PEOPLES SAVINGS BANK
                     SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
                       FOR THE BENEFIT OF GARY N. PELEHATY


         WHEREAS,  Peoples  Savings Bank ("Bank")  wishes to reward the years of
prior service  provided by Gary N. Pelehaty,  President  ("Participant")  and to
continue to retain and to motivate his  performance  and  dedication to the Bank
and its Board of Directors, and

         WHEREAS,  it is deemed  advisable and in the best interests of the Bank
to offer such  Participant with additional  financial  incentives in the form of
deferred  compensation  to encourage  such continued  employment  service to the
Bank,

         NOW   THEREFORE,   BE  IT  RESOLVED  that  the  Peoples   Savings  Bank
Supplemental  Executive  Retirement  Plan for the  Benefit  of Gary N.  Pelehaty
("Supplemental  Plan"), be adopted and implemented effective January 1, 1999, as
follows:

                                    ARTICLE I

                                   DEFINITIONS

         The following  words and phrases as used herein shall,  for the purpose
of this Plan and any subsequent  amendment thereof,  have the following meanings
unless a different meaning is plainly required by the content, as follows:

         1.1      "Bank" means Peoples Savings Bank, Bordentown, New Jersey,  or
any successor thereto.

         1.2  "Beneficiary"  shall mean the  Participant's  surviving spouse, if
any,  the  Participant's  named  beneficiary  as reflected on the records of the
Bank, or the Participant's estate, in descending order of priority.

         1.3 "Board"  means the Board of Directors of the Bank,  as  constituted
from time to time and successors thereto.

         1.4  "Change  in  Control"  means : (i) the sale of all,  or a material
portion, of the assets of the Bank or Farnsworth Bancorp, Inc. ("Parent");  (ii)
the merger or recapitalization of the Bank or the Parent whereby the Bank or the
Parent is not the surviving entity; (iii) a change in control of the Bank or the
Parent, as otherwise  defined or determined by the Office of Thrift  Supervision
or  regulations  promulgated  by  it;  or  (iv)  the  acquisition,  directly  or
indirectly,  of the beneficial  ownership (within the meaning of that term as it
is used in Section  13(d) of the  Securities  Exchange Act of 1934 and the rules
and regulations  promulgated thereunder) of twenty-five percent (25%) or more of
the outstanding  voting  securities of the Bank or Parent by any person,  trust,
entity or group.  This  limitation  shall not apply to the purchase of shares by
underwriters  in connection  with a public  offering of the Parent stock, or the
purchase  of  shares  of up to  twenty-


<PAGE>

five percent (25%) of any class of  securities of the Parent by a  tax-qualified
employee  stock  benefit plan.  The term  "person"  refers to an individual or a
corporation,  partnership,  trust, association,  joint venture, pool, syndicate,
sole proprietorship, unincorporated organization or any other form of entity not
specifically listed herein. The decision of the Committee as to whether a change
in control has occurred shall be conclusive and binding.

         1.5  "Committee"  means the Board or the  administrative  committee  as
appointed by the Board pursuant to Section 8.11 herein.

         1.6 "Annual  Compensation"  shall mean the total sum of base salary and
cash bonus  compensation  paid or payable to the  Participant  during a calendar
year,  whether or not taxable or tax  deferred by the  Participant.  Such Annual
Compensation  shall include any salary  deferrals by the  Participant  under any
Section 401(k) or 125 tax-qualified plans of the Bank, but shall not include any
employer matching or other contributions under such plans, any income related to
stock benefit  plans of the Bank or the Parent,  or any benefit  accruals  under
this Plan.

         1.7 "Deferred Compensation Account" shall mean the aggregate accrual of
benefits under the Plan for the benefit of the Participant,  including  earnings
credited thereto.

         1.8  "Disability"  (total and permanent  disability)  means a mental or
physical  disability  which prevents the Participant  from performing the normal
duties of his or her position with the Bank. Such disability must have prevented
the Participant from performing his or her duties for at least six months, and a
physician  satisfactory  to both the  Participant and the Bank must certify that
the  Participant  is disabled from  performing his or her normal duties with the
Bank.

