FARNSWORTH BANCORP, INC.
                       2005 ANNUAL REPORT TO STOCKHOLDERS


<PAGE>

                            FARNSWORTH BANCORP, INC.
                               2005 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
of Financial Condition and Results of Operations...............................4

Report of Independent Registered Public Accounting Firm......................F-1

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

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

Corporate Information.........................................................11

<PAGE>

                            FARNSWORTH BANCORP, INC.

To Our Stockholders:

         On behalf of our Board of Directors  and  employees,  we are pleased to
present our 2005 Annual Report to Stockholders.

         For the fiscal  year ended  September  30,  2005,  the  Company  earned
$336,000  or $.54 per share,  as compared to $606,000 or $1.22 per share for the
fiscal year ended  September  30, 2004.  At September  30, 2005,  the  Company's
assets totaled $104 million, as compared to $95.5 million at September 30, 2004.
Stockholders' equity was $9.2 million or $14.21 per share at September 30, 2005,
compared to $7.3 million or $13.38 per share at September 30, 2004. The increase
in assets  was  primarily  due to an  increase  in cash,  investments  and loans
receivable, net.

         The Company also continued its dividend policy in 2005 by paying a $.05
per share cash  dividend in May 2005 and in  November  2005.  The  Company  also
declared a 20% stock dividend in March 2004. These dividends reflect the Board's
continuing  commitment to enhance  shareholder  value in the Company and reflect
the Company's positive earnings trend.

         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.

In addition  to the Bank,  the Company  has one  subsidiary,  Peoples  Financial
Services,  Inc., a New Jersey corporation.  Peoples Financial Services, Inc. was
organized  for the purpose of  providing  securities  brokerage  and  investment
advisory  services and products to customers of the Bank and the general public.
Peoples Financial Services,  Inc. has a networking  agreement with a third party
and offers such products and services from the Bank's main and branch offices.

Stock Price Information

The Company's common stock has been traded in the over the counter market on the
OTC-Electronic  Bulletin  Board  under the  trading  symbol  of "FNSW"  since it
commenced  trading on September 30, 1998. The following  table reflects high and
low  bid  prices  as  reported  on  www.nasdaq.com  for  the  calendar  quarters
indicated.  The quotations reflect inter-dealer prices,  without retail mark-up,
markdown or commission and may not represent actual transactions.

                                       2

<PAGE>

                                                                  Cash Dividends
Quarter Ended                          High             Low            Per Share
December 31, 2003.................   $18.00           $16.75            $0.05
March 31, 2004....................   $21.00           $16.67                -
June 30, 2004.....................   $18.00           $16.50                -
September 30, 2004................   $20.75           $16.15            $0.05

December 31, 2004.................   $18.10           $18.10            $0.05
March 31, 2005....................   $19.25           $19.25                -
June 30, 2005 ....................   $19.50           $19.50                -
September 30, 2005................   $18.60           $18.60            $0.05

         The number of  shareholders of record of common stock as of December 1,
2005,  was  approximately  398.  This does not  reflect the number of persons or
entities who held stock in nominee or "street"  name through  various  brokerage
firms. At December 1, 2005, there were 650,316 shares issued and outstanding.

         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   mutual-to-stock
conversion, or (2) the regulatory requirements imposed by the OTS.

                    Selected Financial Ratios and Other Data

                                                    At or For the Years Ended
                                                           September 30,
                                                  ------------------------------
                                                       2005             2004
                                                       ----             ----
Return on average assets..........................     0.33%           0.646%
Return on average equity..........................     3.71             8.97
Average equity to average assets ratio............     8.86             7.20
Equity to assets at period end....................     8.86             7.60
Net interest rate spread..........................     3.56             3.87
Net yield on average interest-earning assets......     3.84             4.09
Non-performing loans to total assets..............     0.53             0.79
Allowance for loan losses to total loans..........     0.69             0.64
Dividend payout ratio.............................     9.99             9.17

                                       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 its  subsidiaries  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  investment  securities  and  non-interest  expense,
including,  primarily,  compensation and employee  benefits,  professional fees,
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.

         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, 2005,
as calculated by the OTS, based on quarterly information voluntarily provided to
the OTS.

                                       4

<PAGE>

        Changes
       In Market              Net Portfolio Value
------------------    ----------------------------------
    Interest Rates    $ Amount    $ Change      % Change      NPV Ratio(1)
    --------------    --------    --------      --------      ------------
   (basis points)(2)  (Dollars in thousands)
         +300           5,800       -5.894          -50%           5.83%
         +200           7,782       -3,912          -33%           7.64%
         +100           9,823       -1,871          -16%           9.42%
            0          11,694            -            -           10.96%
         -100          12,433          740           +6%          11.51%
__________
(1)  Calculated as the estimated NPV divided by present value of total assets.
(2)  the  -200bp  and  -300bp  scenarios  are not shown due to the  current  low
     interest rate environment.

         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 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 a quarterly basis. The Board 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.

                                       5

<PAGE>

Financial Condition

         Total  assets  increased  $8.6  million  or 9.1% to $104.1  million  at
September 30, 2005 from $95.5  million at September  30, 2004.  The increase was
primarily attributable to a $3.5 million increase in the Bank's loans receivable
net, a $4.3 million increase in cash and due from banks, and a $839,000 increase
in securities. The increase in loans receivable was due to greater marketing and
increased  demand in the Bank's  primary market area. The Bank has increased its
commercial real estate loan portfolio in recent periods.

         The Bank's total  liabilities  increased  $6.7 million or 7.6% to $94.9
million at  September  30, 2005 from $88.2  million at September  30, 2004.  The
increase was primarily  attributable to a $6.8 million  increase in deposits and
an increase in advances from borrowers of $31,000 partially offset by a decrease
in FHLB  advances of $155,000.  Deposits  increased  primarily  due to increased
marketing of the overall bank.

         Stockholders'  equity  was $9.2  million  or 8.86% of total  assets  at
September  30,  2005,  as  compared to $7.3  million or 7.6% of total  assets at
September  30,  2004.  The increase  resulted  primarily  from  proceeds of $1.8
million  net  received  upon the sale of  120,027  shares of  common  stock in a
private placement in November 2004.

                                       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,
                                                     -----------------------------------------------------------------
                                                                  2005                               2004
                                                     -------------------------------   -------------------------------
                                                                            Average                            Average
                                                     Average    Interest     Yield/     Average                 Yield/
                                                     Balance    Interest      Cost      Balance    Interest      Cost
                                                     -------    --------      ----      -------    --------      ----
                                                                          (Dollars in thousands)
<S>                                               <C>         <C>          <C>       <C>         <C>          <C>
Interest-earning assets:
    Loans receivable(1).....................        $ 68,107     $4,653        6.83%    $66,798     $4,448        6.66%
    Investment securities(2)................          30,217      1,068        3.53      26,359        887        3.37
                                                    --------     ------       -----     -------     ------       -----
        Total interest-earning assets.......          98,324      5,721        5.82      93,157      5,335        5.73
Noninterest-earning assets..................           3,230         --       -----         736         --       -----
        Total assets........................        $101,554      5,721                 $93,893      5,335
                                                    ========     ------                 =======     ------
Interest-bearing liabilities:
    NOW accounts............................         $10,203         70        0.68     $10,663         89        0.84
    Savings accounts........................          16,875        170        1.00      18,248        185        1.01
    Money market accounts...................          14,023        297        2.12      10,904        151        1.38
    Certificates of deposit.................          44,519      1,350        3.03      41,448      1,052        2.54
    FHLB - Advances.........................             727         43        5.91         890         52        5.83
                                                    --------     ------       -----     -------     ------       -----
        Total interest-bearing liabilities..          86,347      1,930        2.24      82,153      1,529        1.86
                                                                 ------       -----                 ------       -----
Noninterest-bearing liabilities.............           6,212                              4,980
                                                    --------                            -------
        Total liabilities...................          92,559                             87,133
Stockholders' equity........................           8,995                              6,760
                                                    --------                            -------
        Total liabilities and
        stockholders' equity................        $101,554                            $93,893
                                                    ========                            =======
Net interest income.........................                     $3,791                             $3,806
                                                                 ======                             ======
Interest rate spread(3).....................                                   3.58%                              3.87%
                                                                             ======                             ======
Net yield on interest-earning assets(4).....                                   3.86%                              4.09%
                                                                             ======                             ======
Ratio of average interest-earning assets
    to average interest-bearing liabilities.                                 113.87%                            113.39%
                                                                             ======                             ======
</TABLE>
___________________
(1)  Average balances include non-accrual loans.
(2)  Includes    mortgage-backed    securities,    investment   securities   and
     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).

