VILLAGE FINANCIAL CORP, 424B3, 1999-02-08

VILLAGE FINANCIAL CORP
424B3, 1999-02-08
STATE COMMERCIAL BANKS

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PROSPECTUS
425,000 to 1,200,000 Shares of Common Stock
Village Financial Corporation
The Proposed Holding Company for Village Bank (In Organization)
590 Lawrence Square Boulevard
Lawrenceville, New Jersey 08648

================================================================================
Village Financial Corporation is a New Jersey corporation formed in
January 1998 to become the holding company for Village Bank, a proposed
FDIC-insured federal savings bank to be located in Lawrenceville, New Jersey.
Village Financial Corporation will own all of the shares of Village Bank. The
common stock of Village Financial Corporation will be sold only if Village
Financial Corporation and Village Bank receive all required regulatory approvals
and Village Financial Corporation receives orders for at least 425,000 shares of
common stock. The Federal Deposit Insurance Corporation has approved Village
Bank's Application for Federal Deposit Insurance, subject to routine conditions.
The Office of Thrift Supervision has deemed complete the Application for
Permission to Organize Village Bank and the Application of Village Financial
Corporation to become the holding company of Village Bank. See "The Offering and
Plan of Distribution Conditions of Offering and Release of Funds."

================================================================================
TERMS OF OFFERING

We are offering for sale a minimum of 425,000 shares and a maximum of
1,200,000 shares of our common stock to the general public on a "best efforts"
basis. All subscription funds tendered will be deposited in an interest bearing
escrow account with Summit Bank, Princeton, New Jersey pending completion or
termination of the offering. The offering will expire on March 26, 1999.
However, we may extend the offering without further notice to subscribers. We
have engaged a broker-dealer in securities, Ryan, Beck & Co., Inc., ("Ryan,
Beck") to consult and advise us in the sale of our common stock. See pages 9 to
14, "The Offering and Plan of Distribution." Our offering of common stock is
based on the following terms:

o Price Per Share: $10.00
o Number of Shares
Minimum/Maximum: 425,000 to 1,200,000
o Underwriting Commissions
and Other Expenses: $135,000 to $751,000*
o Net Proceeds to Village Financial
Corporation Minimum/Maximum: $4,115,000 to $11,249,000
o Net Proceeds Per Share
Minimum/Maximum: $9.68 to $9.37

* We previously sold 94,850 shares of our common stock for $10.00 per share in a
private placement to fund our preopening expenses. We currently anticipate our
preopening expenses will be $433,000, and we estimate $135,000 for public
offering costs, relating primarily to legal, accounting, printing and postage
costs. Additionally, Ryan, Beck, may assemble a group of registered broker
- -dealers in order to sell shares of our common stock, but will not undertake to
sell our common stock unless and until we raise at least $5 million (including
the proceeds from the sale of our common stock in this offering and from the
previously conducted private placement). We will pay a commission in the amount
of 7.75% of the gross proceeds from the shares of our common stock that they
sell. The commission would be $616,000 if Ryan, Beck and its group sell 794,850
shares, the anticipated maximum number of shares available for them to sell.
However, Ryan, Beck is not required to sell shares in the offering, and we may
continue to sell shares above $5 million, allocating less shares to the
broker-dealers. See "The Offering and Plan of Distribution."

Please refer to Risk Factors beginning on page 1 of this Prospectus.

These securities are not deposits or accounts and are not insured or guaranteed
by the Federal Deposit Insurance Corporation ("FDIC") or any other government
agency.

Neither the Securities and Exchange Commission ("SEC"), the Office of Thrift
Supervision ("OTS"), nor any state securities regulator has approved or
disapproved these securities or determined if this Prospectus is accurate or
complete. Any representation to the contrary is a criminal offense.
For information on how to subscribe, call us at
(609) 689-1010
Ryan, Beck & Co.
The date of this Prospectus is February 3, 1999

<PAGE>

TABLE OF CONTENTS

Page
----

Questions and Answers About the Stock Offering (i)
Summary............................................................. (ii)
Risk Factors........................................................ 1
Use of Proceeds..................................................... 5
Dividends........................................................... 7
Market for Common Stock............................................. 7
Dilution............................................................ 8
Capitalization...................................................... 9
The Offering and Plan of Distribution............................... 9
Office Facilities................................................... 14
Unaudited Pro Forma Financial Information........................... 15
Management's Discussion and Analysis and Plan of Operation.......... 18
Proposed Business of the Company.................................... 20
Proposed Business of the Bank....................................... 22
Regulation.......................................................... 29
Management of the Company........................................... 34
Management of the Bank.............................................. 34
Security Ownership of Certain Beneficial Owners..................... 38
Description of Capital Stock........................................ 38
Shares Eligible for Future Sale..................................... 41
Legal Matters....................................................... 42
Experts............................................................. 42
Index to Financial Statements....................................... 43

This document contains forward-looking statements which involve risks
and uncertainties. Village Financial Corporation's actual results may differ
significantly from the results discussed in the forward- looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed in "Risk Factors" beginning on page 1 of this document.

You should rely only on the information contained in this document. We
have not authorized anyone to provide you with information that is different.
The affairs of Village Financial Corporation may have changed since the dates
referred to in this document.

<PAGE>

[MAP PAGE]

[Map of the State of New Jersey with the heading "Village Bank (proposed
offices)." Map indicates the proposed location of the main office in
Lawrence Township and branch office in Pennington. Map indicates location
of the cities of Trenton, Princeton, Philadelphia, New York City and
Atlantic City.]

<PAGE>

QUESTIONS AND ANSWERS ABOUT THE STOCK OFFERING

Q: How do I purchase the stock?

A: You must complete and return the subscription agreement to us together with
your payment no later than 4:00 p.m., New Jersey Time, March 26, 1999.

Q: How much stock may I purchase?

A: The minimum purchase is 100 shares (or $1,000). The maximum purchase is
50,000 shares (or $500,000).

Q. Will the stock be traded on a market?

A. Management of Village Financial Corporation anticipates that the stock will
be traded in the over-the-counter market, on the OTC Bulletin Board.
However, it is not assured that the stock will be traded on the OTC
Bulletin Board or on any market.

Q: What particular risks should I consider when deciding whether to buy the
stock?

A: Prior to purchasing our stock, you should be aware that investment in our
stock involves significant risk. You should read the Risk Factors section
on pages 1-5 of this document. As is disclosed in the Risk Factors section,
our company is a recently formed corporation with no operating history. We
may require additional capital in the future. It is unlikely that an active
trading market in our common stock will develop. As a new enterprise, we
have arbitrarily determined the offering price of our common stock. You
should not expect to receive dividends for the purchase of our common
stock. Village Bank will be operated in a highly regulated environment and
in a highly competitive market. We are subject to a possible lack of market
growth, interest rate risk, possible adverse legislation and possible delay
in the opening of Village Bank. You should be aware that our certificate of
incorporation and bylaws contain certain anti- takeover provisions, that
the shares you purchase are subject to dilution, that we may experience
Year 2000 computer problems and that although we expect to conduct a
portion of this offering with the assistance of a broker-dealer, the
broker-dealer is not obligated to sell shares of our common stock and is
not obligated to purchase any shares itself.

Q: Who can help answer any other questions I may have about the stock
offering?

A: In order to make an informed investment decision, you should read this
entire document. In addition, you may contact:

Kenneth J. Stephon, President
Village Financial Corporation
590 Lawrence Square Boulevard
Lawrenceville, New Jersey 08648
(609) 689-1010

(i)

<PAGE>

SUMMARY

This summary highlights selected information from this document and may
not contain all the information that is important to you. To understand the
stock offering fully, you should read carefully this entire document, including
the financial statements and the notes to the financial statements of Village
Financial Corporation. References in this document to "we," "us" and "our" refer
to Village Financial Corporation. In certain instances where appropriate, "we,"
"us" or "our" refers collectively to Village Financial Corporation and Village
Bank. References in this document to the "Company" refer to Village Financial
Corporation. References in this document to the "Bank" refer to Village Bank.

The Company and the Bank

Village Financial Corporation
590 Lawrence Square Boulevard
Lawrenceville, New Jersey 08648
(609) 689-1010

Village Financial Corporation is not an operating company and we have
not engaged in any business to date other than in connection with the
organization of Village Bank and our stock offering. Our company was formed in
January 1998 as a New Jersey-chartered corporation to be the holding company for
Village Bank, a federal savings bank in the process of organizing. The holding
company structure will provide greater flexibility in terms of operations,
expansion and diversification. Our office is located at 590 Lawrence Square
Boulevard, Lawrenceville, New Jersey 08648. Our mailing address is 590 Lawrence
Square Boulevard, Lawrenceville, New Jersey 08648. Our address for mailing
subscription agreements and payments is P.O. Box 6554, Lawrenceville, New Jersey
08648. Our telephone number is (609) 689-1010.

See pages 20 to 21, "Proposed Business of the Company."

Village Bank
590 Lawrence Square Boulevard
Lawrenceville, New Jersey 08648
(609) 689-1010

The principal business of Village Bank will be to accept various types
of transaction and savings deposits from the general public and to make
mortgage, consumer, small business and other loans. Our main office will be
located at 590 Lawrence Square Boulevard (on Quakerbridge Road), Lawrenceville,
New Jersey, formerly a branch office of a regional commercial bank. We intend to
operate a limited service facility within the Pennington Point complex, which
includes the Pennington Point adult community, in Pennington, New Jersey. See
pages 22 to 28, "Proposed Business of the Bank."

Strategy

Our primary market area is currently serviced almost entirely by large,
regional financial institutions headquartered outside of the area. Village Bank
is being formed to provide the area with a locally managed and operated
financial institution with the policies and decisions of our bank being made by
people familiar with the area.

(ii)

<PAGE>

In a market dominated by large, regional and statewide banks and their
branches, we intend to offer the community an alternative. Village Bank will be
a highly personalized, community-oriented financial institution delivering
service that we believe only comes from responsive local decision-making.
The elements of this strategy include:

o Accessibility to our bank's President, officers and directors, whether
during or after business hours.

o Flexibility in loan and business decisions to accommodate the local
community and customer needs.

o Investment of depositors' funds back into the community.

o Involvement in the community affairs of our primary market area.

o Competitive pricing and an array of financial services.

o Responsiveness to customer needs, supported by an experienced and
service-oriented staff.

Community Ownership

Our organizers believe that our primary market area, Mercer County, New
Jersey, including Lawrence Township and Pennington, will benefit from a
community-oriented savings institution dedicated to providing economical home
financing and meeting other financial needs of its community. As a locally
operated financial institution, we will be able to more quickly recognize the
needs of the local residents and businesses, versus out-of-state headquartered
and out-of-area headquartered financial institutions. We anticipate implementing
services and deposit and credit programs intended to fulfill the financial needs
of our primary market area. See pages 22 to 28, "Proposed Business of the Bank."

New Operation

We are a new entity without any operating history. However, as a newly
established financial institution, we intend to structure loans and savings
accounts with flexibility to react to changes in the interest rate environment
of today's economy. See page 1, "Risk Factors - Lack of Operating History" and
see pages 22 to 28, "Proposed Business of the Bank."

Management

Kenneth J. Stephon will serve as our President, Chief Executive
Officer, Chief Financial Officer and a director. Mr. Stephon is the former
President, Chief Executive Officer, Chief Financial Officer and a director of
CloverBank, a Pennsauken, New Jersey-based savings institution. Mr. Stephon left
CloverBank to start Village Bank. Mr. Stephon has over 20 years of financial and
thrift experience. The board of directors includes local business persons and
professionals with diverse backgrounds, familiar with the communities of Mercer
County. Members of the board of directors are involved in local civic and
non-profit organizations. Our Chairman, William C. Hart, is currently the
President and Chief Executive Officer of Mercer Mutual Insurance Company located
in Pennington, New Jersey, a position he has held for over ten years. Chairman
Hart has been a director of Mercer Mutual Insurance Company for almost 30 years
and has been a chief executive officer or director of several thrift
institutions over

(iii)

<PAGE>

the past 35 years. In addition, our Chief Lending Officer, Joseph B. Festa, has
over 18 years experience in Mercer County, New Jersey.

Mr. Stephon has entered into a three year employment agreement with us
that may be extended by our board of directors. Mr. Stephon's compensation will
include a base salary, discretionary bonus, participation in benefit plans,
retirement plans, medical plans and insurance policies, vacation and sick leave
pay, expense reimbursement and stock option awards. The employment contract
includes a noncompetition clause, termination and disability clauses and a
payment clause in the event of an involuntary termination due to a change in
control of our company. We currently maintain "key man" insurance on Mr. Stephon
and we intend to maintain this insurance in the future. See page 34, "Management
of the Company," and pages 34 to 38, "Management of the Bank."

Organizers

Our organizers consist of our initial board of directors: Kenneth J.
Stephon, William C. Hart, William V. R. Fogler, Paul J. Russo, Jonathan R. Sachs
and George M. Taber. See pages 34 to 38, "Management of the Bank." In a private
placement, the initial board of directors purchased 18,600 shares and 18 other
initial investors previously purchased 76,250 shares, for a total of 94,850
shares of common stock at $10.00 per share for long-term investment. The
proceeds are being used to fund preopening expenses. The initial board of
directors plans to subscribe for an additional 21,000 shares in the offering and
reserves the right to purchase additional shares in the offering. The remaining
shares are being offered to the public on a first come, first served basis.
However, we may refuse to accept any subscription in whole or in part for any
reason. For example, subscriptions will be refused if not accompanied by full or
proper payment for all shares subscribed for, if the subscription agreement is
not properly completed or signed or if fulfilling the subscription would violate
federal or state securities laws. All potential investors in the common stock in
the offering will have the opportunity to purchase the stock at the same price
and on the same terms. See pages 18 to 20, "Management's Discussion and Analysis
and Plan of Operation;" pages 34 to 38, "Management of the Bank;" and pages 9 to
14, "The Offering and Plan of Distribution."

Office Facilities

For our main office, we entered into a lease agreement in October 1998
with the owner of 590 Lawrence Square Boulevard, Lawrenceville, New Jersey. This
property previously served as a bank branch office. The lease term is through
May 2005 and may be extended at our option for an additional five years. We have
prepaid the rent through December 1999 at an average of $4,990 per month. The
annual base rental amount will increase from approximately $50,000 to $70,000
over the first five years and 4% per year thereafter. We also entered into a
lease agreement in July 1998 for space in the Pennington Point complex, which
includes an adult retirement community, in Pennington, New Jersey, in order to
operate a limited service banking facility for the benefit of those in the adult
retirement community and others in the immediate vicinity. This is a renewable
one year lease at an annual rental amount of $9,600. See pages 34 to 38,
"Proposed Business of the Bank" and see pages 14 to 15, "Office Facilities."

Conditions of the Offering

We will terminate the offering, no shares of common stock will be
issued, and no subscription proceeds will be released from escrow to us, unless
the following conditions are met and the offering completed by December 7, 1999:

(iv)

<PAGE>

o We have accepted subscriptions and payment in full for the minimum
number of shares and

o We have received all required regulatory approvals or non-objections
and our board of directors has satisfied any regulatory or other
conditions that must be satisfied before Village Bank may commence
banking operations. See pages 11 to 12, "The Offering and Plan of
Distribution - Conditions of the Offering and Release of Funds."

Subscription proceeds for shares subscribed for will be promptly
deposited in an interest-earning escrow account with Summit Bank as escrow agent
under the terms of an escrow agreement, pending the satisfaction of the
conditions set forth above or the termination of the offering. Upon satisfaction
of the conditions set forth above, all subscription funds held in escrow,
including any interest earned, shall be released to us for our immediate use.
See pages 9 to 14, "The Offering and Plan of Distribution."

The Offering

The offering consists of a minimum of 425,000 shares and a maximum of
1,200,000 shares of common stock at $10.00 per share. In the offering, there is
a minimum purchase requirement of 100 shares and a maximum purchase limitation
of 50,000 shares per subscriber (including all affiliates of the subscriber).
The offering will terminate on March 26, 1999. However, we may extend the
offering without notifying you, in order to sell more shares. If the offering is
not completed and regulatory conditions are not met by December 7, 1999, all
subscription funds will be promptly refunded. Subscribers will not receive any
interest on their subscription funds, unless such funds are refunded after
having been held in excess of 90 days. See pages 9 to 14, "The Offering and Plan
of Distribution."

The Role of the Broker-Dealer

In our sale of common stock to the public, Ryan, Beck, a registered
broker-dealer, will be paid a $25,000 fee for advisory and administrative
services. We will also pay Ryan, Beck for its legal and certain other expenses.
We will provide indemnification from certain claims and liabilities, including
liabilities under the Securities Act of 1933, as amended. Ryan, Beck will design
and provide a marketing strategy and marketing materials and will assist us in
handling investor meetings and related matters. Ryan, Beck may use its best
efforts to assemble a group of selected broker-dealers, which will include Ryan,
Beck, to solicit the sale of shares of our common stock in the offering, but
will not undertake the sale of our common stock unless we have raised at least
$5 million from the offering and the previously conducted private placement. We
will pay a commission equal to 7.75% of the gross proceeds from the shares of
our common stock sold by broker-dealers.

Private Placement for Preopening Expenses

Our organizers and other initial investors previously purchased in a
private placement an aggregate of 94,850 shares of our common stock at a price
of $10.00 per share for a total of $948,500. The amount received, and accrued
interest thereon, from the private placement has been, and will continue to be,
used to pay our offering and preopening expenses. We will continue to expend the
proceeds received in the private placement prior to the receipt of all
regulatory approvals and completion of the offering.

(v)

<PAGE>

Use of Proceeds

Upon completion of the offering, we expect to contribute all of the net
proceeds remaining from the private placement and all of the net proceeds of the
offering to Village Bank as the initial capital of our bank. We expect Village
Bank to use most of the proceeds for investment in residential real estate loans
and, to a lesser extent, in commercial real estate loans, consumer loans, small
business loans, and other loans. However, assuming we raise sufficient capital
in the offering, we may use a portion of the proceeds to acquire a branch office
and purchase deposits from another banking institution, if our board of
directors determines it to be in the best interests of Village Bank and our
stockholders, and such a transaction became available on satisfactory terms and
conditions. An acquisition of a branch office and purchase of deposits would be
subject to regulatory approval. We currently have no plans or understandings
regarding any acquisitions or deposit purchases. We expect Village Bank to be
primarily a residential mortgage lender on real estate located in our market
area. See pages 5 to 7, "Use of Proceeds."