         1.9 "Early  Retirement  Date" shall mean the first day of the  calendar
month following attainment of not less than age fifty (50) of the Participant or
thereafter whereby the Participant  retires as an employee of the Bank following
completion  of not less than ten (10) years of service with the Bank,  except as
otherwise provided at Section 2.3 herein.

         1.10     "Effective Date" means January 1, 1999.

         1.11 "Participant" means Gary N. Pelehaty,  President of the Bank. Such
participation   shall  continue  as  long  as  such  Participant   fulfills  all
requirements for  participation  subject to the right of termination,  amendment
and modification of the Plan hereinafter set forth.

         1.12  "Plan"  means the Peoples  Savings  Bank  Supplemental  Executive
Retirement Plan for the Benefit of Gary N. Pelehaty, as herein set forth, as may
be amended from time to time.

         1.13  "Retirement  Date"  means  the first  day of the  calendar  month
following  attainment of age 62 of the  Participant  or  thereafter  whereby the
Participant retires as an employee of the Bank, following completion of not less
than ten (10) years of service with the Bank.

                                        2

<PAGE>

         1.14  "Service"  means all years of service as an  employee of the Bank
and all predecessor and successor entities.

         1.15 "Trust" shall mean any trust  agreement  entered into on behalf of
the Plan by the Bank for the  purpose of holding  assets of the Bank in order to
promote the efficient administration of the Plan.


                                   ARTICLE II

                         BENEFITS ACCRUALS AND PAYMENTS

         2.1  Retirement.  Upon a Participant's  termination  from service as an
employee  of the Bank on or after the  Retirement  Date or the Early  Retirement
Date, the Bank shall pay to the  participant a benefit in an amount  approved by
the Board and set forth herein at Article II,  Section  2.4,  within 30 calendar
days of the Retirement Date or the Early Retirement Date.  Except as provided at
Article II, Section 2.2, 2.3 and 2.5 herein,  upon a  Participant's  termination
from service as an employee of the Bank prior to the Early  Retirement Date, the
Bank shall have no financial obligations to the Participant under the Plan.

         2.2 Disability. In the event of the Disability of the Participant,  the
Participant  will be  entitled  to a  benefit  equal  to  100%  of the  Deferred
Compensation Account amount specified at Article II, Section 2.4, payable on the
first day of the month following  certification  of such  Disability  based upon
actual years of service and without regard to any other provisions herein to the
contrary.

         2.3 Change in  Control.  All  benefits  payable,  or that would  become
payable if the Participant were to retire prior to such Change in Control, shall
remain payable  thereafter.  Upon  termination of service  following a Change in
Control,  all benefits  shall be deemed payable  immediately in accordance  with
Article II, Section 2.4;  provided that if the  Participant is not yet age fifty
(50) as of such date of  termination  of service  and has not yet  completed  at
least 10 Years of Service with the Bank, such Participant shall  nevertheless be
deemed to be not less than age fifty (50) as of the date of such termination and
have  completed  not less than 10 Years of  Service  with the Bank  following  a
Change of Control for purposes of calculation of benefits  payable in accordance
with Section 2.4 herein.

         2.4  Benefit  Payments.  The  Participant  shall be eligible to receive
benefit payments under the Plan, as follows:

         a. Upon termination of employment in accordance with Sections 2.1, 2.2,
2.3 and 2.5 of the Plan, the Participant shall be eligible to receive a lump-sum
benefit payment equal to the Deferred  Compensation  Account,  as it is credited
with Bank accruals and earnings thereon,

                                        3

<PAGE>

updated from time to time in  accordance  with Section 2.7 herein,  valued as of
such date of termination of employment.

         b.  Benefits  payable  hereunder  are  exclusive  of any benefits to be
received under other benefit plans of the Bank.

         2.5 Benefit  Payments  Following  Death.  Upon death,  a  Participant's
Deferred Compensation Account shall be immediately payable to the Beneficiary in
the  form  of a  lump-sum  payment  within  thirty  days  of  the  death  of the
Participant, in accordance with the provisions of Section 2.4.