                                                Year Ended September 30,
                                                     2005 vs. 2004
                                       -----------------------------------------
                                                  Increase (Decrease)
                                                        Due to
                                       -----------------------------------------
                                                                Rate/
                                        Volume     Rate         Volume     Net
                                        ------     ----         ------     ---
                                                    (In thousands)
Interest income:
    Loans receivable...................   $ 87    $ 116           $ 2     $205
    Investment securities..............    130       45             6      181
                                          ----    -----          ----     ----
        Total interest income..........    217      161             8      386

Interest expense:
    NOW accounts.......................     (4)     (16)            1      (19)
    Savings account....................    (14)      (1)            -      (15)
    Money market accounts..............     43       80            23      146
    Certificates of deposits...........     78      205            15      298
    FHLB advances......................    (10)       1             -       (9)
                                          ----    -----          ----     ----
        Total interest expense.........     93      269            39      401

Change in net interest income..........   $124    $(108)         $(31)    $(15)
                                          ====    =====          ====     ====


Results of Operations

         Net Income. The Bank's net income decreased $270,000 for the year ended
September 30, 2005,  to $336,000 from $606,000 for the year ended  September 30,
2004.  This  decrease  was  primarily  attributable  to an  increase in interest
expense of  $402,000,  an increase  in  noninterest  expense of  $254,000  and a
decrease in non-interest  income of $91,000  partially  offset by an increase in
interest income of $386,000 and a decrease in income taxes of $77,000.

         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

                                       8

<PAGE>

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 was unchanged for
the year ended September 30, 2005.

         The increase in the average balance of interest-earning  assets of $5.2
million primarily reflects increases of approximately $1.3 million in the Bank's
average balance of loans and $3.9 million in the average balance of securities.

         The increase in average  interest-bearing  liabilities  of $4.2 million
reflects an increase of $6.2 million in the average  balance of money market and
certificates of deposit,  partially  offset by a decrease of $1.8 million in the
average  balance of  interest-bearing  NOW accounts  and savings  accounts and a
decrease of $163,000 in the average balance of FHLB borrowings.

         Provision  for Loan Losses.  Provision for loan losses was $109,000 for
the year ended  September  30, 2005,  as compared to $123,000 for the year ended
September 30, 2004.  The provision is  established  to adjust the balance of the
allowance for loan losses to a level  management  feels is appropriate  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 decreased $91,000 or 24.45% from
$372,000  for the year ended  September  30,  2004 to  $281,000  for 2005.  This
decrease  in the Bank's  noninterest  income was due to a decrease of $50,000 in
net realized gains on the sale of available for sale securities and loans, and a
decrease in fees and other service charges of $41,000.

         Noninterest  Expense.  Noninterest  expense increased $254,000 or 8.27%
from  $3.1million  for the year ended  September  30, 2004,  to $3.3 million for
2005. The increase in the Bank's  noninterest  expense was due to an increase of
$123,000  in the Bank's  compensation  and  benefits,  an increase of $78,000 in
professional  fees and an  increase  of  $45,000  in the  Bank's  occupancy  and
equipment expense.  The increase in compensation and benefits expense was due in
part to additional personnel required to support the commercial loan department,
and the additional  professional fees are due to the cost of preparing to comply
with Sarbanes-Oxley Section 404.

         Income Tax Expense.  Income tax expense decreased $77,000 from $365,000
for the year ended  September  30, 2004 to $288,000 for 2005.  This  decrease in
income tax expense was primarily due to the decrease in net taxable  earnings of
the Bank. The Bank's  effective tax rate was 46.1% and 37.6% for the years ended
September 30, 2005 and 2004, respectively.

Liquidity and Capital Resources

         The Bank is required to maintain  adequate  levels of liquid assets for
its safe and sound operation.

         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

                                        9

<PAGE>

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,  depreciation,  provision  for loan  losses) for the year ended
September 30, 2005 totaled $757,000, a decrease of $144,000 as compared to 2004.
This decrease was mainly due to the decrease in net income of $270,000.

         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, 2005, totaled $4.8 million, a decrease of $4.6 million.
The decrease in cash used was primarily  attributable to funding net loan growth
of  $15.1  million  in 2005 as  compared  to  $16.1  million  in 2004 and by net
proceeds of available  for sale  investment  securities in 2005 of $14.0 million
compared  to $12.0  million in 2004.  Additional  uses of cash were to  purchase
premises  and  equipment of $38,000 and purchase of Federal Home Loan Bank stock
of $30,000.

         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,
2005 totaled $8.4  million,  an increase of $5.4 million as compared to the year
ended September 30, 2004. This increase was primarily  attributable to increased
deposits of $6.8  million and  issuance of  additional  common stock net of $1.8
million  partially  offset by repayment of FHLB  advances of $155,000,  and cash
dividends of $65,000.

         Approximately  $30.1 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 25% of total assets through the FHLB of New York.

                                       10

<PAGE>

         The  following  table  sets  forth  our  contractual   obligations  and
commitments as of September 30, 2005.

<TABLE>
<CAPTION>
                                                   Total
                                                  Amounts       Less Than                                  Over
                                                 Committed        1 Year      1-3 Years    4-5 Years     5 Years
                                                 ---------        ------      ---------    ---------     -------
<S>                                                <C>           <C>          <C>          <C>           <C>
Construction loans in process............            700           700            -            -              -
Other commitments to extend credit.......          3,793             -            -            -          3,793
                                                   -----           ---          ---          ---          -----
    Total................................          4,719           700            -            -          3,793
</TABLE>

<TABLE>
<CAPTION>
                                                                Less Than                                 After
                                                   Total          1 Year      1-3 Years    4-5 Years     5 Years
                                                 ---------        ------      ---------    ---------     -------
<S>                                                <C>           <C>          <C>          <C>           <C>
FHLB advances............................            655           165          361          125              -
Rentals under operating leases...........            966            55          110          108            693
                                                   -----           ---          ---          ---           ----
    Total................................          1,621           220          471          237            693
</TABLE>

                                       11

<PAGE>


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
             -------------------------------------------------------

To the Board of Directors
Farnsworth Bancorp, Inc.

We have audited the accompanying  consolidated statements of financial condition
of Farnsworth Bancorp,  Inc. and Subsidiaries as of September 30, 2005 and 2004,
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 the standards of the Public  Company
Accounting Oversight Board (United States). 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. The Company
is not  required  to  have,  nor were we  engaged  to  perform,  an audit of its
internal control over financial reporting.  Our audits included consideration of
internal  control  over  financial  reporting  as a basis  for  designing  audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the  effectiveness  of the Company's  internal  control
over  financial  reporting.  According,  we  express no such  opinion.  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  Subsidiaries  at September 30, 2005 and 2004, and the results of their
operations  and their cash flows for the years  then  ended in  conformity  with
accounting principles generally accepted in the United States of America.



