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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
     EXCHANGE ACT OF 1934
     For the fiscal year ended    December 31, 1996

                                       Or

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

Commission file number               0-7449

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

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

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

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

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

Securities registered pursuant to Section 12(g) of the Act:  Common stock, $0.10
                                                             par value
                                                             (Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                     YES [X]                 NO [ ]

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

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant,  based on the closing price of the  registrant's  common stock $0.10
par value per share ("Common  Stock") on March 27, 1997 on the Nasdaq  National
Market  was  $12.00.  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 27, 1997, 3,592,170 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 13, 1997 are  incorporated by reference into
Part III of this  Form  10-K.  Portions  of the  Registrant's  Annual  Report to
Stockholders  for 1996 are  incorporated  by reference into Part II of this Form
10-K.

     Exhibit Index appears on page 22.

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                                     Part I

Item 1. Business

General

     The  Company.  People's  Bancshares,   Inc.  is  a  Massachusetts  business
corporation  formed at the  direction of People's  Savings Bank of Brockton (the
"Bank") to serve as the holding  company for the Bank. On February 8, 1996,  the
Company and the Bank completed a reorganization (the  "Reorganization") in which
the Bank became a wholly owned  subsidiary  of the Company,  and each issued and
outstanding  share of common stock of the Bank was converted  into and exchanged
for one share of common stock of the Company. As a result of the Reorganization,
the Bank  became a wholly  owned  subsidiary  of the  Company.  The Company is a
unitary bank holding company subject to the Bank Holding Company Act of 1956, as
amended  (the "BHC  Act"),  the  principal  business  of which  consists  of the
business of the Bank.  The only  significant  asset of the Company is the common
stock of the Bank.  Although  the Company is a legal  entity  separate  from the
Bank, the Company itself is not engaged in any business activities.

     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,  business and industry,  and
investing  those  funds  in  residential  and  commercial  mortgages,  consumer,
commercial and  construction  loans and investments,  primarily  mortgage-backed
securities.  The Bank  generally  originates  loans for  investment  except  for
residential mortgage loans. The Bank primarily originates 1-4 family residential
loans for sale in the secondary  market,  generally with the servicing rights of
such loans.  Loan sales are made from loans on which the Bank's mortgage banking
subsidiary has obtained  purchase  commitments  from investors prior to funding.
The Bank's  revenues  are  derived  principally  from  interest on its loans and
interest and dividends on its investment securities, customer fees, and gains on
residential  mortgage  loan  sales.  The  Bank's  primary  sources  of funds are
deposits,  principal and interest  payments on loans and investment  securities,
FHLB advances, 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 deposit, and various retirement accounts.

     The  Bank  has  seven  wholly   owned   subsidiaries.   People's   Mortgage
Corporation,  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, which
allow a more favorable tax rate on income derived from securities held in the
security corporations. 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 a strong capital position that provides the capacity to
respond to a changing financial landscape.  Senior management has focused its
efforts on pursuing a strategy established by the Board of Directors to embark
on a new era of growth, both internally  and through selected acquisitions
following the Bank's return to profitability.  The principal components of this
strategy include:

     o    Improving asset quality

     o    Redirecting lending efforts

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     o    Managing interest rate risk

     o    Reducing non-interest expenses

     o    Increasing fee-based revenues

     o    Providing superior customer service in a cost-effective manner

     o    Achieving growth through carefully chosen acquisitions

     Improving  Asset Quality.  At December 31, 1991, the Bank's  non-performing
assets  amounted to $22.2 million,  or 13.4% of total assets and 110.6% of total
equity and loan loss  reserves.  The ratio of the  allowance  for loan losses to
non-accrual  loans at December 31, 1991 was 47.7%. 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 80%. At December 31, 1996,  the Bank's  non-performing
assets were $4.4 million,  or 0.88% of total  assets,  and 12.2% of total equity
and  loan  loss  reserves.  The  ratio  of the  allowance  for  loan  losses  to
non-accrual loans was 122.1%. 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  Asset/Liability  Committee,  which
includes three 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  significantly   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. The mortgage-backed securities bought
by the Bank do not constitute  "high risk" securities under the standards of the
Federal Financial  Institutions  Examination  Council  ("FFIEC").  Although this
strategy  results in lower  financial  ratios that are  computed on the basis of
average  assets,  it  increases  income and  return on equity,  at what the Bank
considers to be a low level of risk.

