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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, 1999
                                   -----------------

                                       Or

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

Commission file number              0-7449
                                    ------


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

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

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


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

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

Securities registered pursuant to Section 12(g) of the Act:    COMMON STOCK,
                                                              $0.10 PAR VALUE
                                                              (Title of Class)

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

                        YES  [X]           NO [ ]

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

The aggregate market value of the voting stock held by non-affiliates of the
registrant, based on the closing price of the registrant's common stock $0.10
par value per share ("Common Stock") on March 15, 2000 on the Nasdaq National
Market was $40,236,296. Although directors and executive officers of the
registrant were assumed to be "affiliates" of the registrant for the purposes of
this calculation, this classification is not to be interpreted as an admission
of such status. As of March 15, 2000, 3,261,734 shares of the registrant's
Common Stock were issued and outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's definitive Proxy Statement for the Annual Meeting
of Stockholders to be held on June 16, 2000 are incorporated by reference into
Part III of this Form 10-K. Portions of the Registrant's Annual Report to
Shareholders for 1999 are incorporated by reference into Part II of this Form
10-K.

     Exhibit Index appears on page 25.



<PAGE>   2
                                     PART I

ITEM 1. BUSINESS

GENERAL

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

     The Bank. The Bank was chartered as a Massachusetts mutual savings bank on
February 6, 1895. On October 30, 1986, the Bank converted to a Massachusetts
chartered savings bank in stock form. The Bank is engaged principally in the
business of attracting deposits from individuals, businesses and governments,
and investing those funds in residential and commercial mortgages, consumer,
commercial and construction loans and investments, consisting primarily of
mortgage-backed securities and trust preferred securities. The Bank originates
loans for investment with the exception of residential mortgage loans. The Bank
and its mortgage banking subsidiary originate 1-4 family residential loans
primarily for sale in the secondary market, generally with the servicing rights
of such loans. The Bank sold 97%, 97%, and 92% of its 1-4 family residential
loan originations, including table funded loans, in 1999, 1998, and 1997,
respectively. Loans sold are originated by the Bank's mortgage banking
subsidiary, People's Mortgage Corporation ("PMC"), on which PMC has obtained
purchase commitments from investors prior to funding.

     The Bank actively manages the purchase and sale of investments and loans
which are serviced by third parties. These purchases are funded by FHLB
advances, repurchase agreements, and municipal deposits. Such leveraged assets
amounted to $661.3 million, $558.5 million and $414.0 million at December 31,
1999, 1998 and 1997, respectively. The Bank's revenues are derived principally
from interest on its loans, interest and dividends on its investment securities,
customer fees, and gains on residential mortgage loan sales. The Bank's primary
sources of funds are customer deposits, amortization and repayment of loan and
investment principal, interest and dividends on loans and investments, maturity
or sale of investment securities, collateralized borrowings and proceeds from
the sale of loans. The Bank offers a variety of deposit accounts, including NOW
accounts, regular savings accounts, money market accounts, fixed rate
certificates of deposits and various retirement accounts.

     The Bank has eight wholly-owned subsidiaries. PMC, which was organized in
March 1995, acts as the mortgage banking subsidiary of the Bank. PSB Security
Corporation I, II, and III, organized in February 1996, are "security
corporations" for Massachusetts tax purposes, and are subject to a more
favorable tax rate on income derived from securities held in them. PSB
Securities Corporation I was active until December 31, 1998 and PSB Securities
Corporation II and III were activated in January 1999. 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 a
strong return on stockholders' equity. Senior management has focused its efforts
on continuing the strategy established by the Board of Directors to grow
internally and through selected acquisitions. The principal components of this
strategy include:




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     -    Improving asset quality

     -    Redirecting lending efforts

     -    Managing interest rate risk

     -    Reducing non-interest expenses

     -    Increasing fee-based revenues

     -    Providing superior customer service in a cost-effective manner

     -    Achieving growth through carefully chosen acquisitions

     Improving Asset Quality. At December 31, 1994, the Bank's non-performing
assets amounted to $5.6 million, or 2.40% of total assets and 27.59% of total
equity and loan loss allowances. The ratio of the allowance for loan losses, as
adjusted to reflect the adoption of SFAS 114, to non-performing loans at
December 31, 1994 was 67.8%. The Bank's 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 86%. At December
31, 1999, the Bank's non-performing assets were $788,000, or 0.07% of total
assets, and 1.8% of total equity and loan loss allowances. The ratio of the
allowance for loan losses to non-accrual loans was 814%. The Bank achieved these
results through efforts to resolve existing credit problems and to avoid future
problems through a restructuring of the lending function.

     Redirecting Lending Efforts. The Bank has chosen to de-emphasize
multi-family real estate and consumer lending. 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, home
equity loans, 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 long-term return.

     Managing Interest Rate Risk. The Bank's Investment Committee, which
includes five outside directors, meets quarterly to monitor interest rate risk.
Management uses a computer based asset/liability management earnings simulation
model. This model measures changes in net interest income by projecting the
future composition of the Bank's interest-earning assets and interest-bearing
liabilities and assessing the effect of rising, flat, and declining interest
rate scenarios within a two year horizon. The simulation model allows the Bank
to measure the effects of changing interest rate environments on net interest
margins, net income, capital, and liquidity. Management's strategy is to adjust
its assets and liabilities to diminish future possible adverse effects of
extreme changes in interest rates and 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. 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 maintain competitive deposit rates and meet
commercial credit demands. The Bank also has aggressively pursued municipal
deposits as an alternative to higher rate borrowings.

     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




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sector mortgage-backed securities. The Bank also began investing in trust
preferred securities in 1997 which offer attractive yields. In 1997, the Bank
began to purchase residential mortgage loans with servicing retained by the
seller. These purchased 1-4 family residential loan packages exhibit many of the
characteristics of mortgage-backed securities except that the Bank earns a
higher yield for assumption of credit risk. Although 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 Company considers to be a low
level of risk.

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

     Reducing Non-Interest Expenses. The Bank has worked to reduce its cost
structure through a restructuring of its operations and through 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 the Bank's efficiency ratio from 60.3% for the year
ended December 31, 1994 to 48.3% for the year ended December 31, 1999.
Consolidated efficiency ratios are heavily influenced by the profitability of
People's Mortgage Company, which can be volatile.