/S/ KRONICK KALADA BERDY & CO., P.C.
Kingston, Pennsylvania
December 8, 2005

                                                                             F-1
<PAGE>

                   FARNSWORTH BANCORP, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

                          September 30, 2005 and 2004

<TABLE>
<CAPTION>

                                                                      2005             2004
                                                                 -------------    -------------
<S>                                                            <C>              <C>
                                     ASSETS
                                     ------
Cash and due from banks                                          $  10,278,409    $   6,009,330
Securities available for sale                                       19,418,925       19,288,779
Securities held to maturity (fair value $973,520 and $269,191
  at September 30, 2005 and 2004, respectively)                        969,864          261,301
Loans receivable, net                                               70,005,215       66,502,369
Accrued interest receivable                                            438,935          448,194
Federal Home Loan Bank of New York stock at
cost, substantially restricted                                         520,200          490,200
Premises and equipment                                               2,211,706        2,340,641
Deferred income taxes                                                  216,990           26,149
Other assets                                                            85,247          126,650
                                                                 -------------    -------------

Total assets                                                     $ 104,145,491    $  95,493,613
                                                                 =============    =============

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

Deposits:
   Non interest bearing                                          $   6,529,683    $   5,105,499
   Interest bearing                                                 87,053,377       81,720,306
Federal Home Loan Bank advance                                         654,696          810,013
Advances by borrowers for taxes and insurance                          404,956          373,531
Accrued income taxes                                                    26,586           11,532
Accrued interest payable                                                84,606           63,219
Accounts payable and other accrued expenses                            154,816          146,039
                                                                 -------------    -------------

Total liabilities                                                   94,908,720       88,230,139
                                                                 -------------    -------------

Preferred stock $.10 par value, 1,000,000 shares
authorized; none issued and outstanding                                      -                -
Common stock $.10 par value, 5,000,000 shares
authorized; 662,698 and  542,666 shares issued for 2005
and 2004, respectively; shares outstanding 650,316 and 530,284
 for 2005 and 2004, respectively                                        66,270           54,267
Additional paid in capital                                           8,481,669        6,515,350
Treasury stock at cost, 12,382
 for 2005 and 2004, respectively                                      (120,658)        (120,658)
Retained earnings                                                    1,339,579        1,068,643
Common stock acquired by employee stock
ownership plan (ESOP)                                                 (240,021)        (113,694)
Common stock acquired by restricted stock
plans (RSPs)                                                              --            (55,100)
Accumulated other comprehensive loss, unrealized depreciation
on available for sale securities, net of income taxes                 (290,068)         (85,334)
                                                                 -------------    -------------

Total stockholders' equity                                           9,236,771        7,263,474
                                                                 -------------    -------------

Total liabilities and stockholders' equity                       $ 104,145,491    $  95,493,613
                                                                 =============    =============
</TABLE>

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

                                                                             F-2
<PAGE>

                   FARNSWORTH BANCORP, INC. AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

                 For the Years Ended September 30, 2005 and 2004
<TABLE>
<CAPTION>
                                                                                        2005           2004
                                                                                    -----------    -----------
<S>                                                                               <C>            <C>
Interest income:
   Loans receivable                                                                 $ 4,652,498    $ 4,448,345
   Investments                                                                        1,068,202        886,175
                                                                                    -----------    -----------
        Total interest income                                                         5,720,700      5,334,520
                                                                                    -----------    -----------
Interest expense:
   Deposits                                                                           1,887,366      1,476,477
   Federal Home Loan Bank advances                                                       42,959         51,897
                                                                                    -----------    -----------
        Total interest expense                                                        1,930,325      1,528,374
                                                                                    -----------    -----------
        Net interest income                                                           3,790,375      3,806,146
Provision for loan losses                                                               108,732        122,700
                                                                                    -----------    -----------
        Net interest income after provision
          for loan losses                                                             3,681,643      3,683,446
                                                                                    -----------    -----------
Noninterest income:
   Fees and other service charges                                                       245,001        285,804
   Net realized gains on sale of:
      Available for sale securities                                                      16,888         51,433
      Loans                                                                              19,119         34,344
                                                                                    -----------    -----------
        Total noninterest income                                                        281,008        371,581
                                                                                    -----------    -----------
Noninterest expense:
   Compensation and benefits                                                          1,874,676      1,751,740
   Occupancy and equipment                                                              491,285        446,702
   Federal insurance premiums and assessments                                            11,339         13,667
   Service fees                                                                         295,258        281,848
   Professional fees                                                                    202,092        124,435
   Other                                                                                464,213        465,551
                                                                                    -----------    -----------
        Total noninterest expense                                                     3,338,863      3,083,943
                                                                                    -----------    -----------
Income before provision for income taxes                                                623,788        971,084

Provision for income taxes                                                              287,821        364,819
                                                                                    -----------    -----------
        Net income                                                                      335,967        606,265

Other comprehensive income (loss):
   Unrealized gain (loss) on securities available for sale, arising during
     the period, net of tax expense (benefit) of  ($129,539), 2005; $28,190, 2004      (194,646)        42,637
   Reclassification adjustment, net of taxes of $6,800, 2005; $20,529, 2004             (10,088)       (30,904)
                                                                                    -----------    -----------
        Comprehensive income                                                        $   131,233    $   617,998
                                                                                    ===========    ===========
Net income per common share:
   Basic                                                                            $      0.54    $      1.22
                                                                                    ===========    ===========
   Diluted                                                                          $      0.51    $      1.13
                                                                                    ===========    ===========
Weighted average number of shares outstanding during the year:
   Basic                                                                                616,543        497,803
                                                                                    ===========    ===========
   Diluted                                                                              652,790        534,384
                                                                                    ===========    ===========
</TABLE>
                   The accompanying notes are an integral part
                  of these consolidated financial statements.

                                                                             F-3

<PAGE>

                   FARNSWORTH BANCORP, INC. AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

                 For the Years Ended September 30, 2005 and 2004

<TABLE>
<CAPTION>
                                                                                                       Appreciation
                                                                              Common     Common     (Depreciation)      Total
                                       Additional                             Stock       Stock     on Securities       Stock-
                              Common    Paid in     Treasury      Retained    Acquired   Acquired    Available for       holders'
                              Stock     Capital      Stock        Earnings    By ESOP     By RSP     Sale, Net of Tax    Equity
                            -------- -----------  ----------   -----------   ---------  ----------   ----------------  -----------
<S>                        <C>      <C>          <C>          <C>           <C>          <C>           <C>           <C>
Balance at
  September 30, 2003        $ 45,202 $ 4,688,162  $ (185,172)  $ 2,260,041   $(144,054)   $ (3,645)     $ (97,067)    $ 6,563,467

Net income for the year
  ended September 30, 2004                                         606,265                                                606,265

Issuance of additional
  common stock                   274      19,904                                                                           20,178
Acquisition of common
  stock by RSP                            67,686      64,514                              (132,200)                             -
RSP shares allocated                                                                        80,745                         80,745
ESOP shares allocated                                                           30,360                                     30,360
Unrealized appreciation
  on securities
  available for sale,
  net of tax                                                                                               11,733          11,733
Cash dividends
  ($.10 per share)                                                 (49,274)                                               (49,274)
20% stock dividend             8,791   1,739,598                (1,748,389)                                                     -
                            -------- -----------  ----------   -----------   ---------   ---------     ----------     -----------

Balance at
  September 30, 2004          54,267   6,515,350    (120,658)    1,068,643    (113,694)    (55,100)       (85,334)      7,263,474


Net income for
  the year ended
  September 30, 2005                                               335,967                                                335,967

Issuance of additional
  common stock                10,886   1,774,805                                                                        1,785,691
Acquisition of common
  stock by ESOP                1,000     171,500                              (172,500)                                         -
Acquisition of common
  stock by RSP                   117      20,014                                           (20,131)                             -
RSP shares allocated                                                                        75,231                         75,231
ESOP shares allocated                                                           46,173                                     46,173
Unrealized depreciation
  on securities
  available for sale,
  net of tax                                                                                             (204,734)       (204,734)
Cash dividends
  ($.10 per share)                                                 (65,031)                                               (65,031)
                            -------- -----------  ----------   -----------   ---------   ---------     ----------     -----------
Balance at
  September 30, 2005        $ 66,270 $ 8,481,669  $ (120,658)  $ 1,339,579   $(240,021)  $       -     $ (290,068)    $ 9,236,771
                            ======== ===========  ==========   ===========   =========   =========     ==========     ===========
</TABLE>