     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 90.3% for the year
ended December 31, 1991 to 70.9% for the year ended

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December 31, 1996. In 1996, the efficiency ratio increased from 64.3% in 1995
was primarily attributable to the Company's mortgage subsidiary operating at a
small loss and to non-recurring expenses associated with the acquisition of 5
branches and with the severance costs associated with the resignation of the
former CEO.

     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 in new  mortgage  loans in 1995 of which $68.9  million were sold in the
secondary  market.  The Bank originated  $229.4 million in new mortgage loans in
1996 of  which  $152.7  million  were  sold in the  secondary  market.  People's
Mortgage  Corporation  currently  has six loan  origination  offices  located in
Massachusetts and Connecticut.  The Bank has hired experienced  mortgage-banking
professionals to conduct its mortgage banking operations.

     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 reduce 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 and governmental  assisted mergers 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

     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 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 its loan production office are located at the
Bank's  service  center in  Easton,  Massachusetts.  In October  1995,  People's
Mortgage Corporation opened offices in Sturbridge, Massachusetts, and in Hamden,
Connecticut.

     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

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


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\
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 assets such as 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. Furthermore, the bank holding company rating system used by
the Federal  Reserve  Board to analyze the adequacy of a bank holding  company's
management,   operation,  earnings  and  capital  generally  evaluates  "primary
capital"  and "total  capital,"  with the  respective  ratios being 5.5% and 6%,
respectively.  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.

     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

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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, 1996, 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  12.38% and 13.64%,  respectively,  and Tier 1
leverage capital ratio equaled 6.04%.

     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
Riegle-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 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,  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, 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.  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,  1996,  the Bank had total loans and loans held for sale of
$276.6  million of which $257.9  million,  or 93% of total loans,  were mortgage
loans. The Bank also had $18.7 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,  71% were  secured  by 1-4 family
residential  mortgages,  16%  by  commercial  properties,   4%

                                       7
<PAGE>   8

by multi-family properties,  and 2% represent residential construction loans. Of
the  Bank's total loans and loans held for sale not secured  by real  estate,
4% loans are small business commercial loans not secured primarily by
commercial real estate and 3% are loans 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 periods indicated:

<TABLE>
<CAPTION>

                                                                    At December 31,
                                      --------------------------------------------------------------------------
                                      1996              1995             1994              1993             1992
                                      ----              ----             ----              ----             ----
                                                                (Dollars in thousands)
<S>                                <C>              <C>               <C>              <C>               <C>
Mortgage Loans:
   Residential 1-4 family          $ 160,730        $   67,641        $   56,533       $   52,002        $   48,566
   Commercial:
   Residential multi-family           11,217             9,366             9,362            8,058             7,309
   Commercial real estate             44,149            30,019            25,510           27,099            28,258
   Construction                        7,359             8,459             4,383            7,260             4,866
   Equity lines of credit             10,297             7,274             7,718            8,885             9,568
                                   ---------        ----------        ----------       ----------        ----------
     Total principal balances        233,752           122,759           103,506          103,304            98,567

Less undisbursed amount
   of loans in process                (1,450)           (3,623)             (948)          (2,491)           (1,405)
                                   ---------        ----------        ----------       ----------        ----------
     Total mortgage loans            232,302           119,136           102,558          100,813            97,162
                                   ---------        ----------        ----------       ----------        ----------
Other Loans:
   Retail installment sales contracts  1,830             2,620             3,203            3,359             3,566
   Consumer                            6,161             2,423             2,783            3,348             3,378
   Commercial lines of credit          5,622             3,462             2,602            1,568             1,534
   Commercial loans                    4,838             5,597             2,774            2,276             2,676
   Education                             207               296               409              274               515
                                   ---------        ----------        ----------       ----------        ----------
     Total other loans                18,658            14,398            11,771           10,825            11,669
                                   ---------        ----------        ----------       ----------        ----------
       Total loans                   250,960           133,534           114,329          111,638           108,831

Deferred loan origination fees
   (costs), net                          (49)               57               (32)             (78)              (40)
Allowance for loan losses             (4,716)           (3,813)           (3,194)          (3,654)           (3,641)
                                   ---------        ----------        ----------       ----------        ----------
     Loans, net                   $  246,195         $ 129,778         $ 111,103        $ 107,906         $ 105,150
                                  ==========         =========         =========        =========         =========

</TABLE>

     At December 31, 1996, the Bank had eight credit relationships  exceeding $1
million in size that aggregated  $16.9 million or 6.7% 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

                                       8
<PAGE>   9

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.

