  Amortized          Fair              Average
                                                                    Cost             Value              Rate
                                                                  ---------          -----            --------
                                                                              (Dollars in thousands)
<S>                                                               <C>              <C>                <C>
Securities Available-for-Sale
U.S. Government and federal agency obligations:
   After 5 years but within 10 years                              $  1,000         $    981             6.40%
   After 10 years                                                  140,142          132,078             6.95%
                                                                  --------         --------
       Total U.S. Government & federal agency obligations          141,142          133,059             6.94%
                                                                  --------         --------
Mortgage-backed securities:
   After 5 years but within 10 years                                 5,308            5,262             7.41%
   After 10 years                                                  209,263          207,348             7.23%
                                                                  --------         --------
     Total mortgage-backed securities                              214,571          212,610             7.23%
                                                                  --------         --------
Trust preferred securities:
   After 5 years but within 10 years                                   992              640             9.13%
   After 10 years                                                  140,065          111,364             8.85%
                                                                  --------         --------
     Total trust preferred securities                              141,057          112,004             8.85%
                                                                  --------         --------
Corporate debt securities:
   After 1 year but within 5 years                                   5,000            4,638            12.50%
   After 5 years but within 10 years                                 5,000            4,942             9.08%
   After 10 years                                                   16,025           12,321             8.01%
                                                                  --------         --------
     Total corporate debt securities                                26,025           21,901             9.08%
                                                                  --------         --------
Municipal bank notes:
   Within 1 year                                                     7,944            7,944             6.73%
   After 1 year but within 5 years                                     610              610             7.11%
                                                                  --------         --------
     Total municipal bank notes                                      8,554            8,554             6.78%
                                                                  --------         --------
       Total securities available-for-sale                        $531,349         $488,128             7.67%
                                                                  ========         ========
</TABLE>


                                       21
<PAGE>   22
<TABLE>
<CAPTION>
                                                                                At December 31, 1999
                                                                    ---------------------------------------------
                                                                                                         Weighted
                                                                    Amortized           Fair              Average
                                                                      Cost              Value              Rate
                                                                    ---------           -----            --------
                                                                                (Dollars in thousands)
<S>                                                                  <C>               <C>               <C>
Securities Available-for-Sale
Mortgage-backed securities:
   After 10 years                                                    $ 23,648          $ 23,416            6.57%
                                                                     --------          --------
     Total mortgage-backed securities                                  23,648            23,416            6.57%
                                                                     --------          --------
Trust preferred securities:
   After 5 years but within 10 years                                      991               839            9.13%
   After 10 years                                                       1,000               993            8.97%
                                                                     --------          --------
     Total trust preferred securities                                   1,991             1,832            9.05%
                                                                     --------          --------
Corporate debt securities:
   After 1 year but within 5 years                                      4,844             4,250            6.80%
   After 5 years but within 10 years                                   12,967            12,570            8.07%
                                                                     --------          --------
     Total corporate debt securities                                   17,811            16,820            7.72%
                                                                     --------          --------
Municipal bank notes:
   Within 1 year                                                        5,916             5,916            5.38%
                                                                     --------          --------
     Total municipal bank notes                                         5,916             5,916            5.38%
                                                                     --------          --------
       Total Securities available-for-sale                           $ 49,366          $ 47,984            6.94%
                                                                     ========          ========

Securities Held-to-Maturity
U.S. Government and federal agency obligations:
   After 5 years but within 10 years                                 $  1,000          $    930            6.40%
   After 10 years                                                     115,012            98,391            7.17%
                                                                     --------          --------
       Total U.S. Government & federal agency obligations             116,012            99,321            7.18%
                                                                     --------          --------
Mortgage-backed securities:
   After 5 years but within 10 years                                    5,338             4,934            7.45%
   After 10 years                                                     242,758           235,002            7.40%
                                                                     --------          --------
       Total mortgage-backed securities                               248,096           239,936            7.40%
                                                                     --------          --------
Trust preferred securities:
   After 10 years                                                     139,433           123,431            9.25%
                                                                     --------          --------
       Total trust preferred securities                               139,433           123,431            9.25%
                                                                     --------          --------
Corporate debt securities:
   After 1 year but within 5 years                                      5,000             4,900           12.50%
   After 10 years                                                      16,040            13,430            8.01%
                                                                     --------          --------
       Total corporate securities                                      21,040            18,330            9.08%
                                                                     --------          --------
       Total securities held-to-maturity                             $524,581          $481,018            7.91%
                                                                     ========          ========
</TABLE>