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

                                                                             F-4

<PAGE>

                   FARNSWORTH BANCORP, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                 For the Years Ended September 30, 2005 and 2004

<TABLE>
<CAPTION>
                                                                       2005            2004
                                                                  ------------    ------------
<S>                                                             <C>             <C>
Cash flows from operating activities:
  Net income                                                      $    335,967    $    606,265
                                                                  ------------    ------------

  Adjustments to reconcile net income to net cash
    provided by operating activities:
      Depreciation                                                     166,541         160,395
      Provision for loan losses                                        108,732         122,700
      Net gain on sale of investments                                  (16,888)        (51,433)
      Stock compensation                                               121,404         111,105
      (Increase) decrease in accrued interest receivable                 9,259         (32,935)
      (Increase) decrease in other assets                               41,403         (74,938)
      Increase (decrease) in income taxes                              (39,048)         19,810
      Increase in accrued interest payable                              21,387          40,097
      Increase (decrease) in accounts payable
        and other accrued liabilities                                    8,777            (366)
                                                                  ------------    ------------
          Total adjustments                                            421,567         294,435
                                                                  ------------    ------------
          Net cash provided by operations                              757,534         900,700
                                                                  ------------    ------------

  Cash flows from investing activities:
      Net increase in loans receivable                              (3,611,578)     (5,162,803)
      Redemption and principal payments of
        held to maturity securities                                     46,437         200,142
      Purchase of available for sale securities                    (14,433,157)    (16,182,517)
      Proceeds from sale of available for sale securities           13,978,426      11,954,134
      Redemption (purchase) of Federal Home Loan Bank stock            (30,000)         17,200
      Purchase of premises and equipment                               (37,606)       (238,879)
      Purchase of held to maturity securities                         (755,000)
                                                                  ------------    ------------
          Net cash used in investing activities                     (4,842,478)     (9,412,723)
                                                                  ------------    ------------

  Cash flows from financing activities:
      Issuance of additional common stock, net                       1,785,691          20,178
      Increase in deposits                                           6,757,255       3,111,834
      Federal Home Loan Bank repayments                               (155,317)       (146,423)
      Increase in advances by borrowers                                 31,425          45,152
      Cash dividends                                                   (65,031)        (49,274)
                                                                  ------------    ------------
          Net cash provided by financing activities                  8,354,023       2,981,467
                                                                  ------------    ------------

  Net increase (decrease) in cash and due from banks                 4,269,079      (5,530,556)

  Cash and due from banks at beginning of year                       6,009,330      11,539,886
                                                                  ------------    ------------

  Cash and due from banks at end of year                          $ 10,278,409    $  6,009,330
                                                                  ============    ============

  Supplemental disclosure:
      Cash paid during the period for:
        Interest                                                  $  1,908,938    $  1,488,277
                                                                  ============    ============
        Income taxes                                              $    367,833    $    382,513
                                                                  ============    ============
        Non cash items:
        Unrealized gain (loss) on securities available for
          sale, net of deferred income taxes                      $   (204,734)   $     11,733
                                                                  ============    ============
        Stock dividend                                            $          -    $  1,748,389
                                                                  ============    ============
        Common stock acquired by Restricted Stock Plan and ESOP   $    192,631    $    132,200
                                                                  ============    ============
</TABLE>

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

                                                                             F-5

<PAGE>

                    FARNSWORTH BANCORP, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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

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

      The  consolidated  financial  statements,  which  have  been  prepared  in
      conformity with  accounting  principles  generally  accepted in the United
      States of America,  include the accounts of Farnsworth  Bancorp,  Inc. and
      its wholly  owned  subsidiaries,  Peoples  Savings  Bank (the  "Bank") and
      Peoples  Financial  Services,  Inc. (PFSI).  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 and the assessment of
      prepayment risks associated with  mortgage-backed  securities.  Management
      believes  that the  allowance  for loan losses is adequate and  prepayment
      risks associated with mortgage-backed  securities are properly recognized.
      While management uses available  information to recognize losses on loans,
      future  additions to the allowance for loan losses 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.  Such agencies may require the Bank to recognize  additions to the
      allowance  for loan losses  based on their  judgements  about  information
      available to them at the time of their examination.

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

      The Bank, which operates four branches in Burlington  County,  New Jersey,
      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.   PFSI  provides  securities
      brokerage and  investment  advisory  services and products to customers of
      the Bank. Farnsworth is a non-operating holding company

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

      The Bank's lending is concentrated in loans secured by real estate located
      in the State of New Jersey.  The Bank's loan  portfolio  is  predominantly
      made up of first  mortgage  loans  and  loans  secured  by real  estate in
      Burlington  County. 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, interest
      sensitive  liabilities will reprice faster than interest sensitive 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 SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)


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

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

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

          o    Securities  Held to  Maturity.  Securities  held to maturity  are
               -----------------------------
               those  securities  that  the  Bank has the  positive  intent  and
               ability to hold to maturity.  They 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  balances
      adjusted for the allowance for loan losses, and any deferred fees or costs
      on originated 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, using the interest method.

      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, 2005 and 2004, respectively, or for the years
      then ended.

      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.

                                                                             F-7


<PAGE>

                    FARNSWORTH BANCORP, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)



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

      Loans Sold
      ----------

      Loans sold were one-to-four  family residential  mortgages  originated and
      intended  for sale in the  secondary  market.  The loans  were  carried in
      aggregate at lower of cost or estimated  market value,  based upon current
      delivery  prices in the secondary  market.  Gains or losses on the sale of
      these  loans are  recognized  in  non-interest  income at the time of sale
      using the  specific  identification  method.  All  loans are sold  without
      recourse. No loans were held for sale at either year end.

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

      Land is carried at cost.  Bank  premises and equipment are carried at cost
      less accumulated depreciation.  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.

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

      The Board of Directors  declared a 20% stock dividend in 2004. The ability
      of Farnsworth Bancorp,  Inc. to pay dividends to stockholders is dependent
      upon the  receipt  of  dividends  from the Bank.  The Bank is subject to a
      dividend  restriction which generally limits the amounts of dividends that
      can be paid. The amount available for payment by the Bank in 2006, without
      approval  from  the  Office  of  Thrift   Supervision  (the  "OTS"),   was
      approximately $1,406,000.

                                                                             F-8
<PAGE>

                    FARNSWORTH BANCORP, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)


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

      The carrying amounts and fair values of these investments at September 30,
      2005 and 2004 are summarized as follows: September 30, 2005

<TABLE>
<CAPTION>
                                                                             September 30, 2005
                                                      ----------------------------------------------------------------
                                                                             Gross         Unrealized
                                                        Amortized          --------------------------          Fair
                                                          Cost              Gains            Losses            Value
                                                      -----------          -------         ---------       -----------
<S>                                                   <C>                  <C>           <C>              <C>
          Held to maturity:
              Municipal bonds                          $  755,000                                          $  755,000
              Mortgage backed securities                  214,864           $ 3,824       $     168           218,520
                                                       ----------           -------       ---------        ----------
                                                       $  969,864           $ 3,824       $     168        $  973,520
                                                       ==========           =======       =========        ==========
</TABLE>

<TABLE>
<CAPTION>
                                                                             September 30, 2004
                                                      ----------------------------------------------------------------
                                                                             Gross         Unrealized
                                                        Amortized          --------------------------          Fair
                                                          Cost              Gains            Losses            Value
                                                      -----------          -------         ---------       -----------
<S>                                                   <C>                 <C>           <C>              <C>
          Held to maturity:
              Mortgage backed securities                $ 261,301           $ 8,127       $     237        $  269,191
                                                        =========           =======       =========        ==========
</TABLE>

