EXHIBIT 13

<PAGE>




                            FARNSWORTH BANCORP, INC.
                       2000 ANNUAL REPORT TO STOCKHOLDERS


<PAGE>


                            FARNSWORTH BANCORP, INC.
                               2000 ANNUAL REPORT





                                TABLE OF CONTENTS

                                                                           Page

Letter to Stockholders........................................................1

Corporate Profile ............................................................2

Stock Price Information.......................................................2

Selected Financial Ratios and Other Data......................................3

Management's Discussion and Analysis..........................................4

Independent Auditor's Report................................................F-1

Consolidated Statements of Financial Condition............................. F-2

Notes to Consolidated Financial Statements..................................F-6

Corporate Information........................................................12

                                       1
<PAGE>
                      [FARNSWORTH BANCORP, INC. LETTERHEAD]


To Our Stockholders:

         On behalf of our Board of Directors  and  employees,  we are pleased to
present our 2000 Annual  Report to  Stockholders.  As you will see in the Annual
Report,  our net income  decreased during fiscal 2000 due, in large part, to the
expenses  we incurred  in  connection  with the opening in April 2000 of our new
branch in Mt.  Laurel,  New Jersey.  We are happy with  progress  this branch is
making  and we feel the  added  expenses  associated  with this  branch  opening
represent a good investment in the future.

         For the fiscal  year ended  September  30,  2000,  the  Company  earned
$124,051or  $.36 per share,  as  compared  to net income of $224,191 or $.66 per
share,  for the fiscal year ended September 30, 1999. At September 30, 2000, the
Company's  assets  totaled  $58.1  million,  as  compared  to $56.0  million  at
September 30, 1999. Stockholders' equity was $5.4 million or $14.17 per share at
September  30,  2000,  as compared to  stockholders'  equity of $5.3  million or
$13.92  per  share,   at  September  30,  1999.   The  increase  in  assets  and
stockholders' equity was primarily attributable to net income from operations.

         In November 2000, the Company  organized  Peoples  Financial  Services,
Inc., a new  subsidiary of the Company that will offer  brokerage and investment
advisory services,  through a third party, to all of the Bank's customers and to
the general  public.  The Company has entered into a networking  agreement  with
Investors Capital  Corporation,  a brokerage and investment advisory firm, which
will directly provide these new services to our customers and the general public
at the Bank's offices. We also plan to offer insurance  products,  such as life,
health,  property and casualty  insurance,  through Peoples Financial  Services,
Inc. In addition  to  offering a wider  array of  products  and  services to our
customers  and the general  public,  the Company hopes this new line of business
will increase non-interest income.

         Our goal  remains  the same as it has  always  been,  to  enhance  your
investment in our Company.

                                          Sincerely,


                                          /s/Gary N. Pelehaty
                                          --------------------------------------
                                          Gary N. Pelehaty
                                          President and Chief Executive Officer



<PAGE>


Corporate Profile

Farnsworth  Bancorp,  Inc.  (the  "Company")  is the parent  company for Peoples
Savings Bank (the "Bank"). The Company was formed as a New Jersey corporation in
May 1998 at the direction of the Bank in connection  with the Bank's  conversion
from a mutual  to stock  form of  ownership.  The  Company  acquired  all of the
capital stock issued by the Bank upon its conversion. On September 29, 1998, the
Bank completed its conversion in connection  with a $3.8 million  initial public
offering of the Company's common stock.  The Company is a grandfathered  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.  At the present time, 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
mutual-to-stock conversion.

Peoples Savings Bank, founded in 1880 under the name of "The Bordentown Building
and Loan Association," is a federally chartered stock savings bank headquartered
in Bordentown,  New Jersey. The Bank is subject to examination and comprehensive
regulation by the Office of Thrift  Supervision (the "OTS") and its deposits are
federally  insured by the Federal  Deposit  Insurance  Corporation  (the "FDIC")
under the Savings Association  Insurance Fund (the "SAIF"). The Bank is a member
of, and owns  capital  stock in, the Federal  Home Loan Bank (the "FHLB") of New
York, which is one of the twelve 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.

Stock Price Information

The Company's common stock has been traded on the OTC-Electronic  Bulletin Board
under the trading  symbol of "FNSW" since it commenced  trading on September 30,
1998.  The number of  shareholders  of record of common stock as of December 18,
2000,  was  approximately  415.  This does not  reflect the number of persons or
entities who held stock in nominee or "street"  name through  various  brokerage
firms. At December 18, 2000, there were 360,866 shares  outstanding.  There were
no  dividends  paid by the Company  during the fiscal year ended  September  30,
2000.  The  Company's  ability  to pay  dividends  to  stockholders  is  largely
dependent upon the dividends it receives from the Bank. The Bank may not declare
or pay a cash dividend on any of its stock if the effect thereof would cause the
Bank's  regulatory  capital to be reduced below (1) the amount  required for the
liquidation  account  established in connection with the Conversion,  or (2) the
regulatory requirements imposed by the OTS.

                                       2

<PAGE>

                    Selected Financial Ratios and Other Data


                                                      At or For the Years Ended
                                                           September 30,
                                                     ---------------------------
                                                      2000                 1999
                                                      ----                 ----
Return on average assets........................       .22%                 .45%

Return on average equity........................      2.31                 4.11

Average equity to average assets ratios.........      9.39                10.96

Equity to assets at period end..................      9.26                 9.44

Net interest rate spread........................      2.80                 3.08

Net yield on average interest-earning assets....      3.29                 3.65

Non-performing loans to total assets............       .55                 1.09

Allowance for loan loss to total loans..........       .46                  .45

                                       3

<PAGE>



                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

The following discussion of the financial condition and results of operations of
the  Company and the Bank should be read in  conjunction  with the  accompanying
Consolidated Financial Statements.

General

         The following discussion relates only to the Bank's financial condition
and results of operations.

         The Bank's  results of  operations  depend  primarily  on net  interest
income,  which is determined by (i) the difference between rates of interest the
Bank  earns on its  interest-earning  assets  and the  rates  the  Bank  pays on
interest-bearing  liabilities  (interest  rate  spread),  and (ii) the  relative
amounts of interest-earning assets and interest-bearing  liabilities. The Bank's
results of  operations  are also  affected by  non-interest  income,  including,
primarily,  income from customer  deposit  account  service  charges,  gains and
losses  from  the  sale  of  investments  and  mortgage-backed   securities  and
non-interest expense, including, primarily,  compensation and employee benefits,
federal deposit insurance  premiums,  office occupancy cost, and data processing
cost.  The Bank's  results of  operations  are also  affected  significantly  by
general and economic and competitive conditions,  particularly changes in market
interest rates, government policies and actions of regulatory  authorities,  all
of which are beyond the Bank's control.

Market Risk Analysis

         Qualitative Analysis. The Bank's assets and liabilities may be analyzed
by  examining  the  extent to which  they are  interest  rate  sensitive  and by
monitoring  the  expected  effects of  interest  rate  changes on the Bank's net
portfolio value.

         An asset or liability is interest rate sensitive within a specific time
period if it will mature or  re-price  within  that time  period.  If the Bank's
assets  mature  or  re-price  more  quickly  or to a  greater  extent  than  its
liabilities,  the Bank's net portfolio  value and net interest income would tend
to increase  during periods of rising interest rates but decrease during periods
of falling interest rates.  Conversely,  if the Bank's assets mature or re-price
more slowly or to a lesser extent than its liabilities, the Bank's net portfolio
value and net interest  income would tend to decrease  during  periods of rising
interest rates but increase during periods of falling interest rates. The Bank's
policy  has been to address  the  interest  rate risk  inherent  in the  typical
savings institution business of originating long-term loans funded by short-term
deposits by  maintaining  sufficient  liquid  assets for material and  prolonged
changes  in  interest  rates and by  originating  loans  with  shorter  terms to
maturity such as construction,  commercial and consumer loans. In addition,  the
Bank has invested in adjustable-rate  mortgage-backed  securities as an interest
rate risk management strategy.

                                       4
<PAGE>

         Quantitative  Analysis.  In order to encourage savings  associations to
reduce  their  interest  rate  risk,  the OTS  adopted a rule  incorporating  an
interest rate risk ("IRR") component into the risk-based  capital rules. The IRR
component is a dollar  amount that will be deducted  from total  capital for the
purpose of calculating an institution's  risk-based  capital  requirement and is
measured  in terms of the  sensitivity  of its net  portfolio  value  ("NPV") to
changes in interest rates.  NPV is the difference  between incoming and outgoing
discounted cash flows from assets, liabilities, and off-balance sheet contracts.
An  institution's  IRR is  measured  as the  change  to its NPV as a result of a
hypothetical 200 basis point ("bp") change in market interest rates. A resulting
change in NPV of more than 2% of the  estimated  present  value of total  assets
("PV")  will  require  the  institution  to deduct  from its capital 50% of that
excess  change.  The rules provide that the OTS will calculate the IRR component
quarterly for each  institution.  Based on the Bank's asset size and  risk-based
capital, the Bank has been informed by the OTS that it is exempt from this rule.
Nevertheless, the following table presents the Bank's NPV at September 30, 2000,
as calculated by the OTS, based on quarterly information voluntarily provided to
the OTS.

       Changes                Net Portfolio Value
      In Market       ---------------------------------------
    Interest Rates    $ Amount        $ Change     % Change      NPV Ratio(1)
    --------------    ----------   -------------   ---------   ----------------
    (basis points)      (Dollars in Thousands)

          +300         2,459            -3,342       -58%             4.51%
          +200         3,566            -2,325       -39%             6.38%
          +100         4,729            -1,161       -20%             8.25%
             0         5,891                                         10.03%
          -100         6,895             1,005       +17%            11.49%
          -200         7,692             1,802       +31%            12.59%
          -300         8,426             2,535       +43%            13.55%


(1)  Calculated as the estimated NPV divided by present value of total assets.

         Computations  of  prospective  effects of  hypothetical  interest  rate
changes are based on numerous  assumptions,  including relative levels of market
interest rates,  prepayments and deposit  run-offs and should not be relied upon
as  indicative  of actual  results.  Certain  shortcomings  are inherent in such
computations.   Although   certain  assets  and  liabilities  may  have  similar
maturities or periods of  re-pricing,  they may react at different  times and in
different degrees to changes in market rates of interest.  The interest rates on
certain types of assets and  liabilities  may fluctuate in advance of changes in
market interest rates,  while rates on other types of assets and liabilities may
lag  behind  changes  in  market  interest  rates.  In the  event of a change in
interest  rates,   prepayments  and  early   withdrawal   levels  could  deviate
significantly  from those  assumed in

                                       5
<PAGE>

making the calculations set forth above. Additionally,  an increased credit risk
may result as many borrowers may be unable to service their debt in the event of
an interest rate increase.

         The Bank's  Board of Directors  review the Bank's  asset and  liability
policies on an annual basis.  The Board of Directors  meets  quarterly to review
interest  rate risk and trends,  as well as  liquidity  and  capital  ratios and
requirements.  Management  administers  the policies and  determinations  of the
board of  directors  with respect to the Bank's  asset and  liability  goals and
strategies.  The  Bank  expects  that  its  asset  and  liability  policies  and
strategies  will  continue as described so long as  competitive  and  regulatory
conditions  in the  financial  institution  industry and market  interest  rates
continue as they have in recent years.