     Increasing Fee-Based Revenues. The Bank continues to review options to
increase revenue. Along with the match-funded investment program discussed
above, the Bank continues its efforts to increase revenues through mortgage
banking activities. The Bank's mortgage-banking subsidiary, People's Mortgage
Corporation, sells most of its mortgage loan origination volume into the
secondary market and does not retain the servicing rights. The Bank believes
that it is not large enough to make loan servicing a profitable venture. In
1994, the Bank originated $17.2 million in new mortgage loans of which $6.4
million were sold in the secondary market. The Bank originated $88.3 million,
$229.4 million, $349.7 million, $688.9 million, and $610.1 million in new
mortgage loans in 1995, 1996, 1997, 1998, and 1999, respectively, of which $63.6
million, $194.2 million, $322.2 million, $668.2 million and $591.8 million,
respectively, were sold in the secondary market, including table funded loans.
People's Mortgage Corporation currently has fifteen loan origination offices
located in Massachusetts, Rhode Island, Connecticut, Maryland and Virginia. The
offices located in Florida were closed in January 2000 in conjunction with a
restructuring of PMC.

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

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


RECENT DEVELOPMENTS

     PMC continued its branch expansion in 1999. On September 1, 1999, PMC
purchased selected prepaid and fixed assets of Allied Bancshares Mortgage
Group, LLC ("Allied") for $1.0 million over fair value extending the franchise
to Maryland and Virginia.



                                       4

<PAGE>   5

In 1998, the Bank restructured its branch operations to eliminate
underperforming branches and relocate to more desirable market areas. In 1998
the Bank closed the smallest of its three Taunton branches and opened a
commercial loan office in Brockton. Also, the construction of a new Brockton
branch was completed in 1999 and a small Brockton branch was closed in early
1999. PMC opened a branch in Rhode Island in 1998.

     On July 17, 1997, the Company repurchased 355,000 common shares or 10% of
its outstanding stock as of June 30, 1997, at an average cost of $17.50 in an
open market transaction under a repurchase program announced on July 15, 1997.
The Company announced a second stock repurchase plan on September 1, 1998,
allowing the repurchase of up to 10% of its currently outstanding common stock
over an eighteen month period. The Company repurchased 3,000 shares under this
plan as of December 31, 1999 and an additional 67,500 shares in 2000.

     On June 26, 1997, the Company raised total proceeds of $13.8 million in a
sale of subordinated debentures to People's Bancshares Capital Trust which
funded the purchase through a public offering of 1.38 million trust preferred
securities with a liquidation value of $10 each. Using interest payments made by
the Company on the debentures, the Trust pays quarterly dividends to preferred
security holders. The annual percentage rate of interest payable on the
subordinated debentures and distributions payable on the preferred securities is
9.76%. Dividends on the preferred securities are cumulative and the Trust may
defer the payments for up to five years. The preferred securities mature in June
2027 unless the Company elects and obtains regulatory approval to accelerate the
maturity date to as early as June 2002. The subordinated debt may be included in
regulatory Tier 1 capital subject to a limitation that such amounts not exceed
25% of Tier 1 capital. All such subordinated debt may be included in total
risk-based capital at December 31, 1999.

MARKET AREA AND COMPETITION

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

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


REGULATION OF THE COMPANY AND THE BANK

     The Company. As a business corporation incorporated under Massachusetts
law, the Company is subject to regulation by the Secretary of State of
Massachusetts and the rights of its stockholders are governed by Massachusetts
corporate law. As a bank holding company, the Company is subject to regulation
and supervision by




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the Board of Governors of the Federal Reserve System (the "Federal Reserve
Board") pursuant to the Bank Holding Company Act.

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

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

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

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

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




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available for federal regulatory authorities, including the termination of
deposit insurance by the FDIC and seizure of the institution.

     At December 31, 1999, the Bank was in compliance with all minimum Federal
regulatory capital requirements which are generally applicable to FDIC-insured
banks. As of such date, the Bank's Tier 1 risk-based capital ratio and total
risk-based capital ratio equaled 9.33% and 10.04%, respectively, and Tier 1
leverage capital ratio equaled 5.09%.

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

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

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

     Regulation Under Federal Securities Laws. The Company's common stock is
registered under the Securities Exchange Act of 1934 ("Exchange Act"), which is
administered by the Securities and Exchange Commission ("SEC"). Pursuant to the
Exchange Act, the Company files annual, quarterly and periodic reports with the
SEC. The Company's officers and directors are also subject to the insider
trading requirements of Sections 16(a) and 16(b) of the Exchange Act as
administered by the SEC.

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

LOAN PORTFOLIO

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

     At December 31, 1999, the Bank had net loans and loans held for sale of
$436.9 million of which $420.6 million, or 96%, were mortgage loans. The Bank
also had $20.5 million of other loans not secured by real estate



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composed of commercial and consumer loans other than home equity loans. Of the
Bank's total loans and loans held for sale, 74% were secured by 1-4 family
residential mortgages, 15% by commercial properties, 2% by multi-family
properties, and 4% represent residential construction loans. Of the Bank's loans
not secured by real estate, 3% of total loans are small business commercial
loans not secured primarily by commercial real estate and 1% of total loans are
to consumers.

     The types of loans that the Bank may originate are subject to federal and
state law and regulations. Interest rates charged by the Bank on loans are
affected principally by the demand for such loans, the supply of money available
for lending purposes and the rates offered by competitors. These factors are, in
turn, affected by general economic conditions, monetary policies of the federal
government, including the Federal Reserve Board, legislative tax policies, and
governmental budgetary matters. The following table presents the outstanding
balance of loans as of the end of the years indicated:


<TABLE>
<CAPTION>
                                                               At December 31,
                                          ------------------------------------------------------------
                                            1999         1998          1997       1996          1995
                                          --------     --------      --------    --------     --------
                                                            (Dollars in thousands)
<S>                                       <C>          <C>           <C>         <C>          <C>

Mortgage Loans:
   Residential 1-4 family                 $290,195     $321,612      $293,402    $160,730     $ 67,641
   Residential multi-family                  9,455       11,264        11,030      11,217        9,366
   Commercial real estate                   67,018       54,104        44,714      44,149       30,019
   Construction                             24,387       20,118        11,162       7,359        8,459
   Equity lines of credit                   11,105       10,197        10,152      10,297        7,274
                                          --------     --------      --------    --------     --------
     Total principal balances              402,160      417,295       370,460     233,752      122,759
   Deferred loan origination (fees)
      costs,  net                             (166)         (56)         (113)        (49)          57
   Less undisbursed amount
     of loans in process                    (5,231)      (4,975)       (2,239)     (1,450)      (3,623)
                                          --------     --------      --------    --------     --------
       Total mortgage loans                396,763      412,264       368,108     232,253      119,193
                                          --------     --------      --------    --------     --------
Other Loans:
   Retail installment sales contracts          294          375           915       1,830        2,620
   Consumer                                  5,043        4,806         5,007       6,161        2,423
   Commercial lines of credit                5,614        5,030         6,089       5,622        3,462
   Commercial loans                          9,525        6,098         6,433       4,838        5,597
   Education                                    72           71           146         207          296
                                          --------     --------      --------    --------     --------
     Total other loans                      20,548       16,380        18,590      18,658       14,398
                                          --------     --------      --------    --------     --------
       Total loans                         417,311      428,644       386,698     250,911      133,591

Allowance for loan losses                   (4,096)      (4,866)       (4,291)     (4,716)      (3,813)
                                          --------     --------      --------    --------     --------
     Loans, net                           $413,215     $423,778      $382,407    $246,195     $129,778
                                          ========     ========      ========    ========     ========

</TABLE>

     At December 31, 1999, the Bank had 26 credit relationships exceeding $1
million in size that aggregated $50.4 million or 12% of total loans. All of
these relationships are composed of performing loans. All non-performing credit
relationships are under $500,000.

