SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB
(Mark One)

[X]  Annual report  pursuant to section 13 or 15 (d) of the Securities  Exchange
     Act of 1934

     For the fiscal year ended September 30, 1998

[ ]  Transition   report  pursuant  to  section  13 or  15(d) of the  Securities
     Exchange Act of 1934
     For the transition period from              to             .
                                    ------------    ------------

                           Commission File No. 0-24261

                            Farnsworth Bancorp, Inc.
--------------------------------------------------------------------------------
                 (Name of Small Business Issuer in Its Charter)

                   New Jersey                                  22-3591051     
---------------------------------------------             ---------------------
(State or Other Jurisdiction of Incorporation             (I.R.S. Employer
               or Organization)                            Identification No.)

789 Farnsworth Avenue, Bordentown, New Jersey                   08505       
---------------------------------------------                -----------
(Address of Principal Executive Offices)                     (Zip Code)

Issuer's Telephone Number, Including Area Code:                  (609) 298-0723 
                                                                 ---------------

Securities registered under Section 12(b) of the Exchange Act:     None 
                                                                  ------

Securities registered under Section 12(g) of the Exchange Act:

                     Common Stock, par value $0.10 per share
                     ---------------------------------------
                                (Title of Class)

         Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 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 .

         Check if there is no  disclosure  of  delinquent  filers in response to
Item 405 of  Regulation  S-B contained in this form,  and no disclosure  will 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-KSB
or any amendment to this Form 10-KSB. [ ]

         State issuer's revenues for its most recent fiscal year:   $2,723,840

         The aggregate  market value of the voting stock held by  non-affiliates
of the registrant,  based on the average bid and asked price of the registrant's
Common Stock on December 10, 1998, was $3.4 million.

     As of December 10, 1998,  there were issued and outstanding  379,858 shares
of the registrant's Common Stock.

       Transitional Small Business Disclosure Format (check one): YES     NO  X
                                                                     ----   ----

                       DOCUMENTS INCORPORATED BY REFERENCE

1.   Portions  of the Annual  Report to  Stockholders  for the fiscal year ended
     September 30, 1998. (Part II)


<PAGE>



                                     PART I

         Farnsworth Bancorp,  Inc. (the "Company" or "Registrant") may from time
to time make written or oral "forward-looking statements",  including statements
contained in the Company's  filings with the Securities and Exchange  Commission
("SEC")  (including this annual report on Form 10-KSB and the exhibits thereto),
in its reports to stockholders and in other communications by the Company, which
are made in good faith by the Company  pursuant to the "safe harbor"  provisions
of the Private Securities Litigation Reform Act of 1995.

         These forward-looking statements involve risks and uncertainties,  such
as statements of the Company's plans,  objectives,  expectations,  estimates and
intentions,  that are subject to change based on various important factors (some
of which are beyond the Company's control). The following factors, among others,
could cause the Company's  financial  performance to differ  materially from the
plans,  objectives,  expectations,  estimates and  intentions  expressed in such
forward-looking statements: the strength of the United States economy in general
and  the  strength  of  the  local  economies  in  which  the  Company  conducts
operations;  the effects of, and changes in, trade, monetary and fiscal policies
and laws,  including  interest  rate  policies of the board of  governors of the
federal  reserve  system,   inflation,   interest  rates,  market  and  monetary
fluctuations;  the timely  development  of and  acceptance  of new  products and
services of the Company and the perceived  overall  value of these  products and
services by users,  including  the  features,  pricing  and quality  compared to
competitors'  products and  services;  the  willingness  of users to  substitute
competitors' products and services for the Company's products and services;  the
success of the  Company in  gaining  regulatory  approval  of its  products  and
services,  when required;  the impact of changes in financial services' laws and
regulations   (including  laws  concerning   taxes,   banking,   securities  and
insurance);  technological changes,  acquisitions;  changes in consumer spending
and  saving  habits;  and the  success  of the  Company  at  managing  the risks
resulting from these factors.

         The Company  cautions that the listed  factors are not  exclusive.  The
Company does not  undertake  to update any  forward-looking  statement,  whether
written  or oral,  that may be made  from  time to time by or on  behalf  of the
Company.

Item 1.  Description of Business

General

         The Company is a New Jersey corporation organized in May of 1998 at the
direction  of Peoples  Savings  Bank (the  "Bank") to acquire all of the capital
stock that the Bank  issued in its  conversion  from the mutual to stock form of
ownership  (the  "Conversion").  On September 29, 1998,  the Bank  completed the
Conversion and became a wholly owned subsidiary of the Company. The Company is a
unitary savings and loan holding company which,  under existing laws,  generally
is not  restricted  in the types of business  activities  in which it may engage
provided   that  the  Bank   retains  a  specified   amount  of  its  assets  in
housing-related  investments.  The Company  conducts no significant  business or
operations  of its own other than  holding all of the  outstanding  stock of the
Bank and  investing the  Company's  portion of the net proceeds  obtained in the
Conversion.

         The  Bank,  which was  founded  in 1880  under the name The  Bordentown
Building  and Loan  Association,  is a federally  chartered  stock  savings bank
headquartered in Bordentown,  New Jersey.  In 1965, the Bank merged with Peoples
Building and Loan Association and changed its name to Bordentown Peoples Savings
and Loan  Association.  The Bank  acquired  Florence  Township  Savings and Loan
Association  and  Beverly  Building  and  Loan  Association  in 1985  and  1989,
respectively. The Beverly

                                        1

<PAGE>



branch was  subsequently  closed in 1994. In 1995,  the Bank changed its name to
Peoples  Savings Bank,  SLA. In 1996, the Bank converted from a  state-chartered
mutual  savings  bank  to  a  federally   chartered  mutual  savings  bank,  and
concurrently  changed its name to Peoples  Savings Bank.  The Bank is subject to
examination  and  comprehensive  regulation by the Office of Thrift  Supervision
("OTS")  and its  deposits  are  federally  insured by the  Savings  Association
Insurance Fund ("SAIF"). The Bank is a member of, and owns capital stock in, the
Federal  Home Loan Bank  ("FHLB")  of New York,  which is one of the 12 regional
banks in the FHLB System.

         The Bank  operates a  traditional  savings  bank  business,  attracting
deposit accounts from the general public and using those deposits, together with
other  funds,  primarily  to  originate  and invest in loans  secured by one- to
four-family residential real estate.

Competition

         The Bank is one of many financial  institutions serving its market area
of northern  Burlington County, New Jersey. The competition for deposit products
comes from other insured financial institutions such as commercial banks, thrift
institutions, credit unions, and multi-state regional banks in the Bank's market
area.  Deposit  competition also includes a number of insurance products sold by
local agents and investment  products such as mutual funds and other  securities
sold by local and regional  brokers.  Loan  competition  varies  depending  upon
market  conditions and comes from other insured  financial  institutions such as
commercial  banks,  thrift  institutions,  credit unions,  multi-state  regional
banks, and mortgage bankers.