Financial Condition

         Total  assets  increased  $2.1  million  or 3.8% to  $58.1  million  at
September 30, 2000 from $56.0  million at September  30, 1999.  The increase was
primarily   attributable  to  a  $1.0  million  increase  in  the  Bank's  loans
receivable,  net, a $100,000  increase in available for sale  securities,  and a
$1.3 million increase in cash and due from banks, partially offset by a decrease
in  mortgage-backed   securities  of  $300,000.  The  Bank's  total  liabilities
increased  $2.0 million or 3.9%,  to $52.7  million at  September  30, 2000 from
$50.7 million at September 30, 1999. The increase was primarily  attributable to
a $2.2  million  increase  in  deposits,  offset by a $100,000  decrease in FHLB
advances  and a  $100,000  decrease  in other  liabilities.  Deposits  increased
primarily due to increased marketing efforts through greater advertising and the
opening of a new branch office in Mt. Laurel,  New Jersey. The increase in loans
receivable  was due to  greater  marketing  and  increased  demand in the Bank's
primary market area. The decrease in securities held-to-maturity was a result of
maturing instruments.

         Retained earnings  increased  $124,000 to $2.6 million or 4.5% of total
assets at  September  30,  2000,  as compared  to $2.5  million or 4.4% of total
assets at September 30, 1999.  The increases in retained  earnings are primarily
attributable to net income.

                                       6
<PAGE>

Average Balance Sheet

         The following table sets forth a summary of average  balances of assets
and liabilities as well as average yield and rate information.  Average balances
are based upon month-end balances, however, the Bank does not believe the use of
month-end  balances  differs  significantly  from an  average  based  upon daily
balances. There have been no tax equivalent adjustments made to yields.

<TABLE>
<CAPTION>

                                                                      Year Ended September 30,
                                                             2000                                1999
                                           ----------------------------------  -----------------------------------
                                                                     Average                               Average
                                              Average                Yield/        Average                 Yield/
                                              Balance    Interest     Cost         Balance      Interest    Cost
                                              -------    --------     ----         -------      --------    ----
                                                                     (Dollar in thousands)
<S>                                       <C>          <C>          <C>        <C>            <C>         <C>
Interest-earning assets:
  Loans receivable(1)....................    $ 39,951     $ 3,151      7.88%      $35,051       $ 2,809      8.01
  Mortgage-backed securities.............       1,609         104      6.48         1,785           113      6.33
  Investment securities(2)...............      10,902         566      5.19         8,565           355      4.14
  Other interest-earning assets..........       1,953          60      3.08         1,901            86      4.52
                                             --------     -------    ------       -------       -------      ----
     Total interest-earning assets.......      54,415       3,881      7.13        47,302         3,363      7.11
                                                                                                           ------
Noninterest-earning assets...............       2,739          --                   2,436            --
                                             --------     -------                 -------       -------
     Total assets........................    $ 57,154     $ 3,881                 $49,738       $ 3,363
                                             ========     =======                 =======       =======
Interest-bearing liabilities:
  NOW accounts...........................    $  6,245     $   109      1.75       $ 5,093       $    99      1.94
  Savings accounts.......................       7,760         187      2.40         7,277           178      2.45
  Money market accounts..................       3,063          82      2.67         2,582            69      2.67
  Certificates of deposit................      23,059       1,209      5.25        21,652         1,096      5.06
  FHLB - Advances........................       8,184         505      6.17         3,962           193      4.87
                                             --------     -------    ------       -------       -------    ------
     Total interest-bearing liabilities..      48,311       2,092      4.33        40,566         1,635      4.03
                                                                     ------                                ------
Noninterest-bearing liabilities..........       3,476                               3,720
                                             --------                             -------
     Total liabilities...................      51,787                              44,286
                                             --------                             -------

Stockholders' equity.....................       5,367                               5,452
                                             --------                             -------
     Total liabilities and
        Retained earnings................    $ 57,154     $ 2,092                 $49,738       $ 1,635
                                             ========     =======                 =======       =======

Net interest income......................                 $ 1,789                               $ 1,728
                                                          =======                                ======
Interest rate spread(3)..................                              2.80%                                 3.08%
                                                                     ======                                ======
Net yield on interest-earning assets(4)..                              3.29%                                 3.65%
                                                                     ======                                ======
Ratio of average interest-earning
  assets   to average interest-bearing
  liabilities............................                            112.63%                               116.61%
                                                                     ======                                ======
</TABLE>
-----------------
(1)  Average balances include non-accrual loans.
(2)  Includes interest-bearing deposits in other financial institutions.
(3)  Interest rate spread represents the difference between the average yield on
     interest-earning   assets  and  the   average   cost  of   interest-bearing
     liabilities.
(4)  Net yield on  interest-earning  assets  represents net interest income as a
     percentage of average interest-earning assets.

                                       7
<PAGE>

Rate/Volume Analysis

         The table below sets forth certain information regarding changes in the
Bank's interest income and interest expense for the periods indicated.  For each
category   of   interest-earning   assets  and   interest-bearing   liabilities,
information  is  provided  on  changes  attributable  to (i)  changes  in volume
(changes  in  average  volume  multiplied  by old rate);  (ii)  changes in rates
(changes in rate multiplied by old average volume); (iii) changes in rate-volume
(changes in rate multiplied by the change in average volume).

<TABLE>
<CAPTION>
                                                                   Year Ended September 30,
                                                                         2000 vs. 1999
                                                              ----------------------------------
                                                                      Increase (Decrease)
                                                                            Due to
                                                              ----------------------------------
                                                                                   Rate/
                                                               Volume     Rate     Volume   Net
                                                              --------   ------   -------  -----
                                                                           (In thousands)
<S>                                                           <C>      <C>      <C>      <C>
Interest income:
  Loans receivable ..........................................   $ 392    $ (46)   $  (4)   $ 342
  Mortgage-backed securities ................................     (11)       3       (1)      (9)
  Investment securities .....................................      96       90       25      211
  Other interest-earning assets .............................       2      (27)      (1)     (26)
                                                                -----    -----    -----    -----
     Total interest income ..................................   $ 479    $  20    $  19    $ 518
                                                                =====    =====    =====    =====

Interest expense:
  NOW accounts ..............................................   $  22    $ (10)   $  (2)   $  10
  Savings account ...........................................      12       (3)      --        9

  Money market accounts .....................................      13       --       --       13
  Certificates of deposit ...................................      70       40        3      113
  Other liabilities .........................................     206       52       54      312
                                                                -----    -----    -----    -----
     Total interest expense .................................     323       79       55      457
                                                                =====    =====    =====    =====

Change in net interest income ...............................   $ 156    $ (59)   $ (36)   $  61
                                                                =====    =====    =====    =====
</TABLE>

                                       8
<PAGE>

Results of Operations

         Net Income. The Bank's net income decreased $100,000 for the year ended
September 30, 2000,  to $124,000 from $224,000 for the year ended  September 30,
1999.  This  decrease  was  primarily  attributable  to a $278,000  increase  in
non-interest  expense,  partially offset by increases in net interest income and
non-interest income.

         Net  Interest  Income.  Net  interest  income  is the most  significant
component  of the Bank's  income from  operations.  Net  interest  income is the
difference  between interest the Bank received on its  interest-earning  assets,
primarily loans, investment and mortgage-backed securities and interest the Bank
pays on its interest-bearing liabilities, primarily deposits and borrowings. Net
interest  income  depends on the volume of and rates earned on  interest-earning
assets and the volume of and rates paid on interest-bearing liabilities.

         Net interest income after provision for loan losses increased  $111,000
or 6.7%,  to $1.8 million for the year ended  September 30, 2000, as compared to
$1.7 million for the year ended  September 30, 1999.  The increase was primarily
due to the growth in the  average  balance of  interest-earning  assets to $54.4
million in 2000 from $47.3 million in 1999.

         The increase in the average balance of interest-earning  assets of $7.1
million  primarily  reflects  increases  of $4.9  million in the Bank's  average
balance of loans and $2.3 million in investment securities,  partially offset by
a decrease of $100,000 in the mortgage-backed  average balance of securities and
other assets.

         The increase in average  interest-bearing  liabilities  of $7.7 million
reflects   increases  of  $1.2  million  in  the  Bank's   average   balance  of
interest-bearing  NOW  accounts  and $2.4  million  in the  average  balance  of
savings,  money  market and  certificates  of deposit  and an  increase  of $4.2
million in the average balance of FHLB borrowings.

         Provision  for Loan Losses.  Provision  for loan losses was $10,000 for
the year ended  September  30,  2000,  as compared to $60,000 for the year ended
September 30, 1999.  The provision is  established  to adjust the balance of the
allowance for loan losses to a level management feels is sufficient based on the
risk characteristics of the loan portfolio.

         Management believes the allowance for loan losses is at a level that is
adequate to provide for  estimated  losses.  However,  there can be no assurance
that further  additions  will not be made to the  allowance and that such losses
will not exceed the estimated amount.

         Noninterest  Income.  Noninterest income increased $20,000 or 8.5% from
$235,000  for the year ended  September  30,  1999 to  $255,000  for 2000.  This
increase in the Bank's  noninterest income was due to a gain on the sale of real
estate  owned of  $36,000,  partially  offset  by a  decrease  in fees and other
service  charges  of  $13,000  and a  decrease  in gain on  available  for  sale
securities of $3,000.

                                       9
<PAGE>

         Noninterest  Expense.  Noninterest  expense increased $278,000 or 17.7%
from $1.6 million for the year ended  September  30,  1999,  to $1.9 million for
2000.  The  increase  in the Bank's  noninterest  expense  was due to a $105,000
increase in the Bank's  occupancy and equipment  expense,  a $66,000 increase in
other noninterest expense and an increase of $116,000 in the Bank's compensation
and  benefits,  partially  offset by a decrease of $9,000 in the Bank's  federal
insurance premiums. The category of non-interest expense described as "Other" is
comprised  of  expenses  related to  advertising,  fees  charged by banks,  loan
processing   fees,   NOW  expenses,   costs  related  to  supplies  and  various
professional fees. The highest of these expenses was $85,000 for bank processing
fees. The increase in occupancy and equipment  expense was  attributable in part
to  expenses  associated  with the opening of the Bank's new Mt.  Laurel  branch
office in April 2000. The increase in compensation  and benefits expense was due
in part to additional personnel required to support the Bank's growth.

         Income Tax Expense.  Income tax expense decreased $47,000 from $109,000
for the year ended  September  30,  1999 to $61,000 for 2000.  This  decrease in
income  tax  expense  is due to the  decrease  in the  Bank's  pretax  income of
$147,000 from $333,000 for 1999 to $186,000 for 2000.  The Bank's  effective tax
rate was 33% for both the year ended September 30, 2000 and 1999.