                                       22
<PAGE>   23
<TABLE>
<CAPTION>
                                                                                At December 31, 1998
                                                                    ----------------------------------------------
                                                                                                          Weighted
                                                                    Amortized          Fair                Average
                                                                      Cost             Value                Rate
                                                                    ---------          -----              --------
                                                                                 (Dollars in thousands)
<S>                                                                 <C>               <C>                 <C>
Securities Available-for-Sale
 Mortgage-backed securities:

   After 10 years                                                    $155,880         $153,908               6.80%
                                                                     --------         --------
     Total mortgage-backed securities                                 155,880          153,908               6.80%
                                                                     --------         --------
Trust preferred securities:
   After 10 years                                                      35,620           35,831               7.96%
                                                                     --------         --------
     Total trust preferred securities                                  35,620           35,831               7.96%
                                                                     --------         --------
Municipal bank notes:
   Within 1 year                                                        2,084            2,084               5.08%
                                                                     --------         --------
     Total municipal bank notes                                         2,084            2,084               5.08%
                                                                     --------         --------
       Total securities available-for-sale                           $193,584         $191,823               6.99%
                                                                     ========         ========

Securities Held-to-Maturity
U.S. Government and federal agency obligations:
   After 5 years but within 10 years                                 $  1,300         $  1,300               6.44%
   After 10 years                                                      72,544           72,865               7.63%
                                                                     --------         --------
       Total U.S. Government & federal agency obligations              73,844           74,165               7.63%
                                                                     --------         --------
Mortgage-backed securities:
   After 10 years                                                      14,408           14,453               6.93%
                                                                     --------         --------
       Total mortgage-backed securities                                14,408           14,453               6.93%
                                                                     --------         --------
Trust preferred securities:
   After 5 years but within 10 years                                      839              836               8.20%
   After 10 years                                                      92,968           92,171               9.15%
                                                                     --------         --------
       Total trust preferred securities                                93,807           93,007               9.14%
                                                                     --------         --------
Corporate debt securities:
   After 5 years but within 10 years                                    4,500            4,500              12.50%
                                                                     --------         --------
       Total corporate securities                                       4,500            4,500              12.50%
                                                                     --------         --------
       Total securities held-to-maturity                             $186,559         $186,125               8.45%
                                                                     ========         ========
</TABLE>


                                       23
<PAGE>   24
       The following table sets forth securities from any single issuer,
excluding the U.S. Government or its agencies, for which amortized cost exceeds
10% of stockholders' equity:

<TABLE>
<CAPTION>
                                                                                At December 31, 2000
                                                                    --------------------------------------------
                                                                                      Percent of
                                                                    Amortized        Stockholders'         Fair
                                                                      Cost              Equity             Value
                                                                    ---------        -------------         -----
                                                                                (Dollars in thousands)

<S>                                                                 <C>              <C>                  <C>
MORTGAGE-BACKED SECURITIES:
Residential Asset Securities Trust 1999, Class A1                    $18,457             103.94%           $18,134
Residential Accredit Loans, Inc., Series 1999-Q513                    16,599              93.48             16,773
Aames Mortgage Trust, Series 1997-C, Class B-1A                       10,724              60.39             10,808
Citicorp Mortgage Security Inc., Series 1998-8, Class A5               4,093              23.05              4,080
Mortgage Capital Funding, Inc. Series 1998-MC2, Class D                4,955              27.97              4,917
Residential Asset Securitizations Trust 1999-A7, Class NB-1           14,715              82.87             14,875
Structured Asset Mortgage Investment, Inc.                             2,080              11.71              1,813
PNC Mortgage Securities Corp                                           1,853              10.43              1,856

TRUST PREFERRED SECURITIES:
Webster Capital Trust                                                  4,815              27.79              4,080
Green Point Capital Trust                                              5,298              29.08              4,222
Dime Capital Trust                                                     4,821              27.18              3,973
First Bank of Oak Park Capital Trust                                   5,431              30.59              4,674
First Keystone Capital Trust                                           4,872              27.44              3,394
Coal City Capital Trust                                                4,509              25.39              3,555
United Commercial Bank Holdings Capital Trust                          5,064              28.52              3,646
City Holdings Capital Trust                                            4,639              26.13              3,206
First Western Capital Trust                                            5,550              31.25              4,723
Community Capital Trust I                                              4,976              28.02              3,696
Sovereign Bancorp Capital Trust                                        4,898              27.58              3,454
Valley Capital Trust                                                   5,000              28.16              4,133
BancFirst Corporation Capital Trust                                    5,010              28.21              4,863
Union Planters Capital Trust                                           4,733              26.66              3,977
Riggs Capital Trust                                                    4,821              27.15              3,040
Ohio Savings                                                           5,579              31.41              4,934
BancFirst Ohio Corporation                                             5,000              28.16              4,716
Morgan Stanley Group Inc.                                              2,054              11.57              1,898
</TABLE>