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

     Before 1995, the Bank originated loans through its retail branch system. In
1995, the Bank formed a wholly owned subsidiary, People's Mortgage Corporation
("PMC"). Through PMC, the Bank seeks to expand its residential loan origination
market share and profitably increase revenues from loan sales. PMC approves new
loans only after obtaining purchase commitments from investors. Currently, PMC
secures such commitments on a loan-by-loan




                                       8
<PAGE>   9
basis. PMC uses commissioned loan originators to obtain 1-4 family residential
mortgages based upon investors' underwriting standards, which may differ from
those of the Bank. The Bank's strategy is to sell new loans originated by PMC in
the secondary market, including the related servicing rights. However, as part
of its asset/ liability management strategy, or to accommodate borrowers who
desire a local servicer, the Bank may buy 1-4 family residential mortgages from
PMC. The Bank's policy is to purchase ARMs that meet FNMA or FHLMC underwriting
guidelines, except that loans may exceed the maximum loan limits of FNMA or
FHLMC. In 1996, the Bank began to purchase residential mortgage loans with
servicing retained by the seller. During 1996, 1997, 1998, and 1999, the Bank
purchased $13.2 million, $146.6 million, $174.7 million, and $48.0 million,
respectively, of these loan packages, which include loans originated throughout
the United States. These purchased 1-4 family residential loan packages exhibit
many of the characteristics of mortgage-backed securities except that the Bank
earns a higher yield for assumption of credit risk.

     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, 1999, 74% of the Bank's total loans and loans held for sale
were secured by 1-4 family residential mortgages, of which 70% were ARMs.
Generally, ARMs pose credit risks that differ from the risks inherent in
fixed-rate loans because the borrower's payments rise as interest rates rise,
thereby increasing the potential for default. However, long-term fixed-rate
mortgages expose the Bank to higher interest-rate risk.

     Commercial Real Estate Lending. Of the Bank's loans at December 31, 1999,
15% were secured by commercial properties that typically have terms of 3 years
or less and that are ARMs. Of loans secured by properties other than 1-4 family
residences, 74% are ARMs. These loans are made to owners who use properties for
business purposes (owner-user properties) or rent the properties to other
businesses (commercial investment properties). While the Bank suffered
significant losses on these properties in the past, most of these losses
occurred on loans originated before the installation of the Bank's current
senior management team. The Bank believes that such loans, underwritten and
monitored prudently, should be a focus of its loan growth, along with commercial
lending to small businesses.

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

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

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

     Commercial Lending. Of the Bank's loans at December 31, 1999, 3% are small
business commercial loans not secured primarily through commercial real estate.
Such loans are underwritten using the same standards as for commercial
owner-user real estate properties. The Bank considers such loans to be a focus
for future loan growth.




                                       9
<PAGE>   10
     The Bank's commercial loans are usually secured by all the borrower's
business assets. Commercial loans are generally larger and involve a greater
degree of risk than 1-4 family residential mortgage loans. Because payments on
commercial loans secured by business assets are often dependent on the
successful operation of the business, repayment of the loans may be dependent
largely on the then prevailing conditions in the economy. The Bank seeks to
minimize these risks through its underwriting policies.

     Residential Construction Lending. Of the Bank's loans at December 31, 1999,
4% 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, 1999, 1% are
consumer loans. At December 31, 1990, 13% of the Bank's total loans were
consumer loans. The decrease can be attributed to the increasing competition of
non-bank lenders for automobile and personal loans as well as the effect of
government actions on education loan originations. The Bank does not consider
this area to be a focus of future loan growth, but offers such loans as an
accommodation to deposit customers.

     Multi-Family Residential Lending. Of the Bank's loans at December 31, 1999,
2% were secured by multi-family properties. The Bank historically suffered a
high level of loss in this area as well as in non-owner occupied 1-4 family
residential loans. As such, the Bank rarely makes such loans, except to
facilitate sales of foreclosed properties or to replace existing borrowers with
borrowers who are more financially secure.

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

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

     Approval Process. The Bank uses a committee process to approve its loans.
Loans over $250,000 and up to and including $500,000 must be authorized by the
Credit Committee, including four members of the Bank's senior management team.
Loans over $500,000 are submitted to the Executive Committee of the Board of
Directors. If any proposed loan has an exception, the Bank requires approval of
the Board of Directors or Executive Committee. The Executive Committee meets
bi-weekly to approve loans and review reports pertaining to the portfolio's
performance.

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

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



                                       10
<PAGE>   11

monitor loan performance.

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

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

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

     Portfolio Reviews. The Bank uses a "loan officer driven" grading system,
whereby all loans are periodically reviewed by loan officers as well as
management for common risk trends. The loan officers prepare a quarterly report
for management that reviews all the loans for changes in risk and identifies
areas for growth opportunities. This process allows management to proactively
monitor the portfolio for problems and, if needed, take action to mitigate risk.

     Classified Asset Management. All classified assets and specially mentioned
credits that are currently outstanding or recently downgraded are reported to
management monthly, but in any case not less frequently than quarterly. These
reports are prepared by the Credit Administrative Officer and draw attention to
the credit problems, strategies to correct the same, and dates for accomplishing
the strategies. The reports also point out projected weaknesses or strengths
that could cause the credit to be downgraded or upgraded.