Liquidity and Capital Resources

         The Bank is  required to maintain  minimum  levels of liquid  assets as
defined by OTS  regulations.  This  requirement,  which varies from time to time
depending upon economic conditions and deposit flows, is based upon a percentage
of the Bank's deposits and short-term  borrowings.  The required ratio currently
is 4.0% and the Bank's regulatory liquidity ratio average was 14.8% and 17.5% at
September 30, 2000 and 1999, respectively.

         The Bank's  primary  sources of funds are deposits,  repayment of loans
and  mortgage-backed   securities,   maturities  of  investment  securities  and
interest-bearing  deposits with other banks, advances from the FHLB of New York,
and funds  provided from  operations.  While  scheduled  repayments of loans and
mortgage-backed   securities  and   maturities  of  investment   securities  are
predictable  sources of funds,  deposit flows,  and loan prepayments are greatly
influenced  by the general  level of interest  rates,  economic  conditions  and
competition.  The Bank uses its liquidity resources principally to fund existing
and future loan commitments, maturing certificates of deposit and demand deposit
withdrawals,  to invest in other interest-earning assets, to maintain liquidity,
and meet operating expenses.

         Net cash provided by the Bank's operating  activities (the cash effects
of  transactions  that enter into the Bank's  determination  of net income e.g.,
non-cash items,  amortization and  depreciation,  provision for loan losses) for
the year ended  September  30, 2000  totaled  $141,000,  a decrease of $9,000 as
compared to 1999.

         Net  cash  used  by  the  Bank's  investing   activities   (i.e.,  cash
disbursements,  primarily for the purchase of the Bank's  investment  securities
and mortgage-backed securities portfolios and the Bank's loan portfolio) for the
year ended September 30, 2000,  totaled  $805,000,  a decrease of $15.7 million.
The decrease in cash used was primarily  attributable to funding net loan

                                       10
<PAGE>

growth of $1.2 million in 2000 as compared to $7.9 million in 1999 as well as no
investment  purchases in 2000 as compared to $10.8 million in 1999. The decrease
in cash used was partially  offset by paydowns and  maturities of investment and
mortgage-backed  securities  of $287,000 in 2000 as compared to $2.5  million in
1999.

         Net cash  provided  in the  Bank's  financing  activities  (i.e.,  cash
receipts  primarily from net proceeds from stock issuance and from net increases
in deposits and net increases in FHLB advances) for the year ended September 30,
2000,  totaled $1.9 million, a decrease of $12.3 million as compared to the year
ended  September 30, 1999.  This increase in cash was primarily  attributable to
increased  deposits of $2.2  million  offset by  repayment  of FHLB  advances of
$116,000 and a purchase of treasury stock of $185,000.

         Approximately  $19.1 million of the Bank's time deposits  mature within
the next 12  months.  The Bank  expects  such  deposits  to be renewed at market
rates.  In  addition to this source of  continuing  funding,  the Bank has total
borrowing  capacity of 50% of total first mortgage loans through the FHLB of New
York.

                                       11
<PAGE>
xxxx




To the Board of Directors
Farnsworth Bancorp, Inc. and Subsidiary


                          INDEPENDENT AUDITORS' REPORT
                          ----------------------------


We have audited the accompanying  consolidated statements of financial condition
of Farnsworth  Bancorp,  Inc. and  Subsidiary as of September 30, 2000 and 1999,
and the related  consolidated  statements  of income and  comprehensive  income,
changes in stockholders'  equity and cash flows for the years then ended.  These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable  assurance about whether the  consolidated  financial  statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence  supporting the amounts and disclosures in the  consolidated  financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
consolidated  financial  statement  presentation.  We  believe  that our  audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the financial position of Farnsworth Bancorp,
Inc. and  Subsidiary  at September  30, 2000 and 1999,  and the results of their
operations  and their cash flows for the years  then  ended in  conformity  with
generally accepted accounting principles.



                                             /s/Kronick Kalada Berdy & Co.


Kingston, Pennsylvania
November 16, 2000

                                      F-1
<PAGE>

                     FARNSWORTH BANCORP, INC. AND SUBSIDIARY

                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

                           September 30, 2000 and 1999

<TABLE>
<CAPTION>
                                                                              September 30,
                                                                   -----------------------------------
                           ASSETS                                       2000                1999
                           ------                                  ---------------     ---------------
<S>                                                                <C>                 <C>
Cash and due from banks                                              $  3,163,345        $  1,883,104
Securities available for sale                                           8,760,132           8,672,614
Securities held to maturity (fair value approximates
   $2,129,650 at September 30, 2000)                                    2,273,068           2,267,216
Mortgage backed securities held to maturity (fair value
   approximates $1,443,053 at September 30, 2000)                       1,468,438           1,755,110
Loans receivable, net                                                  39,850,070          38,832,141
Accrued interest receivable                                               419,459             423,706
Federal Home Loan Bank of New York stock at
  cost, substantially restricted                                          457,800             418,700
Premises and equipment                                                  1,575,974           1,516,252
Deferred income taxes                                                      66,611              99,359
Real estate owned                                                               -              88,013
Other assets                                                               60,594              72,236
                                                                   ---------------     ---------------

Total assets                                                         $ 58,095,491        $ 56,028,451
                                                                   ===============     ===============

            LIABILITIES AND STOCKHOLDERS' EQUITY
            ------------------------------------

Deposits
   Non Interest Bearing                                              $  2,336,530        $  3,989,352
   Interest Bearing                                                    42,398,105          38,500,810

Federal Home Loan Bank advances                                         7,597,286           7,712,940
Advances by borrowers for taxes and insurance                             212,302             213,653
Accrued income taxes                                                          469              78,160
Accrued interest payable                                                   72,492              97,119
Accounts payable and other accrued expenses                                97,298             149,254
                                                                   ---------------     ---------------
Total liabilities                                                      52,714,482          50,741,288
                                                                   ---------------     ---------------
Preferred stock $.10 par value, 1,000,000 shares
   authorized; none issued and outstanding
Common stock $.10 par value, 5,000,000 shares
   authorized; 379,858 shares issued                                       37,985              37,985
Additional paid in capital                                              3,396,262           3,396,262
Treasury stock at cost 18,992 shares                                     (185,172)                  -
Retained earnings substantially restricted                              2,575,605           2,451,554
Common stock acquired by employee stock
   ownership plan (ESOP)                                                 (235,154)           (303,880)
Common stock acquired by restricted stock
   plan (RSP)                                                            (127,764)           (159,364)
Accumulated other comprehensive income,
  unrealized depreciation on available for sale
  securities, net of taxes                                                (80,753)           (135,394)
                                                                   ---------------     ---------------
Total stockholders' equity                                              5,381,009           5,287,163
                                                                   ---------------     ---------------

Total liabilities and stockholders' equity                           $ 58,095,491        $ 56,028,451
                                                                   ===============     ===============
</TABLE>
                  The accompanying notes are an integral part
                  of these consolidated financial statements.

                                      F-2
<PAGE>

                     FARNSWORTH BANCORP, INC. AND SUBSIDIARY

                        CONSOLIDATED STATEMENTS OF INCOME

                           September 30, 2000 and 1999

<TABLE>
<CAPTION>
                                                                                2000          1999
                                                                           -------------   -----------
<S>                                                                      <C>             <C>
Interest income:
  Loans receivable                                                         $  3,150,544    $2,809,244
  Securities                                                                    705,684       500,293
  Federal funds sold                                                             24,734        53,774
                                                                           -------------   -----------
         Total interest income                                                3,880,962     3,363,311
                                                                           -------------   -----------
Interest expense:
  Deposits                                                                    1,586,914     1,441,946
  Federal Home Loan Bank advances                                               505,024       192,962
                                                                           -------------   -----------
         Total interest expense                                               2,091,938     1,634,908
                                                                           -------------   -----------
         Net interest income                                                  1,789,024     1,728,403
Provision for loan losses                                                        10,000        60,579
                                                                           -------------   -----------
         Net interest income after provision
           for loan losses                                                    1,779,024     1,667,824
                                                                           -------------   -----------
Noninterest income:
  Fees and other service charges                                                219,635       232,123
  Gain on sale of REO                                                            35,664             -
  Net realized gains on sale of available for sale securities                         -         3,359
                                                                           -------------   -----------
         Total noninterest income                                               255,299       235,482
                                                                           -------------   -----------
Noninterest expense:
  Compensation and benefits                                                     869,584       752,890
  Occupancy and equipment                                                       411,782       307,337
  Federal insurance premiums and assessments                                     12,682        21,897
  Other                                                                         554,356       488,302
                                                                           -------------   -----------
         Total noninterest expense                                            1,848,404     1,570,426
                                                                           -------------   -----------
Income before provision for income taxes                                        185,919       332,880

Provision for income taxes                                                       61,868       108,689
                                                                           -------------   -----------
         Net income                                                             124,051       224,191
                                                                           -------------   -----------
Other comprehensive income
  Unrealized gain (loss) on securities available
  for sale, net of taxes $30,736, 2000; $122,081,1999                            54,641      (217,033)
  Reclassification adjustment for gains included in net income                        -        (3,359)
                                                                           -------------   -----------
         Comprehensive income                                               $   178,692    $    3,799
                                                                           =============   ===========
Net Income per common share: Basic                                          $      0.36    $     0.66
                                                                           =============   ===========
Weighted average number of shares outstanding during the year               $   337,336    $  337,314
                                                                           =============   ===========
</TABLE>
                  The accompanying notes are an integral part
                  of these consolidated financial statements.

                                      F-3
<PAGE>

                     FARNSWORTH BANCORP, INC. AND SUBSIDIARY

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

                           September 30, 2000 and 1999
<TABLE>
<CAPTION>
                                                                                                       Appreciation
                                                           Retained         Common        Common      (Depreciation)
                                Additional                 Earnings         Stock         Stock        on Securities      Total
                       Common    Paid in     Treasury    Substantially    Acquired      Acquired      Available for    Stockholders'
                        Stock     Capital       Stock     Restricted       By ESOP        By RSP     Sale, Net of Tax     Equity
                       -------- ----------- ----------   -------------   -----------   -----------   -------------------------------
<S>                    <C>     <C>          <C>         <C>               <C>           <C>                 <C>         <C>
Balance at
   September 30, 1998   $37,985 $3,396,262   $       -   $2,227,363        $(303,880)    $       -           84,998      $5,442,728

Net income for the
   year ended
   September 30, 1999         -          -           -      224,191                -             -                -         224,191
Acquisition of common
   stock by RSP               -          -           -            -                -      (159,364)               -        (159,364)
Change in unrealized
   (depreciation)
   on securities
   available for sale,
   net of tax                 -          -           -            -                -             -         (220,392)       (220,392)
                        ------- ----------   ---------   -----------       ---------     ---------        ---------      ----------
Balance at
   September 30, 1999    37,985  3,396,262           -    2,451,554         (303,880)     (159,364)        (135,394)      5,287,163

Net income for the
   year ended
   September 30, 2000         -          -           -      124,051                -             -                -         124,051
Acquisition of
   treasury stock             -          -    (185,172)           -                -                              -        (185,172)
RSP shares allocated                                                                        31,600                           31,600
ESOP shares allocated                                                         68,726                                         68,726
Change in unrealized
   (depreciation)
   on securities
   available for sale,
   net of tax                 -          -           -            -                -             -           54,641          54,641
                        ------- ----------   ---------   -----------       ---------     ---------        ---------      ----------
Balance at
   September 30, 2000   $37,985 $3,396,262   $(185,172)  $2,575,605        $(235,154)    $(127,764)       $ (80,753)     $5,381,009
                        ======= ==========   =========   ===========       =========     =========        =========      ==========
</TABLE>

 The accompanying notes are an integral part of these consolidated statements.

