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                       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 AND EXCHANGE
                                   ACT OF 1934
For the fiscal year ended                                  DECEMBER 31, 1997
                                                           -----------------

                                       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
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(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

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<S>                                                         <C>
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $0.10 PAR VALUE
                                                            (Title of Class)
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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 16, 1998 on the Nasdaq National
Market was $71,289,794. 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 16, 1998, 3,664,786 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 May 19, 1998 are incorporated by reference into
Part III of this Form 10-K. Portions of the Registrant's Annual Report to
Shareholders for 1997 are incorporated by reference into Part II of this Form
10-K.

         Exhibit Index appears on page 24.

<PAGE>   2
                                     PART I

ITEM 1. BUSINESS

GENERAL

      The Company. People's Bancshares, Inc. (the "Company") is a unitary bank
holding company subject to the Bank Holding Company Act ("BHC"), the principal
business of which consists of the business of 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, a Delaware business trust (the "Trust") formed in 1997. Although the
Company is a legal entity separate from the Bank and the Trust, the Company
itself is not engaged in any business activities. The Trust issued $13.8 million
of trust preferred securities to the public on June 26, 1997 to purchase
subordinated debentures from the Company.

      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 governments,
and investing those funds in residential and commercial mortgages, consumer,
commercial and construction loans and investments, consisting primarily of
mortgage-backed 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 servicing rights of such loans. The Bank
sold 92%, 93% and 78% of its 1-4 family residential loan originations, including
table funded loans, in 1997, 1996 and 1995, respectively. Loan sales are made
from loans originated by the Bank's mortgage banking subsidiary, People's
Mortgage Corporation ("PMC"), on which PMC has obtained purchase commitments
from investors prior to funding.

      The Bank actively manages the purchase and sale of investments and loans
which are serviced by third parties. These purchases are funded by FHLB
advances, repurchase agreements and municipal deposits. Such leveraged assets
amounted to $414.0 million and $147.6 million at December 31, 1997 and 1996,
respectively. The Bank's revenues are derived principally from interest on its
loans, interest and dividends on its investment 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 investment
principal, interest and dividends on loans and investments, maturity or sale of
investment securities, collateralized 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.

      The Bank has eight wholly-owned subsidiaries. PMC, which was organized in
March 1995, acts as the mortgage banking subsidiary of the Bank. PSB Security
Corporation I, II, and III, organized in March 1996, are "security corporations"
for Massachusetts tax purposes, and are subject to a more favorable tax rate on
income derived from securities held in them. Currently, only PSB Security
Corporation I is active. The remaining subsidiaries of the Bank, are primarily
engaged in the management and sale of foreclosed real estate.

MANAGEMENT STRATEGY

      The Company's overall strategy is to use the Bank's traditional strengths
as a community bank specializing in real estate lending to fulfill the Bank's
commitment to satisfy the financial needs of the communities it serves. The goal
of the Bank's senior management team has been and continues to be to maintain
profitability as well as an adequate capital position that provides the capacity
to respond to a changing financial landscape. Senior management has focused its
efforts on continuing the strategy established by the Board of Directors to grow
internally and through selected acquisitions. The principal components of this
strategy include:



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      -  Improving asset quality

      -  Redirecting lending efforts

      -  Managing interest rate risk

      -  Reducing non-interest expenses

      -  Increasing fee-based revenues

      -  Providing superior customer service in a cost-effective manner

      -  Achieving growth through carefully chosen acquisitions

      Improving Asset Quality. At December 31, 1992, the Bank's non-performing
assets amounted to $14.9 million, or 9.12% of total assets and 80.51% of total
equity and loan loss reserves. The ratio of the allowance for loan losses to
non-accrual loans, adjusted to reflect the adoption of SFAS 114, at December 31,
1992 was 37.2%. The Bank's poor asset quality reflected a weak regional economy
and a depressed local real estate market. The Bank had to this point specialized
in multi-family and commercial real estate lending, two areas that were
especially adversely affected by such economic conditions. During the next 60
months, the Bank was able to reduce non-performing assets by 73%. At December
31, 1997, the Bank's non-performing assets were $4.0 million, or 0.52% of total
assets, and 11.63% of total equity and loan loss reserves. The ratio of the
allowance for loan losses to non-accrual loans was 110.2%. The Bank achieved
these results through efforts to resolve existing credit problems and to avoid
future problems through a restructuring of the lending function. Each of the
members of the Bank's senior management team had experience in evaluating and
resolving problem assets before joining the Bank.

      Redirecting Lending Efforts. The Bank has chosen to de-emphasize
multi-family real estate and consumer lending. The Bank believes that the local
market for multi-family lending is depressed. Regarding consumer lending, the
Bank believes that it was operating at a competitive disadvantage in comparison
to large banks and non-bank lenders for home equity loans as well as indirect
and direct automobile financing. The Bank also was adversely affected by
governmental actions that diminished the attractiveness of education lending.
The Bank has instead chosen to focus its growth on 1-4 family residential,
residential construction, commercial, and commercial real estate lending.
Although the Bank will continue to evaluate the viability of consumer lending,
the Bank believes that prudent commercial and commercial real estate lending
will yield the highest return.

      Managing Interest Rate Risk. The Bank's Investment Committee, which
includes five outside directors, meets quarterly to monitor interest rate risk.
Management's strategy is to limit interest rate risk by matching interest
earning assets and interest bearing liabilities. Management will from time to
time allow some imbalance in the matching of interest earning assets and
interest bearing liabilities with repricing characteristics of less than one
year. Beginning in 1992, the Bank matched the pricing of its deposit liabilities
with the pricing of other banks throughout Massachusetts as opposed to its local
market competition. The Bank faces substantial competition in its immediate
deposit-gathering market from community credit unions, which, because of their
lack of state or federal taxation, are able to offer higher deposit rates. By
establishing its rates with reference to a wider market, the Bank has been able
to reduce its deposit interest expense while meeting the commercial credit
demands that competing credit unions can not supply.

      In 1993, the Bank began to match mortgage-backed securities with the funds
borrowed to purchase such securities, which consist primarily of FHLB advances
and LIBOR-based repurchase agreements. The Bank either matches the expected
maturities of these mortgage-backed securities with the borrowed funds or
matches mortgage-backed securities secured by adjustable-rate mortgages with
short-term funding. The Bank avoids high risk investment instruments such as
interest-only or principal-only strips in favor of US agency and high quality
private sector mortgage-backed securities. In 1997, the Bank began to purchase
residential mortgage loans with servicing retained by the seller. 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. Although these strategies result in
lower financial ratios that are computed on the basis of average assets, it
increases income and return on equity, at what the Company considers to be a low
level of risk.