Dividends

Our board of directors currently initially intends to retain any
earnings in order to grow our bank's capital, and therefore we do not expect to
declare or pay cash dividends. We may declare dividends on the common stock at
some time in the future depending upon our profitability, regulatory and
financial condition and other factors. However, no assurance can be given that
any dividends will be declared or, if declared, what the amount of dividends
will be, or whether such dividends, once declared, will continue. See page 2,
"Risk Factors - Lack of Dividends" and page 7, "Dividends."

Market for Common Stock

We do not anticipate that there will be an active trading market for
our common stock upon completion of the offering. You should have a long-term
investment intent. You may not be able to sell your shares when you desire or
sell them at a price equal to or above the $10 offering price. Following
completion of the offering, we anticipate that our common stock will be traded
in the over-the-counter market, listed on the OTC Bulletin Board. Although under
no obligation to do so, Ryan, Beck has stated that it intends to use its best
efforts to maintain a market in our common stock after the offering and to
solicit other broker-dealers to make a market in our common stock after the
offering. See pages 1 to 2, "Risk Factors - Lack of Trading Market May Inhibit
the Sale of Your Shares."

Payment for Subscriptions

Payments for subscriptions must be for the full amount subscribed and
must be made by check, bank draft or money order made payable to "Summit Bank,
Escrow Agent for Village Financial Corporation," and sent to or delivered to us.
All subscriptions will be irrevocable upon submission to us. If we do not accept
your subscription, we will return your subscription agreement and refund your
payment. See page 13, "The Offering and Plan of Distribution - How To
Subscribe."

(vi)

<PAGE>

RISK FACTORS

In addition to the other information in this Prospectus, you should
consider carefully the following risk factors in evaluating an investment in our
common stock.

Certain statements in this Prospectus are forward-looking and are
identified by the use of forward- looking words or phrases such as "intended,"
"will be positioned," "believes," "expects," is or are "expected,"
"anticipates," and "anticipated." These forward-looking statements are based on
our current expectations. The risk factors set forth below are cautionary
statements identifying important factors that could cause actual results to
differ materially from those in the forward-looking statements.

Potential Total Loss of Investment

Investment in our common stock involves significant risk. Each
subscriber should be financially able to sustain a total loss of his investment.
COMMON STOCK CANNOT AND WILL NOT BE INSURED BY THE FDIC OR ANY OTHER GOVERNMENT
AGENCY.

Lack of Operating History

Our company is recently formed. Village Bank will be formed following
regulatory approval. Neither entity has any operating history. Accordingly,
prospective investors do not have access to all of the information that is
available to the purchasers of securities of a financial institution with a
history of operations. Because our primary asset will be the capital stock of
our bank, our operating results and financial position will be dependent upon
the operating results and financial condition of our bank. The business of our
bank is subject to the risks inherent in the establishment of any new business
and, specifically, of a new federal stock savings bank. As is typical of a new
bank, as a result of the substantial start-up and other expenditures that are
incurred by a new bank, we may not be profitable for several years after
commencing business, if ever. See "Unaudited Pro Forma Financial Information."

No Assurance of Ability to Raise Additional Capital That May be Required in the
Future

Although the organizers believe the proceeds from the offering will be
sufficient to support our initial operations and commitments, there can be no
assurance that the proceeds of the offering will be sufficient to meet our
future capital requirements without additional financing. The organizers expect
the offering proceeds to support the cash needs of Village Bank for three years
or more, depending on the amount of proceeds of the offering, the level of
deposits, the profitability of Village Bank and other factors. The amount of
capital required will depend, among other things, upon operating results, the
growth of assets, regulatory requirements and business plans of our bank. The
organizers have made no commitments to provide additional funds for the
operation of our company. Therefore, you should not expect the organizers
personally to provide additional funds for our operations or capital
requirements. Additional stock offerings may be necessary, and may not be
successful.

Lack of Trading Market May Inhibit the Sale of Your Shares

Due to the small size of the offering, it is highly unlikely that an
active trading market will develop or be maintained. If an active market does
not develop, you may not be able to sell your shares promptly or perhaps at all.
Without an active market, you may have to find buyers of your shares through
your own efforts. You may not be able to sell your shares at a price equal to or
above the $10 offering price. It is anticipated that our common stock will be
traded in the over-the-counter market, listed on the OTC Bulletin Board, an
electronic inter-dealer market. Ryan, Beck has stated its intention

<PAGE>

to use its best efforts to make a market in our common stock and to solicit
other broker-dealers to make a market in our common stock; however, Ryan, Beck
is under no obligation to do so. A market maker is a requirement for reporting
on the OTC Bulletin Board. Our common stock may not be appropriate as a
short-term investment. See "Market for Common Stock."

Arbitrary Determination of Offering Price

The offering price of our common stock has been arbitrarily determined
by our organizers, intended to facilitate the sale of a reasonable number of our
shares. Our company is a new enterprise. We previously sold shares of our common
stock in a private placement at $10.00 per share, the offering price per share
in this offering. There can be no assurance that the shares of our common stock
can be resold at the offering price or any other amount. See "The Offering and
Plan of Distribution," "Capitalization" and "Dilution."

Lack of Dividends

Village Financial Corporation is a legal entity separate and distinct
from Village Bank. Because we initially will engage in no business other than
owning all of the outstanding shares of capital stock of Village Bank, our
payment of dividends to you will generally be funded only from dividends we
receive from our bank. Any dividends to be paid to you will be dependent on,
among other things, our bank's profitability. In addition, the payment of
dividends may be made only if we are in compliance with certain applicable
regulatory requirements governing the payment of dividends. No assurance can be
given that dividends on our common stock will ever be paid. We expect that
earnings, if any, will be initially retained as capital to grow the bank. We do
not foresee payment of any dividends in the near future. OUR COMMON STOCK SHOULD
NOT BE PURCHASED BY PERSONS WHO NEED OR DESIRE DIVIDEND INCOME FROM THIS
INVESTMENT. See "Dividends."

Government Regulation May Adversely Affect Our Business

We will operate in a highly regulated environment and will be subject
to examination, supervision and comprehensive regulation by the OTS and the
FDIC. Banking regulations, designed primarily for the safety of depositors, may
limit Village Bank's growth, and thus the return to you. The activities that may
be restricted include the payment of dividends, mergers with or acquisitions by
other institutions, investments, loans and interest rates, interest rates paid
on deposits and the creation of branch offices. We also will be subject to
capitalization guidelines set forth in federal legislation, and could be subject
to enforcement action to the extent Village Bank is found by regulatory
examiners to be undercapitalized. Laws and regulations applicable to us could
change at any time, and there can be no assurance that such changes would not
adversely affect our business. In addition, the cost of compliance with
regulatory requirements could adversely affect our ability to operate
profitably. See "Regulation."

Intense Competition For Banking Products and Services May Affect Profitability

Our primary market area will be Mercer County, New Jersey. See
"Proposed Business of the Bank - Market Area." The Bank's primary emphasis will
be on residential real estate lending, and secondarily on commercial real estate
financing, consumer and small business lending. Within our market area there are
numerous offices of financial institutions including banks, thrifts and credit
unions. We will be competing for deposits with these larger established
institutions as well as with money market mutual funds, brokerage services,
private banking and other non-traditional financial intermediaries. We will have
to attract our customer base from existing financial institutions and new
residents. Many of the competitors will be much larger than Village Bank in
terms of assets. Our competitors have more

<PAGE>

extensive facilities and greater depth of organizational and marketing
capabilities, and may initially be able to offer a greater range of services. In
addition, we are subject to limitations on the amount we lend to any one
borrower. There can be no assurance that we will be able to compete successfully
with our competitors. See "Proposed Business of the Bank - Competition" and "-
Loans to One Borrower."

Possible Lack of Market Growth

Our board of directors' assumptions about the viability of Village
Financial Corporation and Village Bank are based on their projections of growth
trends in population, deposits and housing starts in our primary market area, as
well as on their projections of interest rates, earning asset origination
capability, deposit account growth and operating expense trends. These
projections are merely forecasts and may prove to be inaccurate. Our primary
market area has experienced some growth in population, deposits and housing
starts in recent years, but there can be no assurance that growth will continue
in the future or that our bank will benefit from any such growth if it does
continue. See "Proposed Business of the Bank - Market Area."

Interest Rate Risk

Our operating results will depend to a great extent upon Village Bank's
net interest income. Net interest income is the difference between the interest
earned on assets (primarily loans and investment securities) and the interest
paid for liabilities (primarily transaction and deposit accounts). Market
interest rates for loans, investments and deposits are highly sensitive to many
factors beyond our control. These factors include general economic conditions
and the policies of various governmental and regulatory authorities. In
addition, due to current low prevailing market interest rates, it may be
difficult for us to utilize our bank's capital to originate loans and purchase
investments at a sufficient yield for Village Financial Corporation to operate
profitably. Since Village Bank will be a new banking institution that will
compete with established banking institutions, we intend initially to pay money
market deposit account rates above the average market rates. See "Proposed
Business of the Bank - Lending Activities" and see "- Source of Funds."

Future Legislation Could Have an Adverse Impact on Us

Legislation has been proposed periodically providing for a
comprehensive reform of the banking and thrift industries. This legislation has
included provisions that would (i) require federal savings associations to
convert to a national bank or a state-chartered bank or thrift, (ii) require all
savings and loan holding companies to become bank holding companies, (iii)
curtail the powers of unitary thrift holding companies and (iv) abolish the OTS.
It is uncertain when or if any of this type of legislation will be passed, and,
if passed, in what form the legislation would be passed. As a result, we cannot
accurately predict the possible impact of such legislation.

Possible Delay in the Opening of Village Bank

We anticipate that we will have completed all of the regulatory
conditions precedent to commencing business and will have Village Bank ready for
opening during the spring of 1999. This is only a projection, however, and the
actual opening may be later. In the event of a delay in opening the Bank, our
offering costs, preopening expenses and retained deficit will likely be higher.

<PAGE>

Anti-Takeover Provisions/Voting Restrictions

Certain provisions included in our certificate of incorporation and
bylaws are designed to encourage potential acquirors to negotiate directly with
our board of directors and to discourage takeover attempts. These provisions,
which include restrictions on stockholders' ability to call special meetings,
require an 80% vote for certain business combinations and amendments to Village
Financial Corporation's certificate of incorporation and bylaws and do not
permit cumulative voting in the election of directors, may discourage
non-negotiated takeover attempts. These provisions also tend to perpetuate
management. You may determine that these provisions are not in your best
interest inasmuch as they may substantially limit your voting power. See
"Description of Capital Stock - Anti-Takeover Provisions." In addition, the
terms of our President's employment contract provide that he will receive a lump
sum amount equal to 2.99 of his base salary if he is terminated without just
cause in connection with a change of control of Village Financial Corporation.
This could be deemed to discourage non-negotiated takeover attempts as well. See
"Management of the Bank - Remuneration of Directors and Officers -- Employment
Agreement."

Dilution of Stockholders' Interest

In connection with the organization of Village Financial Corporation
and Village Bank, our President has been granted 10,000 stock options. The
exercise of these stock options, at $10.00 per share, will have a dilutive
effect on stockholders' ownership interest. After the offering, and subject to
stockholder approval, we expect to adopt a stock option plan and restricted
stock plan that will permit us to grant options and restricted stock to our
officers, directors, and key employees. The option price will be no less than
the greater of the fair market value of our common stock on the date the option
is granted or $10.00 per share. The stock option plan will not include more than
10% of our then outstanding common stock. The restricted stock plan will not
include more than 4% of our then outstanding common stock. The exercise of
options and the granting of restricted stock could have a dilutive effect on
earnings and book value calculated on a per share basis. Also, we may issue
additional shares of common stock or preferred stock in the future. In addition,
investors should be aware that the percentage of their ownership of our common
stock will depend upon the total number of shares sold in the offering. Your
percentage ownership will be over two times as great if the minimum number of
shares is sold rather than the maximum number of shares. If our offering costs
exceed our estimate of $135,000 or our preopening expenses exceed our estimate
of $433,000, due to a delay in the opening of Village Bank or otherwise, the
increased costs or expenses will have a dilutive effect on book value. See
"Dilution" and "Management of the Bank - Remuneration of Directors and
Officers."

Possible Year 2000 Computer Program Problems

A great deal of information has been disseminated about the global
computer crash that may occur in the Year 2000. Many computer programs that can
only distinguish the final two digits of the year entered (a common programming
practice in earlier years) are expected to read entries for the Year 2000 as the
Year 1900 and compute payment, interest or delinquency based on the wrong date
or are expected to be unable to compute payment, interest or delinquency. Rapid
and accurate data processing is essential to our operations. Data processing is
also essential to most other financial institutions and many other companies.

All of the bank's material data processing that could be affected by
this problem will be provided by NCR, a nationally recognized third party
service bureau. Village Bank's prospective service bureau provider has advised
us that it expects to resolve this potential problem before the Year 2000. NCR
has warranted that it will be Year 2000 compliant by June 1, 1999. However, if
this potential problem is

<PAGE>

not resolved before the Year 2000, we would likely experience significant data
processing delays, mistakes or failures. These delays, mistakes or failures
could have a significant adverse impact on our financial condition and results
of operations. See "Management's Discussion and Analysis and Plan of Operation"
and "Office Facilities."

Dependence on Key Personnel

The operations of Village Financial Corporation and Village Bank will
largely be dependent on existing management, in particular our President and
Chief Executive Officer and our Chief Lending Officer. The loss to us of one or
more of our executive officers could have a material adverse effect on our
business and results of operations. We have entered into an employment agreement
with our President and Chief Executive Officer, but we do not have an employment
agreement with our Chief Lending Officer. See "Management of the Bank -
Remuneration of Directors and Officers."

USE OF PROCEEDS

Although the amounts set forth below provide an indication of the
proposed use of proceeds based on the plans and estimates of the Company's board
of directors, actual use may vary from the estimates. The board of directors
believe that the net minimum proceeds of $5,063,500 from the offering and the
private placement, will satisfy the cash requirements of Village Financial
Corporation and the capital requirements of Village Bank for their respective
first three years of operations but there can be no assurance that this will be
the case. Because the Company and the Bank constitute new enterprises, the board
of directors cannot predict with any certainty to what extent the Bank will
generate revenues from investments and loan originations. For this and other
reasons, the board of directors cannot predict precisely what the actual
application of proceeds will be. There is no assurance that the proceeds of the
offering and the private placement will be sufficient to meet the future capital
requirements of the Company without additional financing.

The net proceeds of the Company from the sale of 519,850 and 1,294,850
shares of common stock in the private placement and the offering are estimated
to be $5,063,500 and $12,197,500, respectively. The preopening expenses and
offering costs are expected to aggregate approximately $568,000, not including
any commission payable to broker-dealers in the offering. Estimated amounts
assume that the Bank opens for business during the spring of 1999. Preopening
expenses are estimated at $433,000, and offering costs are estimated at
$135,000. Such amounts include primarily the following: salaries and benefits,
rent, legal, accounting and advisory, printing and postage, regulatory filing
fees and marketing. If there is a significant delay in concluding the offering
or opening for business, actual offering costs and preopening expenses may be
significantly greater than estimated. Commissions will vary based on the amount
of stock sold by broker-dealers.

On the basis of the foregoing assumptions, gross proceeds, preopening
expenses, offering costs and commissions would be as follows:

<PAGE>

<TABLE>
<CAPTION>
Minimum Maximum
425,000 Shares 1,200,000 Shares
(519,850 Total (1,294,850 Total
Outstanding Shares) Outstanding Shares)
at $10.00 Per Share at $10.00 Per Share
------------------- -------------------
(In thousands)
<S> <C> <C>
Gross Proceeds from Private Placement................ $ 949 $ 949
Gross Proceeds from Offering......................... 4,250 12,000
Less Estimated Preopening
Expenses and Offering Costs........................ (568) (568)
Less Underwriting Commissions*....................... -- (616)
------ ------
Stockholders' Equity................................. $4,631 $11,765
===== ======
</TABLE>
- --------------------------------
* Ryan, Beck will not consider participating in the sale of the common
stock unless and until at least 500,000 shares are sold (including the
94,850 shares previously sold in the private placement). For each share
sold by selected dealers, $0.775 will be paid by the Company. For the
maximum column above, it is assumed 794,850 shares are sold by Ryan,
Beck and its selected dealers. Ryan, Beck is not required to sell
shares in the offering, and the Company may continue to sell shares
above $5 million, allocating less shares to broker-dealers.

Preopening expenses of $123,000 have been expensed through September
30, 1998. Interest income earned on private placement subscription funds totaled
$10,000. Offering costs of $70,000 have been incurred and recorded as deferred
organization costs. It is expected that proceeds of the private placement and
offering will be used in the following amounts:
<TABLE>
<CAPTION>

519,850 1,294,850
Shares Shares
Outstanding Outstanding
----------- -----------
(In thousands)
<S> <C> <C>
Offering Costs and Commissions....................... $ 135 $ 751
Preopening Expenses.................................. 433 433
Bank Building's Improvements, Furniture,
Fixtures and Equipment............................. 160 160
General Corporate Purposes........................... 4,471 11,605
----- ------
Total Gross Proceeds................................. $5,199 $12,949
===== ======
</TABLE>

All of the net proceeds of the offering are expected to be invested by
the Company in the common stock of the Bank, to be used for general corporate
purposes for operations, investments and lending purposes. The Company expects
the Bank to be primarily a residential mortgage lender on real estate located in
the primary market area. The Bank intends to use the proceeds for:

o investment in residential and commercial real estate loans, consumer
loans, small business loans, and other loans

o payment of operating expenses

o working capital purposes

o the purchase of investment securities as needed for liquidity and
investment purposes.