Lending Activities

     Loan  Portfolio  Data.  Set forth  below is selected  data  relating to the
composition of the Bank's loan portfolio by type of loan on the dates indicated:
<TABLE>
<CAPTION>
                                                             At September 30,
                                              -----------------------------------------
                                                        1998                 1997
                                              --------------------    -----------------
                                                   $           %         $          %
                                                  ---         ---       ---        ---
                                                            (Dollars in thousands)
<S>                                          <C>            <C>      <C>         <C>  
Type of Loans:
  Residential...............................  $  24,736       77.6%   $20,220      73.5%
  Construction..............................      2,435        7.6      2,842      10.3
  Commercial real estate....................      1,019        3.2      1,144       4.2
  Commercial Business.......................        181        0.6         18       0.1
  Consumer loans:...........................
    Home equity.............................      3,197       10.0      3,004      10.9
    Savings account loans...................        157        0.5        246       0.9
    Automobile loans .......................         37        0.1         --        --
    Other...................................        114        0.4         50       0.1
                                              ---------     ------    -------    ------
                                                 31,876      100.0%    27,524     100.0%
                                              ---------      =====     ------     =====

Less:
  Loans in process..........................        500                   895
  Deferred loan origination fees and costs..        199                   154
  Allowance for loan losses.................        135                    66
                                              ---------               -------
Total loans, net............................ $   31,042               $26,409
                                              =========                ======
</TABLE>


                                        2

<PAGE>



Loan Maturity Tables

         The  following  table sets forth the  estimated  maturity of the Bank's
loan portfolio at September 30, 1998. The table does not include  prepayments or
scheduled principal  repayments.  Prepayments and scheduled principal repayments
on  loans  totalled  $3.6  million  for  the  year  ended  September  30,  1998.
Adjustable-rate  mortgage  loans  are  shown as  maturing  based on  contractual
maturities.

                                          Due after
                              Due within  1 through  Due after
                                1 year     5 years   5 years    Total
                              ---------   ---------  -------   --------  
                                            (In thousands)

1-4 family mortgage..........    2,511      1,880     20,345    24,736
Construction.................    1,835        600         --     2,435
Commercial real estate.......       --         --      1,019     1,019
Commercial business..........       16        165         --       181
Consumer.....................      349        890      2,266     3,505
                                ------     ------    -------   -------
     Total...................    4,711      3,535     23,630    31,876
                                 =====     ======     ======    ======


         The following table sets forth the dollar amount of all loans due after
September  30, 1999,  which have  pre-determined  interest  rates and which have
floating or adjustable interest rates.


                                             Floating or
                             Fixed Rates  Adjustable Rates   Total
                             -----------  ----------------  --------
                                            (In thousands)
Residential.................   22,046             179        22,225
Construction................      600              --           600
Commercial real estate......      833             186         1,019
Commercial business.........      165              --           165
Consumer....................    2,935             221         3,156
                                -----         -------       -------
    Total...................  $26,579         $   586      $ 27,165
                               ======          ======       =======



Mortgage Loans:

         One- to  Four-Family  Residential  Loans.  The Bank's  primary  lending
activity  consists of  originating  one- to four-family  fixed-rate  residential
mortgage loans which are  owner-occupied  and secured by property located in the
Bank's market area. The Bank generally  originates  fixed-rate loans with terms,
conditions and  documentation  which would permit it to either sell the loans to
Federal  National  Mortgage  Association  ("FNMA" or Federal Home Loan  Mortgage
Corporation ("FHLMC")), in the secondary market or retain them in its portfolio,
depending on the yield on the loan and on the Bank's asset/liability  management
objectives.  While the Bank has in the past originated  adjustable-rate mortgage
("ARM") loans, this has not been a significant aspect of the Bank's business. At
September 30, 1998, the Bank had two ARM loans.

         The Bank's  fixed-rate  loans  generally have terms from 10 to 30 years
with  principal  and  interest  payments   calculated  using  up  to  a  30-year
amortization period. Some of these fixed-rate loans are balloon loans with terms
of 5 or 7 years, with principal and interest  payments  calculated using up to a
30-year

                                        3

<PAGE>



amortization  period. The maximum  loan-to-value  ratio on residential  mortgage
loans is 95%.  Loans  originated  with a  loan-to-value  ratio in  excess of 80%
require private mortgage insurance.

         The Bank's mortgage loans generally include due-on-sale  clauses.  This
gives the Bank the right to deem the loan  immediately  due and  payable  in the
event the borrower  transfers  ownership  of the property  securing the mortgage
loan without the Bank's consent.

         Commercial Real Estate Loans.  The Bank's  commercial real estate loans
are secured by office  buildings,  retail  establishments  and other  commercial
properties.  These loans generally do not exceed $500,000,  although they may be
made in an  amount  up to the  Bank's  maximum  loan to one  borrower  limit  of
approximately $671,000.  These loans generally do not have terms greater than 15
years. If a borrower should require a longer amortization  period, the loan will
be an adjustable or balloon mortgage, adjusting or maturing in five years.

         Commercial real estate lending  entails  significant  additional  risks
compared to residential  property  lending.  These loans typically involve large
loan balances to single borrowers or groups of related borrowers.  The repayment
of these loans  typically is dependent on the  successful  operation of the real
estate project  securing the loan. For commercial real estate these risks can be
significantly  affected by supply and demand conditions in the market for office
retail space and may also be subject to adverse  conditions  in the economy.  To
minimize  these  risks,  the Bank  generally  limits this type of lending to its
market  area  and to  borrowers  who are  otherwise  well  known to the Bank and
generally limit the loan to value ratio to 75%.

     Construction Loans. The Bank makes residential construction loans/permanent
loans on one- to four-family residential property to the individuals who will be
the owners and occupants upon  completion of  construction.  The Bank also makes
commercial  construction  loans to local  businesses.  The  Bank's  two  current
projects are a shopping center (in the amount  $500,000) and a medical  facility
(in the amount of $527,000).

         Interest  payments only are required during  construction and these are
to be paid from the borrower's own funds. These loans are made at 1% to 2% above
prime and have terms of up to 12 months. The maximum  loan-to-value ratio is 75%
of the appraised value of the completed project. Upon completion of construction
the loan  converts  to a  permanent  loan and  regular  principal  and  interest
payments commence. The Bank does not finance any speculative projects.

         Construction lending is generally considered to involve a higher degree
of credit risk than long-term  financing of residential  properties.  The Bank's
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 and
the estimated cost of construction. If the estimate of construction cost and the
marketability  of the  property  upon  completion  of the  project  prove  to be
inaccurate,  the Bank may be compelled to advance  additional  funds to complete
the construction.  Furthermore,  if the final value of the completed property is
less  than  the  estimated  amount,  the  value  of the  property  might  not be
sufficient to assure the repayment of the loan.

         Commercial  Business  Loans.  The  Bank's  commercial  loans  generally
constitute  lines of  credit to local  businesses.  These  loans  are  primarily
secured by real estate and  generally  do not have terms  greater than one year.
The Bank offers  commercial  business  loans to benefit from the higher fees and
interest rates and the shorter terms to maturity.