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      PMC seeks to reduce interest rate risk by not retaining or purchasing
servicing rights that would result in premiums subject to prepayment risk in a
decreasing interest rate environment. PMC also obtains purchase commitments on
all residential mortgage loans prior to their funding. This reduces market
depreciation in rising interest rate environments.

      Reducing Non-Interest Expenses. The Bank has worked to reduce its cost
structure through a restructuring of its operations and through the effecting of
cost reductions. During the last several years the Bank has used competitive
bids for its third-party services and supply contracts, which has contributed to
the significant improvement in its efficiency ratio from 84.2% for the year
ended December 31, 1992 to 65.3% for the year ended December 31, 1997.

      Increasing Fee-Based Revenues. The Bank continues to review options to
increase revenue. Along with the match-funded investment program discussed
above, the Bank has recently strengthened its efforts to increase revenues
through mortgage banking activities. The Bank's mortgage-banking subsidiary,
People's Mortgage Corporation, sells most of its mortgage loan origination
volume into the secondary market and does not retain the servicing rights. The
Bank believes that it is not large enough to make loan servicing a profitable
venture. In 1994, the Bank originated $17.2 million in new mortgage loans of
which $6.4 million were sold in the secondary market. The Bank originated $88.3
million, $229.4 million and $349.7 million in new mortgage loans in 1995, 1996
and 1997, respectively, of which $63.6 million, $194.2 million and $322.2
million, respectively, were sold in the secondary market, including table funded
loans. People's Mortgage Corporation currently has six loan origination offices
located in Massachusetts and Connecticut.

      Providing Superior Customer Service in a Cost-Effective Manner. Management
recognizes the paramount need to manage the Bank in a safe and sound manner for
the protection of its stockholders and depositors. Although the Bank has
traditionally limited its lending activities to real estate, it plans to expand
these activities, consistent with sound banking practices, to serve other
financial needs of the community and to complement its deposit activity with
alternative investment opportunities such as annuities and mutual funds.
Management also recognizes that superior customer service combined with local
levels of decision-making authority is what distinguishes a community bank from
the much larger regional commercial banks. For these reasons, customer service
is a high management priority. At the same time, management recognizes that to
achieve its profit goals, it must provide superior service in a cost efficient
manner. Management's goal is to improve the Bank's efficiency ratio without
sacrificing its high level of customer service.

      Achieving Growth Through Carefully Chosen Acquisitions. The Bank believes
that it can deliver the most value to the community and its stockholders as a
mid-sized bank combining the community-oriented and responsive service of a
smaller institution with the cost and operational efficiencies of a larger bank.
As such, the Bank sees branch acquisitions as a low cost profit opportunity.
Through branch acquisitions, the Bank has the opportunity to expand into new
territories and leverage the Bank's existing management and operational
infrastructure.


RECENT DEVELOPMENTS

      On June 26, 1997, the Company raised total proceeds of $13.8 million in a
sale of subordinated debentures to People's Bancshares Capital Trust which
funded the purchase in a public offering of 1.38 million trust preferred
securities with a liquidation value of $10 each. Using interest payments made by
the Company on the debentures, the Trust pays quarterly dividends to preferred
security holders. The annual percentage rate of interest payable on the
subordinated debentures and distributions payable on the preferred securities is
9.76%. Dividends on the preferred securities will be cumulative and the Trust
may defer the payments for up to five years. The preferred securities mature in
June 2027 unless the Company elects and obtains regulatory approval to
accelerate the maturity date to as early as June 2002. This subordinated debt
may be included in regulatory Tier 1 capital subject to a limitation that such
amounts not exceed 25% of Tier 1 capital. All such subordinated debt may be
included in total risk-based capital at December 31, 1997.

      On July 17, 1997, the Company repurchased 355,000 common shares or 10% of
its outstanding stock as of June 30, 1997, at an average cost of $17.50 in an
open market transaction under a repurchase program announced on July 15, 1997.



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      On March 31, 1995, the Bank purchased the assets of Minuteman Funding
Corporation, a mortgage broker located in Andover, Massachusetts. On March 31,
1995, the Bank transferred the acquired assets to People's Mortgage Corporation,
a newly established wholly owned subsidiary of the Bank. The headquarters of
People's Mortgage Corporation and one of its loan production offices are located
at the Bank's headquarters in Easton, Massachusetts. In 1995, People's Mortgage
Corporation opened offices in Sturbridge, Massachusetts, and in Hamden,
Connecticut. In 1996, PMC opened a New Bedford office. In 1997, PMC opened
offices in Norwell and Wellesley, Massachusetts and closed its Sturbridge
office.

      In 1995, the Bank expanded its market presence in southeastern
Massachusetts through acquisitions of the branches of other financial
institutions and, in one case, through a merger with another financial
institution. In July 1995, the Bank assumed approximately $9.7 million in
deposits from Haymarket Co-operative Bank and reallocated the deposits to one of
the Bank's existing branches in Brockton. In May 1995, the Bank merged with the
Bank of Taunton, A Co-operative Bank ("Bank of Taunton") as part of a
supervisory conversion of the Bank of Taunton, with the Bank as the surviving
institution. The Bank of Taunton had total deposits of approximately $17.0
million at the time of the acquisition. In the acquisition of the Bank of
Taunton, the Bank acquired two branch offices of the Bank of Taunton located in
Taunton and East Taunton, Massachusetts. In September 1995, the Bank acquired
certain assets and assumed approximately $13.0 million of deposits of the
Mansfield, Massachusetts branch of Bank of Boston.

      On September 30, 1995, the Bank entered into separate Purchase and
Assumption Agreements (each, an "Agreement," and together the "Agreements") with
each of Fleet Bank of Massachusetts, National Association ("Fleet") and Shawmut
Bank, National Association ("Shawmut," and collectively with Fleet,
"Fleet/Shawmut"). The Agreements provided for (i) assumption of deposit
liabilities (the "Fleet/Shawmut Deposits") by the Bank relating to one branch of
Fleet located in Mattapoissett, Massachusetts and four branches of Shawmut
located in New Bedford (two), South Dartmouth and Taunton, Massachusetts
(together, the "Fleet/Shawmut Branches") and (ii) the acquisition of the
Fleet/Shawmut Loans and Fleet/Shawmut Assets (each as defined below) (the
"Branch Acquisitions"). The Fleet/Shawmut Branches were divested in connection
with the merger of Shawmut National Corporation into Fleet Financial Group, Inc.