                                      F-4
<PAGE>
                     FARNSWORTH BANCORP, INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                           September 30, 2000 and 1999

<TABLE>
<CAPTION>

                                                                 2000             1999
                                                           -------------    -------------
<S>                                                      <C>              <C>
Cash flows from operating activities:
  Net income                                               $     124,051    $     224,191
                                                           -------------    -------------
  Adjustments to reconcile net income to net cash
    provided by operating activities:
      Depreciation and amortization                               82,651           78,468
      Provision for loan losses                                   10,000           45,579
      Net gain on sale of assets                                 (35,664)          (3,359)
      Stock compensation                                         100,326
      (Increase)decrease in accrued interest receivable            4,247         (196,388)
      (Increase) decrease in prepaid expenses and other assets     9,248           (6,541)
      (Decrease) in advances from borrowers                       (1,351)          (1,231)
      (Decrease) in accrued income taxes                         (75,671)         (82,954)
      Increase(decrease) in accrued interest payable             (24,627)          58,427
      Increase (decrease) in other accrued liabilities           (51,956)          33,363
                                                           -------------    -------------
         Total adjustments                                        17,203          (74,636)
                                                           -------------    -------------
         Net cash provided by operations                         141,254          149,555
                                                           -------------    -------------
Cash flows from investing activities:
  Net increase in loans receivable                            (1,234,804)      (7,924,181)
  Redemption and principal payments
    of securities held to maturity                               287,148        1,133,776
  Purchase of securities to be held to maturity                        -         (503,574)
  Purchase of securities available for sale                            -      (10,342,453)
  Proceeds from sale of real estate owned                        330,000
  Proceeds from sale of securities available for sale                  -        1,464,532
  Purchase of Federal Home Loan Bank stock                       (39,100)        (157,400)
  Purchase of premises and equipment                            (147,904)        (131,111)
                                                           -------------    -------------
         Net cash used in investing activities                  (804,660)     (16,460,411)
                                                           -------------    -------------
Cash flows from financing activities:
  Increase in savings accounts and demand deposits             2,244,473        6,712,307
  Federal Home Loan Bank advances                            102,299,893        7,712,940
  Federal Home Loan Bank advances, repayments               (102,415,547)
  Purchase of RSP shares                                               -         (159,364)
  Purchase of treasury stock                                    (185,172)
                                                           -------------    -------------
         Net cash provided by financing activities             1,943,647       14,265,883
                                                           -------------    -------------
Net increase (decrease) in cash and due from banks             1,280,241       (2,044,973)

Cash and due from banks at beginning of year                   1,883,104        3,928,077
                                                           -------------    -------------
Cash and due from banks at end of year                     $   3,163,345    $   1,883,104
                                                           =============    =============
Supplemental disclosure:
  Cash paid during the year for:
    Interest                                               $   2,116,565    $   1,576,481
                                                           =============    =============
    Income taxes                                           $     138,092    $      64,000
                                                           =============    =============
Non cash items:
   Unrealized gain (loss) on securities available for
      sale, net of deferred income taxes                   $      54,641    $    (220,392)
                                                           =============    =============
   Acquisition of real estate in settlement of loans       $     195,625    $      88,013
                                                           =============    =============
</TABLE>
                  The accompanying notes are an integral part
                  of these consolidated financial statements.

                                      F-5
<PAGE>

                    FARNSWORTH BANCORP, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1.    Operations and Summary of Significant Accounting Policies
      ---------------------------------------------------------

      Nature of Operations
      --------------------

      Farnsworth Bancorp,  Inc. and Subsidiary  (together the "Company") operate
      three branches in Burlington County, New Jersey. The Bank offers customary
      banking  services,  including  accepting  of  checking,  savings  and time
      deposits and the making of commercial,  real estate and consumer loans, to
      customers who are  predominantly  small and  middle-market  businesses and
      middle-income  individuals.  Subsequent to September 30, 2000, the Company
      formed  a  new  subsidiary,   Peoples  Financial  Services,  Inc.  Peoples
      Financial  Services,  Inc.  was  organized  for the  purpose of  providing
      securities  brokerage  and  investment  advisory  services and products to
      customers of the Bank.

      Basis of Financial Statement Presentation
      -----------------------------------------

      The  consolidated  financial  statements,  which  have  been  prepared  in
      conformity  with generally  accepted  accounting  principles,  include the
      accounts of the Company and its wholly owned  subsidiary,  Peoples Savings
      Bank (the "Bank"). All significant  intercompany accounts and transactions
      have  been  eliminated  in  consolidation.   In  preparing  the  financial
      statements,  management is required to make estimates and assumptions that
      affect the reported  amounts of assets and  liabilities  and disclosure of
      contingent  assets and  liabilities  as of the date of the  statements  of
      financial  condition and the reported amounts of revenues and expenses for
      the reporting  periods.  Actual  results could differ  significantly  from
      those estimates.  Material estimates that are particularly  susceptible to
      significant  changes in the near term relate to the  determination  of the
      allowance for loan losses, the valuation of foreclosed real estate and the
      assessment of prepayment risks associated with mortgage-backed securities.
      Management  believes  that the  allowance  for loan  losses  is  adequate,
      foreclosed  real  estate is  appropriately  valued  and  prepayment  risks
      associated with mortgage-backed securities are properly recognized.  While
      management  uses available  information  to recognize  losses on loans and
      foreclosed real estate,  future additions to the allowance for loan losses
      or further  writedowns of foreclosed real estate may be necessary based on
      changes  in  economic   conditions  in  the  market  area.   Additionally,
      assessments of prepayment risks related to mortgage-backed  securities are
      based upon  current  market  conditions,  which are  subject  to  frequent
      change.

      In addition,  various  regulatory  agencies,  as an integral part of their
      examination  process,  periodically  review the Bank's  allowance for loan
      losses and foreclosed  real estate.  Such agencies may require the Bank to
      recognize  additions  to the  allowance  for  loan  losses  or  additional
      writedowns  on  foreclosed  real estate  based on their  judgements  about
      information available to them at the time of their examination.

      Concentration of Risk
      ---------------------

      The Bank's lending and real estate activity is concentrated in real estate
      and loans secured by real estate  located in the State of New Jersey.  The
      Bank's loan portfolio is predominantly made up of 1 to 4 family unit first
      mortgage loans in Burlington County.  These loans are typically secured by
      first lien  positions on the  respective  real estate  properties  and are
      subject to the Bank's loan underwriting  policies.  In general, the Bank's
      loan   portfolio   performance   is  dependent  upon  the  local  economic
      conditions.

      Interest-rate Risk
      ------------------

      The Bank is  principally  engaged in the business of  attracting  deposits
      from the general  public and using these deposits to make loans secured by
      real  estate  and,  to a lesser  extent,  consumer  loans and to  purchase
      investment  securities.  The potential for interest-rate  risk exists as a
      result  of  the  shorter   duration   of  the  Bank's   interest-sensitive
      liabilities    compared   to   the    generally    longer    duration   of
      interest-sensitive   assets.   In  a  rising  interest  rate  environment,
      liabilities  will reprice faster than assets,  thereby reducing the market
      value of  long-term  assets  and net  interest  income.  For this  reason,
      management  regularly monitors the maturity structure of the Bank's assets
      and liabilities in order to measure its level of interest-rate risk and to
      plan for future volatility.

                                      F-6
<PAGE>

                    FARNSWORTH BANCORP, INC. AND SUBSIDIARY                    7

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)



1.    Operations and Summary of Significant Accounting Policies (Continued)
      ---------------------------------------------------------

      Cash Equivalents
      ----------------

      For the purpose of presentation in the statements of cash flows,  cash and
      cash equivalents are defined as those amounts included in the statement of
      financial condition caption "cash and due from banks."

      Investment Securities
      ---------------------

      The Bank's  investments in securities are classified in two categories and
      accounted for as follows:

      o   Securities Held to Maturity.  Bonds,  notes,  debentures and mortgages
          for which the Bank has the  positive  intent  and  ability  to hold to
          maturity are reported at cost,  adjusted for  amortization of premiums
          and accretion of discounts  which are  recognized  in interest  income
          using the interest method over the period to maturity.

      o   Securities  Available  for  Sale.  Securities  available  for sale are
          reported  at market  value and  consist  of  certain  debt and  equity
          securities  not  classified  as  trading or  securities  to be held to
          maturity.

      Declines in the fair value of  individual  held to maturity and  available
      for sale  securities  below their cost that are other than  temporary will
      result in write-downs  of the  individual  securities to their fair value.
      The related write-downs will be included in earnings as realized losses.

      Unrealized holding gains and losses,  net of tax, on securities  available
      for sale are  reported as a net amount in a separate  component  of equity
      until realized.

      Gains  and  losses  on the  sale of  securities  available  for  sale  are
      determined using the specific-identification method.

      Loans Receivable
      ----------------

      Loans  receivable that management has the intent and ability to hold until
      maturity or pay-off are reported at their outstanding  principal  adjusted
      for any charge-offs,  the allowance for loan losses, and any deferred fees
      or costs on  originated  loans and  unamortized  premiums or  discounts on
      purchased loans.

      Loan origination fees and certain direct origination costs are capitalized
      and recognized as an adjustment of the yield over the contractual  life of
      the loan.

      Loans  classified as impaired,  if any, are measured  based on the present
      value of expected  future cash flows  discounted  at the loan's  effective
      interest  rate,  or as a  practical  expedient,  at the loan's  observable
      market price or the fair value of the collateral if the loan is collateral
      dependent.  A loan  evaluated for impairment is deemed to be impaired when
      based on current information and events, it is probable that the Bank will
      be unable to collect all amounts due according to the contractual terms of
      the loan  agreement.  All  loans  identified  as  impaired  are  evaluated
      independently.  The accrual of interest on impaired loans is  discontinued
      when, in management's opinion, the borrower may be unable to meet payments
      as they become due.  When  interest  accrual is  discontinued,  all unpaid
      accrued interest is reversed.  Interest income is subsequently  recognized
      only to the extent cash payments are received. No loans were identified as
      impaired as of September 30, 2000 and 1999, respectively.

                                      F-7
<PAGE>
                    FARNSWORTH BANCORP, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

1.    Operations and Summary of Significant Accounting Policies (Continued)
      ---------------------------------------------------------

      Loans Receivable (continued)
      ----------------

      The  allowance  for loan  losses is  increased  by  charges  to income and
      decreased  by  charge-offs  (net  of  recoveries).  Management's  periodic
      evaluation  of the  adequacy of the  allowance is based on the Bank's past
      loan loss experience,  known and inherent risks in the portfolio,  adverse
      situations that may affect the borrower's  ability to repay, the estimated
      value of any underlying collateral, and current economic conditions.