                                        4

<PAGE>



         Unlike  residential  mortgage  loans,  which  generally are made on the
basis of the borrower's ability to make repayment from his or her employment and
other income and which are secured by real property whose value tends to be more
easily ascertainable,  commercial business loans typically are made on the basis
of the borrower's ability to make repayment from the cash flow of the borrower's
business. As a result, the availability of funds for the repayment of commercial
business  loans may be  substantially  dependent  on the success of the business
itself and the general economic environment.  Commercial loans, therefore,  have
greater credit risk than residential mortgage loans.

         The Bank is also a Small  Business  Administration  ("SBA")  authorized
lender. A variety of types of small business administration loans are available.
Currently there are no SBA loans in the portfolio.

         Consumer Loans.  The Bank offers  non-collateralized  personal loans in
the  amounts  of up to $5,000 in order to  provide  a wider  range of  financial
services to its customers and because these loans provide higher  interest rates
and shorter terms (12 to 36 months) than many of its other loans.  The Bank also
offers loans with savings  pledged as additional  security.  The Bank's consumer
loans consist of home equity, savings account, automobile and personal loans.

         The home  equity  loans  the Bank  originates  are  secured  by one- to
four-family residences.  These loans have terms of 3 to 15 years, generally will
not exceed  $100,000 and have  loan-to-value  ratios of 80% or less. Home equity
lines of credit have interest  rates of prime plus 1.5% and are subject to a 75%
loan-to-value ratio, which includes a first mortgage balance.

         Consumer loans may entail greater risk than residential mortgage loans,
particularly  in the case of  consumer  loans that are  unsecured  or secured by
assets that depreciate rapidly.  Repossessed collateral for a defaulted consumer
loan may not be  sufficient  for  repayment  of the  outstanding  loan,  and the
remaining deficiency may not be collectible.

     Loan Approval Authority and Underwriting.  The Bank's loan committee, which
is comprised of President Pelehaty, Vice President Alessi, and the Bank's Senior
Loan Officer and the Bank's Loan Servicing Manager, approves one- to four-family
mortgage loans up to the conforming loan limit of $227,150,  and all other loans
up to $50,000.  Loan  requests  above these amounts must be approved by the full
board of directors,  which meets twice  monthly,  or by the Executive  Committee
composed of four non-employee directors and President Pelehaty.

     Loan Commitments.  At September 30, 1998, commitments to cover originations
of mortgage loans totalled $295,000. The Bank believes that virtually all of its
commitments will be funded.

         Loans to One Borrower.  The maximum  amount of loans which the Bank may
make to any one  borrower  may not exceed the  greater of $500,000 or 15% of its
unimpaired capital and unimpaired  surplus.  The Bank may lend an additional 10%
of its unimpaired capital and unimpaired surplus if the loan is fully secured by
readily marketable collateral. The Bank's maximum loan to one borrower limit was
approximately  $671,000 at September  30,  1998.  At  September  30,  1998,  the
aggregate loans of the Bank's five largest  borrowers have outstanding  balances
of between $289,930 and $527,000.

Nonperforming and Problem Assets

     Loan Delinquencies. Loans are reviewed on a monthly basis and are placed on
a non-accrual  status when, in the Bank's opinion,  the collection of additional
interest is doubtful.  Interest  accrued and unpaid at the time a loan is placed
on nonaccrual status is charged against interest income. Subsequent

                                        5

<PAGE>



interest  payments,  if any,  are either  applied to the  outstanding  principal
balance or recorded as  interest  income,  depending  on the  assessment  of the
ultimate collectibility of the loan.

         Nonperforming  Assets.  The  following  table  sets  forth  information
regarding nonaccrual loans and real estate owned, as of the dates indicated. For
the year ended September 30, 1998, interest income that would have been recorded
on loans  accounted for on a non-accrual  basis under the original terms of such
loans was $27,162.
<TABLE>
<CAPTION>
                                                                      At September 30,
                                                                   ---------------------
                                                                    1998            1997
                                                                  --------        -------
<S>                                                             <C>            <C>     
Loans accounted for on a non-accrual basis:
Mortgage loans:
  Permanent loans secured by 1-4 family units.................... $    195       $    199
  All other mortgage loans.......................................       95             --
                                                                   -------        -------
Total............................................................ $    290       $    199
                                                                   =======        =======

Accruing loans which are contractually past due 90 days or more: 
Mortgage loans:
  Permanent loans secured by 1-4 family units.................... $     --       $     --
Total............................................................       --             --
Total non-accrual and accrual loans..............................      290            199
Real estate owned................................................       --             --
Total nonperforming assets.......................................      290            199
Total non-accrual and accrual loans to net loans.................     0.93%          0.75%
Total non-accrual and accrual loans to total assets..............     0.69%          0.53%
Total non performing assets to total assets......................     0.69%          0.53%

</TABLE>


         Classified Assets. OTS regulations provide for a classification  system
for problem  assets of savings  associations  which  covers all problem  assets.
Under this classification system, problem assets of savings institutions such as
the Bank are  classified as  "substandard,"  "doubtful,"  or "loss." An asset is
considered  substandard if it is inadequately protected by the current net worth
and paying  capacity  of the  borrower  or of the  collateral  pledged,  if any.
Substandard  assets include those  characterized  by the "distinct  possibility"
that the savings  institution  will sustain "some loss" if the  deficiencies are
not corrected. Assets classified as doubtful have all of the weaknesses inherent
in  those  classified  substandard,  with  the  added  characteristic  that  the
weaknesses  present make  "collection  or  liquidation in full," on the basis of
currently  existing facts,  conditions,  and values,  "highly  questionable  and
improbable." Assets classified as loss are those considered  "uncollectible" and
of such little value that their  continuance as assets without the establishment
of a specific loss reserve is not warranted.  Assets may be designated  "special
mention"   because  of  potential   weakness  that  do  not  currently   warrant
classification in one of the aforementioned categories.

         When  a  savings  association   classifies  problem  assets  as  either
substandard or doubtful,  it may establish general allowances for loan losses in
an amount  deemed  prudent by  management.  General  allowances  represent  loss
allowances which have been established to recognize the inherent risk associated
with lending activities,  but which, unlike specific  allowances,  have not been
allocated to particular problem assets.  When a savings  association  classifies
problem assets as loss, it is required either to establish a specific  allowance
for losses equal to 100% of that portion of the asset so classified or to

                                        6

<PAGE>



charge  off  such  amount.  A  savings  association's  determination  as to  the
classification  of its  assets  and the amount of its  valuation  allowances  is
subject to review by the OTS,  which may order the  establishment  of additional
general or  specific  loss  allowances.  A portion of  general  loss  allowances
established to cover possible losses related to assets classified as substandard
or doubtful may be included in  determining a savings  association's  regulatory
capital.  Specific valuation allowances for loan losses generally do not qualify
as regulatory  capital.  At September  30, 1998,  the Bank had $290,000 of loans
classified as special mention, and no loans classified as substandard,  doubtful
and loss.

         Allowances  for Loan Losses.  A provision for loan losses is charged to
operations  based on management's  evaluation of the losses that may be incurred
in the Bank's loan portfolio. The evaluation, including a review of all loans on
which full  collectibility  of  interest  and  principal  may not be  reasonably
assured,  considers:  (i) the Bank's past loan loss  experience,  (ii) known and
inherent risks in the Bank's portfolio, (iii) adverse situations that may affect
the  borrower's  ability to repay,  (iv) the estimated  value of any  underlying
collateral, and (v) current economic conditions.