      At the closing of the Branch Acquisitions on March 8,1996, the Bank
assumed the Fleet/Shawmut Deposits and paid Fleet/Shawmut a premium of 5.5% on
the average Fleet/Shawmut Deposits for the 30 days prior to the closing of the
transaction. The Fleet/Shawmut Deposits totaled $144.7 million.

      In the Branch Acquisitions, the Bank acquired certain first mortgage
residential, commercial and commercial real estate and consumer loans of
Fleet/Shawmut (the "Fleet/Shawmut Loans"), as well as the real property owned or
leased by Fleet and Shawmut for operation of the Fleet/Shawmut Branches and
related automated teller machines, furniture, equipment, and other fixed
operating assets (the "Fleet/Shawmut Assets").

      The Bank acquired the Fleet/Shawmut Loans at face value and the
Fleet/Shawmut Assets at a specified purchase price with the exception of
furniture, equipment and other fixed assets, which were acquired at book value.
The Bank acquired an aggregate of approximately $113.7 million of Fleet/Shawmut
Loans. The total purchase price of the Fleet/Shawmut Assets was approximately
$1.8 million.

      According to the terms of the Agreements, the obligation of the Bank and
Fleet/Shawmut to consummate the Branch Acquisitions was subject to the
satisfaction of certain conditions, including the receipt of capital financing
necessary to fund the Branch Acquisitions and enable the Bank to comply with
applicable minimum equity capital or other regulatory requirements following the
Branch Acquisitions (the "Capital Financing Condition").

      To enable the Company to satisfy the Capital Financing Condition, the
Company offered shares of its Common Stock at $8.875 per share in a rights
offering to shareholders of record as of February 8, 1996 and "standby"
purchasers. The Company completed the offering in March 1996, raising net
proceeds of approximately $7.5 million through the sale of 968,352 shares.

MARKET AREA AND COMPETITION

      The Bank's main office is located in Easton, Massachusetts. The Bank also
has twelve other branch offices in



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Massachusetts, three of which are located in the Plymouth County community of
Brockton, one of which is located in the Norfolk County community of Stoughton,
three 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. In 1997, the Bank received approval to close one
of its Brockton branches and has petitioned to close the smallest of its three
Taunton branches. 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 through its mortgage banking
subsidiary, People's Mortgage Corporation.

      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. Competition may also increase as a result of the lifting of
restrictions on the interstate operations of financial institutions.


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 State 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 BHC Act.

      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 perpetual preferred stock (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 the bulk of assets which are typically held by a bank holding company,
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. The Federal Reserve
Board also declares that it will closely examine the capital levels of bank
holding companies considering expansion to ensure they will remain strongly
capitalized.

      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.



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      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 semiannual 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 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, 1997, 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 9.38% and 10.43%, respectively, and Tier 1
leverage capital ratio equaled 5.26%.

      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
Riegel-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.

      Certain Other Regulatory Matters. In granting its approval of the
reorganization in which the Bank became a wholly owned subsidiary of the Company
(the "Reorganization"), the Commissioner included a provision which requires the
Bank and the Company to maintain Tier 1 leverage capital ratio of at least 4%,
which is equivalent to the minimum Tier 1 leverage capital ratios of the FDIC
and Federal Reserve Board. The Commissioner has indicated to the Bank that this
minimum capital requirement is not related to the Bank's financial condition but
instead reflects the policy of the Commissioner to impose minimum capital
requirements with respect to all one-bank holding company formations. The
approval also provides that if the Bank's Tier 1 leverage capital ratio is below
4%, the Bank must seek Commissioner approval before paying dividends to the
Company.

      Regulation Under Federal Securities Laws. Upon consummation of the
Reorganization, in which the



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Company acquired the stock of the Bank, the reporting obligations of the Bank
under the Exchange Act, as administered by the FDIC, were replaced with
substantially identical obligations of the Company under the Exchange Act, as
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 is also subject to the insider trading requirements of Sections
16(a) and 16(b) of the Exchange Act as administered by the SEC. In connection
with the Reorganization, the Bank deregistered the Bank's common stock under the
Exchange Act.

      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.


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. In addition, the
the Bank purchases residential mortgage loans with servicing retained by the
seller. The Bank's loan portfolio includes single family and multifamily
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,
among other things, on 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 borrower to honor
its repayment commitments is generally affected by changing economic conditions
in the borrower's particular geographic area, business or industry that could
impair the borrower's future operating performance.

      At December 31, 1997, the Bank had total loans and loans held for sale of
$411.4 million of which $393.0 million, or 96%, were mortgage loans. The Bank
also had $18.6 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, 80% were secured by 1-4 family residential
mortgages, 11% by commercial properties, 3% by multi-family properties, and 2%
represent residential construction loans. Of the Bank's loans not secured by
real estate, 3% of total loans are small business commercial loans not secured
primarily by commercial real estate and 1% 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
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:



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<TABLE>
<CAPTION>
                                                                 AT DECEMBER 31,
                                         ------------------------------------------------------------
                                           1997         1996         1995         1994         1993
                                         --------     --------     --------     --------     --------
                                                            (Dollars in thousands)
<S>            <C>                       <C>          <C>          <C>          <C>          <C>
Mortgage Loans:
   Residential 1-4 family                $293,402     $160,730     $ 67,641     $ 56,533     $ 52,002
   Commercial:
       Residential multi-family            11,030       11,217        9,366        9,362        8,058
       Commercial real estate              44,714       44,149       30,019       25,510       27,099
   Construction                            11,162        7,359        8,459        4,383        7,260
   Equity lines of credit                  10,152       10,297        7,274        7,718        8,885
                                         --------     --------     --------     --------     --------
      Total principal balances            370,460      233,752      122,759      103,506      103,304
   Deferred loan origination (fees)
      costs,  net                            (113)         (49)          57          (32)         (78)

Less undisbursed amount
   of loans in process                     (2,239)      (1,450)      (3,623)        (948)      (2,491)
                                         --------     --------     --------     --------     --------
      Total mortgage loans                368,108      232,253      119,193      102,526      100,735
                                         --------     --------     --------     --------     --------

Other Loans:
   Retail installment sales contracts         915        1,830        2,620        3,203        3,359
   Consumer                                 5,007        6,161        2,423        2,783        3,348
   Commercial lines of credit               6,089        5,622        3,462        2,602        1,568
   Commercial loans                         6,433        4,838        5,597        2,774        2,276
   Education                                  146          207          296          409          274
                                         --------     --------     --------     --------     --------
      Total other loans                    18,590       18,658       14,398       11,771       10,825
                                         --------     --------     --------     --------     --------
        Total loans                       386,698      250,911      133,591      114,297      111,560

Allowance for loan losses                  (4,291)      (4,716)      (3,813)      (3,194)      (3,654)
                                         --------     --------     --------     --------     --------
      Loans, net                         $382,407     $246,195     $129,778     $111,103     $107,906
                                         ========     ========     ========     ========     ========
</TABLE>

      At December 31, 1997, the Bank had eleven credit relationships exceeding
$1 million in size that aggregated $17.1 million or 4.4% of the portfolio. All
of these relationships are composed of performing loans. The Bank has one
non-performing credit relationship between $500,000 and $1 million that is
secured by multi-family residential properties. All other 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.