     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, 1996, 71% of the Bank's total loans and loans held for sale
were  secured  by 1-4  family  residential  mortgages,  of which 55% were  ARMs.
Generally,  ARMs pose  credit  risks  that  differ  from the risks  inherent  in
fixed-rate loans because when interest rates rise the borrower's  payments 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, 1996,
16% were secured by commercial  properties  that typically have terms of 3 years
or less and were ARMs. Of loans secured by properties  other than 1-4 family
residences,  50% were 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, 1996, 4% were
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.

                                       9
<PAGE>   10

     Residential Construction Lending. Of the Bank's loans at December 31, 1996,
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. 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, 1996,  3%
were consumer loans. The decreasing importance of consumer loans in the Bank's
loan portfolio in recent years 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, 1996,
4% 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 the  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 of Banks 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.

                                       10
<PAGE>   11

     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  loan.  When a loan  shows  signs of
potential  weaknesses  that may affect  repayment of the loan or the collateral,
the  loan  is  reclassified  "specially  mentioned."  A loan  that  has  further
deterioration  and exhibits  defined  weaknesses in the  borrower's  capacity to
repay is  reclassified  "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 generally
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:

                                       11
<PAGE>   12

<TABLE>
<CAPTION>

                                                                               At December 31,
                                            ----------------------------------------------------------------------------------
                                                      1996                          1995                      1994
                                            -------------------------      -----------------------   -------------------------

                                                          Percent of                    Percent of                 Percent of
                                                           Loans in                      Loans in                   Loans in
                                             Amount          each           Amount         each        Amount         each
                                               of         Category to         of        Category to      of        Category to
                                            Allowance     Total Loans      Allowance    Total Loan   Allowance     Total Loans
                                            ---------     -----------      ---------    ----------   ---------     -----------
                                                                            (Dollars in thousands)
<S>                                         <C>              <C>            <C>            <C>         <C>            <C>
Residential 1-4 family
  and loans held for sale                   $  464           67.37%         $  270         52.53%      $  159         49.45%
Commercial:
  Residential multi-family                     733            4.06             808          6.75          805          8.19
  Commercial real estate                     1,405           15.96           1,514         21.63        1,249         22.31
Construction                                    59            2.14              48          3.48           35          3.00
Equity lines of credit                         103            3.72              79          5.24           84          6.75
Other loans                                    474            6.75             235         10.37          234         10.30
Unallocated                                  1,478             N/A             859          N/A           628          N/A
                                            ------          ------          ------        ------       ------        ------
Total                                       $4,716          100.00%         $3,813        100.00%      $3,194        100.00%
                                            ======          ======          ======        ======       ======        ======
</TABLE>

<TABLE>
<CAPTION>

                                                                  At December 31,
                                             ------------------------------------------------------
                                                      1993                          1992
                                             -------------------------      -----------------------
                                                           Percent of                    Percent of
                                                            Loans in                      Loans in
                                              Amount          each           Amount         each
                                                of         Category to         of        Category to
                                             Allowance     Total Loans      Allowance    Total Loan
                                             ---------     -----------      ---------    ----------
                                                              (Dollars in thousands)
<S>                                         <C>               <C>           <C>            <C>
Residential 1-4 family
  and loans held for sale                   $  195            48.11%        $  383         45.38%
Commercial:
  Residential multi-family                     588             7.01            653          6.62
  Commercial real estate                     1,778            23.58          2,067         25.61
Construction                                    48             4.15             36          3.14
Equity lines of credit                          97             7.73            105          8.67
Other loans                                    221             9.42            290         10.58
Unallocated                                    727              N/A            107           N/A
                                            ------           ------         ------        ------
Total                                       $3,654           100.00%        $3,641        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 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,
                                      ----------------------------------------------------------------------------
                                      1996              1995              1994              1993              1992
                                      ----              ----              ----              ----              ----
                                                                (Dollars in thousands)
<S>                                   <C>              <C>               <C>              <C>               <C>
Balance at beginning of year          $   3,813        $ 3,194           $ 3,654          $ 3,641           $ 4,865
   Provisions for loan losses                75            525               807            1,492             1,363
   Charge-offs:
     Residential 1-4 family                (463)          (438)             (202)            (435)             (560)
     Residential multi-family              (470)          (433)             (777)            (493)             (849)
     Commercial real estate                 (89)          (235)             (519)            (515)           (1,194)
     Equity lines of credit                 (20)           (30)               (7)             (60)              (30)
     Other                                  (89)           (60)             (105)            (159)             (229)
                                       --------        -------           -------          -------           -------
       Total                             (1,131)        (1,196)           (1,610)          (1,662)           (2,862)
   Recoveries                               307            143               343              183               275
                                       --------        -------           -------          -------           -------
     Net loans charged off                 (824)        (1,053)           (1,267)          (1,479)           (2,587)
   Allowance acquired in acquisitions     1,652          1,147                 -                -                 -
                                       --------        -------           -------          -------           -------
Balance at end of year                 $  4,716        $ 3,813           $ 3,194          $ 3,654           $ 3,641
                                       ========        =======           =======          =======           =======
Ratio of net charge-offs to
   average loans outstanding
   during the year                       0.34%           0.83%            1.15%             1.32%            2.21%