                                       24
<PAGE>   25
<TABLE>
<S>                                                                    <C>                <C>                <C>
CORPORATE DEBT SECURITIES:
Amerus Capital Trust                                                   4,212              23.72              3,461
Fairfax Financial Corporation                                          4,888              27.52              3,458
Sterling Financial Corporation                                         5,000              28.16              4,942
Hawthorne Financial Corporation                                        5,000              28.16              4,638
Atlantic Mutual                                                        4,872              27.44              3,506
BBC Capital Trust 1                                                    3,336              18.79              2,316
Sterling Bancshares Capital Trust 1                                    2,154              12.13              1,896
PCC Capital 1                                                          3,167              17.84              2,796
Yardville Capital Trust                                                1,831              10.31              1,620
FW Capital 1                                                           2,345              13.21              2,195
Resource Capital Trust 1                                               2,000              11.26              1,600
FCNB Capital Trust                                                     5,010              28.21              4,863
GBB Capital Trust 2                                                    2,500              14.08              1,900
Centura Capital Trust 1                                                2,594              14.61              2,067
PEBO Capital Trust 1                                                   4,000              22.53              2,687
BankNorth Capital Trust 1                                              2,304              12.98              1,907
Progress Capital Trust 1                                               2,840              15.99              2,036
UNB Capital Trust 1                                                    3,021              17.01              2,101
Patriot Capital Trust 1                                                2,247              12.65              1,599
North Fork Capital Trust 2                                             3,785              21.32              3,127
</TABLE>


DEPOSITS

     Deposits generated from within the Bank's local market area are the primary
source of funds for the Bank's lending and investment operations. In addition to
savings deposits, NOW and money market deposits, the Bank offers several
checking account programs to meet the individual needs of its customers.
Substantially all the Bank's deposits are derived from customers who work or
reside in the Bank's market area. The Bank also offers municipal deposit
products to cities and towns throughout Massachusetts.

     The average daily balance of deposits and the average rate paid on each of
the following deposit categories is summarized below for the years indicated:

<TABLE>
<CAPTION>
                                                            For the Years Ended December 31,
                                       --------------------------------------------------------------------------
                                                2000                      1999                       1998
                                       ---------------------     ----------------------     ---------------------
                                                     Average                    Average                   Average
                                       Average        Rate        Average        Rate        Average       Rate
                                       Balance        Paid        Balance        Paid        Balance       Paid
                                       -------       -------      -------       -------      -------      -------
                                                                     (Dollars in thousands)
<S>                                    <C>           <C>         <C>            <C>         <C>           <C>
Non-interest bearing
   demand deposits                     $ 38,383         N/A      $ 35,641         N/A       $ 33,853         N/A
NOW                                      49,576        0.82%       45,987        0.81%        42,436        0.95%
Savings                                 102,481        2.44        97,097        2.42         93,092        2.60
Money market                             38,086        3.98        36,710        3.81         34,295        4.12
Time                                    386,804        6.00       305,619        5.20        198,749        5.53
                                       --------                  --------                   --------
   Total                               $615,330        4.49%     $521,054        3.84%      $402,425        3.79%
                                       ========                  ========                   ========
</TABLE>


                                       25
<PAGE>   26
     As of December 31, 2000, term certificates of deposit in amounts of
$100,000 or more had the following maturities:

<TABLE>
<CAPTION>
                                                     (Dollars in thousands)
<S>                                                  <C>
Under 3 months                                            $161,236
3 to 6 months                                               29,151
6 to 12 months                                              11,189
Over 12 months                                              12,616
                                                          --------
   Total                                                  $214,192
                                                          ========
</TABLE>

BORROWINGS

     The following table summarizes the outstanding balances of borrowings for
the years indicated:

<TABLE>
<CAPTION>
                                                               At or For the Years Ended December 31,
                                                            -------------------------------------------
                                                               2000              1999             1998
                                                               ----              ----             ----
                                                                       (Dollars in thousands)
<S>                                                         <C>              <C>              <C>
FHLB advances:
   Balance at end of year                                   $246,641         $373,250         $ 320,000
   Average balance                                           314,589          344,142           295,058
   Maximum month-end balance                                 361,500          405,848           355,250
   Weighted average rate during the period                      5.85%            5.52%             5.59%
   Year-end average rate                                        5.91%            5.52%             5.45%

Securities sold under agreements to repurchase:
   Balance at end of year                                   $ 83,500         $ 74,700          $ 96,900
   Average balance                                            75,699           87,413           104,395
   Maximum month-end balance                                  83,500           96,900           123,400
   Weighted average rate during the period                      6.31%            5.90%             5.87%
   Year-end average rate                                        6.37%            5.99%             5.77%
</TABLE>


EMPLOYEES

     At December 31, 2000, the Company had 308 full-time equivalent employees.
Employee benefits include a pension plan, 401(k) Plan, and life, health, travel,
accident and long-term disability insurance, and tuition assistance, which are
offered by the Company to all employees who meet the minimum hours worked
requirements. None of the employees of the Company is represented by a
collective bargaining group, and management considers its relationship with its
employees to be good.