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

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

     The allowance for loan losses has been established to absorb estimated
losses 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
following presents the allocation of the allowance for loan losses:




                                       11
<PAGE>   12
<TABLE>
<CAPTION>
                                                                       At December 31,
                           -------------------------------------------------------------------------------------------------------
                                   1999                1998                1997                 1996                  1995
                           -------------------  -------------------  -------------------  -------------------  -------------------
                                      Percent              Percent              Percent              Percent              Percent
                                      of Loans             of Loans             of Loans             of Loans             of Loans
                                      in each              in each              in each              in each              in each
                            Amount    Category   Amount    Category   Amount    Category   Amount    Category   Amount    Category
                              of      to Total     of      to Total     of      to Total     of      to Total     of      to Total
                           Allowance   Loans    Allowance   Loans    Allowance   Loans    Allowance   Loans    Allowance   Loans
                           ---------  --------  ---------  --------  ---------  --------  ---------  --------  ---------  --------
                                                                    (Dollars in thousands)
<S>                         <C>       <C>       <C>        <C>        <C>        <C>        <C>       <C>       <C>       <C>
Residential 1-4 family
  and loans held for sale   $  751     71.15%   $  950      78.26%    $  932      77.30%    $  464     67.37%   $  270     52.53%
Residential multi-family       204      2.14       697       2.29        763       2.68        733      4.06       808      6.75
Commercial real estate       1,055     15.19     1,238      10.98      1,222      10.86      1,405     15.96     1,514     21.63
Construction                   192      4.34       151       3.07         89       2.17         59      2.14        48      3.48
Equity lines of credit         111      2.52       102       2.07        102       2.47        103      3.72        79      5.24
Other loans                    682      4.66       564       3.33        507       4.52        474      6.75       235     10.37
Unallocated                  1,101       N/A     1,164        N/A        676        N/A      1,478       N/A       859       N/A
                            ------    ------    ------     ------     ------     ------     ------    ------    ------    ------
Total                       $4,096    100.00%   $4,866     100.00%    $4,291     100.00%    $4,716    100.00%   $3,813    100.00%
                            ======    ======    ======     ======     ======     ======     ======    ======    ======    ======

</TABLE>


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

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

     -    SFAS No. 118, "Accounting by Creditors for Impairment of a Loan -
          Income Recognition and Disclosures."

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

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

     Loss factors for graded, ungraded and pooled loans are based on long-term
industry benchmarks for losses adjusted for the particular attributes of the
Company's portfolio. Such factors are derived based upon the collective wisdom
and experience of management, examiners and auditors. Management annually
reviews loss factors to determine if there has been significant changes in the
risks inherent in a particular sector of the loan portfolio to justify changing
loss factors. Management believes that a problem loan is a problem loan
irrespective of the current economic environment and that adjustment of loss
factors to reflect temporary conditions would be imprudent.

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

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

     -    then existing general economic and business conditions affecting our
          key lending areas.

     -    credit quality trends, including trends in nonperforming loans
          expected to result from existing conditions.

     -    collateral values

     -    loan volumes and concentrations

     -    seasoning of the loan portfolio

     -    specific industry conditions within portfolio segments

     -    recent loss experience in particular segments of the portfolio

     -    duration of the current business cycle.



                                       12
<PAGE>   13
     -    bank regulatory examination results and

     -    findings of our internal credit examiners.

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

     The allowance for loan losses is based upon estimates of probable losses
inherent in the loan portfolio. The amount actually incurred for these losses
can vary significantly from the estimated amounts. Our methodology includes
several features that are intended to reduce the differences between estimated
and actual losses. The loss migration model is used to establish yearly budgeted
loan loss provisions. Similarly, by basing the expected losses on loss
experience over the last five years, the methodology is designed to take our
recent loss experience into account. Furthermore, our methodology permits
adjustments to any loss factor used in the computation of the general allowance
in the event that, in management's judgement, significant factors that affect
the collectibility of the portfolio as of the evaluation date are not reflected
in the loss factors. By assessing the probable estimated losses inherent in the
loan portfolio periodically, we are able to adjust specific and inherent loss
estimates based upon any more recent information that has become available.

     In 1999, credits to the allowance for loan losses amounted to $850,000. A
continuing trend of decreased non-performing loans and local real estate
conditions favorably affecting asset quality resulted in the Bank's unallocated
portion of the allowance to exceed the Bank's upper limit.

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

<TABLE>
<CAPTION>
                                                           Year Ended December 31,
                                              ------------------------------------------------
                                               1999      1998      1997      1996       1995
                                              ------    ------    ------    -------    -------
                                                           (Dollars in thousands)
<S>                                           <C>       <C>       <C>       <C>        <C>

Balance at beginning of year                  $4,866    $4,291    $4,716    $ 3,813    $ 3,194
   Provisions (credits) for loan losses         (850)      600       100         75        525
   Charge-offs:
     Residential 1-4 family                     (267)     (309)     (433)      (463)      (438)
     Residential multi-family                    (63)     (188)     (161)      (470)      (433)
     Commercial real estate                       --       (23)      (45)       (89)      (235)
     Equity lines of credit                       --       (17)       --        (20)       (30)
     Other                                       (73)      (38)      (88)       (89)       (60)
                                              ------    ------    ------    -------    -------
       Total                                    (403)     (575)     (727)    (1,131)    (1,196)
   Recoveries                                    483       550       202        307        143
                                              ------    ------    ------    -------    -------
     Net recoveries (charge offs)                 80       (25)     (525)      (824)    (1,053)
   Allowance acquired in acquisition              --        --        --      1,652      1,147
                                              ------    ------    ------    -------    -------
Balance at end of year                        $4,096    $4,866    $4,291    $ 4,716    $ 3,813
                                              ======    ======    ======    =======    =======
Ratio of net charge-offs (recoveries)
   to average loans outstanding
   during the year                             (0.02)%    0.01%     0.17%      0.34%      0.83%

</TABLE>

     Non-performing loans amounted to $503,000, $1.5 million, $3.9 million, $3.9
million, and $4.8 million, at December 31, 1999, 1998, 1997, 1996, and 1995,
respectively.

     Included in non-performing loans were $197,000, $859,000, $1.7 million,
$2.3 million, and $1.3 million of loans that were troubled debt restructurings
at December 31, 1999, 1998, 1997, 1996, and 1995, respectively. In addition, the
Bank had troubled debt restructurings totaling $117,000, $849,000, $339,000,
$355,000, and $631,000 at December 31, 1999, 1998, 1997, 1996, and 1995,
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



                                       13
<PAGE>   14

market interest rate. Interest income recognized on a cash-basis for non-accrual
loans amounted to $60,000, $103,000, $171,000, $261,000, and $182,000 for the
years ended December 31, 1999, 1998, 1997, 1996, and 1995, respectively.

     The maturity distribution and interest rate sensitivity of selected loan
categories at December 31, 1999 is presented in the following table.