<PAGE>

Assuming the Company raises sufficient capital in the offering, the
Company may use a portion of the proceeds to acquire a branch office and
purchase deposits from another banking institution. The board of directors of
the Company would undertake such an acquisition and deposits purchase only if
the directors determine it to be in the best interests of the Bank and the
stockholders of the Company, and such a transaction becomes available in the
primary market area and on satisfactory terms and conditions. The board of
directors of the Company could also purchase the deposits of a banking
institution branch without acquiring the branch itself, or any of its other
assets or liabilities. An acquisition of a branch office or a purchase of
deposits would be subject to the approval of the OTS. No assurance can be given
that the Company and the Bank would be successful in locating and acquiring a
branch office or purchasing deposits from another banking institution. No
assurance can be given that the Company will raise sufficient proceeds in the
offering in order to pursue any such transaction. The management of the Company
currently does not have any plans or understandings regarding any acquisitions
or deposit purchases.

DIVIDENDS

The board of directors of the Company initially expects to follow a
policy of retaining any earnings to provide funds to operate and expand the
Bank. Consequently, there are no plans for any cash dividends to be paid in the
near future. The Company's ability to pay any cash dividends to its stockholders
in the future will depend primarily on the Bank's ability to pay cash dividends
to the Company. The payment of dividends may be made only if the Bank is in
compliance with certain applicable regulatory requirements governing the payment
of dividends. In addition, the payment of cash dividends by the Company is
subject to the discretion of the Company's board of directors, which will
consider a number of factors, including business conditions and plans. See
"Regulation - Saving Institution Regulation -- Dividend and Other Capital
Distribution Limitations."

MARKET FOR COMMON STOCK

The Company issued a total of 94,850 shares of its common stock in a
private placement. There are 24 holders of the Company's common stock. There is
currently no market for the common stock. The Company has never publicly issued
capital stock. Following the completion of the offering, it is anticipated that
the common stock will be traded on the over-the-counter market with quotations
available through the OTC Bulletin Board. However, listing on the OTC Bulletin
Board requires a market maker. Ryan, Beck has indicated its intent to make a
market in the Company's common stock, but is under no obligation to do so.

The development of an active trading market depends on the existence of a
sufficient number of willing buyers and sellers, over which the Company and
market makers will have no control. Due to the small size of the offering, it is
highly unlikely that an active trading market will develop or be maintained.
Investors should have a long-term investment intent. Investors may not be able
to sell their shares when they desire or to sell them at a price equal to or
above the offering price.

<PAGE>

DILUTION

The following table illustrates, assuming the minimum or maximum shares to be
issued in the offering, the estimated dilution per share to investors in the
offering:

425,000 1,200,000
Shares Shares
Minimum Maximum
------- -------

Offering price per share................................. $10.00 $10.00

Pro forma tangible book value per share after offering... $ 8.91 $ 9.09

Dilution per share to investors in the offering (1)...... $ 1.09 $ 0.91

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

(1) Does not include the potential effect of shares that may be issued under
stock options granted to the President of the Company. The President has
been granted stock options to purchase 10,000 shares of common stock at an
exercise price equal to the offering price per share, pursuant to his
employment agreement. In the event these options, when exercised, are
funded with newly issued shares rather than shares purchased in the open
market, the voting interests of existing stockholders would be diluted, but
by less than 2% at either the minimum or maximum initial offering levels.
Because these options are available for exercise at a price per share equal
to the offering price, upon exercise, there would be no dilution to book
value. Refer to the notes to the audited financial statements as of
September 30, 1998 for further details.

<PAGE>

CAPITALIZATION

The table set forth below shows the pro forma capitalization of the
Company following completion of the private placement and the offering as though
the private placement and the offering had been completed and the Bank opened on
September 30, 1998, assuming that 425,000 and 1,200,000 shares of common stock
had been sold pursuant to the offering, after deduction of projected offering
costs and preopening expenses (see "Use of Proceeds"). In the event the Bank is
not opened during the spring of 1999, preopening expenses may materially
increase. See the audited financial statements as of September 30, 1998,
beginning at page 43.

PRO FORMA CAPITALIZATION
<TABLE>
<CAPTION>

Minimum Maximum
425,000 1,200,000
Shares Shares

(In thousands)
<S> <C> <C>
Preferred Stock ($0.10 par value)
Authorized - 1,000,000; Assumed
none outstanding.............................. $ -- $ --

Common Stock ($0.10 par value)
Authorized - 5,000,000 shares;
Assumed 519,850 and 1,294,850 shares
issued and outstanding (1).................... 52 129

Additional Paid-In Capital (2).................. 5,012 12,069
----- ------

Retained Deficit (3)............................ (433) (433)
----- -----

Total Stockholders' Equity.................. $4,631 $11,765
===== ======

Book Value Per Share............................ $ 8.91 $ 9.09
======= =========
</TABLE>
- --------------------------------

(1) In addition to the 425,000 to 1,200,000 shares to be issued pursuant to the
offering, 94,850 shares have been issued to the board of directors and
other investors pursuant to the private placement.

(2) Reflects deduction for $70,000 of offering costs incurred through September
30, 1998, plus an additional expected $65,000. Also for the maximum,
assumes commissions of $616,000 payable to broker dealers.

(3) Reflects $113,000 retained deficit at September 30, 1998, plus $320,000
additional expenses, net of interest income, expected until the Bank opens.

THE OFFERING AND PLAN OF DISTRIBUTION

General

The Company is offering for sale a minimum of 425,000 shares and a
maximum of 1,200,000 shares of its common stock at a purchase price of $10.00
per share to raise gross proceeds between $4,250,000 and $12,000,000 for the
Company. The Company has established a minimum subscription of 100 shares
($1,000) and a maximum subscription of 50,000 shares ($500,000). The maximum

<PAGE>

subscription is approximately 9.6% of the minimum number of shares to be
outstanding. Because the Company is a new organization with no operating history
and the Bank is in organization, the offering price of the common stock was
arbitrarily determined by the organizers without reference to traditional
criteria for determining value such as book value or historical or projected
earnings. The price per share was set with a view toward facilitating investment
in a reasonable number of shares.

Subscribers should be aware that beneficial ownership of as little as
5% of the outstanding shares of common stock could obligate the beneficial owner
to comply with certain reporting and disclosure requirements of federal
securities and banking laws. Additionally, no person may purchase more than 9.9%
of our outstanding stock without prior approval of the OTS. See "Description of
Capital Stock - Anti-Takeover Provisions -- Regulatory Restrictions."

The Company's directors are expected to purchase additional shares in
the offering. The Company anticipates that following the offering, the directors
and executive officers will own a total of approximately 50,000 shares. The
directors and officers reserve the right to increase the amount of common stock
they purchase in the offering. See "Management of the Bank."

The shares are being offered to the public through the directors and
officers of the Company and may be offered by Ryan, Beck and other registered
broker-dealers. No director or officer, other than Director Fogler, is
affiliated with a securities broker or dealer. Director Fogler will not act as a
broker or dealer in this transaction. No commission or other sales compensation
will be paid to any organizer in connection with the offering. The Company has
entered into an advisory, administrative and marketing agreement with Ryan,
Beck, a registered broker-dealer.

The terms of the Company's agreement with Ryan, Beck state that Ryan,
Beck will be paid a fee in the amount of $25,000 for administrative and advisory
services. These services include designing a detailed marketing strategy,
drafting and coordinating the preparation of marketing materials and assisting
management of the Company with respect to investor meetings. When the Company
has received subscriptions and payment for at least 500,000 shares (including
the 94,850 shares previously sold in the private placement) Ryan, Beck may
solicit the sale of stock in the offering and assemble a selling group of
registered broker-dealers to solicit the sale of the stock in the offering. A
commission in the amount of 7.75% of the gross proceeds from the sale of stock
sold by Ryan, Beck and the broker-dealers will be paid by the Company. The
Company has agreed that Ryan, Beck will be provided the opportunity to sell at
least 200,000 shares of the Company's common stock. Neither Ryan, Beck nor any
registered broker-dealer in its group will have any obligation to sell shares or
to purchase any shares. All shares will be sold at $10.00 per share regardless
of whether sold by the Company, Ryan, Beck or a member of Ryan, Beck's selected
group of broker-dealers. The Company will reimburse Ryan, Beck for its
reasonable fees and expenses, including its legal fees (not to exceed $22,500),
and indemnify it from certain claims and liabilities including indemnification
for claims and liabilities arising under the Securities Act of 1933, as amended.

Except for one director of the Company, none of the Company's directors
and officers participating in the offering are registered or licensed as a
broker or dealer or an agent of a broker or dealer. The unlicensed officers and
directors of the Company may assist in sales activities in connection with the
offering pursuant to an exemption from registration as a broker or dealer
provided by Rule 3a4-1 promulgated under the Securities Exchange Act of 1934
("Rule 3a4-1"). Rule 3a4-1 generally provides that an "associated person of an
issuer" of securities shall not be deemed a broker solely by reason of
participation in the sale of securities of such issuer if the associated person
meets certain conditions. Such conditions include, but are not limited to, that
the associated person participating in the sale of an issuer's securities not be
compensated in connection therewith at the time of participating, that such
person not

<PAGE>

be associated with a broker or dealer and that such person observe certain
limitations on his participation in the sale of securities. For purposes of this
exemption, "associated person of an issuer" is defined to include any person who
is a director, officer or employee of the issuer or a company that controls, is
controlled by, or is under common control with, the issuer.

Subscriptions to purchase shares of the common stock will be received
until 4:00 p.m. New Jersey Time, on March 26, 1999, unless all of the common
stock is earlier sold or the offering is earlier terminated or extended by the
Company. See " - Conditions of the Offering and Release of Funds" below. The
Company reserves the right to extend the offering without notice to subscribers.
However, if the offering is not completed by December 7, 1999 all subscription
funds will be promptly refunded. The date the offering expires (as possibly
extended) is referred to herein as the "Expiration Date." No written notice of
an extension of the offering will be given prior to any extension and any such
extension will not alter the binding nature of subscriptions. If the above
conditions are not satisfied by December 7, 1999, or if the offering is
terminated at an earlier date, subscriptions will be promptly repaid to
investors. Subscribers will not receive interest on their subscription funds,
unless such funds are refunded after having been held in excess of 90 days. See
" - Termination or Extension of the Offering."

Subscriptions are binding on subscribers and may not be revoked by
subscribers. The Company reserves the right to reject, in whole or in part and
in its sole discretion, any subscription at any time and for any reason until
the proceeds of the offering are released from escrow (the terms of release from
escrow are discussed in greater detail in " - Conditions of the Offering and
Release of Funds" below).

Promptly after receipt of final regulatory approval and authorization
to do business, the Company will cause to be mailed or delivered to each
subscriber whose subscription is accepted a stock certificate representing the
shares of common stock purchased by such subscriber.

Conditions of the Offering and Release of Funds

Subscription proceeds for shares subscribed for will be promptly
deposited in an interest-earning escrow account (the "Escrow Account") with
Summit Bank, Princeton, New Jersey, as escrow agent (the "Escrow Agent"), under
the terms of an escrow agreement (the "Escrow Agreement"), pending the
satisfaction of the conditions of the offering or the termination of the
offering. Neither the Company nor any of its officers or directors is affiliated
with the Escrow Agent. The offering will be terminated, no shares of common
stock will be issued, and no subscription proceeds will be released from escrow
to the Company unless on or before the Expiration Date (i) the Company has
accepted subscriptions and payment in full for the minimum number of shares and
(ii) the Company and the Bank have received all required regulatory approvals or
non-objections and management has satisfied any regulatory or other conditions
that must be satisfied before the Bank may commence banking operations.

The Escrow Agent will place the funds held in the Escrow Account in
interest-bearing accounts. Until the regulatory authorities authorize the
organizers to use the proceeds of this offering to capitalize the Company, the
$948,500 obtained from the organizers of the Company and (has been removed
already) other initial investors in the private placement will be used to pay
for expenses incurred. Upon disbursement of funds from the Escrow Account to the
Company, any investment earnings on the Escrow Account will be the property of
the Company. The Escrow Agent has not investigated the desirability or
advisability of an investment in the common stock by prospective investors and
has not approved, endorsed or passed upon the merits of an investment in the
common stock.

<PAGE>

The FDIC has approved the Bank's application for federal deposit
insurance, subject to the following conditions:

1. That beginning paid-in capital funds of not less than $5,000,000 be
provided, of which not less than $50,000 shall be allocated to common
capital and not less than $4,950,000 shall be allocated to surplus and
other segregations;

2. That a ratio of Tier 1 capital to total assets of at least 8% and an
adequate allowance for loan and lease losses be maintained during the
first three years of operation from the date insurance is effective;

3. That any changes in the proposed directorate, management, or ownership
(10% or more of the stock), including new acquisitions of or
subscriptions to 10% or more of the stock, will render this commitment
null and void unless such proposal is approved by the FDIC prior to
the opening of the Bank;

4. That an accrual accounting system be adopted for maintaining the
Bank's books;

5. That the Bank obtain an annual audit of its financial statements by an
independent auditor for at least the first five years after deposit
insurance coverage is effective, furnish a copy of any reports by the
independent auditor (including any management letters) to the New York
Regional Director of the FDIC within 15 days after their receipt by
the Bank, and notify the Regional Director within 15 days when a
change in its independent auditor occurs;

6. That prior to the effective date of deposit insurance, a minimum of $1
million in fidelity coverage be obtained, consisting of either a
bankers blanket bond or some combination of a bankers blanket bond and
an excess employee dishonesty bond;

7. That federal deposit insurance shall not become effective unless and
until the Bank has been established as a federally chartered savings
bank, that it has authority to conduct a banking business, and that
its establishment and operation as a bank have been fully approved by
the OTS;

8. That the FDIC shall have the right to alter, suspend, or withdraw the
said commitment should any interim development be deemed by the FDIC
to warrant such action; and

9. That if federal deposit insurance has not become effective within one
year from December 8, 1998, or unless, in the meantime, a request for
an extension of time has been approved by the FDIC, the consent
granted shall expire on said date.

In addition, the OTS has deemed the Bank's and the Company's
applications complete, but such applications have not been approved by the OTS
as of the date of this Prospectus. While the Bank and the Company expect such
applications to be approved, with routine conditions, prior to termination of
the offering, there can be no assurance that the applications will be approved
or that the conditions of approval will be routine. The Company and the Bank
believe they will be able to satisfy all conditions pursuant to FDIC and OTS
regulatory approvals.

If the offering is not consummated by December 7, 1999, or if the
offering is terminated at an earlier date, the subscription funds will be
promptly repaid to investors. Investors will not receive any

<PAGE>

interest on their subscription funds, unless such funds are refunded after
having been held in excess of 90 days.

How To Subscribe

All subscriptions must be made by completing a subscription agreement.
Additional copies of the Prospectus and the subscription agreement may be
obtained by contacting the Company at the address set forth below. Subscriptions
will be binding on subscribers upon submission to the Company. SUBSCRIPTIONS
WILL NOT BE ACCEPTED UNLESS ACCOMPANIED BY PAYMENT IN FULL AT THE SUBSCRIPTION
PRICE. The Company reserves the right to reject any subscription, in whole or in
part, with or without cause. The Company will return a rejected subscription
agreement and refund the payment to the subscriber following a rejection of a
subscription. Any subscription agreement which is completely and correctly
filled out, which is accompanied by proper and full payment and which is
physically received at the offices of the Company by any employee or agent of
the Company, shall be deemed to have been accepted if it is not rejected as
hereinbefore provided.

A completed subscription agreement and payment in full (made in the
manner specified below) of the total subscription price for the number of shares
subscribed should be mailed to the Company at the following address:

Village Financial Corporation
P.O. Box 6554
Lawrenceville, New Jersey 08648

Subscriptions and payment in full also may be delivered in person to
the office of the Company at 590 Lawrence Square Boulevard, Lawrenceville, New
Jersey between 9:00 a.m. and 4:00 p.m., Monday through Friday. If the offering
is terminated, all subscriptions will be promptly refunded.

IMPORTANT: PAYMENTS MUST BE MADE IN UNITED STATES FUNDS BY CHECK, BANK
DRAFT OR MONEY ORDER PAYABLE TO "SUMMIT BANK, ESCROW AGENT FOR VILLAGE FINANCIAL
CORPORATION." FAILURE TO INCLUDE THE FULL SUBSCRIPTION PRICE WITH THE
SUBSCRIPTION AGREEMENT WILL RESULT IN THE SUBSCRIPTION BEING RETURNED BY THE
COMPANY.

Escrow Account

The offering is being made subject to the requirement, among others,
that at least 425,000 shares are sold. Pending release of escrow, payments
received from subscribers will be held in an interest-bearing escrow account
maintained with the Escrow Agent. Funds in the escrow account may not be reached
by creditors of the organizers. The terms of the Escrow Agreement include the
following provisions:

(a) Payments of subscribers will be identified to each subscriber and
will be deposited by the Escrow Agent in the Escrow Account, which shall be
known as "Village Financial Corporation - Stock Purchase Account," and shall be
held in escrow and disbursed, including the interest earned thereon, only in
accordance with the provisions of the Escrow Agreement.

(b) The funds in the Escrow Account will be invested by the Escrow
Agent in bank accounts, short-term U.S. government securities (or mutual funds
consisting thereof) and/or in FDIC-insured short term Certificates of Deposit.

<PAGE>

(c) Funds deposited in the Escrow Account shall earn interest in
accordance with the terms of the account or security in which the funds are
deposited or invested.

(d) Upon receipt of written confirmation that the Company has accepted
the minimum aggregate subscription amount and all other closing conditions have
been satisfied, the Escrow Agent will pay any and all funds in the Escrow
Account to the order of the Company. In the event that the offering is not
completed by December 7, 1999, all funds in the Escrow Account will be promptly
returned to subscribers. Subscribers will not receive any interest on their
subscriptions, unless such funds are refunded after having been held in excess
of 90 days.

(e) The Escrow Agent will be liable only for monies received by it and
not disbursed by it pursuant to the provisions of the Escrow Agreement.