ITEM 2. PROPERTIES.

     The Company owns its administrative offices which are located at 545
Pleasant Street, New Bedford, Massachusetts. The Bank owns its main office which
is located at 73 Belmont Street, Easton, Massachusetts. Of the Bank's remaining
19 customer facilities, 8 are owned by the Bank and 11 are located on long-term
leased premises.

     Real property and related banking facilities owned by the Company at
December 31, 2000 had a net book value of $12.9 million and none of the
properties was subject to any encumbrances. For the year ended December 31,
2000, rental fees of $1.2 million were paid on facilities leased by the Company
for its operations.


ITEM 3. LEGAL PROCEEDINGS.

        The Company is involved from time to time as a party to legal
proceedings occurring in the ordinary course


                                       26
<PAGE>   27
of its business. The Company does not believe that any of these proceedings
would, if adversely determined, have a material effect on the Company's
consolidated financial condition or results of operations.


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.


                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

        The common stock of the Company (the "Common Stock") traded in the
over-the-counter market on the Nasdaq National Market under the symbol "PBKB."
The following table sets forth the high and low sales prices of the common stock
of the Company as reported on the Nasdaq National Market during the periods
indicated.

<TABLE>
<CAPTION>
                                                                                 SALES PRICE
                                                                               ----------------
                                                                               HIGH         LOW
                                                                               ----         ---
<S>                                                                          <C>         <C>
                1999
         First Quarter.................................................      $20.875     $ 18.625
         Second Quarter................................................       21.50        18.375
         Third Quarter.................................................       21.125       17.50
         Fourth Quarter................................................       20.00        17.375

                2000
         First Quarter.................................................      $18.625      $13.8125
         Second Quarter................................................       21.375       15.25
         Third Quarter.................................................       17.75        14.50
         Fourth Quarter................................................       17.00        13.50
</TABLE>

        On March 20, 2001, the closing sale price of a share of Common Stock of
the Company on the Nasdaq National Market was $16.25.

        At March 5, 2001, there were approximately 560 holders of record of the
Common Stock. The number of holders of record does not reflect the number of
persons or entities who or which hold their stock in nominee or "street" name
through brokerage firms or other entities.

        In an effort to accelerate growth in stockholders' equity and assure
continued compliance with agreed upon regulatory capital levels, the Company has
deemed it prudent to suspend dividends on the Common Stock. See "Recent
Developments" for further discussion.

        Declarations of dividends by the Board of Directors of the Company will
depend on a number of factors, including capital requirements, regulatory
limitations, the Bank's operating results and financial condition and general
economic conditions. As the principal asset of the Company, the Bank serves as
the primary source of funds to the Company through payment of dividends. Under
Massachusetts law, stock savings banks such as the Bank may pay dividends only
out of "net profits" and only to the extent that such payments will not impair
the Bank's capital stock and surplus account. If, prior to the declaration of a
dividend, the Bank's capital stock and surplus account do not equal at least 10%
of its deposit liabilities, then prior to payment of the dividend the Bank must
transfer from net profits to its surplus account the amount required to make the
surplus account equal to either (i) together with capital stock, 10% of deposit
liabilities or, (ii) subject to certain adjustments, 100% of capital stock.
These restrictions on the ability of the Bank to pay dividends to the Company
may restrict the ability of the Company to pay dividends to the holders of the
Common Stock. Although Massachusetts law does not define what


                                       27
<PAGE>   28
constitutes "net profits," it is generally assumed that the term includes a
bank's undivided profits account (retained earnings) and does not include its
surplus account (additional paid-in capital). The Company remains subject to the
Written Agreement with the Federal Reserve Bank which requires a consolidated
Tier 1 leverage capital ratio of not less than 5.0%. At December 31, 2000, the
consolidated Tier 1 leverage capital ratio of the Company was 5.67%. The Written
Agreement requires that the Company gain the prior approval of the Reserve Bank
before declaring or paying any dividends on the Common Stock or making any
distribution of interest, principal or other sums on the subordinated debentures
issued by the Company in connection with its trust preferred securities, which
materially limits the Company's and the Bank's ability to declare or pay
dividends.