<TABLE>
<CAPTION>
                                                At December 31, 1999
                                    -------------------------------------------
                                     Within        1-5        After
                                     1 Year       Years     5 Years      Total
                                    --------     ------     -------     -------
                                               (Dollars in thousands)
<S>                                 <C>          <C>         <C>        <C>
Loan Maturity:
Mortgage loans:
   Construction                     $ 19,156     $   --      $   --     $19,156
Other loans:
   Commercial lines of credit          4,100      1,514          --       5,614
   Commercial                          1,938      5,388       2,199       9,525
                                    --------     ------      ------     -------
                                    $ 25,194     $6,902      $2,199     $34,295
                                    ========     ======      ======     =======
Rate Sensitivity:
   Floating interest rates                       $4,547      $1,038     $ 5,585
   Fixed interest rates                           2,355       1,161       3,516
                                                 ------      ------     -------
   Total loans                                   $6,902      $2,199     $ 9,101
                                                 ======      ======     =======
</TABLE>


INVESTMENT SECURITIES

     Investment securities, including interest-bearing deposits and restricted
equity securities, consisting primarily of mortgage-backed securities and trust
preferred securities, increased $196.0 million during 1999 as the Company
deployed funds from deposits and borrowings to leverage its capital position.
This continued the execution of the Company's strategy begun in 1993 to maximize
the Company's return on equity by deploying unused funds into investments having
minimal credit risk. Under this strategy, securities purchases are structured to
realize rate spreads between the securities and funding liabilities while
matching the expected maturities of the securities to the funding provided by
repurchase agreements and Federal Home Loan Bank ("FHLB") advances.

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

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

     At December 31, 1999, the carrying value of the Company's investment
securities, including interest-bearing deposits and restricted equity
securities, amounted to $594.3 million, representing 55.5% of the Company's
total assets. At December 31, 1998, and 1997, the Company's investment
securities, including interest-bearing deposits and restricted equity
securities, accounted for 42.2% and 39.9%, respectively, of the Company's total
assets.





                                       14
<PAGE>   15
     The following table sets forth the amortized cost and estimated fair value
for the Company's held to maturity investment securities portfolio:

<TABLE>
<CAPTION>
                                                                             At December 31,
                                                              ---------------------------------------------
                                                                     1999                     1998
                                                              --------------------     --------------------
                                                              Amortized      Fair      Amortized       Fair
                                                                Cost        Value        Cost         Value
                                                              ---------    -------     ---------     ------
                                                                         (Dollars in thousands)
<S>                                                           <C>         <C>          <C>         <C>

U.S. Government and federal
   agency obligations                                         $116,012    $ 99,321     $ 73,844    $ 74,165
Mortgage-backed securities                                     248,096     239,936       14,408      14,453
Trust preferred securities                                     139,433     123,431       93,807      93,007
Corporate debt securities                                       21,040      18,330        4,500       4,500
                                                              --------    --------     --------    --------
   Total held to maturity                                     $524,581    $481,018     $186,559    $186,125
                                                              ========    ========     ========    ========
</TABLE>


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

<TABLE>
<CAPTION>
                                                                   At December 31,
                                       --------------------------------------------------------------------
                                              1999                      1998                   1997
                                       --------------------    --------------------    --------------------
                                       Amortized      Fair     Amortized       Fair    Amortized       Fair
                                         Cost        Value       Cost         Value      Cost         Value
                                       ---------    -------    ---------     ------    ---------     ------
                                                             (Dollars in thousands)
<S>                                    <C>        <C>          <C>         <C>         <C>         <C>

U. S. Government and federal
   agency obligations                  $     --   $     --     $     --    $     --    $ 27,919    $ 27,944
Mortgage-backed securities               23,648     23,416      155,880     153,908     202,047     202,352
Trust preferred securities                1,991      1,832       35,620      35,831      14,148      14,352
Corporate debt securities                17,811     16,820           --          --       1,000         988
                                       --------   --------     --------    --------    --------    --------
   Total available for sale            $ 43,450   $ 42,068     $191,500    $189,739    $245,114    $245,636
                                       ========   ========     ========    ========    ========    ========

</TABLE>


                                       15
<PAGE>   16
     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:

<TABLE>
<CAPTION>
                                                                      At December 31, 1999
                                                               ----------------------------------
                                                                                         Weighted
                                                               Amortized      Fair        Average
                                                                 Cost         Value        Rate
                                                               ---------     --------    --------
                                                                     (Dollars in thousands)
<S>                                                            <C>          <C>            <C>

INVESTMENTS AVAILABLE FOR SALE
Mortgage-backed securities:
   After 10 years                                               $ 23,648     $ 23,416       6.57%
                                                                --------     --------
     Total mortgage-backed securities                             23,648       23,416       6.57%
                                                                --------     --------
Trust preferred securities:
   After 5 years but within 10 years                                 991          839       9.13%
   After 10 years                                                  1,000          993       8.97%
                                                                --------     --------
     Total trust preferred securities                              1,991        1,832       9.05%
                                                                --------     --------
Corporate debt securities:
   After 1 year but within 5 years                                 4,844        4,250       6.80%
   After 5 years but within 10 years                              12,967       12,570       8.07%
                                                                --------     --------
     Total corporate debt securities                              17,811       16,820       7.72%
                                                                --------     --------
       Total investments available for sale                     $ 43,450     $ 42,068       7.16%
                                                                ========     ========
INVESTMENTS HELD TO MATURITY
U.S. Government and federal agency obligations:
   After 5 years but within 10 years                            $  1,000     $    930       6.40%
   After 10 years                                                115,012       98,391       7.17%
                                                                --------     --------
       Total U.S. Government & federal agency obligations        116,012       99,321       7.18%
                                                                --------     --------
Mortgage-backed securities:
   After 5 years but within 10 years                               5,338        4,934       7.45%
   After 10 years                                                242,758      235,002       7.40%
                                                                --------     --------
       Total mortgage-backed securities                          248,096      239,936       7.40%
                                                                --------     --------
Trust preferred securities:
   After 10 years                                                139,433      123,431       9.25%
                                                                --------     --------
       Total trust preferred securities                          139,433      123,431       9.25%
                                                                --------     --------
Corporate investments:
   After 1 year but within 5 years                                 5,000        4,900      12.50%
   After 10 years                                                 16,040       13,430       8.01%
                                                                --------     --------
       Total corporate investments                                21,040       18,330       9.08%
                                                                --------     --------
       Total investments held to maturity                       $524,581     $481,018       7.91%
                                                                ========     ========
</TABLE>





                                       16
<PAGE>   17

<TABLE>
<CAPTION>
                                                                       At December 31, 1998
                                                               ----------------------------------
                                                                                         Weighted
                                                               Amortized      Fair        Average
                                                                 Cost         Value        Rate
                                                               ---------     --------    --------
                                                                     (Dollars in thousands)
<S>                                                            <C>          <C>            <C>