(f) The Company has agreed to indemnify the Escrow Agent for, and to
hold it harmless against, any loss, liability or expense incurred without gross
negligence or bad faith on the part of the Escrow Agent.

(g) All interest earned and accrued on the deposited subscription funds
shall accrue for the benefit of the subscribers and the Company and the Escrow
Agent shall report such interest as having been earned by the Company. All funds
will be repaid in accordance with paragraph (d) above.

(h) The Escrow Agent's fees will be paid by the Company and the Escrow
Agent may be authorized to deduct such fees from the interest earned on the
Escrow Account.

Termination or Extension of the Offering

The offering will terminate at 4:00 p.m., New Jersey Time, on March 26,
1999, unless extended by the Company without notice to the subscriber. The
Company reserves the right to terminate the offering at any time. However, if
the offering is not completed by December 7, 1999, or if the offering is
terminated at an earlier date, subscriptions will be promptly repaid to
investors. Subscribers will not receive any interest on their subscriptions,
unless such funds are refunded after having been held in excess of 90 days.

OFFICE FACILITIES

In October 1998, the Company agreed to the terms of a lease with
Lawrenceville Associates, a New Jersey Partnership, to lease the premises
located at 590 Lawrence Square Boulevard, Lawrenceville, New Jersey to be the
main office of the Bank. These premises serve as the headquarters of the
Company. The Company has also entered into a lease of space within the
Pennington Point complex, primarily to serve the adult retirement community and
others in the immediate vicinity.

The Company has purchased the furniture, fixtures and equipment,
including a vault and a two lane drive-up area, from a commercial bank that
previously occupied the Lawrenceville premises. The Company purchased these
items for $35,000. The facility is now occupied by the Company and was
previously a branch office leased by a commercial bank. Consequently, the Bank
has a facility that can open almost immediately upon consummation of the stock
offering and receipt of regulatory approval. The building is a 3,952 square foot
one-story facility located in an office complex. The main office will include a
vault, six teller stations, a two lane drive-up area, walk-up ATM, night
depository and safe deposit boxes. The terms of the lease provide for 20
designated parking spaces. The Bank does not intend to make any major
renovations to the main office other than adding signage and other changes in

<PAGE>

order to prepare the facility for operation. The lease will expire on May 31,
2005. The lease is assignable and is renewable for one additional five-year
term. The annual base rental amount will increase from approximately $50,000 to
$70,000 over the course of the first five years and will increase at an annual
amount of four percent for any and all subsequent years. In accordance with the
terms of the lease, the Company prepaid its rent in the amount of $69,870 for
the proposed main office from November 1, 1998, the commencement of the lease,
through December 31, 1999. The Company intends to amortize the cost of the
prepaid rent over the fourteen month period at approximately $4,990 per month.
The Company prepaid the lease from the funds received in the private placement.

The Bank's limited service facility will be located in the Pennington
Point complex, 23 Route 31 North, Suite A22, Pennington, New Jersey, where the
Company has leased an office within a suite of offices for one year. The lease
commenced on July 15, 1998 and temporarily served as the headquarters of the
Company. The lease may be terminated by either party with 60 days notice. The
Company anticipates signing a new lease at or prior to the expiration of the
current lease at the discretion of the board of directors. The Company expects
to continue to lease this premises or another premises within the Pennington
Point complex. The limited service facility is expected to include two teller
desks and to operate during limited hours. The annual rental amount of the lease
is $9,600. There is no limit on the number of terms or years the lease may be
renewed.

The Company has contracted for data processing services with NCR in
Framingham, Massachusetts. The Bank will incur a monthly data processing fee of
approximately $5,000 to $6,000 and will also incur a one-time software licensing
fee of approximately $40,000 to $50,000, which will be expensed when incurred.
NCR will perform substantially all of the data services needed by the Bank.

UNAUDITED PRO FORMA FINANCIAL INFORMATION

The following unaudited pro forma financial information and explanatory
notes have been derived from the historical financial statements of the Company,
adjusted to give effect to the sale of the minimum number of shares and the
maximum number of shares in the offering. The Unaudited Pro Forma Combined
Balance Sheet assumes such transactions occurred on September 30, 1998, and that
the Company's application for the formation of the Bank has been approved. No
pro forma consolidated statement of operations is presented because as of
September 30, 1998, the Company had been in existence for approximately nine
months, and all activity through this date has been dedicated to the formation
of the Bank. The unaudited pro forma financial information does not show the
effect of: (a) results of operations, (b) changing market prices of the shares
after the initial offering is complete, or (c) potential effects of newly issued
shares to be granted to the President of the Company under the terms of the
President's employment agreement (see notes to the audited financial statements
regarding the employment agreement of the President).

<PAGE>

VILLAGE FINANCIAL CORPORATION
PRO FORMA COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>

Company Company
As Adjusted As Adjusted
Minimum No. Maximum No. Minimum No. Maximum No.
Corporation of Shares of Shares of Shares of Shares
ASSETS
<S> <C> <C> <C> <C> <C>
Cash $ 30,863 $3,676,441 (a) $10,810,441 (a) $3,707,304 $10,841,304
Short-term investments 760,184 -- -- 760,184 760,184
Furniture and equipment 32,959 127,041 127,041 160,000 160,000
Deferred organization costs 70,000 (70,000) (b) (70,000) (b) - -
Other assets 3,012 -- -- 3,012 3,012
------------ --------- -------------- ---------- -----------
Total assets $ 897,018 $3,733,482 $10,867,482 $4,630,500 $11,764,500
============ ========= ========== ========= ==========

LIABILITIES
Accounts payable and accrued expenses 61,527 (61,527) (c) (61,527) (c) -- --
------------ ---------- ------------ ----------- -----------
Total liabilities 61,527 (61,527) (61,527) -- --
------------ ----------- ----------- ----------- -----------

STOCKHOLDERS' EQUITY
Preferred stock -- -- -- -- --
Common stock 9,485 42,500 (d) 120,000 (d) 51,985 129,485
Additional paid-in capital 939,015 4,072,500 (d) 11,129,000 (d) 5,011,515 12,068,015
Retained deficit (113,009) (319,991) (b) (319,991) (b) (433,000) (433,000)
------------- ----------- ---------- ------------ ------------
Total stockholders' equity 835,491 3,795,009 10,929,009 4,630,500 11,764,500
------------- ---------- ----------- ----------- -----------
Total liabilities and stockholders' equity $ 897,018 $3,733,482 $10,867,482 $ 4,630,500 $ 11,764,500
============= ========= ========== =========== ===========

</TABLE>

(footnotes on following page)

<PAGE>

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

(a) The net cash to be received, and after payments are made for certain
organizational costs incurred.

Number of Shares Sold
---------------------
Minimum Maximum
------- -------
Proceeds from offering................................ $4,250,000 $12,000,000
Less:
Purchase of premises and equipment.................... (127,041) (127,041)
Payment of accrued and additional organization costs.. (446,518) (1,062,518)
--------- ----------
$3,676,441 $10,810,441
========= ==========

(b) Reflects the reclass of the deferred organization and offering costs
against the offering proceeds and available cash at September 30, 1998.
Organizational costs to be incurred are estimated to be $433,000, and
will be charged to operating expenses when incurred. Such items are
construed to be start up activity expenditures, relating primarily to
the regulatory application processes for the proposed bank formation.

These costs are for consulting, legal, accounting and audit services,
as well as for regulatory filing fees and outside marketing assistance.
These costs also include in-formation period expenses to be incurred
for normal operations and salary and benefits of staff through the
successful completion of the stock offering and regulatory approval
processes.

(d) Reflects stockholders' equity, after payments are made for certain
estimated costs incurred in the offering:

Number of Shares Sold
---------------------
Minimum Maximum
------- -------
Proceeds from offering................ $4,250,000 $12,100,000
Less: Offering costs................. (135,000) (751,000)*
---------- -----------
Net proceeds from offering............ 4,115,000 11,249,000
Less: Par value of common stock...... 42,000 120,000
---------- ----------
Additional Paid In Capital............ $4,072,500 $11,129,000
========= ==========

* Maximum offering costs include estimated commissions that could be paid to
Ryan, Beck, if this broker-dealer sells the final 794,850 shares, thus assisting
Village in selling the total maximum shares available of 1.2 million.

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS AND
PLAN OF OPERATION

General

The Company was incorporated under the laws of the State of New Jersey
on January 16, 1998, for the purpose of becoming a unitary savings and loan
holding company, which will own all of the outstanding shares of capital stock
of a proposed federal stock savings bank, Village Bank. A unitary savings and
loan holding company is a company that directly or indirectly controls only one
savings association. It is anticipated, though there is no assurance, that the
Company will receive conditional approval of the Bank's charter by the OTS in
February 1999.

Prior to the offering, the only material source of funds for the
Company has been private sales of the Company's common stock to the organizers
of the Company and other initial investors at a price of $10.00 per share. These
individuals purchased 94,850 shares of Common Stock. The Company received
aggregate gross proceeds of $948,500.

The Company is recently formed and the Bank will be newly formed, both
without any prior operating history. The operating results of the Company will
be dependent upon the operating results of the Bank. The Bank expects to a large
extent to be a first mortgage lender on residential real estate and its
profitability will therefore depend in large part on the real estate market of
its primary market area. The Bank also expects to engage in various types of
commercial lending such as small business loans and commercial real estate
loans, although the Bank does not initially intend to emphasize this type of
lending. Commercial lending entails greater credit risk than residential
mortgage lending. The Bank will incur operating expenses and there can be no
assurances as to when, if ever, the Bank will generate sufficient revenues to
operate profitably. Assuming that the minimum net proceeds from the offering are
raised, the Company presently believes that it will have sufficient capital
resources to meet its commitments over the first three years. See "Use of
Proceeds," "Unaudited Pro Forma Financial Information" and "Office Facilities."

Year 2000 Evaluation

General. Issues regarding the year 2000 arise because many computer
programs use only the last two digits to refer to a year. This could result in
programs treating "00" as 1900 instead of 2000. In addition, the year 2000 is a
leap year, whereas the year 1900 was not a leap year. Programs may not provide
for the date of February 29 for the year "00." Consequently, many programs could
miscalculate date-sensitive information beginning January 1, 2000.

The Company's State of Readiness. The following discussion pertaining
to the year 2000 contains forward-looking statements. The information in this
Year 2000 Evaluation Discussion is based on the Company's best estimates. There
can be no assurance that these estimates will be achieved and actual results
could materially differ.

The Company is a start-up company with no operating history. The
Company has purchased new computers and software to operate the "internal"
functions of the Company and the Bank. The software includes a general ledger
program from Interactive Planning Systems that is certified as Year 2000
compliant. However, all of the Bank's material data processing that could be
affected by the Year 2000 issue will be provided by NCR, a nationally recognized
third party service bureau. NCR has advised

<PAGE>

management of the Company that NCR expects to resolve its Year 2000 issues
before the year 2000 and has warranted that it will be Year 2000 compliant in
its written contract with the Company. The Company utilizes NCR's STARCOM
application software in accordance with the terms of the service contract with
NCR.

In conjunction with the Company's and Bank's applications to the OTS
and the FDIC for approval of the Bank's charter and federal deposit insurance
and the Company's request to become the holding company of the Bank, the OTS and
the FDIC have conducted an examination of the Company and the Bank. Neither the
OTS nor the FDIC has cited any Year 2000 compliance problems by the Company or
the Bank.

Management of the Company has purchased computer equipment and software
and hired a third party service bureau with Year 2000 issues in mind, attempting
to provide Year 2000 compliant materials for the Bank and obtaining the third
party service bureau's assurance of Year 2000 compliance. Management of the
Company intends to continue to monitor the Year 2000 issues that pertain to the
Company and the Bank to ensure compliance to the greatest extent reasonably
possible. Management intends to contract with vendors that are already Year 2000
compliant or that provide assurances of compliance. For those that provide
assurances, management will monitor their progress and will hire alternative
vendors prior to the Year 2000 if management deems it prudent. The Company and
the Bank will require a Year 2000 compliance clause in their loan agreements and
contracts with borrowers, vendors and customers. The clause will require the
borrower, vendor or customer to certify Year 2000 compliance and that there will
be no material adverse effect to the Company or the Bank if the borrower, vendor
or customer experiences a malfunction as a result of a Year 2000 issue. However,
there can be no assurance that the Company, the Bank or their borrowers, vendors
and customers and their third party service bureaus will have corrected Year
2000 issues on a timely basis.

The Company and the Bank will make use of embedded technologies such as
building security, power, heating, ventilation and air conditioning. To the
extent management of the Company has the ability to determine the providers of
these systems, management will attempt to select providers that are Year 2000
compliant.

Costs to Address the Company's Year 2000 Issues. As a new Company, the
Company does not anticipate any costs related to Year 2000 issues. The Bank does
not yet have any depositors or borrowers. The Company and the Bank do not expect
to have to modify software or hire any Year 2000 solution providers. However, if
the Company's third party service bureau is not Year 2000 compliant in a timely
manner, the Company would incur expenses in hiring a new third party service
bureau. The Company estimates such an expense, together with any incidental Year
2000 compliance expenses, would not exceed $50,000 (including the estimated cost
of paying a licensing fee to a new third party service bureau and not taking
into consideration any refund which would be due from NCR).

Risks of the Company's Year 2000 Issues. The Company and the Bank will
be reliant upon the computers and software of NCR for data processing. Rapid and
accurate data processing is essential to the operations of the Company and the
Bank. If this service bureau experiences malfunctions in the year 2000, these
malfunctions could adversely effect the operations of the Company and the Bank.
To a much lesser extent, the Company and the Bank risk the effects of a
malfunction by their telecommunication service providers. The Company and the
Bank could experience a slowing of operations if the telecommunication service
providers suffer malfunctions. However, the Bank will not employ on-line banking
prior to the year 2000, if at all, and, therefore, the Bank should not be
significantly effected by any telecommunication service disruptions. Because the
Bank anticipates having fewer borrowers prior to the year 2000 than larger, more
established banks, it risks having a larger

<PAGE>

percentage of loan repayment problems relative to its total loan portfolio if
borrowers experience Year 2000 disruptions and are unable to pay their loans on
time. The Company and the Bank consider this to be a remote risk. If any of the
internal computers, software or embedded technologies malfunction, the Company
and the Bank would be adversely effected; however, management does not
anticipate any problems in these areas.

Company's Contingency Plans. The Company is monitoring the progress of
NCR to evaluate whether it will be Year 2000 compliant. If NCR is not able to
become Year 2000 compliant on or before its scheduled compliance date, the
Company will attempt to locate an alternative service bureau that is Year 2000
compliant. The terms of the service contract with NCR allow the Company to
terminate the contract without further cost if NCR fails to become Year 2000
compliant. If the Company is unsuccessful in locating an alternative service
bureau, management of the Bank will enter deposit and loan transactions by hand
in the general ledger and compute loan payments and deposit balances and
interest with the Company's own internal computer system. The Bank believes it
can do this because of the relatively small number of loan and deposit accounts
the Bank will have and the Bank's internal bookkeeping system. The Bank's
computer systems will be independently able to generate labels and mailings for
all of the Bank's customers and the Bank will periodically test this system and
print and store this material. If this labor intensive approach is necessary,
the Bank will be less efficient. However, management of the Bank believes that
it would be able to operate in this manner indefinitely, until the service
bureau, or its replacement, is able to again provide data processing services.
If very few financial institution service bureaus were operating in the year
2000, replacement costs, assuming the Bank could negotiate an agreement, could
be material to the Company.

PROPOSED BUSINESS OF THE COMPANY

General

The Company, a New Jersey corporation, was incorporated primarily to be
the holding company of the Bank. The Company has not conducted any business
activities to date other than entering into lease agreements and those
activities deemed necessary by the Company to obtain regulatory approval for the
Bank and to proceed with the offering. The Company will initially engage
exclusively in the business of owning all of the outstanding shares of capital
stock of the Bank. However, the Company may pursue other business interests in
the future, subject to regulatory approval. There can be no assurances as to
when, if ever, the Company will pursue such interests. Accordingly, the
Company's initial earnings will be dependent upon dividends received by the
Company from the Bank, which dividends are dependent on the Bank's profitability
and the Bank's compliance with certain regulatory requirements. See "Regulation
- - Savings Institution Regulation -- Dividend and Other Capital Distribution
Limitations."

The Company may not acquire the capital stock of the Bank without the
approval of the OTS. On August 3, 1998, the Company filed with the OTS an
Application for Permission to Organize the Bank, and an Application H-(e)1 to
become the holding company for the Bank. These Applications were filed to obtain
the necessary approvals and were deemed complete by the OTS on December 11,
1998. An FDIC Application for Federal Deposit Insurance was filed on August 7,
1998 and approval was conditionally granted on December 8, 1998. Upon
satisfaction of the conditions of the offering and of the regulators and the
release of escrowed funds to the Company, the Company will proceed to acquire
all of the shares of capital stock of the Bank and the Company will become,
subject to the Bank's compliance with certain regulatory requirements discussed
below, a unitary savings and loan holding company. As such, the Company will be
subject to examination and comprehensive regulation by the

<PAGE>

OTS. Because the Company will own only one savings association, it generally
will not be 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. See "Regulation - Holding Company Regulation."

The Company is located at 590 Lawrence Square Boulevard, Lawrenceville,
New Jersey 08648. The telephone number is (609) 689-1010. Upon the opening of
the Bank, the Company does not intend to have any employees other than its
officers. The current employees of the Company, other than its officers, will
exclusively become employees of the Bank. The Company may utilize the support
staff of the Bank from time to time. The Company initially will engage in no
business other than owning all of the outstanding shares of capital stock of the
Bank; therefore, the competitive conditions to be faced by the Company will be
the same as those faced by the Bank.