         The Bank monitors its  allowance for loan losses and make  additions to
the allowance as economic  conditions  dictate.  Although the Bank maintains the
Bank's  allowance for loan losses at a level that it considers  adequate for the
inherent  risk  of  loss in its  loan  portfolio,  future  losses  could  exceed
estimated  amounts and additional  provisions for loan losses could be required.
In addition,  the Bank's  determination  as to the amount of allowance  for loan
losses is  subject  to review by the OTS,  as part of its  examination  process.
After  a  review  of the  information  available,  the  OTS  might  require  the
establishment of an additional allowance.

         The following  table  illustrates  the  allocation of the allowance for
loan losses for each category of loans.  The allocation of the allowance to each
category is not necessarily indicative of future loss in any particular category
and does not restrict the Bank's use of the  allowance to absorb losses in other
loan categories.


                                                 At September 30,
                                   --------------------------------------------
                                          1998                   1997
                                   --------------------  ----------------------
                                            Percent of             Percent of
                                           Allowance in           Allowance in
                                               Each                   Each
                                             Category               Category
                                              to Total               to Total
                                   Amount    Allowance   Amount    Allowance
                                   ------    ---------   ------    ---------
                                             (Dollars in thousands)

Residential................       $    84       62.22%    $  66      100.00%
Construction...............            --          --        --          --
Commercial real estate.....             4        2.96        --          --
Commercial Business........            41       30.37        --          --
Consumer ..................             6        4.45        --          --
                                   ------      ------     -----      ------
    Total allowance for
      loan losses..........       $   135      100.00%    $  66      100.00%
                                   ======      ======     =====      ======





                                        7

<PAGE>



         The following table sets forth  information  with respect to the Bank's
allowance for loan losses at the dates and for the periods indicated:

                                                       At September 30,
                                                  -----------------------
                                                     1998          1997
                                                  ---------     ---------
                                                   (Dollars in thousands)
Total loans outstanding (1)...................    $  31,042       $26,409
                                                   ========        ======
Average loans outstanding(1)..................    $  28,699       $24,832
                                                   ========        ======

Allowance balances (at beginning of period)...           66            58
Provision:
  Residential.................................           18             8
  Commercial real estate......................            4            --
  Commercial Business.........................           41            --
  Consumer....................................            9            --
Net recoveries (charge offs)..................           (3)           --
                                                   -------         ------
Allowance balance (at end of period)..........     $    135       $    66
                                                    =======        ======
Allowance for loan losses as a percent of
  total loans outstanding.....................          .43%         0.25%
Net loans charged off as a percent of average
  loans outstanding...........................          .01%           --%


-----------------------------
(1) Excludes  allowance for loan losses and deferred loan  origination  fees and
costs.

Investment Activities

         Investment  Securities.  The Bank is required under federal regulations
to maintain a minimum amount of liquid assets which may be invested in specified
short-term  securities and certain other  investments.  The Bank  classifies its
investment   securities  as   "available-for-sale"   or   "held-to-maturity"  in
accordance with SFAS No. 115.

         The   Bank's    investment    securities    "available-for-sale"    and
"held-to-maturity"  portfolios at September 30, 1998 did not contain  securities
of any  issuer  with an  aggregate  book  value in excess  of 10% of the  Bank's
equity, excluding those issued by the United States government agencies.

         Mortgage-Backed  Securities. To supplement lending activities, the Bank
has  invested  in  residential   mortgage-backed   securities.   Mortgage-backed
securities can serve as collateral for borrowings and, through repayments,  as a
source  of  liquidity.  Mortgage-backed  securities  represent  a  participation
interest in a pool of  single-family  or other type of mortgages.  Principal and
interest   payments   are  passed  from  the   mortgage   originators,   through
intermediaries (generally  quasi-governmental  agencies) that pool and repackage
the participation interests in the form of securities,  to investors such as the
Bank.  The  quasi-governmental  agencies  guarantee the payment of principal and
interest to investors and include the FHLMC,  the Government  National  Mortgage
Association  ("GNMA") and FNMA. Expected maturities will differ from contractual
maturities due to scheduled  repayments and because borrowers may have the right
to call or prepay obligations with or without prepayment penalties.


                                        8

<PAGE>



     Investment Portfolio.  The following table sets forth the carrying value of
the Bank's  investments.  See Notes 3 and 4 to the Bank's  financial  statements
elsewhere in this document.

                                                           At September 30,
                                                          ------------------
                                                          1998          1997
                                                          ----          ----
                                                            (In thousands)

Investments securities held-to-maturity:                                     
  U.S. agency securities...............................   $ 2,662    $3,656
  State and local government...........................        99        99
                                                           ------     -----
     Total investment securities held-to-maturity......     2,761     3,755

Investment securities available-for-sale:
  FHLMC Stock..........................................       134        96
                                                           ------      ----
      Total investment securities available-for-sale...       134        96

Interest-bearing deposits..............................     3,400     1,082
FHLB stock.............................................       261       234
Mortgage-backed securities held-to-maturity............     1,891     3,016
                                                           ------     -----
      Total investments................................   $ 8,447    $8,183
                                                           ======     =====





                                        9

<PAGE>



         The following table sets forth certain information  regarding scheduled
maturities,  carrying  values,  approximate  fair values,  and weighted  average
yields for the Bank's investments at September 30, 1998 by contractual maturity.
The following  table does not take into  consideration  the effects of scheduled
repayments or the effects of possible prepayments.
<TABLE>
<CAPTION>
                                                                                                                Total Investment 
                             One Year or Less    One to Five Years   Five to Ten Years   More than Ten Years       Securities
                            ------------------- -------------------  ------------------  -------------------- ----------------------
                                      Weighted            Weighted            Weighted             Weighted          Weighted
                            Carrying   Average  Carrying   Average  Carrying   Average  Carrying   Average   Carrying Average Market
                              Value     Yield     Value     Yield     Value     Yield     Value     Yield      Value   Yield   Value
                             -------   -------   -------   -------   -------   -------   -------   -------    ------- ------- ------
                                                                    (Dollars in thousands)     
<S>                          <C>       <C>     <C>       <C>      <C>         <C>     <C>        <C>       <C>       <C>    <C>   
U.S. agency securities......  $   --      --%  $ 1,248    5.92%   $  1,414     4.11%    $  --       --%     $2,662     4.96% $2,773
State and local government..      --      --        --      --         --        --        99     6.05          99     6.05     115
FHLMC stock.................     134    3.72        --      --         --        --        --       --         134     3.72     134
Interest-bearing deposits...   3,400    5.50        --      --         --        --        --       --       3,400     5.50   3,400
FHLB stock..................      --      --        --      --         --        --       261     7.02         261     7.02     261
Mortgage-backed securities..   --         --       541    6.50         --        --     1,350     6.83       1,891     6.73   1,919
                               -----   -----     -----  ------   --------   -------     -----    -----       -----    -----   -----
  Total investments.........  $3,534    5.43%   $1,789    6.09%    $1,414      4.11%   $1,710     6.81%     $8,447    5.70%  $8,602
                               =====   =====     =====  ======      =====     =====    ======    =====      ======   =====   ======

</TABLE>






                                       10

<PAGE>



Sources of Funds

         General.  Deposits  are the Bank's major  external  source of funds for
lending and other investment  purposes.  Funds are also derived from the receipt
of  payments  on loans and  prepayment  of loans and  maturities  of  investment
securities  and  mortgage-backed   securities  and  borrowings  and  operations.
Scheduled  loan principal  repayments  are a relatively  stable source of funds,
while  deposit  inflows and  outflows  and loan  prepayments  are  significantly
influenced by general interest rates and market conditions.