INVESTMENTS AVAILABLE FOR SALE
Mortgage-backed securities:
   After 10 years                                              $155,880      $153,908      6.80%
                                                               --------      --------
     Total mortgage-backed securities                           155,880       153,908      6.80%
                                                               --------      --------
Trust preferred securities:
   After 10 years                                                35,620        35,831      7.96%
                                                               --------      --------
     Total trust preferred securities                            35,620        35,831      7.96%
                                                               --------      --------
       Total investments available for sale                    $191,500      $189,739      7.02%
                                                               ========      ========

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

</TABLE>




                                       17
<PAGE>   18
<TABLE>
<CAPTION>
                                                             At December 31, 1997
                                                     ----------------------------------
                                                                               Weighted
                                                     Amortized      Fair        Average
                                                       Cost         Value        Rate
                                                     ---------     --------    --------
                                                           (Dollars in thousands)
<S>                                                  <C>          <C>            <C>

INVESTMENTS AVAILABLE FOR SALE
Mortgage-backed securities:
   Less than 1 year                                   $  2,993     $  3,003      6.83%
   After 1 year but within 5 years                          75           72     10.00%
   After 5 years but within 10 years                     2,676        2,639      8.00%
   After 10 years                                      196,303      196,638      7.17%
                                                       --------    --------
     Total mortgage-backed securities                  202,047      202,352      7.18%
                                                       --------    --------
U.S. Government and federal agency obligations:
   After 5 but within 10 years                          13,537       13,543      7.33%
   After 10 years                                       14,382       14,401      7.39%
                                                       --------    --------
     Total U.S. government and federal
       agency obligations                               27,919       27,944      7.36%
                                                       --------    --------
Trust preferred securities:
   After 10 years                                       14,148       14,352      9.55%
                                                       --------    --------
 Total trust preferred securities                       14,148       14,352      9.55%
                                                       --------    --------
Corporate investments:
   After 1 but within 5 years                            1,000          988      5.79%
                                                       --------    --------
     Total corporate investments                         1,000          988      5.79%
                                                       --------    --------
       Total investments available for sale           $245,114     $245,636      7.33%
                                                      ========     ========
INVESTMENTS HELD TO MATURITY
U.S. Government and federal agency obligations:
   After 10 years                                     $ 44,253     $ 44,439      8.57%
                                                      ========     ========

</TABLE>




                                       18
<PAGE>   19

     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, 1999
                                                                     -----------------------------------
                                                                                   Percent of
                                                                     Amortized   Stockholders'    Fair
                                                                        Cost        Equity        Value
                                                                     ---------   -------------    ------
                                                                            (Dollars in thousands)
<S>                                                                   <C>            <C>          <C>

MORTGAGE-BACKED SECURITIES:
Residential Asset Securities Trust 1999, Class A1                     $21,917        53.63%       $20,679
Residential Accredit Loans, Inc., Series 1999-Q513                     20,467        50.09         20,212
Fund America Investors Corporation II, Series 1993-EM                  16,309        39.91         16,249
Aames Mortgage Trust, Series 1997-C, Class B-1A                        14,083        34.46         13,703
Citicorp Mortgage Security Inc., Series 1998-8, Class A5                4,563        11.17          4,370
Mortgage Capital Funding, Inc. Series 1998-MC2, Class D                 4,949        12.11          4,550
Residential Asset Securitizations Trust 1999-A7, Class NB-1            18,675        45.70         18,430

TRUST PREFERRED SECURITIES:
Webster Capital Trust                                                   4,827        11.81          4,343
Green Point Capital Trust                                               5,309        12.99          4,681
Dime Capital Trust                                                      4,833        11.83          4,309
First Bank of Oak Park Capital Trust                                    5,448        13.33          5,113
Commerce Bank Capital Trust                                             4,495        11.00          3,870
First Keystone Capital Trust                                            4,886        11.96          4,275
Coal City Capital Trust                                                 4,510        11.04          4,163
United Commercial Bank Holdings Capital Trust                           5,066        12.40          4,700
City Holdings Capital Trust                                             4,645        11.37          4,106
First Western Capital Trust                                             5,571        13.63          5,050
Complete Business Solutions, Inc. Community Capital Trust               4,995        12.22          4,410
Sovereign Bancorp Capital Trust                                         4,913        12.02          4,005
Valley Capital Trust                                                    5,000        12.24          4,550
BancFirst Corporation Capital Trust                                     4,162        10.19          3,703
Union Planters Capital Trust                                            4,742        11.60          4,106
Riggs Capital Trust                                                     4,834        11.83          4,016
Ohio Savings                                                            5,601        13.71          4,963
BancFirst Ohio Corporation                                              5,000        12.24          4,950

CORPORATE INVESTMENTS:
Amerus Capital Trust                                                    4,220        10.33          3,420
Levi Strauss & Co                                                       4,844        11.85          4,250
Fairfax Financial Corporation                                           4,881        11.94          4,150
Sterling Financial Corporation                                          5,000        12.24          4,950
Hawthorne Financial Corporation                                         5,000        12.24          4,700
Security Capital                                                        5,000        12.24          4,800
Atlantic Mutual                                                         4,867        11.91          4,000

</TABLE>

DEPOSITS

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




                                       19
<PAGE>   20
     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,
                               ---------------------------------------------------------------------
                                      1999                     1998                     1997
                               --------------------    ---------------------    --------------------
                                            Average                  Average                 Average
                               Average       Rate       Average       Rate      Average       Rate
                               Balance       Paid       Balance       Paid      Balance       Paid
                               -------      -------    --------      -------    -------      -------
                                                        (Dollars in thousands)
<S>                           <C>                     <C>                      <C>

Non-interest bearing
   demand deposits            $ 35,641        N/A     $ 33,853         N/A     $ 34,818         N/A
NOW                             45,987       0.81%      42,436        0.95%      40,007        1.23%
Savings                         97,097       2.42       93,092        2.60       92,336        2.57
Money market                    36,710       3.81       34,295        4.12       26,849        3.37
Time                           305,619       5.20      198,749        5.53      144,033        5.57
                              --------                --------                 --------
   Total                      $521,054       3.84%    $402,425        3.79%    $338,043        3.49%
                              ========                ========                 ========


     As of December 31, 1999, term certificates of deposit in amounts of
$100,000 or more had the following maturities:

<CAPTION>
                                                             (Dollars in thousands)
<S>                                                              <C>
Under 3 months                                                     $140,302
3 to 6 months                                                        30,900
6 to 12 months                                                       20,570
Over 12 months                                                       10,465
                                                                   --------
   Total                                                           $202,237
                                                                   ========

</TABLE>

BORROWINGS

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

<TABLE>
<CAPTION>
                                                               At or For the Years Ended December 31,
                                                               -------------------------------------
                                                                 1999         1998            1997
                                                               --------     ---------      ---------
                                                                        (Dollars in thousands)
<S>                                                            <C>          <C>            <C>