      Premises and Equipment
      ----------------------

      Land is carried at cost.  Bank  premises and equipment are carried at cost
      less accumulated  depreciation.  Significant renovations and additions are
      capitalized.  When assets are retired or  otherwise  disposed of, the cost
      and related accumulated depreciation are removed from the accounts and any
      resulting gain or loss is reflected in income for the period.  The cost of
      maintenance  and  repairs is charged  to  expense  as  incurred.  The Bank
      computes  depreciation on a straight-line  basis over the estimated useful
      lives of the assets.

      Real Estate Owned:
      ------------------

      Real estate properties  acquired through,  or in lieu of, loan foreclosure
      are  initially  recorded at the lower of cost or fair value at the date of
      foreclosure. Costs relating to development and improvement of property are
      capitalized,  whereas  costs  relating  to the  holding  of  property  are
      expensed.  Management  periodically performs valuations,  and an allowance
      for losses is  established by a charge to operations if the carrying value
      of a property  exceeds its fair value less estimated  selling cost.  Gains
      and losses from sale of these properties are recognized as they occur.

      Income Taxes
      ------------

      Deferred  tax assets and  liabilities  are  reflected  at income tax rates
      applicable  to the period in which the deferred tax assets or  liabilities
      are  expected to be  realized or settled.  As changes in tax laws or rates
      are enacted,  deferred tax assets and liabilities are adjusted through the
      provision  for  income  taxes or as an  adjustment  to  accumulated  other
      comprehensive income.

2.    Stockholders' Equity
      --------------------

      On March 2, 1998,  the Board of  Directors  of the Bank  adopted a Plan of
      Conversion,  pursuant  to  which  the  Bank  converted  from  a  federally
      chartered mutual savings bank to a federally chartered stock savings bank,
      with the concurrent formation of a holding company.

      At the time of the  conversion,  the Bank,  in order to grant  priority to
      eligible  depositors  in the event of future  liquidation,  established  a
      liquidation account of $2,225,315,  an amount equal to its total net worth
      as of June  30,  1998,  the  date of the  latest  statement  of  financial
      condition appearing in the final prospectus.  The liquidation account will
      be maintained for the benefit of eligible  account holders who continue to
      maintain their accounts at the bank after the conversion.  The liquidation
      account  will be reduced  annually  to the extent  that  eligible  account
      holders have reduced their qualifying  deposits.  Subsequent  increases in
      the deposit account will not restore an eligible account holder's interest
      in  the  liquidation   account.  In  the  unlikely  event  of  a  complete
      liquidation,  each eligible  account  holder will be entitled to receive a
      distribution  from the liquidation  account in an amount  proportionate to
      the account holder's current adjusted qualifying balances.  The balance of
      the  liquidation  account  on  September  30,  2000  and 1999 has not been
      determined.

                                      F-8
<PAGE>
                    FARNSWORTH BANCORP, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)



2.    Stockholders' Equity (Continued)
      --------------------

      The ability of Farnsworth  Bancorp,  Inc. to pay dividends to stockholders
      is  dependent  upon the receipt of income from the Bank.  The Bank may not
      declare or pay any dividend on or  repurchase  any of its capital stock if
      the effect thereof would cause its net worth to be reduced below:  (1) the
      amount  required  for  the  liquidation  account,  or (2)  the  net  worth
      requirements  contained in section  563.13 (b) of the rules and regulation
      of the Office of Thrift Supervision (the "OTS").

3.    Held to Maturity and Available for Sale Securities
      --------------------------------------------------

      The carrying amounts and fair values of these investments at September 30,
      2000 and 1999 are summarized as follows:
<TABLE>
<CAPTION>
                                                                                 2000
                                                                           Gross       Unrealized
                                                 Amortized         -----------------------------------        Fair
      Held to maturity:                             Cost               Gains               Losses             Value
                                               ---------------     --------------      ---------------    ---------------
<S>                                               <C>                   <C>                <C>               <C>
        U.S. Government and
          Agency securities                        $2,173,738            $     -            $ 152,388         $2,021,350
        Municipal securities                           99,330              8,970                    -            108,300
                                               ---------------     --------------      ---------------    ---------------
                                                   $2,273,068            $ 8,970            $ 152,388         $2,129,650
                                               ===============     ==============      ===============    ===============
</TABLE>

<TABLE>
<CAPTION>
                                                                                 1999
                                                                           Gross       Unrealized
                                                 Amortized         -----------------------------------        Fair
      Held to maturity:                             Cost               Gains               Losses             Value
                                               ---------------     --------------      ---------------    ---------------
<S>                                               <C>                 <C>                  <C>               <C>
        U.S. Government and
          Agency securities                        $2,167,944          $  14,442            $ 111,974         $2,070,412
        Municipal securities                           99,272              7,707                    -            106,979
                                               ---------------     --------------      ---------------    ---------------
                                                   $2,267,216          $  22,149            $ 111,974         $2,177,391
                                               ===============     ==============      ===============    ===============
</TABLE>

<TABLE>
<CAPTION>
                                                                                 2000
                                                                           Gross       Unrealized
                                                 Amortized         -----------------------------------        Fair
      Available for sale securities:                 Cost               Gains               Losses             Value
                                               ---------------     --------------      ---------------    ---------------
<S>                                               <C>                 <C>                  <C>               <C>
        U.S. Government and
          Agency securities                        $8,462,833          $       -            $ 234,447         $8,228,386
        Corporate bonds                               419,525                  -               33,965            385,560
        Equity securities                               3,339            142,847                    -            146,186
                                               ---------------     --------------      ---------------    ---------------
                                                   $8,885,697          $ 142,847            $ 268,412         $8,760,132
                                               ===============     ==============      ===============    ===============
</TABLE>
                                      F-9
<PAGE>
                   FARNSWORTH BANCORP, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

3.    Held to Maturity and Available for Sale Securities (Continued)
      --------------------------------------------------
<TABLE>
<CAPTION>
                                                                                 1999
                                                                           Gross       Unrealized
                                                 Amortized         -----------------------------------        Fair
      Available for sale securities:                Cost               Gains               Losses             Value
                                               ---------------     --------------      ---------------    ---------------
<S>                                               <C>                 <C>                  <C>               <C>
        U.S. Government and
          agency securities                        $8,461,272          $       -            $ 320,551         $8,140,721
        Corporate bonds                               419,490                  -               28,205            391,285
        Equity securities                               3,339            137,269                                 140,608
                                               ---------------     --------------      ---------------    ---------------
                                                   $8,884,101          $ 137,269            $ 348,756         $8,672,614
                                               ===============     ==============      ===============    ===============
</TABLE>
      The  schedule of  maturities  of  available  for sale and held to maturity
      securities at September 30, 2000 is as follows:
<TABLE>
<CAPTION>
                                                            Amortized                            Fair
      Available for Sale  Securities:                         Cost                               Value
                                                  --------------------------------------------------------
<S>                                                      <C>                                 <C>
        Due in one year or less                            $        -                          $        -
        Due from one to five years                          4,499,738                           4,391,500
        Due from five to ten years                          3,000,000                           2,939,886
        Due after ten years                                 1,382,620                           1,282,560
                                                  --------------------                --------------------
                                                           $8,882,358                          $8,613,946
                                                  ====================                ====================
</TABLE>
<TABLE>
<CAPTION>
                                                            Amortized                            Fair
        Held to Maturity Securities:                          Cost                               Value
                                                  --------------------------------------------------------
<S>                                                      <C>                                 <C>
        Due in one year or less                            $        -                          $        -
        Due from one to five years                          1,976,419                           1,844,750
        Due from five to ten years                            197,319                             176,600
        Due after ten years                                    99,330                             108,300
                                                  --------------------                --------------------
                                                        $   2,273,068                       $   2,129,650
                                                  ====================                ====================
</TABLE>
4.    Mortgage Backed Securities Held to Maturity
      -------------------------------------------

      Investments in mortgage backed securities are stated at cost, adjusted for
      amortization of premiums and accretion of fees and discounts. The Bank has
      adequate liquidity and capital, and it is generally management's intention
      to hold such assets to maturity.  The  carrying  values and fair values of
      mortgage backed securities are summarized as follows:
<TABLE>
<CAPTION>
                                                                                2000
                                             -----------------------------------------------------------------------
                                                   Principal        Unamortized          Unearned        Carrying
                                                    Balance          Premiums            Discounts         Value
                                             ----------------   ---------------       -------------  ---------------
<S>                                              <C>                  <C>                 <C>          <C>
      GNMA Certificates                           $  499,160           $ 7,125             $     -       $  506,285
      FHLMC and FNMA Certificates                    962,568             3,160               3,575          962,153
                                             ----------------   ---------------       -------------  ---------------
                                                  $1,461,728           $10,285             $ 3,575       $1,468,438
                                             ================   ===============       =============  ===============
</TABLE>
                                      F-10
<PAGE>

                   FARNSWORTH BANCORP, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)



4.    Mortgage Backed Securities, Held to Maturity (Continued)
      --------------------------------------------
<TABLE>
<CAPTION>
                                                                                2000
                                             -----------------------------------------------------------------------
                                                                         Gross        Unrealized
                                                 Carrying       -----------------------------------      Fair
                                                  Value             Gains                Losses          Value
                                             ----------------   ---------------       -------------  ---------------
<S>                                             <C>                  <C>              <C>               <C>
      GNMA Certificates                          $   506,285          $  1,240         $    4,017        $  503,508
      FHLMC and FNMA Certificates                    962,153                 -             22,608           939,545
                                             ----------------   ---------------       -------------  ---------------
                                                 $ 1,468,438          $  1,240         $   26,625        $1,443,053
                                             ================   ===============       =============  ===============
</TABLE>

<TABLE>
<CAPTION>
                                                                               1999
                                             -----------------------------------------------------------------------
                                                   Principal        Unamortized            Unearned        Carrying
                                                    Balance           Premiums            Discounts         Value
                                             ----------------   ---------------       -------------  ---------------
<S>                                              <C>                <C>                   <C>           <C>
      GNMA Certificates                           $  586,416         $   8,697             $     -       $  595,113
      FHLMC and FNMA Certificates                  1,161,508             3,563               5,074        1,159,997
                                             ----------------   ---------------       -------------  ---------------

                                                  $1,747,924         $  12,260             $ 5,074       $1,755,110
                                             ================   ===============       =============  ===============
</TABLE>

<TABLE>
<CAPTION>
                                                                                1999
                                             -----------------------------------------------------------------------
                                                                         Gross        Unrealized
                                                 Carrying       -----------------------------------      Fair
                                                  Value             Gains                Losses          Value
                                             ----------------   ---------------       -------------  ---------------
<S>                                             <C>               <C>                <C>               <C>
      GNMA Certificates                           $  595,113        $    2,240         $     1,756       $  595,597
      FHLMC and FNMA Certificates                  1,159,997                 -              27,528        1,132,469
                                             ----------------   ---------------       -------------  ---------------
                                                  $1,755,110        $    2,240         $    29,284       $1,728,066
                                             ================   ===============       =============  ===============
</TABLE>

      Mortgage-backed  securities  with a  carrying  value  and  fair  value  of
      $365,500 and  $361,483 at September  30, 2000 and $412,303 and $419,064 at
      September  30, 1999 are pledged as security for  deposits of  governmental
      entities under the provisions of Governmental Unit Deposit Protection Act.