         Consumer and commercial deposits are attracted  principally from within
the Bank's  primary  market area  through the offering of a selection of deposit
instruments including checking accounts,  regular savings accounts, money market
accounts, and term certificate accounts. IRA accounts are also offered.

         Certificates  of Deposit.  The following  table indicates the amount of
the Bank's  certificates  of deposit of $100,000 or more by time remaining until
maturity as of September 30, 1998.

                                           Certificates
Maturity Period                             of Deposit
---------------                             ----------
                                          (In thousands)

Within three months...............         $     335
Three through six months..........               404
Six through twelve months.........               432
Over twelve months................               328
                                            --------
                                           $   1,499


         Borrowings.  Advances (borrowings) may be obtained from the FHLB of New
York to supplement the Bank's supply of lendable  funds.  Advances from the FHLB
of New York are typically secured by a pledge of the Bank's stock in the FHLB of
New York, a portion of the Bank's first mortgage loans, and other assets.

         The following table sets forth the terms of the Bank's  short-term FHLB
advances.

                                             During the Year ended September 30,
                                             -----------------------------------
                                                      1998        1997
                                                    -------      -------
                                                    (Dollars in thousands)

Balance at period end............................. $    --      $     --
Average balance outstanding during the period.....      --         1,302

Maximum amount outstanding at any month-end
  during the period...............................      --         3,585
Weighted average interest rate during the period..      --%         6.14%







                                       11

<PAGE>



Personnel

         At  September  30,  1998 the Bank had 16  full-time  employees  and one
part-time employee. None of the Bank's employees are represented by a collective
bargaining  group.  The Bank  believes  that its  relationship  with the  Bank's
employees is good.

Regulation

         Set forth below is a brief  description of certain laws which relate to
us.  The  description  is not  complete  and is  qualified  in its  entirety  by
references to applicable laws and regulation.

Holding Company Regulation

         General.  The Company is required to register and file reports with the
OTS and is subject to regulation and  examination  by the OTS. In addition,  the
OTS has enforcement  authority over the Company and any non-savings  institution
subsidiaries.  This permits the OTS to restrict or prohibit  activities  that it
determines  to be a  serious  risk to the  Bank.  This  regulation  is  intended
primarily for the protection of the Bank's depositors and not for the benefit of
stockholders of the Company.

         Qualified  Thrift  Lender  ("QTL")  Test.  As the Company owns only one
savings institution,  it is able to diversify its operations into activities not
related to banking,  but only so long as the Bank satisfies the QTL test. If the
Company controlled more than one savings institution,  it would lose the ability
to diversify its operations  into  nonbanking  related  activities,  unless such
other savings  institutions  each also  qualified as a QTL or were acquired in a
supervised  acquisition.  See "-- Savings  Institution  Regulation  -- Qualified
Thrift Lender Test."

Savings Institution Regulation

         General. As a federally  chartered,  SAIF-insured  savings institution,
the Bank is subject to extensive  regulation by the OTS and the Federal  Deposit
Insurance  Corporation  ("FDIC").  Lending activities and other investments must
comply with various federal and state statutory and regulatory requirements. The
Bank is also subject to certain reserve requirements promulgated by the Board of
Governors of the Federal Reserve System ("Federal Reserve").

         Insurance of Deposit Accounts.  The Bank's deposit accounts are insured
by the SAIF to a maximum of $100,000 for each insured  member (as defined by law
and  regulation).  Insurance  of deposits may be  terminated  by the FDIC upon a
finding that the institution has engaged in unsafe or unsound  practices,  is in
an unsafe or unsound  condition  to  continue  operations  or has  violated  any
applicable law, regulation,  rule, order or condition imposed by the FDIC or the
institution's primary regulator.

         As a member of the  SAIF,  the Bank pays an  insurance  premium  to the
FDIC. The FDIC also maintains  another  insurance  fund, the Bank Insurance Fund
("BIF"), which primarily insures commercial bank deposits. The deposit insurance
assessment for most SAIF members is .064% of deposits on an annual basis through
the end of  1999.  During  this  same  period,  BIF  members  will  be  assessed
approximately  .013%  of  deposits.  After  1999,  assessments  for BIF and SAIF
members should be the same. It is expected that these continuing assessments for
both  SAIF  and  BIF  members  will  be  used  to  repay  outstanding  Financing
Corporation bond obligations.


                                       12

<PAGE>



         Regulatory  Capital  Requirements.   OTS  capital  regulations  require
savings institutions to meet three capital standards: (1) tangible capital equal
to 1.5% of total adjusted assets, (2) core capital equal to at least 4% of total
adjusted assets, and (3) risk-based  capital equal to 8% of total  risk-weighted
assets.

         Dividend and Other Capital  Distribution  Limitations.  OTS regulations
require  the  Bank  to  give  the OTS 30 days  advance  notice  of any  proposed
declaration of dividends to the Company, and the OTS has the authority under its
supervisory  powers to  prohibit  the  payment of  dividends  by the Bank to the
Company.  In  addition,  the Bank may not declare or pay a cash  dividend on its
capital  stock if the effect  would be to reduce the Bank's  regulatory  capital
below the amount required for the liquidation account established at the time of
the conversion from mutual to stock form.

         In the event the Bank's capital falls below the Bank's fully  phased-in
requirement  or the OTS notifies the Bank that it is in need of more than normal
supervision,   the  Bank's  ability  to  make  capital  distributions  could  be
restricted.  In addition, the OTS could prohibit a proposed capital distribution
by any institution, which would otherwise be permitted by the regulation, if the
OTS  determines  that such  distribution  would  constitute an unsafe or unsound
practice.

         Qualified  Thrift  Lender  Test.  Savings   institutions  must  meet  a
qualified thrift lender ("QTL") test. If the Bank maintains an appropriate level
of qualified thrift investments  ("QTIs") (primarily  residential  mortgages and
related  investments,   including  certain   mortgage-related   securities)  and
otherwise  qualify as a QTL,  the Bank will  continue  to enjoy  full  borrowing
privileges from the FHLB of New York. The required  percentage of QTIs is 65% of
portfolio assets (defined as all assets minus intangible  assets,  property used
by the  institution in conducting its business and liquid assets equal to 10% of
total assets).  Certain assets are subject to a percentage  limitation of 20% of
portfolio assets. In addition,  savings institutions may include shares of stock
of the  FHLBs,  FNMA,  and  FHLMC  as  QTIs.  Compliance  with  the QTL  test is
determined  on a monthly  basis in nine out of every 12 months.  As of September
30, 1998, the Bank was in compliance with its QTL requirement.