<TABLE>
<CAPTION>
                                                                             September 30, 2005
                                                      ----------------------------------------------------------------
                                                                             Gross         Unrealized
                                                        Amortized          --------------------------          Fair
                                                          Cost              Gains            Losses            Value
                                                      -----------          -------         ---------       -----------
<S>                                                  <C>                  <C>            <C>             <C>
          Available for sale securities:
             U.S. Government and agency securities     $ 7,596,355                         $ 242,552       $ 7,353,803
             Mortgage backed securities                 12,304,770                           296,108        12,008,662
                                                       -----------                         ---------       -----------
               Total debt securities                    19,901,125                           538,660        19,362,465

             Equity securities                               1,243          $55,217                             56,460
                                                       -----------          -------        ---------       -----------
                                                       $19,902,368          $55,217        $ 538,660       $19,418,925
                                                       ===========          =======        =========       ===========
</TABLE>

<TABLE>
<CAPTION>
                                                                             September 30, 2004
                                                      ----------------------------------------------------------------
                                                                             Gross         Unrealized
                                                        Amortized          --------------------------          Fair
                                                          Cost              Gains            Losses            Value
                                                      -----------          -------         ---------       -----------
<S>                                                 <C>                  <C>             <C>             <C>
          Available for sale securities:
             U.S. Government and agency securities    $11,590,017          $12,973         $ 164,486       $11,438,504
             Mortgage backed securities                 7,839,741            6,831            61,537         7,785,035
                                                      -----------          -------         ---------       -----------
               Total debt securities                   19,429,758           19,804           226,023        19,223,539
             Equity securities                              1,243           63,997                              65,240
                                                      -----------          -------         ---------       -----------
                                                      $19,431,001          $83,801         $ 226,023       $19,288,779
                                                      ===========          =======         =========       ===========
</TABLE>

                                                                             F-9

<PAGE>

                    FARNSWORTH BANCORP, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

3.    Held to Maturity and Available for Sale Securities (Continued)
      --------------------------------------------------

      The  schedule of  maturities  of  available  for sale debt  securities  at
      September 30, 2005 is as follows:

                                                Amortized            Fair
                                                  Cost               Value
                                               -----------        -----------

             Due in one year to five years     $ 1,644,089        $ 1,578,180
             Due after five to ten years         3,987,266          3,871,880
             Due after ten years                 1,965,000          1,903,743
                                               -----------        -----------
                                                 7,596,355          7,353,803
             Mortgage backed securities         12,304,770         12,008,662
                                               -----------        -----------
                                               $19,901,125        $19,362,465
                                               ===========        ===========

      The municipal  bonds that are classified as held to maturity are scheduled
      to mature within one year. There is no schedule of maturities for mortgage
      backed securities because these investments are subject to prepayment.

      Mortgage-backed  securities  with a  carrying  value  and  fair  value  of
      $130,786 and  $132,637 at September  30, 2005 and $161,882 and $165,950 at
      September  30, 2004 are pledged as security for  deposits of  governmental
      entities under the provisions of the Governmental Unit Deposit  Protection
      Act.

      Information  pertaining  to  securities  with gross  unrealized  losses at
      September 30, 2005 is as follows:

<TABLE>
<CAPTION>
                                                       Less than twelve months            Over twelve months
                                                    ----------------------------     ---------------------------
                                                       Gross                            Gross
                                                    Unrealized          Fair          Unrealized        Fair
                                                       Losses           Value           Losses          Value
                                                      -------        -----------      ---------      -----------
<S>                                                  <C>            <C>              <C>            <C>
           Securities Available for  Sale:
               U.S. Government and
                 agency securities                                                    $ 242,552      $ 7,353,803
           Mortgage-backed
           securities                                 $94,019        $ 2,838,826        202,089        9,169,836
                                                      -------        -----------      ---------      -----------

              Total securities available for sale     $94,019        $ 2,838,826      $ 444,641      $16,523,639
                                                      =======        ===========      =========      ===========
</TABLE>

      Management evaluates securities for other-than-temporary  impairment on at
      least a quarterly basis.  Consideration is given to the (1) length of time
      and  extent  to which  the fair  value as been  less  than  cost,  (2) the
      financial  condition  of the issuer and, (3) the intent and ability of the
      Bank to retain the investment for a period of time sufficient to allow for
      any  anticipated  recovery in fair  value.  At  September  30,  2005,  the
      seventeen  securities with unrealized  losses have depreciated 3% from the
      Bank's  amortized  cost  basis.  All these  securities  are either  direct
      obligations  of  the  U.S.  Government  or  are  guaranteed  by  the  U.S.
      Government or secured by mortgage loans.  These  unrealized  losses relate
      principally to current interest rates for similar types of securities.  As
      management has the ability to hold these  securities  for the  foreseeable
      future, no declines are deemed to be other-than temporary.

                                                                            F-10

<PAGE>

                    FARNSWORTH BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

4.    Loans Receivable
      ----------------

      Loans receivable are summarized as follows:

                                                       2005            2004
                                                   ------------    ------------
First mortgage loans
    Secured by one to four family residence        $ 36,296,324    $ 32,510,389
    Construction loans                                7,556,321       3,382,055
    Commercial real estate                           22,135,480      24,830,014
                                                   ------------    ------------
                                                     65,988,125      60,722,458
                                                   ------------    ------------
  Less:
    Loans in process - real estate                   (6,663,049)     (2,875,877)
    Net deferred loan origination (fees) costs           14,524        (109,749)
                                                   ------------    ------------
Total first mortgage loans                           59,339,600      57,736,832
                                                   ------------    ------------

Consumer and other loans:
    Home equity                                       3,433,987       3,540,660
    Personal loans                                      306,642         374,127
    Loans secured by savings                            237,693         226,073
    Commercial business loans                         1,309,773       1,315,687
    Mobile and automobile                             5,908,283       3,759,690
                                                   ------------    ------------
Total consumer and other loans                       11,196,378       9,216,237
                                                   ------------    ------------
Total loans                                          70,535,978      66,953,069
Less allowance for loan losses                         (530,763)       (450,700)
                                                   ------------    ------------
                                                   $ 70,005,215    $ 66,502,369
                                                   ============    ============


      At September 30, 2005 and 2004,  nonaccrual  loans for which  interest had
      been   discontinued   totaled   approximately   $601,000   and   $754,000,
      respectively.   Interest  income  actually  recognized  is  summarized  as
      follows:

                                                           2005            2004
                                                         -------         -------
           Interest income that would have
             been recognized                             $78,028         $65,628
           Income recognized                              10,889          34,994
                                                         -------         -------

           Interest income foregone                      $67,139         $30,634
                                                         =======         =======


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

                                                          2005            2004
                                                       ---------       ---------
           Allowance for loan losses:
                 Beginning of year                     $ 450,700       $ 328,000
                 Additional provisions                   108,732         122,700
                 Charge offs                             (28,669)              -
                                                       ---------       ---------
                                                       $ 530,763       $ 450,700
                                                       =========       =========



                                                                            F-11

<PAGE>

                    FARNSWORTH BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

4.    Loans Receivable (Continued)
      ----------------------------

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

                                                          2005          2004
                                                       -----------  -----------

             Beginning of year                         $   761,254  $   580,080
             Loans originated                            1,288,924      527,893
             Collection of principal                       (73,980)    (346,719)
                                                       -----------  -----------

             End of year                               $ 1,976,198  $   761,254
                                                       ===========  ===========

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

5.    Servicing
      ---------

      Loans   serviced  for  others  are  not   included  in  the   accompanying
      consolidated   statement  of  financial  position.  The  unpaid  principal
      balances of mortgage and other loans serviced for others were  $12,077,944
      and $8,490,794 at September 30, 2005 and 2004, respectively.