</TABLE>

     Non-performing loans amounted to $3.9 million,  $4.8 million, $2.3 million,
$3.7 million,  and $5.9 million,  at December 31, 1996,  1995,  1994,  1993, and
1992, respectively.  If prior periods had been restated for the adoption of SFAS
114, non-performing loans would have amounted to $4.7 million, $6.5 million, and
$9.8 million at December 31, 1994, 1993, and 1992, respectively.


                                       12
<PAGE>   13
  Included in  non-performing  loans were $2.3 million,  $1.3  million,  $1.2
million,  $2.0  million  and $3.8  million  of loans that were  troubled  debt
restructurings  at December 31, 1996,  1995, 1994,  1993 and 1992,
respectively.  In addition,  the Bank had  troubled  debt restructurings
totaling $355,000,  $631,000, $1.0 million, $4.3 million and $7.8 million at
December 31, 1996, 1995, 1994, 1993 and 1992, 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 $357,000,  $629,000,  $334,000,  $242,000 and $207,000 for the
years ended December 31, 1996, 1995, 1994, 1993, and 1992, respectively.

        The maturity  distribution  and interest rate  sensitivity of selected
loan categories at December 31, 1996 is presented in the following table.

<TABLE>
<CAPTION>
                                                            At December 31, 1996
                                         -----------------------------------------------------
                                         Within            1-5           After
                                         1 Year           Years         5 Years          Total
                                         ------           -----         -------          -----
                                                          (Dollars in thousands)
<S>                                    <C>              <C>           <C>             <C>
Loan Maturity:
Mortgage loans:
   Construction                        $   5,909        $      -      $      -        $   5,909

Other loans:
   Commercial lines of credit              5,622               -             -            5,622
   Commercial                              1,443           2,635           760            4,838
                                        --------        --------      --------         --------
                                        $ 12,974        $  2,635      $    760        $  16,369
                                        ========        ========      ========         ========
Rate Sensitivity:
   Floating interest rates                              $  2,093       $   760        $   2,853
   Fixed interest rates                                      542             -              542
                                                        --------       -------        ---------
    Total loans                                         $  2,635       $   760        $   3,395
                                                        ========       =======        =========
</TABLE>

Investment Securities

     Investment securities,  consisting primarily of mortgage-backed securities,
increased  $25.8 million  during 1996 as the Bank  deployed  funds from acquired
deposits 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 unused 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 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 thus 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,  1996,  the  carrying  value  of  the  Bank's  investment
securities  amounted to $192.5 million,  representing  38.8% of the Bank's total
assets. As of December 31, 1995, the Bank's investment  securities accounted for
51.4% of the Bank's total assets.