         Federal   Reserve.   The  Federal   Reserve   requires  all  depository
institutions  to  maintain  non-interest-bearing  reserves at  specified  levels
against  their  transaction  accounts  (primarily  checking,  NOW and  Super NOW
checking  accounts) and non-personal time deposits.  The balances  maintained to
meet the  reserve  requirements  imposed by the  Federal  Reserve may be used to
satisfy liquidity requirements that are imposed by the OTS.

Item 2. Description of Property

(a)      Properties.

         The Bank operates from its main office and one branch office.

                                     Leased or
             Location                  Owned
             --------                  -----

MAIN OFFICE:
789 Farnsworth Avenue
Bordentown, NJ  08505                  Owned

BRANCH OFFICE:
4 Broad Street
Florence, NJ  08518                    Owned



                                       13

<PAGE>




(b)      Investment Policies.

         See "Item 1.  Description of Business" above for a general  description
of the Bank's  investment  policies and any  regulatory  or Board of  Directors'
percentage  of assets  limitations  regarding  certain  investments.  The Bank's
investments are primarily  acquired to produce  income,  and to a lesser extent,
possible capital gain.

     (1)  Investments  in Real Estate or Interests in Real Estate.  See "Item 1.
Description  of  Business - Lending  Activities,"  and "Item 2.  Description  of
Property."

     (2)  Investments  in Real Estate  Mortgages.  See "Item 1.  Description  of
Business - Lending Activities."

     (3) Investments in Securities of or Interests in Persons  Primarily Engaged
in  Real  Estate  Activities.  See  "Item 1. Description  of  Business - Lending
Activities."

(c)      Description of Real Estate and Operating Data.

         Not Applicable.

Item 3. Legal Proceedings

         There are various  claims and lawsuits in which the Company or the Bank
are  periodically  involved,  such as  claims  to  enforce  liens,  condemnation
proceedings  on properties in which the Bank holds  security  interests,  claims
involving  the making and  servicing of real  property  loans,  and other issues
incident to the Bank's business. In the opinion of management,  no material loss
is expected from any of such pending claims or lawsuits.

Item  4.  Submission of Matters to a Vote of Security Holders

         No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year.

                                     PART II

Item  5.  Market for Common Equity and Related Stockholder Matters

(a)  The  information   contained  under  the  section  captioned  "Stock  Price
Information" of the Company's  Annual Report to Stockholders for the fiscal year
ended  September  30, 1998 (the  "Annual  Report"),  is  incorporated  herein by
reference.

(b) Use of Proceeds. The Registration Statement on Form SB-2 (No. 333-56689) for
which the use of proceeds  information is being disclosed was declared effective
by the  Securities  and Exchange  Commission  on August 10,  1998.  The offering
commenced on August 10, 1998 and  terminated on September 29, 1998 after 379,858
shares were sold.  The  Registration  Statement  covered the issuance of 548,838
shares. The managing underwriter for the offering was Ryan, Beck & Co. The title
of the securities  registered was Common Stock,  par value $0.10 per share.  The
aggregate  price of the  offering  amount  registered  was  $5,488,380,  and the
aggregate offering price of the amount sold was $3,798,580. From August 10, 1998
to  September  30, 1998,  the  expenses  incurred by the Company and the Bank in
connection  with the issuance and  distribution of the securities were $364,331,
including  $125,000  in  underwriting  fees.  Such  payments  were not direct or
indirect  payments to  directors,  officers,  general  partners of the issuer or
their associates, persons owning 10 percent or more of any class of equity

                                       14

<PAGE>



security of the Company or affiliates of the Company.  The net offering proceeds
to the Company  were  $3,434,249.  Of this amount,  between  August 10, 1998 and
September 30, 1998, $2,548,435 was contributed to working capital.

Item  6.  Management's Discussion and Analysis or Plan of Operation

         The  information  contained  in  the  section  captioned  "Management's
Discussion and Analysis of Financial Condition and Results of Operations" of the
Annual Report is incorporated herein by reference.

Item  7.  Financial Statements

         The  Registrant's   financial  statements  listed  under  Item  13  are
incorporated herein by reference.

Item  8.  Changes  in and  Disagreements  with  Accountants  On  Accounting  and
Financial Disclosure.

         On October 20, 1998, the Registrant retained Kronick Kalada Berdy & Co.
as its independent  public accountants for the purpose of auditing its financial
statements  and  providing  an  independent  accountant's  report  thereon.  The
Registrant has not consulted Kronick Kalada Berdy & Co. of the matters set forth
in Item  304(a)(2)  of  Regulation  S-K prior to that date.  Prior to becoming a
public company in September 1998, Lewis W. Parker,  III,  independent  certified
public  accountant,   audited  the  financial  statements  of  the  Registrant's
wholly-owned  subsidiary,  Peoples  Savings Bank,  and provided the  independent
accountant's  report thereon.  Lewis W. Parker, III is still actively engaged by
the Registrant for accounting and related services.

         In connection with the audits of Peoples Savings Bank's two most recent
fiscal  years  ended  September  30, 1997 and 1996,  and for the interim  period
through  the date of this  Report,  there  were no  disagreements  with Lewis W.
Parker,  III on any matter of  accounting  principles  or  practices,  financial
statement  disclosure,  or auditing scope or procedures that, if not resolved to
his satisfaction, would have caused him to make reference to the subject of such
disagreement in connection with his reports. In addition,  during these periods,
the  reports of Lewis W.  Parker,  III on the  financial  statements  of Peoples
Savings Bank did not contain any adverse  opinion or disclaimer  of opinion,  or
was  qualified  or  modified  as  to  uncertainty,  audit  scope  or  accounting
principles.

         Lewis W. Parker III has not advised the  Registrant  concerning  any of
the items set forth in Item 304(a)(1)(v) of Regulation S-K.





                                       15

<PAGE>




                                    PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons: Compliance
with Section 16(a) of the Exchange Act.

         The  following  table  sets  forth  information  with  respect  to  the
Company's directors and executive officers.
<TABLE>
<CAPTION>
                                   Age at                                                                 Current
                                September 30,                                           Director           Term
Name                                 1998         Position                                Since           Expires
----                           ---------------    --------                              --------          -------

<S>                                 <C>         <C>                                      <C>              <C> 
Herman Gutstein                      85           Chairman                                1965             1999

George G. Aaronson, Jr.              66           Director                                1970             1999

G. Edward Koenig, Jr.                57           Director                                1981             1999

Charles E. Adams                     83           Director                                1985             1998

Edgar N. Peppler                     62           Director (Vice Chairman)                1970             2000

William H. Wainwright, Jr.           68           Director                                1986             1998

Gary N. Pelehaty                     45           President, CEO and Director             1992             2000

Charles Alessi                       36           Vice President, CFO,                     N/A             N/A
                                                  Secretary and Treasurer

</TABLE>



         The  business  experience  for  the  past  five  years  of  each of the
directors and executive officers is as follows:

     George G.  Aaronson,  Jr. has been a director of the Bank since 1970. He is
employed by Falconer & Bell as a real estate sales agent.