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

      Accrued interest receivable is summarized as follows:

                                                           2005           2004
                                                         --------       --------

             Loans receivable                            $314,153       $282,684
             Mortgage backed securities                    45,271         30,068
             Other securities                              79,511        135,442
                                                         --------       --------

                                                         $438,935       $448,194
                                                         ========       ========

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

      Premises and equipment are summarized by major classification as follows:

<TABLE>
<CAPTION>

                                                                 2005              2004           Useful lives
                                                             --------------    --------------    ----------------

<S>                                                           <C>               <C>            <C>
              Land
              Office building improvements (Marlton)            $  125,553        $  125,553      7 to 40 years
              Office building (Bordentown)                         119,022           119,022     25 to 40 years
              Office building (Florence)                         1,365,920         1,361,417     25 to 40 years
              Office building (Mount Laurel)                        72,754            55,876     25 to 40 years
              Furniture, fixtures and equipment                    680,877           680,877      5 to 7 years
                                                                ----------        ----------
                                                                 1,121,910         1,105,685
                                                                ----------        ----------
              Less: accumulated depreciation                     3,486,036         3,448,430
                                                                 1,274,330         1,107,789
                                                                ----------        ----------
                                                                $2,211,706        $2,340,641
                                                                ==========        ==========
</TABLE>

      Depreciation  charged to operations was $166,541 and $160,395 for 2005 and
      2004, respectively. The Bank leases the Marlton building and has renovated
      the leased space as a branch. This lease is included in footnote 12.

                                                                            F-12

<PAGE>

                    FARNSWORTH BANCORP, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)


8.    Deposits
      --------

      Deposits as of September 30 are summarized as follows:

                                                 2005                  2004
                                              ------------          -----------

              NOW accounts                    $ 10,663,316          $ 9,932,646
              Money market accounts             16,286,611           11,758,807
              Passbook and club accounts        11,602,005           18,106,102
              Non interest bearing               6,529,683            5,105,499
                                              ------------          -----------
              Subtotal                          45,081,615           44,903,054
                                              ------------          -----------
              Certificates of deposit:
                1.01% to 2.00%                   1,018,948           16,976,225
                2.01% to 3.0%                   12,339,243            8,245,361
                3.01% to 4.0%                   25,138,797           12,103,945
                4.01% to 5.0%                    9,900,815            4,388,071
                5.01% to 6.0%                      103,642              209,149
                                              ------------          -----------
              Subtotal                          48,501,445           41,922,751
                                              ------------          -----------
                                              $ 93,583,060          $86,825,805
                                              ============          ===========


      Deposits  of officers  and  directors  totaled  $127,400  and  $363,000 at
      September 30, 2005 and 2004,  respectively.  The aggregate amount of jumbo
      certificates  of  deposit  with a minimum  denomination  of  $100,000  was
      approximately  $6,242,000  and  $4,054,000 at September 30, 2005 and 2004.
      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, 2005 and 2004, scheduled maturities of certificates of
      deposit (rounded to the nearest $1,000) are summarized as follows:


                                                      2005               2004
                                                  -----------        -----------

              Due in 3 months or less             $ 4,763,000        $ 7,176,000
              Due after 3 months to 1 year         25,388,000         16,333,000
              Due after 1 year to 3 years          12,804,000         11,438,000
              Due after 3 years to 5 years          5,546,000          6,976,000
                                                  -----------        -----------
                                                  $48,501,000        $41,923,000
                                                  ===========        ===========

      Interest  expense on deposits for the years ended  September  30, 2005 and
      2004 is summarized as follows:

                                                      2005               2004
                                                   ----------         ----------

              NOW accounts                         $   69,730         $   89,142
              Money market accounts                   297,905            150,521
              Passbook and club accounts              169,546            184,909
              Certificates of deposit               1,350,185          1,051,905
                                                   ----------         ----------
                                                   $1,887,366         $1,476,477
                                                   ==========         ==========

                                                                            F-13

<PAGE>

                    FARNSWORTH BANCORP, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

9.    Federal Home Loan Bank Advance
      ------------------------------

      This advance bears fixed interest at 5.9% and matures in April 2009. It is
      collateralized  by FHLB  stock  and  investment  securities.  The Bank has
      approximately  $25,381,000  available  for  borrowing as of September  30,
      2005.


      Principal payments are as follows:


                                 2006               $164,754
                                 2007                174,762
                                 2008                186,292
                                 2009                128,888
                                                    --------

                                Total               $654,696
                                                    ========


10.   Net Gain on Sale of Investments
      -------------------------------

      For the years ended  September  30, 2005 and 2004,  proceeds from sales of
      securities  available for sale amounted to  $13,978,426  and  $11,954,134,
      respectively.  Gross  realized  gains  amounted  to $16,888  and  $51,433,
      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,  2005 and 2004  included
      untaxed  earnings of  approximately  $227,300 and $253,000,  respectively,
      representing such bad debt deductions.

      Retained  earnings at September 30, 2005 and 2004  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:

                                                        2005            2004
                                                     ---------       ---------
             Statutory tax rates                           34%             34%
             Tax at statutory rates                   212,088         330,168
             New Jersey Savings Institution Tax and
               Corporation Income Tax                  56,342          44,050
             Miscellaneous                             19,391          (9,399)
                                                     --------        --------
                                                     $287,821        $364,819
                                                     ========        ========

                                                                            F-14

<PAGE>

                    FARNSWORTH BANCORP, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

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


      The tax provision is summarized as follows:

                                                             2005         2004
                                                          ---------    ---------
          Current federal                                $ 198,330    $ 388,092
          Deferred federal                                  45,986      (77,996)
          Current state                                     35,391       68,487
          Deferred state                                     8,114      (13,764)
                                                         ---------    ---------
                                                         $ 287,821    $ 364,819
                                                         =========    =========


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

                                                           2005           2004
                                                         --------       --------
          Deferred tax assets:
            Allowance for loan losses                    $212,305       $180,280
            Unrealized depreciation on investments        193,630         56,889
            Loans                                          32,413         31,293
            Accrued compensation                           25,583         24,078
                                                         --------       --------
            Total deferred tax assets                     463,931        292,540
                                                         --------       --------
          Deferred tax liabilities:
            Premises and equipment                        105,875        115,068
            Tax reserve for loan losses                   141,066        151,323
                                                         --------       --------
            Total deferred tax liabilities                246,941        266,391
                                                         --------       --------
            Net deferred tax asset                       $216,990       $ 26,149
                                                         ========       ========


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

      At September 30, 2005 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:

<TABLE>
<CAPTION>
                             Amounts              Rate                Term
                           -----------     ------------------    ---------------
<S>                                <C>               <C>      <C>        <C>
          Mortgages (fixed rate)     $   986,000       5.75% to 6.875%     30 years
                                                              0 points
          Home equity loans              397,000        5.00% to 5.75%     5 to 15 years
                                                              0 points
          Other loans                  3,336,000       6.25% to 8.880%     1 to 25 years
                                                         0 to 1 points
                                     -----------

                                     $ 4,719,000
                                    ============
</TABLE>

                                                                            F-15

<PAGE>

                    FARNSWORTH BANCORP, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

12.    Commitments (Continued)
       -----------


      There are fourteen letters of credit outstanding at September 30, 2005. An
      annual  fee of 1/2 to 1 percent  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 the fourteen  letters totals  $1,294,847.  The Bank also has
      consumer  and  commercial   lines  of  credit  with  undrawn  balances  of
      $3,171,458 and $1,460,000, respectively.

      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
      $9,909,900.  Additionally,  a one month overnight repricing line of credit
      is available in the amount of $9,909,900.

      Future minimum lease payments under  noncancellable  operating  leases for
      branch building and transportation equipment are as follows:


             2006                $  55,312
             2007                   54,440
             2008                   55,969
             2009                   52,553
             2010                   55,706
          Thereafter               692,179
                                 ---------

             Total               $ 966,159
                                 =========

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.