                                       13
<PAGE>   14

     The following table summarizes investment securities:

<TABLE>
<CAPTION>

                                                                                      At December 31,
                                                                         ---------------------------------------
                                                                         1996              1995             1994
                                                                         ----              ----             ----
                                                                                  (Dollars in thousands)
<S>                                                                   <C>             <C>                <C>
Securities available for sale, at fair value                          $  184,195      $   160,582        $   32,719
Securities held to maturity, at amortized cost                                 -                -            65,770
Restricted equity securities                                               8,322            6,127             5,132
                                                                      ----------        ---------         ---------
                                                                      $  192,517        $ 166,709         $ 103,621
                                                                      ==========        =========         =========

</TABLE>

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

<CAPTION>
                                                     At December 31,
                                               ---------------------------
                                                          1994
                                               ---------------------------
                                             Amortized               Fair
                                               Cost                  Value
                                               ----                  -----
                                                (Dollars in thousands)
<S>                                          <C>                   <C>
Mortgage-backed securities                   $ 61,283              $ 57,095
U.S. Government and federal
   agency obligations                           4,487                 4,278
                                           ----------            ----------
     Total held to maturity                  $ 65,770              $ 61,373
                                             ========              ========

</TABLE>

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

<TABLE>
<CAPTION>

                                                                      At December 31,
                                        ---------------------------------------------------------------------------
                                                 1996                      1995                       1994
                                        ----------------------    ----------------------     ----------------------
                                         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                   $   2,500    $   2,415    $   4,499    $   4,395     $        -   $        -
Mortgage-backed securities                181,998      180,800      155,781      155,242         32,903       31,759
Corporate debt securities                   1,000          980        1,000          945          1,000          960
                                        ---------    ---------    ---------    ---------     ----------   ----------
   Total available for sale             $ 185,498    $ 184,195    $ 161,280    $ 160,582     $   33,903   $   32,719
                                        =========    =========    =========    =========     ==========   ==========
</TABLE>


                                       14
<PAGE>   15

<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:

<CAPTION>

                                                                        At December 31, 1996
                                                            --------------------------------------------
                                                                                                Weighted
                                                             Amortized           Fair            Average
                                                               Cost              Value            Rate
                                                               ----              -----            ----
                                                                       (Dollars in thousands)
<S>                                                          <C>              <C>                 <C>
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%
                                                             ---------        ---------
     Total U.S. government and federal
       agency obligations                                        2,500            2,415           4.61%
                                                             ---------        ---------
Corporate investments:
   After 1 but within 5 years                                    1,000              980           6.24%
                                                             ---------        ---------
     Total corporate investments                                 1,000              980           6.24%
                                                             ---------        ---------
       Total investments available for sale                  $ 185,498        $ 184,195           6.89%
                                                             =========        =========
</TABLE>

<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%
                                                             ---------        ---------
     Total mortgage-backed securities                          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 corporate investments                                 1,000              945           5.93%
                                                             ---------        ---------
       Total investments available for sale                  $ 161,280        $ 160,582           7.29%
                                                             =========        =========
</TABLE>

<TABLE>
<CAPTION>
                                                                        At December 31, 1994
                                                             -------------------------------------------
                                                                                                Weighted
                                                             Amortized           Fair            Average
                                                               Cost              Value            Rate
                                                               ----              -----            ----
                                                                       (Dollars in thousands)
<S>                                                          <C>             <C>                 <C>
Investments Held to Maturity
Mortgage-backed securities:
   After 1 but within 5 years                                $   9,090       $    8,493           6.29%
   After 5 but within 10 years                                  33,318           30,502           6.51%
   After 10 years                                               18,875           18,100           5.54%
                                                              --------        ---------
     Total mortgage-backed securities                           61,283           57,095           6.18%
                                                              --------        ---------
Obligations of other U.S. Government agencies:
   After 1 but within 5 years                                    4,487            4,278           4.94%
                                                              --------        ---------
       Total investments held to maturity                    $  65,770       $   61,373           6.10%
                                                             =========       ==========
Investments Available for Sale
Mortgage-backed securities:
   After 5 but within 10 years                               $     180       $      173           6.50%
   After 10 years                                               32,723           31,586           5.97%
                                                             ---------        ---------
     Total mortgage-backed securities                           32,903           31,759           5.97%
                                                             ---------        ---------
Corporate investments:
   After 1 but within 5 years                                    1,000              960           6.58%
                                                             ---------        ---------
       Total investments available for sale                  $  33,903        $  32,719           5.98%
                                                             =========        =========
</TABLE>