      Before 1995, the Bank originated loans through its retail branch system.
In 1995, the Bank formed a wholly owned subsidiary, People's Mortgage
Corporation ("PMC"). 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 1996 and 1997, the Bank purchased $13.2 million and $146.6
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



                                       9
<PAGE>   10

characteristics of mortgage-backed securities except that the Bank earns a
higher yield for assumption of credit risk.

      Prior to 1995, the Bank originated fixed-rate 1-4 family residential
mortgage loans to sell in the secondary market after first obtaining purchase
commitments from investors. During this period, the Bank both originated ARMs
for sale in the secondary market, after first obtaining purchase commitments
from investors, and for the Bank's portfolio to the extent consistent with its
asset/liability management strategy.

      At December 31, 1997, 80% of the Bank's total loans and loans held for
sale were secured by 1-4 family residential mortgages, of which 66% 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.

      Commercial Real Estate Lending. Of the Bank's loans at December 31, 1997,
11% 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, 77% 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). While the Bank suffered
significant losses on these properties in the past, most of these losses
occurred on loans originated before the installation of the Bank's current
senior management team. 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, 1997, 3% 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,
1997, 2% represent residential construction lending. Such lending is to local
real estate developers who have a proven track record in successfully responding
to residential home building cycles or to individuals who are contracting to
build homes for their use.



                                       10
<PAGE>   11

The Bank considers such loans to be a focus for future loan growth.

      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, 1997, 1% are
consumer loans. At December 31, 1990, 13% of the Bank's total loans were
consumer loans. The decrease can be attributed to the increasing competition of
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.

      Multi-Family Residential Lending. Of the Bank's loans at December 31,
1997, 3% were secured by multi-family properties. The Bank historically suffered
a high level of loss in this area as well as in non-owner occupied 1-4 family
residential loans. As such, 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 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 the 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 over $250,000 and up to and including $500,000 must be authorized by the
Credit Committee, including four members of the Bank's senior management team.
Loans over $500,000 are submitted to the Executive Committee of the Board of
Directors. If any proposed loan has an exception, the Bank requires approval of
the Board of Directors or Executive Committee. The Executive Committee meets
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 seven categories ranging from
"pass" to "loss." There are three 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



                                       11
<PAGE>   12

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
management for common risk trends. The loan officers prepare a quarterly report
for management that reviews all the loans for changes in risk and identifies
areas for growth opportunities. This process allows management to proactively
monitor the portfolio for problems and, if needed, take action to mitigate risk.

      Classified Asset Management. All classified assets and specially mentioned
credits that are currently outstanding or recently downgraded are reported to
management monthly, but in any case not less frequently than quarterly. 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
the 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 set up 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 actions
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 pursuant to 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, foreclosed properties, 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.

      Since 1988 economic conditions and declining real estate values in
Massachusetts and New England have negatively affected certain of the Bank's
borrowers. Since 1992 the Bank experienced improvement in the level of
non-performing assets. The following presents an analysis of the balance of the
allowance for loan losses:

<TABLE>
<CAPTION>
                                                                    At December 31,
                           1997                   1996                  1995                    1994                   1993
                   ---------------------  ---------------------  ---------------------  ---------------------  ---------------------
                              Percent of             Percent of             Percent of             Percent of             Percent of
                               Loans in               Loans in               Loans in               Loans in               Loans in
                     Amount      each       Amount      each       Amount      each       Amount      each       Amount      each
                       of    Category to      of    Category to      of    Category to      of    Category to      of    Category to
                   Allowance Total Loans  Allowance Total Loans  Allowance Total Loans  Allowance Total Loans  Allowance Total Loans
                   --------- -----------  --------- -----------  --------- -----------  --------- -----------  --------- -----------
                                                                 (Dollars in thousands)
<S>                <C>       <C>         <C>       <C>           <C>       <C>          <C>       <C>          <C>        <C>
Residential
 1-4 family and
 loans held for
 sale                $  932     77.30%      $  464     67.37%      $  270     52.53%      $  159     49.45%      $  195     48.11%
Commercial:
 Residential
  multi-family          763      2.68          733      4.06          808      6.75          805      8.19          588      7.01
 Commercial
  real estate         1,222     10.86        1,405     15.96        1,514     21.63        1,249     22.31        1,778     23.58
Construction             89      2.17           59      2.14           48      3.48           35      3.00           48      4.15
Equity lines
 of credit              102      2.47          103      3.72           79      5.24           84      6.75           97      7.73
Other loans             507      4.52          474      6.75          235     10.37          234     10.30          221      9.42
Unallocated             676       N/A        1,478       N/A          859       N/A          628       N/A          727       N/A
                     ------    ------       ------    ------       ------    ------       ------    ------       ------    ------
Total                $4,291    100.00%      $4,716    100.00%      $3,813    100.00%      $3,194    100.00%      $3,654    100.00%
                     ======    ======       ======    ======       ======    ======       ======    ======       ======    ======
</TABLE>

      The allowance for loan losses has been established to absorb reasonably
foreseeable losses inherent in the loan portfolio. The provision to and the
level of the allowance are evaluated on a periodic basis by management and the
Board of Directors. The evaluation is based on the results of the Bank's
internal loan review, historical loan loss



                                       12
<PAGE>   13


experience, trends in delinquent and non-accrual loans, known and inherent risks
in the nature and volume of the loan portfolio, adverse situations which may
affect the borrower's ability to repay, collateral values, an estimate of
potential loss exposure on significant credits, concentrations of credit, and
present and prospective economic conditions based on facts then known.
Management believes that the resulting allowance for loan losses is adequate to
cover any known losses and any reasonably foreseeable losses in its loan
portfolio.