        The Company and the Bank are subject to capital ratio requirements
established by the Federal Reserve Board and the FDIC. Under Section 38 of the
Federal Deposit Insurance Act, the Bank is prohibited from making any capital
distribution, including the payment of dividends, if the Bank would be
undercapitalized following such distribution under the FDIC's prompt corrective
action regulations. In addition to these regulatory limitations on the payment
of dividends, the effect of the payment of dividends on the capital ratios of
the Bank or the Company, as the case may be, may be a factor in the Board of
Directors determination to pay such dividends. See "Managements Discussion and
Analysis of Financial Condition and Results of Operations" under the caption
"Government Regulation."

        In addition, under current law, to the extent that the Bank makes
"non-dividend distributions" to the Company that are considered to have been
made from certain portions of the Bank's bad debt reserve, an amount based on
the amount distributed will be included in the Bank's taxable income.

        The following is a summary of declared and paid quarterly dividends:

<TABLE>
<CAPTION>
                                       2000               1999             1998
                                       ----               ----             ----
<S>                                   <C>                <C>              <C>
1st Quarter                           $0.21              $0.19            $0.12
2nd Quarter                            0.21               0.20             0.13
3rd Quarter                            0.21               0.21             0.14
4th Quarter                            0.21               0.21             0.19
                                      -----              -----            -----
Total                                 $0.84              $0.81            $0.58
                                      =====              =====            =====
Dividend payout ratio                  32.9%              28.8%            25.2%
</TABLE>

ITEM 6. SELECTED FINANCIAL DATA.

     The information required by this item appears on page 4 of the Annual
Report to Shareholders for the fiscal year ended December 31, 2000 and is
incorporated herein by reference.


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

     The information required by this item appears in the Management's
Discussion and Analysis of Financial Condition and Results of Operations on
pages 2 to 12 inclusive of the Annual Report to Shareholders for the fiscal year
ended December 31, 2000 and is incorporated herein by reference.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     The information required by this item appears on pages 9 to 11 of the
Annual Report to Shareholders for the fiscal year ended December 31, 2000 and is
incorporated herein by reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The Information required by this item appears on pages 13 to 29 inclusive
of the Annual Report to Shareholders for the fiscal year ended December 31, 2000
and is incorporated herein by reference.


                                       28
<PAGE>   29
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 information required by this item will appear under the headings
"Directors of the Company," "Executive Officers of the Company" and "Compliance
with Section 16(a) of the Exchange Act" in the Company's definitive Proxy
Statement for the Annual Meeting of Shareholders to be held on June 12, 2001
(the "Proxy Statement"), to be filed with the SEC pursuant to Regulation 14A
within 120 days after the end of the Company's fiscal year, and is incorporated
herein by reference.


ITEM 11. EXECUTIVE COMPENSATION.

        The information required by this item will appear in the Proxy Statement
under the headings "Executive Compensation" and "Compensation of Directors" and
is incorporated herein by reference.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

        The information required by this item will appear in the Proxy Statement
under the heading "Security Ownership of Certain Beneficial Owners and
Management" and is incorporated herein by reference.


ITEM 13. TRANSACTIONS WITH CERTAIN RELATED PERSONS.

        The information required by this item will appear in the Proxy Statement
under the heading "Certain Transactions" and is incorporated herein by
reference.

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

        (a)(1) Index of Financial Statements. The following financial statements
appear in response to Item 8 of this Report:

        Independent Auditors' Report

        Consolidated Balance Sheets as of December 31, 2000 and 1999

        Consolidated Statements of Income for the years ended December 31, 2000,
        1999 and 1998

        Consolidated Statements of Changes in Stockholders' Equity for the years
        ended December 31, 2000, 1999 and 1998

        Consolidated Statements of Cash Flows for the years ended December 31,
        2000, 1999 and 1998

        Notes to Consolidated Financial Statements

        (a)(2) Index of Financial Statement Schedules. All financial statement
schedules have been omitted because


                                       29
<PAGE>   30
they are not required, not applicable or are included in Notes to Consolidated
to Financial Statements.

       (b)        Exhibits.