         2.6  Notice  of  Retirement.   A  Participant  electing  to  retire  in
accordance  with the Plan shall deliver  written notice  ("Notice") to the Board
not  less  than  ninety  (90)  days  prior  to the  actual  Retirement  Date.  A
Participant  who  terminates  service  upon  death,  Disability,  or a Change in
Control  shall not be required to deliver such Notice in order to be entitled to
receive benefits under the Plan.

         2.7 Deferred Compensation Account Accruals.  Not later than December 31
of each year after the  Effective  Date,  the Bank shall  credit to the Deferred
Compensation  Account an amount equal to ten percent of the Participant's Annual
Compensation  for  that  calendar  year  (or pro  rata  portion  thereof),  plus
crediting  of an  additional  accrual  calculated  as earnings on such  Deferred
Compensation  Account.  Such rate of accrual with  respect to earnings  shall be
computed  based  upon the  Bank's  average  cost of funds  for  such  period  as
determined  by the Board,  but in no event at a rate less than five  percent per
annum.


                                   ARTICLE III

                                    INSURANCE

         3.1 Ownership of Insurance. The Bank, in its sole discretion, may elect
to purchase one or more life insurance  policies on the lives of Participants in
order to provide  funds to the Bank to pay part or all of the  benefits  accrued
under this Plan.  All rights and  incidents of  ownership in any life  insurance
policy  that  the  Bank  may  purchase  insuring  the  life  of the  Participant
(including any right to proceeds payable thereunder) shall belong exclusively to
the  Bank  or its  designated  Trust,  and  neither  the  Participant,  nor  any
beneficiary or other person  claiming under or through him or her shall have any
rights,  title or interest in or to any such insurance  policy.  The Participant
shall not have any power to transfer,  assign, hypothecate or otherwise encumber
in advance any of the  benefits  payable  thereunder,  nor shall any benefits be
subject to seizure for the benefit of any debts or judgments, or be transferable
by operation of law in the event of  bankruptcy,  insolvency or  otherwise.  Any
life  insurance  policy  purchased  pursuant  hereto  and any  proceeds  payable
thereunder shall remain subject to the claims of the Bank's general creditors.

                                        4

<PAGE>

         3.2  Physical  Examination.  As a condition  of  becoming or  remaining
covered under this Plan, the  Participant,  as may be requested by the Bank from
time to time shall take a physical  examination  by a  physician  approved by an
insurance  carrier.  The  cost of the  examination  shall  not be  borne  by the
Participant.  The report of such examination shall be transmitted  directly from
the  physician  to the  insurance  carrier  designated  by the Bank to establish
certain costs  associated  with obtaining  insurance  coverages as may be deemed
necessary under this Plan. Such examination shall remain  confidential among the
Participant,  the  physician  and the  insurance  carrier  and shall not be made
available to the Bank in any form or manner.

         3.3  Death of  Participant.  Upon the  death  of the  Participant,  the
proceeds  derived from any such insurance policy held by the Bank or any related
Trust, if any, shall be paid to the Bank or its designated Trust.

                                   ARTICLE IV

                            TRUST / NON-FUNDED STATUS

         4.1 Trust. Except as may be specifically provided, nothing contained in
this Plan and no action  taken  pursuant  to the  provisions  of this Plan shall
create  or  be  construed  to  create  a  trust  of  any  kind,  or a  fiduciary
relationship between the Bank and the Participant or any other person. Any funds
which may be invested  under the  provisions of this Plan shall continue for all
purposes to be a part of the general funds of the Bank. No person other than the
Bank shall by virtue of the  provisions  of this Plan have any  interest in such
funds.  The Bank shall not be under any  obligation  to use such funds solely to
provide  benefits  hereunder,  and  no  representations  have  been  made  to  a
Participant  that  such  funds  can or  will be used  only to  provide  benefits
hereunder.  To the extent that any person  acquires a right to receive  payments
from the Bank under the Plan,  such rights shall be no greater than the right of
any unsecured general creditor of the Bank.