FHLB advances:
   Balance at end of year                                      $373,250     $ 320,000      $ 260,500
   Average balance                                              344,142       295,058        161,399
   Maximum month-end balance                                    405,848       355,250        260,500
   Weighted average rate during the period                         5.52%         5.59%          5.78%
   Year-end average rate                                           5.52%         5.45%          5.75%

Securities sold under agreements to repurchase:
   Balance at end of year                                      $ 74,700      $ 96,900       $ 96,050
   Average balance                                               87,413       104,395         73,734
   Maximum month-end balance                                     96,900       123,400         96,050
   Weighted average rate during the period                         5.90%         5.87%          5.92%
   Year-end average rate                                           5.99%         5.77%          5.90%

</TABLE>


EMPLOYEES

     At December 31, 1999, the Company had 361 full-time equivalent employees.
Employee benefits include a





                                       20

<PAGE>   21
pension plan, 401(k) Plan, and life, health, travel, accident and long-term
disability insurance, and tuition assistance, which are offered by the Company
to all employees who meet the minimum hours worked requirements. None of the
employees of the Company is represented by a collective bargaining group, and
management considers its relationship with its employees to be good.

ITEM 2. PROPERTIES

     The Bank's main office is located in Easton, Massachusetts and its service
center is in New Bedford, Massachusetts.

     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, 1999. The Company believes
that the fair market value exceeds the net book value of its owned real estate.

<TABLE>
<CAPTION>
                                                   Net Book Value at     Owned/       Lease
Location                                           December 31, 1999     Leased       Expiration
--------                                           -----------------     ------       ----------
                                                (Dollars in thousands)
<S>                                                      <C>              <C>         <C>

People's Savings Bank of Brockton
   Service Center and Branch:
   545 Pleasant Street, New Bedford                      $5,393           Owned       N/A

   Commercial Loan Office:
     1115 West Chestnut Street, Brockton                     --          Leased       October 31, 2000

   Main Office:
     580 Washington Street, Easton                       $  376           Owned       N/A

   Other Branches:

     757 Centre Street, Brockton                         $  258           Owned       N/A
     500 Washington Street, Stoughton                       304           Owned       N/A
     116 Torrey Street, Brockton (1)                        129          Leased       January 1, 2001
     220 Oak Street, Brockton                             1,251           Owned       N/A
     33 Weir Street, Taunton                                518           Owned       N/A
     84 Copeland Drive, Mansfield                           219          Leased       December 31, 2003
     2206 Acushnet Ave, New Bedford                         421           Owned       N/A
     28 County Road, Mattapoisett                           460           Owned       N/A
     291 Winthrop Street, Taunton                           588           Owned       N/A
     686 Dartmouth Street, South Dartmouth                  830           Owned       N/A

People's Mortgage Corporation:

     580 Washington Street, South Easton, MA (2)         $    1          Leased       N/A
     206 Andover Street, Andover, MA                         --          Leased       February 28, 2003
     57 River Street, Wellesley, MA (1)                       3          Leased       October 30, 2000
     2337 Whitney Avenue, Hamden, CT                         23          Leased       November 30, 2001
     545 Pleasant Street, New Bedford, MA (2)                --          Leased       N/A
     45 Pond Street, Norwell, MA                              7          Leased       February 28, 2001
     24 Bosworth Street, Unit 1, Barrington, RI               4          Leased       June 30, 2000

</TABLE>



                                       21
<PAGE>   22

<TABLE>
<S>                                                          <C>         <C>          <C>

     3001 East Main Road, Portsmouth, RI (1)                  8          Leased       July 31, 2001
     South Main St, Marlboro, CT (1)                         --          Leased       September 30, 2001
     836 Ritchie Hwy, Suite 13, Severna Park Business
       Center, Severna Park, MD                              11          Leased       February 28, 2001
     836 Ritchie Hwy, Suite 15, Severna Park Business
       Center, Severna Park, MD (1)                          --          Leased       September 30, 2001
     844 Ritchie Hwy, Suites 201, 202, 203R, Severna
       Park Business Center, Severna, MD (1)                  4          Leased       February 28, 2002
     844 Ritchie Hwy, Suites, 203F, Severna
       Park Business Center, Severna, MD                     --          Leased       September 30, 2000
     844 Ritchie Hwy, Suites L1, Severna
       Park Business Center, Severna, MD                     --          Leased       April 30, 2002
     1065 West Patrick Street, Frederick, MD                 --          Leased       July 31, 2000
     6110 Executive Blvd, Suite 250, Rockville, MD            -          Leased       July 31, 2000
     1544 York Road, Lutherville, MD                         30          Leased       April 30, 2001
     12500 Fair Lakes Circle, Fairfax, VA                    --          Leased       February 28, 2006
     14804 Main Street, Upper Marlboro, MD                   19          Leased       August 31, 2001
     7833 Walker Drive, Greenbelt, MD                        --          Leased       May 31, 2001
     4014 Gunn Hwy, Suite 270, Tampa, FL                     --          Leased       April 30, 2000
     1100 5th Avenue, Suite 210, Naples, FL                  --          Leased       March 30, 2002
     175 Metro Center Blvd, Warwick, RI                      --          Leased       May 31, 2002
     93 Van Dean Ave, West Springfield, MA                    3          Leased       February 28, 2001

</TABLE>

     (1)  The lease has an option to renew for one three year period.

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

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

ITEM 3. LEGAL PROCEEDINGS

     The Company is involved from time to time as a party to legal proceedings
occurring in the ordinary course of its business. The Company believes that none
of these proceedings would, if adversely determined, have a material effect on
the Company's consolidated financial condition or results of operations.

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

Not applicable.




                                       22
<PAGE>   23

                                     PART II

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

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

<TABLE>
<CAPTION>
                                                                 Sales Price
                                                             ------------------
                                                               High       Low
                                                             -------    -------
<S>                                                          <C>        <C>
1998
----
First Quarter............................................    $ 26.00    $19.625
Second Quarter...........................................      27.75     23.00
Third Quarter............................................      24.25     15.00
Fourth Quarter...........................................      21.25     15.875

1999
----
First Quarter............................................    $20.875    $18.625
Second Quarter...........................................     21.50      18.375
Third Quarter............................................     21.125     17.50
Fourth Quarter...........................................     20.00      17.375

</TABLE>


     On March 15, 2000, the closing sale price of a share of Common Stock of the
Company on the Nasdaq National Market was $14.00.

     At February 18, 2000, there were approximately 606 holders of record of the
Common Stock. The number of holders of record does not reflect the number of
persons or entities who or which hold their stock in nominee or "street" name
through brokerage firms or other entities.