    *EXHIBIT                            DESCRIPTION
     -------                            -----------

        2.1     Plan of Reorganization and Acquisition by and between the
                Company and the Bank dated as of March 31, 1995 (filed as
                Exhibit 10.1 to the Company's Registration Statement on Form S-1
                (the "S-1") (No. 33-99772) and incorporated herein by reference)

        3.1     Restated Articles of Organization of the Company (filed as
                Exhibit 3.1 to the Company's Annual Report on Form 10-K for the
                year ended December 31, 1995 and incorporated herein by
                reference)

        3.2     By-laws of the Company, as amended and restated (filed as
                Exhibit 3.2 to the Company's Annual Report on Form 10-K for the
                year ended December 31, 1995 and incorporated herein by
                reference)

        4.1     Specimen certificate for shares of Common Stock of the Company
                (filed as Exhibit 4.1 to the Company's Annual Report on Form
                10-K for the year ended December 31, 1995 and incorporated
                herein by reference)

        4.2     Articles IV and VI(I)-(K) of Restated Articles of Organization
                of the Company (see Exhibit 3.1)

        4.3     Articles I and IV of By-laws of the Company (see Exhibit 3.2)

       10.1     Amended and Restated Special Termination Agreement by and among
                the Company, the Bank and the former Chief Financial Officer
                Colin C. Blair, dated as of February 7, 1996+ (filed as Exhibit
                10.5 to the S-1 and incorporated herein by reference)

       10.2     Amended and Restated Special Termination Agreement by and
                between the Bank and Donna L. Boulanger, dated as of February 7,
                1996 (filed as Exhibit 10.6 to the S-1 and incorporated herein
                by reference)

       10.4     Amended and Restated Special Termination Agreement by and
                between the Bank and Lorraine P. Healy, dated as of February 7,
                1996 (filed as Exhibit 10.8 to the S-1 and incorporated herein
                by reference)

       10.6     Amended and Restated Special Termination Agreement by and
                between the Bank and Maureen A. Gregory, dated as of February 7,
                1996 (filed as Exhibit 10.10 to the S-1 and incorporated herein
                by reference)

       10.7     Employment Agreement by and between People's Mortgage
                Corporation and John J. Kiernan, Jr. dated as of October 6, 1995
                (filed as Exhibit 10.11 to the S-1 and incorporated herein by
                reference)

       10.8     Employment Agreement by and between People's Mortgage
                Corporation and James F. Ryder, Jr. dated October 6, 1995 (filed
                as Exhibit 10.12 to the S-1 and incorporated herein by
                reference)

       10.9     Employment Agreement by and between People's Mortgage
                Corporation and Michael C. Gillis dated as of March 31, 1995
                (filed as Exhibit 10.13 to the S-1 and incorporated herein by
                reference)


                                       30
<PAGE>   31
      10.10     Employment Agreement by and between People's Mortgage
                Corporation and Vincent E. Hayes, Jr. dated as of March 31, 1995
                (filed as Exhibit 10.14 to the S-1 and incorporated herein by
                reference)

      10.11     Discretionary Bonus Plan of the Bank+ (filed as Exhibit 10.16 to
                the S-1 and incorporated herein by reference)

      10.12     Amended and Restated Directors' Stock Option Plan+ (filed as
                Exhibit 10.17 to the Company's Annual Report on Form 10-K for
                the year ended December 31, 1995 and incorporated herein by
                reference)

      10.13     Amended and Restated Incentive and Nonqualified Stock Option
                Plan+ (filed as Exhibit 10.18 to the Company's Annual Report on
                Form 10-K for the year ended December 31, 1995 and incorporated
                herein by reference)

      10.14     1996 Stock Option and Incentive Plan+ (filed as Exhibit 10.21 to
                the Company's Annual Report on Form 10-K for the year ended
                December 31, 1996 and incorporated herein by reference)

      10.15     Form of Director Nonqualified Stock Option Agreement (filed as
                Exhibit 10.22 to the Company's Annual Report on Form 10-K for
                the year ended December 31, 1996 and incorporated herein by
                reference)

      10.16     Form of Employee Nonqualified Stock Option Agreement (filed as
                Exhibit 10.23 to the Company's Annual Report on Form 10-K for
                the year ended December 31, 1996 and incorporated herein by
                reference)

      10.17     Form of Incentive Stock Option Agreement (filed as Exhibit 10.24
                to the Company's Annual Report on Form 10-K for the year ended
                December 31, 1996 and incorporated herein by reference)

      10.18     Special Termination Agreement by and among the Company, the Bank
                and Richard S. Straczynski, dated as of April 7, 1997. (filed as
                Exhibit 10.19 to the Company's Annual Report on Form 10-K for
                the year ended December 31, 1997 and incorporated herein by
                reference)

      10.19     Asset Purchase Agreement, dated August 5, 1999, by and among
                People's Mortgage Corporation, Allied Bancshares Mortgage Group,
                LLC and the members of Allied Bancshares Mortgage Group, LLC.
                (filed as Exhibit 10.1 to the Company's Quarterly Report on Form
                10-Q for the quarter ended September 30, 1999 and incorporated
                herein by reference.)