         In order to facilitate the  accumulation of funds necessary to meet the
costs of the Bank under this Plan (including the provision of funds necessary to
pay premiums with respect to any life insurance  policies  purchase  pursuant to
Article III above and to pay  benefits to the extent that the cash value  and/or
proceeds of any such policies are not adequate to make payments to a Participant
or his or her beneficiary as and when the same are due under the Plan), the Bank
may enter into a Trust  Agreement.  The Bank,  in its  discretion,  may elect to
place any life insurance  policies  purchased pursuant to Article III above into
the Trust. In addition, such sums shall be placed in said Trust as may from time
to time be approved by the Board of Directors,  in its sole  discretion.  To the
extent that the assets of said Trust and/or the  proceeds of any life  insurance
policy  purchased  pursuant to Article III are not  sufficient  to pay  benefits
accrued under this Plan,  such payments shall be made from the general assets of
the Bank.

                                        5

<PAGE>

                                    ARTICLE V

                                     VESTING

         5.1 Vesting.  All benefits  under this Plan are deemed  non-vested  and
forfeitable  prior to the Retirement Date or Early Retirement Date. All benefits
payable  hereunder  shall be  deemed  100%  earned  and  non-forfeitable  by the
Participant  and his or her  Beneficiary  as of the  Retirement  Date  or  Early
Retirement Date.  Notwithstanding the foregoing,  all benefits payable hereunder
shall be deemed 100% earned and  non-forfeitable  by the  Participant and his or
her  Beneficiary  upon the death or the Disability of the  Participant,  or upon
termination of employment following a Change in Control of the Bank. No benefits
shall be deemed  payable  hereunder for any time period prior to  termination of
employment prior to the Retirement Date or Early Retirement Date,  except in the
event of death,  Disability or termination  of employment  following a Change in
Control of the Bank.

                                   ARTICLE VI

                                   TERMINATION

         6.1  Termination.   All  rights  of  the  Participant  hereunder  shall
terminate  immediately upon the Participant  ceasing to be in the active service
of the Bank prior to the time that the benefits  payable under the Plan shall be
deemed to be 100% earned and non-forfeitable. A leave of absence approved by the
Board shall not  constitute  a cessation  of service  within the meaning of this
paragraph, within the sole discretion of the Committee.

                                   ARTICLE VII

                      FORFEITURE OR SUSPENSION OF BENEFITS

         7.1  Forfeiture or Suspension  of Benefits.  Notwithstanding  any other
provision of this Plan to the contrary, benefits shall be forfeited or suspended
during any period of paid service with the Bank  following the  commencement  of
benefit payments, within the sole discretion of the Committee.

                                  ARTICLE VIII

                               GENERAL PROVISIONS

         8.1 Other  Benefits.  Nothing in this Plan shall diminish or impair the
Participant's eligibility,  participation or benefit entitlement under any other
benefit,  insurance  or  compensation  plan  or  agreement  of the  Bank  now or
hereinafter in effect.

                                        6

<PAGE>

         8.2 No Effect on Employment.  This Plan shall not be deemed to give any
Participant or other person in the employ or service of the Bank any right to be
retained in the  employment  or service of the Bank,  or to  interfere  with the
right of the Bank to terminate any  Participant or such other person at any time
and to treat him or her without regard to the effect which such treatment mights
have upon him or her as a Participant in this Plan.

         8.3 Legally Binding. The rights,  privileges,  benefits and obligations
under this Plan are  intended  to be legal  obligations  of the Bank and binding
upon the Bank, its successors and assigns.

         8.4  Modification.  The  Bank,  by action of the  Board,  reserves  the
exclusive right to amend,  modify, or terminate this Plan. Any such termination,
modification or amendment shall not terminate or diminish any rights or benefits
accrued by any Participant prior thereto.  The Bank shall give thirty (30) days'
notice in writing to any  Participant  prior to the  effective  date of any such
amendment,  modification  or  termination  of  this  Plan.  Notwithstanding  the
foregoing,  in no event shall such benefits  payable to a Participant  under the
Plan be reduced  below those  provided  for in Section 2.4 herein.  In the event
that the Plan benefits  payable under Section 2.4 of the Plan are reduced or the
Plan is  terminated,  a  Participant  shall be  immediately  100%  vested in all
benefits  calculated in accordance  with Section 2.4 as of the date of such Plan
amendment  or Plan  termination  without  regard to such Plan  amendment or Plan
termination.