                                      F-11
<PAGE>
                   FARNSWORTH BANCORP, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)



5.    Loans Receivable
      ----------------

      Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
                                                               2000                               1999
                                                          ---------------                   -----------------
<S>                                                      <C>                               <C>
      First mortgage loans Principal balances:
          Secured by one to four family residence         $   26,507,971                    $     27,443,330
          Construction loans                                     861,398                           1,885,900
          Commercial real estate                               4,801,539                           3,742,753
                                                          ---------------                   -----------------
                                                              32,170,908                          33,071,983
                                                          ---------------                   -----------------
        Less:
          Loans in process - real estate                        (377,442)                           (829,891)
          Unearned discounts                                           -                             (12,466)
          Deferred loan origination fees net of
            costs of $106,313 and $104,234                      (196,243)                           (180,497)
                                                          ---------------                   -----------------
      Total first mortgage loans                              31,597,223                          32,049,129
                                                          ---------------                   -----------------
      Consumer and other loans Principal balances:
          Home equity                                          7,897,375                           6,261,368
          Personal loans                                         253,542                             205,224
          Loans secured by savings                               161,113                             171,908
          Commercial business loans                               70,672                             270,512
          Automobile                                              56,145                              50,000
                                                          ---------------                   -----------------
      Total consumer and other loans                           8,438,847                           6,959,012
                                                          ---------------                   -----------------
      Total loans                                             40,036,070                          39,008,141

      Less allowance for loan losses                            (186,000)                           (176,000)
                                                          ---------------                   -----------------
                                                          $   39,850,070                    $     38,832,141
                                                          ==============                    ================
</TABLE>

      At September 30, 2000 and 1999,  nonaccrual  loans for which  interest had
      been   discontinued   totaled   approximately   $125,000   and   $404,000,
      respectively.   Interest  income  actually  recognized  is  summarized  as
      follows:
                                                     2000           1999
                                                  -----------    ------------
      Interest income that would have
        been recorded                             $   10,097     $    46,127
      Interest income recognized                           -           1,099
                                                  -----------    ------------

      Interest income foregone                    $   10,097     $    45,028
                                                  ===========    ============

                                      F-12
<PAGE>
                   FARNSWORTH BANCORP, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

5.       Loans Receivable (Continued)
-------------------------

      An analysis of the change in the allowance for loan losses:

                                                      2000           1999
                                                  -----------    ------------
          Allowance for loan losses:
           Beginning of year                      $  176,000     $   135,000
           Additional provisions                      10,000          45,579
           Charge offs                                     -          (4,579)
                                                  -----------    ------------
        End of year                               $  186,000     $   176,000
                                                  ===========    ============

      The activity with respect to loans to directors,  officers and  associates
of such persons is summarized as follows:

                                                   2000           1999
                                                  -----------    -----------

      Beginning of year                           $  603,931     $  217,274
      Loans originated                               117,850        402,682
      Collection of principal                        (87,710)       (16,025)
                                                  -----------    -----------
      End of year                                 $  634,071     $  603,931
                                                  ===========    ===========

      All loans to  directors,  officers  and  associates  of such  persons  are
collateralized by deposits and/or real estate.

6.    Accrued Interest Receivable
      ---------------------------

          Accrued interest receivable is summarized as follows:

                                                     2000           1999
                                                  -----------    ------------

      Loans receivable                            $  239,367     $   242,138
      Mortgage backed securities                       7,854           9,330
      Investments                                    172,238         172,238
                                                  -----------    ------------
                                                  $  419,459     $   423,706
                                                  ===========    ============

7.    Premises and Equipment
      ----------------------

      Premises and equipment are summarized by major classification as follows:

                                                      2000           1999
                                                  ------------   ------------
      Land                                        $   126,435    $   126,435
      Office building (Bordentown)                  1,355,912      1,352,051
      Office building (Florence)                       53,032         39,015
      Office building (Mount Laurel))                  36,376         29,077
      Furniture, fixtures and equipment               561,015        438,288
                                                  ------------   ------------
                                                    2,132,770      1,984,866
      Less accumulated depreciation                   556,796        468,614
                                                  ------------   ------------
                                                  $ 1,575,974    $ 1,516,252
                                                  ============   ============

      Depreciation  charged to operations  was $88,182 and $77,324 for the years
      ended 2000 and 1999, respectively.

                                      F-13
<PAGE>

                   FARNSWORTH BANCORP, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)


8.    Deposits
      --------

      Deposits as of September 30 are summarized as follows:

                                                      2000           1999
                                                  ------------   -------------

       NOW accounts                               $ 7,884,822    $  5,192,051
       Money market accounts                        3,079,901       3,045,330
       Passbook and club accounts                   7,505,056       7,481,882
       Non Interest Bearing                         2,336,530       3,989,352
                                                  ------------   -------------
       Subtotal                                    20,806,309      19,708,615
                                                  ------------   -------------

       Certificates of deposit:
         3.01% to 4.0%                                300,148       1,016,360
         4.01% to 5.0%                              2,246,837      11,198,720
         5.01% to 6.0%                             11,362,374       9,919,282
         6.01% to 7.0%                             10,018,967         647,185
                                                  ------------   -------------
       Subtotal                                    23,928,326      22,781,547
                                                  ------------   -------------
                                                  $44,734,635    $ 42,490,162
                                                  ============   =============

      Deposits of officers and directors totaled $298,000 in 2000. The aggregate
      amount of jumbo  certificates  of deposit with a minimum  denomination  of
      $100,000 was approximately $3,740,000 and $1,562,000 at September 30, 2000
      and 1999. These certificates of deposit do not receive  preferential rates
      of interest. Deposits in excess of $100,000 are not federally insured.

      As of September 30, 2000 and 1999, scheduled maturities of certificates of
      deposit (rounded to the nearest $1,000) are summarized as follows:

                                                    2000           1999
                                                  ------------   -------------

      3 months or less                            $ 5,074,000    $  4,444,000
      From 3 months to 1 year                      14,060,000      11,812,000
      From 1 year to 3 years                        4,462,000       5,748,000
      From 3 years to 5 years                         332,000         778,000
                                                  ------------   -------------
                                                  $23,928,000    $ 22,782,000
                                                  ============   =============

      Interest  expense on deposits for the years ended  September  30, 2000 and
      1999 is summarized as follows:

                                                      2000           1999
                                                  ------------   -------------

        NOW accounts                              $   109,252    $     98,793
        Money market accounts                          81,659          69,057
        Passbook and club accounts                    186,535         178,418
        Certificates of deposit                     1,209,468       1,095,678
                                                  ------------   -------------
                                                  $ 1,586,914    $  1,441,946
                                                  ============   =============

                                      F-14
<PAGE>

                   FARNSWORTH BANCORP, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)


9.    Federal Home Loan Bank Advances
      -------------------------------

      These advances bear fixed  interest rates ranging from 5.9% to 6.9%.  They
      are collateralized by FHLB stock and investment  securities.  The Bank has
      $9,404,651 available for borrowing as of September 30, 2000.

                 Principal payments are as follows:

                       2001             $ 5,872,680
                       2002                 630,132
                       2003                 138,038
                       2004                 146,423
                       2005                 155,318
                    Thereafter              654,695
                                        -----------

                               Total    $ 7,597,286
                                        ===========

10.   Gains on Sale of Interest Earning Assets
      ----------------------------------------

      Realized  gain on sales  of  available-for-sale  securities  was $ 0 and $
      3,359 for the years ended September 30, 2000 and 1999, respectively.

11.   Income Taxes
      ------------

      The Bank has qualified as a Savings  Institution  under  provisions of the
      Internal  Revenue Code. Prior to January 1, 1996 the Bank was permitted to
      deduct  from  taxable  income  an  allowance  for  bad  debts  based  on a
      percentage-of   taxable  income.   Such  percentage  was  8%  before  such
      deduction.  Retained  earnings at  September  30,  2000 and 1999  included
      untaxed earnings of approximately $355,800 and $381,500, representing such
      bad debt deductions.

      Retained  earnings at September 30, 2000 and 1999  includes  approximately
      $153,850  of tax bad debt  deductions  which are  considered  a  permanent
      difference between the book and income tax basis of loans receivable,  and
      for which income taxes have not been provided.  If such amount is used for
      purposes  other  than  bad  debt  losses,   including   distributions   in
      liquidation, it will be subject to income tax at the then current rate.

   The  provision  for federal and state income taxes differs from that computed
   at the statutory rate as follows:


                                                      2000             1999
                                                  -----------      ------------
       Statutory tax rate                            34%              34%
       Tax at statutory rate                      $   63,212       $   113,179
       New Jersey Savings Institution Tax              6,200             3,395
       (Decrease) increase  in tax:
         Low tax bracket savings                      (7,454)                -
         Tax exempt income                            (2,000)           (2,000)
         Miscellaneous                                 1,910            (5,885)
                                                  -----------      ------------
                                                  $   61,868       $   108,689
                                                  ===========      ============

                                      F-15
<PAGE>

                   FARNSWORTH BANCORP, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)


11.   Income Taxes (Continued)
      ------------

      The tax provision is summarized as follows:


                                             2000              1999
                                         -----------       ------------
      Current federal                    $   55,500        $   128,567
      Deferred federal                          168            (31,927)
      Current state                           5,050             15,000
      Deferred state                          1,150             (2,951)
                                         -----------       ------------
                                         $   61,868        $   108,689
                                         ===========       ============


      The following  temporary  differences gave rise to deferred tax assets and
      liabilities:

                                                        2000             1999
                                                    -----------      -----------
        Deferred tax assets:
          Allowance for loan losses                 $   66,923       $    67,640
          Deferred loan origination fees, net           13,429            17,580
          Accrued compensation                          24,444            18,426
          Unrecorded depreciation on investments        45,178            76,093
                                                    -----------      -----------
        Total deferred tax assets                      149,974           179,739
                                                    -----------      -----------
        Deferred tax liabilities:
          Premises and equipment                        37,215            27,930
          Tax reserve for loan losses                   46,148            52,450
                                                    -----------      -----------
        Total deferred tax liabilities                  83,363            80,380
                                                    -----------      -----------
             Net deferred tax asset                 $   66,611       $    99,359
                                                    ===========      ===========

                                      F-16
<PAGE>

                   FARNSWORTH BANCORP, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

12.   Commitments
      ------------

      At September 30, 2000 the Bank had the following commitments  outstanding.
      Mortgage  commitments are for 45 days. Home equity  commitments are for 60
      days.  Commitments  on other loans are for 90 days.  The  commitments  are
      summarized as follows:


                                      Amounts         Rate             Term
                                    ----------   ----------------- ------------


       Mortgages (fixed rate)       $  337,500    7.375% to 7.875%       7 years
                                                    0 to 2 points
       Home Equity loans               150,500    7.25% to 7.5%     3 to 5 years
                                                    0 points
       Other loans                     175,000    9.50% to 13.25%   1 to 3 years
                                                  0 to 1 points
                                  -------------
                                    $  663,000
                                  =============


      There are two letters of credit  outstanding  at September  30,  2000.  An
      annual  fee of 1/2 to 1 point  is due on each of the  letters  of  credit.
      Interest is due at various  rates if the  letters of credit are  utilized.
      The  amount of both  letters  totals  $37,600.  The Bank also has lines of
      credit with undrawn balances of $624,000.