      10.20     Employment Agreement, dated as of September 1, 1999 by and
                between People's Mortgage Corporation and Richard G. Reese, Jr.+
                (filed as Exhibit 10.2 to the Company's Quarterly Report on
                Form 10-Q for the quarter ended September 30, 1999 and
                incorporated herein by reference.)

      10.21     Employment Agreement, dated March 28, 2001 by and between
                People's Bancshares, Inc. People's Savings Bank of Brockton, and
                James K. Hunt, filed herein.

        *13     People's Bancshares, Inc. 2000 Annual Report to Shareholders

        *21     Schedule of subsidiaries of the Company

        *23     Consent of Wolf & Company, P.C., as independent certified public
                accountants

---------------

* Filed herewith.


                                       31
<PAGE>   32
+  Management contract or compensatory plan required to be filed as an exhibit
   to this Form 10-K pursuant to Item 14 of Form 10-K.

(b) The Company filed one Report on Form 8-K from October 1, 2000 to the date of
this Report:

     - Current Report on Form 8-K dated December 14, 2000, the written Agreement
       with the Federal Reserve Bank of Boston.

                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized on
March 28, 2001.

                                PEOPLE'S BANCSHARES, INC.



                                By: /s/ Richard S. Straczynski
                                    -------------------------------------------
                                    Richard S. Straczynski
                                    President & Chief Executive Officer



                                By: /s/ James K. Hunt
                                    -------------------------------------------
                                    James K. Hunt
                                    Executive Vice President/Finance &
                                    Administration and Chief Financial Officer
                                    (principal financial and accounting officer)


                                       32
<PAGE>   33
        Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
         SIGNATURE                       TITLE                             DATE
         ---------                       -----                             ----
<S>                                      <C>                               <C>
/s/ Richard S. Straczynski               President & CEO                   March 28, 2001
---------------------------------        Director
Richard S. Straczynski


/s/ James K. Hunt                        Executive Vice President &        March 28, 2001
---------------------------------        Chief Financial Officer
James K. Hunt


/s/ Frederick W. Adami III               Director                          March 28, 2001
---------------------------------
Frederick W. Adami, III


/s/ B. Benjamin Cavallo                  Director                          March 28, 2001
---------------------------------
B. Benjamin Cavallo


/s/ John R. Eaton                        Director                          March 28, 2001
---------------------------------
John R. Eaton


/s/ Terrence A. Gomes                    Director                          March 28, 2001
---------------------------------
Terrence Gomes


/s/ Dr. Loring C. Johnson                Director                          March 28, 2001
---------------------------------
Dr. Loring C. Johnson


/s/ Richard D. Matthews                  Director                          March 28, 2001
---------------------------------
Richard D. Matthews


/s/Scott W. Ramsay                       Director                          March 28, 2001
---------------------------------
Scott W. Ramsay


/s/ Davis H. Scudder                     Director                          March 28, 2001
---------------------------------
Davis H. Scudder


/s/ Stanley D. Siskind                   Director                          March 28, 2001
---------------------------------
Stanley D. Siskind
</TABLE>


                                       33
<PAGE>   34
                                  EXHIBIT INDEX

    *EXHIBIT                              DESCRIPTION
    --------                              -----------

        2.1     Plan of Reorganization and Acquisition by and between the
                Company and the Bank dated as of March 31, 1995 (filed as
                Exhibit 10.1 to the Company's Registration Statement on Form S-1
                (No. 33-99772) and incorporated herein by reference)

        3.1     Restated Articles of Organization of the Company (filed as
                Exhibit 3.1 to the Company's Annual Report on Form 10-K for the
                year ended December 31, 1995 and incorporated herein by
                reference)

        3.2     By-laws of the Company, as amended and restated (filed as
                Exhibit 3.2 to the Company's Annual Report on Form 10-K for the
                year ended December 31, 1995 and incorporated herein by
                reference)

        4.1     Specimen certificate for shares of Common Stock of the Company
                (filed as Exhibit 4.1 to the Company's Annual Report on Form
                10-K for the year ended December 31, 1995 and incorporated
                herein by reference)

        4.2     Articles IV and VI(I)-(K) of Restated Articles of Organization
                of the Company (see Exhibit 3.1)

        4.3     Articles I and IV of By-laws of the Company (see Exhibit 3.2)

       10.1     Amended and Restated Special Termination Agreement by and among
                the Company, the Bank and the former Chief Financial Officer
                Colin C. Blair, dated as of February 7, 1996+ (filed as Exhibit
                10.5 to the S-1 and incorporated herein by reference)