         8.5 Arbitration. Any controversy or claim arising out of or relating to
any contract or the breach thereof shall be settled by arbitration in accordance
with the Commercial  Arbitration Rules of the American Arbitration  Association,
with  such  arbitration  hearing  to be  held  at the  offices  of the  American
Arbitration  Association  ("AAA")  unless  otherwise  mutually  agreed to by the
Participant  and  the  Bank,  and  judgment  upon  the  award  rendered  by  the
arbitrator(s) may be entered in any court having jurisdiction thereof.

         8.6  Limitation.  No rights of any  Participant  are  assignable by any
Participant,  in whole or in part,  either by voluntary or involuntary act or by
operation  of  law.  Rights  of  Participants   hereunder  are  not  subject  to
anticipation,  alienation, sale, transfer,  assignment,  pledge,  hypothecation,
encumbrance  or  garnishment  by creditors of the  Participant or a Beneficiary.
Such rights are not subject to the debts, contracts,  liabilities,  engagements,
or torts of any Participant or his or her Beneficiary. No Participant shall have
any right under this Plan or any Trust  referred to in Article IV or against any
assets held or  acquired  pursuant  thereto  other than the rights of a general,
unsecured  creditor of the Bank pursuant to the unsecured promise of the Bank to
pay the benefits  accrued  hereunder in accordance  with the terms of this Plan.
The Bank has no  obligation  under  this Plan to fund or  otherwise  secure  its
obligations to render payments  hereunder to Participants.  No Participant shall
have any voice in the use,  disposition,  or investment of any asset acquired or
set aside by the Bank to provide benefits under this Plan.

                                        7

<PAGE>

         8.7 ERISA and IRC  Disclaimer.  It is intended that the Plan be neither
an "employee  welfare  benefit plan" nor an "employee  pension benefit plan" for
purposes of the Employee  Retirement  Income  Security  Act of 1974,  as amended
("ERISA").  Further, it is intended that the Plan will not cause the interest of
a  Participant  under  the Plan to be  includable  in the  gross  income of such
Participant or a Beneficiary  prior to the actual receipt of a payment under the
Plan for purposes of the Internal Revenue Code of 1986, as amended  ("IRC").  No
representation  is made to any  Participant  to the  effect  that any  insurance
policies  purchased by the Bank or assets of any Trust  established  pursuant to
this Plan will be used solely to provide  benefits under this Plan or in any way
shall  constitute  security for the payment of such benefits.  Benefits  payable
under this Plan are not in any way limited to or governed by the proceeds of any
such insurance  policies or the assets of any such Trust.  No Participant in the
Plan has any preferred claim against the proceeds of any such insurance policies
or the assets of any such Trust.

         8.8 Conduct of Participants.  Notwithstanding anything contained to the
contrary,  no payment of any then unpaid  benefits  shall be made and all rights
under the Plan  payable  to a  Participant,  or any  other  person,  to  receive
payments  thereof  shall be  forfeited  if the  Participant  shall engage in any
activity  or conduct  which in the  opinion the Board of the Bank is inimical to
the best interests of the Bank.

         8.9  Incompetency.  If the Bank  shall find that any person to whom any
payment  is  payable  under  the Plan is  deemed  unable  to care for his or her
personal affairs because of illness or accident,  or is a minor, any payment due
(unless  a prior  claim  therefor  shall  have  been  made  by a duly  appointed
guardian,  committee or other legal representative) may be paid to the spouse, a
child, a parent,  or a brother or sister, or to any person deemed by the Bank to
have incurred  expense for such person  otherwise  entitled to payment,  in such
manner and proportions as the Committee, in its sole discretion,  may determine.
Any such payments shall  constitute a complete  discharge of the  liabilities of
the Bank under the Plan.

         8.10 Construction. The Committee shall have full power and authority to
interpret, construe and administer this Plan and the Committee's interpretations
and  construction  thereof,  and  actions  thereunder,   shall  be  binding  and
conclusive on all persons for all purposes. Directors of the Bank and members of
the Committee  shall not be liable to any person for any action taken or omitted
in connection with the  interpretation  and  administration  of this Plan unless
attributable to his or her own willful,  gross misconduct or intentional lack of
good faith.

         8.11 Plan  Administration.  The Board of the Bank shall  administer the
Plan; provided,  however, that the Board may appoint an administrative committee
("Committee") to provide  administrative  services or perform duties required by
this Plan.  The  Committee  shall have only the  authority  granted to it by the
Board.