Additional Information

The Company has filed with the Securities and Exchange Commission (the
"SEC") a Registration Statement under the Securities Act of 1933, as amended,
with respect to the common stock offered hereby. This Prospectus does not
contain all of the information set forth in the Registration Statement. For
further information with respect to the Company and the common stock, reference
is hereby made to the Registration Statement and the exhibits thereto. The
Registration Statement may be examined at, and copies of the Registration
Statement may be obtained at prescribed rates from, the Public Reference Section
of the SEC, Room 1024, 450 Fifth Street, N.W., Washington, DC 20549. Information
on the operation of the Public Reference Room may be obtained by calling the SEC
at 1-800-SEC-0330. Information filed by and regarding the issuer may also be
accessed electronically by means of the SEC's home page on the Internet at
"http://www.sec.gov".

The Company and the Bank have filed various applications with the OTS
and the FDIC, as required by the applicable regulatory authorities. Prospective
investors should rely only on information contained in this Prospectus and in
the Company's related Registration Statement in making an investment decision.
To the extent that information available from the Company and information in
public files and records maintained by the OTS and the FDIC is inconsistent with
information presented in this Prospectus, such other information is superseded
by the information presented in this Prospectus.

Reports to Stockholders

Upon the effective date of the Registration Statement, the Company will
be subject to the reporting requirements of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), which includes requirements to file annual
reports on Form 10-KSB and quarterly reports on Form 10-QSB with the SEC. This
reporting obligation will exist for at least one year and may continue for
fiscal years thereafter, except that such reporting obligations may be suspended
for any subsequent fiscal year if at the beginning of such year the common stock
of the Company is held of record by fewer than three hundred persons or if the
common stock of the Company is held of record by fewer than five hundred persons
and the total assets of the Company have not exceeded $10 million on the last
day of each of the Company's three most recent fiscal years.

Regardless of whether the Company is subject to the reporting
requirements of the Exchange Act, the Company intends to furnish its
stockholders with annual reports containing audited financial information for
each fiscal year. The Company's fiscal year ends on December 31.

<PAGE>

PROPOSED BUSINESS OF THE BANK

General

The proposed business of the Bank will primarily consist of accepting
deposits and originating mortgage, consumer, small business and other loans. The
Bank intends to supplement its portfolio of loans with investment securities
deemed prudent by the board of directors. Upon regulatory approval, the Bank
will seek to attract deposits. The Bank initially intends to pay money market
deposit account rates above the average market rates. The Bank also intends to
offer a checking account, a savings account and a NOW account and various
certificates of deposit products at competitive interest rates. The Bank or
Company may also offer through affiliations with other companies, alternative
non-deposit investments, such as mutual funds and securities, although no
determination has been made as to when, if ever, the Bank or Company will enter
into such affiliations. The Bank anticipates originating primarily residential
first mortgage loans and home equity loans secured by properties located in the
Bank's market area. To a lesser extent, the Bank intends to originate consumer
installment, commercial real estate and small business loans. Commercial
lending, such as commercial real estate loans and small business loans, entails
additional credit risks as compared to residential mortgage lending.

The organizers' assumptions as to the viability of the Bank are based
on projections of population growth, deposit growth and housing development in
the market area and adjacent communities, as well as on assumed levels of
earning assets, interest rates and operating expenses. These projections and
assumptions are thus subject to the hazards of forecast and may prove to be
inaccurate. Furthermore, although the Company anticipates some growth in
population, deposits and housing development in its primary market area, there
can be no assurance of any growth or that the Bank will benefit from any growth.

The Bank has prepared a strategic business plan to provide direction
for the Bank over the next three years. Although the Bank anticipates numerous
revisions as to tactics and possibly even to strategy, the basic objectives of
the Bank, though there is no assurance that such objectives will be attained,
are as follows:

o The Company will pursue aggressive, but controlled, balance sheet
growth with the Bank originating a broad array of lending products,
including residential mortgage, commercial real estate mortgage,
consumer installment and commercial business loans.

o The Bank anticipates attracting deposits, with an emphasis on
transaction accounts, offering competitive rates and products,
supported by individuals with strong customer service attitudes and
skills.

o The Bank intends to outsource non-banking services, such as data
processing, in order to employ a core group of banking professionals
focused on customer needs.

Prospects

Although investment in its common stock involves significant risk, the
organizers believe that the Company will be able to compete effectively.
Furthermore, as a stockholder-owned institution, the Company and the Bank will
not be subject to the limitations on raising capital that have constrained
mutual institutions, and will have the opportunity to raise capital from
institutional and other private investors.

<PAGE>

The Company, through the Bank, intends to fill what it perceives to be
a significant market niche that exists in Mercer County, including the areas of
Lawrence Township and Pennington. The county is currently served almost entirely
by large financial institutions based outside of the area. The Bank will have
local owners, directors and senior management and therefore anticipates being
more responsive to the banking needs of the local community. However, there can
be no assurance that the Bank will achieve this goal.

In the current environment of bank mergers, acquisitions, and
consolidations, there is a perceived need for banks focused on the needs of the
local community. The organizers believe this void of community focused banks is
evident in Mercer County. The organizers of the proposed Bank intend to provide
a community bank oriented toward the local residents and small businesses.

The Bank believes that the following attributes will make the Bank
attractive to the local business people and residents:

o Direct and easy access to the Bank's President, officers and directors by
members of the community, whether during or after business hours.

o Local conditions and needs will be taken into account by the Bank when
deciding loan applications and making other business decisions affecting
members of the community.

o A personalized relationship banking approach that is supported by decision
making that is local and responsive to customer needs.

o Competitive interest rates and fees on savings and checking accounts.

o Prompt review and processing of loan applications.

o Depositors' funds will be invested back into the community.

o Positive involvement of the Bank in the community affairs within its
primary market area.

o A staff of individuals with strong customer service attitudes and skills
dedicated to meeting customer needs.

In addition, the Company intends that the Bank operate a limited
service facility within the Pennington Point complex near the Pennington Point
adult community. Leasing this facility will provide the Bank the potential to
attract deposits from the adult retirement community.

Market Area

The Bank's main office will be located at 590 Lawrence Square Boulevard
(on Quakerbridge Road), Lawrenceville, New Jersey. The Bank considers its
primary market area to be Mercer County, New Jersey.

Mercer County consists of residential and business communities, and
includes the cities or townships of Ewing, Hamilton, Hightstown, Hopewell,
Hopewell Borough, Lawrence (including Lawrenceville), Pennington, Princeton,
Princeton Borough, Trenton, Washington, East Windsor and West Windsor. The
population of Mercer County is estimated to be approximately 330,000 in 1998.
The

<PAGE>

median household income in Mercer County is estimated to be approximately
$51,000 in 1998, $5,000 higher than the estimated median household income across
the state of New Jersey. There are approximately 10,000 businesses located in
Mercer County.

Lawrence Township, the site of the proposed main office, is an
affluent, mainly residential and small business community consisting of
approximately 50 square miles. The population within a four- mile radius of the
proposed main office is estimated to be approximately 68,000 in 1998. There are
over 2,500 businesses located within four miles of the proposed main office
consisting mainly of small service and retail businesses with less than 10
employees.

Competition

Competition for deposits and loans is strong among savings
institutions, commercial banks, mortgage banks, mortgage brokers, credit unions
and money market funds. There is also increasing competition from securities
firms and other financial service corporations not traditionally engaged in the
banking or savings business. The primary factors with which institutions compete
for deposits and loans are interest rates, loan origination fees and range of
services offered.

Mercer County is served almost entirely by large, regional financial
institutions, almost all of which are headquartered out of the area. At June 30,
1997, there were 49 financial institutions with offices in Mercer County.
However, 26 of these 49 institutions were credit unions that are able to accept
deposits and make loans only to their respective members. At June 30, 1997,
there were 39 branch offices of financial institutions within four miles of the
proposed main office of the Bank. Most of these branch offices were those of
commercial banks or credit unions. Several of the financial institutions with
offices in Mercer County have recently been acquired or are in the process of
being acquired. These institutions include Carnegie Bank (acquired by Sovereign
Bancorp), CoreStates Bank, N.A. (acquired by First Union Corporation), Pulse
Savings Bank (acquired by First Source Bancorp, Inc., now known as First
Sentinal Bancorp, Inc.) and Trenton Savings Bank (to be acquired by Sovereign
Bancorp).

All of the financial institutions in Mercer County have been in
existence for a longer period of time than the Bank, are better established than
the Bank and have financial resources substantially greater than those of the
Bank. The Bank will not have an existing deposit base when it commences
operations, and will be competing for deposits with these larger established
institutions as well as with investment bankers, money market mutual funds and
other non-traditional financial intermediaries. The Bank will have to attract
its loan customer base from existing financial institutions and from growth in
the community.

Market Strategy

The Bank's objective will be to create a customer-driven financial
institution focused on providing value to residents and businesses within the
local community by delivering products and services matched to the clients'
needs. It is believed that customers will be drawn to a locally managed
institution that demonstrates an active interest in its customers and their
business and personal financial needs.

The banking industry in general has experienced substantial
consolidation in recent years. From the organizers' point of view, this
consolidation has resulted in increasing fees for bank services, the dissolution
of local boards of directors, management and personnel changes and a decline in
the level of customer service and attention to the needs of local communities.
With the permissibility of interstate banking and the announcements of several
mergers by large financial institutions, the organizers anticipate this type of
consolidation to continue. The organizers believe that the present competitive
and economic

<PAGE>

environment is right for a new, independent, locally managed bank to service the
financial needs of residents and businesses of Mercer County.

Lending Activities

General. The Bank anticipates that its lending activities will be
primarily composed of the origination of residential first mortgage loans and
home equity loans for the purpose of financing and refinancing one- to
four-family residential properties located in the Bank's market area. To a
lesser extent, the Bank anticipates that it will originate commercial real
estate loans, commercial small business loans and consumer installment loans,
although it does not initially intend to emphasize commercial lending. The types
of loans the Bank will originate generally will be subject to federal and state
law and regulation. All loan requests will be subject to appropriate
underwriting guidelines, a loan review process, management supervision and
monitoring by the board of directors on an ongoing basis. The Bank will
implement various lending limits for the Bank's loan officers and will maintain
a loan committee composed of the President, Chief Lending Officer and the Senior
Operations Manager, subject to oversight of the board of directors.

The Bank's ability to originate loans will be dependent upon the
relative customer demand, which will be affected by the current and expected
future level of interest rates. Interest rates will be affected by the demand
for loans and the supply of money available for lending purposes and the rates
offered by competitors. Among other things, these factors are, in turn, affected
by economic conditions, monetary policies of the federal government and
legislative tax policies.

The Bank intends to originate the following loans:

One- to Four-Family Mortgage Loans. The Bank intends to offer
fixed-rate and adjustable-rate mortgage loans primarily secured by one- to
four-family residences, with maturities up to 30 years. It is anticipated that
such loans will be secured by properties located in the Bank's market areas. All
one- to four-family loans will be underwritten using generally accepted lending
standards such as Government National Mortgage Association ("GNMA"), Federal
National Mortgage Association ("FNMA"), or the Federal Home Loan Mortgage
Corporation ("FHLMC"). The Bank will originate loans for both owner occupied and
non-owner occupied (investor) residential properties. Non-owner occupied
residential mortgage loans generally carry a higher degree of credit risk than
owner occupied residential mortgage loans. The Bank intends to limit non-owner
occupied residential lending for a given year to approximately 5% of the total
residential loan volume for the year. The maximum loan-to-value ratio for such
loans will be 70% to 80%. The Bank plans on maintaining all residential mortgage
loans originated during the first three years of existence but intends to sell a
portion of such loans if the Bank deems it necessary. If the Bank sells any of
its loans, the Bank intends to retain the servicing rights to such loans. The
Bank expects its one- to four-family mortgage loans to be composed primarily of
one-year adjustable rate loans, 15-year fixed rate loans and 30-year fixed rate
loans.

Home Equity Loans. The Bank intends to offer home equity term loans and
home equity revolving lines of credit, primarily secured by one- to four-family,
owner occupied residences. It is anticipated that the Bank will employ similar
underwriting standards in making home equity loans as those utilized in making
residential mortgage loans. The Bank expects to originate term loans for periods
up to 15 years and to originate adjustable rate revolving lines of credit.

Commercial Real Estate Loans. The Bank intends to offer commercial and
multi-family real estate loans (five units or more) generally secured by
property located in the Bank's market areas. The Bank intends to originate
commercial mortgage loans for the acquisition, construction and refinancing of

<PAGE>

commercial real estate. At times such loans may exceed the Bank's internal
lending limits and will require the Bank to obtain the participation of other
financial institutions to assist in funding excess loan amounts. In such cases,
the Bank expects to maintain servicing responsibility for the loans.

Commercial real estate and multi-family loans are generally larger and
present a greater degree of credit risk than loans secured by one- to
four-family residences. Because payments on loans secured by commercial real
estate and multi-family properties are often dependent on the successful
operation or management of the properties, repayment of such loans may be
subject to a greater extent to adverse conditions in the real estate market or
in the economy. It is anticipated that the Bank will seek to minimize these
risks through its underwriting standards. The Bank currently does not anticipate
originating more than one multi-family loan per year. The maximum loan amount
for multi-family loans will be up to 75% of the appraised value of the property.

Small Business Commercial Loans. The Bank intends to pursue
opportunities to offer small business loans, primarily to businesses located in
the Bank's market areas. Federally chartered savings institutions such as the
Bank are authorized to make secured or unsecured loans and letters of credit for
commercial, corporate, business and agricultural purposes and to engage in
commercial leasing activities. However, federally chartered savings institutions
generally are limited in the amount of commercial business loans they may hold
in their portfolio to a maximum of 20% of total assets.

Unlike residential mortgage loans, which generally are made on the
basis of the borrower's ability to make repayment from his or her employment and
other income, and which are secured by real estate property whose value tends to
be more easily ascertainable, commercial business loans are of higher credit
risk and typically are made on the basis of the borrower's ability to make
repayment from cash flow of the borrower's business. As a result, the
availability of funds for the repayment of commercial business loans may be
substantially dependent on the success of the business itself. Further, the
collateral securing the loans may depreciate over time, may be difficult to
appraise and may fluctuate in value on the success of the business.

Consumer Loans. The Bank intends to make a variety of consumer loans
which are anticipated to consist primarily of fixed-rate installment loans
secured by automobiles or by deposits at the Bank. The Bank may originate home
improvement loans not secured by real estate and other personal loans, both
secured and unsecured.

Consumer loans may entail greater credit risk than do residential
mortgage loans, particularly in the case of consumer loans that are unsecured or
that are secured by rapidly depreciable assets, such as automobiles. In such
cases, any repossessed collateral for a defaulted consumer loan may not provide
an adequate source of repayment of the outstanding loan balance as a result of
the greater likelihood of damage, loss or depreciation. In addition, consumer
loan collections are dependent on the borrower's continuing financial stability,
and therefore are more likely to be affected by adverse personal circumstances.
Furthermore, the application of various federal and state laws, including
bankruptcy and insolvency laws, may limit the amount which can be recovered on
such loan.

Participation Interests. The Bank will consider participating in loans
originated outside its primary market area, provided such loans meet approval
criteria as will be stipulated in the Bank's lending policies. The Bank
anticipates participation in the origination of loans through Thrift
Institutions' Community Investment Corporation, a subsidiary of the New Jersey
League - Community and Savings Bankers.

<PAGE>

Loan Approval. The Bank's lending activity will be conducted primarily
through advertising, customer calls and contacts by the Bank's employees,
officers and directors and solicitations to local real estate brokers, builders
and real estate developers. The Bank's lending will be subject to written
underwriting standards (including, as applicable, a Year 2000 compliance clause)
and loan origination procedures. The Year 2000 compliance clause will require
each commercial borrower to certify its Year 2000 compliance and readiness.
Decisions on loan applications will be made on the basis of detailed
applications and property valuations. The loan applications will be designed
primarily to determine the borrower's ability to repay and the more significant
items on the applications will be verified through the use of credit reports,
financial statements, tax returns and/or confirmations.

The Bank generally will require title insurance on its real estate
secured loans as well as fire and extended coverage casualty insurance in
amounts at least equal to the principal amount of the loan or the value of
improvements on the property, depending on the type of loan. The Bank also will
require flood insurance to protect the property securing its interest when the
property is located in a flood plain.

Loan Fees and Service Charges. In addition to interest earned on loans,
the Bank will generally recognize fees and service charges which consist
primarily of loan origination fees and late charges.

Loans to One Borrower. Under applicable regulations, the maximum amount
of loans that may be made to one borrower initially will not exceed the greater
of $500,000 or 15% of the unimpaired capital and surplus of the Bank. The Bank
may lend an additional 10% of unimpaired capital and surplus if a loan is fully
secured by readily marketable collateral.

Delinquencies. The Bank's collection procedures are expected to provide
that when a loan is 30 days past due, a late charge will be added and the
borrower will be contacted by mail and/or telephone and payment requested. If
the delinquency continues, subsequent efforts will be made to contact the
delinquent borrower. Additional late charges may be added and, if the loan
continues in a delinquent status for 90 days or more, the Bank will likely
initiate foreclosure proceedings unless other repayment arrangements are made.

Non-Performing Assets and Asset Classification. Loans will be reviewed
on a regular basis and classified in accordance with the requirements of the OTS
and internal policies of the Bank. The Bank's internal classifications will be
reviewed annually through a loan review process. Such a loan review will likely
be outsourced to an independent qualified third party.

Investment Activities

The Bank will be required under federal regulations to maintain a
minimum amount of liquid assets which may be invested in specified short-term
securities and certain other investments. The Bank expects to maintain a
liquidity portfolio in excess of regulatory requirements. Until the Bank is able
to originate sufficient loans, it expects to leverage its capital by investing
deposits and borrowed money in securities and other investments at a positive
interest rate spread exceeding the cost of deposits received and borrowings.
Liquidity levels may be increased or decreased depending upon the yields on
investment alternatives and upon management's judgment as to the attractiveness
of the yields then available in relation to other opportunities and its
expectation of the level of yield that will be available in the future, as well
as management's projections as to the short term demand for funds to be used in
the Bank's loan origination and other activities. The Bank intends to invest
primarily in U.S. Government and agency obligations, federal funds sold and U.S.
government agency issued mortgage-backed securities.