      The bank has available  two lines of credit  through the Federal Home Loan
      Bank.  An  overnight  line  of  credit  is  available  in  the  amount  of
      $2,565,150.  Additionally,  a one month overnight repricing line of credit
      is available in the amount of $2,565,150.

      Future minimum lease payments under a  noncancellable  operating lease for
      one branch building is as follows:

                       2001                $   57,000
                       2002                    59,000
                       2003                    60,000
                       2004                    62,000
                       2005                    64,000
                    Thereafter                216,000
                                           ----------
                                    Total  $  518,000
                                           ==========

13.   Financial Instruments
      ---------------------

      Fair Values of Financial Instruments
      ------------------------------------

      The following  methods and assumptions were used in estimating fair values
      of financial instruments as disclosed herein:

      Cash and Due from Banks
      -----------------------

      The  carrying  amounts of cash and due from banks  approximate  their fair
      value.

                                      F-17
<PAGE>

                   FARNSWORTH BANCORP, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)


13.   Financial Instruments (Continued)
      ---------------------

      Available for Sale and Held to Maturity Securities and FHLB Stock
      -----------------------------------------------------------------

         Fair values for  securities,  excluding FHLB  securities,  are based on
         quoted  market  prices.   The  carrying   values  of  FHLB   securities
         approximate fair values.

      Loans Receivable
      ----------------

         For variable-rate loans that reprice frequently and have no significant
         change in credit risk, fair values are based on carrying  values.  Fair
         values for fixed rate mortgage loans and other consumer loans are based
         on quoted  market  prices of  similar  loans sold in  conjunction  with
         securitization   transactions,   adjusted  for   differences   in  loan
         characteristics.  Fair values for commercial real estate and commercial
         loans are estimated using discounted cash flow analyses, using interest
         rates currently being offered for loans with similar terms to borrowers
         of similar credit quality.

      Deposit Liabilities
      -------------------

         The fair values disclosed for demand deposits are, by definition, equal
         to the amount  payable on demand at the  reporting  date.  The carrying
         amounts  of  variable-rate,   fixed-term   money-market   accounts  and
         certificates  of deposit  (CDs)  approximate  their fair  values at the
         reporting  date.  Fair values for fixed-rate CDs are estimated  using a
         discounted cash flow  calculation that applies interest rates currently
         being  offered on  certificates  to a schedule of  aggregated  expected
         monthly maturities on time deposits.

      Accrued Interest
      ----------------

         The carrying amounts of accrued interest approximate their fair values.

      FHLB Advances
      -------------

         The fair value of FHLB advances is estimated  based on rates  currently
         available to the Bank for debt with similar terms.

      Other Liabilities
      -----------------

         The  carrying  amounts  of other  liabilities  approximate  their  fair
         values.

      Other Off-Balance-Sheet Instruments
      -----------------------------------

         The Bank is a party  to financial  instruments  with  off-balance-sheet
         risk in the normal  course of business to meet  the  financing  need of
         its customers.  These financial  instruments  consist of commitments to
         extend credit.  Commitments to extend  credit are agreements to lend to
         a  customer  as  long  as  there  is  no  violation  of  any  condition
         established in the loan agreement.  These commitments  are comprised of
         the  undisbursed  portion of loans and  letters  of credit.  The Bank's
         exposure to credit loss from  nonperformance by  the other party to the
         financial  instruments for commitments to extend  credit is represented
         by the contractual amount of those instruments. The  Bank uses the same
         credit policies in making commitments as it  does for  on-balance-sheet
         instruments.  Generally,  collateral,  usually  in  the  form  of  real
         estate, is required to support financial instruments with credit  risk.
         Commitments   generally   have  fixed   expirations   dates  or   other
         termination  clauses and  may require a payment of a fee. Since many of
         the  commitments  are  expected to expire  without  being drawn upon by
         customers,  the  total commitment amounts do not necessarily  represent
         future  cash  requirements.  The Bank evaluates each customer's  credit
         worthiness  on a case-by-case basis. The amount of collateral obtained,
         if it  is deemed  necessary by the Bank upon  extension  of credit,  is
         based  on management's  credit valuation of the counterparty.  The fair
         value of commitments is not considered significant.

                                      F-18
<PAGE>

                   FARNSWORTH BANCORP, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)


13.      Financial Instruments (Continued)
------------------------------

      The  carrying   amounts  and  estimated   fair  values  of  the  financial
      instruments were as follows:
<TABLE>
<CAPTION>
                                                       2000                              1999
                                          -----------------------------     -----------------------------
                                              Carrying           Fair           Carrying          Fair
      Financial Assets                         Amount            Value           Amount           Value
-------------------------------------     -------------      ----------     -------------    ------------
<S>                                         <C>              <C>              <C>              <C>
      Cash and due from banks                 $  3,163         $ 3,163          $  1,883         $ 1,883
      Securities held to maturity                3,741           3,573             4,022           3,905
      Securities available for sale              8,760           8,760             8,673           8,673
      FHLB stock                                   458             458               419             419
      Loans receivable                          39,850          40,771            38,832          38,116
      Accrued interest receivable                  419             419               424             424

      Financial Liabilities
-------------------------------------

      Deposit liabilities                       44,735          44,680            42,491          42,323
      FHLB advances                              7,597           7,774             7,713           7,583
      Accrued interest payable                      72              72                97              97
      Other Liabilities                            310             310               441             441
</TABLE>

14.   Benefit Plans
      -------------

      Defined Contribution Plan

      Employer  contributions  were  $15,118  and  $12,882  for 2000  and  1999,
      respectively.

      ESOP
      ----

      Effective  upon  conversion,  an ESOP  was  established  for all  eligible
      employees.  The ESOP used  $303,880 of proceeds  from a term loan from the
      Company to purchase  30,388 shares of Company  common stock in the initial
      offering.  The term loan from the Company to the ESOP, including interest,
      is payable over one-hundred-eighty  (180) equal monthly installments.  The
      initial  interest rate is 8.25% and is subject to  semi-annual  adjustment
      based on the  prime  rate  (currently  9.50%).  The Bank  intends  to make
      contributions  to the  ESOP  which  will be  equal  to the  principal  and
      interest payment required from the ESOP on the term loan. Shares purchased
      with the loan proceeds are pledged as collateral for the term loan and are
      held in a suspense  account  for  future  allocation  among  participants.
      Contributions  to the ESOP and shares  released from the suspense  account
      will be allocated among the participants on the basis of compensation,  as
      described by the plan in the year of  allocation.  ESOP shares  pledged as
      collateral   are  reported  as  common  stock  acquired  by  ESOP  in  the
      consolidated statements of financial condition. As shares are committed to
      be released from  collateral,  the Company  reports  compensation  expense
      equal to the current  market  price of the shares,  and the shares  become
      outstanding for basic net income per common share computations.  Dividends
      on allocated ESOP shares are recorded as a reduction of retained earnings.
      Contributions  equivalent  to  dividends  on  unallocated  ESOP shares are
      recorded as a reduction of debt.

                                      F-19
<PAGE>
                    FARNSWORTH BANCORP, INC. AND SUBSIDARY

                    NOTES TO CONSOLIDATE FINANCIAL STATEMENTS
                                   (Continued)

14.   Benefit Plans (Continued)
      -------------------------
                                                  2000               1999
                                              -----------        ------------

      Allocated shares                             6,076               3,038
      Unallocated shares                          24,312              27,350
                                              ===========        ============
      Total ESOP shares unreleased                30,388              30,388
                                              ===========        ============
      Fair value of unreleased shares         $  234,030         $   276,915
                                              ===========        ============

      Restricted Stock Plan (RSP)
      ---------------------------

      On April 16 1999 the Bank  established a RSP to provide both key employees
      and  outside  directors  with a  proprietary  interest in the Company in a
      manner  designed to encourage such person to remain with the Bank. A total
      of 15,194  restricted  shares were purchased at an average market value of
      $10.48.  Initially  the total  market  value of the  shares is  treated as
      unearned compensation and is charged to expense over the vesting period. A
      total of 10,631  shares  were  issued to the  board of  directors  and two
      executive officers.  These shares will be charged to expense over the five
      years vesting  period.  During the year ended  September  30, 2000,  2,120
      shares vested with a value of $31,600.

      The awards become fully vested upon termination of employment due to death
      or disability.

      Stock-based compensation plan
      -----------------------------

      The Company  has a stock  option plan that  provides  for the  granting of
      non-qualified  stock  options.  In April 1999,  the Company  issued 26,587
      options at an exercise  practice of $10.63 per share to key Bank employees
      and  non-employee  members of its Board of  Directors.  The  options  vest
      ratably on the  anniversary  date over five years.  The options expire ten
      years after the initial grant date.  At September 30, 2000,  7,976 options
      are vested and none were exercised.

15.   Net Income Per Common Share
      ---------------------------

      Basic net income per common share is  calculated by dividing net income by
      the  number  of  shares  of common  stock  outstanding,  adjusted  for the
      unallocated  portion of shares  held by the  Company's  ESOP.  Diluted net
      income per share is calculated by adjusting the number of shares of common
      stock  outstanding  to include  the effect of stock  options,  stock-based
      compensation grants and other securities, if diluted,  generally using the
      treasury stock method.  The Company has no potentially  diluted securities
      for either year.
<TABLE>
<CAPTION>
                                                           2000                                   1999
                                    -------------------------------------------- -------------------------------------
                                                         Weighted      Per-                      Weighted     Per-
                                                          Average      Share                     Average      Share
                                           Income          Share       Amount       Income        Share       Amount
                                    ---------------  --------------  ----------- ------------   -----------  ---------
<S>                                     <C>              <C>          <C>        <C>             <C>          <C>
      Net income available to
        common shareholders              $ 124,051        375,782                 $ 224,191       379,858
        ESOP shares                                       (24,312)                                (27,350)
        RSP shares                                        (14,134)                                (15,194)
                                    ---------------  --------------  ----------- ------------   -----------  ---------
                                         $ 124,051       $337,336      $ 0.36     $ 224,191       337,314      $ 0.66
                                    ===============  ==============  =========== ============   ===========  =========
</TABLE>
                                      F-20
<PAGE>
                   FARNSWORTH BANCORP, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)


16.   Regulatory Capital Requirement
      ------------------------------

      The  Bank  is   subject  to  various   regulatory   capital   requirements
      administered  by the federal  banking  agencies.  Failure to meet  minimum
      capital  requirements  can  initiate  certain  mandatory  -- and  possibly
      additional  discretionary  -- actions by regulators  that, if  undertaken,
      could have a direct  material effect on the Bank's  financial  statements.
      Under capital adequacy guidelines and the regulatory  framework for prompt
      corrective  action,  the Bank must meet specific  capital  guidelines that
      involve  quantitative  measures  of the Bank's  assets,  liabilities,  and
      certain  off-balance-sheet items as calculated under regulatory accounting
      practices.  The Bank's capital amounts and classification are also subject
      to  qualitative  judgments  by  the  regulators  about  components,   risk
      weightings, and other factors.