     Charles E. Adams has been a director of the Bank since 1985.  Mr.  Adams is
now retired, but was the Administrator and Secretary of Florence Township Saving
and Loan Association for 20 years. Mr. Adams is on the  administrative  board of
Florence United Methodist  Church,  and is treasurer of the Florence  Historical
Society.

     Herman  Gutstein  has been a director of the Bank since  1965.  He has also
served as chairman of the board since 1992. Mr. Gutstein is retired. He formerly
owned a convenience store.

     G. Edward Koenig,  Jr. has,  except for a three year hiatus ending in 1993,
been a director since 1981. Mr. Koenig is President of E. J. Koenig Inc., a fuel
service petroleum products company and a heating and air conditioning  equipment
sales,  installation  and service  business.  Mr. Koenig sits on the  Burlington
County  Military  Affairs  Committee  Executive Board and served as its chairman
from 1996 to 1997.


                                       16

<PAGE>



     Edgar N. Peppler has been a director of the Bank since 1970.  He has served
as  vice-chairman  of the  board  since  1992.  Mr.  Peppler  is part  owner and
President of Peppler  Funeral Home, a business he has been associated with since
1957.  Mr.  Peppler is a member of the  Bordentown  Chamber of Commerce,  a past
president  of the  Bordentown  Kiwanis  Club,  and a past  master of the Masonic
Lodge.

     William H.  Wainwright,  Jr. has been a  director  of the Bank since  1968.
Before  retiring in 1995,  he was employed for 20 years as a loan officer at the
Farmers  Home  Administration  and  the  Small  Business   Administration.   Mr.
Wainwright is a member of the Surf City Yacht Club and served as their Commodore
in 1996.

         Gary N. Pelehaty has served the Bank as a director  since October 1992.
He has also  been  President  and  Chief  Executive  Officer  of the Bank  since
February of the same year. Mr. Pelehaty is a director of First Nations Financial
Services  Company.  Active in the local  community,  Mr.  Pelehaty serves on the
boards of directors of Bordentown Rotary, Burlington County Burn Foundation, and
is the finance chairman of Bordentown Veterans' Memorial Foundation.  He is also
a former director of Bordentown's  Chamber of Commerce and Vice President of the
Burlington/Camden Savings League.

     Charles   Alessi  has  been   employed  by  the  Bank  since  1992  and  is
Vice-President  and  our  Chief  Financial  Officer.  He is also  Secretary  and
Treasurer of the Bank. Mr. Alessi is a member of the Financial Managers Society.


Section 16(a) Beneficial Ownership Reporting Compliance

         Section  16(a) of the 1934 Act  requires  the  Company's  officers  and
directors,  and persons who own more than ten  percent of the Common  Stock,  to
file reports of ownership and changes in ownership of the Common Stock, on Forms
3, 4 and 5, with the Securities and Exchange  Commission  ("SEC") and to provide
copies of those Forms 3, 4 and 5 to the Company. The Company is not aware of any
beneficial owner of more than ten percent of its Common Stock. The directors and
executive  officers of the Company (the  "Reporting  Persons")  were required to
file an Initial  Statement of Beneficial  Ownership of Securities on Form 3 with
the SEC on or before  August 20, 1998. In addition,  the Reporting  Persons were
also required under applicable SEC regulations to file a Statement of Changes of
Beneficial  Ownership of Securities on Form 4 with the SEC on or before  October
10, 1998. The Reporting  Persons filed all required Forms 3 and Forms 4 with the
SEC on November 18, 1998.  The Reporting  Persons intend to timely file all such
reports in future periods.

Item 10.  Executive Compensation

Director Compensation

         Each  director  is  paid  monthly.  Total  aggregate  fees  paid to the
directors for the year ended  September 30, 1998 were $44,600.  Since October 1,
1997,  each  director  (including  the  chairman  of the  board) has been paid a
monthly fee of $500.



                                       17

<PAGE>



Executive Compensation

         The Company has no full time employees,  but relies on the employees of
the Bank for the limited services required by the Company. All compensation paid
to officers and employees by the Company is paid by the Bank.

         Summary Compensation Table. The following table sets forth the cash and
non-cash compensation awarded to or earned by the Bank's chief executive officer
at September  30, 1998. No other  employee  earned in excess of $100,000 for the
fiscal year ended September 30, 1998.


                                              Annual Compensation
                                 ---------------------------------------------
                                                   Other Annual     All Other
Name and Principal Position      Salary    Bonus   Compensation   Compensation
---------------------------      ------    -----   ------------   ------------

Gary N. Pelehaty
Director, President and CEO   $  98,912  $   --     $ 6,000(1)   $  2,946(2)

-----------------------------------
(1)      Consists of Board fees.
(2)      Consists of 401(k) plan matching contributions and cost of automobile.

         Employment Agreement. The Bank has entered into an employment agreement
with its  President,  Gary N.  Pelehaty.  Mr.  Pelehaty's  base salary under the
employment  agreement is $90,000.  The employment  agreement has a term of three
years.  The  agreement is  terminable by the Bank for "just cause" as defined in
the agreement.  If the Bank terminates Mr. Pelehaty  without just cause, he will
be entitled to a continuation of his salary from the date of termination through
the  remaining  term of the  agreement but in no event for a period of less than
twenty-four  months. The employment  agreement contains a provision stating that
in the event of the  termination of employment in connection  with any change in
control of the Bank,  Mr.  Pelehaty will be paid a lump sum amount equal to 2.99
times his five year average annual taxable cash  compensation.  If such payments
had been made under the agreement as of September 30, 1998,  such payments would
have equaled approximately $281,000. The aggregate payments that would have been
made to Mr.  Pelehaty  would be an expense  to the Bank,  thereby  reducing  the
Bank's net income and its capital by that amount.  The  agreement may be renewed
annually by the Bank's board of directors upon a  determination  of satisfactory
performance  within the board's sole  discretion.  If Mr.  Pelehaty shall become
disabled during the term of the agreement,  he shall continue to receive payment
of 100% of the base salary for a period of 12 months and 65% of such base salary
for the remaining term of such agreement.  Such payments shall be reduced by any
other benefit  payments made under other  disability  programs in effect for the
Bank's employees.


Item 11.  Security Ownership of Certain Beneficial Owners and Management

         (a)      Security Ownership of Certain Beneficial Owners

         Persons  and  groups  owning in excess  of 5% of the  Common  Stock are
required  to file  certain  reports  regarding  such  ownership  pursuant to the
Securities  Exchange Act of 1934,  as amended (the "1934  Act").  The  following
table sets forth, as of December 4, 1998, persons or groups who own more than 5%
of the Common Stock and the ownership of all executive officers and directors of
the Company

                                       18

<PAGE>



as a group.  Other than as noted below,  management  knows of no person or group
that owns more than 5% of the outstanding  shares of Common Stock at December 4,
1998.


                                         Amount and Nature of  Percent of Shares
Name and Address of Beneficial Owner     Beneficial Ownership  of Common Stock
------------------------------------     --------------------  ---------------

Farnsworth Bancorp, Inc.
Employee Stock Ownership Plan ("ESOP")
789 Farnsworth Avenue
Bordentown, New Jersey 08505(1)                  30,388            8.00%

All directors and officers of the Company
  as a group (8 persons)(2)                      38,782           10.21%




----------------------------------
(1)      The Bank's Employee Stock Ownership Plan ("ESOP") purchased such shares
         for the exclusive benefit of ESOP participants with funds borrowed from
         the Company.