      The following table presents a summary of the Bank's loan loss experience:

<TABLE>
<CAPTION>
                                                        Year Ended December 31,
                                       -------------------------------------------------------
                                         1997        1996        1995        1994        1993
                                       -------     -------     -------     -------     -------
                                                        (Dollars in thousands)
<S>                                    <C>         <C>         <C>         <C>         <C>

Balance at beginning of year           $ 4,716     $ 3,813     $ 3,194     $ 3,654     $ 3,641
   Provisions for loan losses              100          75         525         807       1,492
   Charge-offs:
      Residential 1-4 family              (433)       (463)       (438)       (202)       (435)
      Residential multi-family            (161)       (470)       (433)       (777)       (493)
      Commercial real estate               (45)        (89)       (235)       (519)       (515)
      Equity lines of credit                 -         (20)        (30)         (7)        (60)
      Other                                (88)        (89)        (60)       (105)       (159)
                                       -------     -------     -------     -------     -------
        Total                             (727)     (1,131)     (1,196)     (1,610)     (1,662)
   Recoveries                              202         307         143         343         183
                                       -------     -------     -------     -------     -------
      Net loans charged off               (525)       (824)     (1,053)     (1,267)     (1,479)
   Allowance acquired in acquisition         -       1,652       1,147           -           -
                                       -------     -------     -------     -------     -------
Balance at end of year                 $ 4,291     $ 4,716     $ 3,813     $ 3,194     $ 3,654
                                       =======     =======     =======     =======     =======

Ratio of net charge-offs to
   average loans outstanding
   during the year                        0.17%       0.34%       0.83%       1.15%       1.32%
</TABLE>

      Non-performing loans amounted to $3.9 million, $3.9 million, $4.8 million,
$2.3 million, and $3.7 million, at December 31, 1997, 1996, 1995, 1994, and
1993, respectively. If prior periods had been restated for the adoption of SFAS
114, non-performing loans would have amounted to $4.7 million, and $6.5 million
at December 31, 1994, and 1993, respectively.

      Included in non-performing loans were $1.7 million, $2.3 million, $1.3
million, $1.2 million and $2.0 million of loans that were troubled debt
restructurings at December 31, 1997, 1996, 1995, 1994 and 1993, respectively. In
addition, the Bank had troubled debt restructurings totaling $339,000, $355,000,
$631,000, $1.0 million and $4.3 million at December 31, 1997, 1996, 1995, 1994
and 1993, respectively, that were accounted for on the accrual basis as they
performed under the restructured terms for a reasonable period, and the current
interest rate approximates a market interest rate. Interest income recognized on
a cash-basis for non-accrual loans amounted to $171,000, $261,000, $182,000,
$334,000 and $242,000 for the years ended December 31, 1997, 1996, 1995, 1994,
and 1993, respectively.

      The maturity distribution and interest rate sensitivity of selected loan
categories at December 31, 1997 is presented in the following table.



                                       13
<PAGE>   14

                                                   At December 31, 1997
                                         ---------------------------------------
                                          Within      1-5      After
                                          1 Year     Years    5 Years     Total
                                         -------    ------    -------    -------
                                                  (Dollars in thousands)

Loan Maturity:
Mortgage loans:
   Construction                          $ 8,923    $    -    $     -    $ 8,923

Other loans:
   Commercial lines of credit              6,089         -          -      6,089
   Commercial                              4,173     2,231         29      6,433
                                         -------    ------    -------    -------
                                         $19,185    $2,231    $    29    $21,445
                                         =======    ======    =======    =======
Rate Sensitivity:
   Floating interest rates                          $1,137    $     -      1,137
   Fixed interest rates                              1,094         29      1,123
                                                    ------    -------    -------
   Total loans                                      $2,231    $    29    $ 2,260
                                                    ======    =======    =======


INVESTMENT SECURITIES

      Investment securities, consisting primarily of mortgage-backed securities,
increased $112.2 million during 1997 as the Bank deployed funds from deposits
and borrowings to leverage its capital position. This continued the execution of
the Bank's strategy begun in 1993 to maximize the Bank's return on equity by
deploying funds into investments having minimal credit risk. Under this
strategy, mortgage-backed securities purchases are structured to realize rate
spreads between the mortgage-backed securities and funding liabilities while
matching the expected maturities of the securities to the funding provided by
repurchase agreements and Federal Home Loan Bank ("FHLB") advances.

      These transactions have the effect of lowering certain financial ratios
such as the Tier 1 leverage capital ratio, return on assets, the weighted
average interest rate spread, and the net yield on average interest-earning
assets, because they substantially increase the average asset base used in such
computations. On the other hand, this strategy results in substantial benefits
to pre-tax income and return on average equity.

      Mortgage-backed securities are primarily composed of issues guaranteed by
government and quasi-government agencies and high quality private sector
entities. When interest rates decline, mortgage refinancings increase, resulting
in accelerated principal repayments and lower net rate spreads. When rates
increase, prepayments decrease resulting in longer expected average lives. Net
spreads may increase or decrease depending on the repricing characteristics of
the mortgage-backed securities and the related funding liabilities.

      At December 31, 1997, the carrying value of the Bank's investment
securities amounted to $304.7 million, representing 39.9% of the Bank's total
assets. At December 31, 1996, the Bank's investment securities accounted for
38.8% of the Bank's total assets.



                                       14
<PAGE>   15

      The following table summarizes investment securities:

                                                          At December 31,
                                                  ------------------------------
                                                    1997       1996       1995
                                                  --------   --------   --------
                                                      (Dollars in thousands)

Securities available for sale, at fair value      $245,636   $184,195   $160,582
Securities held to maturity, at amortized cost      44,253          -          -
Restricted equity securities                        14,824      8,322      6,127
                                                  --------   --------   --------
                                                  $304,713   $192,517   $166,709
                                                  ========   ========   ========


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

                                                       At December 31,
                                                  -----------------------
                                                            1997
                                                  -----------------------
                                                  Amortized        Fair
                                                     Cost         Value
                                                  ---------      --------
                                                   (Dollars in thousands)

U.S. Government and federal
   agency obligations                             $ 44,253       $ 44,439
                                                  ========       ========


      The following table sets forth the amortized cost and estimated fair value
for the Bank's available for sale investment securities portfolio:

<TABLE>
<CAPTION>
                                                      At December 31,
                              ---------------------------------------------------------------
                                      1997                  1996                  1995
                              -------------------   -------------------   -------------------
                              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         $ 27,919   $ 27,944   $  2,500   $  2,415   $  4,499   $  4,395
Mortgage-backed securities     202,047    202,352    181,998    180,800    155,781    155,242
Corporate debt securities       15,148     15,340      1,000        980      1,000        945
                              --------   --------   --------   --------   --------   --------
   Total available for sale   $245,114   $245,636   $185,498   $184,195   $161,280   $160,582
                              ========   ========   ========   ========   ========   ========
</TABLE>