<PAGE>

Sources of Funds

General. The management of the Bank will endeavor to build a deposit
base with the expectation that deposits will be the major source of the Bank's
funds for lending and other investment purposes. In addition to deposits, the
Bank anticipates deriving funds from payment streams of loans and securities,
sale or maturities of investment securities, operations and, as needed, advances
from the Federal Home Loan Bank ("FHLB") of New York. Scheduled loan principal
repayments are generally a stable source of funds for banking institutions,
while deposit inflows and outflows and loan prepayments are significantly
influenced by general interest rates and market conditions. Borrowings may be
used on a short-term basis to compensate for reductions in the availability of
funds from other sources or on a longer-term basis for general business
purposes.

Deposits. Consumer and commercial deposits will be attracted
principally from within the Bank's primary market area through the offering of a
broad selection of deposit instruments including NOW, regular savings, money
market deposit, term certificate accounts (including negotiated jumbo
certificates in denominations of $100,000 or more) and individual retirement
accounts and Keogh accounts. Deposit account terms will vary according to the
minimum balance required, the time periods the funds must remain on deposit and
the interest rate, among other factors. The Bank will regularly evaluate the
internal cost of funds, survey rates offered by competing institutions, review
the Bank's cash flow requirements for lending and liquidity and execute rate
changes when deemed appropriate. The Bank does not anticipate obtaining funds
through brokers. The Bank may seek to acquire deposits from another financial
institution in the Bank's primary market area, but presently has no agreements
nor intentions to do so.

Employees

The Bank anticipates having 10 full-time equivalent employees,
including two executive officers, when it commences operations. The executive
officers of the Bank are expected to initially include (i) the President and
Chief Executive Officer (who will also serve initially as the Chief Financial
Officer) and (ii) a Chief Lending Officer. In addition, the Bank intends to
employ a Senior Operations Manager, a Branch Manager, Administrative Assistant
and a Customer Service Representative. The Bank may employ a Loan Processor and
an Operations Supervisor subsequent to the opening of the Bank, but will not
likely employ such individuals until the year 2000. The remaining employees will
provide staff support in the teller, new accounts and loan processing functions.
The employees of the Bank will concentrate on providing a high level of service
to the customers of the Bank. Non-banking services, such as data processing,
will be outsourced to companies specializing in those areas. The Company
anticipates having the same executive officers of the Bank act as executive
officers of the Company. No other employees of the Company are anticipated at
this time. See "Management of the Company" and "Management of the Bank."

Total compensation for the Bank's employees for the first full year of
operations is projected to be $387,000. In addition, the Bank intends to provide
its employees with certain benefits programs, including medical insurance, paid
vacation time and sick leave. Directors will receive fees in the amount of $300
per month. A stock option plan and restricted stock plan are expected to be
adopted by the board, subject to stockholder approval. Other benefit programs
such as a profit sharing plan may also be adopted following commencement of
operations of the Bank. The board of directors will consider the implementation
of a pension plan, but no such plan will be in place at the commencement of
operations of the Bank.

<PAGE>

REGULATION

Set forth below is a brief description of those significant laws which
relate to the Company and the Bank and which are material to your investment in
the Company. The description is not complete and is qualified in its entirety by
references to applicable laws and regulations.

Holding Company Regulation

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

Qualified Thrift Lender ("QTL") Test. Since the Company will only own
one savings institution, it will be able to diversify its operations into
activities not related to banking, if the Bank satisfies the QTL test. If the
Company controls more than one savings institution, it would lose the ability to
diversify its operations into non-banking related activities, unless such other
savings institutions each also qualify as a QTL or were acquired in a supervised
acquisition. See "- Savings Institution Regulation -- Qualified Thrift Lender
Test."

Restrictions on Acquisitions. The Company must obtain approval from the
OTS before acquiring control of any other SAIF-insured savings institution. No
person may acquire control of a federally insured savings institution without
providing at least 60 days written notice to the OTS and giving the OTS an
opportunity to disapprove the proposed acquisition.

Savings Institution Regulation

General. As a federally chartered, SAIF-insured savings institution,
the Bank will be subject to extensive regulation by the OTS and the FDIC. The
Bank's lending activities and other investments must comply with various federal
and state statutory and regulatory requirements.

The OTS, in conjunction with the FDIC, will regularly examine the Bank
and prepare reports for the consideration of the board of directors on any
deficiencies that the OTS finds in the Bank's operations. The Bank's
relationship with the depositors and borrowers also will be regulated to a great
extent by federal and state law, especially in such matters as the ownership of
savings accounts and the form and content of its mortgage documents.

The Bank must file reports with the OTS and the FDIC concerning its
activities and financial condition, in addition to obtaining regulatory
approvals prior to entering into certain transactions such as mergers with or
acquisitions of other financial institutions. This regulation and supervision
establishes a comprehensive framework of activities in which an institution can
engage and is intended primarily for the protection of the SAIF and depositors.
The regulatory structure also gives the regulatory authorities extensive
discretion in connection with their supervisory and enforcement activities and
examination policies, including policies with respect to the classification of
assets and the establishment of adequate loan loss reserves for regulatory
purposes. Any change in regulations, whether by the OTS, the FDIC or any other
government agency, could have a material adverse impact on the Bank's
operations.

<PAGE>

Insurance of Deposit Accounts. The FDIC is authorized to establish
separate annual assessment rates for deposit insurance for members of the BIF
and the SAIF. The FDIC may increase assessment rates for either fund if
necessary to restore the fund's ratio of reserves to insured deposits to its
target level within a reasonable time and may decrease such assessment rates if
such target level has been met. The FDIC has established a risk-based assessment
system for both SAIF and BIF members. Under this system, assessments are set
within a range, based on the risk the institution poses to its deposit insurance
fund. This risk level is determined based on the institution's capital level and
the FDIC's level of supervisory concern about the institution.

Because a significant portion of the assessments paid into the SAIF by
savings institutions were used to pay the cost of prior savings institution
failures, the reserves of the SAIF were below the level required by law. The BIF
had, however, met its required reserve level during the third calendar quarter
of 1995. As a result, deposit insurance premiums for deposits insured by the BIF
were substantially less than premiums for deposits which are insured by the
SAIF. Legislation to capitalize the SAIF and to eliminate the significant
premium disparity between the BIF and the SAIF became effective September 30,
1996. The recapitalization plan provided for a special assessment equal to $.657
per $100 of SAIF deposits held at March 31, 1995, in order to increase SAIF
reserves to the level required by law. Certain BIF institutions holding
SAIF-insured deposits were required to pay a lower special assessment.

The recapitalization plan also provides that the cost of prior failures
which were funded through the issuance of FICO Bonds (bonds issued to fund the
cost of savings institution failures in prior years) will be shared by members
of both the SAIF and the BIF. This increased BIF assessments for healthy banks
to approximately $.0125 per $100 of deposits in 1998. SAIF assessments for
healthy savings institutions in 1998 were approximately $.0628 per $100 in
deposits and may be reduced, but not below the level set for healthy BIF
institutions.

The FDIC has lowered the rates on assessments paid to the SAIF and
widened the spread of those rates. The FDIC's action established a base
assessment schedule for the SAIF with rates ranging from 4 to 31 basis points,
and an adjusted assessment schedule that reduces these rates by 4 basis points.
As a result, the effective SAIF rates range from 0 to 27 basis points as of
October 1, 1996. In addition, the FDIC's final rule prescribed a special interim
schedule of rates ranging from 18 to 27 basis points for SAIF-member savings
institutions for the last quarter of calendar 1996, to reflect the assessments
paid to the Financing Corporation (FICO Bonds). Finally, the FDIC's action
established a procedure for making limited adjustments to the base assessment
rates by rulemaking without notice and comment, for both the SAIF and the BIF.

Under past proposed legislation, Congress has considered the
elimination of the federal thrift charter and elimination of the separate
federal regulation of thrifts. If such legislation is introduced and passed in
the future, the Bank may have to convert to a different financial institution
charter and be regulated under federal law as a bank, including being subject to
the more restrictive activity limitations imposed on national banks. The Bank
cannot predict the impact of hypothetical legislation unless and until such
legislation requiring such change is proposed and enacted.

Regulatory Capital Requirements. OTS capital regulations require
savings institutions to meet three capital standards: (1) tangible capital equal
to 1.5% of total adjusted assets, (2) core capital equal to at least 3% of total
adjusted assets, and (3) risk-based capital equal to 8% of total risk-weighted
assets. In addition, the OTS prompt corrective action regulation provides that a
savings institution that has a leverage capital ratio of less than 4% (3% for
institutions receiving the highest examination rating) will be deemed to be
"undercapitalized" and may be subject to certain restrictions. The Bank's
capital ratios,

<PAGE>

which are set forth under "Historical and Pro Forma Capital Compliance," are
expected to be well in excess of these requirements.

Tangible capital is defined as core capital less all intangible assets
(including supervisory goodwill), less certain mortgage servicing rights and
less certain investments. Core capital is defined as common stockholders' equity
(including retained earnings), noncumulative perpetual preferred stock and
minority interests in the equity accounts of consolidated subsidiaries, certain
nonwithdrawable accounts and pledged deposits of mutual savings associations and
qualifying supervisory goodwill, less nonqualifying intangible assets, certain
mortgage servicing rights and certain investments.

The risk-based capital standard for savings institutions requires the
maintenance of total risk-based capital (which is defined as core capital plus
supplementary capital) of 8% of risk-weighted assets. The components of
supplementary capital include, among other items, cumulative perpetual preferred
stock, perpetual subordinated debt, mandatory convertible subordinated debt,
intermediate-term preferred stock, and the portion of the allowance for loan
losses not designated for specific loan losses. The portion of the allowance for
loan and lease losses includable in supplementary capital is limited to a
maximum of 1.25% of risk-weighted assets. Overall, supplementary capital is
limited to 100% of core capital. A savings association must calculate its
risk-weighted assets by multiplying each asset and off-balance sheet item by
various risk factors as determined by the OTS, which range from 0% for cash to
100% for delinquent loans, property acquired through foreclosure, commercial
loans, and other assets.

The risk-based capital standards of the OTS generally require savings
institutions with more than a "normal" level of interest rate risk to maintain
additional total capital. An institution's interest rate risk will be measured
in terms of the sensitivity of its "net portfolio value" to changes in interest
rates. Net portfolio value is defined, generally, as the present value of
expected cash inflows from existing assets and off-balance sheet contracts less
the present value of expected cash outflows from existing liabilities. A savings
institution will be considered to have a "normal" level of interest rate risk
exposure if the decline in its net portfolio value after an immediate 200 basis
point increase or decrease in market interest rates (whichever results in the
greater decline) is less than two percent of the current estimated economic
value of its assets. An institution with a greater than normal interest rate
risk will be required to deduct from total capital, for purposes of calculating
its risk-based capital requirement, an amount (the "interest rate risk
component") equal to one-half the difference between the institution's measured
interest rate risk and the normal level of interest rate risk, multiplied by the
economic value of its total assets.

The OTS calculates the sensitivity of an institution's net portfolio
value based on data submitted by the institution in a schedule to its quarterly
Thrift Financial Report and using the interest rate risk measurement model
adopted by the OTS. The amount of the interest rate risk component, if any, to
be deducted from an institution's total capital will be based on the
institution's Thrift Financial Report filed two quarters earlier. Savings
institutions with less than $300 million in assets and a risk-based capital
ratio above 12% are generally exempt from filing the interest rate risk schedule
with their Thrift Financial Reports. However, the OTS may require any exempt
institution that it determines may have a high level of interest rate risk
exposure to file such schedule on a quarterly basis and may be subject to an
additional capital requirement based upon its level of interest rate risk as
compared to its peers. However, due to the Bank's net size and risk-based
capital level, it is expected to be exempt from the interest rate risk
component.

In accordance with the requirements of the Federal Deposit Insurance
Corporation with respect to the Application for Insurance of Deposits of Village
Bank, the organizers agreed to maintain a Tier 1 Capital ratio to total
estimated assets of at least 8% and an adequate allowance for loan and lease
losses for the first three years of operation of the Bank from the date the FDIC
deposit insurance is effective.

<PAGE>

Dividend and Other Capital Distribution Limitations. OTS regulations
require the Bank to give the OTS 30 days advance notice of any proposed
declaration of dividends to the Company, and the OTS has the authority under its
supervisory powers to prohibit the payment of dividends by the Bank to the
Company.

OTS regulations impose limitations upon all capital distributions by
savings institutions, such as cash dividends, payments to repurchase or
otherwise acquire its shares, payments to stockholders of another institution in
a cash-out merger, and other distributions charged against capital. The rule
establishes three tiers of institutions based primarily on an institution's
capital level. An institution that exceeds all fully phased-in capital
requirements before and after a proposed capital distribution ("Tier 1
institution") and has not been advised by the OTS that it is in need of more
than the normal supervision can, after prior notice but without the approval of
the OTS, make capital distributions during a calendar year equal to the greater
of (i) 100% of its net income to date during the calendar year plus the amount
that would reduce by one-half its "surplus capital ratio" (the excess capital
over its fully phased-in capital requirements) at the beginning of the calendar
year, or (ii) 75% of its net income over the most recent four quarter period.
Any additional capital distributions require prior regulatory notice. The Bank
expects to qualify as a Tier 1 institution, but there can be no assurance that
it will achieve this goal.

In the event the Bank's capital falls below the fully phased-in
requirement or the OTS notifies the Bank that it needs more than normal
supervision, the Bank would become a Tier 2 or Tier 3 institution and as a
result, its ability to make capital distributions could be restricted. Tier 2
institutions, which are institutions that before and after the proposed
distribution meet their current minimum capital requirements, may only make
capital distributions of up to 75% of net income over the most recent four
quarter period. Tier 3 institutions, which are institutions that do not meet
current minimum capital requirements and propose to make any capital
distribution, and Tier 2 institutions that propose to make a capital
distribution in excess of the noted safe harbor level, must obtain OTS approval
prior to making such distribution. In addition, the OTS could prohibit a
proposed capital distribution by any institution, which would otherwise be
permitted by the regulation, if the OTS determines that such distribution would
constitute an unsafe or unsound practice. However, the OTS has recently
promulgated new regulations relaxing certain approval and notice requirements
for well-capitalized institutions.

In January 1999, the OTS issued an amendment to its current regulations
with respect to capital distributions by savings associations. The amended
regulations will be effective April 1, 1999. Under the new regulation, savings
associations that would remain at least adequately capitalized following the
capital distribution, and that meet other specified requirements, would not be
required to file a notice or application for capital distributions (such as cash
dividends) declared below specified amounts. Under the new regulation, savings
associations which are eligible for expedited treatment under current OTS
regulations are not required to file an application with the OTS if (i) the
savings association would remain at least adequately capitalized following the
capital distribution, (ii) the amount of capital distribution does not exceed an
amount equal to the savings association's net income for that year to date, plus
the savings association's retained net income for the previous two years and
(iii) the proposed capital distribution would not violate any applicable law,
regulation, agreement with or condition of the OTS. Thus, under the new
regulation, only undistributed net income for the prior two years may be
distributed in addition to the current year's undistributed net income without
the filing of an application with the OTS. Savings associations which do not
qualify for expedited treatment or which desire to make a capital distribution
in excess of the specified amount, must file an application with, and obtain the
approval of, the OTS prior to making the capital distribution. A savings
association that is not required to file an application is also not required to
file a notice with the OTS prior to making the capital distribution, unless (i)
the savings association would not be well capitalized following the
distribution, or (ii) the proposed distribution would reduce the amount of or
retire any part of the savings association's common stock, preferred stock or
debt

<PAGE>

instruments included in capital or (iii) the savings association is a subsidiary
of a savings and loan holding company. The new OTS limitations on capital
distributions are similar to the limitations imposed upon national banks.

A savings institution is prohibited from making a capital distribution
if, after making the distribution, the savings institution would be
undercapitalized (i.e., not meet any one of its minimum regulatory capital
requirements).

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

Transactions With Affiliates. Generally, restrictions on transactions
with affiliates require that transactions between a savings institution or its
subsidiaries and its affiliates be on terms as favorable to the savings
institution as comparable transactions with non-affiliates. In addition, certain
of these transactions are restricted to an aggregate percentage of the savings
institution's capital. Collateral in specified amounts must usually be provided
by affiliates in order to receive loans from the savings institution. The Bank's
affiliates include the Company and any company which would be under common
control with the Bank. In addition, a savings institution may not extend credit
to any affiliate engaged in activities not permissible for a bank holding
company or acquire the securities of any affiliate that is not a subsidiary. The
OTS has the discretion to treat subsidiaries of savings institutions as
affiliates on a case-by-case basis.

Liquidity Requirements. All savings institutions are required to
maintain an average daily balance of liquid assets equal to a certain percentage
of the sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. The liquidity requirement may vary from
time to time (between 4% and 10%) depending upon economic conditions and savings
flows of all savings institutions. Monetary penalties may be imposed upon
institutions for violations of liquidity requirements.

Federal Home Loan Bank System. The Bank will be a member of the FHLB of
New York, which is one of 12 regional FHLBs. Each FHLB serves as a reserve or
central bank for its members within its assigned region. It is funded primarily
from funds deposited by savings institutions and proceeds derived from the sale
of consolidated obligations of the FHLB System. It makes loans to members (i.e.,
advances) in accordance with policies and procedures established by the board of
directors of the FHLB.

As a member, the Bank will be required to purchase and maintain stock
in the FHLB of New York in an amount equal to at least 1% of our aggregate
unpaid residential mortgage loans, home purchase contracts or similar
obligations at the beginning of each year. The FHLB imposes various limitations
on advances such as limiting the amount of certain types of real estate related
collateral to 30% of a member's capital and limiting total advances to a member.

<PAGE>

The FHLBs are required to provide funds for the resolution of troubled
savings institutions and to contribute to affordable housing programs through
direct loans or interest subsidies on advances targeted for community investment
and low- and moderate-income housing projects. These contributions have
adversely affected the level of FHLB dividends paid and could continue to do so
in the future.