                                       15
<PAGE>   16


     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, 1996
                                                                      ---------------------------------------------
                                                                                        Percent of
                                                                       Amortized       Stockholders'        Fair
                                                                         Cost             Equity            Value
                                                                         ----             ------            -----
                                                                                 (Dollars in thousands)
<S>                                                                    <C>                 <C>           <C>
Mortgage-backed securities:
   Sears Mortgage Securities                                           $  3,120            10%           $  3,104
   Saxon Mortgage Securities Corp.                                        6,178            20%              6,215

</TABLE>

Deposits

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

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

<TABLE>
<CAPTION>

                                                             For the Years Ended December 31,
                                        --------------------------------------------------------------------------
                                                 1996                      1995                       1994
                                        ----------------------    ----------------------     ---------------------
                                                       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                     $   33,542        N/A       $  11,758       N/A       $   8,578        N/A
NOW                                        36,828       1.41%         17,041      1.47%         14,314       1.47%
Savings                                    89,003       2.70          48,814      2.76          46,336       2.45
Money market                               14,880       2.94          11,219      2.90          14,452       2.54
Time                                      125,422       5.64          64,856      5.57          53,559       4.11
                                       ----------                  ---------                 ---------
   Total                               $  299,675       3.48%      $ 153,688      3.60%      $ 137,239       2.85%
                                       ==========                  =========                 =========

</TABLE>

     As of  December  31,  1996,  term  certificates  of  deposit  in amounts of
$100,000 or more had the following maturities:

                                                         (Dollars in thousands)
Under 3 months                                                  $ 21,709
3 to 6 months                                                      5,068
6 to 12 months                                                     3,449
Over 12 months                                                     6,696
                                                               ---------
   Total                                                        $ 36,922
                                                                ========

                                       16
<PAGE>   17

Borrowings

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

<TABLE>
<CAPTION>

                                                            At or For the Years Ended December 31,
                                                            --------------------------------------
                                                            1996              1995             1994
                                                            ----              ----             ----
                                                                    (Dollars in thousands)
<S>                                                     <C>                <C>               <C>
FHLB advances:
   Balance at end of year                               $   89,250         $ 88,470          $ 75,615
   Average balance                                         114,380           78,731            44,021
   Maximum month-end balance                               134,277           91,600            75,615
   Weighted average rate during the period                    5.63%            5.77%             5.28%
   Year-end average rate                                      5.64%            5.73%             5.54%

Securities sold under agreements to repurchase:
   Balance at end of year                                $  34,670         $ 37,775           $ 1,965
   Average balance                                          32,103           18,767             6,541
   Maximum month-end balance                                44,740           37,775             9,679
   Weighted average rate during the period                    5.36%            5.75%             4.86%
   Year-end average rate                                      5.28%            5.77%             6.50%

</TABLE>

Employees

     At December 31, 1996, the Company had 212 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 is 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.

YEAR 2000 ISSUES

     An issue receiving much attention in the media and by regulatory agencies
has been the risk posed by programming code in existing computer application
programs as the industry enters the new millennium. The essence of the problem
relates to the existing standard for computer programs being inadequate for
financial computations. The regulatory and business concern is that adequate
measures be taken now to correct this problem. In People's case, we utilize the
services of a third party data center for most of our data processing and as a
vendor for certain programs maintained in-house. We have been kept apprised of
their efforts to ensure that all programs be fully Year 2000 compliant. Such
efforts have been subject to FFIEC examination review and appear to be
sufficient to ensure that software used by the Company will adequately address
regulatory concerns.

Item 2. Properties

     The Bank's main office has been located in its current quarters in downtown
Brockton  since 1908. 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,  1996.  The Company  believes
that the fair market value exceeds the net book value of its owned real estate.

                                               Net Book Value at        Owned/
Location                                       December 31, 1996        Leased
--------                                       -----------------        ------
                                            (Dollars in thousands)
People's Savings Bank of Brockton
   Service Center and Branch:
   545 Pleasant Street, New Bedford                $5,508                 Owned

   Main Office:
     221 Main Street, Brockton                         27                 Owned