      The following tables set forth as of the dates indicated, the maturities
of investment 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:



                                       15
<PAGE>   16

<TABLE>
<CAPTION>
                                                          At December 31, 1997
                                                   -----------------------------------
                                                                              Weighted
                                                   Amortized      Fair         Average
                                                      Cost       Value          Rate
                                                   ---------   --------       --------
                                                         (Dollars in thousands)
<S>                                                <C>         <C>           <C>

INVESTMENTS AVAILABLE FOR SALE
Mortgage-backed securities:
   Less than 1 year                                $  2,993    $  3,003        6.83%
   After 1 year but within 5 years                       75          72       10.00%
   After 5 years but within 10 years                  2,676       2,639        8.00%
   After 10 years                                   196,303     196,638        7.17%
                                                   --------    --------
      Total mortgage-backed securities              202,047     202,352        7.18%
                                                   --------    --------
U.S. Government and federal agency obligations:
   After 5 but within 10 years                       13,537      13,543        7.33%
   After 10 years                                    14,382      14,401        7.39%
                                                   --------    --------
      Total U.S. Government and federal
        agency obligations                           27,919      27,944        7.36%
                                                   --------    --------

Corporate investments:
   After 1 but within 5 years                         1,000         988        5.79%
   After 10 years                                    14,148      14,352        9.55%
                                                   --------    --------
      Total corporate investments                    15,148      15,340        9.31%
                                                   --------    --------
        Total investments available for sale       $245,114    $245,636        7.33%
                                                   ========    ========

INVESTMENTS HELD TO MATURITY
U.S. Government and federal agency obligations:
   After 10 years                                  $ 44,253    $ 44,439        8.57%
                                                   ========    ========


                                                          At December 31, 1996
                                                   -----------------------------------
                                                                              Weighted
                                                   Amortized      Fair         Average
                                                      Cost       Value          Rate
                                                   ---------   --------       --------
                                                         (Dollars in thousands)

INVESTMENTS AVAILABLE FOR SALE
Mortgage-backed securities:
   After 5 years but within 10 years               $ 18,395    $ 17,724        6.44%
   After 10 years                                   163,603     163,076        6.98%
                                                   --------    --------
      Total mortgage-backed securities              181,998     180,800        6.92%
                                                   --------    --------
U.S. Government and federal agency obligations:
   After 1 but within 5 years                         2,500       2,415        4.61%
                                                   --------    --------

Corporate investments:
   After 1 but within 5 years                         1,000         980        6.24%
                                                   --------    --------
      Total investments available for sale         $185,498    $184,195        6.89%
                                                   ========    ========
</TABLE>



                                       16
<PAGE>   17

<TABLE>
<CAPTION>
                                                                             At December 31, 1995
                                                                    ------------------------------------
                                                                                                Weighted
                                                                    Amortized     Fair           Average
                                                                       Cost       Value           Rate
                                                                    ---------   --------        --------
                                                                             (Dollars in thousands)
<S>                                                                 <C>         <C>             <C>

INVESTMENTS AVAILABLE FOR SALE
Mortgage-backed securities:
   After 10 years                                                   $155,781    $155,242            7.38%
                                                                    --------    --------
U.S. Government and federal agency obligations:
   Within 1 year                                                       2,000       1,977            4.44%
   After 1 but within 5 years                                          2,499       2,418            4.39%
                                                                    --------    --------
      Total U.S. Government and federal
        agency obligations                                             4,499       4,395            4.41%
                                                                    --------    --------

Corporate investments:
   After 1 but within 5 years                                          1,000         945            5.93%
                                                                    --------    --------
        Total investments available for sale                        $161,280    $160,582            7.29%
                                                                    ========    ========
</TABLE>

        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, 1997
                                                                    ------------------------------------
                                                                                  Percent of
                                                                    Amortized   Stockholder's     Fair
                                                                       Cost         Equity        Value
                                                                    ---------   -------------   --------
                                                                             (Dollars in thousands)
<S>                                                                 <C>         <C>             <C>

Mortgage-backed securities:
   Countrywide Home Loans, Series 1997-2, Class A13                 $  5,548          18%       $  5,618
   GE Capital Mortgage Services, Inc. Series 1997-8, Class A14         3,817          13%          3,802
   PNC Mortgage Securities Corp., Series 1997-2, Class A5              3,159          10%          3,187
   Prudential Home Mortgage Securities, Series 1994-26, Class A5       8,795          29%          9,111
   Residential Funding Mortgage Securities I, Series 1997-S13,
      Class A4                                                         9,758          32%          9,752
   Residential Funding Mortgage Securities I, Series 1997-S13,
      Class A17                                                        9,846          33%          9,870

Corporate debt securities:
   Main Street Capital Trust I, Special Purpose, Series 144A           4,000          13%          4,060
</TABLE>

DEPOSITS

      Deposits generated from within the Bank's local market area are a 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 average daily amount of deposits and the average rate paid on each of
the following deposit categories is summarized below for the years indicated:



                                       17
<PAGE>   18

<TABLE>
<CAPTION>
                                         For The Years Ended December 31,
                         ------------------------------------------------------------
                                1997                  1996               1995
                         ------------------   ------------------  -------------------
                                    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       $ 34,818    N/A      $ 33,542      N/A    $ 11,758      N/A
NOW                        40,007   1.23%       36,828     1.41%     17,041     1.47%
Savings                    92,336   2.57        89,003     2.70      48,814     2.76
Money market               26,849   3.37        14,880     2.94      11,219     2.90
Time                      144,033   5.57       125,422     5.64      64,856     5.57
                         --------             --------             --------
   Total                 $338,043   3.49%     $299,675     3.48%   $153,688     3.60%
                         ========             ========             ========
</TABLE>

      As of December 31, 1997, term certificates of deposit in amounts of
$100,000 or more had the following maturities:

                                                 (Dollars in thousands)
Under 3 months                                          $41,717
3 to 6 months                                            12,789
6 to 12 months                                            7,043
Over 12 months                                            5,183
                                                        -------
   Total                                                $66,732
                                                        =======

BORROWINGS

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

<TABLE>
<CAPTION>
                                                    At or For The Years Ended December 31,
                                                    --------------------------------------
                                                      1997            1996          1995
                                                    --------        --------      --------
                                                            (Dollars in thousands)
<S>                                                 <C>             <C>           <C>

FHLB advances:
  Balance at end of year                            $260,500        $ 89,250      $88,470
  Average balance                                    161,399         114,380       78,731
  Maximum month-end balance                          260,500         134,277       91,600
  Weighted average rate during the period               5.78%           5.63%        5.77%
  Year-end average rate                                 5.75%           5.64%        5.73%

Securities sold under agreements to repurchase:
  Balance at end of year                            $ 96,050        $ 34,670      $37,775
  Average balance                                     73,734          32,103       18,767
  Maximum month-end balance                           96,050          44,740       37,775
  Weighted average rate during the period               5.92%           5.36%        5.75%
  Year-end average rate                                 5.90%           5.28%        5.77%
</TABLE>

EMPLOYEES

      At December 31, 1997, the Company had 225 full-time equivalent employees.
Employee benefits include a pension plan, 401(k) Plan, and life, health, travel,
accident and long-term disability insurance, tuition assistance and an Employee
Stock Ownership Plan, 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.