Federal Reserve System. The Federal Reserve System requires all
depository institutions to maintain non-interest bearing reserves at specified
levels against their transaction accounts (primarily checking, NOW and Super NOW
checking accounts) and non-personal time deposits. The balances maintained to
meet the reserve requirements imposed by the Federal Reserve System may be used
to satisfy the liquidity requirements that are imposed by the OTS. Savings
institutions have authority to borrow from the Federal Reserve System "discount
window," but Federal Reserve System policy generally requires savings
institutions to exhaust all other sources before borrowing from the Federal
Reserve System.

MANAGEMENT OF THE COMPANY

The board of directors of the Company currently consists of the same
individuals who will serve as directors of the Bank. The Company's certificate
of incorporation and bylaws require that directors be divided into three
classes, as nearly equal in number as possible. Each class of directors serves
for a three-year period, with approximately one-third of the directors elected
each year. The Company's officers will be elected by the board and serve at the
board's discretion.

MANAGEMENT OF THE BANK

The proposed board of directors of the Bank will be composed of six
members. The proposed stock charter and bylaws for the Bank require that
directors be divided into three classes, as nearly equal in number as possible.
The officers are elected annually by the board and serve at the board's
discretion.

The following table sets forth information with respect to the
directors and executive officers, all of whom will continue to serve in the same
capacities after the offering.
<TABLE>
<CAPTION>
% of
Private Proposed Stock Proposed
Placement Stock Subscription Total Ownership
Directors and Officers Age (1) Position Shares Options(2) Shares Shares (3)
- ---------------------- ------- -------- ------ ---------- ------ ------ ----

<S> <C> <C> <C> <C> <C> <C> <C>
William C. Hart 65 Chairman 2,500 -- 2,500 5,000 *
of the
Board
Kenneth J. Stephon 39 President, 5,100 10,000 10,000 25,100 4.8
CEO and
Director
William V. R. Fogler 54 Director 3,000 -- 3,000 6,000 1.2
Paul J. Russo 47 Director 5,000 -- 1,000 6,000 1.2
Jonathan R. Sachs 41 Director 1,500 -- 2,000 3,500 *
George M. Taber 56 Director 1,500 -- 2,500 4,000 *
Joseph B. Festa 47 Chief -- -- 500 500 *
Lending ------ ------ ------ ------ ---
Officer
18,600 10,000 21,500 50,100 9.6
====== ====== ====== ====== ===

</TABLE>

(1) At September 30, 1998.

(2) According to the terms of the Employment Agreement with Mr. Stephon, the
board of directors granted stock options to purchase 10,000 shares of
common stock at $10.00 per share.

(3) Based upon 519,850 shares (outstanding after the issuance of common stock
in the private placement and the offering).

* Less than 1%

<PAGE>

Messrs. Hart and Stephon have over forty years combined experience in
the banking industry. Each has served as Chief Executive Officer and a director
of a thrift institution in New Jersey.

There is no family relationship between any director or executive
officer. No director or executive officer has filed a petition in bankruptcy in
the past five years, nor been convicted in a criminal proceeding. The business
experience for the past five years of each of the directors and executive
officers is as follows:

Directors

Kenneth J. Stephon was President, Chief Executive Officer and a
Director of CloverBank, Pennsauken, New Jersey from 1993 until July 1998, having
previously served CloverBank as Executive Vice President and Chief Financial
Officer. He left CloverBank in order to organize Village Bank. Mr. Stephon has
over twenty years of experience in the banking and thrift industries, with
experience in all facets of financial institution operations, with particular
emphasis on administration, strategic planning and implementation, investment
portfolio management, asset and liability management, budgeting and accounting.
While at CloverBank, he was responsible for the daily management of the $30
million, three office, community-oriented federal savings bank. Mr. Stephon
presently serves as Chairman of the MBA Advisory Board of Rowan University,
Glassboro, New Jersey. He is a member of the School of Business Advisory
Committee of The College of New Jersey and the Business Advisory Commission of
Mercer County Community College, West Windsor Township, New Jersey. He has also
served as a member of the Board of Governors of the New Jersey League -
Community and Savings Bankers for two terms and is a Past President of the
Burlington/Camden Counties Savings League. He has a Master's Degree in Business
Administration from Rider University, Lawrenceville, New Jersey and a Bachelor
of Science Degree in Accounting from The College of New Jersey (formerly Trenton
State College), Ewing Township, New Jersey.

William C. Hart has been the President and Chief Executive Officer of
Mercer Mutual Insurance Company, Pennington, New Jersey since 1987. Mr. Hart has
been a Director of Mercer Mutual Insurance Company since 1970 and was Chairman
of the Board from 1979 to 1985. He has also been the Chairman of the Investment
Committee at the insurance company since 1979. His experience in the thrift
industry includes membership on the board of directors of CloverBank,
Pennsauken, New Jersey from 1993 to 1998, Executive Vice President of Colonial
Savings and Loan Association, Roselle Park, New Jersey and President of Colonial
Service Corporation from 1984 to 1985 and Chief Executive Officer of Centennial
Savings and Loan Association, Pennington, New Jersey from 1962 to 1984. He has a
Bachelor of Science Degree in Accounting from Rider University, Lawrenceville,
New Jersey.

William V. R. Fogler is the founder and President of Van Rensselaer,
Ltd., Princeton, New Jersey, a registered investment advisory and arbitration
consulting firm, founded in 1989. The registered investment advisory division of
Van Rensselaer, Ltd. specializes in the management of individual, corporate and
ERISA portfolios. Mr. Fogler's exchange affiliations include, NYSE and NASD
General Securities Representative and the American Stock Exchange Puts and
Calls. He is a member of the NYSE, NASD and American Arbitration Association
arbitration panels. He is a Licensed Life Insurance Agent with the State of New
Jersey. He is a three term board member of the Rider University Business
Advisory Board and is the Chairman of the Development Committee. He has a
Bachelor of Science Degree in Business Administration from Rider University
School of Business Administration.

Paul J. Russo is the Vice President and part-owner of the Lawrenceville
Home Improvement Center, Inc., Lawrenceville, New Jersey, where he has worked
since 1973. Mr. Russo's responsibilities include sales, marketing and
management. He has been a volunteer manager and coach for the Lawrence

<PAGE>

Township Little League and Babe Ruth League for ten years. He has a Bachelor's
Degree of Science in Commerce, magna cum laude, from Rider University,
Lawrenceville, New Jersey.

Jonathan R. Sachs, M.D. has been a physician with the Princeton
Gastroenterology Associates, Princeton, New Jersey since 1993, and in private
practice since 1989. Dr. Sachs is a licensed Medical Doctor in the State of New
Jersey and the Commonwealth of Pennsylvania. He became board certified in
Internal Medicine in 1987 and in Gastroenterology in 1989. He is a Fellow in
both the American College of Physicians and the American College of
Gastroenterology. He is the co-author of numerous articles in professional
publications and abstracts. He is the past Chairman of the Section of
Gastroenterology, Department of Internal Medicine at the Medical Center at
Princeton. He has been active with the Unitarian Church of Princeton, the
Citizens for Quality Schools in Hopewell Township, New Jersey, and as a hockey
coach in the Nassau Hockey League. He is a summa cum laude graduate of Amherst
College, where he received his Bachelor of Arts Degree and graduated medical
school from the Medical College of Pennsylvania, Philadelphia, Pennsylvania.

George M. Taber is the founder and President of BUSINESS NEWS New
Jersey. BUSINESS NEWS New Jersey, founded in its original form in 1988, is a
weekly newspaper with a readership of approximately 50,000. Mr. Taber is also
the daily business commentator for the radio station New Jersey 101.5, and
moderated "Business New Jersey This Week," a weekly cable television show. He
was a reporter and editor with Time magazine for 21 years. He has a Master of
Arts Degree from the College of Europe in Bruges, Belgium and a Bachelor of Arts
Degree from Georgetown University in Washington, D.C.

Other Executive Officers

Joseph B. Festa, Village Bank's proposed Chief Lending Officer, has
over 18 years of experience in the thrift industry in Mercer County, New Jersey.
Mr. Festa was the Assistant Loan Officer for Roma Federal Savings Bank, Trenton,
New Jersey. He was also previously a Special Investigator for the State of New
Jersey and a Vice President of Essential Printing, New York, New York. Mr. Festa
served as Executive Vice President and Corporate Secretary of Old Borough
Savings and Loan Association, Trenton, New Jersey. Mr. Festa is a member of the
Executive Committee of the Mercer County Chapter of the National Association of
Independent Fee Appraisers, and is a Past President of the Mercer County Savings
and Loan League. Mr. Festa holds a Master's Degree in Management from Rider
University, Lawrenceville, New Jersey and a Bachelor of Science Degree in
Business Administration/Marketing from The College of New Jersey (formerly
Trenton State College), Ewing Township, New Jersey.

Remuneration of Directors and Officers

Director Compensation. The directors of the Bank will each receive fees
in the amount of $300 per month, except Mr. Stephon, who will not receive
directors' fees. The organizers do not intend for the Company to pay directors'
fees apart from those paid by the Bank. The Company may consider the payment of
separate board fees in the future based upon several factors, including, but not
limited to, the contribution of board members to the operations of the Company
other than the Bank and the financial condition of the Company.

Employment Agreement. The Company entered into an employment agreement
with Mr. Stephon to serve as President and Chief Executive Officer of the
Company and the Bank for a three-year term. Mr. Stephon receives a base salary
of $9,167 per month. According to the terms of the employment agreement, Mr.
Stephon was awarded 10,000 stock options prior to the effective date of this

<PAGE>

Prospectus, exercisable at a price equal to the offering price in this offering,
and exercisable for a period of ten years from the effective date of the
Prospectus. The agreement is terminable for "just cause" as defined in the
agreement. If Mr. Stephon is terminated without just cause, he will be entitled
to a continuation of his salary from the date of termination through the
remaining term of the agreement but in no event for a period of less than six
months. The employment agreement contains a provision stating that in the event
of the termination of employment in connection with any change in control of the
Company, Mr. Stephon will be paid a lump sum amount equal to 2.99 times his
"base amount" as defined in the Internal Revenue Code. If such payments were to
be made under the agreement as of the Effective Date, such payments would have
equaled approximately $329,000. The aggregate payments that would have been made
to Mr. Stephon would be an expense to the Company, thereby reducing net income
and capital by that amount. The agreement may be renewed annually by the board
of directors upon a determination of satisfactory performance within the board's
sole discretion. If Mr. Stephon shall become disabled during the term of the
agreement, he shall continue to receive payment of 100% of the base salary for a
period of 12 months and 65% of such base salary for the remaining term of such
agreement. Such payments shall be reduced by any other benefit payments made
under other disability programs in effect for our employees.

Pension Plan. The Bank will not initially sponsor a tax-qualified
pension plan. The Bank may implement a 401(k) plan, which initially will have
contributions only by the employee. In the future, the Bank will consider the
implementation of a retirement plan that will involve contributions made by the
Bank.

Stock Option Plan. The board of directors expects to consider a stock
option plan or plans (the Option Plan) following the offering. The exercise
price is expected to be the fair market value of the common stock on the date of
grant, but not less than $10.00 per share. Options are expected to vest over
three years, but will likely become immediately vested upon a change in control
of the Company. The board considers the adoption of the Option Plan to be in the
best interests of the Company and its stockholders by assisting the Company and
the Bank in attracting and retaining highly qualified individuals to serve as
members of management and the board. The Option Plan shares may be issued from
shares purchased from the market or they may be issued from authorized but
unissued shares. The implementation of the Option Plan would be subject to
stockholder approval.

Restricted Stock Plan. The board of directors expects to consider a
restricted stock plan (the RSP) following the offering, the objective of which
is to enable the Company and the Bank to retain personnel and directors of
experience and ability in key positions of responsibility. The RSP will be
implemented in accordance with applicable OTS regulations. The RSP would be
managed by a committee of non-employee directors. The RSP shares may be issued
from shares purchased from the market or from authorized but unissued shares.
The implementation of the RSP would be subject to stockholder approval.

Other Benefits. The Bank expects to pay benefit costs for its
employees, including its officers. These costs may include such items as health
care, disability insurance and group term life insurance.

Transactions with Related Parties

After the Company commences operations, it may engage in transactions
with its organizers, officers, employees, directors or other affiliated persons
only to the extent that such activities are permitted by, and consistent with,
all applicable state and federal regulations. OTS and FDIC regulations impose a
number of restrictions on transactions and dealings between the Company and
affiliated persons. The definition of "affiliated person" includes the Company's
directors and officers and their spouses and

<PAGE>

certain members of their immediate families. Also included as affiliated persons
are certain persons, corporations and other organizations that have a close
relationship with the Company as set out in the regulations. All dealings
between the Company and its affiliated persons will have to comply with those
regulations. The Company plans to adopt policies designed to assure compliance
with those regulations. Such transactions, should they occur, are expected to be
primarily in the nature of loans made in the ordinary course of business such as
home loans, educational loans or consumer loans. In addition, future material
transactions made or entered into will be no less favorable to the Company than
those that can be obtained from unaffiliated third parties. All future loans to
directors, officers and affiliates, if any, will be made for bona fide business
purposes.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

The following table sets forth, as of September 30, 1998, the shares of
common stock owned by each person who is a beneficial owner of more than five
percent of the outstanding common stock of the Company and is not an officer or
director of the Company.

Name and Address of Amount of Percent of Class
Beneficial Owner Beneficial Ownership Before Offering(1)

Fred D. Price
Cranbury, NJ 20,000 21.09%

Peter and Mary Russo Trust
Lawrenceville, NJ 10,000 10.54%

Felix Buccellata
Belle Mead, NJ 7,500 7.91%

Raman R. Patel
Lawrenceville, NJ 5,000 5.27%

John P. Russo, Jr.
Lawrenceville, NJ 5,000 5.27%

- ----------------------
(1) Prior to this public offering of the common stock of the Company, there
were 94,850 shares of Company common stock outstanding.

DESCRIPTION OF CAPITAL STOCK

The Company is authorized to issue 5,000,000 shares of the common
stock, $0.10 par value, of which 94,850 shares were issued on May 20, 1998 in
the private placement. The Company is authorized to issue 1,000,000 shares of
serial preferred stock, $0.10 par value, with none issued to date. The Company
does not intend to issue any shares of serial preferred stock in the offering,
nor are there any present plans to issue such preferred stock following the
offering. The following is a summary of material terms of the common stock and
is subject to and qualified in its entirety by reference to the certificate of
incorporation and bylaws of the Company which are filed with the SEC as exhibits
to the registration statement of which this Prospectus forms a part.

<PAGE>

Common Stock

Voting Rights. Each share of the common stock will have the same
relative rights and will be identical in all respects to every other share of
the common stock. The holders of the common stock will possess exclusive voting
rights in the Company, except to the extent that shares of serial preferred
stock issued in the future may have voting rights, if so designated by the board
of directors of the Company. Each holder of the common stock will be entitled to
only one vote for each share held of record on all matters submitted to a vote
of holders of the common stock and will not be permitted to cumulate their votes
in the election of the Company's directors.

Liquidation. In the unlikely event of the complete liquidation or
dissolution of the Company, the holders of the common stock will be entitled to
receive all assets of the Company available for distribution in cash or in kind,
after payment or provision for payment of (i) all debts and liabilities of the
Company (including all savings accounts and accrued interest thereon); (ii) any
accrued dividend claims; and (iii) liquidation preferences of any serial
preferred stock which may be issued in the future.

Restrictions on Acquisition of the Common Stock. See "- Anti-Takeover
Provisions" for a discussion of the limitations on acquisition of shares of the
common stock.

Other Characteristics. Holders of the common stock will not have
preemptive rights with respect to any additional shares of the common stock
which may be issued. Therefore, the board of directors may sell shares of
capital stock of the Company without first offering such shares to existing
stockholders of the Company. The common stock is not subject to call for
redemption, and the outstanding shares of common stock when issued and upon
receipt by the Company of the full purchase price therefor will be fully paid
and non-assessable.

Issuance of Additional Shares. Other than shares to be issued pursuant
to the benefit plans, the Company has no present plans, proposals, arrangements
or understandings to issue additional authorized shares of the common stock. In
the future, the authorized but unissued and unreserved shares of the common
stock will be available for general corporate purposes, including, but not
limited to, possible issuance as stock dividends, in connection with mergers or
acquisitions, under a cash dividend reinvestment or stock purchase plan, in a
public or private offering, or under employee benefit plans. Normally no
stockholder approval would be required for the issuance of these shares, except
as described herein or as otherwise required to approve a transaction in which
additional authorized shares of the common stock are to be issued.

Serial Preferred Stock

None of the 1,000,000 authorized shares of serial preferred stock of
the Company will be issued in the offering. After the offering is completed, the
board of directors of the Company will be authorized to issue serial preferred
stock and to fix and state voting powers, designations, preferences or other
special rights of such shares and the qualifications, limitations and
restrictions thereof, subject to regulatory approval but without stockholder
approval. If and when issued, the serial preferred stock is likely to rank prior
to the common stock as to dividend rights, liquidation preferences, or both, and
may have full or limited voting rights. The board of directors, without
stockholder approval, can issue serial preferred stock with voting and
conversion rights which could adversely affect the voting power of the holders
of the common stock. The board of directors has no present intention to issue
any of the serial preferred stock. If such stock is issued without stockholder
approval, such issuance must be approved by a majority of independent directors
who do not have an interest in the transaction and who have access to counsel.

<PAGE>

Anti-Takeover Provisions

The following discussion is a summary of the material provisions of the
certificate of incorporation, bylaws, and certain other regulatory provisions of
the Company, which may be deemed to have such an anti-takeover effect.

Provisions of the Company's Certificate of Incorporation and Bylaws.

Election of Directors. Certain provisions of the Company's certificate
of incorporation and bylaws will impede changes in majority control of the board
of directors. The Company's certificate of incorporation provides that the board
of directors of the Company will be divided into three staggered classes, with
directors in each class elected for three-year terms. Thus, it would take two
annual elections to replace a majority of the Company's board. The Company's
certificate of incorporation provides that the size of the board of directors
may be increased or decreased only if two-thirds of the directors then in office
concur in such action. The certificate of incorporation also provides that any
vacancy occurring in the board of directors, including a vacancy created by an
increase in the number of directors, shall be filled for the remainder of the
unexpired term by a majority vote of the directors then in office. Finally, the
certificate of incorporation and the bylaws impose certain notice and
information requirements in connection with the nomination by stockholders of
candidates for election to the board of directors or the proposal by
stockholders of business to be acted upon at an annual meeting of stockholders.