                                       17
<PAGE>   18

   Other Branches:
     580 Washington Street, South Easton          $309                    Owned
     757 Centre Street, Brockton                   290                    Owned
     500 Washington Street, Stoughton              308                    Owned
     116 Torrey Street, Brockton (1)               177                   Leased
     200 Westgate Drive, Brockton (2)               89                   Leased
     33 Weir Street, Taunton                       566                    Owned
     478 Middleboro Avenue, East Taunton(3)          1                   Leased
     84 Copeland Drive, Mansfield (4)              333                   Leased
     2206 Acushnet Ave, New Bedford                447                    Owned
     28 County Road, Mattapoisett                  492                    Owned
     280 Winthrop Street, Taunton (5)              324    -              Leased
     686 Dartmouth Street, South Dartmouth         869                    Owned

People's Mortgage Corporation:
     580 Washington Street, South Easton, MA (6)     -                   Leased
     206 Andover Street, Andover, MA (7)             -                   Leased
     58 Main Street, Sturbridge, MA (8)              -                   Leased
     2337 Whitney Avenue, Hamden, CT (9)            19                   Leased
     545 Pleasant Street, New Bedford (6)            -                   Leased


     (1)  Lease  expires  December  31,  1997  with an  option  to renew for two
          five-year periods.

     (2)  Lease expires October 31, 1998.

     (3)  Tenant-at-will.

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

     (5)  Lease expires October 31, 1999.

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

     (7)  Tenant-at-will.

     (8)  Lease  expires  November  30,  1998  with an option to renew for three
          years.

     (9)  Lease expires November 30, 1997.

     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, individually, 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



                                       18
<PAGE>   19

Not applicable.

                                     PART II

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

     Since the  consummation  of the  Reorganization  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 Bank
as reported on the Nasdaq National Market during the periods indicated.

                                                                Sales Price
                                                                -----------
                                                              High         Low
                                                              ----         ---
    1995
First Quarter..............................................  $ 6.375    $ 4.625
Second Quarter.............................................    7.25       5.50
Third Quarter..............................................    8.125      6.75
Fourth Quarter.............................................   10.50       7.375

    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

     On March 27,  1997,  the closing  sale price of a share of Common Stock of
the Company on the Nasdaq National Market was $12.00.

     At March 27, 1997, there were approximately 750 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

                                       19
<PAGE>   20

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 Bank on January 29,
1997,  totaled $0.09 per share and was paid on March 14, 1997. The Bank declared
and paid a quarterly dividend of $0.05, $0.07, $0.07, and $0.08 per share in the
first, second,  third, and fourth quarters of 1996. The Bank declared and paid a
quarterly  dividend of $0.04 per share in the fourth  quarter of 1995.  This was
the first  dividend  paid since 1990.  The dividend  payout ratio was 24.36% and
4.24% in 1996 and 1995, respectively,  . There were no dividends paid out in the
years ended December 31, 1994, 1993, 1992, or 1991.

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,  1996 and is
incorporated herein by reference.

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

     The  information   required  by  this  item  appears  in  the  Management's
Discussion  and Analysis of Financial  Condition  and Results of  Operations  on
pages 2 to 12 inclusive of the Annual Report to Stockholders for the fiscal year
ended December 31, 1996 and is incorporated herein by reference.

Item 8. Financial Statements and Supplementary Data

     The  Information  required by this item appears on pages 13 to 26 inclusive
of the Annual Report to Stockholders for the fiscal year ended December 31, 1996
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 13, 1997 (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.


                                       20
<PAGE>   21

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, 1996 and 1995

     Consolidated  Statements  of Income for the years ended  December 31, 1996,
     1995 and 1994

     Consolidated  Statements of Changes in  Stockholders'  Equity for the years
     ended December 31, 1996, 1995 and 1994

     Consolidated  Statements  of Cash Flows for the years  ended  December  31,
     1996, 1995 and 1994

     Notes to Consolidated Financial Statements

     (a)(2) Index of Financial  Statement  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.


                                       21
<PAGE>   22

                                  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

   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.)