      The  Office  of  Thrift   Supervision   ("OTS")  has  prescribed   capital
      requirements   which  include  three  separate   measurements  of  capital
      adequacy:  a leverage-ratio  capital standard ("core"), a tangible capital
      standard  and a risk-based  capital  standard  (collectively  known as the
      "Capital  Rule").  The Capital Rule requires each savings  institution  to
      maintain  tangible  capital  equal to at least 1.5% of its adjusted  total
      assets  and core  capital  equal to at least  4.0% of its  adjusted  total
      assets.  The Capital Rule further  requires  each savings  institution  to
      maintain total capital equal to at least 8.0% of its risk-weighted assets.

      The Bank at September 30, 2000 and 1999 meets the regulatory core capital,
      tangible capital, and risk based capital requirements as summarized:
<TABLE>
<CAPTION>
                                                                                            To Be Well
                                                                                         Capitalized Under
                                                                 For Capital             Prompt Corrective
                                          Actual              Adequacy Purposes          Action Provisions
                                ------------------------   -----------------------   ------------------------
                                 Amount        Ratio         Amount       Ratio        Amount         Ratio
                                ----------  ------------   -----------  ----------   ------------  ----------
<S>                            <C>           <C>           <C>          <C>           <C>           <C>
      As of September 30,
      2000:
        Risk-based capital       4,805         16.71         2,300        8.00          2,875         10.00
        Tier 1 capital           4,805         16.71           N/A         N/A          1,725          6.00
        Core capital             4,805          8.31         2,312        4.00          2,890          5.00
        Tangible capital         4,805          8.31           867        1.50            N/A           N/A

      As of September 30,
      1999:
        Risk-based capital       4,571         16.84         2,255        8.00          2,819         10.00
        Tier 1 capital           4,571         16.22           N/A         N/A          1,691          6.00
        Core capital             4,571          8.22         2,226        4.00          2,783          5.00
        Tangible capital         4,571          8.22           834        1.50            N/A           N/A
</TABLE>

      The  Federal  Deposit  Insurance  Corporation   Improvement  Act  of  1991
      ("FDICIA")  imposes increased  requirements on the operations of financial
      institutions  and  mandated the  development  of  regulations  designed to
      empower  regulators  to take  prompt  corrective  action  with  respect to
      institutions that fall below certain capital standards.  FDICIA stipulates
      that an  institution  with  less  than 4% core  capital  is  deemed  to be
      undercapitalized.  Quantitative  measures  established by FDICIA to ensure
      capital  adequacy  require the Bank to maintain minimum amounts and ratios
      of  total  and  Tier  I  capital  (as  defined  in  the   regulations)  to
      risk-weighted assets (as defined), and of Tier I capital to average assets
      (as defined). Management believes, as of September 30, 2000, that the Bank
      meets all capital adequacy requirements to which it is subject.

                                      F-21
<PAGE>
                   FARNSWORTH BANCORP, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

16.   Regulatory Capital Requirement  (Continued)
      ------------------------------------------

      As of March 1999, the date of the most recent  notification  from the OTS,
      the  Bank  was  categorized  as  well  capitalized  under  the  regulatory
      framework  for  prompt  corrective  action.  To  be  categorized  as  well
      capitalized, the Bank must maintain risk based capital, Tier I capital and
      core  capital  ratios  of 10%,  6%,  and 5%,  respectively.  There  are no
      conditions  existing or events which have occurred since notification that
      management believes have changed the Bank's category.

      Management  believes that,  under the current  regulations,  the Bank will
      continue  to meet its  minimum  capital  requirements  in the  foreseeable
      future.  However,  events  beyond the control of the Bank could  adversely
      affect its future minimum capital requirements.

17.   Parent Only Financial Information
      ---------------------------------

      Farnsworth operates one wholly owned subsidiary, the Bank. The earnings of
      the Bank  are  recognized  by  Farnsworth   using  the  equity  method  of
      accounting.  Accordingly,  the  earnings  of  the  Bank  are  recorded  as
      increases in Farnsworth's investment in the subsidiary.  The following are
      the condensed financial statements for Farnsworth (parent company only) as
      of September 30, 2000 and 1999 and for the year then ended.
<TABLE>
<CAPTION>

      Statement of Financial Condition              2000               1999
                                              ---------------      -------------
<S>                                          <C>                   <C>
      Assets

      Cash                                     $      81,255         $    70,679
      Investments available for sale                 481,500             480,938
      ESOP loan receivable                           243,104             281,089
      Investment in subsidiary                     2,941,477           2,807,322
      Other assets                                    19,155               6,859
      Accrued interest receivable                      7,784              13,662
                                              ---------------      -------------
      Total assets                            $    3,774,275       $   3,660,549
                                              ===============      =============
      Liabilities

      Accrued expenses                        $       18,543         $    14,314
      Loan payable to the bank                       170,625                   -
                                              ---------------      -------------
      Total liabilities                              189,168              14,314
                                              ---------------      -------------
      Stockholders' equity                         3,585,107           3,646,235
                                              ---------------      -------------
      Liabilities and stockholders' equity    $    3,774,275       $   3,660,549
                                              ===============      =============
</TABLE>
                                      F-22
<PAGE>

                   FARNSWORTH BANCORP, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




17.   Parent Only Financial Information(Continued)
      ---------------------------------



                                                          2000         1999
                                                      -----------  ------------

       Income from subsidiary                         $  134,155   $   258,847
       Interest income                                    54,813        56,311
                                                      -----------  ------------
       Total income                                      188,968       315,158
                                                      -----------  ------------
       Meeting expenses                                   17,682        21,939
       Stock transfer fees                                 2,570         2,206
       Professional fees                                  53,337        66,522
       Other expenses                                      4,193           300
                                                      -----------  ------------
       Total expenses                                     77,782        90,967
                                                      -----------  ------------
       Income before provision for income taxes          111,186       224,191

       Provision for income taxes                         12,865             -
                                                      -----------  ------------
       Net Income                                     $  124,051   $   224,191
                                                      ===========  ============


                                      F-23
<PAGE>

                   FARNSWORTH BANCORP, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

17.      Parent Only Financial Information(Continued)
------------------------------------------
<TABLE>
<CAPTION>
                                                                                2000                      1999
                                                                          ---------------           ----------------
<S>                                                                       <C>                       <C>
       Statement of Cash Flows

       Cash flows from operations activities:
         Net Income                                                         $    124,051              $     224,191
         Adjustments to reconcile net income to net cash
           Used in operating activities:
           Increase(decrease)in accrued expenses                                   4,229                    (50,175)
           Equity in undistributed earnings of
             Subsidiary                                                         (134,155)                  (258,847)
           (Increase)  decrease in accrued
                Interest receivable                                                5,878                     (5,973)
          Increase in other assets                                               (12,865)                         -
                                                                       ------------------      ---------------------
                      Net cash used in operating
                        activities                                               (12,862)                   (90,804)
                                                                       ------------------      ---------------------
       Cash flows from investing activities:
         Purchase of investment                                                        -                   (500,000)
         Repayment of loan to Bank                                                     -                    638,692
         Repayment of ESOP loan                                                   37,985                     22,791
                                                                       ------------------      ---------------------
                      Net cash provided by
                        investing activities                                      37,985                    161,483
                                                                       ------------------      ---------------------
       Cash flows from financing activities:
         Purchase of treasury stock                                             (185,172)                         -
         Loan from the bank                                                      170,625                          -
                                                                       ------------------      ---------------------
                      Net cash  used in
                     financing activities                                        (14,547)                         -
                                                                       ------------------      ---------------------
       Net increase in cash                                                       10,576                     70,679
       Cash - beginning                                                           70,679                          -
                                                                       ------------------      ---------------------
       Cash - ending                                                         $    81,255               $     70,679
                                                                       ==================      =====================
       Supplement disclosure:
       Non cash items:
          Unrealized gain (loss) on securities available for
             Sale, net of deferred income taxes                              $       371               $    (12,581)
                                                                       ==================      =====================
</TABLE>
                                      F-24
<PAGE>
<TABLE>
<CAPTION>

Corporate Information
---------------------
<S>                                       <C>                                <C>

                                    FARNSWORTH BANCORP, INC.
                                      789 Farnsworth Avenue
                                  Bordentown, New Jersey 08505
                                         (609) 298-0723

                                      PEOPLES SAVINGS BANK

       Main Office                           Florence Office                       Mt. Laurel Office
  789 Farnsworth Avenue                      4 Broad Street                        101 Gaither Drive
 Bordentown, New Jersey                   Florence, New Jersey                  Mt. Laurel, New Jersey

                                       Board of Directors

             Herman Gutstein                                G. Edward Koenig, Jr.
          Chairman of the Board                    President - E.J.Koenig, Inc. (petroleum
         Retired - Self Employed                    products/heating & air-conditioning)

         George G. Aaronson, Jr.                              Edgar N. Peppler
        Realtor - Falconer & Bell                     President - Peppler Funeral Home

             Charles E. Adams                            William H. Wainwright, Jr.
Retired - Florence Township Administrator                  Retired - Loan Officer

                                        Gary N. Pelehaty
                              President and Chief Executive Officer

                                       Executive Officers

             Gary N. Pelehaty                                              Charles Alessi
  President and Chief Executive Officer                            Vice President, Chief Financial
                                                                  Officer, Secretary and Treasurer

                             Officers
           Elaine C. Denelsbeck                                           Christopher Nunn
           Assistant Secretary                                           Assistant Treasurer

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

Local Counsel                                                  Independent Auditor
Wells, Singer, Rubin & Musulin                                 Kronick Kalada Berdy & Co.
6 East Park Street                                             190 Lathrop Street
Bordentown,New Jersey 08505                                    Kingston, Pennsylvania 18704

Special Counsel                                                Transfer Agent and Registrar
Malizia Spidi & Fisch, PC                                      Computer Share Investor Services
1100 New York Avenue, N.W.                                     1825 Lawrence Street, Suite 444
Suite 340 West                                                 Denver, Colorado 80201
Washington, D.C. 20005
</TABLE>


The Company's  Annual Report on Form 10-KSB for the fiscal year ended  September
30, 2000 is available  without  charge upon written  request.  For a copy of the
Form 10-KSB,  please write or call Mr.  Charles  Alessi,  Vice  President at the
Company's  Office.  The Annual Meeting of Stockholders  will be held on February
20, 2001 at 10:00 a.m. at the Days Inn, 1073 Route 206, Bordentown, New Jersey.