      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 based on the redemption provisions of the Federal Home Loan Bank.

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

      For  variable-rate  loans that reprice  frequently and have no significant
      credit  risk,  fair values are based on carrying  values.  Fair values for
      fixed rate mortgage loans,  excluding commercial 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 fixed rate  commercial real estate
      and  other  consumer  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.

                                                                            F-16

<PAGE>

                    FARNSWORTH BANCORP, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)


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

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

     The fair values of 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 of certificates.

     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 these liabilities approximate their fair values.

     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
     creditworthiness   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 evaluation of the  counterparty.  The fair
     value of commitments is not considered significant.

                                                                            F-17

<PAGE>

                    FARNSWORTH BANCORP, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

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

      The  carrying   amounts  and  estimated   fair  values  of  the  financial
      instruments were as follows:

                                                  2005               2004
                                           -----------------   -----------------
                                           Carrying   Fair     Carrying    Fair
                                            amount    value     amount    value
                                            ------    -----     ------    -----

Financial Assets (000's omitted)
--------------------------------
Cash and due from banks                    $10,278   $10,278   $ 6,009   $ 6,009
Securities held to maturity                    970       973       261       269
Securities available for sale               19,419    19,419    19,289    19,289
FHLB stock                                     520       520       490       490
Loans receivable                            70,005    70,620    66,502    67,052
Accrued interest receivable                    439       439       448       448

Financial Liabilities (000's omitted)
-------------------------------------
Deposit liabilities                         93,583    92,838    86,826    87,037
FHLB advances                                  655       728       810       900
Accrued interest payable                        85        85        63        63
Other liabilities                              586       586       531       531

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

      401 (k) Plan
      ------------

      A  401  (k)  Plan  covers  substantially  all  employees.   Employees  may
      contribute  up to 15  percent  of their  compensation  subject  to certain
      limits  based  on  federal  tax  laws.  The  Corporation   makes  matching
      discretionary  contributions equal to 50 percent of the first 6 percent of
      an employee's compensation contributed to the Plan. Matching contributions
      vest immediately. For the years ended September 30, 2005 and 2004, expense
      attributable to the Plan amounted to $25,472 and $26,105, respectively.

      Employee Stock Option Plan (ESOP)
      ---------------------------------

      The Bank has established an ESOP for all eligible employees. The ESOP used
      $303,880 of proceeds from a term loan from  Farnsworth to purchase  43,759
      shares of Company common stock in the initial  offering.  The term loan of
      $90,620 at September  30, 2005,  including  interest,  is payable in equal
      monthly  installments through March 2008. The interest rate is 8.50% fixed
      for the term of the loan.  In November  2004 the ESOP used $172,500 from a
      term loan with Farnsworth to purchase 10,000 shares of Company stock.  The
      term loan of  $156,688 at  September  30,  2005,  including  interest,  is
      payable in equal monthly  installments through November 2014. The interest
      rate  is  4.75%  fixed  for the  term  of the  loan.  The  Bank is  making
      contributions  to the ESOP which are equal to the  principal  and interest
      payment  required  from  the ESOP on the term  loans.  Unallocated  shares
      purchased  with the loan proceeds are pledged as  collateral  for the term
      loans and are held in a  suspense  account  for  future  allocation  among
      participants.  Shares  released  from the suspense  account are  allocated
      among the participants on the basis of  compensation.  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 shares become outstanding for net income
      per common share  computations.  Dividends  on  allocated  ESOP shares are
      recorded as a reduction of retained earnings.

                                                                            F-18

<PAGE>

                    FARNSWORTH BANCORP, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)


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

                                                          2005            2004
                                                        --------        --------


            Allocated shares                              31,626          26,251
            Unallocated shares                            22,133          17,508
                                                        --------        --------

            Total ESOP shares                             53,759          43,759
                                                        ========        ========

            Fair value of unallocated shares            $411,674         350,160
                                                        ========        ========


      Restricted Stock Plans (RSP)
      ----------------------------

      On April 16, 2000 the Bank established a RSP to provide both key employees
      and  outside  directors  with a  proprietary  interest  in it in a  manner
      designed to  encourage  such  person to remain  with the Bank.  A total of
      21,879  restricted  shares were  purchased  at an average  market value of
      $7.27.  Rights to a total of  15,308  shares  were  issued to the board of
      directors  and two  executive  officers  in 2000.  The fair value of these
      shares is being  charged to  expense  over the five year  vesting  period.
      During the year ended  September  30, 2004,  1,531 shares were vested.  At
      September 30, 2005, all shares were vested.

      On September 5, 2002 the Bank  established  an  additional  RSP to provide
      both key employees and outside directors with a proprietary interest in it
      in a manner  designed to encourage such person to remain with the Bank. To
      fund this plan, the Bank purchased a total of 6,571 restricted shares from
      the RSP Plan  established on April 16, 2000 and 6,610 shares in March 2004
      at a  market  value  of $20 a  share.  An  additional  2,409  shares  were
      purchased during 2005 at a market value between $17.25 and $18.60.  Rights
      to a total of 15,590  shares  were issued to the board of  directors,  two
      executive officers and three employees.  The fair value of these shares is
      being charged to expense over the four year vesting period. During each of
      the years ended  September  30, 2005 and 2004,  3,900  shares  vested.  At
      September 30, 2005 and 2004, 15,590 and 11,696 shares, respectively,  were
      vested. At September 30, 2005, all shares were vested.

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

      Farnsworth  has a stock  option  plan that  provides  for the  granting of
      non-qualified stock options. In April 1999, it issued 38,279 options at an
      exercise price of $7.38 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, 2005 and 2004,  a total number of
      38,279 and 35,545 options were vested,  respectively.  During 2004,  2,734
      shares were exercised.

      In September 2002,  Farnsworth  issued 31,177 options at an exercise price
      of $10.07 per share to key and non-key  Bank  employees  and  non-employee
      members  of  its  Board  Directors.   The  options  vest  ratably  on  the
      anniversary  date over three years. The options expire ten years after the
      initial  grant date.  At  September  30, 2005 and 2004,  a total number of
      31,177  options  were  vested,  respectively,  and none were  exercised or
      forfeited.

                                                                            F-19

<PAGE>

                    FARNSWORTH BANCORP, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

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

     In  accordance  with  an  election  under  generally  accepted   accounting
     principles for stock options no compensation cost has been recorded for the
     stock options in the accompanying  consolidated  financial statements.  Had
     compensation  cost  been  determined  based on the fair  value at the grant
     dates for awards  under the plan,  the net income  and  earnings  per share
     would have been reduced to the proforma amounts disclosed below:

                                                          2004
                                                     -----------
                 Net income:
                    As reported                      $   606,265
                    Proforma                             591,218

                 Earnings per common share
                    As reported
                          Basic                      $      1.22
                          Diluted                    $      1.13
                    Proforma
                          Basic                      $      1.19
                          Diluted                    $      1.11

     The fair values were  determined  using the  Black-Scholes  option  pricing
     model with the following weighted average assumptions for the 1999 and 2002
     plans,  respectively:  0% and 1% dividend yield,  5.88% and 5.75% risk free
     interest rate, 5 and 3 year expected life and 4.85% and 10.18% volatility.

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, less shares that have not
     been  committed to be released.  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 dilutive, generally using the treasury stock method.