The certificate of incorporation provides that a director may only be
removed for cause by the affirmative vote of at least 80% of the outstanding
shares of the Company entitled to vote generally in an election of directors
cast at a meeting of stockholders called for that purpose.

Restrictions on Call of Special Meetings. The certificate of
incorporation of the Company provides that a special meeting of stockholders may
be called only by the President of the Company, by a majority of the board of
directors of the Company, or by a committee of the board of directors pursuant
to a resolution adopted by a majority of the board of directors or pursuant to
the bylaws of the Company.

Absence of Cumulative Voting. The Company's certificate of
incorporation provides that stockholders may not cumulate their votes in the
election of directors.

Authorized Shares. The certificate of incorporation authorizes the
issuance of 5,000,000 shares of common stock and 1,000,000 shares of preferred
stock. The shares of common stock and preferred stock were authorized in an
amount greater than that to be issued in the offering to provide the Company's
board of directors with as much flexibility as possible to effect, among other
transactions, financings, acquisitions, stock dividends, stock splits and the
exercise of stock options. However, these additional authorized shares may also
be used by the board of directors consistent with its fiduciary duty to deter
future attempts to gain control of the Company. The board of directors also has
sole authority to determine the terms of any one or more series of Preferred
Stock, including voting rights, conversion rates, and liquidation preferences.
As a result of the ability to fix voting rights for a series of Preferred Stock,
the board has the power, to the extent consistent with its fiduciary duty, to
issue a series of Preferred Stock to persons friendly to management in order to
attempt to block a post-tender offer merger or other transaction by which a
third party seeks control, and thereby assist management to retain its position.

Procedures for Business Combinations. The certificate of incorporation
requires the affirmative vote of at least 80% of the outstanding shares of the
Company for any merger, consolidation, liquidation, or dissolution of the
Company or any action that would result in the sale or other disposition of at
least

<PAGE>

50% of the tangible assets of the Company, unless the transaction has been
approved by the board of directors. Any amendment to this provision requires the
affirmative vote of at least 80% of the outstanding shares of capital stock of
the Company entitled to vote generally in the election of directors.

Amendment to Certificate of Incorporation and Bylaws. Amendments to the
Company's certificate of incorporation must be approved by the Company's board
of directors and also by a majority of the outstanding shares of the Company's
voting stock, provided, however, that approval by at least 80% of the
outstanding voting stock entitled to vote generally in the election of directors
is generally required for certain provisions (i.e., number, classification,
election and removal of directors; amendment of bylaws; call of special
stockholder meetings; preemptive rights; nomination of directors and stockholder
proposals; voting rights; director liability; business combinations; power of
indemnification; and amendments to provisions relating to the foregoing in the
certificate of incorporation).

The bylaws may be amended by a two-thirds vote of the board of
directors or the affirmative vote of the holders of at least 80% of the
outstanding shares of the Company entitled to vote in the election of directors
cast at a meeting called for that purpose.

Regulatory Restrictions. Federal regulations require that, prior to
obtaining control of an insured institution, a person, other than a company,
must give 60 days notice to the OTS and have received no OTS objection to such
acquisition of control, and a company must apply for and receive OTS approval of
the acquisition. Control involves a 25% voting stock test, control in any manner
of the election of a majority of the institution's directors, or a determination
by the OTS that the acquiror has the power to direct, or directly or indirectly
to exercise a controlling influence over, the management or policies of the
institution. Acquisition of more than 10% of an institution's voting stock, if
the acquiror also is subject to any one of either "control factors," constitutes
a rebuttable determination of control under the regulations. The determination
of control may be rebutted by submission to the OTS, prior to the acquisition of
stock or the occurrence of any other circumstances giving rise to such
determination, of a statement setting forth facts and circumstances which would
support a finding that no control relationship will exist and containing certain
undertakings. The regulations provide that persons or companies which acquire
beneficial ownership exceeding 10% or more of any class of a savings
association's stock after the effective date of the regulations must file with
the OTS a certification that the holder is not in control of such institution,
is not subject to a rebuttable determination of control and will take no action
which would result in a determination or rebuttable determination of control
without prior notice to or approval of the OTS, as applicable.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the offering, the Company will have a minimum of
519,850 and a maximum of 1,294,850 shares of common stock issued and
outstanding. All shares of common stock issued in the offering and in the
private placement will be available for resale in the public market without
restriction or further registration under the Securities Act, except for shares
purchased by affiliates of the Company (in general, any person who has a control
relationship with the Company) which shares will be subject to the resale
limitations of Rule 144 under the Securities Act. After the offering, shares of
common stock held by affiliates will be considered "control shares," and are
eligible for sale in the public market in compliance with Rule 144.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including a person who may be deemed to be an
"affiliate" of the Company as that term is defined under the Securities Act, is
entitled to sell, within any three month period, a number of restricted shares
as to which at least one year has elapsed from the later of the acquisition of
such shares from the

<PAGE>

Company or an affiliate of the Company in an amount that does not exceed the
greater of (i) one percent of the then outstanding shares of common stock, or
(ii) if the Common Shares are quoted on the Nasdaq National Market or a stock
exchange, the average weekly trading volume of the Common Shares during the four
calendar weeks preceding such sale. Sales under Rule 144 are also subject to
certain requirements as to the manner of sale, notice, and the availability of
current public information about the Company. However, a person who is not
deemed to have been an affiliate of the Company during the 90 days preceding a
sale by such person and who has beneficially owned shares as to which at least
two years have elapsed from the later of the acquisition of such shares from the
Company or an affiliate of the Company is entitled to sell them without regard
to the volume, manner of sale, or notice requirements of Rule 144.

LEGAL MATTERS

The validity of the common stock offered hereby and certain other
matters will be passed upon for the Company by Malizia, Spidi, Sloane & Fisch,
P.C., Washington, D.C., counsel to the Company. Certain legal matters will be
passed upon for Ryan, Beck & Co., Inc. by Jamieson, Moore, Peskin & Spicer,
Morristown, New Jersey.

EXPERTS

The financial statements of the Company included herein and elsewhere
in this Prospectus from inception to September 30, 1998, have been included in
reliance upon the report of S.R. Snodgrass A.C., Wexford, Pennsylvania,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm and experts in accounting and auditing. There have
been no changes in or disagreements with the accountants.

<PAGE>

VILLAGE FINANCIAL CORPORATION

INDEX TO FINANCIAL STATEMENTS

Page

Report of Independent Auditors......................................... F-1

Balance Sheet.......................................................... F-2

Income Statement....................................................... F-3

Statement of Changes in Stockholders' Equity........................... F-4

Statement of Cash Flows................................................ F-5

Notes to Financial Statements.......................................... F-6-8

<PAGE>

[S.R. SNODGRASS, A.C. LETTERHEAD]

REPORT OF INDEPENDENT AUDITORS

Organizers and Stockholders
Village Financial Corporation

We have audited the accompanying balance sheet of Village Financial Corporation
as of September 30, 1998, and the related statements of income, and cash flows
for the period from January 16, 1998 (inception) to September 30, 1998. These
financial statements are the responsibility of management. Our responsibility is
to express an opinion on these financial statements based on our audit.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Village Financial Corporation
as of September 30, 1998 and the results of its operations and its cash flows
for the period from January 16, 1998 (inception) to September 30, 1998, in
conformity with generally accepted accounting principles.

/s/ S.R. Snodgrass, A.C.
- ------------------------------------
Wexford, PA
October 9, 1998

F - 1

<PAGE>

VILLAGE FINANCIAL CORPORATION
BALANCE SHEET

<TABLE>
<CAPTION>
September 30,
1998
----
<S> <C>
ASSETS
Cash $ 30,863
Short-term investments 760,184
Furniture and equipment 32,959
Deferred organization costs 70,000
Other assets 3,012
-------

Total assets $ 897,018
=======

LIABILITIES
Accounts payable and accrued expenses $ 61,527
------

STOCKHOLDERS' EQUITY
Preferred stock, par value $.10; 1,000,000 shares authorized;
none outstanding -
Common stock, par value $.10; 5,000,000 shares authorized;
94,850 issued and outstanding 9,485
Additional paid-in capital 939,015
Retained deficit (113,009)
-------
Total stockholders' equity 835,491
-------
Total liabilities and stockholders' equity $ 897,018
=======

</TABLE>

See accompanying notes to the financial statements.

F - 2

<PAGE>

VILLAGE FINANCIAL CORPORATION
INCOME STATEMENT
<TABLE>
<CAPTION>
Period From
January 16, 1998
(Inception) to
September 30, 1998
------------------
<S> <C>
INTEREST INCOME $ 10,453
------

EXPENSES
Salaries and employee benefits 16,899
Occupancy and equipment 5,053
Professional services 82,858
Other 18,652
------
Total expenses 123,462

Loss before income taxes (113,009)
Income taxes --
-------
NET LOSS $ (113,009)
========

LOSS PER SHARE ($1.19)

AVERAGE SHARES OUTSTANDING (From May 20, 1998) 94,850
</TABLE>

See accompanying notes to the financial statements.

F - 3

<PAGE>

VILLAGE FINANCIAL CORPORATION
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

Additional
Common Paid-in Retained
Stock Capital Deficit Total
----- ------- ------- -----
<S> <C> <C> <C> <C>
Balance, January 16, 1998 (Inception) $ - $ - $ - $ -

Sale of common stock for
cash ($10.00 per share) 9,485 939,015 948,500

Net loss for the period
ended September 30 (113,009) (113,009)
------- ------- -------- --------

Balance, September 30, 1998 $ 9,485 $ 939,015 $ (113,009) $ 835,491
======= ======= ======== =======
</TABLE>

See accompanying notes to the financial statements.

F - 4

<PAGE>

VILLAGE FINANCIAL CORPORATION
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>

Period From
January 16, 1998
(Inception) to
September 30, 1998
------------------
<S> <C>
OPERATING ACTIVITIES
Net loss $ (113,009)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation 1,010
Decrease in accrued organization expenses, net (11,485)
-------
Net cash used for operating activities (123,484)
-------

INVESTING ACTIVITIES
Purchase of equipment and vehicle (33,969)
-------
FINANCING ACTIVITIES
Proceeds from sale of common stock 948,500
-------

Increase in cash and cash equivalents 791,047

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD -
-------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 791,047
=======

</TABLE>

See accompanying notes to the financial statements.

F - 5

<PAGE>

VILLAGE FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Basis of Presentation
- --------------------------------------

Village Financial Corporation ("the Corporation") was incorporated under the
laws of the State of New Jersey on January 16, 1998, for the purpose of becoming
a holding company, which will own all of the outstanding shares of capital stock
of a proposed federal stock savings bank with the name Village Bank ("the
Bank"). The Corporation will be a unitary savings and loan holding company and
will own only the Bank. As of September 30, 1998, the Corporation is capitalized
to the extent currently considered necessary to provide adequate funding of the
ongoing organization efforts of management in the formation of the Bank.
Additional funds necessary to adequately capitalize the Bank will be raised
through a contemplated initial public offering ("IPO"), which is discussed in
greater detail in these notes. Upon satisfaction of the conditions of the IPO
and receipt of appropriate regulatory approval, the Bank will operate two branch
offices as a community oriented bank concentrating on consumer residential and
installment loan products and deposit services, and will be headquartered in
Lawrenceville, New Jersey. Qualifying customer bank deposit accounts will be
insured by the Federal Deposit Insurance Corporation. The anticipated opening of
the Bank requires receipt of necessary regulatory approvals and raising adequate
capital funds.

To date, the Corporation's operations have been limited to in-formation
procedures; raising capital, recruiting officers and staff, obtaining a banking
facility and working towards obtainment of regulatory approval. Since the
Corporation's planned principal operations have not yet commenced no significant
revenue has been derived therefrom. There is no assurance that the Corporation
will be able to raise sufficient capital to satisfy minimum regulatory capital
requirements. Further, if such capital requirements are not met, the formation
of the Bank will be delayed or not materialize.

The accounting and reporting policies of the Corporation conform with generally
accepted accounting principles ("GAAP"). The preparation of financial statements
in conformity with GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the balance
sheet date and income and expenses during the reported period. Actual results
could differ from those estimates. In the opinion of management, the
accompanying financial statements of the Corporation contain all adjustments
necessary for the fair presentation of the Corporation's balance sheet, results
of operations and cash flows for the period from inception through September 30,
1998. The results of operations for this period are not indicative of the
results that may actually occur once operations commence and could be materially
different.

Short-term Investments
- ----------------------

The Corporation's short term investments are comprised of a money market deposit
account maintained with a correspondent bank and shares purchased in a national
dealer/broker interest-bearing money fund account.

F - 6

<PAGE>

VILLAGE FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Furniture and Equipment
- -----------------------

Furniture and equipment are stated at cost less accumulated depreciation.
Depreciation is computed on the straight-line method over the estimated useful
lives of the assets. Expenditures for maintenance and repairs are charged
against income as incurred. Costs of major additions are capitalized.

On July 17, 1998 the Corporation entered into an operating lease arrangement for
office space located in Pennington, New Jersey. Monthly office rental payments
of $700 and furniture rental payments of $62 a month will be payable over the
lease term, which is for one year. This site will serve as the Corporation's
temporary headquarters until a full service banking and administrative site has
been negotiated.

Deferred Organization Costs and Start-up Activities Expenses
- ------------------------------------------------------------

Such costs are for organization work being completed as well as the registration
process for the IPO. Offering expenses will be charged to stockholders' equity
upon completion of the IPO and are presently recorded as deferred organization
costs. Organizational services relating to the preparation of regulatory
applications, feasibility studies, and financial projections are considered
costs of start-up activities and will be charged to expense when incurred.

All other ongoing organizational and start-up costs incurred primarily before
the commencement of operations as a bank will also be expensed in accordance
with the AICPA accounting statement of Position 98-5, "Reporting on the Costs of
Start-up Activities." The Statement requires entities to expense costs of
start-up activities as they are incurred.

Cash Flow Information
- ---------------------

Cash equivalents include the interest-bearing deposit held with a correspondent
bank and funds held in a money fund with a dealer/broker.

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

The Corporation has not provided for a federal or state income tax provision for
the period ending September 30, 1998, as the Corporation represents an entity
in-formation and has incurred a cumulative operating loss since the date of
incorporation. As such, a 100% valuation allowance for the deferred tax assets,
comprised solely of the tax benefit generated from the operating loss, has been
recorded.

F - 7

<PAGE>

VILLAGE FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Organization Period Stock Option Plan - President
- -------------------------------------------------

Effective August 1, 1998 the Corporation entered into an Employment Agreement
with the President of the Corporation. As a part of the Agreement, the
Corporation has granted stock options for a minimum of 10,000 shares, and a
maximum of 30,000 shares of common stock. The President vests in 833 shares for
every full month that transpires through the date of the Corporation's IPO
Prospectus and is guaranteed the minimum of 10,000 shares. The per share
exercise price of an option granted is $10, which is the anticipated IPO
offering price. The stock options have an expiration term of ten years. The
Corporation accounts for stock option grants in accordance with APB Opinion 25,
"Accounting for Stock Issued to Employees," and, accordingly, recognizes no
compensation expense for the stock option grants. Had the Corporation accounted
for compensation cost on the basis of fair value pursuant to Financial
Accounting Standards Board Statement No. 123, "Accounting for Stock-Based
Compensation," there would have been no effect on the net loss and loss per
share information as disclosed on the Income Statement.

Stockholders' Equity and Initial Public Offering
- ------------------------------------------------

Initial capitalization of the Corporation has occurred through the subscription
and issuance of common stock, in a private placement during the second quarter
of 1998. As of September 30, 1998, a total of 94,850 shares, at an offering
price of $10.00 per share, have been subscribed to and issued.

The Corporation intends to issue between 425,000 and 1,200,000 shares of common
stock at $10.00 per share in the IPO. Current shares of common stock owned by
investors, from a private placement, and any other additional shares issued
prior to the IPO, will remain issued and outstanding. The Corporation
anticipates purchasing all of the common stock to be issued by the Bank with the
net proceeds received from the private placement and the IPO.

Earnings Per Share
- ------------------

For the period ending September 30, 1998, earnings per share is calculated using
the weighted average number of shares outstanding from May 20, 1998 (issue date)
through September 30, 1998, including common stock equivalents, if such items
have a dilutive effect. For 1998, the Corporation has maintained a simple
capital structure; therefore, there are no dilutive effects on loss per share
computations.

F - 8
<PAGE>

No dealer, salesman or other person has been authorized to give any information
or to make any representations not contained in this document in connection with
the offering made hereby, and, if given or made, such information or
representations must not be relied upon as having been authorized by Village
Bank, Village Financial Corporation or Ryan, Beck & Co., Inc. This document does
not constitute an offer to sell, or the solicitation of an offer to buy, any of
the securities offered hereby to any person in any jurisdiction in which such
offer or solicitation would be unlawful. Neither the delivery of this document
by Village Bank, Village Financial Corporation or Ryan, Beck & Co., Inc. nor any
sale made hereunder shall in any circumstances create an implication that there
has been no change in the affairs of Village Bank or Village Financial
Corporation since any of the dates as of which information is furnished herein
or since the date hereof.

Village Financial Corporation

425,000 to 1,200,000 Shares
Common Stock

----------
PROSPECTUS
----------

Ryan, Beck & Co.

Dated February 3, 1999

THESE SECURITIES ARE NOT DEPOSITS OR ACCOUNTS
AND ARE NOT FEDERALLY INSURED OR GUARANTEED.

Until the later of May 11, 1999, or 90 days after commencement of the
offering of common stock, all dealers that buy, sell or trade these securities,
whether or not participating in this distribution, may be required to deliver a
prospectus. This is in addition to the obligation of dealers to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.