                                       22
<PAGE>   23

  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)

  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   Asset  Purchase  Agreement  by  and  among  People's  Saving  Bank  of
          Brockton,  Minuteman  Funding  Corporation,  and the  Stockholders  of
          Minuteman Funding Corporation dated as of March 31, 1995 (filed as
          Exhibit 10.27 to the S-1 and incorporated herein by reference)

  10.16   Agreement  for  Purchase  and  Sale  of  Assets  and   Assumption  of
          Liabilities by and between  People's  Savings Bank of Brockton and The
          First National Bank of Boston, N.A. dated as of May 11, 1995 (filed
          as Exhibit 10.28 to the S-1 and incorporated herein by reference)

  10.17   Purchase and Assumption Agreement by and between People's Savings Bank
          of  Brockton  and  Fleet  Bank  of  Massachusetts,  N.A.  dated  as of
          September 30, 1995 (filed as Exhibit 10.29 to the S-1 and
          incorporated herein by reference)

  10.18   Purchase and Assumption Agreement by and between People's Savings Bank
          of Brockton and Shawmut Bank, N.A. dated as of September 30, 1995
          (filed as Exhibit 10.30 to the S-1 and incorporated herein by
          reference)

  10.19   Amendment  No. 1 to Purchase  and  Assumption  Agreement,  dated as of
          March 8, 1996, by and between People's Savings Bank of Brockton, Fleet
          Bank of  Massachusetts,  N.A. and certain  other  parties  dated as of
          September 30, 1995.  (filed as Exhibit  10.31 to the Company's  Annual
          Report  on  Form  10-K  for the  year  ended  December  31,  1995  and
          incorporated herein by reference.)

                                       23
<PAGE>   24

  10.20   Amendment  No. 1 to Purchase  and  Assumption  Agreement,  dated as of
          March 8, 1996, by and between People's Savings Bank of Brockton, Fleet
          National  Bank of  Massachusetts  (formerly  Shawmut  Bank,  N.A.) and
          certain  other  parties  dated as of  September  30,  1995.  (filed as
          Exhibit 10.32 to the Company's Annual Report on Form 10-K for the year
          ended December 31, 1995 and incorporated herein by reference.)

 *10.21   1996 Stock Option and Incentive Plan+

 *10.22   Form of Director Nonqualified Stock Option Agreement

 *10.23   Form of Employee Nonqualified Stock Option Agreement

 *10.24   Form of Incentive Stock Option Agreement

 *13      People's Bancshares, Inc. 1996 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

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

 *   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. The Company filed a Current Report on Form 8-K with
     the Securities and Exchange Commission on December 6, 1996 in connection
     with the resignation of its President and Chief Executive Officer.


                                       24
<PAGE>   25

                                   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 25, 1997.

                                       PEOPLE'S BANCSHARES, INC.


                                       By: /s/ Colin C. Blair
                                           ---------------------------------
                                           Colin C. Blair
                                           Vice President, Treasurer and
                                           Chief Financial Officer
                                           (principal financial and
                                           accounting officer)

                                       25
<PAGE>   26

     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.

         Signature                Title                               Date
         ---------                -----                               ----

/s/ Colin C. Blair                Chief Financial Officer         March 25, 1997
-----------------------------     & Treasurer (principal
Colin C. Blair                    executive officer)

/s/ Frederick W. Adami III        Director                        March 25, 1997
-----------------------------
Frederick W. Adami, III


/s/ Virginia M. Burke             Director                        March 25, 1997
-----------------------------
Virginia M. Burke


/s/ B. Benjamin Cavallo           Director                        March 25, 1997
-----------------------------
B. Benjamin Cavallo


/s/ John R. Eaton                 Director                        March 25, 1997
-----------------------------
John R. Eaton


/s/ S. David Goldberg             Director                        March 25, 1997
-----------------------------
S. David Goldberg


/s/ Terrence Gomes                Director                        March 25, 1997
-----------------------------
Terrence Gomes


/s/ Fred W. Green                 Director                        March 25, 1997
-----------------------------
Fred W. Green


/s/ Dr. Loring C. Johnson         Director                        March 25, 1997
-----------------------------
Dr. Loring C. Johnson


/s/ Richard D. Matthews           Director                        March 25, 1997
-----------------------------
Richard D. Matthews


                                       26
<PAGE>   27

         Signature                Title                           Date
         ---------                -----                           ----

/s/ Gerald R. Rodman              Director                        March 25, 1997
-----------------------------
Gerald R. Rodman


/s/ Davis H. Scudder              Director                        March 25, 1997
-----------------------------
Davis H. Scudder


/s/ Stanley D. Siskind            Director                        March 25, 1997
-----------------------------
Stanley D. Siskind


/s/ Colin C. Blair                Vice President, Treasurer       March 25, 1997
----------------------------      and Chief Financial Officer
Colin C. Blair                    (principal financial and
                                  accounting officer)