         8.12 Governing Law. This Plan shall be construed in accordance with and
governed  by the laws of the  State of New  Jersey,  except to the  extent  that
Federal law shall be deemed to apply.  No  payments  of  benefits  shall be made
hereunder if the Board of the Bank, or counsel retained

                                        8

<PAGE>

thereby,  shall determine that such payments shall be in violation of applicable
regulations,  or likely result in imposition of regulatory action, by the Office
of Thrift  Supervision,  the  Federal  Deposit  Insurance  Corporation  or other
appropriate banking regulatory agencies.

         8.13     Regulatory Matters.

         (a) The  Participant  or  Beneficiary  shall  have no right to  receive
compensation  or other benefits in accordance with the Plan for any period after
termination  of service  for Just  Cause.  Termination  for "Just  Cause"  shall
include   termination   because  of  the  Participant's   personal   dishonesty,
incompetence,  willful  misconduct,  breach of fiduciary duty involving personal
profit,  intentional failure to perform stated duties,  willful violation of any
law, rule or regulation  (other than traffic  violations or similar offenses) or
final cease-and-desist order, or material breach of any provision of the Plan.

         (b) Notwithstanding  anything herein to the contrary, any payments made
to a  Participant  or  Beneficiary  pursuant to the Plan shall be subject to and
conditioned   upon  compliance  with  12  USC  ss.1828(k)  and  any  regulations
promulgated thereunder.

         (c) If the Participant is suspended and/or temporarily  prohibited from
participating  in the conduct of the  Association's  affairs by a notice  served
under Section  8(e)(3) or (g)(1) of the FDIA (12 U.S.C.  1818(e)(3) and (g)(1)),
the  Association's  obligations under the Agreement shall be suspended as of the
date of service, unless stayed by appropriate proceedings. If the charges in the
notice are  dismissed,  the  Association  may within its  discretion (i) pay the
Participant  all or  part  of  the  compensation  withheld  while  its  contract
obligations  were  suspended and (ii) reinstate (in whole or in part) any of its
obligations which were suspended.

         (d) If the  Participant is removed and/or  permanently  prohibited from
participating  in the conduct of the  Association's  affairs by an order  issued
under Sections 8(e)(4) or 8(g)(1) of the Federal Deposit  Insurance Act ("FDIA")
(12 U.S.C. 1818(e)(4) and (g)(1)), all obligations of the Association under this
Agreement shall terminate, as of the effective date of the order, but the vested
rights of the contracting parties shall not be affected.

         (e) If the  Association is in default (as defined in Section 3(x)(1) of
FDIA) all  obligations  under this Agreement  shall  terminate as of the date of
default,  but  this  paragraph  shall  not  affect  any  vested  rights  of  the
contracting parties.

         (f) All obligations under this Agreement shall be terminated, except to
the extent  determined that  continuation of this Agreement is necessary for the
continued  operation  of the  Association:  (i) by the Director of the Office of
Thrift Supervision ("Director of OTS"), or his or her designee, at the time that
the Federal Deposit Insurance  Corporation  ("FDIC") enters into an agreement to
provide  assistance  to or on behalf  of the  Association  under  the  authority
contained in Section  13(c) of FDIA;  or (ii) by the Director of the OTS, or his
or her  designee,  at the time  that  the  Director  of the  OTS,  or his or her
designee approves a supervisory merger to resolve problems

                                        9

<PAGE>

related to operation of the Association or when the Association is determined by
the Director of the OTS to be in an unsafe or unsound  condition.  Any rights of
the parties that have  already  vested,  however,  shall not be affected by such
action.

         8.14  Successors  and  Assigns.  The  Plan  shall be  binding  upon any
successor or successors of the Bank, and unless clearly inapplicable,  reference
herein to the Bank shall be deemed to include any successor or successors of the
Bank.

         8.15 Sole Agreement.  The Plan expresses,  embodies, and supersedes all
previous agreements,  understandings,  and commitments, whether written or oral,
between the Bank and any Participants and  Beneficiaries  hereto with respect to
the subject matter hereof.

                                       10