                                       18
<PAGE>   19

ITEM 2. PROPERTIES

      The Bank's main office is located in Easton, Massachusetts. In April 1996,
the Company moved its service center to New Bedford from Easton.

      All branches provide a broad range of bank services. All Bank locations,
except for the service center and main office, have ATMs. The Bank is a member
of the Cirrus, Cashstream, and NYCE ATM networks, which provide service to its
customers throughout New England and the United States.

      The following table sets forth certain information relating to real estate
owned or leased by the Company as of December 31, 1997. The Company believes
that the fair market value exceeds the net book value of its owned real estate.

<TABLE>
<CAPTION>
                                                    Net Book Value at    Owned/
Location                                            December 31, 1997    Leased
--------                                            -----------------    ------
                                                  (Dollars in thousands)
<S>                                                <C>                   <C>

People's Savings Bank of Brockton

  Service Center and Branch:

     545 Pleasant Street, New Bedford                    $5,646          Owned
  Main Office:
     580 Washington Street, Easton                       $  403          Owned


  Other Branches:

    221 Main Street, Brockton (Closed in 1997)           $   61          Owned
    757 Centre Street, Brockton                             280          Owned
    500 Washington Street, Stoughton                        304          Owned
    116 Torrey Street, Brockton (1)                         161          Leased
    200 Westgate Drive, Brockton (2)                         81          Leased
    33 Weir Street, Taunton                                 553          Owned
    478 Middleboro Avenue, East Taunton(3)                    -          Leased
    84 Copeland Drive, Mansfield (4)                        296          Leased
    2206 Acushnet Ave, New Bedford                          446          Owned
    28 County Road, Mattapoisett                            482          Owned
    280 Winthrop Street, Taunton (5)                        289          Leased
    686 Dartmouth Street, South Dartmouth                   855          Owned
People's Mortgage Corporation:

    580 Washington Street, Easton, MA (6)                $   35          Leased
    206 Andover Street, Andover, MA (7)                       -          Leased
    57 River Street, Wellesley, MA (8)                        -          Leased
    2337 Whitney Avenue, Hamden, CT (9)                      31          Leased
    545 Pleasant Street, New Bedford (6)                      -          Leased
    45 Pond Street, Norwell, MA (10)                          -          Leased
</TABLE>

(1) Lease expires January 1, 2001 with an option to renew for one three year
    period.

(2) Lease expires October 31, 1998, with an option to renew for one seven year
    period.

(3) Tenant-at-will.



                                       19
<PAGE>   20

(4) Lease expires December 31, 1998 with two additional five year renewal
    options.

(5) Lease expires October 31, 1999, with an option to renew for one three year
    period.

(6) People's Mortgage Corporation leases space from the Company as a
    tenant-at-will.

(7) Lease expires February 28, 2003.

(8) Lease expires October 30, 2000.

(9) Lease expires November 30, 1998, with an option to renew for one three year
    period.

(10) Lease expires February 28, 2001.

      The Bank owns other properties, consisting primarily of foreclosed real
estate, through its subsidiaries G.B.L., Inc. ("GBL"), PECO, Inc. ("PECO") and
Longworth, Inc.


ITEM 3. LEGAL PROCEEDINGS

      The Company is involved from time to time as a party to legal proceedings
occurring in the ordinary course of its business. The Company believes that none
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.

      Since the Company acquired the stock of the Bank on February 8, 1996, the
Common Stock of the Company has been traded in the over-the-counter market on
the Nasdaq National Market under the symbol "PBKB." Prior to that time, the
common stock of the Bank was traded on the Nasdaq National Market. The following
table sets forth the high and low sales prices of the common stock of the
Company or the Bank, as applicable, as reported on the Nasdaq National Market
during the periods indicated.

                                                        Sales Price
                                                   ----------------------
                                                     High           Low
                                                   -------        -------

           1996
           ----
      First Quarter............................    $10.50         $ 8.50
      Second Quarter...........................     10.125          8.75
      Third Quarter............................     10.50           9.00
      Fourth Quarter...........................     11.625         10.00

           1997
           ----
      First Quarter............................    $13.125        $10.375
      Second Quarter...........................     15.50          11.50
      Third Quarter............................     20.75          15.00
      Fourth Quarter...........................     25.25          17.00



                                       20
<PAGE>   21

      On March 16, 1998, the closing sale price of a share of Common Stock of
the Company on the Nasdaq National Market was $24.625.

      At February 28, 1998, there were approximately 680 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 various brokerage firms or other entities.

      The Company's ability to pay dividends on the Common Stock depends on the
receipt of dividends from the Bank. Although the Company has adopted a policy of
paying regular quarterly dividends on the Common Stock, there can be no
assurance that such dividends will be paid in the future, or if paid, the amount
of any such dividends.

      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 currently
provides the only source of payment of dividends by the Company. 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 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 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 would be 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 such 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 determination by
the Board of Directors to pay such dividends.

      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 most recent quarterly dividend was declared by the Company on January
28, 1998, totaled $0.12 per share and was paid on February 28, 1998. The Company
declared and paid quarterly dividends of $0.09, $0.11, $0.11, and $0.11 per
share in the first, second, third, and fourth quarters, respectively, of 1997.
The Company declared and paid quarterly dividends of $0.05, $0.07, $0.07, and
$0.08 per share in the first, second, third and fourth quarters, respectively,
of 1996. The Company declared and paid a quarterly dividend of $0.04 in the
fourth quarter of 1995. The dividend payout ratio was 28.2%, 24.3% and 4.2% in
1997, 1996 and 1995, respectively. There were no dividends paid out in the years
ended December 31, 1994 and 1993.