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

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

     The Company and the Bank are subject to capital ratio requirements
established by the Federal Reserve Board and the FDIC. Under Section 38 of the
Federal Deposit Insurance Act, the Bank would be prohibited from making any
capital distribution, including the payment of dividends, if the Bank would be
undercapitalized following such distribution under the FDIC's prompt corrective
action regulations. In addition to such regulatory




                                       23
<PAGE>   24

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 28,
2000, totaled $0.21 per share and was paid on March 10, 2000. The Company
declared and paid quarterly dividends of $0.19, $0.20, $0.21, and $0.21 per
share in the first, second, third and fourth quarters, respectively, of 1999.
The Company declared and paid quarterly dividends of $0.12, $0.13, $0.14, and
$0.19 per share in the first, second, third, and fourth quarters, respectively,
of 1998. The Company declared and paid quarterly dividends of $0.09, $0.11,
$0.11, and $0.11 per share in the first, second, third, and fourth quarters,
respectively, of 1997. The dividend pay-out ratio was 28.8%, 25.2%, 28.2%, 24.3%
and 4.2% in 1999, 1998, 1997, 1996 and 1995, respectively.


ITEM 6. SELECTED FINANCIAL DATA

     The information required by this item appears on page 4 of the Annual
Report to Shareholders for the fiscal year ended December 31, 1999 and is
incorporated herein by reference.


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

     The information required by this item appears in the Management's
Discussion and Analysis of Financial Condition and Results of Operations on
pages 2 to 12 inclusive of the Annual Report to Shareholders for the fiscal year
ended December 31, 1999 and is incorporated herein by reference.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The information required by this item appears on pages 9 to 11 of the
Annual Report to Shareholders for the fiscal year ended December 31, 1999 and is
incorporated herein by reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The Information required by this item appears on pages 13 to 27 inclusive
of the Annual Report to Shareholders for the fiscal year ended December 31, 1999
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 Shareholders to be held on June 16, 2000
(the "Proxy Statement"), to be filed with the SEC pursuant to Regulation 14A
within 120 days after the end of the Company's fiscal year, and is incorporated
herein by reference.



                                       24
<PAGE>   25

ITEM 11. EXECUTIVE COMPENSATION

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


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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


ITEM 13. TRANSACTIONS WITH CERTAIN RELATED PERSONS.

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


                                     PART IV

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

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

     Independent Auditors' Report

     Consolidated Balance Sheets as of December 31, 1999 and 1998

     Consolidated Statements of Income for the years ended December 31, 1999,
     1998 and 1997

     Consolidated Statements of Changes in Shareholders' Equity for the years
     ended December 31, 1999, 1998 and 1997

     Consolidated Statements of Cash Flows for the years ended December 31,
     1999, 1998 and 1997

     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.

     (b)  Exhibits.


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

   2.1    Plan of Reorganization and Acquisition by and between the Company and
          the Bank dated as of March 31, 1995 (filed as Exhibit 10.1 to the
          Company's Registration Statement on Form S-1 (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)



                                       25
<PAGE>   26
   3.2    By-laws of the Company, as amended and restated (filed as Exhibit 3.2
          to the Company's Annual Report on Form 10-K for the year ended
          December 31, 1995 and incorporated herein by reference)

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

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

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

  10.1    Amended and Restated Special Termination Agreement by and among the
          Company, the Bank and Colin C. Blair, dated as of February 7, 1996+
          (filed as Exhibit 10.5 to the Company's Registration Statement on Form
          S-1, File No. 33-99772 (the "S-1") and incorporated herein by
          reference)

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

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

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

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

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

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

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

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

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

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



                                       26
<PAGE>   27
 10.14    1996 Stock Option and Incentive Plan+ (filed as Exhibit 10.21 to the
          Company's Annual Report on Form 10-K for the year ended December 31,
          1996 and incorporated herein by reference)

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

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

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

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

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

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

   *13    People's Bancshares, Inc. 1999 Annual Report to Shareholders

   *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. No reports on Form 8-K were filed during the quarter
     ended December 31, 1999.




                                        27
<PAGE>   28

                                   SIGNATURES


     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized on
March 28, 2000.



                               PEOPLE'S BANCSHARES, INC.



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




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






                                       28
<PAGE>   29

     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/ Richard S. Straczynski          President & CEO              March 28, 2000
------------------------------      Director
Richard S. Straczynski


/s/ Colin C. Blair                  Chief Financial Officer      March 28, 2000
------------------------------
Colin C. Blair


/s/ Frederick W. Adami III          Director                     March 28, 2000
------------------------------
Frederick W. Adami, III


/s/ B. Benjamin Cavallo             Director                     March 28, 2000
------------------------------
B. Benjamin Cavallo


/s/ John R. Eaton                   Director                     March 28, 2000
------------------------------
John R. Eaton


/s/ Terrence Gomes                  Director                     March 28, 2000
------------------------------
Terrence Gomes


/s/ Dr. Loring C. Johnson           Director                     March 28, 2000
------------------------------
Dr. Loring C. Johnson


/s/ Richard D. Matthews             Director                     March 28, 2000
------------------------------
Richard D. Matthews


/s/scott W. Ramsay                  Director                     March 28, 2000
------------------------------
Scott W. Ramsay


/s/ Davis H. Scudder                Director                     March 28, 2000
------------------------------
Davis H. Scudder


/s/ Stanley D. Siskind              Director                     March 28, 2000
------------------------------
Stanley D. Siskind







                                       29
<PAGE>   30

                                  EXHIBIT INDEX
                                  -------------

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

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

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

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

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

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

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

  10.1    Amended and Restated Special Termination Agreement by and among the
          Company, the Bank and Colin C. Blair, dated as of February 7, 1996+
          (filed as Exhibit 10.5 to the Company's Registration Statement on Form
          S-1, File No. 33-99772 (the "S-1") and incorporated herein by
          reference)

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

  10.3    Amended and Restated Special Termination Agreement by and between the
          Bank and Charles R. Leyton, dated as of February 7, 1996 (filed as
          Exhibit 10.7 to the S-1 and incorporated herein by reference)

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

  10.5    Amended and Restated Special Termination Agreement by and between the
          Bank and Robert Cully, dated as of February 7, 1996 (filed as Exhibit
          10.9 to the S-1 and incorporated herein by reference)

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

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

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




                                       30
<PAGE>   31


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

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

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

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

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

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

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

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

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

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

   *13    People's Bancshares, Inc. 1999 Annual Report to Shareholders

   *21    Schedule of subsidiaries of the Company

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

   *27    Financial Data Schedule


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



                                       31
<PAGE>   32
*    Filed herewith.

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

(b)  Reports on Form 8-K. No reports on Form 8-K were filed during the quarter
     ended December 31, 1999.




                                       32