       10.2     Amended and Restated Special Termination Agreement by and
                between the Bank and Donna L. Boulanger, dated as of February 7,
                1996 (filed as Exhibit 10.6 to the S-1 and incorporated herein
                by reference)

       10.4     Amended and Restated Special Termination Agreement by and
                between the Bank and Lorraine P. Healy, dated as of February 7,
                1996 (filed as Exhibit 10.8 to the S-1 and incorporated herein
                by reference)

       10.6     Amended and Restated Special Termination Agreement by and
                between the Bank and Maureen A. Gregory, dated as of February 7,
                1996 (filed as Exhibit 10.10 to the S-1 and incorporated herein
                by reference)

       10.7     Employment Agreement by and between People's Mortgage
                Corporation and John J. Kiernan, Jr. dated as of October 6, 1995
                (filed as Exhibit 10.11 to the S-1 and incorporated herein by
                reference)

       10.8     Employment Agreement by and between People's Mortgage
                Corporation and James F. Ryder, Jr. dated October 6, 1995 (filed
                as Exhibit 10.12 to the S-1 and incorporated herein by
                reference)

       10.9     Employment Agreement by and between People's Mortgage
                Corporation and Michael C. Gillis dated as of March 31, 1995
                (filed as Exhibit 10.13 to the S-1 and incorporated herein by
                reference)

      10.10     Employment Agreement by and between People's Mortgage
                Corporation and Vincent E. Hayes, Jr. dated as of March 31, 1995
                (filed as Exhibit 10.14 to the S-1 and incorporated herein by
                reference)


                                       34
<PAGE>   35
      10.11     Discretionary Bonus Plan of the Bank+ (filed as Exhibit 10.16 to
                the S-1 and incorporated herein by reference)

      10.12     Amended and Restated Directors' Stock Option Plan+ (filed as
                Exhibit 10.17 to the Company's Annual Report on Form 10-K for
                the year ended December 31, 1995 and incorporated herein by
                reference)

      10.13     Amended and Restated Incentive and Nonqualified Stock Option
                Plan+ (filed as Exhibit 10.18 to the Company's Annual Report on
                Form 10-K for the year ended December 31, 1995 and incorporated
                herein by reference)

      10.14     1996 Stock Option and Incentive Plan+ (filed as Exhibit 10.21 to
                the Company's Annual Report on Form 10-K for the year ended
                December 31, 1996 and incorporated herein by reference)

      10.15     Form of Director Nonqualified Stock Option Agreement (filed as
                Exhibit 10.22 to the Company's Annual Report on Form 10-K for
                the year ended December 31, 1996 and incorporated herein by
                reference)

      10.16     Form of Employee Nonqualified Stock Option Agreement (filed as
                Exhibit 10.23 to the Company's Annual Report on Form 10-K for
                the year ended December 31, 1996 and incorporated herein by
                reference)

      10.17     Form of Incentive Stock Option Agreement (filed as Exhibit 10.24
                to the Company's Annual Report on Form 10-K for the year ended
                December 31, 1996 and incorporated herein by reference)

      10.18     Special termination agreement by and among the Company, the Bank
                and Richard S. Straczynski, dated as of April 7, 1997+. (filed
                as Exhibit 10.19 to the Company's Annual Report on Form 10-K for
                the year ended December 31, 1997 and incorporated herein by
                reference)

      10.19     Asset Purchase Agreement, dated August 5, 1999, by and among
                People's Mortgage Corporation, Allied Bancshares Mortgage Group,
                LLC and the members of Allied Bancshares Mortgage Group, LLC.
                (filed as Exhibit 10.1 to the Company's Quarterly Report on Form
                10-Q for the quarter ended September 30, 1999 and incorporated
                herein by reference.)

      10.20     Employment Agreement, dated as of September 1, 1999 by and
                between People's Mortgage Corporation and Richard G. Reese, Jr.+
                (filed as Exhibit 10.2 to the Company's Quarterly Report on
                Form 10-Q for the quarter ended September 30, 1999 and
                incorporated herein by reference.)

      10.21     Employment Agreement, dated March 28, 2001 by and between
                People's Bancshares, Inc., People's Savings Bank of Brockton and
                James K. Hunt, filed herein.

        *13     People's Bancshares, Inc. 2000 Annual Report to Shareholders

        *21     Schedule of subsidiaries of the Company

        *23     Consent of Wolf & Company, P.C., as independent certified public
                accountants

---------------

*  Filed herewith.

+  Management contract or compensatory plan required to be filed as an exhibit
   to this Form 10-K pursuant to Item 14 of Form 10-K.


                                       35