ITEM 6. SELECTED FINANCIAL DATA

      The information required by this item appears on page 4 of the Annual
Report to Stockholders for the fiscal year ended December 31, 1997 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



                                       21
<PAGE>   22

Condition and Results of Operations on pages 2 to 13 inclusive of the Annual
Report to Shareholders for the fiscal year ended December 31, 1997 and is
incorporated herein by reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

      The Information required by this item appears on pages 14 to 29 inclusive
of the Annual Report to Shareholders for the fiscal year ended December 31, 1997
and is incorporated herein by reference.


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 Stockholders to be held on May 19, 1998 (the
"Proxy Statement"), to be filed with the Securities and Exchange Commission
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, 1997 and 1996

      Consolidated Statements of Income for the years ended December 31, 1997,
1996 and 1995



                                       22
<PAGE>   23


      Consolidated Statements of Changes in Stockholders' Equity for the years
      ended December 31, 1997, 1996 and 1995

      Consolidated Statements of Cash Flows for the years ended December 31,
      1997, 1996 and 1995

      Notes to Consolidated Financial Statements

      (a)(2) Index of Financial Statements Schedules. All financial statement
schedules have been omitted because they are not required, not applicable or are
included in Notes to Consolidated to Financial Statements.

      (a)(3) Exhibits.



                                       23
<PAGE>   24

*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 Colin C. Blair, dated as of February 7, 1996+
           (filed as Exhibit 10.5 to the Company's Registration Statement on
           Form S-1, File No. 33-99772 (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)

  10.3     Amended and Restated Special Termination Agreement by and between the
           Bank and Charles R. Leyton, dated as of February 7, 1996 (filed as
           Exhibit 10.7 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)

  10.5     Amended and Restated Special Termination Agreement by and between the
           Bank and Robert Cully, dated as of February 7, 1996 (filed as Exhibit
           10.9 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)



                                       24
<PAGE>   25

  10.11    Employment Agreement by and between the Bank and Raymond F. Wheeler
           dated as of May 10, 1995 (filed as Exhibit 10.15 to the S-1 and
           incorporated herein by reference)

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

  10.13    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)

  10.14    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)

  10.15    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)

  10.16    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)

  10.17    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)

  10.18    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)

 *10.19    Special termination agreement by and among the Company, the Bank and
           Richard S. Straczynski, dated as of April 7, 1997+.

   *13     People's Bancshares, Inc. 1997 Annual Report to Stockholders

   *21     Schedule of subsidiaries of the Company

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

   *27     Financial Data Schedule

   *27.1   Restated Financial Data Schedule

   *27.2   Restated Financial Data Schedule

   *27.3   Restated Financial Data Schedule

   *27.4   Restated Financial Data Schedule

   *27.5   Restated Financial Data Schedule

   *27.6   Restated Financial Data Schedule

   *27.7   Restated Financial Data Schedule

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

* 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.

(b) Reports on Form 8-K. No reports on Form 8-K were filed during the quarter
ended December 31, 1997.



                                       25
<PAGE>   26

                                   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 31, 1998.

                                PEOPLE'S BANCSHARES, INC.



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




                                By: /s/ Colin c. Blair
                                    --------------------------------------------
                                    Colin C. Blair
                                    Chief Financial Officer
                                    (principal financial and accounting officer)





                                       26
<PAGE>   27

      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 31, 1998
-------------------------------
Richard S. Straczynski               Director


/s/ Colin C. Blair                   Chief Financial Officer     March 31, 1998
-------------------------------
Colin C. Blair


/s/ Frederick W. Adami III           Director                    March 31, 1998
-------------------------------
Frederick W. Adami, III


/s/ Virginia M. Burke                Director                    March 31, 1998
-------------------------------
Virginia M. Burke


/s/ B. Benjamin Cavallo              Director                    March 31, 1998
-------------------------------
B. Benjamin Cavallo


/s/ John R. Eaton                    Director                    March 31, 1998
-------------------------------
John R. Eaton


/s/ Terrence Gomes                   Director                    March 31, 1998
-------------------------------
Terrence Gomes


/s/ Fred W. Green                    Director                    March 31, 1998
-------------------------------
Fred W. Green


/s/ Dr. Loring C. Johnson            Director                    March 31, 1998
-------------------------------
Dr. Loring C. Johnson


/s/ Richard D. Matthews              Director                    March 31, 1998
-------------------------------
Richard D. Matthews


/s/ Scott W. Ramsay                  Director                    March 31, 1998
-------------------------------
Scott W. Ramsay
</TABLE>



                                       27
<PAGE>   28

<TABLE>
<CAPTION>
           SIGNATURE                 TITLE                       DATE
           ---------                 -----                       ----
<S>                                  <C>                        <C>

/s/ Gerald R. Rodman                 Director                    March 31, 1998
-------------------------------
Gerald R. Rodman


/s/ Davis H. Scudder                 Director                    March 31, 1998
-------------------------------
Davis H. Scudder


/s/ Stanley D. Siskind               Director                    March 31, 1998
-------------------------------
Stanley D. Siskind

</TABLE>



                                       28
<PAGE>   29

                                  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 Colin C. Blair, dated as of February 7, 1996+
           (filed as Exhibit 10.5 to the Company's Registration Statement on
           Form S-1, File No. 33-99772 (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)

  10.3     Amended and Restated Special Termination Agreement by and between the
           Bank and Charles R. Leyton, dated as of February 7, 1996 (filed as
           Exhibit 10.7 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)

  10.5     Amended and Restated Special Termination Agreement by and between the
           Bank and Robert Cully, dated as of February 7, 1996 (filed as Exhibit
           10.9 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



                                       29
<PAGE>   30

           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)

  10.11    Employment Agreement by and between the Bank and Raymond F. Wheeler
           dated as of May 10, 1995 (filed as Exhibit 10.15 to the S-1 and
           incorporated herein by reference)

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

  10.13    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)

  10.14    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)

  10.15    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)

  10.16    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)

  10.17    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)

  10.18    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)

 *10.19    Special termination agreement by and among the Company, the Bank and
           Richard S. Straczynski, dated as of April 7, 1997+.

   *13     People's Bancshares, Inc. 1997 Annual Report to Stockholders

   *21     Schedule of subsidiaries of the Company

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

   *27     Financial Data Schedule

   *27.1   Restated Financial Data Schedule

   *27.2   Restated Financial Data Schedule

   *27.3   Restated Financial Data Schedule

   *27.4   Restated Financial Data Schedule

   *27.5   Restated Financial Data Schedule

   *27.6   Restated Financial Data Schedule

   *27.7   Restated Financial Data Schedule

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

* 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.

(b) Reports on Form 8-K. No reports on Form 8-K were filed during the quarter
ended December 31, 1997.



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