(2)      Includes  shares of Common Stock held directly as well as by spouses or
         minor children,  in trust and other indirect ownership,  over which the
         individual exercises sole voting and investment power, unless otherwise
         indicated.  Excludes  30,388  unallocated  shares held by the ESOP over
         which  certain  directors,  as  trustees to the ESOP,  exercise  shared
         voting and  investment  power.  Such  individuals  disclaim  beneficial
         ownership  with  respect to such shares  held in a  fiduciary  capacity
         under the ESOP.

         (b)      Security Ownership of Management

         Ownership by Directors and Executive Officers as of December 4, 1998.

                               Number of Shares(1)   Percent of Shares of Common
                               -------------------   ---------------------------
                                                          Stock Outstanding
                                                          -----------------

George G. Aaronson, Jr.            6,000(2)                   1.58%

Charles E. Adams                   6,000(2)                   1.58%

Herman Gutstein                    6,000                      1.58%

G. Edward Koenig, Jr.              4,000(2)                   1.05%

Edgar N. Peppler                   6,000                      1.58%
 
William H. Wainwright, Jr.         6,000                      1.58%

Gary N. Pelehaty                   4,000                      1.05%

Charles Alessi                       782                       .21%



--------------------------------------
(1)      Includes  shares of Common Stock held directly as well as by spouses or
         minor  children,  in trust,  and other indirect  ownership,  over which
         shares the individuals  effectively  exercise sole or shared voting and
         investment power, unless otherwise indicated.

                                       19

<PAGE>



(2)  Excludes  30,388  shares of Common Stock held under the ESOP for which such
     individual  serves as either a member of the ESOP  Committee  or as an ESOP
     Trustee.  Such individual  disclaims  beneficial  ownership with respect to
     shares held in a fiduciary capacity. The ESOP purchased such shares for the
     exclusive  benefit  of ESOP  participants  with  funds  borrowed  from  the
     Company.  These shares are held in a suspense account and will be allocated
     among ESOP  participants  annually on the basis of compensation as the ESOP
     debt is repaid. The Board of Directors has appointed Messrs. Koenig, Adams,
     and Aaronson to serve on the ESOP  Committee and to serve as ESOP Trustees.
     The ESOP  Committee  or the  Board  instructs  the ESOP  Trustee  regarding
     investment  of ESOP plan  assets.  The ESOP  Trustees  must vote all shares
     allocated  to  participant  accounts  under  the ESOP as  directed  by ESOP
     participants.  Unallocated  shares and  shares  for which no timely  voting
     direction is received will be voted by the ESOP Trustees as directed by the
     Board or the ESOP Committee.


         (c) Management of the Registrant  knows of no  arrangements,  including
any pledge by any person of securities of the Registrant, the operation of which
may at a subsequent date result in a change in control of the Registrant.


Item 12.  Certain Relationships and Related Transactions

Certain Related Transactions

         No directors,  executive officers,  or immediate family members of such
individuals  were  engaged in  transactions  with the Company or any  subsidiary
involving  more  than  $60,000  during  the  year  ended   September  30,  1998.
Furthermore, the Company had no "interlocking" relationships existing during the
year ended September 30, 1998, in which (i) any executive officer is a member of
the  Board of  Directors/Trustees  of  another  entity,  one of whose  executive
officers  is a member of the  Company's  Board of  Directors,  or where (ii) any
executive  officer is a member of the compensation  committee of another entity,
one of whose executive officers is a member of the Company's Board of Directors.

         The Bank,  like many financial  institutions,  has followed a policy of
granting various types of loans to officers, directors, and employees. The loans
have been made in the ordinary course of business and on substantially  the same
terms, including interest rates and collateral,  as those prevailing at the time
for comparable transactions with the Bank's other customers,  and do not involve
more than the  normal  risk of  collectibility,  or  present  other  unfavorable
features.


Item 13.  Exhibits, List, and Reports on Form 8-K

         (a) Listed below are all  financial  statements  and exhibits  filed as
part of this report.

               1.   The  consolidated   statements  of  financial  condition  of
                    Farnsworth  Bancorp,  Inc. as of September 30, 1998 and 1997
                    and  the   related   consolidated   statements   of  income,
                    consolidated statements of equity and cash flows for each of
                    the years in the two year period ended  September  30, 1998,
                    together  with  the  related   notes  and  the   independent
                    auditors'  reports of Kronick  Kalada Berdy & Co.,  P.C. and
                    Lewis W. Parker, III, Certified Public Accountant.

               2.   Schedules omitted as they are not applicable.

                                       20

<PAGE>




                    3.   The  following  exhibits are included in this Report or
                         incorporated herein by reference:

                    (a)  List of Exhibits:

                    3(i) Articles of Incorporation of Farnsworth Bancorp, Inc. *
                    3(ii) Bylaws of Farnsworth Bancorp, Inc. *
                    10.1 Employment Agreement with Gary N. Pelehaty *
                    10.2 Employment Agreement with Charles Alessi *
                    10.3 Severance Agreement with Elaine Denelsbeck *
                    13   Portions  of  Annual  Report  to  Stockholders  for the
                         fiscal year ended September 30, 1998
                    21   Subsidiaries   of  the   Registrant   (See   Item  1  -
                         Description of Business)
                    27   Financial Data Schedule (electronic filing only)

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

*    Incorporated by reference to the Registration  Statement on Form SB-2 (File
     No. 333-56689) declared effective by the SEC on August 10, 1998.

                  (b)      Not applicable


                                       21

<PAGE>

                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended,  the registrant has duly caused this report to
be signed on its behalf by the  undersigned,  thereunto  duly  authorized  as of
December 29, 1998.

                            FARNSWORTH BANCORP, INC.


                            By:  /s/ Gary N. Pelehaty
                               -------------------------------------------------
                                  Gary  N. Pelehaty
                                  President and Chief Executive Officer
                                  (Duly Authorized Representative)

         Pursuant to the requirement of the Securities  Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities indicated as of December 29, 1998.


/s/ Gary N. Pelehaty                     /s/ Charles Alessi        
-------------------------------------    ---------------------------
Gary N. Pelehaty                         Charles Alessi
President and Chief Executive Officer    Vice President, Secretary and Treasurer
(Principal Executive Officer)            (Principal Accounting and Financial 
                                          Officer)


/s/ Herman Gutstein                      /s/ George G. Aaronson, Jr.     
-------------------------------------    ---------------------------
Herman Gutstein                          George G. Aaronson, Jr.
Chairman of the Board                    Director



/s/ G. Edward Koenig, Jr.                /s/ Edgar N. Peppler          
-------------------------------------    ---------------------------
G. Edward Koenig, Jr.                    Edgar N. Peppler
Director                                 Director



/s/ William H. Wainwright, Jr.           /s/ Charles E. Adams        
-------------------------------------    ---------------------------
William H. Wainwright, Jr.               Charles E. Adams
Director                                 Director