<TABLE>
<CAPTION>
                                                      2005                                    2004
                                     --------------------------------------    ----------------------------------
                                                    Weighted        Per-                    Weighted       Per-
                                                     Average        Share                   Average        Share
                                       Income        Shares         Amount      Income       Shares        Amount
                                      --------       -------        ------     --------     --------      -------
<S>                                 <C>            <C>           <C>         <C>          <C>           <C>
      Net income available to
      Common Shareholders             $335,967       638,802                   $606,265     525,259
      ESOP shares, not
      committed to be released                       (19,498)                               (20,751)
      RSP shares                                      (2,761)                                (6,705)
                                      --------       -------       ------      --------     -------       -------
      Basic earnings per share         335,967       616,543       $  .54       606,265     497,803       $  1.22
      Common stock equivalents                        36,247                                 36,581
                                      --------       -------       ------      --------     -------       -------
      Diluted earnings
      Per share                       $335,967       652,790       $  .51      $606,265     534,384       $  1.13
                                      ========       =======       ======      ========     =======       =======
</TABLE>

                                                                            F-20

<PAGE>

                    FARNSWORTH BANCORP, INC. AND SUBSIDIARIES

                   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  risk-based  capital equal to at least 8.0% of its  risk-weighted
      assets.

      The Bank at September  30, 2005 and 2004 meets the  regulatory  risk based
      capital, Tier 1 capital, core capital and tangible capital requirements as
      summarized below:

<TABLE>
<CAPTION>
                                                                      To Be Well Capitalized
                                                    For Capital       Under Prompt Corrective
                                 Actual          Adequacy Purposes        Action Provisions
                           ----------------      -----------------    -----------------------
                           Amount     Ratio       Amount    Ratio         Amount   Ratio
                           ------     -----       ------    -----         ------   -----
<S>                       <C>       <C>          <C>       <C>           <C>      <C>
As of September 30, 2005:
  Risk-based capital       $8,651    14.11%       $4,904    8.00%         $6,130   10.00%
  Tier 1 capital            8,120    13.25%          N/A     N/A           3,678    6.00%
  Core capital              8,120     7.84%        4,143    4.00%          5,179    5.00%
  Tangible capital          8,120     7.84%        1,554    1.50%            N/A     N/A

As of September 30, 2004:
  Risk-based capital       $7,284    13.11%       $4,445    8.00%         $5,557   10.00%
  Tier 1 capital            6,741    12.13%          N/A     N/A           3,334    6.00%
  Core capital              6,741     7.05%        3,827    4.00%          4,779    5.00%
  Tangible capital          6,741     7.05%        1,434    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% of 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, 2005, that the Bank
      meets all capital adequacy requirements to which it is subject.

      As of September  2005, 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.

                                                                            F-21


<PAGE>

                    FARNSWORTH BANCORP, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)



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

      The earnings of the  subsidiaries  are recognized by Farnsworth  using the
      equity method of accounting. Accordingly, the earnings of the subsidiaries
      are recorded as increases in Farnsworth's investment in subsidiaries.  The
      following are the condensed  financial  statements for Farnsworth  (parent
      company  only) as of  September  30,  2005 and 2004 and for the years then
      ended.

Statement of Financial Condition                        2005             2004
                                                     ----------       ----------
Assets
Cash                                                 $1,111,770       $  367,808
ESOP loan receivable                                    247,307          121,008
Investment in subsidiaries                            5,977,013        4,564,879
Other assets                                             67,292           98,430
                                                     ----------       ----------

Total assets                                         $7,403,382       $5,152,125
                                                     ==========       ==========

Liabilities
Accrued expenses                                     $   28,472       $   26,474
                                                     ----------       ----------
Total liabilities                                        28,472           26,474

Stockholder's equity                                  7,374,910        5,125,651
                                                     ----------       ----------
Total liabilities and
    Stockholder's equity                             $7,403,382       $5,152,125
                                                     ==========       ==========


                                                        2005             2004
                                                     ----------       ----------

Income from subsidiaries                             $  412,134       $  654,936
Interest income                                          40,113           14,127
                                                     ----------       ----------
Total income                                            452,247          669,063
                                                     ----------       ----------

Meeting expenses                                          6,775           10,340
Stock transfer fees                                       4,101
Printing                                                 22,678           10,000
Professional fees                                       121,205           67,531
                                                     ----------       ----------
Total expenses                                          154,759           87,871
                                                     ----------       ----------

Income before income taxes                              297,488          581,192
Income tax benefit                                       38,479           25,073
                                                     ----------       ----------
Net income                                           $  335,967       $  606,265
                                                     ==========       ==========

                                                                            F-22

<PAGE>


                    FARNSWORTH BANCORP, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)



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

<TABLE>
<CAPTION>

Statement of Cash Flows                                             2005           2004
                                                                -----------    -----------

<S>                                                           <C>            <C>
Cash flows from operations activities:
  Net income                                                    $   335,967    $   606,265
  Adjustments to reconcile net income to net cash
     used in operating activities:
   Increase in accrued expenses                                       1,998          9,183
   Equity in undistributed earnings of subsidiaries              (1,412,134)      (654,936)
   Decrease (increase) in other assets                               31,138        (23,057)
                                                                -----------    -----------

         Net cash used in operating activities                   (1,043,031)       (62,545)
                                                                -----------    -----------
Cash flows from investing activities:
  Repayment of ESOP loan                                             46,201         30,388
  Proceeds of ESOP loan                                            (172,500)
                                                                -----------    -----------

         Net cash provided by (used in)  investing activities      (126,299)        30,388
                                                                -----------    -----------

Cash flows from financing activities:
  Issuance of stock                                               1,978,323        152,376
  Dividends                                                         (65,031)       (49,274)
                                                                -----------    -----------
         Net cash provided by financing activities                1,913,292        103,102
                                                                -----------    -----------

Net increase in cash                                                743,962         70,945
Cash - beginning                                                    367,808        296,863
                                                                -----------    -----------
Cash - ending                                                   $ 1,111,770    $   367,808
                                                                ===========    ===========
</TABLE>

                                                                            F-23

<PAGE>

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

                                PEOPLES SAVINGS BANK

                                     Main Office
                                789 Farnsworth Avenue
                                Bordentown, New Jersey
<TABLE>
<CAPTION>
<S>                        <C>                                <C>
   Florence Office                Marlton Office                   Mt. Laurel Office
   4 Broad Street           320 Evesboro-Medford Road               101 Gaither Drive
Florence, New Jersey            Marlton, New Jersey               Mt. Laurel, New Jersey

                               Board of Directors

                                       Chairman
                                    Edgar N. Peppler
                        Retired - President - Peppler Funeral Home
       George G. Aaronson, Jr.                                     G. Edward Koenig, Jr.
               Realtor                                                    Retired
           Falconer & Bell                                     President - E.J. Koenig, Inc.

          Charles E. Adams                                            Gary N. Pelehaty
               Retired                                     President and Chief Executive Officer
   Florence Township Administrator                   Farnsworth Bancorp, Inc. and Peoples Savings Bank

           Joseph H. Kelly                                       William H. Wainwright, Jr.
              President                                                   Retired

          Kelly Enterprises                                             Loan Officer
         John J. Maley, Jr.                                            Coby M. Frier
   Certified Public Accountant and                             President and General Manager
   Registered Municipal Accountant                              Eastampton Auto Center, Inc.

                                     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

                               PEOPLES FINANCIAL SERVICES, INC.
                                     BOARD OF DIRECTORS
        Gary N. Pelehaty                                                 Charles Alessi
           President                                            Vice President, Chief Financial
                                                                Officer, Secretary and Treasurer

     R. Theodore Hinderer                                                 Jonas Singer
           President                                                        Attorney
     Credit Lenders Title Agency                                 Wells, Singer, Rubin & Musulin

</TABLE>

<PAGE>

                            ________________________

         Local Counsel                         Independent Auditors
         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             Computershare Trust Company, Inc.
         1100 New York Avenue, N.W.            350 Indiana Street
         Suite 340 West                        Suite 800
         Washington, D.C. 20005                Golden, Colorado 80401
                            ________________________

The Company's  Annual Report on Form 10-KSB for the fiscal year ended  September
30, 2005 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
21, 2006 at 10:00 a.m. at the Days Inn, 1073 Route 206, Bordentown, New Jersey.